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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to _________
Commission file number 0-21343
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MEDICAL ALLIANCE, INC.
(Exact name of registrant as specified in its charter)
TEXAS 73-1347577
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(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2445 GATEWAY DRIVE, SUITE 150
IRVING, TEXAS 75063
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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Registrant's telephone number, including area code: 972-580-8999
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $.002 par value Nasdaq National Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to be the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 21, 1997, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $39,272,000 based
upon the closing price of $11.13 per share on the Nasdaq National Market. As of
March 21, 1997, 5,992,995 shares of the registrant's Common Stock, $0.002 par
value, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statements for the annual meeting of Shareholders of the
registrant to be held during 1997 are incorporated by reference in Part III of
this report.
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MEDICAL ALLIANCE, INC.
TABLE OF CONTENTS
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Form 10-K Item Page
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PART I
Item 1. Business .................................................... 3
Item 2. Properties .................................................. 12
Item 3. Legal Proceedings ........................................... 12
Item 4. Submission of Matters To A Vote of Security Holders ......... 12
PART II
Item 5. Market For Registrant's Common Stock and Related
Stockholder Matters ......................................... 12
Item 6. Selected Financial Data ..................................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 14
Item 8. Financial Statements and Supplementary Data ................. 17
PART III
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....................... 32
Item 10. Directors and Executives of Company ......................... 32
Item 11. Executive Compensation ...................................... 32
Item 12. Security Ownership of Certain Beneficial Owners
and Management .............................................. 32
Item 13. Certain Relationships and Related Transactions .............. 32
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports
on Form 8-K ................................................. 32
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PART I
ITEM 1. BUSINESS
Medical Alliance, Inc. ("Medical Alliance" or the "Company") was
incorporated in Texas in August 1989.
GENERAL
Medical Alliance provides a complete range of services used to create
temporary surgical sites in physician offices in 46 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 currently maintains a network of over 2,600 physicians
who have utilized the Company's services and has over 125 managed care
contracts that in aggregate cover approximately 16 million lives. Currently,
physicians in the Company's network perform approximately 6,500 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 its contracts with managed care organizations, and is paid directly
by patients for any required copayments and deductibles. For providing its
aesthetic elective services, the Company is generally paid directly by
patients, at the time of service. None of the Company's net revenues is derived
from Medicare or Medicaid reimbursement.
On October 17, 1996, the Company consummated its initial public offering
(the "IPO") of 2,000,000 shares (and an additional 300,000 shares in connection
with the exercise of the underwriter over-allotment option on November 11,
1996) of the common stock, par value $.002 per share (the "Common Stock") of
the Company.
RECENT DEVELOPMENTS
Subsequent to the 1996 year-end the Company announced several recent
developments in the form of a strategic alliance, exclusive provider
agreements, and an acquisition. The Company entered into a strategic alliance
with Laserscope for the further development of the office-based vascular
lesions market and for treatment of leg and facial veins using Laserscope's
Aura Laser System as the centerpiece product. Under this agreement, the
Company is the exclusive mobile provider of Aura Laser Systems in the United
States and will purchase from Laserscope more than $1 million worth of Aura
Laser Systems for markets in which the Company currently provides fee-for-
service aesthetic services. Through this revenue sharing agreement, Laserscope
will receive a portion of the per use equipment fees which the Company charges
its physicians and/or patients.
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The Company entered into an exclusive agreement with Thermolase
Corporation, which agreement allows the Company to offer new technology and
establishes the Company as the exclusive mobile distribution channel for
Softlight laser technology and lotions for hair removal, to physicians in the
United States and Canada.
The Company also entered into an exclusive affiliation with Valleylab
Inc., a Pfizer-owned company, which affiliation enables the Company to provide
equipment to facilitate microlaparoscopic procedures that can be performed by
obstetricians and gynecologists (the "OB-GYNs") in their offices. This
affiliation provides a turnkey approach that enables physicians to perform a
greater number of cost-effective, minimally invasive surgical procedures in an
office setting while ensuring that all quality standards are met.
Furthermore, the Company entered into an exclusive provider agreement
with Imagyn Medical, Inc. which allows the Company to offer to its network of
OB-GYNs new microhysteroscopy technology which enables the physician to not
only provide diagnostic procedures, but to also provide therapeutic
hysteroscopic treatment, increasing the breadth of procedures which can be
performed in OB-GYN's office. The significance of the microhysteroscope is that
only a local anesthetic is necessary and, as a result, physician efficiency is
optimized, patient discomfort is decreased and procedure costs are minimized.
Finally, the Company completed the acquisition of Stone Treatment Center
of New England, Inc., which primarily provides mobile laser lithotripter
equipment to hospitals and surgery centers on an "as needed" basis in New
England. This transaction represents another step in the Company's
acquisition/consolidation strategy and opens up a new geographical market for
the Company.
MARKET OVERVIEW
Medical Surgical. The continued increase in health care costs at a rate
significantly higher than that of overall inflation has caused managed care
companies, indemnity insurers, government agencies and other payors to employ a
variety of strategies designed to reduce the cost and control the utilization
of health care services. In particular, payors have created incentives for
health care providers to deliver high-quality health care services in lower
cost settings. Initially, numerous surgical, diagnostic and other medical
procedures that were traditionally performed in a hospital were transferred to
an outpatient setting, predominantly the outpatient section of a hospital or an
ambulatory surgery center. In continuation of this trend, many established
procedures that are performed in an outpatient setting can now be transferred
to the physician's office because such procedures can be performed at a lower
cost and without the risk of general anesthesia while maintaining the quality
of care. The transfer of such procedures to the physician's office has
continued to accelerate as a result of: (i) the introduction of advanced
medical technology that allows physicians to perform a broader array of office-
based procedures, (ii) the development of training programs and clinical
protocols for office-based procedures, and (iii) the patient's desire to
undergo procedures in a more comfortable setting, with reduced risk, pain and
recovery time. The migration of such procedures to the physician's office
benefits payors, providers and patients through lower procedure costs (as
compared to similar procedures performed in a hospital or outpatient surgery
center), increased provider productivity, broader access by physicians and
patients to advanced technologies and treatments, and an increased level of
patient satisfaction.
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 American Academy of Cosmetic
Surgery 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
American Society of Plastic and Reconstructive Surgeons 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 existing network physicians to
transfer more outpatient
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procedures performed by them to their offices, (ii) the expansion of the
Company's physician network, 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 in its network and (iv) the introduction of new services and
technologies which will enable additional procedures to be performed in a
physician's office. In addition, the Company plans to increase the services
which are eligible for reimbursement under its existing managed care contracts
and to assist in the establishment of incentives and/or mandates by payors for
their network physicians to perform office-based procedures using the Company's
services.
Expanding the Company's Operations into New Markets. The Company
employs a two-phase strategy to enter new markets. In the initial phase, the
Company offers aesthetic elective services (which are paid for by patients
generally at the time of service) while establishing a network of physicians
who utilize such aesthetic elective 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' network physicians and seeks to expand
the network 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 125
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
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.
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.
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: CO2 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 December 31, 1996,
the Company had 49 MSUs in service.
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Mobile Endoscopy Unit ("MEU"). The MEU may be configured utilizing the
following technologies: medical digital camera system, video monitor, printer
and recorder, CO2 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 December 31, 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, and ultrapulse CO2 laser and related instrumentation and
accessories. The equipment delivered in the MALU is used to perform procedures
in plastic surgery and dermatology. As of December 31, 1996, the Company had 68
MALUs in service.
Procedure Monitoring and Documentation. The Company's on-site
technical personnel are present during, and document relevant aspects of, the
office-based procedures, including 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 network physicians, 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.
REIMBURSEMENT AND PAYMENT
For its services, the Company charges fees that are payable by either
the patient, a managed care organization or an indemnity insurance company.
For medical surgical services rendered by the Company pursuant to a contract
with a managed care organization, the Company bills the managed care payor
based upon a pre-determined fee schedule. For medical surgical services that
are reimbursed under an indemnity plan, the Company generally bills and
collects 20% of the Company's charges from the patient at the time services are
rendered and bills the patient's insurance indemnity carrier for the remaining
balance. For aesthetic elective services, generally the Company charges on a
per-case basis and its fees are payable by the patient, generally at the time
the services are rendered. The Company believes that its per-case billing
practices for such services are preferred by physicians over the flat rental
fee that many of its competitors charge. None of the Company's net revenues is
derived from Medicare or Medicaid reimbursement.
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SALES AND MARKETING
The Company currently operates in 46 states and Canada. The Company has
divided its service area into four regions ("Regions") encompassing an
aggregate of 20 districts ("Districts"). The Company maintains an office in
each District. Each Region is managed by a Division Vice President or Regional
Manager who is responsible for meeting the Company's sales and operational
objectives within his or her Region(s).
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.
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 four of six implementation phases
which included the installation of a network driven by multiple file servers,
an in-house voice mail system, software to link the Districts to the corporate
billing and collection system and the installation of portable computers to all
field personnel. The last two phases of implementation include the integration
of the Company's general ledger and financial reporting systems, and the
installation of an electronic data storage system. The Company anticipates the
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 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.
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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 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 $2 million
professional liability insurance policy.
EMPLOYEES
As of December 31, 1996, the Company had 118 employees, including 77
employees in field operations.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors, executive officers and key employees of the Company.
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NAME AGE POSITION
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Paul R. Herchman .............. 40 Chairman of the Board, Chief
Executive Officer and President
David A. Kallenberger, M.D..... 47 Medical Director and Director
Michael G. Wallace ............ 32 Senior Vice President, Chief Financial
Officer and Treasurer
Kevin D. O'Brien .............. 40 Senior Vice President, Chief Operating
Officer
Mark Novy ..................... 31 Controller and Secretary
Clyde Hutchinson .............. 31 Division Vice President
Jay Farris .................... 37 Vice President, Business Development
Mark Rubino ................... 30 Division Vice President
Rona P. McGarvey .............. 48 Director of Patient Accounts
</TABLE>
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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 Compensation
Committee. 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.
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 a 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.
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 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.
KEVIN D. O'BRIEN has served as Senior Vice President, Chief Operating
Officer 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.
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.
CLYDE HUTCHINSON has served as a Regional Vice President of Sales and
Operations of the Company since January 1993 and as a Division Vice President
since January 1997. 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 and as a Division Vice President
since January 1997. 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.
FACTORS THAT COULD AFFECT FUTURE PERFORMANCE
This report contains forward-looking statements that involve risks and
uncertainties. Actual results could differ from those
9
<PAGE> 10
discussed in the forward-looking statements as a result of certain factors,
including those set forth below and elsewhere in this report.
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 the 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 physician
to utilize the Company's services rather than perform office-based procedures
utilizing their employees and medical equipment, and (v) the continued
availability of third-party reimbursement for certain procedures performed
using the Company's services.
Acquisition, Obsolescence and Regulation of Advanced Technology. The
Company's future success will depend in large part on the Company's ability to
provide advanced medical technology to physicians. The medical device industry
is characterized by rapid and significant technological change. The
acquisition of medical technology requires substantial expenditures, and there
can be no assurance that the Company will be successful in identifying,
acquiring and receiving timely delivery of technology for which sufficient
demand will exist and that such technology will not become obsolete during its
anticipated product life cycle. Currently, there are alternative technologies
to those offered by the Company. Such technologies may gain broader market
acceptance, which could have a material adverse effect on the Company's
operating results or financial condition. There can be no assurance that the
company's strategy to obtain medical technology through relationships with
medical equipment manufacturers and distributors will be successful or , if
successful, that such relationships can be maintained. In addition, the
medical equipment utilized by the Company requires approval by the Food and
Drug Administration (the "FDA"), and there can be no assurance that such
medical equipment will receive or retain FDA approval for desired current and
future applications. The loss of any FDA approval for such equipment could
have a material adverse effect on the Company's operating results or financial
condition, as the Company would be unable to utilize such equipment in the
provision of its services. Furthermore, the medical equipment industry has
been characterized by extensive litigation regarding patents and other
intellectual property rights. There can be no assurance that manufacturers or
distributors of medical equipment utilized by the Company will obtain or retain
patents or other intellectual property rights related to the equipment used by
the Company. See "- Regulation of and Change in the Health Care Industry" and
"Business - Business Strategy - Establishing Strategic Alliances with Medical
Equipment Manufacturers.
Inability to Manage Growth. The Company has recently experienced, and
may continue to experience, growth in its geographic area of operations, the
breadth of services it provides and the number of its employees. During 1996,
the Company has expanded into five new markets, introduced four new services
and increased its employee base by approximately 40%. To accommodate this
recent growth, compete effectively and manage any future growth, the Company
will be required to continue to implement and improve operational, financial
and management information systems, procedures and controls on a timely basis
and to expand, train, and manage its work force, the failure of any of which
could have a material adverse effect on the Company's operating results or
financial condition.
Uncertainty of Acquisitions. The Company's strategy has included and
will continue to include 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 acquire 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.
Competition. The market for aesthetic elective services is highly
competitive due to: (i) low barriers to entry, (ii) low capital requirements,
and (iii) high profitability. Currently, the Company believes its competition
is primarily comprised of small, locally based equipment rental companies.
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-services 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. Any of these
competitors may have greater financial and other resources than the Company.
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. 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.
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<PAGE> 11
Reimbursement Risk. The Company generally receives payment directly from
the patient for its aesthetic elective services at the time of the service. In
those instances where the patient is unable to pay at the time of the service,
the Company will invoice the patient. If the invoice is not paid, the account
is subject to write-off as an uncollectible account. The Company relies almost
exclusively on third party payors for payment for its medical surgical
services. It the claim is invoiced to a noncontracted payor, (i.e., a
noncontracted managed care plan or an indemnity plan), the claim is subject to
denial by the payor. Denial of reimbursement may occur, among other reasons,
because of the claim examiner's lack of understanding regarding the Company's
services or the lack of a contractual arrangement with a managed care company.
To the extent any third party payor ultimately fails to recognize or accept
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. "Business - Business Strategy - Continuing the
Development of Managed Care Contracts."
Dependence of Key Personnel. The Company's future performance is
substantially dependent upon the continued services of its senior management
and other key personnel. Because the Company has a relatively small number of
employees, its dependence on retaining its employees is particularly
significant. The Company's success will depend, in part, on its ability to
attract and retain qualified management and professional personnel. In
addition, there can be no assurance that the Company's current employees will
continue to work for the Company. The loss of the services of one or more of
the Company's key employees could adversely affect the Company's operating
results or financial condition. Further, the Company's growth in revenue 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 retrain 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.
Fluctuations in Quarterly Results; Volatility of Stock Price. The
Company's quarterly revenues and operating results have varied significantly in
the past and may continue to do so in the future. As a result, the Company's
stock price may by subject to significant volatility, particularly on a
quarterly basis. 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 reimbursements approvals, (iv) the timing of
acquisitions or entry into new markets, and (v) the timing of expenditures for
medical equipment. An shortfall in revenues from anticipated levels, 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
of the Common Stock to fluctuate substantially.
Regulation of and Change in Health Care Industry. The health care
industry is subject to extensive federal and state regulation. The Company's
services generally are not directly subject to health care rules or
regulations, although such rules and regulations apply to the equipment
provided to physicians by the Company and to the medical personnel utilizing
the Company's services and products and therefore may indirectly affect the
Company's business. In addition, promulgation of new laws and regulations, or
changes in or reinterpretations of existing laws or regulations, may directly
or indirectly affect the Company's business, operating results or financial
condition. Further, the Company's services involve the handling of chemical
and biological substances, thereby subjecting the Company to certain labor and
environmental regulations. See - Hazardous Materials." There can be no
assurance that a review of the Company's operations by courts or regulatory
authorities will not result in a determination that could adversely affect the
operations of the Company.
The manufacturers of medical equipment utilized by the Company are
subject to extensive regulation by the FDA. Failure of such manufacturers to
obtain FDA approval for new technologies which the Company wishes to offer may
adversely affect the Company's plans for future expansion. In addition,
failure of medical equipment manufacturers to comply with FDA regulations could
result in the loss of approval by the FDA of medical equipment utilized by the
Company, which could adversely affect the Company's operating results or
financial condition.
Subject to certain statutory exceptions, physicians who have a financial
relationship with an entity providing health services are prohibited by federal
law (the "Stark II Legislation") from referring or admitting patients to that
entity for the furnishing of certain designated services reimbursable under
Medicare or Medicaid, as well as certain other federally assisted state health
care programs. Possible sanctions for violations for the Start II Legislation
include civil monetary penalties, exclusion from the Medicare and Medicaid
programs, and forfeiture of all amounts collected in violation of such
prohibition. Federal law generally prohibits activities under Medicare and
Medicaid programs (the "Fraud and Abuse Statutes"). Violations of anti-
kickback legislation are felonies punishable by monetary fines, civil and
criminal penalties and exclusion from participation in Medicare or Medicaid
programs. Several states in which the Company operates prohibit the corporate
practice of medicine except by professional medical corporations or
associations. Several states in which the Company operates also prohibit
physicians from splitting fees with non-physicians. Although the Company has
attempted to structure its business relations with physician groups to comply
with the Stark II Legislation, the Fraud and Abuse Statutes, and the state
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<PAGE> 12
corporate-practice-of-medicine and fee-spitting laws, there can be no assurance
that such laws will ultimately be interpreted in a manner consistent with the
Company's practices or that other laws or regulations will not be enacted in
the future which could have a material adverse effect on the Company's
operating results or financial condition.
While the Company does not currently derive any of its net revenues from
Medicare or Medicaid programs, and therefore it is not subject to such federal
legislation, there can be no assurance that in the future that : (i) future
legislation may not be expanded to include health care services other than
those subject to Medicare or Medicaid reimbursement, (ii) the Company will not
derive net revenues from Medicare or Medicaid reimbursements, or (iii) that
managed care providers with which the Company has contracts will not contract
with Medicare or Medicaid.
Certain of the states in which the Company currently operates or may
operate in the future have laws which prohibit physicians who have financial
relationships with an entity that provides health care services from referring
patients to that entity and that prohibit arrangements which provide
remuneration to physicians in order to induce the referral of business.
Possible sanctions for violation of these laws include civil monetary
penalties, forfeiture of amounts collected in violation of such laws and the
requirement that the Company discontinue the prohibited activity. Although the
Company believes it has structured its existing business relations with
physician groups to comply with these laws, there can be no assurance that such
laws will be interpreted in a manner consistent with the Company's practices.
Such laws in states where the Company may conduct operations in the future
could prohibit the Company from structuring its business relations with
physician groups in the same manner in which in conducts its current
operations. Accordingly, such prohibitions could adversely affect the future
growth of the Company.
In addition, there can be no assurance that the regulatory environment
in which the Company operates will not change significantly in the future,
which change could adversely affect the Company's operations, financial
condition, business opportunities or future expansion. As consolidation among
physician provider groups continues and provider networks continue to be
created, purchasing decisions may shift to persons with whom the Company has
not had prior contact. There can be no assurance that the Company will be able
to maintain its physician, payor or manufacturer relationships under such
circumstances. See " - Risk of Acquiring Advanced Technology,"- "Competition"
and " Business - Government Regulation."
ITEM 2. PROPERTIES
The Company leases 20 offices within its service area that range in size
from approximately 100 to 1000 square feet under agreements with varying terms
and renewal options, and annual rent ranging from $2,400 to $134,487. 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.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Common Stock began trading on the Nasdaq National Market on October
11, 1996 under the symbol "MAII". The initial public offering price was $11.00
per share; and the closing price on October 11, 1996 was $11.75. The high and
low closing sales prices (excluding retail markup, markdowns and commissions)
for the period October 11, 1996 to December 31, 1996 are as follows:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fourth Quarter - October 11, 1996 to $12.50 $10.75
December 31, 1996
</TABLE>
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<PAGE> 13
As of March 21, 1997, approximately 5,992,995 shares of Common Stock were
outstanding and held by approximately 99 holders of record.
The Company has not paid dividends on its Common Stock. The current
policy of the Company's Board of Directors is to retain any future earnings to
provide funds for the operation and expansion of the Company's business.
Consequently, the Company does not anticipate that cash dividends will be paid
on the Company's common stock in the foreseeable future.
ITEM 6. SELECTED 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 five year period ended December
31, 1996 and its balance sheet data as of December 31, 1992, 1993, 1994,1995
and 1996 are derived from the Company's financial statements which have been
audited by Coopers & Lybrand L.L.P., independent certified public accountants.
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>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenues ................................... $ 3,148 $ 3,720 $ 5,262 $ 11,177 $ 17,350
Costs and Expenses:
Salaries and benefits ...................... 1,358 1,643 2,005 3,721 5,137
Selling, general, and administrative ....... 1,089 1,214 1,817 3,620 5,510
Depreciation and amortization .............. 283 333 293 719 1,595
Provision for uncollectible accounts ....... 605 551 781 1,885 3,408
-------- -------- -------- -------- --------
Total costs and expenses .............. 3,335 3,741 4,896 9,945 15,650
-------- -------- -------- -------- --------
Operating income (loss) ............... (187) (21) 365 1,232 1,700
Other (income) expense:
Interest income and other, net ............. (3) (2) (6) 12 (172)
Interest expense ........................... 143 158 179 247 270
-------- -------- -------- -------- --------
Income (loss) before income taxes ..... (327) (177) 192 973 1,602
Income tax expense (benefit) ................... 26 (26) -- 395 683
-------- -------- -------- -------- --------
Net income (loss) ..................... $ (353) $ (150) $ 192 $ 578 $ 919
======== ======== ======== ======== ========
Net income (loss) applicable to common stock ... $ (353) $ (225) $ 117 $ 311 $ 832
======== ======== ======== ======== --------
Earnings (loss) per share ...................... $ (.14) $ (.09) $ .04 $ .10 $ .24
======== ======== ======== ======== ========
Weighted average number of common shares and
common share equivalents ................... 2,512 2,523 2,605 3,005 3,540
Dividends declared on convertible preferred
stock ...................................... $ 0 $ 75 $ 75 $ 87 $ 87
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................. $ 34 $ 101 $ 109 $ 1,409 $ 20,537
Working capital ............................ 191 121 126 1,913 22,094
Total assets ............................... 1,382 1,544 2,698 6,443 30,708
Total debt and capital lease obligations ... 855 1,101 1,566 2,354 355
Convertible preferred stock ................ 1 1 1 2 --
Retained earnings (deficit) ................ (1,146) (1,297) (1,105) (526) 393
Total shareholders' equity (deficit) ....... 70 (154) 123 2,431 26,085
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 46 states and Canada to a network
of approximately 2,600 physicians.
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>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net revenues .................................. 100.0% 100.0% 100.0% 100.0%
Salaries and benefits expense ................. 44.2 38.1 33.3 29.6
Selling, general and administrative expense ... 32.6 34.5 32.4 31.8
Depreciation and amortization ................. 9.0 5.6 6.4 9.2
Provision for uncollectible accounts .......... 14.8 14.8 16.9 19.6
Operating income (loss) ....................... (0.6) 6.9 11.0 9.8
Interest expense .............................. 4.2 3.3 2.3 1.6
Income tax expense (benefit) .................. (0.7) -- 3.5 3.9
Net income (loss) ............................. (4.0) 3.7 5.2 5.3
</TABLE>
YEARS ENDED DECEMBER 31, 1996 AND 1995
Net Revenues. Net revenues increased from $11.2 million for the year
ended December 31, 1995, to $17.4 million for the year ended December 31, 1996,
an increase of $6.2 million or 55%. This increase was primarily attributable to
growth in procedure volume, which increased from 39,640 for the year ended
December 31, 1995, to 68,585 for the year ended December 31, 1996, an increase
of 28,945 or 73%. Medical surgical procedures increased from 19,509 for the
year ended December 31, 1995, to 26,769 for the year ended December 31, 1996,
an increase of 7,260 or 37%, which contributed to 25% of the total increase in
procedure volume. Aesthetic elective procedures increased from 20,131 for the
year ended December 31, 1995, to 41,816 for the year ended December 31, 1996,
an increase of 21,685 or 108%, which contributed to 75% of the total increase
in procedure volume.
