<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1996.
REGISTRATION NO. 333-9815
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1 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 11, 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
has applied to have the Common Stock approved for listing on the Nasdaq National
Market under the symbol "MAII."
------------------------------
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]
THE NATION'S LEADING 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> <C>
INCREASED PHYSICIAN IMPROVED PROCEDURAL COST- HIGH QUALITY MEDICAL SERVICES
PRODUCTIVITY EFFECTIVENESS
- - Ability to perform a broad - Lower facility cost - Physician training and
array - Lower personnel cost credentialing
of procedures - High quality patient care - Protocols and standards for
- - On-site technical assistance office-based procedures
- - Optimizes procedure - Procedure documentation
scheduling
BENEFICIARIES
- PAYORS
- PHYSICIANS
- PATIENTS
GREATER ACCESS TO ADVANCED
MEDICAL TECHNOLOGIES ENHANCED PATIENT SATISFACTION
- - State-of-the-art laser technologies - Lower out-of-pocket expenditures
- - Devices for minimally invasive surgery - Shorter recovery times
- - Integrated medical systems delivered in - Reduced anesthesia requirements
office - Increased scheduling flexibility
</TABLE>
<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 the leading provider of such services in the United States. 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 and has
served approximately 2,500 physicians during the six months ended June 30, 1996.
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 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.
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
3
<PAGE> 7
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. 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. 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. To accommodate 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 part, on the successful implementation
of the Company's management information system. See "Business -- Information
Systems."
6
<PAGE> 10
UNCERTAINTY OF ACQUISITIONS
The Company's strategy includes growth through acquisitions. 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. 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. 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
Although the Company generally receives payment directly from the patient
for its aesthetic elective services, which results in a low default of payment
rate, the Company relies almost exclusively on third party payors for payment
for its medical surgical services. To the extent any third party payor fails to
recognize 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. There can be no assurance that the
7
<PAGE> 11
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. In addition, 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 operations generally are not 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. However, 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. 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. 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. Furthermore, the manufacturers of medical
equipment utilized by the Company are subject to extensive regulation by the
FDA. Failure of such manufacturers to comply with FDA regulations could result
in the loss of approval by the FDA of such medical equipment, which could
adversely affect the Company's operating results or financial condition. 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, including actions by its technicians, its establishment of protocols
and its training programs, could give rise to liability claims. 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 exposed to blood or other potentially
infectious material. 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
8
<PAGE> 12
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 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
9
<PAGE> 13
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, 348,124 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."
10
<PAGE> 14
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. The
remaining net proceeds will be used to hire additional field and corporate
personnel, for working capital and general corporate purposes, including
possible acquisitions. However, there can be no assurance as to the amount and
timing of such expenditures. 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 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.
11
<PAGE> 15
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.............. 3,623,596 64.4% $ 3,393,807 12.4% $ 0.93
New investors...................... 2,000,000 35.6 24,000,000 87.6 12.00
--------- ----- ----------- -----
Total.................... 5,623,596 100.0% $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.
12
<PAGE> 16
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."
13
<PAGE> 17
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>
14
<PAGE> 18
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 typically
collected at the time of service directly from a patient which allows the
Company to minimize the likelihood of uncollected charges. In addition, such
charges are not subject to reimbursement review by third-party payors. The
charges for medical surgical services may have a co-pay or deductible which is
generally collected from a patient at the time of service. However, charges for
these services are primarily billed directly to third party payors, which
subject them to denied reimbursement. 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.
15
<PAGE> 19
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 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.
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<PAGE> 20
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.
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
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<PAGE> 21
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 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
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<PAGE> 22
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.
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.
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<PAGE> 23
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
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
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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.
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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 the leading provider of such services in the United States. 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 and has served approximately 2,500
physicians during the six months ended June 30, 1996. 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.
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
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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 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
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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
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 has strategic alliances with manufacturers and distributors of
medical equipment that enable it to provide advanced medical technology to
physicians while reducing the risk of ownership to the Company. The Company has
entered into four strategic alliances with varying levels of technology risk
sharing. Terms 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 which also reduces the Company's
risk of ownership. 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.
Medical equipment manufactures have sought alliances with the Company
because it serves as a unique distribution channel through which such
manufacturers can market their products directly to physicians and third-party
payors, shorten the period required to gain market acceptance and assist in the
training of
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physicians to use their equipment. In addition, manufacturers can participate in
per procedure revenue sharing contracts with the Company on a negotiated basis.
The Company benefits from such alliances by gaining preferential access to new
technology, including exclusive use of certain proprietary technology, and
reducing its ownership risk through revenue and risk sharing arrangements.
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 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
25
<PAGE> 29
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.
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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<PAGE> 30
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 or which the Company's
services could replace:
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>
ESTIMATED NUMBER NUMBER OF
OF PROCEDURES PROCEDURES
OCCURRING IN THE FACILITATED DESCRIPTION/APPLICATION OF
UNITED STATES IN BY COMPANY PROCEDURES PERFORMED
PROCEDURE BY SPECIALTY 1995(1) IN 1995 UTILIZING COMPANY SERVICES
- ------------------------------------------------ ---------------- ---------- ------------------------------------
<S> <C> <C> <C>
GYNECOLOGY:
Colposcopy with loop electrode excision of 127,007 1,685
cervix 202,741 3,977 Laser or electrosurgical assisted
70,222 1,222 cervical procedures to remove
Conization of cervix: loop electrode abnormal cells and/or to collect
excision pathology.
Laser ablation of cervix
Cystourethroscopy 1,917,317 -0- Diagnostic endoscopy of bladder.
Dilation and Curettage 867,148 -0- Dilation and curettage, diagnostic
and/or therapeutic
(non-obstetrical), may be replaced
by office-based diagnostic
hysteroscopy.
Hysteroscopy, diagnostic 206,789 407
Endoscopy of uterus to diagnose and
Hysteroscopy, surgical 332,114 821 treat causes of abnormal uterine bleeding.
Laparoscopy, diagnostic 418,464 -0- Endoscopy of abdomen to diagnose
causes of pelvic pain and
infertility.
Treatment of vaginal lesions 50,259 31
Laser destruction of genital lesions
Treatment of vulva lesions 210,165 55 and warts.
PODIATRY:
Endoscopic plantar fasciotomy 35,474 10 Surgical release of the plantar
fascia (tendon) to relieve chronic
heel pain.
PODIATRY/DERMATOLOGY:
Treatment of warts and skin lesions 8,547,056 9,200 Laser destruction of warts,
including the non-invasive removal
of planters warts.
DERMATOLOGY/PLASTIC SURGERY:
Treatment of cutaneous vascular lesions 108,376 487 Laser destruction of surface lesions
created or fed by blood vessels such
as port wine birthmarks.
UROLOGY:
Treatment of condyloma lesions 67,251 552 Laser destruction of genital lesions
and warts.
OTOLARYNGOLOGY:
Laser assisted uvulapalatoplasty, uvulectomy 65,073 1,062 Laser assisted procedure to reshape
and palatopharyngoplasty and reduce uvula to reduce snoring
and treat sleep apnea.
Tonsillectomy and adenoidectomy 806,330 -0- Laser assisted removal of tonsils
and adenoids.
</TABLE>
- ---------------
(1) Based upon information obtained from MDI relating to the total number of
procedures performed by licensed physicians in the U.S. during 1995 on both
an inpatient and outpatient basis. Includes procedures performed utilizing
methods and/or technologies not offered by the Company but which may be
converted to procedures which utilize the Company's services. The total
number of procedures performed in 1995 represents projections made by MDI
based upon the actual number of such procedures performed during 1994.
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<PAGE> 31
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 table below lists the office-based cosmetic
procedures currently provided by the Company, as well as the estimated number of
people who may have the condition being treated by such procedures. The Company
believes the actual market for such procedures and for such procedures performed
in an office-based setting is substantially less due to a number of factors,
including the extent to which physicians choose to offer such procedure to their
patients and the extent to which people included in the affected class choose to
have such procedure performed.
<TABLE>
<CAPTION>
PROCEDURE SELECTED INFORMATION REGARDING THE CONDITION BEING TREATED
- ------------------------------------- ----------------------------------------------------------------------------
<S> <C>
Laser Treatment of Tattoos According to a survey published in the Archives of Dermatology in April
1996, the number of people in the United States who have tattoos is
estimated to range from 7 to 20 million.
Laser Treatment of Pigmented Lesions Candela Laser Corporation estimates that over 28 million people in the
(brown spots of the skin) United States are potential patients for the treatment of pigmented lesions,
and the potential market for such treatments is projected at $2 billion.
Laser Treatment of Facial It is reported in Cutaneous Laser Surgery, The Art and Science of Selective
Telangiectasia (spider veins of the Photothermolysis, published in 1994, that spider telangiectasias occur in
face) approximately 15% of the adult population.
Laser Treatment of Vascular The American Academy of Dermatology reports that more than 10 in 100 babies
Birthmarks (hemangiomas and port have vascular birthmarks, and the port wine birthmark occurs in 3 in 1,000
wine birthmarks) infants.
Laser Treatment of Stretch Marks According to Medical Laser Insight, it has been reported that stretch marks
appear on the abdomen and/or breast of 90% of all pregnant women.
Laser Skin Resurfacing of Facial Many patients who were previously candidates for face lifts, chemical peels
Wrinkles and Acne Scarring and dermabrasions are now receiving laser skin resurfacing instead.
According to the AACS, there were approximately 55,000 face lifts, 254,000
chemical peels and 52,000 dermabrasions performed in the United States in
1994.
Laser Blepharoplasty (eyelid surgery) According to the AACS, there were approximately 90,000 eyelid surgeries
performed in the United States in 1994.
Laser Treatment of Psoriasis According to a report published by the National Psoriasis Foundation,
psoriasis affects up to 5 million people in the United States.
</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.
According to Medical Laser Report, the market for hair removal by electrolysis
in the United States exceeds $1 billion annually. According to the American
Academy of Dermatology, up to 80 million adults in the United States suffer from
spider veins and varicose veins, and the worldwide market for leg vein
treatments is estimated at $1 billion.
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
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<PAGE> 32
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 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
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<PAGE> 33
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 of physicians, other health care providers, managed care
organizations and other third-party payors. Health care regulation affects the
Company's operations both directly and indirectly. Many states require
regulatory approval, including certificates of need, before establishing or
expanding certain types of health care facilities or offering certain health
care services. Several states in which the Company operates prohibit the
corporate practice of medicine except by professional medical corporations or
associations. The Company provides only nonphysician services and does not
exercise influence or control over the practice of medicine by the physicians to
whom it provides its services. In addition, the laws of many states prohibit
physicians from splitting fees with non-physicians, and some states have
promulgated statutes that prohibit the solicitation, payment, receipt or
offering of any direct or indirect remuneration for referral of patients and
that prohibit referrals by physicians for designated health services to entities
with which they have a financial relationship. The Company contracts directly
with over 100 managed care providers, which directly reimburse the Company for
its medical surgical services. These managed care providers reimburse the
physicians for the physicians' professional fees separately from the
reimbursements made to the Company. The Company believes that its current and
planned activities are in material compliance with applicable laws and
regulation as currently interpreted. There can be no assurance, however, that a
review of the Company's business by courts or regulatory authorities will not
result in a determination that could adversely affect the operations 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.
The manufacturers of medical devices utilized by the Company are subject to
extensive regulation by the FDA. Failure of the manufacturer of such devices to
comply with FDA regulations could result in the loss of approval by the FDA of
such medical devices. In addition, physicians in the Company's network are
subject to significant federal and state regulation. The ability of the Company
to operate profitably will depend in part upon its network physicians, the
manufacturers of its medical devices and its third-party payors obtaining and
maintaining all necessary licenses, certificates of need and other approvals,
and operating in compliance with applicable health care regulations.
The Company's services involve the handling of chemical and biological
substances and regulated waste materials, 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 exposed to
blood or other potentially infectious materials including those which may
contain bloodborne pathogens such as hepatitis B virus. The Company is also
subject to federal and state laws relating to business conduct and general
employee matters. The Company believes that it is in material compliance with
applicable laws.
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
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<PAGE> 34
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.
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."
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<PAGE> 35
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
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<PAGE> 36
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.
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<PAGE> 37
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."
34
<PAGE> 38
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
35
<PAGE> 39
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.
36
<PAGE> 40
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
37
<PAGE> 41
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, 348,124 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."
38
<PAGE> 42
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.
39
<PAGE> 43
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.
40
<PAGE> 44
(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.
41
<PAGE> 45
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.
42
<PAGE> 46
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
43
<PAGE> 47
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
44
<PAGE> 48
consent of Bear, Stearns & Co. Inc. The remainder, less than 2% of the
Restricted Shares, will be available for 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.
45
<PAGE> 49
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
46
<PAGE> 50
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.
47
<PAGE> 51
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> 52
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> 53
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> 54
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>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 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> 55
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> 56
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>
SIX MONTHS ENDED JUNE 30,
YEARS ENDED DECEMBER 31,
------------------------------------- -------------------------
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> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
================================================================================
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......................... 11
Use of Proceeds..................... 11
Dividend Policy..................... 11
Dilution............................ 12
Capitalization...................... 13
Selected Consolidated Financial
Data.............................. 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 15
Business............................ 22
Management.......................... 32
Certain Transactions................ 38
Principal Shareholders.............. 40
Description of Capital Stock........ 42
Shares Eligible for Future Sale..... 44
Underwriting........................ 46
Legal Matters....................... 47
Experts............................. 47
Additional Information.............. 47
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> 69
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> 70
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> 71
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> 72
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
- -------------------- ------------------------------------------------------------------------
<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.
3.4 -- Form of Amended and Restated Bylaws of the Company.
4.1 -- Specimen of Common Stock Certificate.