The average net revenue per case decreased from $282 for the year ended
December 31, 1995, to $253 per case for the year ended December 31, 1996, a
decrease of $29 or 10%. 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 $192 during 1996,
compared to average net revenue per case for medical surgical procedures of
$335 during 1996.
Salaries and Benefits Expense. Salaries and benefits expense increased
from $3.7 million for the year ended December 31, 1995, to $5.1 million for the
year ended December 31, 1996, an increase of $1.4 million or 38%. This increase
was caused by growth in the Company's procedure volume, the introduction of two
new procedures, and an increase in the total number of employees from 81 as of
December 31, 1995, to 118 at December 31, 1996, an increase of 46%. Salaries
and benefits expense as a percentage of net revenues decreased from 33.3% to
29.6% 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 $3.6 million for the year ended December
31, 1995, to $5.5 million for the year ended December 31, 1996, an increase of
$1.9 million or 53%. A portion of the increase was due to an increase in
operating lease expense from $599,000 for the year ended December 31, 1995 to
$1,093,000 for the year ended December 31, 1996, an increase of $494,000 or
82%, which was attributable to a laser manufacturer revenue sharing
arrangement. There were 13 such shared lasers during the majority of the 1996
calendar year compared to 9 such shared lasers at the end of December 31, 1995.
Vehicle expense increased from $641,000 for the year ended December 31,
1995 to $1,127,000 for the year ended December 31, 1996, an increase of
$486,000 or 76%. This increase was primarily due to a slight increase in field
personnel and an upgrade in the vans that are used to deliver the equipment to
the physician's offices.
Repair and maintenance expense increased from $161,000 for the year
ended December 31, 1995 to $610,000 for the year ended December 31, 1996, an
increase of $449,000 or 279%. This increase was due primarily to annual service
contracts on pulsed dye lasers. Selling, general and administrative expense as
a percentage of net revenues decreased slightly from 32.4% for the year ended
December 31, 1995, to 31.8% for the year ended December 31, 1996, due to
increases in net revenues exceeding the increases in selling, general, and
administrative expense.
Depreciation and Amortization. Depreciation and amortization increased
from $719,000 for the year ended December 31, 1995, to $1,595,000 for the year
ended December 31, 1996, an increase of $876,000 or 122%, resulting primarily
from the addition of approximately $3.2 million in new medical equipment during
the year ended December 31, 1996.
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<PAGE> 15
Provision for Uncollectible Accounts. Provision for uncollectible
accounts increased from $1.9 million for the year ended December 31, 1995, to
$3.4 million for the year ended December 31, 1996, an increase of $1.5 million
or 79%. As a percentage of net revenue, provision for uncollectible accounts
increased from 16.9% for the year ended December 31,1995 to 19.6% for the year
ended December 31, 1996. This increase was primarily attributable to the
Company expanding its offered services during 1996 to include more procedures
with non-contracted third party payors in an effort to establish relationships
with such payors.
Operating Income. Operating income increased from $1.2 million for the
year ended December 31, 1995, to $1.7 million for the year ended December 31,
1996, an increase of $500,000 or 42%. As a percentage of net revenues,
operating income decreased from 11.0% for the year ended December 31, 1995, to
9.8% for the year ended December 31, 1996. This slight decrease was primarily
the result of the increase in the provision for uncollectible accounts as a
percentage of net revenues.
Interest Income & Other, Net. Interest income and other, net increased
from a $12,000 loss for the year ended December 31, 1995, to a $172,000 gain
for the year ended December 31, 1996, an increase of $184,000. This increase
was due mainly to interest being earned on the IPO proceeds during the fourth
quarter of 1996.
Income Tax Provision. Income tax provision increased from
$395,000 for the year ended December 31, 1995 to $683,000 for the year ended
December 31, 1996, an increase of $288,000 or 73%. The Company's effective tax
rate increased from 40.6% for the year ended December 31, 1995, to 42.6% for
the year ended December 31, 1996 (See Note 9 to the Notes to Consolidated
Financial Statements).
Net Income. As a result of the items discussed above, the Company's net
income increased from $578,000 for the year ended December 31, 1995, to
$919,000 for the year ended December 31, 1996, an increase of $341,000 or 59%.
As a percentage of net revenues, net income increased slightly from 5.2% for
the year ended December 31, 1995, to 5.3% for the year ended December 31, 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 111%. 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%, which contributed to 60% of the total increase in
procedure volume.
The average net revenue per case decreased from $347 for the year ended
December 31, 1994, to $282 per case for the year ended December 31, 1995, a
decrease of $65 or 19%. This decrease was attributable to a change in case mix
to include a larger percentage of aesthetic elective procedures. The average
net revenue per case for aesthetic elective procedures was $181 during 1995,
compared to average net revenue per case for medical surgical procedures of
$366 during 1995.
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 85%. This increase
was primarily attributable to the hiring of additional employees to support the
growth in the Company's procedure volume, the introduction of two new
procedures, and an increase in the 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 to
$1.8 million or 100%. 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 increase 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.
15
<PAGE> 16
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. 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. Income tax provision was $395,000 for
the year ended December 31, 1995. The Company did not record an income tax
provision for the year ended December 31, 1994. The Company's effective tax
rate increased to 40.6% for the year ended December 31, 1995, due to the
utilization of the net operating loss carryforward during 1994.
Net Income. As a result of the items discussed above, the Company's net
income increased from $192,000 for the year ended December 31, 1994, to
$578,000 for the year ended December 31, 1995.
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 has resulted in a positive
retained earnings of $392,617 as of December 31, 1996. Until October 1996, the
Company has funded its operations primarily through the private placement of
equity securities, bank borrowings and cash provided by operations. Prior to
the IPO, which was completed on October 11, 1996, the majority of the equity
capital of the Company had been raised from private placements of $2.2 million
of equity securities, including $750,000 raised in July 1992, and approximately
$1.5 million raised in November 1995. The Company obtained a $2.0 million
credit facility from Nations Bank of Texas, N.A. ("NationsBank") in June 1995.
Such facility was 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 was increased to $4.3
million in March 1996. The NationsBank debt was paid off in full during October
1996 with a portion of the net proceeds from the IPO.
The Company generated cash from its operations of $274,000, $917,000,
and $2,286,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. The Company's account receivable balance increased $634,000,
$1,182,000 and $1,846,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. These increases were due primarily to increases in net revenues
during such periods. 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 $126,000, $1.9 million, and $3.8
million for the years ended December 31, 1994, 1995 and 1996, respectively,
primarily for the acquisition of medical equipment. Capital expenditures were
$130,000, $1.9 million, and $3.2 million, for the years ended December 31,
1994, 1995 and 1996, respectively. Net cash provided by (used in) financing
activities were ($136,000), $2.3 million, and $20.6 million for the years ended
December 31, 1994, 1995 and 1996, respectively. The cash provided from
financing activities in 1995 was primarily provided by the proceeds from bank
borrowings and the sale of 362,500 shares of Series B Convertible Preferred
Stock pursuant to the Series B Stock Purchase Agreement, dated November 17,
1995, between the Company and various investors (the "Series B Agreement"). The
cash provided from financing activities in 1996 is primarily provided by the
net proceeds from the IPO of 2.3 million shares of Common Stock in October of
1996.
The Company estimates that its total capital expenditures will be
approximately $4.3 million in 1997. The Company believes that the net proceeds
from the IPO 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.
16
<PAGE> 17
YEAR 2000 COMPLIANCE
The Company has and will continue to make certain investments in is
software systems and applications to ensure the Company is year 2000 compliant.
The financial impact to the Company has not been and is not anticipated to be
material to its financial position or results of operations in any given year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Report of Independent Accountants................................. 18
Consolidated Balance Sheets as of December 31, 1995 and 1996...... 19
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996................................ 20
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1994, 1995 and 1996............ 21
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996................................ 22
Consolidated Notes to Financial Statements........................ 23
Schedule II - Valuation and Qualifying Accounts Years ended
December 31, 1994, 1995 and 1996................................ 36
</TABLE>
All other schedules are not submitted because they are not applicable or
not required or because the information is included in the consolidated
financial statements.
17
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Medical Alliance, Inc. and Subsidiaries:
We have audited the consolidated financial statements and the financial
statement schedule of Medical Alliance, Inc. and Subsidiaries (the "Company")
listed in the index on page 17 of this Form 10-K. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule 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, 1995 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, 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.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 11, 1997
18
<PAGE> 19
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................... $ 1,385,654 $ 20,505,787
Restricted cash .............................................. 22,854 31,000
Accounts receivable, less allowance for doubtful accounts
of $1,113,314 and $1,859,621, respectively ................... 2,568,686 4,414,860
Prepaid expenses and other current assets .................... 230,322 461,743
Deferred income taxes ........................................ -- 590,195
------------ ------------
Total current assets ................................... 4,207,516 26,003,585
Property and equipment, net ...................................... 2,192,791 4,550,183
Other assets:
Intangible assets, net of amortization of approximately
$3,000 and $59,080, respectively ............................. 43,056 154,151
------------ ------------
Total assets ................................................. $ 6,443,363 $ 30,707,919
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 316,367 $ 2,447,108
Accrued expenses ............................................. 801,555 983,905
Current maturities of:
Long-term debt ......................................... 366,667 --
Capital lease obligations .............................. 284,633 296,717
Deferred income taxes ........................................ 365,616 --
Deferred revenue ............................................. 159,337 181,662
------------ ------------
Total current liabilities .............................. 2,294,175 3,909,392
Long-term debt, net of current maturities ........................ 1,443,819 --
Capital lease obligations, net of current maturities ............. 258,296 58,777
Deferred income taxes ............................................ 16,547 654,837
------------ ------------
Total liabilities ...................................... 4,012,837 4,623,006
------------ ------------
Stockholders' Equity:
Series A convertible preferred stock, $0.002 par value,
2,000,000 shares authorized; 435,000 and -0- shares
issued and outstanding, respectively; aggregate
liquidation preferences of $893,500 and $0, respectively ..... 870 --
Series B convertible preferred stock, $0.002 par value,
362,500 shares authorized; 362,500 and -0- shares issued and
outstanding, respectively; aggregate liquidation preferences
of $1,450,000 and $0, respectively ........................... 725 --
Common stock, $0.002 par value, 10,000,000 and 30,000,000
shares authorized and 2,339,421 and 5,965,744 shares
issued and outstanding, respectively ......................... 4,678 11,948
Capital in excess of par value ................................... 2,959,586 25,746,292
Retained earnings (accumulated deficit) .......................... (526,383) 392,617
Treasury stock at cost, 17,230 and 25,703 shares,
respectively ................................................. (8,950) (65,944)
------------ ------------
Total stockholders' equity ................................... 2,430,526 26,084,913
------------ ------------
Total liabilities and stockholders' equity ................... $ 6,443,363 $ 30,707,919
============ ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
19
<PAGE> 20
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net revenue .................................. $ 5,261,763 $ 11,177,138 $ 17,350,384
------------ ------------ ------------
Costs and expenses:
Salaries and benefits .................. 2,005,262 3,721,169 5,136,732
Selling, general and administrative .... 1,816,859 3,620,394 5,510,614
Depreciation and amortization .......... 293,093 718,767 1,595,101
Provision for uncollectible accounts ... 781,176 1,884,709 3,408,360
------------ ------------ ------------
Total costs and expenses ............... 4,896,390 9,945,039 15,650,807
------------ ------------ ------------
Operating income ................. 365,373 1,232,099 1,699,577
------------ ------------ ------------
Other (income) expense:
Interest income and other, net ......... (5,528) 11,953 (172,195)
Interest expense ....................... 178,722 246,655 269,532
------------ ------------ ------------
Total other expense .............. 173,194 258,608 97,337
------------ ------------ ------------
Income before income taxes .................. 192,179 973,491 1,602,240
Provision for income taxes ................... -- 395,342 683,240
------------ ------------ ------------
Net income ................................... 192,179 578,149 919,000
------------ ------------ ------------
Less preferred stock dividend ................ (75,000) (87,000) (87,000)
Less charge for cancellation of put
feature described in Note 7 ............ -- (180,000) --
------------ ------------ ------------
Net income applicable to
common stock ........................... $ 117,179 $ 311,149 $ 832,000
============ ============ ============
Net income per share ......................... $ .04 $ .10 $ .24
============ ============ ============
Weighted average number of
common shares and common share
equivalents (in thousands) ............. 2,611 3,011 3,540
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
20
<PAGE> 21
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
Series A Preferred Series B Preferred
Stock Stock Common Stock
------------------ ------------------- --------------------
Shares Amount Shares Amount Shares Amount
-------- ------ -------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 ........................... 375,000 $ 750 1,800,364 $ 3,601
Issuance of common stock (Satana warrants
exercised) ........................................ 93,660 187
Issuance of preferred stock for cash (Mapleleaf
Capital warrants exercised) ....................... 60,000 120
Series A Preferred stock dividend .................
Net income ........................................
-------- ------ -------- ------ --------- -------
Balance at December 31, 1994 ......................... 435,000 870 1,894,024 3,788
Issuance of Preferred stock ....................... 362,500 $ 725
Exercise of warrant in exchange for debt
payable to Satana Corporation .................. 374,640 749
Charge for cancellation of put feature
described in Note 7 ............................
Options exercised ................................. 60,723 121
Issuance of common stock related to acquisition ... 10,034 20
Series A preferred stock dividend .................
Net income ........................................
-------- ------ -------- ------ --------- -------
Balance at December 31, 1995 ......................... 435,000 870 362,500 725 2,339,421 4,678
Issuance of common stock .......................... 4,293 9
Options exercised ................................. 85,605 171
Series A preferred stock dividend .................
Treasury stock purchase ........................... (8,473)
Series A & Series B preferred stock converted
into common stock .............................. (435,000) (870) (362,500) (725) 1,244,898 2,490
Initial Public Offering of common stock, net ...... 2,300,000 4,600
Net income ........................................
-------- ------ -------- ------ --------- -------
Balance at December 31, 1996 ...................... 0 $ 0 0 $ 0 5,965,744 $11,948
======== ====== ======== ====== ========= =======
<CAPTION>
Total
Capital In Retained Stockholders'
Excess of Earnings Treasury Equity
Par Value (Deficit) Stock (Deficit)
----------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 ........................... $ 1,147,564 $(1,296,711) $ (8,950) $ (153,746)
Issuance of common stock (Satana warrants
exercised) ........................................ 59,813 60,000
Issuance of preferred stock for cash (Mapleleaf
Capital warrants exercised) ....................... 99,880 100,000
Series A Preferred stock dividend ................. (75,000) (75,000)
Net income ........................................ 192,179 192,179
----------- ----------- -------- ------------
Balance at December 31, 1994 ......................... 1,232,257 (1,104,532) (8,950) 123,433
Issuance of Preferred stock ....................... 1,439,207 1,439,932
Exercise of warrant in exchange for debt
payable to Satana Corporation .................. 479,251 480,000
Charge for cancellation of put feature
described in Note 7 ............................ (180,000) (180,000)
Options exercised ................................. 50,179 50,300
Issuance of common stock related to acquisition ... 25,692 25,712
Series A preferred stock dividend ................. (87,000) (87,000)
Net income ........................................ 578,149 578,149
----------- ----------- -------- ------------
Balance at December 31, 1995 ......................... 2,959,586 $ (526,383) $ (8,950) $ 2,430,526
Issuance of common stock .......................... 10,991 11,000
Options exercised ................................. 90,370 90,541
Series A preferred stock dividend ................. (87,000) (87,000)
Treasury stock purchase ........................... (56,994) (56,994)
Series A & Series B preferred stock converted into
common stock..................................... (895) 0
Initial Public Offering of common stock, net ...... 22,773,240 22,777,840
Net income ........................................ 919,000 919,000
----------- ----------- -------- ------------
Balance at December 31, 1996 ...................... $25,746,292 $ 392,617 $(65,944) $ 26,084,913
=========== =========== ======== ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
21
<PAGE> 22
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .............................................. $ 192,179 $ 578,149 $ 919,000
Adjustments to reconcile net income
to net cash used in operating activities:
Loss on joint venture ................................... -- -- 38,776
Provision for uncollectible accounts .................... 781,176 1,884,709 3,408,360
Depreciation and amortization ........................... 293,093 718,767 1,595,101
Deferred income taxes ................................... -- 382,163 (317,521)
Changes in assets and liabilities net of effects from
acquisitions:
Accounts receivable ..................................... (1,414,948) (3,066,681) (5,254,534)
Prepaid expenses and other current assets ............... 10,515 (105,657) (231,421)
Accounts payable and accrued expenses ................... 269,872 577,794 2,274,315
Deferred revenue ........................................ 142,512 (6,570) 22,325
Other ................................................... -- (45,589) 6,102
------------ ------------ ------------
Net cash provided by operating activities ............. 274,399 917,085 2,460,503
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures .................................... (130,231) (1,850,112) (3,236,750)
Payment for acquisitions ................................ -- (35,000) (518,840)
Change in restricted cash ............................... 4,595 (7,819) (8,146)
------------ ------------ ------------
Net cash used in investing activities ................. (125,636) (1,892,931) (3,763,736)
------------ ------------ ------------
Cash flows from financing activities:
Payment of dividends on preferred stock ................. (115,000) (122,000) (87,000)
Repayment of capital lease obligations .................. (80,025) (244,543) (317,989)
Repayment of long-term debt ............................. (148,833) (1,161,190) (3,901,521)
Proceeds from issuance of preferred stock ............... 100,000 1,439,932 --
Proceeds from issuance of common stock .................. 50,000 50,300 22,822,387
Proceeds from issuance of long-term debt ................ 57,500 2,293,819 2,091,035
Other ................................................... -- 11,526 (183,546)
------------ ------------ ------------
Net cash provided by (used in) financing activities ... (136,358) 2,267,844 20,423,366
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ......... 12,405 1,291,998 19,120,133
Cash and cash equivalents at beginning of year ............... 81,251 93,656 1,385,654
------------ ------------ ------------
Cash and cash equivalents at end of year ..................... $ 93,656 $ 1,385,654 $ 20,505,787
============ ============ ============
Supplemental disclosures of cash flow information:
Interest paid ........................................... $ 172,222 $ 247,990 $ 276,090
Income taxes paid ....................................... -- 5,000 216,571
Supplemental schedule of noncash investing and financing
activities:
Preferred stock dividend declared ....................... 35,000 -- --
Capital lease obligations incurred ...................... 613,925 186,366 130,554
Exercise of warrant in exchange for outstanding debt and
cancellation 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 ....................................... -- 45,589 167,642
Less:
Fair value of common stock ............................ -- (25,712) --
Cash paid ............................................. -- (35,000) (518,840)
------------ ------------ ------------
Liabilities assumed ..................................... -- $ 227,642 --
============ ============ ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
22
<PAGE> 23
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Medical Alliance, Inc. ("Medical Alliance") provides mobile surgical
services which allow certain minimally invasive operative and diagnostic
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.
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 December 31, 1996, the Company had
approximately $1,115,000 and $20,000,000 invested in high quality, short-term
U.S. dollar-denominated money market instruments which includes commercial
paper, bank certificate of deposits, and banker's acceptances. 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 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 negotiated contractual discounts
and field discounts.
Deferred Revenue - The Company organizes certain training seminars for
physician utilizers. Revenues are recognized when the 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.
23
<PAGE> 24
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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 (SFAS) No. 123 "Accounting
for Stock-Based Compensation." However, pro forma disclosure as prescribed by
SFAS No. 123 for all such equity awards is included in these 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 7. 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 Initial Public 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 Initial Public Offering price as the purchase
price.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Medical equipment ................................ $ 2,764,090 $ 5,679,297
Furniture and fixtures ........................... 223,356 1,002,466
Transportation ................................... 7,000 64,760
Leasehold improvements ........................... 11,877 18,352
Equipment under capital leases ................... 886,398 976,033
----------- -----------
3,892,721 7,740,908
Less accumulated depreciation and amortization ... (1,699,930) (3,190,725)
----------- -----------
Net property and equipment ....................... $ 2,192,791 $ 4,550,183
=========== ===========
</TABLE>
Accumulated amortization related to equipment under capital leases was
approximately $363,000 and $646,000 at December 31, 1995 and December 31, 1996,
respectively.
4. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Revolving bank credit agreement at prime plus 1/2%;
interest payments due monthly; principal due 1997 ............ $ 250,000 --
Bank term loan at prime plus 1 1/2% with varying monthly
principal and interest payments; final payment due
2000 ......................................................... 643,819 --
Bank term loan at prime plus 1 1/2%; monthly principal
and interest payments; final payment due 1998 ................ 916,667 --
---------- ----------
1,810,486 --
Less current maturities ......................................... (366,667) --
---------- ----------
$1,443,819 --
========== ==========
</TABLE>
Prime rate was 8 1/2% at December 31, 1995.
24
<PAGE> 25
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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 were collateralized by Company assets and a personal
guarantee of a major shareholder.
Under the terms of the bank debt, the Company was 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, required 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 fiscal
year. The Company had not complied with this covenant and obtained a waiver
from the bank which was effective until January 1, 1997.
In connection with the closing of its Initial Public Offering on October
17, 1996, the Company used $3.5 million of the net proceeds from the Initial
Public Offering to pay off the total amount of debt for the bank loans
discussed above.
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 of 1 to 1 initially. However, upon
issuance of common stock or common stock equivalents, the conversion ratio was
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 7, the conversion ratio for the Series A Preferred Stock was 1.561 to 1 as
approved by the Board of Directors. The Series A Preferred Stock was
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 had not completed a qualified public
offering on or prior to December 31, 1997, the Company had the right, but not
the obligation to repurchase all remaining shares of Series A Preferred Stock.
The Series A Preferred Stock required a $.20 per share annual dividend
commencing on June 30, 1993 which was cumulative if unpaid. Dividends paid for
the years ended December 31,1994, 1995, and 1996 were $115,000, $122,000, and
$87,000, respectively. During 1995, 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 exceeded the
designated limit. The Company obtained appropriate waivers from the Series A
Preferred Stock shareholder effective until January 1, 1997.
In connection with the Initial Public Offering on October 11, 1996, the
Series A Preferred Stock was converted into common stock on a 1.561 to one
basis, which was effected through a stock dividend declared on September 9,
1996.
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 was 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 7, the conversion ratio
for the Series B Preferred Stock was 1.561 to 1 as approved by the Board of
Directors. The Series B Preferred Stock was convertible at the election of the
holders at any time, or
25
<PAGE> 26
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
automatically with the closing of an underwritten qualified public offering (as
defined in the Series B Agreement). There was no annual dividend requirement in
the Series B Agreement. During 1995 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 exceeded the
designated limit. The Company obtained appropriate waivers from all Series B
Preferred Stock shareholders effective until January 1, 1997.
In connection with the Initial Public Offering on October 11, 1996, the
Series B Preferred Stock was converted into common stock on a 1.561 to one
basis, which was effected through a stock dividend declared on September 9,
1996.
7. COMMON STOCK AND COMMON STOCK WARRANTS:
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 consolidated financial statements and related footnotes have been
retroactively adjusted to give effect for this stock split effected through a
stock dividend.
Furthermore, during the fourth quarter of 1996, the Company completed an
Initial Public Offering of its common stock in which 2,300,000 shares of common
stock were sold raising net proceeds of approximately $23 million.
A warrant to purchase up to 374,640 shares of common stock was granted to
Satana Corporation ("Satana") on January 17, 1991 as part of a subordinated
note to Satana. This warrant included a put feature, whereby the holder of the
shares acquired via the exercise of the warrant could have required the Company
to redeem the shares based on a formula price. The Satana subordinated note
payable 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. 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 and cancellation 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 note payable to 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
December 31, 1996.
8. STOCK-BASED COMPENSATION PLANS
The Company sponsors the "Medical Alliance, Inc. Amended and Restated 1994
Long-Term Incentive Plan"(the "1994 Plan"), a stock-based incentive
compensation plan which is described below. The Company applies APB Opinion 25
and elated Interpretations in accounting for the 1994 Plan. In 1995, the FASB
issued FASB Statement No. 123 "Accounting for Stock Based Compensation"
26
<PAGE> 27
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
("SFAS 123") which, if fully adopted by the Company, would change the methods
the Company applies in recognizing the cost of the 1994 Plan. Adoption of the
cost recognition provisions of SFAS 123 is optional and the Company has decided
not to elect these provisions of SFAS 123. However, pro forma disclosures as if
the Company adopted the cost recognition provisions of SFAS 123 in 1995 are
required by SFAS 123 and are presented below.
Under the 1994 Plan, the Company is authorized to issue up to 1,168,190
shares of common stock pursuant to awards granted in the form of incentive
stock options (intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended), non-qualified stock options, shares of restricted
stock, stock appreciation rights, performance shares, and/or stock units.
Awards may be granted to selected employees, directors, consultants or advisors
of the Company or any subsidiary. However, incentive stock options may be
granted only to employees and non-employee directors may be granted awards only
in the manner and on the terms and conditions set forth in Section 4.2 of the
1994 Plan.
EMPLOYEE STOCK OPTIONS
The 1994 Plan provides that the exercise price of any incentive stock
option may not be less than the fair market value of the common stock on the
date of grant. The stock options granted in 1995 and 1996 have varying
contractual terms, ranging from approximately two to five years, and varying
vesting dates, which range from the day immediately following the date of grant
to three years following the date of grant. In accordance with APB 25, the
Company has not recognized compensation cost for stock options granted in 1994,
1995 and 1996.
A summary of the Company's stock options as of December 31, 1994, 1995 and
1996 and the changes during the years then ended on those dates is presented
below:
NONQUALIFIED STOCK OPTIONS
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
# Shares of Weighted # Shares of Weighted # Shares of Weighted
Underlying Average Underlying Average Underlying Average
Options Exercise Options Exercise Options Exercise
Prices Prices Prices
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
the year ............................ 413,416 $1.17 489,125 $1.19 798,983 $1.89
Granted ................................ 116,295 1.28 679,035 2.56 219,321 3.79
Exercised............................... 0 0 60,723 .83 85,605 1.09
Forfeited............................... 40,586 1.28 308,454 2.47 95,221 2.48
Expired................................. 0 0 0 0 0 0
Outstanding at the end of year.......... 489,125 1.19 798,983 1.89 837,478 2.41
Exercisable at end of year.............. 354,097 1.16 314,292 1.35 344,990 1.44
Weighted-average fair value of
options granted during the year........ N/A $ .87 $1.00
</TABLE>
The fair value of each stock option granted is estimated on the date of
grant using the "minimum value" option-pricing model with the following
weighted-average assumptions for grants in 1995 and 1996, respectively:
dividend yield of 0.00% for both years; risk-free interest rates are different
for each grant and range from 5.22% to 7.80%; and the expected lives of options
are different for each grant and range from 2.00 years to 4.71 years.
The following table summarizes information about stock options outstanding at
December 31, 1996:
27
<PAGE> 28
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Number Wgtd. Avg. Number Wgtd. Avg.
Range of Outstanding Remaining Wgtd. Avg Exercisable Exercise
Exercise Prices at 12/31/96 Contr. Life Exercise Price at 12/31/96 Price
- --------------- ----------- ----------- -------------- ----------- -----
<S> <C> <C> <C> <C> <C>
$1.28 and $2.56 826,705 $2.52 $1.99 394,309 $1.47
$7.05 60,099 $2.71 $7.05 0 N/A
----- ------- ----- ----- ------- -----
TOTAL: 886,804 $2.53 $2.36 394,309 $1.47
======= ===== ===== ======= =====
</TABLE>
PRO FORMA NET INCOME
AND
NET INCOME PER COMMON SHARE
Had the compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS 123, the Company's net income and net
income per common share for 1995 and 1996 would approximate the pro forma
amounts below:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
12/31/95 12/31/95 12/31/96 12/31/96
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SFAS 123 Charge ............................ $ 0.00 $ 43,325 $ 0.00 $ 49,773
APB25 Charge ............................ 0.00 0.00 0.00 0.00
Net Income ............................ 578,149 534,824 919,000 869,227
Net Income Per Common Share ....................... $ 0.10 $ 0.09 $ 0.24 $ 0.22
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards granted prior
to 1995, and the Company anticipates making awards in the future under its
stock-based compensation plans.
9. INCOME TAXES:...........................
The income tax provisions consisted of the following:
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current provisions:
Federal ................. $ -- $ -- $ 816,931
State ................... -- 13,179 183,830
---------- ---------- ----------
Total current ...... -- 13,179 1,000,761
---------- ---------- ----------
Deferred provisions:
Federal ................. -- 310,925 (261,859)
State ................... -- 71,238 (55,662)
---------- ---------- ----------
Total deferred ..... -- 382,163 (317,521)
---------- ---------- ----------
Total provisions
(benefit) ...... $ -- $ 395,342 $ 683,240
========== ========== ==========
</TABLE>
For the years ended December 31, 1994 and 1995 the Company generated tax
operating losses. For the year ended December 31, 1996, the Company utilized
its remaining tax net operating loss carryforwards.
The components of the net deferred tax asset (liability) as of December 31,
1995 and 1996 were as follows:
28
<PAGE> 29
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------------- -----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Depreciation ....................... $ -- $ 16,547 $ 26,774 $ --
Doubtful Accounts .................. 434,192 -- 730,469 --
Compensation ....................... 198,584 -- 77,676 --
Accrual to cash conversion ......... -- 1,275,739 -- --
Section 481(a) adjustment .......... -- -- -- 1,022,416
Net operating loss carry forward ... 238,757 -- --
Other .............................. 38,590 -- 122,855 --
---------- ---------- ---------- ----------
Total ......................... $ 910,123 $1,292,286 $ 957,774 $1,022,416
========== ========== ========== ==========
</TABLE>
Deferred income taxes totaling $365,616 and $590,195 at December 31, 1995
and 1996, are included in current liabilities and assets, respectively.
Noncurrent deferred income tax liabilities totaled $16,547 and $654,837 at
December 31, 1995 and 1996, respectively.
The effective income tax rate varies from the federal statutory rate for the
years ended December 31, 1994, 1995 and 1996 as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate ........ 34.0% 34.0% 34.0%
Disallowance of meals
and entertainment ........ 4.6 1.8 1.5
(Reduction) addition to
valuation allowance ...... (37.4) -- --
State taxes (net of federal
benefit) ................. -- 5.7 5.3
Other ......................... (1.2) (0.9) 1.8
------ ------ ------
Effective income tax rate ..... 0.0% 40.6% 42.6%
====== ====== ======
</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 noncancellable operating leases which
expire on various dates through July 2002. Future minimum rental payments under
these capital and operating leases subsequent to December 31 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
YEAR ENDING DECEMBER 31
1997 . . .............................. $ 320,214 $1,037,423
1998 . . .............................. 60,656 756,889
1999 . . .............................. -- 260,268
2000 . . .............................. -- 161,306
2001................................... -- 138,949
Thereafter............................. -- 67,244
--------- ----------
Total future minimum lease payments.... $ 380,870 $2,422,079
==========
Less amounts representing interest..... 25,376
---------
Present value of future minimum
lease payments..................... 355,494
Less current maturities................ (296,717)
---------
Long-term capital lease obligations.... $ 58,777
========
</TABLE>
Rent expense for the years ended December 31, 1994, 1995 and 1996 under
operating leases was approximately $310,000, $946,000 and $1,637,000,
respectively.
29
<PAGE> 30
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 $13,000 in 1994, and $20,000 in 1995, and $44,000 in
1996, for professional fees. MJ and its affiliates own 326,116 shares of the
Company's common stock.
Satana's Vice President owns 91,312 shares of common stock.
Approximately $32,000, $27,000, and $0 in medical supplies were purchased
from a company owned by the relative of an officer and stockholder of the
Company during 1994, 1995, and 1996 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 $9,500 in 1996. 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 totaling approximately $25,000 in 1996.
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 a total purchase price of $288,000 which included
$25,000 in common stock. The asset purchase resulted in the recording of
$243,000 in property and equipment and $46,000 in goodwill.
The purchase agreement also contained a contingent consideration clause
whereby the Company paid on July 31,1996 an additional $25,000 when specific
gross revenues were 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.
During 1996, the Company completed the acquisitions of Maasai, Inc. in
Salt Lake City, Utah and Mobile Laser Services, Inc. in Chicago, Illinois 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 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.
30
<PAGE> 31
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
16. SUBSEQUENT EVENTS (UNAUDITED):
On January 21, 1997, the Company completed the acquisition of
substantially all of the assets of Stone Treatment Center of New England, Inc.,
a Rhode Island corporation. For cash paid of $238,280 and 22,174 shares of
common stock valued at $11.50 per share, the Company recorded assets and
assumed liabilities as follows:
<TABLE>
<S> <C>
Property and equipment................ $ 611,074
Goodwill.............................. 592,171
Accounts Payable...................... (709,966)
---------
$ 493,279
=========
</TABLE>
The purchase agreement contains a contingent consideration clause whereby
the Company will pay between $250,000 and $1,250,000 if specific EBITDA
(earnings before interest, taxes, depreciation, and amortization) levels
ranging from $445,835 and $778,000 are attained during calendar year 1997. The
acquisition has been accounted for under the purchase method of accounting and,
accordingly, the operating results of Stone Treatment Center of New England,
Inc. will be included in the consolidated operating results from 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.
Additionally, the Company completed two acquisitions, subsequent to year
end, for a total purchase price of approximately $300,000. These asset
purchases were accounted for under the purchase method of accounting resulting
in the recording of approximately $50,000 in goodwill and approximately
$250,000 in property and equipment. The pro forma effect of the acquisitions
was not material to the results of operations or financial position of the
Company.
31
<PAGE> 32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVES OF COMPANY
The information required by this Item is set forth under the heading
"Election of Directors" in the definitive proxy materials of the Company to be
filed in connection with its 1996 Annual Meeting of Shareholders, except for
the information regarding executive officers of the Company, which is contained
in Item 10 of Part III of this Annual Report on Form 10-K. The information
required by this Item contained in such definitive proxy materials is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth under the heading
"Executive Compensation" in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth under the heading
"Principal Shareholders" in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth under the heading
"Certain Transactions" in the Proxy Statement, which information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AN REPORTS ON FORM 8 -K
(a) The following documents are filed as a part of this Annual
Report on Form 10-K:
(1) Financial Statements:
The financial statements filed as a part of this report are
listed in "Index to Consolidated Financial Statements and
Financial Statement Schedules" at Item 8.
(2) Financial Statement Schedules:
The financial statement schedules filed as a part of this
report are listed in the "Index to Consolidated Financial
Statements and Financial Statements Schedules" at Item 8.
(3) Exhibits
The exhibits filed as a part of this report are listed
under "Exhibits" at subsection (c) of this Item 14.
(b) Reports on Form 8-K:
No report of Form 8-K was filed on behalf of the Registrant
during the last quarter of the Company's 1996 fiscal year.
32
<PAGE> 33
(c) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- -------------- -------------------
<S> <C>
2.1 - Asset Purchase Agreement, dated October 30, 1995 between the
Company and Mobile Surgical Services of Central Florida, Inc.
(1) (5)
2.2 - Asset Purchase Agreement, dated March 18, 1996 between the
Company and Maasai Inc. (1) (5)
2.3 - Asset Purchase Agreement, dated June 10, 1996 between the
Company and Mobile Laser Services, Inc.(1) (5)
2.4 - Asset Purchase Agreement, dated as of January 21, 1997 among
Stone Treatment Center of New England, Inc., Gregory A.
Mercurio, Vincent A. Catallozzi, M.D., Alexander Calenda, M.D.,
Gerald Marsocci, M.D., Joseph C. Cambio, M.D. and the Company.
(3) (5)
3.1 - Amended and Restated Articles of Incorporation of the Company.
(1)
3.2 - Amended and Restated Bylaws of the Company. (1)
4.1 - Specimen of Company Common Stock Certificate. (1)
4.2 - Series A Convertible Preferred Stock Purchase Agreement dated
July 10, 1992 between the Company and Mapleleaf Capital, Ltd.
(1)
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. (1)
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)
4.5 - Warrant to Purchase 468,300 Shares of Common Stock of the
Company dated July 10, 192 between the Company and Satana
Corporation. (1)
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. (1)
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. (1)
4.8 - Warrant to Purchase 2,342 Shares of Common Stock of the
Company dated May 31, 1994 between the Company and Shelly Burks.
(1)
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. (1)
4.10 - Warrant to Purchase 6,556 Shares of Common Stock of the
Company dated May 31, 1994 between the Company and Thomas A.
Montgomery. (1)
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. (1)
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)
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. (1)
10.6 - Medical Alliance, Inc. 1994 Amended and Restated Long-Term
Incentive Plan. (2) (4)
10.7 - Employment Agreement between the Company and Paul Herchman.
(1) (4)
10.8 - Employment Agreement between the Company and Kevin O'Brien.
(1)(4)
10.9 - Employment Agreement between the Company and Michael G.
Wallace. (1) (4)
10.10 - Lease Agreement. (1)
10.11 - Strategic Alliance Agreement, dated as of December 19, 1996,
by and between Laserscope and the Company. (3)
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- -------------- -------------------
<S> <C>
10.12 - Exclusive Provider Agreement, dated as of January 21, 1997, by
and between Thermolase Corporation and the Company. (3)
10.13 - Strategic Alliance Agreement, dated as of January 1, 1997, by
and between Valleylab, Inc. and the Company. (3)
10.14 - Exclusive Provider Agreement, dated as of February 9, 1997, by
and between Imagyn Medical, Inc. and the Company. (3)
11.1 - Statement regarding computation of per share earnings. (3)
12.1 - Subsidiaries of the Company. (1)
27.1 - Financial Data Schedule. (3)
</TABLE>
- ----------------
*Filed herewith.
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 333-09815) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Registration Statement on
form S-8 (No. 333-18545) and incorporated herein by reference.
(3) Filed herewith.
(4) Management contract or compensatory plan or arrangement, which is being
identified as such pursuant to Item 14(a)3 of Form 10-K.
(5) Schedules and similar attachments to this Exhibit have not been filed
herewith. The Company agrees to furnish a copy of any such omitted
schedules and attachments to the Commission upon request.
34
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the Undersigned, thereunto duly authorized.
MEDICAL ALLIANCE, INC.
By /s/ Mike Wallace
---------------------------------------------
MIKE WALLACE
Chief Financial Officer and Sr. Vice President
Finance and Administration
Date: March 31, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSON ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Paul Herchman Chairman of the Board and March 31, 1997
- ----------------------------- Chief Executive Officer
PAUL HERCHMAN
/s/ Tom Montgomery Director March 31, 1997
- -----------------------------
TOM MONTGOMERY
/s/ David Kallenberger Director March 31, 1997
- -----------------------------
DAVID KALLENBERGER
/s/ Leo Lopez Director March 31, 1997
- -----------------------------
LEO LOPEZ
/s/ Morris Moreland Director March 31, 1997
- -----------------------------
MORRIS MORELAND
/s/ Leon Pritzker Director March 31, 1997
- -----------------------------
LEON PRITZKER
Director March 31, 1997
- -----------------------------
JIM SILCOCK
</TABLE>
35
<PAGE> 36
SCHEDULE II
MEDICAL ALLIANCE, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Allowance for doubtful accounts ...... $1,113,314 $3,408,360 $2,662,053(A) $1,859,621
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
</TABLE>
- --------------
(1) Uncollectible accounts written off, net of recoveries.
36
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- -------------- -------------------
<S> <C>
2.1 - Asset Purchase Agreement, dated October 30, 1995 between the
Company and Mobile Surgical Services of Central Florida, Inc.
(1) (5)
2.2 - Asset Purchase Agreement, dated March 18, 1996 between the
Company and Maasai Inc. (1) (5)
2.3 - Asset Purchase Agreement, dated June 10, 1996 between the
Company and Mobile Laser Services, Inc.(1) (5)
2.4 - Asset Purchase Agreement, dated as of January 21, 1997 among
Stone Treatment Center of New England, Inc., Gregory A.
Mercurio, Vincent A. Catallozzi, M.D., Alexander Calenda, M.D.,
Gerald Marsocci, M.D., Joseph C. Cambio, M.D. and the Company.
(3) (5)
3.1 - Amended and Restated Articles of Incorporation of the Company.
(1)
3.2 - Amended and Restated Bylaws of the Company. (1)
4.1 - Specimen of Company Common Stock Certificate. (1)
4.2 - Series A Convertible Preferred Stock Purchase Agreement dated
July 10, 1992 between the Company and Mapleleaf Capital, Ltd.
(1)
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. (1)
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)
4.5 - Warrant to Purchase 468,300 Shares of Common Stock of the
Company dated July 10, 192 between the Company and Satana
Corporation. (1)
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. (1)
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. (1)
4.8 - Warrant to Purchase 2,342 Shares of Common Stock of the
Company dated May 31, 1994 between the Company and Shelly Burks.
(1)
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. (1)
4.10 - Warrant to Purchase 6,556 Shares of Common Stock of the
Company dated May 31, 1994 between the Company and Thomas A.
Montgomery. (1)
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. (1)
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)
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. (1)
10.6 - Medical Alliance, Inc. 1994 Amended and Restated Long-Term
Incentive Plan. (2) (4)
10.7 - Employment Agreement between the Company and Paul Herchman.
(1) (4)
10.8 - Employment Agreement between the Company and Kevin O'Brien.
(1)(4)
10.9 - Employment Agreement between the Company and Michael G.
Wallace. (1) (4)
10.10 - Lease Agreement. (1)
10.11 - Strategic Alliance Agreement, dated as of December 19, 1996,
by and between Laserscope and the Company. (3)
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- -------------- -------------------
<S> <C>
10.12 - Exclusive Provider Agreement, dated as of January 21, 1997, by
and between Thermolase Corporation and the Company. (3)
10.13 - Strategic Alliance Agreement, dated as of January 1, 1997, by
and between Valleylab, Inc. and the Company. (3)
10.14 - Exclusive Provider Agreement, dated as of February 9, 1997, by
and between Imagyn Medical, Inc. and the Company. (3)
11.1 - Statement regarding computation of per share earnings. (3)
12.1 - Subsidiaries of the Company. (1)
27.1 - Financial Data Schedule. (3)
</TABLE>
- ----------------
*Filed herewith.
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 333-09815) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Registration Statement on
form S-8 (No. 333-18545) and incorporated herein by reference.
(3) Filed herewith.
(4) Management contract or compensatory plan or arrangement, which is being
identified as such pursuant to Item 14(a)3 of Form 10-K.
(5) Schedules and similar attachments to this Exhibit have not been filed
herewith. The Company agrees to furnish a copy of any such omitted
schedules and attachments to the Commission upon request.
<PAGE> 1
EXHIBIT 2.4
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement, dated as of January __, 1997, this
"Agreement") among Stone Treatment Center of New England, Inc., a Rhode Island
corporation ("Seller"), Gregory A. Mercurio, Vincent A. Catallozzi, M.D.,
Alexander Calenda, M.D., Gerald Marsocci, M.D. and Joseph C. Cambio, M.D. (each
a "Stockholder" and collectively, the "Stockholders"), and Medical Alliance,
Inc., a Texas corporation ("Purchaser").
W I T N E S S E T H :
WHEREAS, the Stockholders are the owners of all of the stock of Seller;
and
WHEREAS, Seller desires to sell, and Purchaser desires to purchase,
substantially all of the assets of Seller;
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "Allowed Equipment" shall mean equipment purchased for the New
England Territory (as defined herein) with the prior written consent and
agreement of the Purchaser and a majority of the Stockholders. Provided the
New England Territory Budget, as listed on Schedule 1.1(a), is being met or
exceeded, such consent shall not be unreasonably withheld by any party.
(b) "Allowed E.S.W.L. EBITDA" shall mean earnings before interest,
taxes, depreciation and amortization attributable to E.S.W.L. services
performed outside of the New England Territory during the fiscal year ended
December 31, 1997 that result from the contract anticipated to be entered into
between Purchaser and MedStone, Inc. Such EBITDA will be less the cost of
Allowed Equipment acquired after the date hereof for the provision of E.S.W.L.
services performed outside of the New England Territory. The cost of such
Allowed Equipment shall be the total of: (i) an amount calculated by dividing
the total capitalizable cost of such equipment by 36 and multiplied by the
number of months such equipment is in service during 1997; (ii) any revenue
sharing or rental fees associated with such equipment; and (iii) an amount
equal to the interest portion of a 36 month amortization of the capitalizable
cost of such equipment, at an interest rate equal to the highest current
interest rate charged to Purchaser under any agreement to which Purchaser is a
party during 1997, regardless of the actual manner of payment for such
equipment.
(c) "Allowed New Services" shall mean the offering of the Coherent
Versapulse for the treatment of pigmented and vascular lesions, tattoos, and
the offering of a laser, such as the Coherent Versapulse or the Laserscope
AURA, to treat cutaneous leg veins within the states of Connecticut, Maine,
Massachusetts, New Hampshire, Rhode Island and Vermont.
(d) "Assets" shall mean, with respect to Seller, all of the business,
properties and assets (real and personal, tangible and intangible) of Seller of
every kind and wherever situated that are owned by Seller or in which it has
any right or interest (including without limitation and to the extent owned,
its business as a going concern, its goodwill, franchises and all right, title
and interest in and to the use of its corporate name and any derivatives or
combinations thereof; its trade-names, trade-marks, trade-mark registrations
and trade-mark applications, service marks, service mark registrations and
service mark applications, copyrights, copyright registrations and copyright
applications, patents, patent registrations and patent applications, processes,
formulae, proprietary and technical information, computer software, know-how,
permits, licenses, trade secrets, inventions and royalties (including all
rights to sue for past infringement of any of the foregoing); its lands,
leaseholds and other interests in land; its
<PAGE> 2
inventory of finished goods, work-in-process and raw materials, backlog,
equipment and supplies; its cash, money on deposit with banks and others,
certificates of deposit, commercial paper, stocks, bonds and other investments;
its accounts receivable as listed in Schedule 3.26 (the "Accounts Receivable");
rights under its insurance policies and warranties; its causes of action,
judgments, claims and demands of whatever nature; its deferred charges, advance
payments, prepaid items, claims for refunds, rights of offset and credits of
all kinds; all credit balances of or inuring to Seller under any state
unemployment compensation plan or fund; its rights under restrictive covenants
and obligations of present and former officers and employees and of individuals
and corporations; its rights under partnership or joint venture agreements or
arrangements; its rights under all agreements assumed by Purchaser; and its
files, papers and records relating to the aforesaid business, properties and
assets) other than the Excluded Assets.
(e) "Assumed Accounts Payable" shall mean those accounts payable of
Seller listed on Schedule 1.1(e).
(f) "Assumed Liabilities" shall mean those fixed and determinable
liabilities of Seller listed in Schedule 1.1(f) and the Assumed Accounts
Payable. Except for the Assumed Liabilities, Purchaser shall not assume or
agree to pay, perform or discharge any liabilities or obligations of Seller,
whether accrued, absolute, contingent or otherwise, including without
limitation, liabilities based on or arising out of or in connection with (a)
any defects in products manufactured, rented or sold by Seller, (b) any implied
or express warranties relating to such products or (c) any pension or other
benefit liability relating to Seller's employees.
(g) "Closing" shall mean the closing of the transactions contemplated
by this Agreement.
(h) "Closing Date" shall mean the date hereof.
(i) "Code" shall have the meaning set forth in Section 2.2(b).