4.2 -- Series A Convertible Preferred Stock Purchase Agreement dated July
10, 1992 between the Company and Mapleleaf Capital, Ltd.(1)(2)
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.(1)(2)
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.
10.1 -- Amended and Restated Revolving Credit and Term Loan Agreement dated
March 20, 1996 between the Company and NationsBank of Texas,
N.A.(1)(2)
10.2 -- Agreement between the Company and Coherent Medical Group.(1)
10.3 -- Master Lease Agreement dated July 20, 1995 between the Company and
Cabot Medical Corporation.(1)
10.4 -- Master Services Agreement dated June 3, 1996 between the Company and
Cosmetic Technologies International.(1)
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.
</TABLE>
II-4
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.8 -- Employment Agreement between the Company and Kevin O'Brien.
10.9 -- Employment Agreement between the Company and Michael G. Wallace.
10.10 -- Lease Agreement.(2)
11.1 -- Statement regarding computation of per share earnings.
21.1 -- Subsidiaries of the Company.(2)
23.1 -- Consent of Jackson & Walker, L.L.P.
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.
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> 74
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 11, 1996.
MEDICAL ALLIANCE, INC.
By: /s/ MICHAEL G. WALLACE
---------------------------------
Michael G. Wallace Chief Financial
Officer
II-6
<PAGE> 75
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 11, 1996
* Executive Officer and President
- --------------------------------------------- (Principal Executive Officer)
Paul R. Herchman
Senior Vice President, Chief September 11, 1996
/s/ MICHAEL G. WALLACE Financial Officer and Treasurer
- --------------------------------------------- (Principal Financial and
Michael G. Wallace Accounting Officer)
Medical Director September 11, 1996
* and Director
- ---------------------------------------------
David A. Kallenberger, M.D.
* Director September 11, 1996
- ---------------------------------------------
Leo Lopez
* Director September 11, 1996
- ---------------------------------------------
Thomas A. Montgomery
* Director September 11, 1996
- ---------------------------------------------
Morris G. Moreland
* Director September 11, 1996
- ---------------------------------------------
Leon Pritzker
* Director September 11, 1996
- ---------------------------------------------
Jim Silcock
* /s/ MICHAEL G. WALLACE
- ---------------------------------------------
Michael G. Wallace
As Attorney-In-Fact
</TABLE>
II-7
<PAGE> 76
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> 77
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
BEGINNING CHARGED TO BALANCE AT
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> 78
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.
3.4 -- Form of Amended and Restated Bylaws of the Company.
4.1 -- Specimen of Common Stock Certificate.
4.2 -- Series A Convertible Preferred Stock Purchase Agreement dated July
10, 1992 between the Company and Mapleleaf Capital, Ltd.(1)(2)
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.(1)(2)
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.
10.1 -- Amended and Restated Revolving Credit and Term Loan Agreement dated
March 20, 1996 between the Company and NationsBank of Texas,
N.A.(1)(2)
10.2 -- Agreement between the Company and Coherent Medical Group.(1)
10.3 -- Master Lease Agreement dated July 20, 1995 between the Company and
Cabot Medical Corporation.(1)
10.4 -- Master Services Agreement dated June 3, 1996 between the Company and
Cosmetic Technologies International.(1)
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.
10.8 -- Employment Agreement between the Company and Kevin O'Brien.
10.9 -- Employment Agreement between the Company and Michael G. Wallace.
10.10 -- Lease Agreement.(2)
11.1 -- Statement regarding computation of per share earnings.
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
21.1 -- Subsidiaries of the Company.(2)
23.1 -- Consent of Jackson & Walker, L.L.P.
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.
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:
<PAGE> 2
(a) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and may have
filed an amendment or amendments 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.
-2-
<PAGE> 3
(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.
(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
-3-
<PAGE> 4
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, 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
-4-
<PAGE> 5
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.
(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.
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<PAGE> 6
(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 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.
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<PAGE> 7
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.
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.
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<PAGE> 8
(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 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
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<PAGE> 9
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 (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
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<PAGE> 10
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 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 an 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
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<PAGE> 11
securities of the Company were not issued in violation of or
subject to 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.
(iii) The Shares to be sold under this Agreement to
the Underwriters are duly authorized for inclusion in the Nasdaq
National Market.
(iv) This Agreement has been duly and validly
authorized, executed and delivered by the Company.
(v) 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 to the best of such counsel's knowledge, 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 certificate 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.
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<PAGE> 12
(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 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
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<PAGE> 13
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.
(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
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<PAGE> 14
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 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,
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<PAGE> 15
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
approved for inclusion in the Nasdaq National Market.
(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
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<PAGE> 16
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. This indemnity agreement will be in addition to any liability which
the Company may otherwise have including under 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 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. This indemnity will be in addition to any liability which any
Underwriter may otherwise have including under 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
-16-
<PAGE> 17
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). 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 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.
-17-
<PAGE> 18
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) 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.
Notwithstanding the provisions of this Section 8 and the
preceding sentence, no Underwriter shall be required to contribute any amount
in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. 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.
-18-
<PAGE> 19
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
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
-19-
<PAGE> 20
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 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.
-20-
<PAGE> 21
(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 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
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
NAME OF UNDERWRITER TO BE PURCHASED
---------------
<S> <C>
Bear, Stearns & Co. Inc.
Equitable Securities Corporation
TOTAL 2,000,000
===============
</TABLE>
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
MEDICAL ALLIANCE, INC.
(September 9, 1996)
ARTICLE ONE
The name of the corporation is MEDICAL ALLIANCE, INC.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose for which the Corporation is organized is to transact any
legal and lawful business transaction. ARTICLE FOUR
A. The aggregate number of shares that the Corporation shall have
authority to issue is 35,000,000 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 5,000,000 shares, having a
par value of $.002 per share. The number of shares of Common Stock authorized
is 30,000,000 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.
<PAGE> 2
ARTICLE FIVE
The Corporation will not commence business until it has received for
issuance of its shares, consideration of the value of One Thousand and No/100
Dollars ($1,000.00), consisting of money, labor done or property actually
received.
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 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 to the existing shareholders of any class.
This provision shall not impair contractual rights granted by the of Directors
of the Corporation.
ARTICLE SEVEN
Directors shall be elected by plurality vote. Cumulative voting shall
not be permitted for Board of Director elections or any other purpose. The
Board of Directors are to be divided into three classes as of 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. Any
Director or the Board of Directors may be removed with or without cause, at any
meeting of the shareholders called expressly for that purpose, by a vote of
the holders of two-thirds (2/3) of the shares entitled to vote at that election.
ARTICLE EIGHT
The street address of the registered office of the Corporation is 2445
Gateway Drive, Suite 150 Irving, Texas 75603, and the name of the registered
agent at such address is Mark Novy.
<PAGE> 3
ARTICLE NINE
The number of directors constituting the Board of Directors is seven
(7), and the name and the addresses of the persons who are serving as directors
are:
Name Address
---- -------
Paul R. Herchman 201 Oakmont, Trophy Club, TX 76262
David A. Kallenberger, M.D. 6405 Centennial Court, Oklahoma City,
OK 63116
Leon Pritzker 3825 Echo Brook Lane, Dallas TX 75229
Thomas A. Montgomery 2809 Dandray Court, Plano, TX 75093
Leo Lopez 3500 Potomoc, Dallas, TX 75205
Morris G. Moreland 1700 Clubview, Amarillo, TX 79124
Jim Silcock 3817 Centenary, Dallas, TX 75229
ARTICLE TEN
To the fullest extent permitted by the laws of the State of Texas as
the same exist or may hereafter be amended, a director of the Corporation will
not be liable to the Corporation or its shareholders for monetary damages for
an act or omission in the director's capacity as a director. Any repeal or
modification of this Article Ten will not increase the personal liability of
any director of the Corporation for any act or occurrence taking place before
such repeal or modification, or adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification. The provisions of this Article Ten shall not be deemed to limit
or preclude indemnification of a director by the Corporation for any liability
of a director that has not been eliminated by the provisions of this Article
Ten.
ARTICLE ELEVEN
The name and address of the incorporator is:
Name Address
---- -------
Marc C. Johnson 500 First National Bank Building,
Amarillo, TX 79102
ARTICLE TWELVE
A. The Corporation will, to the fullest extent permitted by the
Texas Business Corporation Act, as the same exists or may hereafter be amended,
indemnify any and all persons who it has power to indemnify under such Act from
and against any and all of the expenses, liabilities or other matters referred
to in or covered by such Act. Such indemnification may be provided pursuant to
any Bylaw, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his director or officer capacity and as to
action in another capacity while holding such office, will continue as to a
person who has ceased to be a director, officer, employee or agent, and inure
to the benefit of the heirs, executors and administrators of such a person.
<PAGE> 4
B. If a claim under paragraph B of this Article Twelve is not
paid in full by the Corporation within 30 days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant will be entitled to be paid also
the expense of prosecuting such claim. It will be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct that make it permissible under
the laws of the State of Texas for the Corporation to indemnify the claimant
for the amount claimed, but the burden of proving such defense will be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the laws of the State of Texas nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its shareholders) that the claimant has not met such
applicable standard of conduct, will be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
C. The Corporation may purchase and maintain liability,
indemnification and/or other 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 partnership, trust,
employee/benefit plan or 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.
ARTICLE THIRTEEN
In addition to any other manner of calling a special meeting of
shareholders that may be set forth in the Bylaws of the Corporation, a special
meeting of shareholders may be called at the request of the holders of at least
50% of all shares issued and outstanding and entitled to vote.
ARTICLE FOURTEEN
Only the Board of Directors is expressly authorized to alter, amend,
or repeal the Bylaws of the Corporation or to adopt new Bylaws.
<PAGE> 1
EXHIBIT 3.4
MEDICAL ALLIANCE, INC.
AMENDED AND RESTATED
BYLAWS
ARTICLE I
SHAREHOLDERS
SECTION 1. PLACE OF HOLDING MEETINGS. All meetings of the
shareholders shall be held at the office of the corporation in Dallas, Texas,
or such other place as any one or more director or officer may from time to
time designate. Meetings may be held within or without the state of Texas.
SECTION 2. ANNUAL MEETING. The annual meeting of the shareholders
shall be held at 10:00 A.M. on the 3rd Saturday of September of each year, or
at such other date or time as may be determined by the Board of Directors. At
each annual meeting, the shareholders shall elect a Board of Directors, and
they may transact their corporate business as shall be stated in the notice of
the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders
may be called by the president, the secretary, the Board of Directors or the
holders of not less than 50% of all the shares issued, outstanding, and
entitled to vote at the meeting.
SECTION 4. LIST OF SHAREHOLDERS. At least ten days before each
meeting of shareholders, a complete list of the shareholders entitled to vote
at such meeting, arranged in alphabetical order, with the address of and the
number of voting shares registered in the name of each, will be prepared by the
officer or agent having charge of the stock transfer books. Such list will be
kept on file at the registered office of the corporation for a period of ten
days prior to such meeting and will be subject to inspection by any shareholder
at any time during usual business hours. Such list will be produced and kept
open at the time and place of the meeting during the whole time thereof, and
will be subject to the inspection of any shareholder who may be present.
SECTION 5. NOTICE OF SHAREHOLDERS' MEETINGS. Written or printed
notice, stating the time and place of the meeting, and in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten (10) nor more than sixty (60) days before the date
of the meeting, either personally or by mail, by or at the direction of the
president, the secretary, or the person calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon prepaid. Whenever notice of a
meeting is required, a waiver thereof in writing signed by the person entitled
to such notice, whether before or after the time stated therein, shall be
equivalent to the giving of such notice.
<PAGE> 2
SECTION 6. VOTING. Except as provided in the Articles of
Incorporation, as amended from time to time (the "Articles of Incorporation"),
each shareholder shall be entitled to one (1) vote for each share of capital
stock standing in his name on the books of the corporation on the date on which
notice of the meeting is delivered; provided, however, that if such day is less
than ten (10) days prior to the date of the meeting, the record date for
determining the shares entitled to be voted shall be the tenth (10) day prior
to the date of the meeting. Directors shall be elected by plurality vote.
Cumulative voting shall not be permitted for Board of Director elections or for
any other purpose.
SECTION 7. QUORUM. The holders, represented in person or by proxy,
of a majority of the shares entitled to vote, shall constitute a quorum at a
meeting of the shareholders.
SECTION 8. NUMBER OF VOTES REQUIRED AND MANNER OF VOTING AT
SHAREHOLDERS' MEETING. Unless by law a greater number of votes is required for
the question under consideration, the vote of the holders of a majority of the
shares present and entitled to be voted shall be the act of the shareholders'
meeting. Any qualified voter may demand a vote by ballot and in that case such
vote shall be taken.
SECTION 9. PROXIES. A shareholder may vote either in person or by
proxy executed in writing by the shareholder, or by his duly authorized
attorney in fact. No proxy shall be valid after eleven (11) months from the
date of its execution, unless otherwise provided in the proxy.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER AND QUALIFICATIONS. The business and affairs of
the corporation shall be managed by a Board of Directors of the corporation.
Except as provided in the Articles of Incorporation and that certain Series A
Convertible Preferred Stock Purchase Agreement, dated as of July 10, 1992, the
number of directors of the corporation will be at least one. As provided in
the Articles of Incorporation, the number of directors may be increased or
decreased from time to time by the Board of Directors, but no decrease shall
have the effect of shortening the term of any incumbent director.
SECTION 2. ELECTION. Members of the initial Board of Directors shall
hold office until the first meeting of the shareholders and until their
successors shall have been elected and qualified. Thereafter, the Board of
Directors are to be divided into three classes as of 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.