(j) "Excluded Assets" shall mean the following assets and properties:
(i) The consideration delivered to Seller pursuant to this
Agreement for the Assets sold, transferred, assigned, conveyed and
delivered pursuant hereto;
(ii) Seller's right to enforce Purchaser's representations,
warranties and covenants hereunder and the obligations of Purchaser to
pay, perform or discharge the liabilities of Seller assumed by Purchaser
pursuant to this Agreement and all other rights, including rights of
indemnification, of Seller under this Agreement or any instrument
executed pursuant hereto;
(iii) Seller's Articles of Incorporation and all amendments
thereto, Bylaws, corporate seal, minute books, stock books and other
corporate records having exclusively to do with the corporate
organization and capitalization of Seller;
(iv) Seller's books of account, but Seller agrees that Purchaser
shall have the right at Purchaser's request to inspect such books and
make copies thereof;
(v) Seller's rights to claims for refunds of taxes which cannot
be assigned by law;
(vi) Shares of the capital stock of Seller;
(vii) Unclaimed dividends and other money and property that are
held in trust by Seller or subject to escheat;
(viii) Any accounts payable of Seller not listed on Schedule
1.1(e);
(ix) Seller's option to obtain an equity position in that
certain Freestanding Ambulatory Surgery Center, as such option was
purchased from Michael Rocchio, M.D.; and
-2-
<PAGE> 3
(x) Those shares of Common Stock of Purchaser purchased by
Seller pursuant to Purchaser's initial public offering of the same.
(k) "Modified Working Capital" shall equal the difference between the
Total Assets (as determined using the component accounts listed on Schedule
1.1(k) attached hereto) and the Total Liabilities (as determined using the
component accounts listed on Schedule 1.1(k) attached hereto) of the Seller.
Total Assets and Total Liabilities shall be determined on the date hereof in a
manner acceptable to Buyer and Seller. Seller agrees that if, on the date
hereof, the Modified Working Capital is less than the amount specified in
Section 3.37, the Cash Compensation shall be decreased by the amount that the
Modified Working Capital is less than that amount specified in Section 3.37.
(l) "New England Territory" shall mean the service area covered by
Seller as of December 31, 1996, in the states of Connecticut, Maine,
Massachusetts, New Hampshire, Rhode Island and Vermont.
(m) "1997 EBITDA" shall mean the combination of (i) the 1997 Existing
Services EBITDA, (ii) the 1997 New Services EBITDA and (iii) the Allowed
E.S.W.L. EBITDA for all such services performed through December 31, 1997,
provided, however, that if (i) the 1997 Existing Services EBITDA is less than
$538,312 and (ii) the 1997 New Services EBITDA is a positive number, the 1997
EBITDA shall not include the 1997 New Services EBITDA.
(n) "1997 Existing Services EBITDA" shall mean the earnings before
interest, taxes, depreciation and amortization of the New England Territory for
the fiscal year ended December 31, 1997, attributable to those services offered
by Seller in the New England Territory as of the date hereof, including laser
lithotripsy, E.S.W.L. laser prostatectomy, laser arthroscopy, C.U.S.A. skin
resurfacing and incisioral surgery utilizing the Ultrapulse laser, and less the
cost of Allowed Equipment acquired after the date hereof for the provision of
those services offered by Seller as of the date hereof. The cost of such
equipment shall be the total of: (i) an amount calculated by dividing the total
capitalizable cost of such equipment by 36 and multiplied by the number of
months such equipment is in service during 1997; (ii) any revenue sharing or
rental fees associated with such equipment; and (iii) an amount equal to the
interest portion of a 36 month amortization of the capitalizable cost of such
equipment, at an interest rate equal to the highest current interest rate
charged to Purchaser under any agreement to which Purchaser is a party during
1997, regardless of the actual manner of payment for such equipment.
(o) "1997 New Services EBITDA" shall mean the earnings before
interest, taxes, depreciation and amortization of Seller for the fiscal year
ended December 31, 1997, attributable solely to the Allowed New Services, and
less the cost of any Allowed Equipment acquired after the date hereof for the
provision of Allowed New Services. The cost of such equipment shall be the
total of: (i) an amount calculated by dividing the total capitalizable cost of
such equipment by 36 and multiplied by the number of months such equipment is
in service during 1997; (ii) any revenue sharing or rental fees associated with
such equipment; and (iii) an amount equal to the interest portion of a 36 month
amortization of the capitalizable cost of such equipment, at an interest rate
equal to the highest current interest rate charged to Purchaser under any
agreement to which Purchaser is a party during 1997, regardless of the actual
manner of payment for such equipment.
ARTICLE II
PURCHASE AND SALE
SECTION 2.1. PURCHASE AND SALE OF ASSETS. Subject to and upon the
terms and conditions contained herein, on the date hereof, Seller hereby sells,
transfers, assigns, conveys and delivers to Purchaser, free and clear of all
security interests, liens, claims, restrictions and encumbrances (except as
provided for in the Assumed Liabilities) and Purchaser hereby purchases,
accepts and acquires from Seller, the Assets.
-3-
<PAGE> 4
SECTION 2.2. PURCHASE PRICE.
(a) TOTAL PURCHASE PRICE. The total purchase price for the Assets
(the "Purchase Price") shall be: (i) $245,000 in cash ("Cash Consideration");
(ii) a contingent one time income earnout in an amount to be determined
pursuant to Section 2.2(c) (the "Income Earnout"); (iii) 22,174 shares of
common stock of Purchaser (the "Common Stock"); and (iv) the assumption of
Assumed Liabilities; and (v) Purchaser's assumption of the Assumed Accounts
Payable.
(b) ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocated among the Assets as set forth in Schedule 2.2(b), such allocation to
be made as provided in Section 1060 of the Internal Revenue Code of 1986 (the
"Code"). Purchaser and Seller shall each file Form 8594 (Asset Acquisition
Statement Under Section 1060) on a timely basis reporting the allocation of the
Purchase Price consistent with the allocation in Schedule 2.2(b). Schedule
2.2(b) also reflects the aggregate fair market values for each of Class I
assets, Class II assets and Class III assets, as such terms are defined in
regulations promulgated pursuant to Section 1060 of the Code. Purchaser and
Seller shall file on a timely basis any amendments required to such Form 8594
as a result of a subsequent increase or decrease of the Purchase Price.
Purchaser and Seller shall not take any position on their respective income tax
returns that is inconsistent with the allocation of the Purchase Price as
agreed to in Schedule 2.2(b) or as adjusted as a result of a subsequent
increase or decrease in the Purchase Price.
(c) INCOME EARNOUT. By March 31, 1998, the parties shall determine,
via an accounting performed by Coopers & Lybrand, LLP ("Coopers & Lybrand"),
the 1997 EBITDA. The cost of such accounting shall be shared equally by Seller
and Purchaser. If the 1997 EBITDA is greater than or equal to $778,000, the
Income Earnout shall equal $1,250,000. If the 1997 EBITDA is greater than or
equal to $667,000, but less than $778,000, the Income Earnout shall equal
$1,000,000. If the 1997 EBITDA is greater than or equal to $538,312, but less
than $667,000, the Income Earnout shall equal $750,000. If the 1997 EBITDA is
greater than or equal to $515,449, but less than $538,312, the Income Earnout
shall equal $625,000. If the 1997 EBITDA is greater than or equal to $492,585,
but less than $515,449, the Income Earnout shall equal $500,000. If the 1997
EBITDA is greater than or equal to $469,710, but less than $492,585, the Income
Earnout shall equal $375,000. If the 1997 EBITDA is greater than or equal to
$446,835, but less than $469,710 the Income Earnout shall equal $250,000. If
the 1997 EBITDA is less than $446,835, the Income Earnout shall equal $0. The
Income Earnout, if any, shall be paid by Purchaser as follows: (i) up to the
first $75,000 of the Income Earnout shall consist of that number of shares of
Common Stock equal to $75,000 based upon the closing price of Purchaser Common
Stock on December 31, 1997; (ii) any additional amounts to be paid to Seller in
respect of the Income Earnout shall be paid in cash by April 30, 1998.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants that the following are true and correct
as of the date hereof:
SECTION 3.1. ORGANIZATION AND GOOD STANDING; QUALIFICATION. Seller is
a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, with all requisite corporate power and
authority to carry on the business in which it is engaged, to own the
properties it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. Seller is duly qualified and licensed to do
business and is in good standing in all jurisdictions where the nature of its
business makes such qualification necessary, which jurisdictions are listed in
Schedule 3.1, except where the failure to be qualified or licensed would not
have a material adverse effect on the business of Seller. Seller does not have
any assets, employees or offices in any state other than the states listed in
Schedule 3.1. Seller does not own, directly or indirectly, any of the capital
stock of any other corporation or any equity, profit sharing, participation or
other interest in any corporation, partnership, joint venture or other entity.
SECTION 3.2. CORPORATE RECORDS. The copies of the Articles of
Incorporation and all amendments thereto and the Bylaws of Seller that have
been delivered to Purchaser are true, correct and complete copies thereof, as
in effect on the date hereof. The minute books of Seller, copies of which have
been delivered to Purchaser,
-4-
<PAGE> 5
contain accurate minutes of all meetings of, and accurate consents to all
actions taken without meetings by, the Board of Directors (and any committees
thereof) and the shareholders of Seller since the formation of Seller.
SECTION 3.3. AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by Seller of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by Seller. This Agreement and each other
agreement contemplated hereby have been duly executed and delivered by Seller
and constitute legal, valid and binding obligations of Seller, enforceable
against Seller in accordance with their respective terms, except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
SECTION 3.4. NO VIOLATION. Neither the execution, delivery or
performance of this Agreement or the other agreements contemplated hereby nor
the consummation of the transactions contemplated hereby or thereby will (i)
conflict with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, the Articles of Incorporation or
Bylaws of Seller or any agreement, indenture or other instrument under which
Seller is bound or to which any of the Assets are subject, or result in the
creation or imposition of any security interest, lien, charge or encumbrance
upon any of the Assets or (ii) violate or conflict with any judgment, decree,
order, statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over Seller or the Assets.
Seller has complied with all laws, regulations and licensing requirements and
has filed with the proper authorities all necessary statements and reports.
SECTION 3.5. CONSENTS. Except as set forth in Schedule 3.5, no
consent, authorization, approval, permit or license of, or filing with, any
governmental or public body or authority, any lender or lessor or any other
person or entity is required to authorize, or is required in connection with,
the execution, delivery and performance of this Agreement or the agreements
contemplated hereby on the part of Seller.
SECTION 3.6. FINANCIAL STATEMENTS. Seller has furnished to Purchaser
Seller's unaudited balance sheet and related unaudited statements of income,
retained earnings and cash flows for the twelve-month period ended December 31,
1995, including the notes thereto, as well as unaudited balance sheets and
related unaudited statements of income, retained earnings and cash flows for
the eleven-month period ended November 30, 1996 (collectively, the "Financial
Statements"). The Financial Statements are true, correct and complete, are in
accordance with the books and records of Seller, fairly present the financial
condition and results of operations of Seller as of the dates and for the
periods indicated and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis with prior periods.
SECTION 3.7. LIABILITIES AND OBLIGATIONS. Except as set forth in
Schedule 3.7, the Financial Statements reflect all liabilities of Seller,
accrued, contingent or otherwise (known or unknown and asserted or unasserted),
arising out of transactions effected or events occurring on or prior to the
date hereof. All reserves shown in the Financial Statements are appropriate,
reasonable and sufficient to provide for losses thereby contemplated. Except
as set forth in the Financial Statements, Seller is not liable upon or with
respect to, or obligated in any other way to provide funds in respect of or to
guarantee or assume in any manner, any debt, obligation or dividend of any
person, corporation, association, partnership, joint venture, trust or other
entity, and Seller knows of no basis for the assertion of any other claims or
liabilities of any nature or in any amount.
SECTION 3.8. EMPLOYEE MATTERS.
(a) CASH COMPENSATION. Schedule 3.8(a) contains a complete and
accurate list of the names, titles and cash compensation, including without
limitation wages, salaries, bonuses (discretionary and formula) and other cash
compensation (the "Cash Compensation") of all employees of Seller. In
addition, Schedule 3.8(a) contains a complete and accurate description of (i)
all increases in Cash Compensation of employees of Seller during the current
and immediately preceding fiscal years of Seller and (ii) any promised
increases in Cash Compensation of employees of Seller that have not yet been
effected.
(b) COMPENSATION PLANS. Schedule 3.8(b) contains a complete and
accurate list of all compensation plans, arrangements or practices (the
"Compensation Plans") sponsored by Seller or to which Seller contributes on
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behalf of its employees, other than Employee Benefit Plans listed in Schedule
3.9(a). The Compensation Plans include without limitation plans, arrangements
or practices that provide for severance pay, deferred compensation, incentive,
bonus or performance awards, and stock ownership or stock options. Seller has
provided Purchaser a copy of each written Compensation Plan and a written
description of each unwritten Compensation Plan. Each of the Compensation
Plans can be terminated or amended at will by Seller.
(c) EMPLOYMENT AGREEMENTS. Schedule 3.8(c) contains a complete and
accurate list of all employment agreements (the "Employment Agreements") to
which Seller is a party with respect to its employees. The Employment
Agreements include without limitation employee leasing agreements, employee
services agreements and noncompetition agreements. Seller has provided
Purchaser a copy of each written Employment Agreement and a written description
of each unwritten Employment Agreement.
(d) EMPLOYEE POLICIES AND PROCEDURES. Schedule 3.8(d) contains a
complete and accurate list of all employee manuals, policies, procedures and
work-related rules (the "Employee Policies and Procedures") that apply to
employees of Seller. Seller has provided Purchaser a copy of all written
Employee Policies and Procedures and a written description of all unwritten
Employee Policies and Procedures. Each of the Employee Policies and Procedures
can be amended or terminated at will by Seller.
(e) UNWRITTEN AMENDMENTS. No unwritten amendments have been made,
whether by oral communication, pattern of conduct or otherwise, with respect to
any Compensation Plans, Employment Agreements or Employee Policies and
Procedures.
(f) LABOR COMPLIANCE. Except as set forth in Schedule 3.8(f), Seller
(i) has been and is in compliance with all laws, rules, regulations and
ordinances respecting employment and employment practices, terms and conditions
of employment and wages and hours, and (ii) is not liable for any arrears of
wages or penalties for failure to comply with any of the foregoing. Seller has
not engaged in any unfair labor practice or discriminated on the basis of race,
color, religion, sex, national origin, age or handicap in its employment
conditions or practices.
There are no (i) unfair labor practice charges or complaints or
racial, color, religious, sex, national origin, age or handicap discrimination
charges or complaints pending or threatened against Seller before any federal,
state or local court, board, department, commission or agency nor does any
basis therefor exist or (ii) existing or threatened labor strikes, disputes,
grievances, controversies or other labor troubles affecting Seller, nor does
any basis therefor exist.
(g) UNIONS AND EMPLOYEES. Seller has never been a party to any
agreement with any union, labor organization or collective bargaining unit. No
employees of Seller are represented by any union, labor organization or
collective bargaining unit. To the best knowledge of Seller, the employees of
Seller have no intention to and have not threatened to organize or join a
union, labor organization or collective bargaining unit. All employees of
Seller are citizens of, or are authorized to be employed in, the United States.
SECTION 3.9. EMPLOYEE BENEFIT PLANS.
(a) IDENTIFICATION. Schedule 3.9(a) contains a complete and accurate
list of all employee benefit plans (the "Employee Benefit Plans") (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) sponsored by Seller or to which Seller contributes on
behalf of its employees and all Employee Benefit Plans previously sponsored or
contributed to on behalf of its employees within the three years preceding the
date hereof. Seller has provided Purchaser with copies of all plan documents,
determination letters, pending determination letter applications, trust
instruments, insurance contracts, administrative services contracts, annual
reports, actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, Seller has provided Purchaser a written description of all existing
practices engaged in by Seller that constitute Employee Benefit Plans. Each of
the Employee Benefit Plans can be terminated or amended at will by Seller. No
unwritten amendment exists with respect to any Employee Benefit Plan.
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(b) ADMINISTRATION. Each Employee Benefit Plan has been administered
and maintained in compliance with all laws, rules and regulations. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency.
No prohibited transactions (within the meaning of Section 4975 of the Code)
have occurred with respect to any Employee Benefit Plan.
(c) CLAIMS AND LITIGATION. No threatened or pending claims, suits or
other proceedings exist with respect to any Employee Benefit Plan other than
normal benefit claims filed by participants or beneficiaries.
(d) QUALIFICATION. Seller has received a favorable determination
letter or ruling from the Internal Revenue Service for each Employee Benefit
Plan intended to be qualified within the meaning of Section 401(a) of the Code
and/or tax-exempt within the meaning of Section 501(a) of the Code. No
proceedings exist or have been threatened that could result in the revocation
of any such favorable determination letter or ruling.
(e) PBGC. No facts or circumstances exist that would result in the
imposition of liability against Purchaser by the Pension Benefit Guaranty
Corporation as a result of any act or omission by Seller or any member of a
Controlled Group. No reportable event (within the meaning of Section 4043 of
ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) FUNDING STATUS. No accumulated funding deficiency (within the
meaning of Section 412 of the Code), whether waived or unwaived, exists with
respect to any Employee Benefit Plan or any plan sponsored by any member of a
controlled group (within the meaning of Section 412(n)(6)(B) of the Code) in
which Seller is a member (a "Controlled Group"). With respect to each Employee
Benefit Plan subject to Title IV of ERISA, the assets of each such plan are at
least equal in value to the present value of accrued benefits determined on an
ongoing basis as of the date hereof. With respect to each Employee Benefit
Plan described in Section 501(c)(9) of the Code, the assets of each such plan
are at least equal in value to the present value of accrued benefits as of the
date hereof. Schedule 3.9(f) contains a complete and accurate statement of all
actuarial assumptions applied to determine the present value of accrued
benefits under all Employee Benefit Plans subject to actuarial assumptions.
(g) EXCISE TAXES. Neither Seller nor any member of a Controlled
Group has any liability to pay excise taxes with respect to any Employee
Benefit Plan under applicable provisions of the Code or ERISA. Neither Seller
nor any member of a Controlled Group is or ever has been obligated to
contribute to a multiemployer plan within the meaning of Section 3(37) of
ERISA.
(h) MEDICAL AND DENTAL CARE CLAIMS; RETIREES. Schedule 3.9(h)
contains a complete and accurate list of all claims made (without identifying
specific individuals) under any medical or dental care plan or commitment
offered by Seller to its employees involving hospitalization, medical or dental
care claims that have exceeded $2,000 per year for an individual during
Seller's current fiscal year or any of the three fiscal years preceding the
date hereof. Seller has no obligation or commitment to provide medical, dental
or life insurance benefits to or on behalf of any of its employees who may
retire or any of its former employees who have retired from employment with
Seller.
SECTION 3.10. ABSENCE OF CERTAIN CHANGES. Except as set forth in
Schedule 3.10, since November 1, 1996, Seller has not
(a) suffered any material adverse change, whether or not caused by
any deliberate act or omission of Seller, in its condition (financial or
otherwise), operations, assets, liabilities, business or prospects;
(b) contracted for the purchase of any capital assets having a cost
in excess of $5,000 or paid any capital expenditures in excess of $5,000;
(c) incurred any indebtedness for borrowed money or issued or sold
any debt securities;
(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business;
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(e) paid any amount on any indebtedness prior to the due date,
forgiven or cancelled any debts or claims or released or waived any rights or
claims;
(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its properties or assets;
(g) suffered any damage or destruction to or loss of any assets
(whether or not covered by insurance) that has materially and adversely
affected, or could materially and adversely affect, its business;
(h) acquired or disposed of any assets except in the ordinary course
of business;
(i) written up or written down the carrying value of any of its
assets;
(j) changed the costing system or depreciation methods of accounting
for its assets;
(k) waived any material rights or forgiven any material claims;
(l) lost or terminated any employee, customer or supplier, the loss
or termination of which has materially and adversely affected, or could
materially and adversely affect, its business or assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the ordinary
course of business;
(o) made any payments to or loaned any money to any person or entity
referred to in Section 3.32;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights;
(r) entered into any agreement with any person or group, or modified
or amended in any material respect the terms of any such existing agreement
except in the ordinary course of business;
(s) entered into, adopted or amended any Employee Benefit Plan;
(t) operated its business in any manner other than the ordinary
course of business or introduced any new method of management or operation; or
(u) entered into any other commitment or transaction or experienced
any other event that is material to this Agreement or to any of the other
agreements and documents executed or to be executed pursuant to this Agreement
or to the transactions contemplated hereby or thereby, or that has materially
and adversely affected, or could materially and adversely affect, the condition
(financial or otherwise), operations, assets, liabilities, business or
prospects of Seller.
SECTION 3.11. TITLE; LEASED ASSETS.
(a) REAL PROPERTY. A description of all interests in real property
owned by Seller (collectively, the "Real Property") is set forth in Schedule
3.11(a). Except as set forth in Schedule 3.11(a), Seller has good, valid and
indefeasible title to all the Real Property. The Real Property and the leased
real property referred to in Section 3.11(c) constitute the only real property
used in the conduct of Seller's business. Upon consummation of the
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transactions contemplated hereby, Purchaser shall receive good, valid and
marketable title to the Real Property free and clear of all liens, claims and
encumbrances other than those described in Schedule 3.11(a).
(b) PERSONAL PROPERTY. A description of all tangible and intangible
personal property owned by Seller (collectively, the "Personal Property") is
set forth in Schedule 3.11(b). Except as set forth in Schedule 3.11(b), Seller
has good, valid and marketable title to all the Personal Property. The
Personal Property and the leased personal property referred to in Section
3.11(c) constitute the only personal property used in the conduct of Seller's
business. Upon consummation of the transactions contemplated hereby, Purchaser
shall receive good, valid and marketable title to the Personal Property free
and clear of all security interests, liens, claims and encumbrances other than
those described in Schedule 3.11(b).
(c) LEASES. A list and brief description of all leases of real and
personal property to which Seller is a party, either as lessor or lessee, are
set forth in Schedule 3.11(c). All such leases are valid and enforceable in
accordance with their respective terms except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies.
(d) RIGHT TO USE ASSETS. Except for those assets acquired since
November 30, 1996, which are listed in Schedule 3.11(d), all tangible assets
used in the conduct of Seller's business are reflected in the Financial
Statements in a manner that is in conformity with generally accepted accounting
principles applied on a consistent basis with prior periods. Seller owns,
leases or otherwise possesses a transferable right to use all assets used in
the conduct of its business, and except for the Excluded Assets, has hereby
transferred all of such rights to Purchaser.
SECTION 3.12. COMMITMENTS.
(a) COMMITMENTS; DEFAULTS. Except as set forth in Schedule 3.12,
Seller has not entered into, nor are the Assets or the business of Seller bound
by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent
to another;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
public relations or advertising agencies, accountants or attorneys;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee;
(x) agreement between Seller and any affiliate of Seller;
(xi) agreement relating to any material matter or transaction in
which an interest is held by a person or entity that is an affiliate of
Seller;
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(xii) any agreement for the acquisition of services, supplies,
equipment or other personal property and involving more than $5,000 in
the aggregate;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) agreement providing for the purchase from a supplier of all
or substantially all of the requirements of Seller of a particular
product or service; or
(xvi) any other contract or arrangement that involves either an
unperformed commitment in excess of $5,000 or that terminates more than
30 days after the date here of any other agreement or commitment not
made in the ordinary course of business or that is material to the
business or financial condition of Seller.
All of the foregoing are hereinafter collectively referred to as the
"Commitments." True, correct and complete copies of the written Commitments,
and true, correct and complete written descriptions of the oral Commitments,
have heretofore been delivered or made available to Purchaser. There are no
existing defaults, events of default or events, occurrences, acts or omissions
that, with the giving of notice or lapse of time or both, would constitute
defaults by Seller, and no penalties have been incurred nor are amendments
pending, with respect to the Commitments, except as described in Schedule 3.12.
The Commitments are in full force and effect and are valid and enforceable
obligations of the parties thereto in accordance with their respective terms,
and no defenses, off-sets or counterclaims have been asserted or, to the best
knowledge of Seller, may be made by any party thereto, nor has Seller waived
any rights thereunder, except as described in Schedule 3.12. Seller has not
received notice of any default with respect to any Commitment.
(b) NO CANCELLATION OR TERMINATION OF COMMITMENT. Except as
contemplated hereby, Seller has not received notice of any plan or intention of
any other party to any Commitment to exercise any right to cancel or terminate
any Commitment or agreement, and Seller knows of no fact that would justify the
exercise of such a right. Seller does not currently contemplate, or have
reason to believe any other person or entity currently contemplates, any
amendment or change to any Commitment. Except as listed in Schedule 3.12, none
of the customers or suppliers of Seller has refused, or communicated that it
will or may refuse, to purchase or supply goods or services, as the case may
be, or has communicated that it will or may substantially reduce the amounts of
goods or services that it is willing to purchase from, or sell to, Seller.
SECTION 3.13. ADVERSE AGREEMENTS. Seller is not a party to any
agreement or instrument or subject to any charter or other corporate
restriction or any judgment, order, writ, injunction, decree, rule or
regulation that materially and adversely affects, or so far as Seller can now
foresee, may in the future materially and adversely affect, the condition
(financial or otherwise), operations, assets, liabilities, business or
prospects of Seller.
SECTION 3.14. INSURANCE. Seller carries property, liability, workers'
compensation and such other types of insurance as is customary in Seller's
industry. A list and brief description of all insurance policies of Seller are
set forth in Schedule 3.14. All of such policies are valid and enforceable
policies, issued by insurers of recognized responsibility in amounts and
against such risks and losses as is customary in Seller's industry. Such
insurance shall be outstanding and duly in force without interruption up to and
including the Closing Date. True, complete and correct copies of all such
policies have been provided to Purchaser on or prior to the date hereof.
SECTION 3.15. PATENTS, TRADE-MARKS, SERVICE MARKS AND COPYRIGHTS.
(a) OWNERSHIP. Seller owns all patents, trade-marks, service marks
and copyrights, if any, necessary to conduct its business, or possesses
adequate licenses or other rights, if any, therefor, without conflict with the
rights of others. Set forth in Schedule 3.15 is a true and correct description
of the following ("Proprietary Rights"): (i) all trade-marks, trade-names,
service marks and other trade designations, including common law rights,
registrations and applications therefor, and all patents, copyrights and
applications currently owned, in whole or in part, by Seller with
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respect to the Assets and Seller's business, and all licenses, royalties,
assignments and other similar agreements relating to the foregoing to which
Seller is a party (including expiration date if applicable) and (ii) all
agreements relating to technology, know-how or processes that Seller is
licensed or authorized to use by others, or which it licenses or authorizes
others to use.
(b) CONFLICTING RIGHTS OF THIRD PARTIES. Seller has the sole and
exclusive right to use the Proprietary Rights without infringing or violating
the rights of any third parties. No consent of third parties will be required
for the transfer thereof to Purchaser or the use thereof by Purchaser upon
consummation of the transactions contemplated hereby and the Proprietary Rights
are freely transferable. No claim has been asserted by any person to the
ownership of or right to use any Proprietary Right or challenging or
questioning the validity or effectiveness of any license or agreement
constituting a part of any Proprietary Right, and Seller knows of no valid
basis for any such claim. Each of the Proprietary Rights is valid and
subsisting, has not been cancelled, abandoned or otherwise terminated and, if
applicable, has been duly issued or filed.
(c) CLAIMS OF OTHER PERSONS. Seller has no knowledge of any claim
that, or inquiry as to whether, any product, activity or operation of Seller
infringes upon or involves, or has resulted in the infringement of, any
proprietary right of any other person, corporation or other entity; and no
proceedings have been instituted, are pending or are threatened that challenge
the rights of Seller with respect thereto. Seller has not given and is not
bound by any agreement of indemnification for any Proprietary Right as to any
property manufactured, used or sold by Seller.
SECTION 3.16. TRADE SECRETS AND CUSTOMER LISTS. Seller has the right to
use, free and clear of any claims or rights of others except claims or rights
specifically set forth in Schedule 3.16, all trade secrets, customer lists and
proprietary information required for the marketing of all merchandise and
services formerly or presently sold or marketed by Seller. Seller is not using
or in any way making use of any confidential information or trade secrets of
any third party, including without limitation any past or present employee of
Seller.
SECTION 3.17. TAXES.
(a) FILING OF TAX RETURNS. Seller has duly and timely filed with the
appropriate governmental agencies all income, excise, corporate, franchise,
property, sales, use, payroll, withholding and other tax returns (including
information returns) and reports required to be filed by the United States or
any state or any political subdivision thereof or any foreign jurisdiction.
All such tax returns or reports are complete and accurate and properly reflect
the taxes of Seller for the periods covered thereby. Seller has paid or
accrued all taxes, penalties and interest that have become due with respect to
any returns that it has filed and any assessments of which it is aware. Seller
is not delinquent in the payment of any tax, assessment or governmental charge.
(b) NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR AUDITS.
No tax deficiency or delinquency has been asserted against Seller. There is no
unpaid assessment, proposal for additional taxes, deficiency or delinquency in
the payment of any of the taxes of Seller that could be asserted by any taxing
authority. Seller has not violated any federal, state, local or foreign tax
law.
(c) NO EXTENSION OF LIMITATION PERIOD. Seller has not granted an
extension to any taxing authority of the limitation period during which any tax
liability may be assessed or collected.
(d) ALL WITHHOLDING REQUIREMENTS SATISFIED. All monies required to
be withheld by Seller and paid to governmental agencies for all income, social
security, unemployment insurance, sales, excise, use, and other taxes have been
(i) collected or withheld and either paid to the respective governmental
agencies or set aside in accounts for such purpose or (ii) properly reflected
in the Financial Statements.
(e) STATE UNEMPLOYMENT TAXES. In respect of its most recently
completed reporting period, Seller has paid state unemployment taxes in the
appropriate amounts to the appropriate authorities. Seller does not know or
have reason to know of any increase or proposed increase, or facts that would
lead to an increase, in the rate of such state unemployment tax for any period
in the future.
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(f) TAX LIABILITY IN FINANCIAL STATEMENTS. The liabilities
(including deferred taxes) shown in the Financial Statements as of November 30,
1996 and to be accrued on the books and records of the Seller as of the date
hereof for taxes, interest and penalties are adequate accruals and have been
accrued in a manner consistent with the practices utilized for accruing tax
liabilities in the tax year ended December 31, 1996 and take into account net
operating losses, investment credits and other carryovers for periods ended
prior to the date hereof.
(g) FOREIGN PERSON. Seller is not a foreign person, as such term is
referred to in Section 1445(b)(2) of the Code.
(h) TAX EXEMPT ENTITY. None of the Assets are or will be subject to
a lease to a "tax exempt entity" as such term is defined in Section 168(h)(2)
of the Code.
SECTION 3.18. COMPLIANCE WITH LAWS. Seller has complied with all laws,
regulations and licensing requirements and has filed with the proper
authorities all necessary statements and reports. There are no existing
violations by Seller of any federal, state or local law or regulation that
could affect the property or business of Seller. Seller possesses all
necessary licenses, franchises, permits and governmental authorizations to
conduct its business as now conducted, all of which are listed in Schedule
3.18.
SECTION 3.19. FINDER'S FEE. Seller has not incurred any obligation for
any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
SECTION 3.20. LITIGATION. Except as described in Schedule 3.20, there
are no legal actions or administrative proceedings or investigations
instituted, or to the best knowledge of Seller threatened, against or
affecting, or that could affect, Seller, any of the Assets, or the business of
Seller. Seller is not (i) subject to any continuing court or administrative
order, writ, injunction or decree applicable specifically to Seller or to its
business, assets, operations or employees or (ii) in default with respect to
any such order, writ, injunction or decree. Seller does not know of any basis
for any such action, proceeding or investigation.
SECTION 3.21. ACCURACY OF INFORMATION FURNISHED. All information
furnished to Purchaser by Seller hereby or in connection with the transactions
contemplated hereby is true, correct and complete in all respects. Such
information states all facts required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which such
statements are made, true, correct and complete.
SECTION 3.22. CONDITION OF FIXED ASSETS. All of the plants, structures
and equipment (the "Fixed Assets") included in the Assets are in good condition
and repair for their intended use in the ordinary course of business and
conform in all material respects with all applicable ordinances, regulations
and other laws and there are no known latent defects therein.
SECTION 3.23. INVENTORY. All of the inventory included in the Assets is
in good, current, standard and merchantable condition and is not obsolete or
defective. Purchase commitments for merchandise are not in excess of normal
requirements and, taken as a whole, are not at prices in excess of market
prices. Seller has the types and quantities of inventories appropriate, taken
as a whole, to conduct its business consistently with past practices.
SECTION 3.24. BOOKS OF ACCOUNT. The books of account of Seller have
been kept accurately in the ordinary course of business, the transactions
entered therein represent bona fide transactions and the revenues, expenses,
assets and liabilities of Seller have been properly recorded in such books.
SECTION 3.25. NAME. There are no actions, suits or proceedings pending,
or to the best knowledge of Seller threatened, against or affecting Seller that
could result in any impairment of the right of Seller to use the name "Stone
Treatment Center." The use of the name "Stone Treatment Center" does not
infringe the rights of any third party nor is it confusingly similar with the
corporate name of any third party. After the date hereof, no person or
business entity other than Purchaser will be authorized, directly or
indirectly, to use the name "Stone Treatment Center" or any name confusingly
similar thereto.
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SECTION 3.26. ACCOUNTS RECEIVABLE. Schedule 3.26 sets forth the
accounts receivable of Seller's business from sales made as of the date hereof
and the payments and rights to receive payments related thereto, is complete
and accurate. All such accounts receivable have arisen from bona fide
transactions in the ordinary course of business and are valid and enforceable
claims subject to no right of set-off or counterclaim.
SECTION 3.27. CUSTOMERS. Set forth in Schedule 3.27 is a complete and
accurate list of the ten largest customers of Seller in terms of sales for each
of the last three fiscal years and the current fiscal year to date, showing,
with respect to each, the name, address and pricing and sales records relating
to such customer.
SECTION 3.28. SUPPLIERS. Set forth in Schedule 3.28 is a complete and
accurate list of the four largest suppliers of Seller in terms of dollar volume
of transactions of Seller for each of the last three fiscal years and the
current fiscal year to date, showing, with respect to each, the name, address
and aggregate dollar volume of purchases from such supplier.
SECTION 3.29. PRICING. Set forth in Schedule 3.29 is a complete and
accurate list of Seller's standard prices and any applicable discounts by
customer name.
SECTION 3.30. PRODUCT WARRANTIES. There is no claim against or
liability of Seller on account of product warranties or with respect to the
manufacture, sale or rental of defective products and there is no basis for any
such claim on account of defective products heretofore manufactured, sold or
rented that is not fully covered by insurance.
SECTION 3.31. BANKING RELATIONS. Set forth in Schedule 3.31 is a
complete and accurate list of all arrangements that Seller has with any bank or
other financial institution, indicating with respect to each relationship the
type of arrangement maintained (such as checking account, borrowing
arrangements, safe deposit box, etc.) and the person or persons authorized in
respect thereof.
SECTION 3.32. OWNERSHIP INTERESTS OF INTERESTED PERSONS. Except as set
forth in Schedule 3.32, no officer, supervisory employee, director or
shareholder of Seller, or their respective spouses or children, owns directly
or indirectly, on an individual or joint basis, any material interest in, or
serves as an officer or director of, any customer or supplier of Seller, or any
organization that has a material contract or arrangement with Seller.
SECTION 3.33. ENVIRONMENTAL MATTERS.
(a) ENVIRONMENTAL LAWS. Neither Seller nor any of the Assets are
currently in violation of, or subject to any existing, pending or threatened
investigation or inquiry by any governmental authority or to any remedial
obligations under, any laws or regulations pertaining to health or the
environment (hereinafter sometimes collectively called "Environmental Laws"),
and this representation and warranty would continue to be true and correct
following disclosure to the applicable governmental authorities of all relevant
facts, conditions and circumstances, if any, pertaining to the Assets.
(b) USE OF ASSETS. To the best knowledge of Seller, the Assets have
never been used in a manner that would be in violation of any of the
Environmental Laws.
(c) PERMITS. Seller has not obtained and is not required to obtain,
and Seller has no knowledge of any reason Purchaser will be required to obtain,
any permits, licenses or similar authorizations to construct, occupy, operate
or use any buildings, improvements, fixtures and equipment owned or leased by
Seller by reason of any Environmental Laws.
SECTION 3.34. CERTAIN PAYMENTS. To the best knowledge of Seller,
neither Seller nor any director, officer or employee of Seller has paid or
caused to be paid, directly or indirectly, in connection with the business of
Seller: (i) to any government or agency thereof or any agent of any supplier or
customer any bribe, kick-back or other similar payment.
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SECTION 3.35. ACCREDITED INVESTOR STATUS. The Seller and each
Stockholder is an "accredited investor" as defined in Rule 501(a) under the
Securities Act of 1933, as amended.
SECTION 3.36. BUSINESS OPERATIONS. Since November 1, 1996, the Seller
has operated its business only in the ordinary course of business, and has not
introduced any new method of management of operation. The Seller, since
November 1, 1996, has used its best efforts to preserve the business of Seller
intact and to retain its present customers and suppliers so that they will be
available to Purchaser after the date hereof.
SECTION 3.37. MODIFIED WORKING CAPITAL. The Modified Working Capital of
the Seller is greater than or equal to $417,757.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants that the following are true and
correct as of the date hereof:
SECTION 4.1. ORGANIZATION AND GOOD STANDING. Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation, with all requisite corporate power and
authority to carry on the business in which it is engaged, to own the
properties it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
SECTION 4.2. AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by Purchaser of this Agreement, the Note and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by Purchaser. This Agreement and
each other agreement contemplated hereby have been duly executed and delivered
by Purchaser and constitute or will constitute legal, valid and binding
obligations of Purchaser, enforceable against Purchaser in accordance with
their respective terms, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies.
SECTION 4.3. NO VIOLATION. Neither the execution, delivery or
performance of this Agreement or the other agreements contemplated hereby nor
the consummation of the transactions contemplated hereby or thereby will (i)
conflict with, or result in a violation or breach of the terms, conditions and
provisions of, or constitute a default under, the Articles of Incorporation or
Bylaws of Purchaser or any agreement, indenture or other instrument under which
Purchaser is bound or (ii) violate or conflict with any judgment, decree,
order, statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over Purchaser or the properties
or assets of Purchaser.
SECTION 4.4. FINDER'S FEE. Purchaser has not incurred any obligation
for any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
ARTICLE V
CLOSING DELIVERIES
SECTION 5.1. DELIVERIES OF SELLER. At the Closing, Seller shall
deliver to Purchaser the following, all of which shall be in a form
satisfactory to counsel to Purchaser:
(a) a bill of sale and assignment conveying the Personal Property to
Purchaser;
(b) an assignment of each lease under which Seller is lessee or
lessor assigning the interest of Seller therein to Purchaser, together with, in
the case of an assignment of a lessee's interest, an owner's policy of title
insurance showing the lessee's interest under the lease to be vested in
Purchaser;
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(c) a deed, in a form satisfactory to counsel for Purchaser,
conveying each item of Real Property to Purchaser, together with the standard
form owner's title insurance policy for each item of Real Property insuring
Purchaser that good, valid and indefeasible title to such item of Real Property
is vested in Purchaser, subject only to standard form exclusions;
(d) cash in an amount equal to all funds of Seller on deposit with
banks or other persons (other than Excluded Assets) less those funds necessary
to cover drafts outstanding as of the date hereof;
(e) an Assignment Agreement in the form attached as Exhibit 5.2(c)
with respect to all of Seller's rights and obligations under the Assumed
Liabilities.
(f) a copy of resolutions of the Board of Directors of Seller
authorizing the execution, delivery and performance of this Agreement and all
related documents and agreements, each certified by the Secretary of that
corporation as being true and correct copies of the originals thereof subject
to no modifications or amendments;
(g) a certificate of the President of Seller, dated the Closing Date,
as to the truth and correctness of the representations and warranties of Seller
contained herein on and as of the Closing Date;
(h) a certificate of the President of Seller, dated the Closing Date,
(i) as to the performance of and compliance by Seller with all covenants
contained herein on and as of the Closing Date and (ii) certifying that all
conditions precedent of Seller to the Closing have been satisfied;
(i) a certificate of the Secretary of Seller certifying as to the
incumbency of the directors and officers of Seller and as to the signatures of
such directors and officers who have executed documents delivered at the
Closing on behalf of Seller;
(j) a certificate, dated within 10 days of the Closing Date, of the
Secretary of State of the state of incorporation of Seller establishing that
Seller is in existence, has paid all franchise taxes and otherwise is in good
standing to transact business in its state of incorporation;
(k) certificates, dated within 10 days of the Closing Date, of the
Secretaries of State of the states in which Seller is qualified to do business,
to the effect that Seller is qualified to do business and is in good standing
as a foreign corporation in each of such states;
(l) an opinion of counsel to Seller, dated as of the date hereof, in
form and substance satisfactory to Purchaser, to the effect set forth in
Exhibit 5.1(l);
(m) all authorizations, consents, approvals, permits and licenses
referenced in Section 3.5;
(n) an executed Employment Agreement between Purchaser and Gregory A.
Mercurio, Jr., Norm Levy and Eric Bonnet-Eymand in the form attached as Exhibit
5.1(n);
(o) an executed Confidentiality and Noncompetition Agreement between
Purchaser and the Stockholders in the form attached as Exhibit 9.1(o);
(p) all required documents, including any UCC-3s (Financing Statement
Change of Modification), terminating any security interests, liens, claims or
encumbrances which may exist against the Assets and not assumed by Purchaser;
and
(q) such other instrument or instruments of transfer as shall be
necessary or appropriate, as Purchaser or its counsel shall reasonably request,
to vest in Purchaser good and marketable title to the Assets that are personal
property and good and indefeasible title to the Assets that are real property.
SECTION 5.2. DELIVERIES OF PURCHASER. At the Closing, Purchaser shall
deliver to Seller:
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(a) the Cash Consideration via wire transfer;
(b) the Common Stock;
(c) an Assumption and Assignment Agreement in the form attached as
Exhibit 5.2(c) pursuant to which Purchaser assumes the Assumed Liabilities and
Seller transfers all of Seller's rights and obligations thereunder;
(d) a copy of the resolutions of the Board of Directors of Purchaser
authorizing the execution, delivery and performance of this Agreement and all
related documents and agreements, each certified by Purchaser's Secretary as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
(e) a certificate of the President of Purchaser, dated the Closing
Date, as to the truth and correctness of the representations and warranties of
Purchaser contained herein on and as of the Closing Date;
(f) a certificate of the President of Purchaser, dated the Closing
Date, (i) as to the performance and compliance by Purchaser with all covenants
contained herein on and as of the Closing Date and (ii) certifying that all
conditions precedent of Purchaser to the Closing have been satisfied;
(g) a certificate of the Secretary of Purchaser certifying as to the
incumbency of the directors and officers of Purchaser and as to the signatures
of such directors and officers who have executed documents delivered at the
Closing on behalf of Purchaser; and
(h) a certificate, dated within 10 days of the Closing Date, of the
Secretary of State of Purchaser's state of incorporation, establishing that
Purchaser is in existence, has paid all state taxes and otherwise is in good
standing to transact business in such state.
(i) an opinion of Counsel to Purchaser, dated as of the date hereof,
in form and substance satisfactory to Seller, to the effect set forth in
Exhibit 5.2(j).
ARTICLE VI
POST CLOSING MATTERS
SECTION 6.1. FURTHER INSTRUMENTS OF TRANSFER. Following the Closing,
at the request of Purchaser, Seller shall deliver any further instruments of
transfer and take all reasonable action as may be necessary or appropriate to
(i) vest in Purchaser good and marketable title to Assets that are personal
property and good and indefeasible title to Assets that are real property, (ii)
transfer to Purchaser all licenses and permits necessary for the operation of
the Assets and (iii) secure all necessary approvals and consents to the
consummation of the transactions contemplated hereby. With regard to the
obtaining of the consent of any lessor of any lease listed on Schedule 3.11(c),
Purchaser shall use its best efforts to cooperate with Seller to obtain an
appropriate release by such lessor of post-Closing liability of the
Shareholders.
SECTION 6.2. EMPLOYEE BENEFIT PLAN CLAIMS INCURRED. After the Closing
Date, Seller shall remain liable under its medical and dental plans and
commitments for any claims incurred by its employees or their spouses and
dependents prior to the Closing Date. A claim shall be deemed to have been
incurred upon the occurrence of an injury or the diagnosis of an illness. An
incurred claim shall include any claim or series of claims related to a claim
incurred prior to the Closing Date. Seller shall retain all liability for
continuation coverage under Section 162(k) of the Code.
SECTION 6.3. EMPLOYEE BENEFIT PLAN TERMINATION. Within 60 days after
the Closing Date, Seller shall terminate any Employee Benefit Plan intended to
be a qualified plan within the meaning of Section 401(a) of the Code. Upon
termination, the rights of each participant in any such plan shall be fully
vested and nonforfeitable. In connection with the termination, Seller shall
undertake to obtain a favorable determination letter from the Internal
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Revenue Service with respect to each terminated plan. Seller shall offer to
distribute the accrued benefit and/or account balance of each participant
within 60 days after receipt of a favorable determination letter.
SECTION 6.4. SALES TAXES APPLICABLE TO SALES PRIOR TO OR ON THE CLOSING
DATE. Seller shall timely file all sales tax returns with respect to sales
occurring in connection with Seller's business prior to or on the Closing Date.
SECTION 6.5. SALES AND TRANSFER TAXES. Seller shall timely pay all
sales taxes applicable to the sales reported on the tax returns referred to in
Section 6.4. Seller shall be liable for and shall indemnify Purchaser against
all sales, transfer, use, excise, registration or other taxes assessed or
payable in connection with the transfer of the Assets from Seller to Purchaser.
Seller and Purchaser shall sign, and otherwise shall cooperate in the
preparation and filing with the appropriate governmental agencies of, any
affidavits or other transfer documents that are required in connection with the
transfer of vehicles or trailers that constitute part of the Assets.
ARTICLE VII
REMEDIES
SECTION 7.1. INDEMNIFICATION BY SELLER. Subject to the terms and
conditions of this Article, Seller agrees to indemnify, defend and hold
Purchaser and its directors, officers, agents, attorneys and affiliates
harmless from and against all losses, claims, obligations, demands,
assessments, penalties, liabilities, costs, damages, attorneys' fees and
expenses (collectively, "Damages"), asserted against or incurred by such
indemnities by reason of or resulting from:
(a) a breach of any representation, warranty or covenant of Seller
contained herein, in any exhibit, schedule, certificate or financial statement
delivered hereunder, or in any agreement executed in connection with the
transactions contemplated hereby;
(b) any product liability or breach of warranty claims relating to
products sold by Seller prior to or on the Closing Date, and all general
liability claims arising out of or relating to occurrences of any nature
relating to Seller's business prior to the Closing Date, whether any such
claims are asserted prior to, on or after the Closing Date;
(c) any obligation or liability under or related to any Employee
Benefit Plan or the termination thereof;
(d) any tax filing or return or payment made, or position taken, by
Seller that any governmental authority challenges and that results in an
assertion of Damages against Purchaser;
(e) any failure to comply with all applicable bulk transfer laws; or
(f) any liability related to Seller that has not been expressly
assumed by Purchaser.
The foregoing indemnification applies, without limitation, to the
violation on or before the Closing Date of any Environmental Law in effect on
or before the Closing Date and any and all matters arising out of any act,
omission, event or circumstance existing or occurring on or prior to the
Closing Date (including without limitation the presence on the Real Property or
release from the Real Property of hazardous substances or solid waste disposed
of or otherwise released prior to the Closing Date), regardless of whether the
act, omission, event or circumstance constituted a violation of any
Environmental Law at the time of its existence or occurrence; provided that
such indemnity shall not apply with respect to matters caused by or arising out
of the gross negligence or willful misconduct of Purchaser. The terms
"hazardous substance" and "release" shall have the meanings specified in
CERCLA, and the terms "solid waste" and "disposed" shall have the meanings
specified in RCRA; provided that to the extent the laws of the applicable state
establish a meaning for "hazardous substance," "release," "solid waste" or
"disposed" that is broader than that specified in either CERCLA or RCRA, such
broader meaning shall apply. The
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provisions of this paragraph shall survive the Closing and shall continue
indefinitely thereafter in full force and effect.