SECTION 3. REMOVAL. Any director or the Board of Directors may be
removed with or without cause, at any meeting of the shareholders called
expressly for that purpose, by a vote of the holders of two-thirds (2/3) of the
shares entitled to vote at that election.
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<PAGE> 3
SECTION 4. RESIGNATION. Any director may resign at any time. Such
resignation shall be made in writing and shall take effect at the time
specified therein, or if no time is specified, at the time of its receipt by
the president or secretary. No acceptance of a resignation shall be necessary
to make it effective.
SECTION 5. VACANCIES. Any vacancy occurring in the Board of
Directors may be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office. Except as provided in the Articles of Incorporation,
any directorship to be filled by reason of any increase in the number of
directors shall be filled by election at an annual meeting or at a special
meeting of shareholders called for that purpose.
SECTION 6. PLACE OF MEETINGS. Meetings of the Board of Directors,
regular or special, may be held at the principal office of the corporation in
Dallas, Texas, or at such other place as the directors may determine from time
to time. All such Board of Directors meetings may be held either within or
without the state of Texas.
SECTION 7. ANNUAL MEETING. The Board of Directors shall meet each
year immediately after the annual meeting of the shareholders, at the principal
office of the corporation, or at such other place as they may determine, for
the purpose of organization, election of officers and consideration of any
other business that may properly be brought before the meeting. No notice of
any kind to either old or new members of the Board of Directors for such annual
meeting shall be necessary.
SECTION 8. OTHER MEETINGS.
(a) REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such places and times as shall
be determined from time to time by the Board of Directors.
(b) SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the president and shall be called by the
president or secretary at any time upon the request of (one (1)
director in writing. Notice of any special meeting shall be given to
each of the directors at least one (1) day prior to the time specified
for the meeting, and may be given by any means of communication.
(c) WAIVER. Any notice provided for a meeting of the Board
of Directors may be waived by a director in writing either before or
after the meeting, and attendance at any meeting shall be considered
as a waiver of any required notice, except where a director attends a
meeting for the express purpose of objecting to the transaction of any
business because such meeting is not lawfully convened.
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<PAGE> 4
SECTION 9. QUORUM. A majority of the number of directors fixed by
these bylaws shall constitute a quorum for the transaction of business. The
act of the majority of the directors present at a meeting at which a quorum is
present, shall be the act of the Board of Directors.
SECTION 10. GENERAL POWERS OF DIRECTORS. The Board of Directors
shall have the management of the business of the corporation, and subject to
the restrictions imposed by law, by the Articles of Incorporation or by these
bylaws, may exercise all of the powers of the corporation.
SECTION 11. SPECIFIC POWERS OF DIRECTORS. Without prejudice to such
general powers, it is expressly hereby declared that the directors shall have
the following powers, to-wit:
(a) To adopt and alter a common seal of the corporation;
(b) To make and change regulations not inconsistent with
these bylaws, for the management of the corporation's business and
affairs;
(c) To purchase, acquire, sell, convey, trade, lease, let,
pledge, mortgage, assign, transfer and deliver all of the property of
the corporation, real, personal, or mixed, and to authorize the
execution and acknowledgment and delivery of any and all character of
contracts, deeds, bills of sale, transfers, assignments, leases,
instruments of conveyance, mortgages, mineral deeds, oil and gas and
mineral leases, pledges, dedications, deeds of trust, and such other
instruments as may be proper, fit, necessary, or required in handling
the property of the corporation without restriction or reservation;
(d) To pay for any property purchased for the corporation
either wholly or partly in money, stocks, bonds, debentures or other
securities of the corporation;
(e) To borrow money and to make and issue notes, bonds, and
other negotiable and transferable instruments, mortgages, deeds of
trust, and trust agreements, and to do every act and thing necessary
to effectuate the same;
(f) To appoint and remove or suspend such subordinate
officers, agents, or factors as they may deem necessary, and to
determine their duties, and fix, and from time to time change, their
salaries or remuneration and to require security as and when they
think fit;
(g) To remove any officer for cause, or any officer other
than the president, secretary, treasurer, or vice president summarily
without cause, and in their discretion from time to time, to devolve
the powers and duties of any officer upon any other person from time
being;
(h) To confer upon any officer of the corporation the power
to appoint, remove, and suspend subordinate officers and agents;
-4-
<PAGE> 5
(i) To determine who shall be authorized on the corporation's
behalf to make and sign bills, notes, acceptances, endorsements,
checks, releases, receipts, contracts and other instruments;
(j) To determine who shall be entitled to vote in the name of
and on behalf of the corporation upon, or to assign and transfer any
shares of stock, bonds, or other securities of other corporations held
by the corporation;
(k) To delegate any of the powers of the Board in relation to
the ordinary business of the corporation to any standing or special
committee, or to any officer or agent (with power to subdelegate) upon
such terms as they think fit; and
(l) To call special meetings of the shareholders for any
purpose or purposes.
SECTION 12. INTERESTED DIRECTORS. No contract or transaction between
the corporation and one or more of its Directors or officers, or between the
corporation and any other corporation, partnership, association or other
organization in which one or more of the corporation's Directors or officers
are Directors or officers or have a financial interest, will be void or
voidable solely for this reason, solely because the Director or officer is
present at or participates in the meeting of the Board of Directors or
committee thereof that authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if: (i) the material
facts as to his relationship or interest and as to the contract or transaction
are disclosed or are known to the Board of Directors or the committee, and the
Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
Directors, even though the disinterested Directors be less than a quorum, (ii)
the material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the shareholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the shareholders or (iii) the contract or transaction is fair as to
the corporation as of the time it is authorized, approved or ratified by the
Board of Directors, a committee thereof or the shareholders. Common or
interested directors may be counted in determining the presence of a quorum at
a meeting of the Board of Directors or of a committee that authorizes the
contract or transaction.
SECTION 13. COMPENSATION OF DIRECTORS. Directors shall not receive
any stated salary for their services as directors, but by resolution of the
Board a fixed fee and expenses of attendance may be allowed for attendance at
each meeting. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, or otherwise, and receiving compensation therefor.
SECTION 14. ACTION BY CONSENT. Any action required or permitted to
be taken at any meeting of the Board of Directors or any committee of the Board
of Directors may be taken without such a meeting if a consent or consents in
writing, setting forth the action so taken, is signed by all the members of the
Board of Directors or such committee, as the case may be.
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<PAGE> 6
ARTICLE III
OFFICERS
SECTION 1. OFFICERS. The officers of the corporation shall consist
of a president, vice president, secretary and treasurer, and such other
officers and assistant officers as may be deemed necessary by the Board of
Directors. Any two (2) or more offices may be held by the same person. The
president shall be a member of the Board of Directors, but no other officer
need be a member of the Board.
SECTION 2. RESIGNATION. Any officer may resign at any time. Such
resignation shall be made in writing and shall become effective at the time
specified therein, or if no time is specified, at the time the notice is
delivered to the president or secretary, or the person in charge of the general
offices of the corporation. Notwithstanding the foregoing, no resignation of
any officer who is subject to an employment contract with the corporation shall
in any way remove the obligation of that person to fulfill his obligations
under his employment contract with the corporation.
SECTION 3. VACANCIES. Whenever any vacancy shall occur in any office
for any reason whatsoever, such office shall be filled by the Board of
Directors and the officer so elected shall hold office until his successor is
chosen and qualified.
SECTION 4. PRESIDENT. The president shall, when present, preside at
all meetings of the directors and act as temporary chairman at and call to
order all meetings of the shareholders; and he shall have power to call special
meetings of the shareholders and directors for any purpose or purposes, appoint
and discharge, subject to the approval of the directors, employees, and agents
of the corporation and fix their compensation, make and sign contracts and
agreements in the name and on behalf of the corporation, and while the
directors and the executive committee are not in session, he shall have general
management and control of the business and affairs of the corporation. He
shall see that the books, reports, statements, and certificates required by the
statute under which this corporation is organized or any other laws applicable
thereto are properly kept, made, and filed according to law, and he shall
generally do and perform all acts incident to the office of the president or
which are authorized or required by law.
Without limiting the generality of the foregoing, the president of the
corporation shall specifically have the power to:
(a) Purchase, lease, or rent any piece of equipment deemed
necessary in order for the corporation to conduct its business;
(b) Borrow money on behalf of the corporation to purchase,
lease, or rent any piece of equipment deemed necessary for the
operation of the business of the corporation;
-6-
<PAGE> 7
(c) Execute promissory notes, security agreements, financing
statements, or any other instrument required in order to purchase,
lease or rent the equipment described in the preceding paragraphs;
(d) Hire subordinate employees on behalf of the corporation
and to terminate, either with or without cause, the employment of such
employee subject only to the restrictions contained within any
employment contract executed between the corporation and any such
subordinate employee; and
(e) Take any other action specifically provided for in a
resolution executed by a majority of the Board of Directors of the
corporation.
SECTION 5. VICE PRESIDENT. The vice president shall be vested with
all the powers and shall perform all the duties of the president in the absence
or disability of the latter, unless or until the directors shall otherwise
determine. He shall have such other powers and perform such other duties as
shall be prescribed by the directors.
SECTION 6. SECRETARY. The secretary shall give or cause to be given,
notice of all meetings of shareholders and directors, and all other notices
required by law or by these bylaws; and in the case of his absence or refusal
or neglect to do so, any such notice may be given by any person thereunto
directed by the president or by the directors or shareholders upon whose
requisition the meeting is called as provided by these bylaws.
He shall record all the proceedings of the meetings of the corporation
and of the directors in a book to be kept for that purpose and shall perform
such other duties as may be assigned by the directors of the corporation or by
the president. He shall have the custody of the seal of the corporation and
shall affix the same to all instruments requiring it, when authorized by the
directors or the president, and attest to the same. He shall be sworn to the
faithful discharge of his duties.
SECTION 7. TREASURER. The treasurer shall have the custody of all
funds, securities, evidences of indebtedness, and other valuable documents of
the corporation; he shall receive and give or cause to be given receipts and
acquittances for monies paid in on account of the corporation and shall pay out
of the funds on hand all just debts of the corporation of whatever nature upon
maturity of the same; he shall enter or cause to be entered in books of the
corporation to be kept for that purpose, full and accurate accounts of all
monies received and paid out on account of the corporation, and whenever
required by the president or the directors, he shall render a statement of his
accounts; he shall keep or cause to be kept such other books as will show a
true record of the expenses, losses, gains, assets and liabilities of the
corporation; he shall, unless otherwise determined by the directors, have
charge of the original stock books, transfer books, and stock ledgers and act
as transfer agent in respect to the stock and securities of the corporation;
and he shall perform all of the other duties incidental to the office of
treasurer. Whenever required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the Board shall
-7-
<PAGE> 8
prescribe. In addition to the foregoing, the Treasurer shall also be required
to have the books and records of the corporation audited not less than once
yearly by an accountant chosen by the treasurer and approved by a majority vote
of the Board of Directors of the corporation.
ARTICLE IV
CAPITAL STOCK
SECTION 1. CONSIDERATION FOR SHARES. The capital stock, whether
original issue or treasury shares, may be issued for such consideration as
shall be fixed from time to time by the Board of Directors, but never for less
than par.
SECTION 2. PAYMENT FOR SHARES. The consideration for the issuance of
shares may be paid, in whole or in part, in money, in property, tangible or
intangible, or in labor or services actually performed for the corporation.
When the payment of the consideration for which shares are to be issued shall
have been received by the corporation, such shares shall be deemed to be fully
paid and nonassessable. No certificates shall be issued for any share until
such share is fully paid.
SECTION 3. CERTIFICATES REPRESENTING SHARES. Each holder of the
capital stock of the corporation shall be entitled to one or more certificates
signed by the president or vice president and the secretary of the corporation,
and sealed with the seal of the corporation, certifying the number of shares
owned by him in the corporation. Such certificate shall be in the Texas
Standard form.
SECTION 4. TRANSFER OF STOCK. The shares of the corporation shall be
transferable only in the books of the corporation upon surrender of the
certificate or certificates representing the same, properly endorsed by the
registered holder or by his duly authorized attorney or legal representative.
Upon such transfer the old certificates shall be surrendered to the corporation
by the delivery thereof to the person in charge of the stock and transfer books
and ledgers, or to such other person as the directors may designate, by whom
they shall be cancelled, and new certificates shall thereupon be issued. A
record shall be made of each transfer, and whenever a transfer shall be made
for collateral security and not absolutely, it shall be so expressed in the
entry of the transfer.
ARTICLE V
MISCELLANEOUS
SECTION 1. PRINCIPAL OFFICE. The principal office of the corporation
shall be in Dallas, Texas.
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<PAGE> 9
SECTION 2. SEAL. The seal of the corporation shall be circular in
form and shall contain the name of the corporation.
SECTION 3. FISCAL YEAR. The fiscal year of the corporation shall be
the calendar year.
SECTION 4. INDEMNIFICATION. The corporation will indemnify its
directors to the fullest extent permitted by the Texas Business Corporation Act
and all persons who the Board of Directors has power to indemnify under such
Act from and against any and all of the expenses, liabilities or other matters
referred to in or covered by such Act.
SECTION 5. INSURANCE. The corporation may at the discretion of the
Board of Directors purchase and maintain insurance on behalf of the corporation
and any person whom it has the power to indemnify pursuant to law, the Articles
of Incorporation, these Bylaws or otherwise.
SECTION 6. INVALID PROVISIONS. If any part of these Bylaws is held
invalid or inoperative for any reason, the remaining parts, so far as possible
and reasonable, will be valid and operative.
SECTION 7. RELATION TO ARTICLES OF INCORPORATION. These Bylaws are
subject to, and governed by, the Articles of Incorporation.