SECTION 7.2. INDEMNIFICATION BY PURCHASER. Subject to the terms and
conditions of this Article, Purchaser hereby agrees to indemnify, defend and
hold Seller and its respective directors, officers, agents, attorneys and
affiliates harmless from and against all Damages asserted against or incurred
by any of such indemnitees by reason of or resulting from:
(a) a breach by Purchaser of any representation, warranty or covenant
of Purchaser contained herein or in any exhibit, schedule or certificate
delivered hereunder, or in any agreement executed in connection with the
transactions contemplated hereby; or
(b) the failure of Purchaser to pay, perform and discharge when due
any of the Assumed Liabilities.
SECTION 7.3. CONDITIONS OF INDEMNIFICATION. The respective obligations
and liabilities of Seller and Purchaser (the "indemnifying party") to the other
(the "party to be indemnified") under Sections 7.1 and 7.2 with respect to
claims resulting from the assertion of liability by third parties shall be
subject to the following terms and conditions:
(a) Within 20 days (or such earlier time as might be required to
avoid prejudicing the indemnifying party's position) after receipt of notice of
commencement of any action evidenced by service of process or other legal
pleading, the party to be indemnified shall give the indemnifying party written
notice thereof together with a copy of such claim, process or other legal
pleading, and the indemnifying party shall have the right to undertake the
defense thereof by representatives of its own choosing and at its own expense;
provided that the party to be indemnified may participate in the defense with
counsel of its own choice, the fees and expenses of which counsel shall be paid
by the party to be indemnified unless (i) the indemnifying party has agreed to
pay such fees and expenses, (ii) the indemnifying party has failed to assume
the defense of such action or (iii) the named parties to any such action
(including any impleaded parties) include both the indemnifying party and the
party to be indemnified and the party to be indemnified has been advised by
counsel that there may be one or more legal defenses available to it that are
different from or additional to those available to the indemnifying party (in
which case, if the party to be indemnified informs the indemnifying party in
writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such action on behalf of the party to be indemnified, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for the party to be indemnified, which
firm shall be designated in writing by the party to be indemnified).
(b) In the event that the indemnifying party, by the 30th day after
receipt of notice of any such claim (or, if earlier, by the 10th day preceding
the day on which an answer or other pleading must be served in order to prevent
judgment by default in favor of the person asserting such claim), does not
elect to defend against such claim, the party to be indemnified will (upon
further notice to the indemnifying party) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and for the
account and risk of the indemnifying party and at the indemnifying party's
expense, subject to the right of the indemnifying party to assume the defense
of such claims at any time prior to settlement, compromise or final
determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party shall not
settle any claim without the consent of the party to be indemnified unless such
settlement involves only the payment of money and the claimant provides to the
party to be indemnified a release from all liability in respect of such claim.
If the settlement of the claim involves more than the payment of money, the
indemnifying party shall not settle the claim without the prior consent of the
party to be indemnified.
(d) The party to be indemnified and the indemnifying party will each
cooperate with all reasonable requests of the other.
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SECTION 7.4. WAIVER. No waiver by any party of any default or breach
by another party of any representation, warranty, covenant or condition
contained in this Agreement, any exhibit or any document, instrument or
certificate contemplated hereby shall be deemed to be a waiver of any
subsequent default or breach by such party of the same or any other
representation, warranty, covenant or condition. No act, delay, omission or
course of dealing on the part of any party in exercising any right, power or
remedy under this Agreement or at law or in equity shall operate as a waiver
thereof or otherwise prejudice any of such party's rights, powers and remedies.
All remedies, whether at law or in equity, shall be cumulative and the election
of any one or more shall not constitute a waiver of the right to pursue other
available remedies.
SECTION 7.5. REMEDIES NOT EXCLUSIVE. The remedies provided in this
Article shall not be exclusive of any other rights or remedies available to one
party against the other, either at law or in equity.
SECTION 7.6. OFFSET. Any and all amounts owing or to be paid by
Purchaser to Seller, hereunder or otherwise, shall be subject to offset and
reduction pro tanto by any amounts that may be owing at any time by Seller to
Purchaser in respect of any failure or breach of any representation, warranty
or covenant of Seller under or in connection with this Agreement or any other
agreement with Purchaser or any transaction contemplated hereby or thereby, as
reasonably determined by Purchaser. If Purchaser determines that such offset
is appropriate, notice shall be given to Seller of such determination at least
10 days prior to the due date of the payment to be reduced. If the conditions
upon which the reduction is based are cured by Seller prior to such due date,
as determined by Purchaser, the amount of such payment shall not be so reduced.
SECTION 7.7. COSTS, EXPENSES AND LEGAL FEES. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (i) enforcing
any of the terms of this Agreement or (ii) proving that another party breached
any of the terms of this Agreement.
SECTION 7.8. SPECIFIC PERFORMANCE. Seller acknowledges that a refusal
by Seller to consummate the transactions contemplated hereby will cause
irreparable harm to Purchaser, for which there may be no adequate remedy at law
and for which the ascertainment of damages would be difficult. Therefore,
Purchaser shall be entitled, in addition to, and without having to prove the
inadequacy of, other remedies at law, to specific performance of this
Agreement, as well as injunctive relief (without being required to post bond or
other security).
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. AMENDMENT. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the parties
hereto.
SECTION 8.2. ASSIGNMENT. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by
Purchaser to an affiliate of Purchaser.
SECTION 8.3. PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Neither this
Agreement nor any other agreement contemplated hereby shall be deemed to confer
upon any person not a party hereto or thereto any rights or remedies hereunder
or thereunder.
SECTION 8.4. ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding
the subject matter hereof, and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
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SECTION 8.5. SEVERABILITY. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 8.6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
The representations, warranties and covenants contained herein shall survive
the Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of Seller or Purchaser pursuant to this
Agreement shall be deemed to have been representations and warranties by Seller
or Purchaser, as the case may be, and, notwithstanding any provision in this
Agreement to the contrary, shall survive the Closing for a period of two years,
except for (i) representations and warranties with respect to any tax or
tax-related matters or any ERISA matters, which shall survive the Closing until
the running of any applicable statutes of limitation and (ii) indemnification
provisions for the violation of any Environmental Law, which shall survive the
Closing and shall continue indefinitely, as provided in Section 7.1.
SECTION 8.7. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF TEXAS. THE PARTIES AGREE THAT THIS
AGREEMENT SHALL BE PERFORMABLE IN DALLAS COUNTY, TEXAS.
SECTION 8.8. CAPTIONS. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.
SECTION 8.9. GENDER AND NUMBER. When the context requires, the gender
of all words used herein shall include the masculine, feminine and neuter and
the number of all words shall include the singular and plural.
SECTION 8.10. REFERENCE TO AGREEMENT. Use of the words "herein",
"hereof", "hereto" and the like in this Agreement shall be construed as
references to this Agreement as a whole and not to any particular Article,
Section or provision of this Agreement, unless otherwise noted.
SECTION 8.11. CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the
transactions contemplated by this Agreement without the prior knowledge and
consent of the other parties hereto; provided that the foregoing shall not
prohibit any disclosure (i) by press release, filing or otherwise that is
required by federal securities laws or the rules of the Nasdaq National Market
System, (ii) to attorneys, accountants, investment bankers or other agents of
the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (iii) by Purchaser in connection with
obtaining financing for the transactions contemplated by this Agreement and
conducting an examination of the operations and assets of Seller. In the event
that the transactions contemplated hereby are not consummated for any reason
whatsoever, the parties hereto agree not to disclose [or use] any confidential
information they may have concerning the affairs of the other parties, except
for information that is required by law to be disclosed. Confidential
information includes, but is not limited to: financial records, surveys,
reports, plans, proposals, financial information, information relating to
personnel, contracts, stock ownership, liabilities and litigation; provided
that should the transactions contemplated hereby not be consummated, nothing
contained in this Section shall be construed to prohibit the parties hereto
from operating businesses in competition with each other.
SECTION 8.12. NOTICE. Any notice or communication hereunder or in any
agreement entered into in connection with the transactions contemplated hereby
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
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receipt requested, or by delivering the same in person. Such notice shall be
deemed received on the date on which it is hand-delivered or on the third
business day following the date on which it is so mailed. For purposes of
notice, the addresses of the parties shall be:
If to Purchaser:
Medical Alliance, Inc.
2445 Gateway Drive
Suite 150
Irving, Texas 75063
Attention: Mike Wallace
with a copy to:
Jackson & Walker, L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
Attention: Richard F. Dahlson
If to Seller:
Stone Treatment Center of New England, Inc.
6 Blackstone Valley Place, Suite 109
Lincoln, Rhode Island 02865
Attention: Gregory A. Mercurio Jr.
with a copy to:
Lynch, Greenfield & Page
One Ship Street
Providence, Rhode Island 02903
Attention: Thomas A. Lynch
Any party may change its address for notice by written notice given to the
other parties in accordance with this Section.
SECTION 8.13. CHOICE OF FORUM. The parties hereto agree that should any
suit, action or proceeding arising out of this Agreement be instituted by any
party hereto (other than a suit, action or proceeding to enforce or realize
upon any final court judgment arising out of this Agreement), such suit, action
or proceeding shall be instituted only in a state or federal court in Dallas
County, Texas. Each of the parties hereto consents to the in personam
jurisdiction of any state or federal court in Dallas County, Texas and waives
any objection to the venue of any such suit, action or proceeding. The parties
hereto recognize that courts outside Dallas County, Texas may also have
jurisdiction over suits, actions or proceedings arising out of this Agreement,
and in the event that any party hereto shall institute a proceeding involving
this Agreement in a jurisdiction outside Dallas County, Texas, the party
instituting such proceeding shall indemnify any other party hereto for any
losses and expenses that may result from the breach of the foregoing covenant
to institute such proceeding only in a state or federal court in Dallas County,
Texas, including without limitation any additional expenses incurred as a
result of litigating in another jurisdiction, such as reasonable fees and
expenses of local counsel and travel and lodging expenses for parties,
witnesses, experts and support personnel.
SECTION 8.14. SERVICE OF PROCESS. Service of any and all process that
may be served on any party hereto in any suit, action or proceeding arising out
of this Agreement may be made in the manner and to the address set forth in
Section 8.12 and service thus made shall be taken and held to be valid personal
service upon such party by any party hereto on whose behalf such service is
made.
SECTION 8.15. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
-21-
<PAGE> 22
[THIS SPACE INTENTIONALLY LEFT BLANK]
-22-
<PAGE> 23
PURCHASER
MEDICAL ALLIANCE, INC.
By: /s/ PAUL R. HERCHMAN
---------------------
Its: President & CEO
SELLER
STONE TREATMENT CENTER OF
NEW ENGLAND, INC.
By: /s/ VINCENT A. CATALLOZZI
--------------------------
Its: President
STOCKHOLDERS
/s/ GREGORY A. MERCURIO, JR.
-----------------------------
Gregory A. Mercurio, Jr.
/s/ VINCENT A. CATALLOZZI
-----------------------------
Vincent A. Catallozzi, M.D.
/s/ ALEXANDER CALENDA
-----------------------
Alexander Calenda, M.D.
/s/ GERALD MARSOCCI, M.D.
---------------------------
Gerald Marsocci, M.D.
/s/ JOSEPH CAMBIO, M.D.
----------------------------
Joseph C. Cambio, M.D.
<PAGE> 1
EXHIBIT 10.11
STRATEGIC ALLIANCE AGREEMENT
BETWEEN LASERSCOPE AND MEDICAL ALLIANCE, INC.
This Strategic Alliance Agreement ("Agreement"), dated as of the 19th
day of December, 1996 ("Effective Date") is by and between Laserscope, a
California corporation having offices at 3052 Orchard Drive, San Jose,
California 95134, and Medical Alliance, Inc., a Texas corporation having
offices at 2445 Gateway Drive, Suite 150, Irving, Texas 75063 ("MAI").
Laserscope and MAI are sometimes referred to herein as a "Party" or
collectively, as the "Parties".
RECITALS
WHEREAS, Laserscope is presently the holder of technology and know-how
relating to the treatment of vascular lesions, including leg veins (the
"Proprietary Rights"); and
WHEREAS, Laserscope has developed and manufactures products
incorporating the Proprietary Rights, which products are described in Schedule
A (individual products described in Schedule A shall be referred to herein as a
"Product" and all products described in Schedule A shall be referred to herein
as the "Products"); and
WHEREAS, MAI is a provider of mobile medical services which allow
physicians to perform selected procedures in their offices, and has established
a delivery network for medical products and has an existing customer base for
such products; and
WHEREAS, Laserscope and MAI desire to enter into this Agreement for
the purpose of providing the Products to the medical community and its
patients;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and on the terms and conditions
contained herein, the Parties agree as follows:
1. EXCLUSIVE PROVISION OF THE PRODUCTS. The Parties hereby agree
that, within the Territory (as defined in Paragraph 2), MAI shall have the sole
and exclusive right to offer the Product to physicians, or offer the Products
for the use by physicians whereby the physician or patient will be charged a
fee either (i) for each patient medical procedure in which the Products are
utilized by the physician, or (ii) based upon a daily rental structure, or
(iii) based upon a portion of the Product(s)-generated revenues received by the
physician. (Any or all of these arrangements shall be referred to herein as the
offering of the
<PAGE> 2
Products on a "per use" basis.) MAI also shall have a non-exclusive right to
sell, or lease on a long-term basis, the Products within the Territory subject
to Section 4(h) of the Agreement. Except as provided in Section 2 of the
Agreement, Laserscope shall not be entitled to compete directly or indirectly
with MAI for the offering of the Products on a "per use" basis. Laserscope
agrees not to enter knowingly into an agreement or arrangement, with any person
or entity, which permits such person or entity to sell, lease, or offer on a
"per use" basis the Products within the Territory.
2. ESTABLISHMENT PERIOD. The Parties agree that the period of
time from the Effective Date through June 1, 1997 shall be called the
"Establishment Period".
3. GEOGRAPHICAL TERRITORY. The "Territory" shall be defined as
the continental United States of America and Hawaii. If, upon completion of the
Establishment Period, MAI has not established national coverage of the Products
throughout the Territory, including (i) placing purchase orders for and
accepting delivery of twenty-five (25) Products, (ii) the availability of the
Products and MAI employees trained in the use of the Products in all markets
within the Territory, and (iii) the establishment of a training program in the
use of the Products, then Laserscope shall offer MAI the right of first refusal
to establish a presence in any such "noncovered" market. MAI shall have thirty
(30) days from Laserscope's offer to either accept or decline, in writing, the
offer to establish a presence in a "noncovered" market. MAI's failure to
respond shall be construed as declining the offer. If MAI declines any such
offer, then Laserscope may sell Products to others for the purpose of offering
the Products on a "per used" basis within the affected "noncovered" market.
4. REVENUE ARRANGEMENTS.
(a) Offers on a "Per Use" basis. All initial offers by MAI to
physicians on a "per use" basis shall be at rates and terms established solely
by MAI and subject to change at MAI's discretion. Laserscope shall have no
right or obligation to determine at what prices or terms MAI will offer
Products to physicians.
(b) Revenue Sharing. The Parties agree that for a period of three
(3) years from the date of MAI's receipt of each Product, MAI shall pay
Laserscope an amount equal to fifteen percent (15%) of MAI's invoiced revenues
attributable to such Product, as generated to MAI by its offering of such
Product. Invoiced revenues shall be defined as all fees net of any discounts,
invoiced by MAI for Products offered on a "per use" basis, leased or rented to
MAI customers.
(c) Sales, Use or Other Taxes. Each Party shall be responsible for
paying any and all taxes relating to its respective share of the net revenues
under this Agreement.
Strategic Alliance Agreement
Medical Alliance/Laserscope -2-
<PAGE> 3
(d) Revenue Statements and Audit Rights. MAI will provide monthly
revenue statements to Laserscope regarding the above matters and MAI will pay
Laserscope its share of the invoiced revenues described in this Paragraph 4,
monthly, within fifteen (15) days of the end of the month in which MAI has
invoiced the use of the Products. In addition, MAI will provide a monthly
report to Laserscope, specifying the state and ZIP code in which each Product
is predominantly located. Laserscope reserves the right to audit MAI's records
as they relate to the Products, during normal business hours, upon reasonable
written notice to MAI. All costs for such audit will be borne by Laserscope
unless discrepancies to Laserscope's detriment are equal to or in excess of the
greater of (i) the cost of the audit, or (ii) two thousand five hundred dollars
($2,500), are discovered, in which event MAI shall bear the costs of the audit.
5. MARKETING AND OPERATIONS RESPONSIBILITIES.
(a) Relationship of the Parties. The Parties understand and agree
that their relationship is, and shall remain, that of vendor and vendee. MAI is
not, and shall not be, considered an agent, partner, joint-venturer, employee,
or franchisee of Laserscope, and MAI shall not represent itself at any time as
an agent or otherwise acting on behalf of Laserscope. MAI is now, and shall
remain, a completely independent contractor, and Laserscope shall have no right
or obligation to control, supervise or manage MAI's business except as
expressly set forth herein.
(b) Reasonable Commercial Efforts. MAI agrees to exercise
reasonable commercial efforts in actively promoting the Products within the
Territory. Promotion shall include, but not be limited to, tradeshows and
exhibitions, advertising, translation of sales literature, identification of
prospective customers, and presentations or demonstrations relating to the use
of the Products to prospective customers. All public disclosures regarding or
relating to the relationship between the Parties must be approved in writing by
the Parties prior to the making of such disclosure. Each Party shall bear its
own costs of marketing the Products in the Territory, except as specified in
Paragraph 6(b) below.
(c) Seminars. MAI agrees, at its own expense, to periodically
conduct, or cause to be conducted, seminars regarding the use of the Products
for the treatment of vascular lesions. The Parties agree to use their best
efforts to coordinate the scheduling of seminars facilitated by the respective
Parties so as to avoid competition between the Parties for speakers and
attendees at such seminars. MAI shall, upon the written request of Laserscope,
provide Laserscope with a written list of its seminar
Strategic Alliance Agreement
Medical Alliance/Laserscope -3-
<PAGE> 4
speakers and instructors. Laserscope shall, upon the written request of MAI,
provide MAI with a written list of its seminar speakers and instructors. Only
management personnel, and not field representatives or technicians, of the
respective Parties may attend the other Party's seminars, unless a written
invitation to attend such seminar is extended through senior management of both
Parties to their respective employees. Such attendance will be on a non-paid,
non-speaking, observation-only basis.
(d) Authorizations. MAI may describe itself as an "Authorized
Laserscope Fee-for-Use Supplier" in the course of promoting the Products
during the Term of the Agreement. MAI also is authorized to use and display all
Laserscope trademarks, emblems, and logos in the furtherance of such promotion;
provided, however, that any such usage or display shall at all times be subject
to the direction and control of Laserscope. Laserscope shall not unreasonably
withhold any authorizations described in this Paragraph 5 (d).
(e) Intellectual Property Ownership and Use. In connection with
its use, distribution, and promotion of the Products as provided in this
Agreement, MAI is hereby granted during the term of this Agreement, a
non-exclusive license to use Laserscope's Proprietary Rights and trademarks, and
to distribute Laserscope's copyrighted material, incident or relating to the
Products for the sole purpose of marketing and providing on a per use basis,
leasing, renting, or otherwise providing Products to customers, it being agreed
and understood that nothing in this Agreement shall constitute any transfer or
conveyance of Laserscope's right, title, or interest in or to any of
Laserscope's patents, trademarks, copyrighted material, or other proprietary
rights.
(f) Laserscope Names and Logos. The use of the Laserscope name and
logo and the use of any other names and logos originating from Laserscope on
marketing and advertising materials shall bear all applicable copyright and
trademark notices, and shall be subject to Laserscope's prior written approval,
which approval shall not be unreasonably withheld. MAI shall not use the
Laserscope name in the name of MAI's organization. MAI shall not use the
Laserscope name, or any of Laserscope's trademarks or copyrighted material, in
any written material created by MAI unless Laserscope gives its prior written
approval.
(g) Personnel Training. Laserscope agrees that it will provide
instructors and equipment to train and certify MAI personnel in the promotion
and operation of the Products. Laserscope further agrees to provide training,
course materials, information, and clinician-determined treatment parameters to
MAI seminar instructors. Laserscope shall provide MAI with one "hard copy" of
these materials, which MAI may reproduce at its own expense, for use in
training courses only. Whenever possible, all training materials provided to
MAI personnel shall be provided
Strategic Alliance Agreement
Medical Alliance/Laserscope -4-
<PAGE> 5
prior to the date of the training course. Such training shall take place on a
regional basis at MAI offices in the region in which the course is scheduled to
occur, or at such other locations as may be agreed by the Parties. Laserscope
shall bear its own costs of much training, but will not be responsible for
salaries and wages of MAI personnel, and incidental costs such as travel,
lodging, and other expenses incurred by MAI personnel and MAI seminar
instructors.
(h) Sale of Products by MAI. MAI may sell to third parties any
Product it has purchased; provided, however, that the Aura(TM) lasers may be
sold only on a "first in first out" (FIFO) basis, i.e., the first laser
purchased by MAI must be the first one it sells, the second laser purchased is
the next one sold, and so on.
6. PRODUCT PRICES, DELIVERY, MATERIALS AND WARRANTIES.
(a) Prices and Delivery. Laserscope agrees to provide the Product
components and accessories (the "Equipment") listed in Schedule A at the prices
given in such Schedule; provided that such prices may be adjusted up or down a
maximum of five percent (5%) per year, beginning in January 1998. Such prices
shall apply to all MAI purchase orders. All Equipment shall be shipped F.O.B.
shipping point, freight costs to be paid by MAI. Laserscope agrees to ship
Equipment to the destinations specified by MAI.
(b) Accessories and Promotional Materials. MAI hereby agrees to
purchase all its requirements for Product accessories, including, but not
limited to, handpieces, scanners, and fibers, from Laserscope. The Parties
hereby agree that Laserscope will produce Practice Enhancement Kits and
promotional materials, including but not limited to, brochures describing
Laserscope products, patient education videos, and patient information
brochures, for purchase by MAI at a price mutually agreeable to the Parties;
provided that Laserscope shall supply such promotional items described above at
a reduced costs when ordered in quantity by MAI. The reduced cost will be
determined by Laserscope in its sole discretion.
(c) Warranties. Laserscope hereby warrants that all Aura(TM)
lasers provided under this Agreement shall be free from defects. All
accessories will be sold with Laserscope's standard warranties. Laserscope will
provide MAI's Aura(TM) lasers with "bumper to bumper" warranty service (i.e.
preventative maintenance, labor, repair/replacement of parts,
repair/replacement shipping costs) until the earlier of (i) three (3) years
from the date of each Aura(TM) laser purchase or (ii) the date an Aura(TM)
laser is sold by MAI to a third party. Laserscope agrees to repair or replace,
within twenty-four (24) hours after notification from MAI, at Laserscope's sole
cost, any Aura(TM) laser that is not functioning
Strategic Alliance Agreement
Medical Alliance/Laserscope -5-
<PAGE> 6
according to product specifications. Laserscope agrees, at Laserscope's
cost, to keep and maintain for delivery to MAI as a replacement one (1)
additional Aura(TM) laser for each ten (10) Aura(TM) lasers purchased or
ordered by MAI. Any shipping costs for Products under warranty shall be borne
by Laserscope.
(d) Purchase Credit. Laserscope agrees that it will give
MAI a credit equal to three thousand five hundred dollars ($3,500) for each
Aura(TM) laser which is a part of the Product purchased by MAI. Such credit
shall be used by MAI solely to purchase Product accessories for a period of up
to two (2) years after the date of receipt of the purchased Aura(TM) laser by
MAI.
(e) Initial Order. MAI agrees that on or prior to December 20,
1996, it will place a purchase order (the "Purchase Order") for twenty-one (21)
sets of Equipment from Laserscope. The Parties acknowledge that MAI already has
purchased three (3) sets of Equipment, which Equipment shall be subject to the
terms of this Agreement. Unless Laserscope receives written notice from MAI,
either canceling the Purchase Order ("Cancellation Notice") or requesting a
different delivery schedule, by December 20, 1996, the Equipment which
comprises the Purchase Order shall be shipped to MAI by Laserscope as follows:
(i) eight (8) sets of Equipment delivered in January 1997, (ii) eight (8) sets
of Equipment to be delivered in February 1997, and (iii) five (5) sets of
Equipment to be delivered in March 1997. MAI agrees to provide payment in full
for these twenty-one (21) sets of Equipment, and all subsequent orders for sets
of Equipment, within sixty (60) days of receipt of the Equipment by MAI. If
MAI does provide the Cancellation Notice in the manner described above, it
shall have no obligation whatsoever with regard to any Equipment not received
from Laserscope by the date of such Cancellation Notice.
7. Term and Termination.
(a) Term of Agreement. Except as provided in Paragraph 4 above
with regard to the sharing of revenues and subject to (b) below, this Agreement
shall commence as of the Effective Date and shall continue for a period of
three (3) years thereafter (the "Initial Term"), and subject to the succeeding
sentence will be renewable for one year terms thereafter by written agreement
of both Parties made no later than ninety (90) days prior to the end of any
Term (each, a "Renewal Term"). The Initial Term and any Renewal Term(s) may be
referred to collectively as the "Term".
(b) Early Termination. In the event of breach by either Party of
any of the provisions of this Agreement, and if such breach is not cured with
thirty (30) days after the receipt by such breaching Party of written notice
from the non-breaching party of such breach, which notice shall reasonably
describe such breach,
Strategic Alliance Agreement
Medical Alliance/Laserscope -6-
<PAGE> 7
the non-breaching Party may, in addition to any other rights or remedies it may
have in law or in equity, terminate this Agreement (except that the revenue-
sharing provisions of Paragraph 4(b) above will be terminated only if
Laserscope is the breaching Party), with no further action required by such
Party to effect such termination.
(c) Rights Upon Termination. In the event of a termination of this
Agreement pursuant to (a) or (b) above, (i) MAI shall be entitled to continue
using Products owned by MAI in its business, (ii) MAI shall either return to
Laserscope all products shipped by Laserscope but not yet paid for by MAI, or
immediately pay all outstanding invoices by cashier's check, and (iii) MAI
shall cease representing itself as an Authorized Laserscope Fee-for-Use
Supplier. The confidentiality rights described in Paragraphs 8(c) and 8(d)
shall remain in full force upon termination of the Agreement for any reason.
8. Miscellaneous Provisions.
(a) MAI Personnel. In marketing Products, MAI will use only sales
and delivery personnel who have been trained by Laserscope or under
Laserscope's direction in the proper marketing of the Products. Any marketing
of the Products by MAI also will be within FDA-approved guidelines for
Laserscope's products used within the vascular/pigmented lesion market
segment.
(b) Assignments. This Agreement and the rights and obligations of
the Parties hereunder shall be binding upon and inure to the benefit of the
Parties and their respective successors and assignees. Neither Party shall
assign this Agreement or any rights or obligations hereunder without first
obtaining the written consent of the other Party.
(c) Laserscope Confidential Information. MAI agrees to keep
confidential and secret all of Laserscope's Proprietary Rights and other
proprietary information, including but not limited to those relating to the
Products and all other existing Laserscope products, product improvements, or
new ideas under development, customer lists, financial and marketing
information, business, documents and any other information which is not public
knowledge, and which may be or may have been learned by MAI in the course of
its business relationship with Laserscope. MAI shall not use or disclose any
such information for two (2) years after the expiration of the Term of the
Agreement. MAI further agrees to instruct all of its employees, agents and
assigns to keep confidential and secret all such information. MAI will not
actively solicit to hire any of the employees of Laserscope during the Term of
the Agreement or for a period of one (1) year following the Term.
Strategic Alliance Agreement
Medical Alliance/Laserscope -7-
<PAGE> 8
(d) MAI Confidential Information. Laserscope agrees to keep
confidential and secret all of MAI's confidential and proprietary information
concerning MAI's customer lists, financial and marketing information, business
documents and any other information which is not public knowledge, and which
may be or may have been learned by Laserscope in the course of its business
relationship with MAI. Laserscope shall not use or disclose any such
information for two (2) years after the expiration of the Term of the
Agreement. Laserscope further agrees to instruct all of its employees, agents
and assigns to keep confidential and secret all such information. Laserscope
will not actively solicit to hire any of the employees of MAI during the Term
of the Agreement or for a period of one (1) year following the Term.
(e) Complete Agreement. This Agreement contains all of the
agreements, understandings, representations, conditions, warranties, and
covenants between the Parties with respect to the subject matter hereof, and
any modifications or amendments hereto must be a writing signed by both
Parties.
(f) Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective
during the Term, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid, or unenforceable
provision never comprised a part hereof and the remaining provisions hereof
shall remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance herefrom. Furthermore,
in lieu of such illegal, invalid, or unenforceable provision, there shall be
added automatically as part of this Agreement, a provision as similar in terms
to such illegal, invalid, or unenforceable provisions as possible and be legal,
valid, and enforceable.
(g) Controlling Law and Venue. The validity, interpretation, and
performance of this Agreement shall be controlled by and construed under the
laws of the State of Texas. Venue in any proceeding with respect to this
Agreement shall be in Dallas, Texas.
(h) Arbitration. Any and all disputes or disagreements arising out
of or in connection with this Agreement shall be submitted to a mandatory and
binding arbitration administered according to the commercial rules of the
American Arbitration Association in Dallas, Texas. Each Party agrees to the
complete resolution of the subject dispute by the arbitrator(s). The
arbitrator(s) is/are authorized to go forward even though one of the Parties
refuses to participate. Costs of arbitration shall be shared equally by the
Parties. Notwithstanding anything to the contrary contained herein, it is
acknowledged that the right to
Strategic Alliance Agreement
Medical Alliance/Laserscope -8-
<PAGE> 9
termination as provided herein shall not be affected by this Paragraph 8(h).
(i) Attorneys' Fees. The prevailing Party in any legal proceeding
relating to this Agreement shall be entitled to reasonable attorneys' fees.
(j) Counterparts. This Agreement (whether it be in the form of an
original, photocopy, or facsimile) may be executed in one or more counterparts,
each of which shall be deemed an original and all of which shall constitute one
and the same instrument.
EXECUTED as of the date first written above.
<TABLE>
<S> <C>
MEDICAL ALLIANCE, INC. LASERSCOPE
By:/s/ PAUL HERCHMAN By:/s/ ROBERT V. MCCORMICK
------------------------------- ----------------------------------
Paul Herchman Robert V. McCormick
President and CEO President and CEO
</TABLE>
Strategic Alliance Agreement
Medical Alliance/Laserscope -9-
<PAGE> 10
SCHEDULE A - "PRODUCTS"
o Aura(TM) Laser with StarPulse(TM) Feature
o Aura(TM) Laser Carrying Case
o 1 mm Dermastat(R) Handpiece
o 2 mm Dermastat(R) Handpiece
o Five (5) Pairs of Protective Eyewear (one (1) flip-up
and four (4) wrap-around)
Price for the above combination
of individual Products: $44,995.00
Strategic Alliance Agreement
Medical Alliance/Laserscope
<PAGE> 1
EXHIBIT 10.12
EXCLUSIVE PROVIDER AGREEMENT
BETWEEN THERMOLASE CORPORATION AND MEDICAL ALLIANCE, INC.
This Exclusive Provider Agreement (this "Agreement"), dated as of the
21st day of January, 1997, is by and between Thermolase Corporation, a
California corporation ("Thermolase"), and Medical Alliance, Inc., a Texas
corporation ("MAI"). Thermolase and MAI are sometimes referred to herein as a
"Party" or collectively, as the "Parties".
WITNESSETH
WHEREAS, Thermolase is presently the holder of patent rights, technology
and know-how relating to laser removal of hair utilizing the SoftLight laser
(the "Proprietary Rights"); and
WHEREAS, Thermolase, has developed and manufactures products
incorporating the Proprietary Rights, which products are described in Schedule
A (individual products or their functional equivalent described in Schedule A
shall be referred to herein as a "Product" and all products and their
functional equivalents described in Schedule A shall be referred to herein as
the "Products"); and
WHEREAS, MAI is a provider of mobile medical services which allow
physicians to perform selected procedures in their offices, and has established
a delivery network for medical products and has an existing customer base for
such products; and
WHEREAS, Thermolase and MAI desire to enter into this Agreement for the
purpose of making MAI the exclusive mobile provider of the Products to
authorized licensed Professionals;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and on the terms and conditions
contained herein, the Parties agree as follows:
1. Exclusive Delivery of the Products.
(a) The Parties hereby agree that, within the Territory (as
defined in Section 2), MAI shall be the sole and exclusive mobile provider of
the Products to or for use by an authorized licensed professional. An
authorized licensed professional or "User" shall mean any person legally
authorized to utilize the Products for their intended use. Thermolase agrees
not to enter into an agreement or arrangement with any person or entity which
permits such person or entity to sell, lease, or offer the Products for use on
a mobile basis within the Territory. MAI shall not place Products permanently
with any user or other person. Thermolase hereby agrees to pay MAI the sum of
$5,000 within 30 days of the execution of any licensing or similar agreement
with Thermolase by any User who formerly used Products supplied by MAI pursuant
to this Agreement.
(b) Except as provided for in Section 5(a) of this Agreement,
the Parties hereby agree that MAI shall not enter into any other arrangement or
agreement with any other
<PAGE> 2
person or entity to offer any device to be used for hair removal within the
Territory during the term of this Agreement.
2. Geographical Territory. The Parties agree that the Territory
shall be defined as the United States of America and Canada.
3. Revenue Arrangements.
(a) Rates. The actual rates charged by MAI (including the
effect of any rebate, discount or similar method designed to lower the cost of
such service to the User or customer) (the "Rates") for services utilizing the
Products (individually, a "Service" and collectively, the "Services") will
initially be at the prices set forth in Schedule B attached hereto and shall
not be changed without the consent of Thermolase, except as otherwise provided
for in this Section. The Rates charged for Services by licensees of Thermolase
is set forth in Schedule C attached hereto. The Rates charged for Services by
Spa Thireras facilities is set forth in Schedule D attached hereto. The
parties hereby agree that MAI, without the consent of Thermolase, may change
its Rates for any Service to keep constant (i) the ratio between each Service
rate listed on Schedule B and the corresponding Service listed on Schedule C
and (ii) the ratio between each Service listed on Schedule B and the
corresponding Service listed on Schedule D. Thermolase hereby agrees to give
MAI written notice twenty-four (24) hours prior to any change in the Rates
listed on Schedule C or Schedule D. If Thermolase does not provide such notice
as required under this Section, MAI may thereafter change its Rate for the
Services for which such notice was not provided without the written consent of
Thermolase.
(b) Revenue Sharing. The parties agree that during the Term
of this Agreement, MAI shall pay Thermolase an amount equal to fifty percent
(50%) of the revenues MAI has been paid for procedures performed through the
use of the Products during the preceding calendar month (the "Product
Revenues"). Such payments shall be made within 30 days of the last day of the
month the Product Revenues are received by MAI.
(c) Sales, Use or Other Taxes. Each Party will be responsible
for submitting any and all taxes relating to their respective share of the
Product Revenues.
(d) With each payment required pursuant to Section 3(b), MAI
will provide monthly revenue statements to Thermolase showing the amount
collected by Product. Thermolase reserves the right to audit MAI's records as
they relate to the Products or Product Revenues, during normal business hours,
upon reasonable prior written notice to MAI. All costs for such audit will be
born by Thermolase unless discrepancies to Thermolase's detriment are equal to
or in excess of 1% of the amount reported by MAI which is the subject of the
audit.
4. Marketing and Operations Provisions
(a) MAI's 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.
-2-
<PAGE> 3
(b) Reasonable Commercial Efforts. The Parties each agree to
exercise reasonable commercial efforts in actively promoting the Products
within the Territory. Promotion shall include, but not be limited to,
tradeshows and exhibitions, advertising, translation of sales literature,
identification of prospective customers and presentation of demonstrations
relating to the use of the Products to prospective customers. Thermolase
agrees that if it becomes aware of any potential customers who do not wish to
enter into a licensing agreement with Thermolase to install a Product at a
fixed location, it will inform such customer of the availability of MAI's
mobile services as an alternative method of obtaining use of the Product. MAI
agrees that if it becomes aware of any potential customer who does not wish to
utilize MAI's mobile medical services, and who wishes to install the Product at
a fixed location, it will inform such customer of the availability of
Thermolase's licensing arrangements.
(c) Physician Training. MAI shall not provide the Products to
any User who has not been certified as a SoftLight provider after successful
completion of a Thermolase authorized training course. MAI's training courses
shall be developed with the assistance of Thermolase and, once established,
shall be accepted and defined by Thermolase as authorized training courses.
MAI agrees to periodically conduct, or cause to be conducted, seminars for the
purpose of qualifying authorized licensed professionals in the use of the
Products for the removal of hair. The parties agree to use commercially
reasonable efforts to coordinate the scheduling of seminars facilitated by the
respective parties so as to avoid competition between the Parties for speakers
and attendees at such seminars. Thermolase shall use reasonable efforts to
identify and make available to MAI its seminar speakers and instructors and
shall assist MAI in conducting its seminars. The seminar materials used by MAI
are subject to the prior written consent of Thermolase.
(d) Authorization. MAI may describe itself as the "Authorized
Thermolase Mobile Provider" in the course of promoting the Products during the
Term and is further authorized to use and display all Thermolase emblems, logos
and trademarks in furtherance of such promotion; provided, however, that any
such usage or display shall at all times be subject to the direction and
control of Thermolase, the approval of which by Thermolase shall not be
unreasonably withheld.
(e) Intellectual Property. In connection with its use,
distribution and promotion of the Products as provided in this Agreement, MAI
is hereby granted a non-exclusive license to use the Proprietary Rights and
trademarks and copyrights incident or relating to the Products; it being agreed
and understood that nothing in this Agreement shall constitute any transfer or
conveyance of Thermolase right, title or interest in, or to any of Thermolase's
trademarks or copyrights.
(f) Thermolase Names and Logos. MAI acknowledges that
importance to Thermolase of the development of brand recognition of the
SoftLight hair removal system and the protection of Thermolase's rights to the
tradenames and logos used in connection with laser based hair removal. MAI
shall use reasonable efforts to ensure that all Users of Products provided
pursuant to this Agreement use tradenames and logos specified by Thermolase in
accordance with instructions provided by Thermolase in connection with all hair
removal
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<PAGE> 4
services, equipment and products using the Proprietary Rights, and in any
advertising and marketing materials, employed by MAI. All uses of Thermolase
tradenames and logos by MAI shall be subject to review and approval by
Thermolase. MAI shall not use the Thermolase name or any Thermolase tradename
or logo in any organizational name without the prior written approval of
Thermolase.
(g) Personnel Training. Thermolase agrees that it will
provide instructors and equipment to train and certify MAI personnel in the use
of the Products. Thermolase further agrees to provide all necessary training,
course materials, information, treatment parameters and necessary slides to MAI
seminar instructors. All training provided to MAI personnel shall be provided
prior to the date of the training course at the MAI local office in the market
in which the course is scheduled to occur. Thermolase shall bear all costs of
such training, except for incidental costs such as travel, lodging and other
expenses incurred by MAI personnel.
5. Product Delivery.
(a) Equipment. Thermolase and MAI will agree on an initial
quantity of SoftLight lasers and a delivery schedule. Thermolase will expect
that each laser it delivers to MAI will produce Product Revenue of at least
$25,000 per month within 150 days of delivery. If after such period a laser
fails to produce such amount for two consecutive months, Thermolase will have
the right to demand return of such laser. If all lasers are producing the
minimum amount, MAI will have the right to receive up to 5 additional lasers
per quarter. If all SoftLight Lasers provided to MAI by Thermolase for use in
any defined market for laser based hair removal services are returned to
Thermolase at the request of Thermolase in accordance with this Section, MAI
shall be permitted to provide competing hair removal systems to persons and
entities without restriction within that defined market. For purposes of this
Section, the defined market may be a geographic area, such as the relevant
Standard Metropolitan Statistical Area in which the SoftLight Lasers requested
to be returned were to be used, a particular defined group of Users, or any
other clearly identifiable boundary or group to which the Products were
marketed to by MAI, with respect to which Thermolase has demanded the return of
SoftLight Lasers in accordance with this Section.
(b) Upgrades, Accessories and Promotional Materials.
Thermolase hereby agrees to provide all of MAI's requirements for Product
accessories, including, but not limited to, handpieces, scanners, smoke
evacuators and SoftLight Activating lotion. All supplies such as evacuator
filters, waxing equipment, skin cleaners and moisturizers, will be provided by
MAI at MAI's expense. Thermolase shall also provide MAI with all Product
upgrades or enhancements as soon as they are commercially available and in no
case later than when they are provided to any licensee. The Parties hereby
agree that Thermolase will provide Practice Enhancement Kits and promotional
materials, including, but not limited to, brochures describing Thermolase
Products, patient education videos, and patient information brochures.
(c) Warranty and Maintenance. Thermolase hereby warrants that
all Products provided under this Agreement shall be free from defects.
Thermolase hereby agrees to maintain, repair (including preventive maintenance)
or replace, within 24 hours after notification
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<PAGE> 5
from MAI, at Thermolase's sole cost, all equipment necessary in providing the
Products to MAI's customers.
6. Term and Termination.
(a) Term of Agreement. Subject to (b) below, this Agreement
shall commence as of the date of execution and shall continue for a period of
three years thereafter (the "Initial Term"), and, subject to the succeeding
sentence, will be automatically renewable for one year terms thereafter (each,
a "Renewal Term") (the Initial Term and any Renewal Term(s) are sometimes
collectively referred to herein as the "Term"). This Agreement shall be
extended for any Renewal Term unless, at least ninety days prior to the
expiration of the then current Term, either Party gives notice to the other
Party of its desire not to extend the Term, in which case this Agreement shall
expire upon the expiration of the then current Term.
(b) Early Termination. In the event of default by either
Party of any of the provisions of this Agreement and such default in not cured
within thirty (30) days after the receipt by such defaulting Party of written
notice from the non-defaulting Party of such breach, which notice shall
reasonably describe such breach (a "Default"), the non-defaulting Party may, in
addition to any other rights or remedies it may have in law or in equity,
terminate this Agreement (including the provisions of Section 3(b) above), with
no further action required by the non-defaulting party to effect such
termination. Either party may terminate this Agreement if more than fifty
percent (50%) of the Products provided to MAI by Thermolase are not generating
Product Revenues of Twenty-Five Thousand Dollars ($25,000) per month per laser
and Users of those Products have notified MAI in writing that their ability to
generate Product Revenues is being impaired by concerns about the safety of the
Products or on the basis of regulatory action by the U.S. Food and Drug
Administration or a state regulatory authority with jurisdiction over the
services provided with the Products.
(c) Rights upon Termination. In the event of a termination of
this Agreement pursuant to (a) or (b) above, MAI shall return the Products
within thirty (30) days of written notice of such termination. The return of
Products to Thermolase upon termination of this Agreement shall be done at the
sole expense of the defaulting party.
7. Indemnification.
(a) Thermolase 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 any defect or 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 MAI is so required under this Agreement). Thermolase, 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 Thermolase
infringes a patent, copyright, or other proprietary right of a third party,
shall,
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at its own expense and option, (a) settle the claim; (b) procure for MAI 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. Thermolase further agrees that should any court of competent
jurisdiction hold in a final decision that the sale, manufacture, or use of
such Product constitutes infringement, Thermolase shall pay to MAI any costs
and damages finally awarded against MAI or its customers on account of such
infringement, and if the use of such Product is enjoined, Thermolase shall take
one or more of the actions under (b), (c), or (e) above.
(b) MAI hereby indemnifies Thermolase 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 Thermolase 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
MAI is so required under this Agreement), or any unauthorized modification made
to the Products by MAI. MAI further agrees to indemnify Thermolase 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 Thermolase 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 Thermolase 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 a similar form of
indemnity.
(c) The provisions of this Section 7 shall survive the
termination or expiration of this Agreement for a period of three years.
8. 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 Thermolase exclusively. All
documents of title and evidences of delivery shall be delivered to Thermolase.
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 Thermolase's ownership or interest therein, and will at any time
during the term of any rental agreement, upon request of Thermolase, allow
Thermolase to affix on the Products in a prominent place, labels, plates or
other markings supplied by Thermolase stating that the Products are owned by
Thermolase. MAI shall at its own expense protect and defend Thermolase's title
against all persons claiming against or through MAI, at all times keeping the
Products free from any legal proceedings or encumbrances whatsoever, including,
but not limited to, liens, attachments, levies and executions, and shall give
Thermolase immediate written notice of any such legal process or encumbrance
and shall indemnify Thermolase from any loss caused thereby.
9. Limitation of Liability. After delivery of the Products to MAI,
MAI shall bear the entire risk of loss with respect to any damage, destruction,
loss or theft of any Products of which MAI is in possession at the time of such
damage, destruction, loss or theft (herein "Loss
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<PAGE> 7
or Damage"). MAI shall promptly notify Thermolase 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
Thermolase any difference between the proceeds of such insurance and such
replacement cost. Thermolase and MAI agree that to the extent income or
revenue is lost or foregone because equipment is inoperable, Thermolase 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 Thermolase nor MAI shall have any liability to the other for any
indirect, incidental or consequential damages with respect to any breach of
this Agreement.
10. Use of Products.
(a) 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, and shall not make any modification,
alteration or addition to the Products (other than normal operating accessories
or controls) without the consent of Thermolase.
(b) The Products shall be used by MAI only in accordance with
Thermolase's written instructions. MAI recognizes that the Products are
designed to be moveable under normal circumstances, including their intended
use by MAI pursuant to this Agreement, but are not specifically designed to
withstand rough handling.
(c) The Products shall be used by MAI only in accordance with
applicable federal law and the laws of each jurisdiction in which the Products
are to be used. MAI shall not modify the Products or allow repair or
maintenance functions to be performed by unauthorized personnel. 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 nor Thermolase is engaged in the practice of medicine.
(d) Without the written consent of Thermolase, 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 Thermolase. MAI agrees to make the
Products available to Thermolase upon reasonable request for inspection, repair
and maintenance at locations reasonably convenient to both MAI and Thermolase.
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<PAGE> 8
11. Miscellaneous Provisions.
(a) MAI Personnel. In marketing Products, MAI will only use
sales and delivery personnel that have been properly trained in the marketing
of the Products.
(b) Assignments. This Agreement and the rights and
obligations of the Parties hereunder shall be binding upon and inure to the
benefit of the Parties and their respective successors and assignees. Neither
Party shall assign this Agreement or any rights or obligations hereunder
without first obtaining the written consent of the other Party.
(c) Thermolase Confidential Information. MAI agrees to keep
confidential and secret any proprietary information regarding the Products
intended by Thermolase to be confidential concerning existing product,
improvements, or new ideas under development, customer lists, financial and
marketing information, business documents and any other information regarding
the Products deemed confidential by Thermolase, which is not public knowledge,
and which may be learned by MAI in the course of its business relationship with
Thermolase. MAI shall not use or disclose any confidential information after
the expiration of the Term. MAI further agrees to instruct all of its
employees to keep confidential and secret all such information intended by
Thermolase to be kept confidential and or proprietary. MAI will not solicit to
hire any of the employees of Thermolase for a period of two years following the
Term.
(d) MAI Confidential Information. Thermolase agrees to keep
confidential and secret any proprietary information intended by MAI to be
confidential concerning MAI's customer lists, financial and marketing
information, business documents and any other information deemed confidential
by MAI, which is not public knowledge, and which may be learned by Thermolase
in the course of its business relationship with MAI. Thermolase shall not use
any confidential information after expiration of the Term. Thermolase further
agrees to instruct all of its employees to keep confidential and secret all
such information intended by MAI to be confidential and/or proprietary.
Thermolase will not solicit to hire any of the employees of MAI for a period of
two years following the Term.
(e) Complete Agreement. This Agreement contains all of the
agreements, understandings, representations, conditions, warranties and
covenants made between the Parties hereto with respect to the subject matter
hereof, and any modification or amendments hereto must be in writing and
executed by both Parties.