ARTICLE VI
AMENDMENTS
SECTION 1. AMENDMENTS OF BYLAWS. Only the Board of Directors is
expressly authorized to alter, amend, or repeal the Bylaws of the Corporation
or to adopt new Bylaws.
-9-
<PAGE> 1
EXHIBIT 4.1
COMMON INCORPORATED UNDER THE LAWS PAR VALUE
STOCK OF THE STATE OF TEXAS $.002 PER SHARE
[MEDICAL ALLIANCE, INC. LOGO]
NUMBER SHARES
C
THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 58449S 10 5
DALLAS, TEXAS OR NEW YORK, NEW YORK. SEE REVERSE FOR CERTAIN
DEFINITIONS AND LEGENDS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
MEDICAL ALLIANCE, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are issued and shall be held subject to the
provisions of the laws of the State of Texas and to all of the provisions of
the Amended Restated Articles of Incorporation and the Bylaws of the
Corporation, as amended from time to time (copies of which are on file at the
office of the Corporation), to all of which the holder of this certificate of
acceptance hereof assents. This certificate is not valid unless countersigned
by the Transfer Agent and registered by the Registrar.
WITNESS the seal fo the Corporation and the signatures of its duly
authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
/s/ PAUL HERCHMAN /s/ MARK NOVY
PRESIDENT AND CHIEF EXECUTIVE OFFICER SECRETARY
[SEAL]
AMERICAN BANK NOTE COMPANY SEPT 10, 1996 fm
3405 ATLANTIC AVENUE
SUITE 12 046322fc
LONG BEACH, CA 90807
(310) 989-2333
(FAX) (310) 426-7450 308-19X Proof /s/ [ILLEGIBLE] NEW
<PAGE> 2
MEDICAL ALLIANCE, INC.
A STATEMENT OF (1) THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE
RIGHTS OF THE SHARES OF EACH CLASS OF STOCK OF THE CORPORATION, (2) THE
VARIATIONS IN THE RELATIVE RIGHTS AND PREFERENCES OF THE SHARES OF EACH SERIES
OF PREFERRED STOCK OF THE CORPORATION, TO THE EXTENT SUCH RIGHTS AND
PREFERENCES HAVE BEEN ESTABLISHED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS
TO FIX AND DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES,
AND (3) THE DENIAL TO SHAREHOLDERS OF A PREEMPTIVE RIGHT TO ACQUIRE ANY SHARES
OR SECURITIES OF ANY CLASS, WHETHER NOR OR HEREAFTER AUTHORIZED, WHICH MAY AT
ANY TIME BE ISSUED, SOLD, OR OFFERED FOR SALE BY THE CORPORATION IS SET FORTH
IN THE ARTICLES OF INCORPORATION, AS AMENDED, OF THE CORPORATION, ON FILE IN
THE OFFICE OF THE SECRETARY OF STATE OF THE STATE OF TEXAS. THE CORPORATION
WILL FURNISH A COPY OF SUCH STATEMENT TO ANY SHAREHOLDER, WITHOUT CHARGE, UPON
WRITTEN REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
TEN ENT -- as tenants by the ------ --------
entireties (Cust) (Minor)
JT TEN -- as joint tenants with Under Uniform Gifts to
right of survivorship Minors
and not as tenants Act
in common ------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
--------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
----------------------------------------------------------------------------
----------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE OF
ASSIGNEE
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shares
----------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
--------------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated
---------------------------------
X
-------------------------------------------
(SIGNATURE)
X
-------------------------------------------
(SIGNATURE)
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) OF
THE REGISTERED OWNER(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
----------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION AS DEFINED IN
RULE 17Ad-15 UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED.
----------------------------------------------
SIGNATURE(S) GUARANTEED BY:
----------------------------------------------
- ----------------------------------------------------------
AMERICAN BANK NOTE COMPANY SEPT 10, 1996 frm
3504 ATLANTIC AVENUE
SUITE 12 046322bk
LONG BEACH, CA 90807
(310) 989-2333 Proof Rh NEW
(FAX) (310) 426-7450
- ----------------------------------------------------------
<PAGE> 1
EXHIBIT 5.1
September 11, 1996
Medical Alliance, Inc.
2445 Gateway Drive
Irving, TX 75063
Gentlemen:
In connection with the registration by Medical Alliance, Inc. (the
"Company") on Form S-1, Registration No. 333-9815 (the "Registration
Statement"), providing for the registration under the Securities Act of 1933,
as amended, of 2,300,000 shares (the "Shares") of the Company's Common Stock,
$0.002 par value (the "Common Stock"), of which 2,000,000 Shares are being sold
by the Company (2,300,000 if the over-allotment option granted to the
underwriters is exercised in full), we are furnishing the following opinion as
counsel to the Company.
We have examined such corporate records, certificates of public
officials and officers of the Company, and other documents and records as we
have considered necessary or proper for the purpose of this opinion.
Based upon the foregoing, and having regard to legal considerations
that we deem relevant, we are of the opinion that the foregoing Shares of the
Company, when issued in the manner described in the Registration Statement,
after the same becomes effective, and in accordance with the securities laws of
the various states in which the Common Stock may be issued, will be validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
/s/ JACKSON & WALKER, L.L.P.
JACKSON & WALKER, L.L.P.
<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> 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
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<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
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<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
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<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:
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<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
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<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
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<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
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<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 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
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<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
--------------------------------- -----------------------------------
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LIST OF EXHIBITS
A. Approved Locations
B. Form of Equipment Schedule
C. Service and Maintenance Obligations of CTI
D. Reporting Requirements
14
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
By this Agreement, Medical Alliance, Inc. ("Employer"), located at
8200 Springwood Drive, Suite 200, Irving, Texas 75063, agrees to continue to
employ Paul Herchman, of 201 Oakmont, Trophy Club, Texas 76262 ("Employee").
This Agreement is made and entered into this 1st day of January, 1994.
RECITALS
WHEREAS, Employer desires to continue to employ Employee, and Employee
desires to perform services for Employer in the positions of President and
Chief Executive Officer which will allow Employee access to various trade
secrets and confidential information belonging to Employer and which will
require Employee to perform services of a unique and special nature;
WHEREAS, as a condition of Employee's employment, Employer desires to
receive from the Employee certain covenants and agreements; and
WHEREAS, Employer and Employee desire to set forth in writing the
terms and conditions of their agreements and understandings with respect to
these covenants, as this Agreement is a condition of Employee's continued
employment and ancillary thereto, and does not purport to set forth all the
terms of such employment.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing, of the mutual
promises herein contained, in consideration of ten and no dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged and confessed, Employer and Employee do hereby agree as
follows:
1. Term. Employer agrees to employ Employee and Employee agrees
to accept employment with Employer, for a period of time beginning January 1,
1994, and continuing until terminated by: (a) Employer upon six-months prior
written notice; or (b) Employee upon three-months prior written notice, in each
case, unless terminated by either Employer or Employee pursuant to Section 2
below. Employer may, at its option, require Employee to vacate the premises at
any time after any of such notices. In addition, if Employer terminates this
Agreement, then upon receipt of such notice, Employee shall have the option of
resigning at anytime prior to the termination date set forth in the notice or
continuing to be employed until such specified termination date (although
Employee shall not be required to devote the time and effort required in
Section 4 during such period, and paragraph (a)(5) below shall not be
applicable). In any of the above circumstances, Employer shall be liable to
Employee for salary and benefits through the termination date specified in the
termination notice.
(a) This Agreement shall also terminate immediately on
the occurrence of any one of the following events:
<PAGE> 2
(1) the death of Employee;
(2) the permanent disability of Employee (with permanent
disability being determined by Employer's disability insurance
carrier);
(3) if the Employee commits any dishonest act towards
Employer;
(4) if the Board of Directors of Employer believes that
Employee has engaged in any activity involving fraud, dishonesty,
moral turpitude or theft, it being understood and agreed that if
Employee is not convicted of such act at the trial court level by a
trial court of competent jurisdiction within two (2) years after the
date of the termination notice, that Employer shall be liable for six
(6) months salary hereunder, although this Agreement shall be deemed
terminated as of the date of the notice to Employee of Employer's
termination of this Agreement;
(5) if Employee fails to devote the time, effort and
skill to Employer and his duties hereunder that a chief executive
officer or president of a company of similar size and similar industry
would devote to his company; or
(6) if Employee fails to follow any reasonable
requirement, order or mandate of the Board of Directors of Employer.
(b) Employee, at his option, may terminate this Agreement for
"good reason" by giving written notice to Employer. For purposes hereof, "good
reason" shall mean the occurrence of any of the following events: (i)
Employee's title as President and Chief Executive Officer of Employer is
changed; (ii) a decrease in Employee's compensation as provided in Section 3
(unless, however, Employer reduces the compensation of each member of executive
management of Employer by at least an equal percentage); or (iii) Employer's
principal executive offices are relocated more than fifty miles from its
current executive offices. In the event of any such termination, Employee shall
immediately cease to be employed by Employer, however, Employer shall continue
to pay to Employee, Employee's then current monthly salary for a period of
three (3) months following such termination.
(c) Employee agrees to return on the date of termination or
before, all of Employer's property in good condition, including medical
instruments, medical supplies, office supplies, etc.
(d) In the event of termination of this Agreement for any of the
reasons set forth above, the Employee shall be entitled to the compensation
earned prior to the date of termination, computed pro rata up to and including
the date of termination.
3. Compensation. Employee shall initially be paid a salary of
$10,000 per month prorated for any partial month, along with the following
additional consideration: (a) incentive bonus equal to 25% of the net increase
in 1994 net income before taxes over 1993 net income
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before taxes up to an annual maximum bonus of $25,000, and 10,000 options on
January 1, 1994 at $2.00 each expiring on September 16, 1999 and 30,000 options
at $2.00 each expiring on September 16, 1999 if Employer's net income before
tax exceeds $450,000 for 1994, which options shall be issued as of the date of
the receipt by the Board of Directors of Employer of Employer's 1994 annual
audit; (b) business expenses as described in Section 6; (c) a $1,000,000
key-man life insurance policy with Employee's family as the beneficiary; and
(d) upon closing, of the next round of equity financing of at least $1 million,
a lump sum payment equal to the 1993 voluntary reduction of his salary
($10,000).
4. Duties of Employee. Employee is employed as President and
Chief Executive Officer. Employee shall devote the time, effort and skills to
Employer and his duties hereunder that a chief executive officer or president of
a company of similar size and similar industry would devote to his company.
Employee's specific duties shall be to devote all of his time to the
management of the company or other responsibilities delegated to Employee
concerning providing medical equipment, including lasers, electrosurgical loops
and hysteroscope for use by physicians in medical procedures on the physicians'
patients. Additionally, Employee is required to perform other duties typical
of a president and chief executive officer of a company of similar size in this
industry. During the term of this Agreement, Employee shall not directly or
indirectly render any services of a business, commercial or professional nature
to any other person or organization, whether or not for compensation, without
the prior written consent of the Board of Directors of Employer.
5. Employee Benefits. Employer agrees to include Employee and his
family in the hospital, surgical and medical benefit plan adopted by Employer,
as currently provided to other employees of Employer, and to provide to
Employee such other benefits (or benefits comparable thereto) as are provided
to Employee by Employer as of the date hereof.
6. Business Expenses. Employee is authorized to incur reasonable
expenses for promoting the business of Employer, including airfare, lodging,
mileage, tolls, parking fees and long distance telephone calls made in the
pursuit of the business of Employer. Employer will reimburse Employee for all
such reasonable expenses upon Employee's presentation and itemized account of
such expenditures. Employee shall receive a monthly car allowance of $350.
Employee agrees to procure and maintain in force at his cost an
automobile liability insurance policy covering any personal automobile used by
Employee in performing his duties for Employer with Employer as a named insured
for bodily injury in the minimum amount of $100,000 per person and $300,000 per
occurrence and for property damage in the minimum amount of $50,000 in one
accident. Employee agrees to provide Employer with a copy of Employee's
insurance certificate evidencing such coverage at the beginning of each renewal
period for the insurance.
7. Covenant Not to Compete. Employee acknowledges that the
services rendered to Employer by Employee have been and will continue to be of
a special and unusual character which have a unique value to Employer and
Employee has had or will have access to trade
3
<PAGE> 4
secrets and confidential information belonging to Employer, the loss of which
cannot adequately be compensated by damages in an action at law. Employee
acknowledges that Employer business and services are highly specialized, that
the identity and particular needs of Employer customers and suppliers are not
generally known, and that the documents and information regarding Employer's
customers, suppliers, services, methods of operation, sales, pricing and costs
are highly confidential and constitute trade secrets.
During the term of Employee's employment with Employer and for a
period of twelve (12) months following the termination of Employee's
employment with Employer for any reason whatsoever, Employee:
(a) will not, directly or indirectly, own, manage, operate,
control, be employed by, perform services for, connected with the ownership,
management, operation, or control of any business which performs services
similar to or competitive with those provided by Employer or which provides
medical equipment to any person or entity, in any territory where Employer
conducts business or in any territory identified in Employer's business plan as
a territory in which Employer intends to develop within the next twelve (12)
months;
(b) will not, either on his own account or for any person, firm,
partnership, corporation or other entity, solicit, interfere with, or endeavor
to cause any employee or Employer to leave his employment, or induce or attempt
to induce any such employee to breach his employment agreement with Employer;
(c) shall not solicit, induce or attempt to induce any past or
current customer of Employer to cease doing business in whole or in part with or
through Employer, or to business with any other person, firm, partnership,
corporation or other entity. In this regard, Employer's customers include all
insurance companies, physicians, clinics, health maintenance organizations,
hospitals, surgical centers, and other health care providers who have ever been
charged for, bought, rented, leased, or have been provided with any medical
equipment being offered or provided for sale, rent or lease by Employer; and
(d) Employee shall, from the date of this Agreement refrain from
making disparaging, negative or other similar remarks concerning Employer or
any of its affiliate any third party. Similarly, Employer and its affiliates
shall, from the date of this Agreement refrain from making disparaging,
negative or other similar remarks concerning Employee to third party.
Employee acknowledges that this Covenant Not to Compete is reasonable,
both in time and scope considering the special training Employee has received
from Employer and the special knowledge about the business and customers of
Employer that Employee has received Employee agrees that this Covenant Not To
Compete is necessary in order to protect legitimate business interest of
Employer and has been given by Employee in consideration of special training
and knowledge provided to Employee by Employer.
4
<PAGE> 5
8. Covenant Against Disclosure of Confidential Information.
During the term of Employee's employment with Employer and thereafter,
Employee shall not use for any purpose or disclose to any person or entity any
confidential information acquired during the course of employment with
Employer. The term "confidential information" as used in this Agreement means
any confidential information of Employer and its affiliates, including, but not
limited to, documents, records, lists, and knowledge of Employer's customers,
suppliers, methods of operation, processes, trade secrets, method of
determination of prices, financial condition, profits, sales, net income and
indebtedness as the same may exist from time to time and which is not
otherwise available to the public domain.
Employee shall not directly or indirectly copy, tape or remove from
Employer's premises any of the Employer's books, records, customer lists or
any other documents or materials that constitute confidential information
except in connection with performance of duties hereunder. Employee agrees to
return immediately to Employer any records of Employer which Employee has in
his possession on the termination of Employee's employment.
9. Representations of Employee. Employee represents and warrants
to Employer that by continuing Employment with Employer, Employee is not in
violation of any agreement between Employee and any other party, particularly
any covenant not to compete included in any agreement with a previous employer.
Employee agrees to hold Employer harmless from any and all claims, demands and
causes of action (including reasonable attorneys " fees, expenses and court
costs incurred for the defense of Employer) asserted against Employer by any
third party because of the employment of Employee by Employer or because of the
alleged violation of any agreement between Employee and a third party.
10. Corporate Opportunities and Property Rights of Parties.
Employee agrees to promptly and fully inform and disclose to Employer all
business opportunities to which Employee becomes aware related to the selling,
renting, leasing or providing of medical equipment, all inventions, designs,
improvements and discoveries that Employee may have relating to the selling,
renting, leasing, or providing of medical equipment during the term of this
Agreement, whether conceived by Employee alone or with others and whether or
not conceived during regular working hours. All such opportunities, inventions,
designs, improvements and discovery shall be the property of Employer and not
Employee.
11. Notices. Any notice or communication hereunder must be in
writing and given by depositing the same in the United States mail, addressed
to the party to be notified, postage prepaid and registered or certified with
return receipt requested, or by delivering the same in person or by facsimile
transmission. Such notice shall be deemed received on the date on which it is
hand delivered or received by facsimile transmission or on the third business
day following the date on which it is so mailed. For purpose of notice, the
address of the parties shall be:
5
<PAGE> 6
Employer: Medical Alliance, Inc.
8200 Springwood Drive, Suite 200
Irving, Texas 75063
Facsimile (214) 432-8959
Employee: Paul Herchman
201 Oakmont
Trophy Club, Texas 76262
Any party may change its address for notice by written notice given to
the other parties in accordance with this Section 11.
12. Enforcement. A party to this Agreement may enforce the duties
and obligations prescribed by this Agreement in a court of competent
jurisdiction by specific performance, injunction, money judgement, or any other
remedy. It is the intent of each of the parties that the Covenants Not To
Compete contained in Section 7 above be enforced to the fullest extent
permitted by applicable law. Accordingly, should a court of competent
jurisdiction determine that the scope of any covenant is too broad to be
enforced as written, it is the intent of each of the parties that the court
should reform such covenant to such narrower scope as it determines
enforceable. If a party fails to perform any duty or obligation prescribed by
this Agreement, and the other party recovers a judgment against the defaulting
party, the prevailing party in the lawsuit is entitled to recover, in addition
to his or its claims and costs, a reasonable amount as attorneys fees from the
defaulting party and other reasonable expenses including premiums for bonds
required for injunctive relief.
13. Parole Evidence Rule. This instrument constitutes the entire
Agreement of the parties concerning the subject matter of this Agreement and
may not be contradicted by evidence of any prior agreement or any
contemporaneous oral agreement. Neither party is relying on any representations
except those representations which are specifically incorporated in this
Agreement.
14. Amendment. At the time this Agreement was executed, Employer
was a Texas corporation with its principal place of business located in Irving,
Texas. This Agreement, following its execution, was accepted by Employer in the
State of Texas. BOTH PARTIES TO THIS AGREEMENT AGREE THAT THIS AGREEMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.
15. Severability. If any provision of this Agreement is invalid or
unenforceable, the provision shall be deleted, construed, modified or reformed
to meet the minimum requirements to be valid and enforceable. Whether or not
deleted, construed, modified or reformed to be valid and enforceable, the
invalidity or unenforceability of any provision shall not affect the remainder
of this Agreement, which shall remain in full force and effect.
6
<PAGE> 7
16. Binding Effect. This Agreement is binding on and shall inure
to the benefit of the parties and their respective heirs, successors,
administrators and assigns.
17. Expenses. Each party shall bear its own costs and expenses
(including attorneys' fees and expenses) in connection with the negotiation,
execution and delivery of this Agreement, except that Employer shall pay up to
$2,000 of the attorneys' fees and expenses of Employee relating hereto.
EXECUTED as of the date first above written.
EMPLOYER:
MEDICAL ALLIANCE, INC.
By: [ILLEGIBLE]
--------------------------------------
Its: [ILLEBIGLE]
-------------------------------------
EMPLOYEE:
/s/ PAUL HERCHMAN
----------------------------------------
Paul Herchman
Social Security Number: ###-##-####
7
<PAGE> 8
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is
entered into as of the 27th day of June, 1995, by and between Medical Alliance,
Inc., a Texas corporation (the "Company"), and Paul Herchman ("Employee").
Capitalized terms used herein but not defined herein shall have the respective
meanings ascribed to them in the Agreement (as defined below).
WITNESSETH:
WHEREAS, the Company and Employee are parties to that certain
Employment Agreement, dated as of January 1, 1994 (the "Agreement"); and
WHEREAS, the Company and Employee have agreed to amend the Agreement to
the extent provided herein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Employee hereby agree as follows:
1. Amendment to the Agreement. The Agreement shall be amended as
follows:
(a) Paragraph 1(a)(3) shall be deleted in its entirety.
(b) Paragraph 1(a)(4) shall be amended to read in its entirety as
follows:
(4) if the Board of Directors of Employer believes
in good faith that Employee has engaged in any activity in
connection with the business of employer involving fraud, theft
or a criminal act, or if Employee has engaged in a criminal
activity involving moral turpitude, is being understood and
agreed that if Employee is not convicted of such act at the
trial court level by a trial court of competent jurisdiction
within two (2) years after the date of the termination notice,
that Employer shall be liable for six (6) months salary
hereunder, although this Agreement shall be deemed terminated as
of the date of the notice to Employee of Employer's termination
of his Agreement;
(c) Paragraph 1(1)(5) shall be amended to read in its entirety as
follows:
(5) if Employee fails to devote the time and effort
to Employer and his duties hereunder that a chief executive
officer of president of a company of similar size and similar
size and similar industry would devote to his company; or
(d) A new paragraph (e) is hereby added to Section 1 of the
Agreement, which paragraph shall read in its entirety as follows:
<PAGE> 9
(e) In the event that Employee is terminated by the
Company for any reason other than as set forth in Paragraphs
1(a)(3)-(6) or 1(b) above, then the Company agrees to use all
reasonable commercial efforts to cause the removal of Employee's
personal guarantee (the "Guarantee") of the Company's proposed
$2,000,000 line of credit with NationsBank of Texas, N.A. In the
event that the Company is unable to cause the removal of the
Guarantee, in addition to any other compensation to which
Employee may be entitled to receive hereunder, for every two
months after such termination that the Guarantee remains in
place, the Company shall pay to Employee one-month of his salary
as provided in Paragraph 3 below (without any bonuses, options
or other compensation) until such time as the Guarantee is so
removed or is terminated; provided, however, that the maximum
number of monthly payments under this paragraph 1(e) shall be
six.
2. Miscellaneous.
(a) THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
(b) Paragraph headings are inserted herein for
convenience only and do not form a part of this Amendment.
(c) Except as specifically amended herein, the
Agreement shall remain in full force and effect.
(d) This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first above written.
MEDICAL ALLIANCE, INC.
By: /s/ MICHAEL G. WALLACE
-----------------------------
Michael G. Wallace,
Chief Financial Officer
/s/ PAUL HERCHMAN
---------------------------------
Paul Herchman
-2-
<PAGE> 10
APPENDIX A
Compensation: Effective January 1, 1996, Employee shall be paid a salary of
$12,100 per month prorated for any partial month, along with the following
additional considerations:
(a) a bonus equal to $6,000 for each quarter the company's consolidated
net income before taxes and after bonus expense meets or exceeds budgeted net
income during 1996. This bonus is non-cumulative and begins with the month of
January. (b) a year end bonus of $18,000 if the company's 1996 annual
consolidated net income before taxes and after bonus expense meets or exceeds
$1,467,000. (c) an additional year end bonus of $25,000 if the company's 1996
annual consolidated net income before taxes and after bonus expense meets or
exceeds $1,793,000. (d) an additional year end bonus of $10,000 if the
company's 1996 annual consolidated net income before taxes and after bonus
expense meets or exceeds $2,037,000. (e) an additional year end bonus of
$10,000 if the company's 1996 annual consolidated net income before taxes and
after bonus expense meets or exceeds $2,445,000. (f) an additional year end
bonus of $15,000 if the company's 1996 annual consolidated income before taxes
and after bonus expense meets or exceeds $2,852,500. (g) business expenses as
described in paragraph 7.
ALL LOANS OR ADVANCES OWED TO MAI WILL BE PAID BACK BY THE EMPLOYEE BEFORE ANY
YEAR END BONUSES WILL BE PAID. THIS APPENDIX A INCLUDES THE ENTIRE COMPENSATION
PACKAGE OF THE EMPLOYEE AND BY SIGNING BELOW, THE EMPLOYEE ACKNOWLEDGES THE
RECEIPT OF ANY AND ALL PRIOR COMPENSATION DUE HIM.
EFFECTIVE for all purposes as of the 1st day of January, 1996.
EMPLOYER: Medical Alliance, Inc.
By: /s/ MIKE WALLACE
-----------------------------------
Mike Wallace, Senior Vice President
EMPLOYEE: /s/ PAUL HERCHMAN
-----------------------------------
Paul Herchman
###-##-####
-----------------------------------
Social Security Number
<PAGE> 11
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is
entered into as of the 1st day of August, 1996, by and between Medical
Alliance, Inc., a Texas corporation (the "Company"), and Paul Herchman
("Employee"). Capitalized terms used herein but not defined herein shall have
the respective meanings ascribed to them in the Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the Company and Employee are parties to that certain
Employment Agreement, dated as of January 1, 1994 and amended as of June 27,
1995 (collectively, the "Agreement"); and
WHEREAS, the Company and Employee have agreed to amend the Agreement
to the extent provided herein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Employee hereby agree as follows:
1. Amendment to the Agreement. The Agreement shall be amended as
follows:
(a) The first complete sentence of Paragraph 1 shall be
amended to read in its entirety as follows:
Employer agrees to employ Employee and Employee agrees to
accept employment with Employer, for a period of time
beginning January 1, 1994, and continuing until terminated by:
(a) Employer upon twelve months prior written notice; or (b)
Employee upon three months prior written notice, in each case,
unless terminated by either Employer or Employee pursuant to
Section 2 below.
2. Miscellaneous.
(a) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
(b) Paragraph headings are inserted herein for convenience
only and do not form a part of this Amendment.
(c) Except as specifically amended herein, the Agreement
shall remain in full force and effect.
<PAGE> 12
(d) This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
MEDICAL ALLIANCE, INC.
By: /s/ MICHAEL G. WALLACE
-----------------------------------
Michael G. Wallace,
Chief Financial Officer
/s/ PAUL HERCHMAN
-----------------------------------
Paul Herchman
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
By this Agreement, Medical Alliance, Inc., referred to in this Agreement as the
"Company" or "Employer", located at 8200 Springwood Dr., Suite 200, Irving,
Texas 75063, employs or continues to employ Kevin O'Brien, referred to in this
agreement as "Employee", of Irving, Texas. This Agreement is made and entered
into as of the 1st day of January, 1995.
Recitals
WHEREAS, the Employer desires to continue to employ Employee, and Employee
desires to perform services for the Company in the position of Senior Vice
President of Sales and Marketing which will allow Employee access to various
trade secrets and confidential information belonging to the Employer and which
will require Employee to perform services of a unique and special nature;
WHEREAS, as a condition of Employee's employment, the Company desires to
receive from the Employee certain covenants and agreements; and
WHEREAS, the Employer and the Employee desire to set forth in writing the terms
and conditions of their agreements and understandings with respect to these
covenants, as this Agreement is a condition of Employee's employment or
continued employment and ancillary thereto, and does not purport to set forth
all the terms of such employment.
Agreement
NOW THEREFORE, in consideration of the foregoing, of the mutual promises herein
contained, in consideration of TEN AND NO/100 DOLLARS ($10.00) and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged and confessed, Employer and Employee do hereby agree as follows:
1. Payment: As good and valuable consideration for Employee's
promises and obligations set forth herein, the Company shall
pay to Employee the amount of $100.00 upon full execution of
this Agreement.
2. Term: Employer agrees to employ Employee and Employee agrees
to accept employment with the Employer, for a period of time
beginning January 1, 1995 and terminating, if not terminated
sooner, on December 31, 1996. In the event the Employee
continues in the employ of the Employer beyond the term of
this Agreement, such continuation of employment shall be
deemed an extension of this Agreement until such time as
terminated by Employee or Employer. During the term of this
extension, all of the terms and conditions of this Agreement
shall remain in full force and effect.
3. Termination: Notwithstanding the foregoing, this Agreement may
be terminated, and the Employee discharged, prior to the
expiration of the term set forth in the preceding paragraph
for the reasons set forth below. The Employer may at its
option terminate this Agreement by giving 90 days written
notice of termination to the Employee without prejudice to any
other remedy to which the Employer may be entitled, either at
law, in equity, or under this Agreement:
1
<PAGE> 2
(a) if the Employee is unable to meet any sale, rental or revenue
quota established for the Employee by the board of directors
or the president of Employer;
(b) if the Employee fails to devote his full time, effort and
skill as a representative of Employer;
(c) if the Employee fails to perform services that are
satisfactory to the Employer,
(d) upon the occurrence of circumstances that make it impossible
or impractical for the business of the Employer to be
continued; or
(e) upon the filing of a petition in a court of bankruptcy by the
Employer.
This Agreement shall also terminate immediately on the occurrence of any one of
the following events:
(a) the Employee breaches or neglects the duties or other terms of
this Agreement (including making any representation in this
Agreement that turns out to be false);
(b) the Employee fails to follow any requirement, order or mandate
of any superior officer or the board of directors of Employer;
(c) the Employee commits any dishonest act towards Employer;
(d) the Employee engages in any activity involving fraud,
dishonesty, moral turpitude, addiction or dereliction of duty;
(e) an incapacity for any reason on the part of the Employee to
perform his duties for a continuous period of ninety days,
unless waived by the Employer;
(f) the permanent disability of Employee because of sickness,
physical or mental impairment, or any other reason, so that it
reasonably appears to Employer that the Employee is unable to
perform his duties under this Agreement; or
(g) the death of the Employee.
In the event of termination of this Agreement prior to the completion of the
term of employment specified in it, for any of the reasons set forth above, the
Employee shall be entitled to the compensation earned prior to the date of
termination, computed pro rata up to and including the date of termination. The
Employee shall be entitled to no further compensation and will be relieved of
all duties and obligations under this Agreement as of the date of termination.
Notwithstanding anything provided herein, Employee understands and agrees that
Employee's obligations and agreements set forth in Sections 8 and 9 below shall
survive the terminations of this Agreement.
The Employee agrees to return on the date of termination or before, all company
property in good condition, including medical instruments, medical supplies,
office supplies, etc.
2
<PAGE> 3
4. Compensation: Compensation shall be as outlined in Appendix A or as
modified from time to time by mutual written agreement of Employee and
Employer.
5. Duties Of Employee: The Employee is employed as Senior Vice President
of Sales and Marketing. The Employee shall devote his full time,
effort and skills as a representative of Employer. Employee's specific
duties shall be to devote all of his time to the management of the
sales territories or other responsibilities delegated to the Employee
concerning providing medical equipment including, but not limited to
lasers, electrosurgical generators, and endoscopes for use by
physicians in medical procedures on the physicians' patients.
Additionally, the Employee is required to perform other duties of a
similar nature as may be required from time to time by the Employer.
During the time of this Agreement, the Employee shall not directly or
indirectly render any services of a business, commercial or
professional in nature to any other person or organization, whether or
not for compensation, without the written consent of the Employer.
6. Employee Benefits: The Employer agrees to offer participation of the
Employee in the medical benefit and other benefit plans adopted by the
Employer, as currently provided to other Employees of the Employer, if
requested in writing by the Employee.
7. Business Expenses: The Employee is authorized to incur reasonable
expenses for promoting the business of Employer, including mileage,
tolls, parking fees and long distance telephone calls made in the
pursuit of the business of the Employer. The Employer will reimburse
the Employee for all such reasonable expenses upon the Employee's
presentation and itemized account of such expenditures. Employee shall
be reimbursed twenty-eight cents ($0.28) per mile for all miles
traveled by Employee in his personal vehicle in the pursuit of the
business of Employer up to 1,500 miles per month and fourteen cents
($0.14) for all excess miles.
Employee agrees to procure and maintain in force at his cost an
automobile liability insurance policy covering any personal automobile
used by Employee in performing his duties for Employer with the
Employer as a named insured for bodily injury in the minimum amount of
$100,000.00 per person and $300,000.00 per occurrence and for property
damage in the minimum amount of $50,000.00 in one accident. Employee
agrees to provide Employer with a copy of the Employee's
insurance certificate evidencing this coverage at the beginning of each
renewal period for the insurance.
8. Covenant Not To Compete: Employee acknowledges that the services
rendered to the Employer by the Employee have been and will continue
to be of a special and unusual character which have a unique value to
the Employer and the Employee has had or will have access to trade
secrets and confidential information belonging to the company, the
loss of which cannot adequately be compensated by damages in an action
at law. Employee acknowledges that the Employer's business and
services are highly specialized, that the identify and particular
needs of the Employer's customers and suppliers are not generally
known, and that the documents and information regarding the Employer's
customers, suppliers, services, methods of operation, sales, pricing,
and costs are highly confidential and constitute trade secrets.
3
<PAGE> 4
During the term of Employee's employment with the Employer and for a
period of twelve months following the termination of Employee's
employment with Employer for any reason whatsoever, Employee:
(a) will not, directly or indirectly, own, manage, operate,
control, be employed by, perform services for, be connected
with the ownership, management, operation, or control of any
business which performs services similar to or competitive
with those provided by the Employer, in any territory where
the Employer conducts business, or in any territory identified
in Employer's business plan as a territory in which Employer
intends to develop within the next (12) months;
(b) will not, either on his own account or for any person, firm,
partnership, corporation or other entity, solicit, interfere
with, or endeavor to cause any employee of the Employer to
leave his employment, or induce or attempt to induce any such
employee to breach his employment agreement with the
Employer; and
(c) shall not solicit, induce or attempt to induce any past or
current customer of the Employer to cease doing business in
whole or in part with or through the Employer, or to do
business with any other person, firm, partnership, corporation
or other entity. In this regard, Employer's customers include
all insurance companies, physicians, clinics, health
maintenance organizations, hospitals, surgical centers, and
other health care providers who have ever been charged for,
bought, rented, leased, or have been provided with any medical
equipment being offered or provided for sale, rent or lease by
Employer.
Employee acknowledges that this covenant not to compete is reasonable,
both in time and scope considering the special training Employee has
received from Employer and the special knowledge about the business and
customers of Employer that Employee has received. Employee agrees that
this covenant not to compete is necessary in order to protect the
legitimate business interest of Employer and has been given by Employee
in consideration of the special training and knowledge provided by
Employer.
9. Covenant Against Disclosure Of Confidential Information: During the
term of Employee's employment with Employer and for a period of
forty-eight months following the termination of Employee's employment
with the Employer for any reason whatsoever, Employee shall not use
for any purpose or disclose to any person or entity any confidential
information acquired during the course of employment with the company.
The term "confidential information" as used in this Agreement includes
but is not limited to, documents, records, lists, and knowledge of the
Employer's customers, suppliers, methods of operation, processes,
trade secrets, method of determination of prices, financial condition,
profits, sales, net income and indebtedness as the same may exist from
time to time.
Employee shall not directly or indirectly copy, tape or remove from
the Employer's premises any of the Employer's books, records, customer
lists or any other documents or materials that constitute confidential
information. Employee agrees to return immediately to Employer any
records of Employer which Employee has in his possession on the
termination of Employee's employment.
4
<PAGE> 5
10. Representations Of Employee: Employee represents and warrants to
Employer that by continuing employment with Employer, Employee is not
in violation of any agreement between Employee and any other party,
particularly any covenant not to compete included in any agreement
with a previous Employer. Employee agrees to hold Employer harmless
from any and all claims, demands and causes of action (including
reasonable attorneys' fees, expenses, and court costs incurred for the
defense of Employer) asserted against Employer by any third party
because of the employment of Employee by Employer or because of the
alleged violation of any agreement between Employee and a third party.
11. Corporate Opportunities And Property Rights Of Parties: The Employee
agrees that he will promptly and fully inform and disclose to the
Employer all business opportunities to which the Employee becomes
aware related to the selling, renting, leasing or providing of medical
equipment, all inventions, designs, improvements, and discoveries that
the employee may have relating to the selling, renting, leasing or
providing of medical equipment during the term of this Agreement and
any renewals of this Agreement, whether conceived by the Employee
alone or with others and whether or not conceived during regular
working hours. All such opportunities, inventions, designs,
improvements and discovery shall be the exclusive property of the
Employer.
12. Notices: Any notice required or authorized to be sent under this
Agreement is deemed received either (a) when delivered in person to
Employee or to President of Employer or (b) when mailed to a party
by certified or registered mail, return receipt requested, at the
address indicated below or at any other address which one party may
notify the other party as his or its mailing address, whether the
notice is actually received by the receiving party or not:
Employer: Medical Alliance, Inc.
8200 Springwood Dr., Ste. 200
Dallas, Texas 75063
Employee: Kevin O'Brien
621 Stone Canyon Dr.
Irving, TX 75063
14. Enforcement: A party to this Agreement may enforce the duties and
obligations prescribed by this Agreement in a court of competent
jurisdiction by specific performance, injunction, money judgment, or
any other remedy. If a party fails to perform any duty or obligation
prescribed by this Agreement, and the other party recovers a judgment
against the defaulting party, the prevailing party in the lawsuit is
entitled to recover, in addition to his or its claims and costs a
reasonable amount as attorneys' fees from the defaulting party and
other reasonable expenses including premiums for bonds required for
injunctive relief.
15. Parole Evidence Rule: This instrument constitutes the entire Agreement
of the parties concerning the subject matter of this Agreement and may
not be contradicted by evidence of any prior agreement or any
contemporaneous oral agreement. Neither party
5
<PAGE> 6
is relying on any representations except those representations which
are specifically incorporated in this Agreement.
16. Amendment: At the time this Agreement was executed, Employer was a
Texas corporation with its principal place of business located in
Irving, Texas. This Employment Agreement, following its execution, was
accepted by Employer in the State of Texas. BOTH PARTIES TO THIS
AGREEMENT AGREE THAT THIS AGREEMENT SHALL BE GOVERNED BY, AND IS
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
17. Severability: If any provision of this Agreement is invalid or
unenforceable, the provision shall be deleted, construed, modified, or
reformed to meet the minimum requirements to be valid and enforceable.
Whether or not deleted, construed, modified, or reformed to be valid
and enforceable, the invalidity or unenforceability of any provision
shall not affect the remainder of this Agreement, which shall remain
in full force and effect.
18. Binding Effect. This Agreement is binding on and shall inure to the
benefit of the parties and their respective heirs, successors,
administrators and assigns.
6
<PAGE> 7
EXECUTED as of the date first set forth above.
EMPLOYER: MEDICAL ALLIANCE, INC.
By: /s/ PAUL HERCHMAN
----------------------------------------
Paul Herchman, President
EMPLOYEE: /s/ KEVIN O'BRIEN
----------------------------------------
Kevin O'Brien
###-##-####
--------------------------------------------
Social Security Number
7
<PAGE> 8
APPENDIX A
Compensation: Effective January 1, 1996, Employee shall be paid a salary of
$9,625 per month prorated for any partial month, along with the following
additional considerations:
(a) a bonus equal to $6,000 for each quarter the company's
consolidated net income before taxes and after bonus expense meets or exceeds
budgeted net income during 1996. This bonus in non-cumulative and begins with
the month of January. (b) a year end bonus of $12,000 if the company's 1996
annual consolidated net income before taxes and after bonus expense meets or
exceeds $1,467,000. (c) an additional year end bonus of $15,000 if the
company's 1996 annual consolidated net income before taxes and after bonus
expense meets or exceeds $1,793,000. (d) an additional year end bonus of $5,000
if the company's 1996 annual consolidated net income before taxes and after
bonus expense meets or exceeds $2,037,000. (e) an additional year end bonus of
$5,000 if the company's 1996 annual consolidated net income before taxes and
after bonus expense meets or exceeds $2,445,000. (f) an additional year end
bonus of $10,000 if the company's 1996 annual consolidated income before taxes
and after bonus expense meets or exceeds $2,852,500. (g) business expenses as
described in paragraph 7.
ALL LOANS OR ADVANCES OWED TO MAI WILL BE PAID BACK BY THE EMPLOYEE BEFORE ANY
YEAR END BONUSES WILL BE PAID. THIS APPENDIX A INCLUDES THE ENTIRE COMPENSATION
PACKAGE OF THE EMPLOYEE AND BY SIGNING BELOW, THE EMPLOYEE ACKNOWLEDGES THE
RECEIPT OF ANY AND AN PRIOR COMPENSATION DUE HIM.
EFFECTIVE for all purposes as of the lst day of January, 1996.
EMPLOYER: Medical Alliance, Inc.
By: /s/ MIKE WALLACE
-----------------------------------------
Mike Wallace, Senior Vice President
EMPLOYEE: /s/ KEVIN O'BRIEN
-----------------------------------------
Kevin O'Brien
###-##-####
-----------------------------------------
Social Security Number
<PAGE> 9
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is
entered into as of the 1st day of August, 1996, by and between Medical
Alliance, Inc., a Texas corporation (the "Company"), and Kevin O'Brien
("Employee"). Capitalized terms used herein but not defined herein shall have
the respective meanings ascribed to them in the Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the Company and Employee are parties to that certain
Employment Agreement, dated as of January 1, 1995 (the "Agreement"); and
WHEREAS, the Company and Employee have agreed to amend the Agreement
to the extent provided herein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Employee hereby agree as follows:
1. Amendment to the Agreement. The Agreement shall be amended as
follows:
(a) Section 3 shall be amended to read in its entirety as follows:
Termination. Notwithstanding the foregoing, this Agreement
may be terminated, and the Employee discharged, prior to the
expiration of the term set forth in the preceding paragraph
for the reasons set forth below. The Employee may at its
option terminate this Agreement by giving three months prior
written notice to the Employer and the Employer may at its
option terminate this Agreement by giving six months prior
written notice of termination to the Employee without
prejudice to any other remedy to which the Employer may be
entitled, either at law, in equity, or under this Agreement.
Employer may, at its option, require Employee to vacate the
premises at any time after any of such notices. In addition,
if Employer terminates this Agreement, then upon receipt of
such notice, Employee shall have the option of resigning at
any time prior to the termination date set forth in the notice
or continuing to be employed until such specified termination
date (although Employee shall not be required to devote the
time and effort required in Section 5 during such period, and
paragraph (a)(5) below shall not be applicable). In any of
the above circumstances, Employer shall be liable to Employee
for salary and benefits through the termination date specified
in the termination notice.
(a) This Agreement shall also terminate
immediately on the occurrence of any one of the following
events:
(1) the death of Employee;
<PAGE> 10
(2) the permanent disability of Employee
(with permanent disability being determined by
Employer's disability insurance carrier);
(3) if the Employee commits any
dishonest act towards Employer;
(4) if the Board of Directors of
Employer believes that Employee has engaged in any
activity involving fraud, dishonesty, moral turpitude
or theft, it being understood and agreed that if
Employee is not convicted of such act at the trial
court level by a trial court of competent
jurisdiction within two (2) years after the date of
the termination notice, that Employer shall be liable
for six (6) months salary hereunder, although this
Agreement shall be deemed terminated as of the date
of the notice to Employee of Employer's termination
of this Agreement;
(5) if Employee fails to devote the
time, effort and skill to Employer and his duties
hereunder that an officer with similar duties and
responsibilities in a company of similar size and
similar industry would devote to his company; or
(6) if Employee fails to follow any
reasonable requirement, order or mandate of the Board
of Directors of Employer.
(b) Employee, at his option, may terminate this
Agreement for "good reason" by giving written notice to
Employer. For purposes hereof, "good reason" shall mean the
occurrence of any of the following events: (i) Employee's
title as of the date of this Amendment is changed; (ii) a
decrease in Employee's compensation as provided in Section 4
(unless, however, Employer reduces the compensation of each
member of executive management of Employer by at least an
equal percentage); or (iii) Employer's principal executive
offices are relocated more than fifty miles from its current
executive offices. In the event of any such termination,
Employer shall immediately cease to be employed by Employer,
however, Employer shall continue to pay to Employee,
Employee's then current monthly salary for a period of three
(3) months following such termination.
(c) Employee agrees to return on the date of
termination or before, all of Employer's property in good
condition, including medical instruments, medical supplies,
office supplies, etc.
(d) In the event of termination of this Agreement
for any of the reasons set forth above, the Employee shall be
entitled to the compensation earned prior to the date of
termination, computed pro rata up to and including the date of
termination.
2
<PAGE> 11
2. Miscellaneous.
(a) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
(b) Paragraph headings are inserted herein for convenience
only and do not form a part of this Amendment.
(c) Except as specifically amended herein, the Agreement
shall remain in full force and effect.
(d) This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
MEDICAL ALLIANCE, INC.
By: /s/ PAUL HERCHMAN
-----------------------------------
Paul Herchman
President
/s/ KEVIN O'BRIEN
---------------------------------------
Kevin O'Brien
3
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
By this agreement, Medical Alliance, Inc., referred to in this Agreement as the
"Company" or "Employer", located at 8200 Springwood Dr., Suite 200, Irving,
Texas 75063, employs or continues to employ Mike Wallace, referred to in this
agreement as "Employee", of Lewisville, Texas. This agreement is made and
entered into as of the 1st day of January, 1995.
Recitals
WHEREAS, the Employer desires to continue to employ Employee, and Employee
desires to perform services for the Company in the position of Vice President
of Finance which will allow Employee access to various trade secrets and
confidential information belonging to the Employer and which will require
Employee to perform services of a unique and special nature;
WHEREAS, as a condition of Employee's employment, the Company desires to
receive from the Employee certain covenants and agreements; and
WHEREAS, the Employer and the Employee desire to set forth in writing the terms
and conditions of their agreements and understandings with respect to these
covenants, as this Agreement is a condition of Employee's employment or
continued employment and ancillary thereto, and does not purport to set forth
all the terms of such employment.
Agreement
NOW THEREFORE, in consideration of the foregoing, of the mutual promises herein
contained, in consideration of TEN AND NO/100 DOLLARS ($10.00) and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged and confessed, Employer and Employee do hereby agree as follows:
1. Payment: As good and valuable consideration for Employee's
promises and obligations set forth herein, the Company shall
pay to Employee the amount of $100.00 upon full execution of
this Agreement.
2. Term: Employer agrees to employ Employee and Employee agrees
to accept employment with the Employer, for a period of time
beginning January 1, 1995 and terminating, if not terminated
sooner, on December 31, 1996. In the event the Employee
continues in the employ of the Employer beyond the term of
this Agreement, such continuation of employment shall be
deemed an extension of this Agreement until such time as
terminated by Employee or Employer. During the term of this
extension, all of the terms and conditions of this Agreement
shall remain in full force and effect.
3. Termination: Notwithstanding the foregoing, this Agreement
may be terminated, and the Employee discharged, prior to the
expiration of the term set forth in the preceding paragraph
for the reasons set forth below. The Employer may at its
option terminate this Agreement by giving 90 days written
notice of termination to the Employee without prejudice to any
other remedy to which the Employer may be entitled, either at
law, in equity, or under this Agreement:
1
<PAGE> 2
(a) if the Employee is unable to meet any sale, rental or revenue
quota established for the Employee by the board of directors
or the president of Employer;
(b) if the Employee fails to devote his full time, effort and
skill as a representative of Employer;
(c) if the Employee fails to perform services that are
satisfactory to the Employer,
(d) upon the occurrence of circumstances that make it impossible
or impractical for the business of the Employer to be
continued; or
(e) upon the filing of a petition in a court of bankruptcy by the
Employer.
This Agreement shall also terminate immediately on the occurrence of any one of
the following events:
(a) the Employee breaches or neglects the duties or other terms of
this Agreement (including making any representation in this
Agreement that turns out to be false);
(b) the Employee fails to follow any requirement, order or mandate
of any superior officer or the board of directors of Employer;
(c) the Employee commits any dishonest act towards Employer;
(d) the Employee engages in any activity involving fraud,
dishonesty, moral turpitude, addiction or dereliction of duty;
(e) an incapacity for any reason on the part of the Employee to
perform his duties for a continuous period of ninety days,
unless waived by the Employer;
(f) the permanent disability of Employee because of sickness,
physical or mental impairment, or any other reason, so that it
reasonably appears to Employer that the Employee is unable to
perform his duties under this Agreement; or
(g) the death of the Employee;
In the event of termination of this Agreement prior to the completion of the
term of employment specified in it, for any of the reasons set forth above, the
Employee shall be entitled to the compensation earned prior to the date of
termination, computed pro rata up to and including the date of termination. The
Employee shall be entitled to no further compensation and will be relieved of
all duties and obligations under this Agreement as of the date of termination.
Notwithstanding anything provided herein, Employee understands and agrees that
Employee's obligations and agreements set forth in Sections 8 and 9 below shall
survive the termination of this Agreement.
The Employee agrees to return on the date of termination or before, all company
property in good condition, including medical instruments, medical supplies,
office supplies, etc.
2
<PAGE> 3
4. Compensation: Compensation shall be as outlined in Appendix A or as
modified from time to time by Employer.
5. Duties Of Employee: Initially, the Employee is employed as Vice
President of Finance. The Employee shall devote his full time, effort
and skills as a representative of Employer. Employee's specific duties
shall be to devote all of his time to the management of the finance,
accounting, and accounts receivable departments or other
responsibilities delegated to the Employee concerning providing
medical equipment including, but not limited to lasers,
electrosurgical generators, and endoscopes for use by physicians in
medical procedures on the physicians' patients. Additionally, the
Employee is required to perform other duties of a similar nature as
may be required from time to time by the Employer. During the time of
this Agreement, the Employee shall not directly or indirectly render
any services of a business, commercial or professional in nature to
any other person or organization, whether or not for compensation,
without the written consent of the Employer.
6. Employee Benefits: The Employer agrees to offer participation of the
Employee in the medical benefit and other benefit plans adopted by the
Employer, as currently provided to other Employees of the Employer, if
requested in writing by the Employee.
7. Business Expenses: The Employee is authorized to incur reasonable
expenses for promoting the business of Employer, including mileage,
tolls, parking fees and long distance telephone calls made in the
pursuit of the business of the Employer. The Employer will reimburse
the Employee for all such reasonable expenses upon the Employee's
presentation and itemized account of such expenditures. Employee shall
be reimbursed twenty-eight cents ($0.28) per mile for all miles
traveled by Employee in his personal vehicle in the pursuit of the
business of Employer up to 1,500 miles per month and fourteen cents
($0.14) for all excess miles.
Employee agrees to procure and maintain in force at his cost an
automobile liability insurance policy covering any personal
automobile used by Employee in performing his duties for Employer with
the Employer as a named insured for bodily injury in the minimum
amount of $100,000.00 per person and $300,000.00 per occurrence and
for property damage in the minimum amount of $50,000.00 in one
accident. Employee agrees to provide Employer with a copy of the
Employee's insurance certificate evidencing this coverage at the
beginning of each renewal period for the insurance.
8. Covenant Not To Compete: Employee acknowledges that the services
rendered to the Employer by the Employee have been and will continue
to be of a special and unusual character which have a unique value to
the Employer and the Employee has had or will have access to trade
secrets and confidential information belonging to the company, the
loss of which cannot adequately be compensated by damages in an action
at law. Employee acknowledges that the Employer's business and
services are highly specialized, that the identity and particular
needs of the Employer's customers and suppliers are not generally
known, and that the documents and information regarding the Employer's
customers, suppliers, services, methods of operation, sales, pricing,
and costs are highly confidential and constitute trade secrets.
3
<PAGE> 4
During the term of Employee's employment with the Employer and for a
period of twelve months following the termination of Employee's
employment with Employer for any reason whatsoever, Employee:
(a) will not, directly or indirectly, own, manage, operate,
control, be employed by, perform services for, be connected
with the ownership, management, operation, or control of any
business which performs services similar to or competitive
with those provided by the Employer, in any territory where
the Employer conducts business, or in any territory identified
in Employer's business plan as a territory in which Employer
intends to develop within the next (12) months;
(b) will not, either on his own account or for any person, firm,
partnership, corporation or other entity, solicit, interfere
with, or endeavor to cause any employee of the Employer to
leave his employment, or induce or attempt to induce any such
employee to breach his Employment Agreement with the Employer;
(c) shall not solicit, induce or attempt to induce any past or
current customer of the Employer to cease doing business in
whole or in part with or through the Employer, or to do
business with any other person, firm, partnership, corporation
or other entity. In this regard, Employer's customers include
all insurance companies, physicians, clinics, health
maintenance organizations, hospitals, surgical centers, and
other health care providers who have ever been charged for,
bought, rented, leased, or have been provided with any medical
equipment being offered or provided for sale, rent or lease by
Employer.
Employee acknowledges that this covenant not to compete is reasonable,
both in time and scope considering the special training Employee has
received from Employer and the special knowledge about the business
and customers of Employer that Employee has received. Employee agrees
that this covenant not to compete is necessary in order to protect the
legitimate business interest of Employer and has been given by
Employee in consideration of the special training and knowledge
provided by Employer.
9. Covenant Against Disclosure Of Confidential Information: During the
term of Employee's employment with Employer and for a period of
forty-eight months following the termination of Employee's employment
with the Employer for any reason whatsoever, Employee shall not use
for any purpose or disclose to any person or entity any confidential
information acquired during the course of employment with the company.
The term "confidential information" as used in this Agreement includes
but is not limited to, documents, records, lists, and knowledge of the
Employer's customers, suppliers, methods of operation, processes,
trade secrets, method of determination of prices, financial condition,
profits, sales, net income and indebtedness as the same may exist from
time to time.
Employee shall not directly or indirectly copy, tape or remove from
the Employer's premises any of the Employer's books, records, customer
lists or any other documents or materials that constitute confidential
information. Employee agrees to return immediately to Employer any
records of Employer which Employee has in his possession on the
termination of Employee's employment.
4
<PAGE> 5
10. Representations Of Employee: Employee represents and warrants to
Employer that by continuing employment with Employer, Employee is not
in violation of any agreement between Employee and any other party,
particularly any covenant not to compete included in any agreement
with a previous Employer. Employee agrees to hold Employer harmless
from any and all claims, demands and causes of action (including
reasonable attorneys' fees, expenses, and court costs incurred for the
defense of Employer) asserted against Employer by any third party
because of the employment of Employee by Employer or because of the
alleged violation of any agreement between Employee and a third party.
11. Corporate Opportunities And Property Rights Of Parties: The Employee
agrees that he will promptly and fully inform and disclose to the
Employer all business opportunities to which the Employee becomes
aware related to the selling, renting, leasing or providing of medical
equipment, all inventions, designs, improvements, and discoveries that
the employee may have relating to the selling, renting, leasing or
providing of medical equipment during the term of this Agreement and
any renewals of this Agreement, whether conceived by the Employee
alone or with others and whether or not conceived during regular
working hours. All such opportunities, inventions, designs,
improvements and discovery shall be the exclusive property of the
Employer.
12. Notices: Any notice required or authorized to be sent under this
Agreement is deemed received either (a) when delivered in person to
Employee or to President of Employer or (b) when mailed to a party
by certified or registered mail, return receipt requested, at the
address indicated below or at any other address which one party may
notify the other party as his or its mailing address, whether the
notice is actually received by the receiving party or not:
Employer: Medical Alliance, Inc.
8200 Springwood Dr., Ste. 200
Dallas, Texas 75063
Employee: Mike Wallace
641 Price Drive
Lewisville, TX 75067
13. Enforcement: A party to this Agreement may enforce the duties and
obligations prescribed by this Agreement in a court of competent
jurisdiction by specific performance, injunction, money judgment, or
any other remedy. If a party fails to perform any duty or obligation
prescribed by this Agreement, and the other party recovers a judgment
against the defaulting party, the prevailing party in the lawsuit is
entitled to recover, in addition to his or its claims and costs a
reasonable amount as attorneys' fees from the defaulting party and
other reasonable expenses including premiums for bonds required for
injunctive relief.
14. Parole Evidence Rule: This instrument constitutes the entire Agreement
of the parties concerning the subject matter of this Agreement and may
not be contradicted by evidence of any prior agreement or any
contemporaneous oral agreement. Neither party
5
<PAGE> 6
is relying on any representations except those representations which
are specifically incorporated in this Agreement.
15. Amendment: At the time this Agreement was executed, Employer was a
Texas corporation with its principal place of business located in
Irving, Texas. This Employment Agreement, following its execution, was
accepted by Employer in the State of Texas. BOTH PARTIES TO THIS
AGREEMENT AGREE THAT THIS AGREEMENT SHALL BE GOVERNED BY, AND IS
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
16. Severability: If any provision of this Agreement is invalid or
unenforceable, the provision shall be deleted, construed, modified, or
reformed to meet the minimum requirements to be valid and enforceable.
Whether or not deleted, construed, modified, or reformed to be valid
and enforceable, the invalidity or unenforceability of any provision
shall not affect the remainder of this Agreement, which shall remain
in full force and effect.
17. Binding Effect. This Agreement is binding on and shall inure to the
benefit of the parties and their respective heirs, successors,
administrators and assigns.
6
<PAGE> 7
EXECUTED as of the date first set forth above.
EMPLOYER: MEDICAL ALLIANCE, INC.
By: /s/ PAUL HERCHMAN
---------------------------------------
President
EMPLOYEE: /s/ MIKE WALLACE
------------------------------------------
Mike Wallace
###-##-####
------------------------------------------
Social Security Number
7
<PAGE> 8
APPENDIX A
Compensation: Effective January 1, 1996, Employee shall be paid a salary of
$7,000 per month prorated for any partial month, along with the following
additional considerations:
(a) a bonus equal to $6,000 for each quarter the company's
consolidated net income before taxes and after bonus expense meets or exceeds
budgeted net income during 1996. This bonus in non-cumulative and begins with
the month of January. (b) a year end bonus of $12,000 if the company's 1996
annual consolidated net income before taxes and after bonus expense meets or
exceeds $1,467,000. (c) an additional year end bonus of $15,000 if the company's
1996 annual consolidated net income before taxes and after bonus expense meets
or exceeds $1,793,000. (d) an additional year end bonus of $5,000 if the
company's 1996 annual consolidated net income before taxes and after bonus
expense meets or exceeds $2,037,000. (e) an additional year end bonus of $5,000
if the company's 1996 annual consolidated net income before taxes and after
bonus expense meets or exceeds $2,445,000. (f) an additional year end bonus of
$10,000 if the company's 1996 annual consolidated income before taxes and after
bonus expense meets or exceeds $2,852,500. (g) business expenses as described in
paragraph 7.
ALL LOANS OR ADVANCES OWED TO MAI WILL BE PAID BACK BY THE EMPLOYEE BEFORE ANY
YEAR END BONUSES WILL BE PAID. THIS APPENDIX A INCLUDES THE ENTIRE COMPENSATION
PACKAGE OF THE EMPLOYEE AND BY SIGNING BELOW, THE EMPLOYEE ACKNOWLEDGES THE
RECEIPT OF ANY AND ALL PRIOR COMPENSATION DUE HIM.
EFFECTIVE for all purposes as of the lst day of January, 1996.
EMPLOYER: Medical Alliance, Inc.
By: /s/ PAUL HERCHMAN
----------------------------------------
Paul Herchman, President
EMPLOYEE: /s/ MIKE WALLACE
-------------------------------------------
Mike Wallace
###-##-####
-------------------------------------------
Social Security Number
<PAGE> 9
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is
entered into as of the 1st day of August, 1996, by and between Medical
Alliance, Inc., a Texas corporation (the "Company"), and Mike Wallace
("Employee"). Capitalized terms used herein but not defined herein shall have
the respective meanings ascribed to them in the Agreement (as defined below).
W I T N E S S E T H :
WHEREAS, the Company and Employee are parties to that certain
Employment Agreement, dated as of January 1, 1995 (the "Agreement"); and
WHEREAS, the Company and Employee have agreed to amend the Agreement
to the extent provided herein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Employee hereby agree as follows:
1. Amendment to the Agreement. The Agreement shall be amended as
follows:
(a) Section 3 shall be amended to read in its entirety as follows:
Termination. Notwithstanding the foregoing, this Agreement
may be terminated, and the Employee discharged, prior to the
expiration of the term set forth in the preceding paragraph
for the reasons set forth below. The Employee may at its
option terminate this Agreement by giving three months prior
written notice to the Employer and the Employer may at its
option terminate this Agreement by giving six months prior
written notice of termination to the Employee without
prejudice to any other remedy to which the Employer may be
entitled, either at law, in equity, or under this Agreement.
Employer may, at its option, require Employee to vacate the
premises at any time after any of such notices. In addition,
if Employer terminates this Agreement, then upon receipt of
such notice, Employee shall have the option of resigning at
any time prior to the termination date set forth in the notice
or continuing to be employed until such specified termination
date (although Employee shall not be required to devote the
time and effort required in Section 5 during such period, and
paragraph (a)(5) below shall not be applicable). In any of
the above circumstances, Employer shall be liable to Employee
for salary and benefits through the termination date specified
in the termination notice.
(a) This Agreement shall also terminate
immediately on the occurrence of any one of the following
events:
(1) the death of Employee;
<PAGE> 10
(2) the permanent disability of Employee
(with permanent disability being determined by
Employer's disability insurance carrier);
(3) if the Employee commits any
dishonest act towards Employer;
(4) if the Board of Directors of
Employer believes that Employee has engaged in any
activity involving fraud, dishonesty, moral turpitude
or theft, it being understood and agreed that if
Employee is not convicted of such act at the trial
court level by a trial court of competent
jurisdiction within two (2) years after the date of
the termination notice, that Employer shall be liable
for six (6) months salary hereunder, although this
Agreement shall be deemed terminated as of the date
of the notice to Employee of Employer's termination
of this Agreement;
(5) if Employee fails to devote the
time, effort and skill to Employer and his duties
hereunder that an officer with similar duties and
responsibilities in a company of similar size and
similar industry would devote to his company; or
(6) if Employee fails to follow any
reasonable requirement, order or mandate of the Board
of Directors of Employer.
(b) Employee, at his option, may terminate this
Agreement for "good reason" by giving written notice to
Employer. For purposes hereof, "good reason" shall mean the
occurrence of any of the following events: (i) Employee's
title as of the date of this Amendment is changed; (ii) a
decrease in Employee's compensation as provided in Section 4
(unless, however, Employer reduces the compensation of each
member of executive management of Employer by at least an
equal percentage); or (iii) Employer's principal executive
offices are relocated more than fifty miles from its current
executive offices. In the event of any such termination,
Employer shall immediately cease to be employed by Employer,
however, Employer shall continue to pay to Employee,
Employee's then current monthly salary for a period of three
(3) months following such termination.
(c) Employee agrees to return on the date of
termination or before, all of Employer's property in good
condition, including medical instruments, medical supplies,
office supplies, etc.
(d) In the event of termination of this Agreement
for any of the reasons set forth above, the Employee shall be
entitled to the compensation earned prior to the date of
termination, computed pro rata up to and including the date of
termination.
2
<PAGE> 11
2. Miscellaneous.
(a) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
(b) Paragraph headings are inserted herein for convenience
only and do not form a part of this Amendment.
(c) Except as specifically amended herein, the Agreement
shall remain in full force and effect.
(d) This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
MEDICAL ALLIANCE, INC.
By: /s/ PAUL HERCHMAN
-----------------------------------
Paul Herchman
President
/s/ MICHAEL G. WALLACE
---------------------------------------
Michael G. Wallace
3
<PAGE> 1
EXHIBIT 11.1
MEDICAL ALLIANCE, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED JUNE 30,
-------------------------------------- ------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income (loss)...................................... $ (150,481) $ 192,179 $ 578,149 $ 285,356 $ 369,145
Series A Preferred dividends........................... 75,000 75,000 87,000 87,000 87,000
Less charge for cancellation of put feature............ 180,000 180,000
---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to common stock........... $ (225,481) $ 117,179 $ 311,149 $ 18,356 $ 282,145
========== ========== ========== ========== ==========
Weighted average common shares outstanding before SAB
Topic 4-D shares..................................... 1,789,009 1,843,644 2,117,443 1,953,278 2,332,613
SAB Topic 4-D computation:(1)
Incremental common shares outstanding applicable to
options issued within one year of the
Offering(2)........................................ 174,380 174,380 174,380 174,380 174,380
Incremental common shares outstanding applicable to
the Series B Preferred Stock issued within one year
of the Offering(3)................................. 565,863 565,863 565,863 565,863 565,863
---------- ---------- ---------- ---------- ----------
Common Stock outstanding including all SAB Topic 4-D
Shares............................................... 2,529,252 2,583,887 2,857,686 2,693,521 3,072,856
---------- ---------- ---------- ---------- ----------
Computation of primary shares outstanding:
Incremental common shares outstanding applicable to
"in the money" options and warrants based on the
estimated average fair market value of the stock
during the year(2)................................. 58,111 26,891 152,822 34,154 480,445
Options and warrants excluded based on anti-dilutive
effect............................................. (58,111)
---------- ---------- ---------- ---------- ----------
Primary shares outstanding............................. 2,529,252 2,610,778 3,010,508 2,727,675 3,553,301
---------- ---------- ---------- ---------- ----------
Computation of fully diluted shares outstanding:
Incremental common shares outstanding applicable to
Series A Preferred Stock(3)........................ 585,375 679,035 679,035 679,035 679,035
Preferred stock excluded based on anti-dilutive
effect............................................. (585,375)
---------- ---------- ---------- ---------- ----------
Fully diluted shares outstanding....................... 2,529,252 3,289,813 3,689,543 3,406,710 4,232,336
---------- ---------- ---------- ---------- ----------
Computation of earning per common share:
Primary earnings per common share(4)................. $ (0.09) $ 0.04 $ 0.10 $ 0.01 $ 0.08
========== ========== ========== ========== ==========
Fully diluted earnings per common share(5)........... $ (0.09) $ 0.04 $ 0.10 $ 0.01 $ 0.08
========== ========== ========== ========== ==========
Pro Forma Data(6)
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 common share.......... $ 0.15 $ 0.11
========== ==========
Pro forma fully diluted earnings per common share.... $ 0.15 $ 0.11
========== ==========
</TABLE>
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(1) SAB Topic 4-D requires Registrants to report common stock, convertible
preferred stock, options, warrants and other common stock equivalents issued
within one year of an offering as issued and outstanding for all periods
reported.
(2) Determined using the Treasury Stock Method.
(3) Determined using the "If Converted" Method.
(4) Computed as net income (loss) applicable to common shares divided by primary
shares outstanding.
(5) Computed as the more dilutive of either primary earning per share or net
income (loss) divided by fully diluted shares outstanding.
(6) Adjusted to give effect to the pro forma sale of 280,000 shares (e.g.,
approximately $3.4 million divided by the assumed IPO price of $12 per
share) of common stock to repay indebtedness of approximately $3.4 million.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF JACKSON & WALKER, L.L.P.
The Board of Directors
Medical Alliance, Inc.
We hereby consent to the use in this Registration Statement on Form
S-1 of the references made to our firm herein, in particular to the section
captioned "Legal Matters."
/s/ Jackson & Walker, L.L.P.
Dallas, Texas
September 11, 1996
<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 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 1,408,508 1,431,885
<SECURITIES> 0 0
<RECEIVABLES> 3,682,000 4,913,955
<ALLOWANCES> 1,113,314 1,514,926
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,207,516 5,271,426
<PP&E> 3,892,721 5,807,015
<DEPRECIATION> 1,699,930 2,332,360
<TOTAL-ASSETS> 6,443,363 8,930,617
<CURRENT-LIABILITIES> 2,294,175 2,926,322
<BONDS> 2,353,415 3,812,603
<COMMON> 4,678 4,774
0 0
1,595 1,595
<OTHER-SE> 2,424,253 2,751,844
<TOTAL-LIABILITY-AND-EQUITY> 6,443,363 8,930,617
<SALES> 0 0
<TOTAL-REVENUES> 11,177,138 8,395,480
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,884,709 1,422,737
<INTEREST-EXPENSE> 246,655 150,658
<INCOME-PRETAX> 973,491 631,837
<INCOME-TAX> 395,342 262,692
<INCOME-CONTINUING> 578,149 369,145
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 578,149 369,145
<EPS-PRIMARY> .10 .08
<EPS-DILUTED> .10 .08
</TABLE>