(f) Severability. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present of future laws effective
during this Term, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never compromised a part hereof; and the remaining provisions hereof
shall remain in full force and effect and shall not be effected by the illegal,
invalid, or unenforceable provision or by its severance herefrom. Furthermore,
in lieu of such illegal, invalid or unenforceable provision, there shall be
added automatically as part of this
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<PAGE> 9
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
(g) Controlling Law and Venue. The validity, interpretation
and performance of this Agreement shall be controlled by and construed under
the laws (but not the rules governing conflicts of laws) of the State of
Delaware.
(h) Arbitration. Any and all disputes or disagreements
arising out of or in connection with this Agreement shall be submitted to a
mandatory and binding arbitration, administered by the commercial rules of the
American Arbitration Association in Delaware, whereby each party agrees to the
complete resolution of the subject dispute by said arbitrators. The
arbitrators are authorized to go forward even though one of the parties refuses
to participate. Notwithstanding anything to the contrary contained herein, it
is acknowledged that the right to termination as provided herein shall be
affected by this Section 8(h).
(i) Attorney's Fees. Should either Party hereto bring an
action to enforce any of the terms and conditions contained herein, the
prevailing Party shall be entitled to reasonable attorney fees, as well as
costs of suit.
(j) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
shall constitute one and the same instrument, but only one of which need to be
produced.
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<PAGE> 10
EXECUTED as of the date first above written.
MEDICAL ALLIANCE, INC. THERMOLASE CORPORATION
By:/s/ Paul Herchman By: /s/ John C. Hansen
------------------------- -------------------------
Paul Herchman John C. Hansen
President & CEO President & CEO
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<PAGE> 11
SCHEDULE A
This Product is Thermolase's patented SoftLight hair removal procedure that
uses a SoftLight laser, the specifications for which are set forth in its
Operator's Manual, in combination with a proprietary SoftLight Activating
Lotion.
<PAGE> 12
SCHEDULE B
[Description of MAI Service fees]
<PAGE> 13
SCHEDULE C
[Description to Licensee Service fees]
<PAGE> 14
SCHEDULE D
[Description of Spa Thireras Service fees]
<PAGE> 1
EXHIBIT 10.13
STRATEGIC AGREEMENT
FOR MICROLAPAROSCOPY
This Strategic Agreement for Microlaparoscopy ("Agreement") is made as
of the 1st day of January, 1997, by and between Valleylab, Inc., a Colorado
corporation ("Valleylab"), and Medical Alliance, Inc., a Texas corporation
("MAI").
BACKGROUND
Valleylab is a developer, manufacturer and distributor of, among other
things, electro-surgical systems and related surgical products. MAI is a
provider of surgical and diagnostic equipment and related services to
physicians for use in out-patient microlaparoscopy procedures (individually, a
"Procedure" and collectively, the "Procedures"). Subject to the terms and
conditions set forth below, Valleylab and MAI desire to enter into a strategic
affiliation to promote the use of certain equipment owned by Valleylab as set
forth on Exhibit A attached hereto (the "Equipment"), and certain services as
set forth on Exhibit B attached hereto (the "Services"), for use by MAI in
providing mobile surgical support services to physicians performing Procedures
within certain geographical regions set forth on Exhibit C attached hereto (the
"Districts").
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.
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" shall have the meaning ascribed thereto
in Section 7 below.
(b) "Depreciated Asset Value" shall mean Valleylab's
actual cost of an item of Equipment, net of depreciation; and shall be
determined using the straight-line method over 36 months, with no
residual value, in accordance with GAAP.
(c) "GAAP" shall mean generally accepted accounting
principles, applied on a consistent basis.
(d) "Person" shall mean any individual, sole
proprietorship, joint venture, partnership, corporation, association,
joint-stock company, unincorporated organization, cooperative, trust,
estate, or any other entity of any kind or nature whatsoever.
(e) "Transfer Invoice Price" shall mean the published
retail list price for a piece of Equipment as in effect as of the date
the Equipment was placed in service by MAI. For current Equipment, the
Transfer Invoice Price for each piece of such Equipment is set forth
opposite each item of Equipment on Exhibit A.
<PAGE> 2
2. EQUIPMENT; SERVICES; EXCLUSIVITY; OPERATIONAL PHASES
(a) Equipment; Services. Valleylab hereby agrees to provide to
MAI, and MAI hereby agrees to accept from Valleylab, the Equipment, in the
quantities set forth thereon and on the terms and conditions set forth herein.
In addition, Valleylab hereby agrees to provide to MAI, throughout the Term (as
defined below) technical, educational, instructional and other Services set
forth on Exhibit B relating to the Equipment and the use of Equipment in the
Procedures. Upon execution of this Agreement, Valleylab and MAI shall mutually
agree upon when the Equipment shall be shipped and delivered. All Equipment
delivered to MAI pursuant to this Section 2(a) shall be delivered F.O.B. MAI's
facility. MAI agrees that during the Term, it shall provide Valleylab with
calendar quarterly forecasts showing its rolling 12-month forecast for any
needed additional equipment which the parties may agree to add to the Equipment
in accordance with the provisions of Section 14(c) below.
(b) Exclusivity. MAI agrees that it will obtain all of its
microlaparoscopy equipment and instruments for providing mobile surgical
support services in connection with Procedures performed within the Districts
from Valleylab under the terms of this Agreement; provided however, that MAI
may seek to obtain such equipment and instruments to the extent that Valleylab
is unwilling or unable to amend the list of Equipment upon written request of
MAI in order to reasonably meet the needs of MAI in providing such services.
Valleylab agrees that it will not supply any of the items of Equipment or any
other microlaparoscopy equipment and instruments to any Person (other than MAI)
providing microlaparoscopic mobile surgical support services within the
Districts.
(c) Operational Phases. MAI agrees to begin offering the use of
the Equipment and related support services for Procedures to be performed in
the Districts according to the following timetable:
(i) Beginning in February 1997, in three Districts;
(ii) Beginning in June 1997, in four additional Districts
(for a cumulative total of seven Districts); and
(iii) Beginning in September 1997, in three additional
Districts (for a cumulative total of ten Districts).
3. TERM; TERMINATION
(a) Term. Except as otherwise provided in (b) below or Section 13
below, the term of this Agreement (the "Term") shall commence as of January 1,
1997, and shall remain in effect for an initial term ending December 31, 1997,
which term may be extended for one or more additional years by written
agreement of the parties. Except if previously terminated pursuant to (b) below
or Section 13 below, at least ninety (90) days before the end of the Term,
either party may propose extending the Agreement for
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<PAGE> 3
another year by giving the other party written notice of such desire, in which
event the parties agree to negotiate toward such extension in good faith.
Nothing in this Section 3(a) shall require the parties to mutually agree on any
extension of the Term. In addition, except if previously terminated pursuant to
(b) below or Section 13 below, no later than October 1997, both parties will
evaluate whether this Agreement meets their expectations and business needs,
and if not, will attempt in good faith to revise the terms or propose new terms
so that it better reflects the parties mutual objectives.
(b) Early Termination.
(i) Notwithstanding (a) above, 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 Valleylab desires to terminate
this Agreement, MAI shall, at MAI's election, either (i)
return to Valleylab all Equipment, with all costs associated
with such return (including but not limited to freight,
carriage and insurance) to be paid by Valleylab, or (ii)
purchase and take title to all Equipment at a price equal to
the Depreciated Asset Value thereof. MAI shall provide
Valleylab written notice at least fifteen (15) days prior to
the expiration of the above-referenced ninety (90) day period
informing Valleylab of its election hereunder.
(B) In the event MAI desires to terminate this
Agreement, Valleylab shall, at Valleylab's election, either
(i) obtain return of all Equipment, with all costs associated
with such return (including but not limited to freight,
carriage and insurance) to be paid by MAI, and payment by MAI
to Valleylab of an amount equal to the difference between the
Depreciated Asset Value of such Equipment and Valleylab's
original cost thereof or (ii) require MAI hereunder to
purchase and take title to the Equipment at the aggregate
Transfer Invoice Prices for such Equipment. Valleylab 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.
(ii) In the event that Valleylab and MAI mutually agree to
terminate this Agreement pursuant to this subsection (b), MAI shall
either (a) return to Valleylab all (or any part) of the Equipment,
with all costs associated with such return (including but not limited
to freight, carriage and insurance) to be paid equally by Valleylab
and MAI, or (b) purchase and take title to all (or, if some Equipment
are returned to Valleylab pursuant to the preceding clause, the
remainder) of the Equipment at a purchase price equal to the lessor of
(1)1.6 times the aggregate Depreciated Asset Value of such purchased
Equipment or (2) the aggregate Transfer Invoice Prices for such
Equipment less twenty percent (20%) of such amount.
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<PAGE> 4
(iii) In the event that either party desires to terminate
this Agreement upon the default by the other party pursuant to Section
13 below, the provisions of Section 13 shall apply.
(c) Rights and Obligations Upon Termination. Upon the termination
of this Agreement for any reason, any and all Fees due to Valleylab 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.
4. FEE; PAYMENT TERMS.
(a) Fee. MAI agrees that for Valleylab's agreement to provide the
Equipment and Services and its other obligations hereunder, MAI shall pay
Valleylab a fee (the "Fee") equal to a percentage of the total amount collected
by MAI for each Procedure in which the Equipment is used. The initial Fee shall
be equal to fifteen percent (15%) of such total amount collected by MAI, which
number shall be subject to review and, to the extent mutually agreed upon in
writing by the parties, subject to adjustment, based upon good faith
discussions of the parties to occur (i) every four months during the Term and
(ii) whenever it is proposed that the Equipment be used in new procedures or
that changes be made to the equipment and instruments comprising the Equipment
such that such usage or changes could reasonably be expected to have a material
affect on the revenues attributable to the Equipment and Services. Such review
and negotiations shall be based on the parties intent to maintain the
relationship between the parties relative economic burden and return in
connection with this Agreement, and shall be based on relevant information
regarding MAI's operations and the Procedures, including without limitation,
the number of Procedures in which the Equipment is used, the gross
reimbursement rates to MAI for such Procedures, the aging of MAI's receivables
relating to the Procedures and MAI's net realization rates thereon, the
parties' relative costs and other relevant financial measures. The first
scheduled review shall begin in May 1997. The Fee in effect at any given time,
and from time to time, shall be set forth on Exhibit D attached hereto, as the
same may be amended and signed by both parties from time to time by mutual
written agreement of the parties.
(b) Payment Terms. Fee payments shall be made within thirty (30)
days of the close of each calendar month and shall cover collected fees through
the last day of such month (i.e. 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 Boulder, Colorado, or Dallas, Texas, payment shall be due
on the next business day following the date when payment would otherwise be
due.
(c) Reports; Audits. MAI shall submit a report with each Fee
payment setting forth with reasonable particularity (i) the number of
Procedures performed during such month and the amount accrued by MAI as its
expected receipts from such Procedures; (ii) the amount received by MAI during
such month relating to Procedures (whether
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<PAGE> 5
performed during such month or previously); (iii) the calculation of the Fee as
a percentage of item (ii) above; and (iv) a reconciliation of any differences
between the amounts set forth in (i) and (ii) above. Upon request by Valleylab,
MAI shall allow Valleylab 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 financial books and records of MAI relating to the utilization of
the Equipment in order to enable Valleylab to verify the calculation and
payment of the Fee in accordance with this Section.
(d) Place of Payment. All payments required to Valleylab under
this Agreement shall be made to Valleylab (or any successor of assignee of
Valleylab pursuant to Section 14(a)) at the address provided in writing by
Valleylab to MAI from time to time.
(e) Third Party Arrangements. MAI shall be solely responsible for
all arrangements, which arrangements shall comply with all applicable federal
and state rules and regulations, with physicians and third party providers
pursuant to which Procedures may be performed. MAI shall be solely responsible
for billing and collection under such arrangements.
5. PROCEDURES, MARKETING, RECORDKEEPING: OUTCOME INFORMATION AND STUDIES.
(a) Procedures. MAI shall be responsible for defining each
Procedure in terms of (i) the specific procedure to be performed by the
physician and (ii) the equipment, services and other resources to be provided
by MAI to the physician and others involved in the Procedure. Such definition
shall include the procedural specifications, protocols, credentialing standards
and clinical guidelines (collectively, "Standards") to be offered by MAI, or
which MAI will require to be observed, in the course of any Procedure. The
Standards shall be in conformity with all applicable laws and regulations and
good clinical practice, and before being implemented shall be approved by MAI's
Medical Director. MAI shall establish and maintain quality assurance systems
for the Standards. MAI shall support its services relating to the Procedures
with reasonable infrastructure and personnel, including technicians, sales
personnel, sales and marketing, billing, collection, clinical business
development and administrative support.
(b) Marketing. MAI shall market and sell its services in
connection with the Procedures with reasonable diligence and on reasonable
business terms, within the Districts, and in any additional Districts to which
this Agreement may become applicable. Except as otherwise provided herein, MAI
shall be solely responsible for preparing any and all sales, marketing and
promotional material relating to the Procedures. Such responsibility shall
extend to the content, format, method of distribution, and the costs of
preparing, producing and disseminating such materials. Upon written request of
MAI, Valleylab will, at Valleylab's cost and expense, include in such
promotional materials, materials relating to the Equipment or Services as
reasonably requested by MAI. MAI
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agrees that it will develop training courses for physicians and other health
care professionals relating to the Procedures and the Standards, and will
schedule, promote, organize and sponsor such courses.
(c) Recordkeeping: Outcome Information and Studies.
(i) Recordkeeping. MAI will establish and maintain
recordkeeping systems in accordance with applicable laws, regulations
and other requirements for its business. Insofar as such recordkeeping
systems relate to the Equipment and/or the Procedures in which it is
used, Valleylab may suggest to MAI ways to refine or enhance such
recordkeeping systems; it being within the sole discretion of MAI on
whether or not to accept or implement such suggestions.
(ii) Outcome Information and Studies. Both parties shall
have full and equal access and rights to use clinical and economic
outcomes, utilization, conversion and related information arising from
Procedures performed using the Equipment. In addition, if either party
identifies an opportunity for the creation, collection or sponsorship
of information relevant to microlaparoscopy but outside the scope of
the foregoing (e.g. externally developed outcome studies), then it
shall offer the other party the opportunity to participate in
developing such information through financial sponsorship or other
appropriate means as may be reasonable. If the other party declines
such offer, then the originating party need not make available to the
other party any information resulting from such opportunity. If both
parties participate, they shall share rights in the resulting
information as agreed to in writing by the parties.
(d) Services and Marketing Plan and Budget. No later than February
28, 1997, the parties will develop a plan for marketing microlaparoscopy during
the Term (the "Plan") and a budget (the "Budget") for their respective
contributions of resources to implement the Plan. Such Plan and Budget shall be
subject to review and adjustment, if agreed, pursuant to the process specified
in Section 4(a) above.
6. TAXES: INDEMNITY.
(a) Taxes Assessments. Each party 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 such party as relates to the
ownership and operation of the Equipment and the rights and obligations of the
parties hereunder. If MAI purchases any Equipment, and sales tax is due
thereon, MAI agrees to pay such sales tax. MAI also agrees to prepare and file
promptly with the appropriate offices any and all tax and other similar returns
required to be filed with respect thereto (sending copies thereof to Valleylab)
or, if requested by Valleylab, notify Valleylab of such requirement and furnish
Valleylab with all information required by Valleylab so that it may effect such
filing.
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(b) Indemnification by MAI. MAI agrees to and shall
indemnify and save Valleylab, 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
MAI or any of its employees or agents.
(c) Indemnification by Valleylab. Valleylab 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, and 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
Valleylab or any of its employees or agents; 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,
Valleylab shall not have any liability under this subsection if (1)
MAI failed to properly inspect and test any Equipment prior to such
Procedure or (2) MAI failed to give Valleylab prompt written notice of
the need for maintenance of Equipment in accordance with Section 10(d)
below, and such maintenance would have prevented such illness or
injury.
(d) Indemnification Notice; Survival. Any party seeking
indemnification pursuant to this Section 6 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. The obligations and rights of the parties
contained in this Section 6 shall survive the termination of this
Agreement.
7. ACCEPTANCE. Promptly after delivery of the Equipment to MAI,
and in any event within fourteen (14) days of receipt thereof, MAI shall
inspect the Equipment and (a) if fully satisfied therewith, execute and deliver
to Valleylab a "Certificate of Acceptance", the form of which is attached
hereto as Exhibit E (the "Certificate") or (b) notify Valleylab in writing of
the unacceptability of any Equipment, 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 Valleylab within the above fourteen (14) day period. Any
notification that any item of Equipment is unacceptable shall not be construed
to mean that any other item of Equipment is unacceptable, unless Valleylab is
so notified in writing. On every Certificate, Valleylab shall reference (1) the
asset value initially attributable to the subject Equipment, (2) the "Transfer
Invoice Price" and (3) the best available identification information (serial
number, if possible) of the subject Equipment.
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8. TREATMENT OF EQUIPMENT AND INSURANCE: RISK OF LOSS.
(a) Treatment of Equipment; Insurance. MAI shall clean, sterilize,
maintain and calibrate each item of Equipment according to the requirements or
recommendations of its maker and any additional requirements reasonably imposed
by Valleylab, which requirements shall be furnished in writing to MAI prior to
delivery of the Equipment. MAI shall treat the Equipment in the same way it
treats its own equipment for purposes of insurance, physical security, and
asset or inventory control.
(b) Risk of Loss. Except as otherwise provided herein, the
Equipment, until returned to Valleylab, 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
title or use). If any Equipment is destroyed, lost, stolen, damaged beyond
repair, or permanently rendered unfit for normal use for any reason whatsoever,
MAI shall promptly notify Valleylab in writing and in such notice shall state
which item(s) of Equipment require(s) replacement and the reasons therefor.
Valleylab shall supply MAI the replacement Equipment, F.O.B. Valleylab's
facility, at a price equal to Valleylab's actual cost therefor (determined
immediately prior to such occurrence and otherwise in accordance with
Valleylab's normal accounting procedures) plus an additional ten percent (10%)
of such cost, which amounts MAI shall pay Valleylab upon invoice thereof. Upon
such replacement, however, Valleylab shall continue to supply the subject
Equipment at the scheduled Fee in effect at the time of the event necessitating
the replacement.
9. TITLE.
(a) Title. Unless MAI purchases any Equipment from Valleylab
pursuant to Section 3(b) above or otherwise pursuant to the terms of this
Agreement, (i) the ownership of the Equipment is and at all times shall remain
in Valleylab, (ii) the Equipment 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, assign, transfer, lease, sublet, loan, part with
possession of, or encumber the Equipment 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 Equipment in physicians' offices,
hospitals and clinics for the purpose of allowing physicians to utilize the
Equipment 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 Equipment (including, without limitation, by reason
of such Equipment being deemed to be a fixture or a part of any realty).
(b) Ownership Logo. MAI acknowledges that Valleylab may, at
Valleylab's expense, affix and maintain on the Equipment a plate indicating
Valleylab's ownership thereof for the purpose of, among other things, noticing
MAI's creditors.
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10. LIMITED WARRANTY; LIMITATION OF REMEDIES; MAINTENANCE.
(a) Limited Warranty. Valleylab makes no warranty, express or
implied, with respect to the Equipment except as set forth in this Section 10.
Valleylab warrants from the date of any Certificate, according to specific
product warranties and time limitations as contained in the applicable users'
manual, that the subject Equipment 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 and its assigns. The above warranty
covers only Warranty Equipment (as defined below) and, for such equipment,
excludes Non-Warranty Events (as defined below). "Warranty Equipment" means
each item of Equipment except (i) any item of Equipment which is not made by
Valleylab (as to which, any warranty will be governed by Section 10(e) (iii)
below) and (ii) any item of Equipment designated as an "Instrument" on Exhibit
A. A "Non-Warranty Event" means any damage caused by any of the following: (1)
use or installation other than in strict accordance with the manufacturer's
written instructions; (2) disassembly or repair by an unauthorized person; (3)
misuse, misapplication or abuse; (4) alteration; (5) lack of reasonable care;
or (6) wind, ice, snow, rain, lightning or other weather conditions or acts of
God. If a Non-Warranty Event occurs to any item of Warranty Equipment, the
warranty in this Section 10(a) shall no longer apply to such item of Equipment
unless and until MAI, in Valleylab's reasonable judgment, has satisfactorily
repaired such damage. If MAI does so before the expiration of the original
warranty term for such item of Equipment, such original warranty shall be
reinstated for the balance of such term.
(b) Disclaimer of Implied Warranties. OTHER THAN THE WARRANTIES
SET FORTH ABOVE, VALLEYLAB 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 VALLEYLAB OR
ANY OF VALLEYLAB'S EMPLOYEES OR REPRESENTATIVES OR IN ANY OF VALLEYLAB'S
BROCHURES, MANUALS, CATALOGUES, LITERATURE OR OTHER MATERIALS.
(c) Limitation of Remedy. EXCEPT AS OTHERWISE PROVIDED IN THIS
AGREEMENT, AND EXCEPT FOR ACTIONS INSTITUTED BY THIRD PERSONS AGAINST MAI,
MAI'S SOLE AND EXCLUSIVE REMEDY AND VALLEYLAB'S SOLE OBLIGATION FOR ANY BREACH
OF THE EXPRESS WARRANTIES CONTAINED HEREIN SHALL BE LIMITED TO THE REPAIR OR
REPLACEMENT OF THE DEFECTIVE EQUIPMENT, AS VALLEYLAB IN ITS SOLE DISCRETION
SHALL DETERMINE (WITH A NEW OR FACTORY RECONDITIONED PRODUCT, AS VALLEYLAB MAY
DETERMINE). VALLEYLAB 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
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THIS WARRANTY, MAI MUST FOLLOW ALL APPLICABLE PROCEDURES FOR RETURN OF
EQUIPMENT AS SET FORTH HEREIN. EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT
AND EXCEPT WITH RESPECT TO ACTIONS INSTITUTED BY THIRD PERSONS, VALLEYLAB 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 EQUIPMENT (INCLUDING BUT NOT LIMITED TO LOSS OF INCOME, LOSS OF
TIME, LOSS OF SALES, OR INJURY TO PERSONAL PROPERTY).
(d) Maintenance. During the Term, provided that (1) the Equipment
is not being subject to misuse, mishandling or modification and are being used
for their intended purpose according to applicable instructions pursuant to
this Agreement, and (2) MAI provides Valleylab with notice of the need for
maintenance of any Equipment within two (2) business days after the occurrence
of any malfunction, Valleylab shall at its own cost and expense, including
shipping (i) maintain the Equipment in good working order and condition and
(ii) at Valleylab's sole election, repair or replace any component or
components of any Equipment that may require repair or replacement from time to
time to the extent necessary to maintain, preserve and keep the Equipment in
good working order and condition. In order to satisfy its maintenance
obligations hereunder, Valleylab must either (i) perform maintenance with
respect to any Equipment in need of repair or (ii) provide MAI temporarily with
adequate loaner equipment within seventy-two (72) hours after Valleylab has
received notice that maintenance is required. If, however, MAI discovers that
any Equipment requires repair or replacement due to breakage which occurs as a
result of misuse, mishandling or modification, MAI shall promptly notify
Valleylab in writing of such occurrence (before any return of any Equipment to
Valleylab for repair or replacement), and MAI shall be fully responsible for
the repair or replacement of such Equipment, at MAI's sole cost and expense, as
provided in subsection (e) below. Notwithstanding anything stated in this
Section 10(d) to the contrary, Valleylab shall not be responsible for
maintaining any Equipment once it is acquired by MAI pursuant to 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 for such Equipment was executed by MAI.
(e) Repairs/Replacements Not Covered by Valleylab's Warranty or
Maintenance Obligations.
(i) If any Equipment requires repair that is not covered
by Valleylab's warranty or maintenance obligations as set forth in
this Section 10, MAI shall have the option of either (a) engaging
Valleylab to repair the Equipment at a charge equal to Valleylab's
cost of parts (determined immediately prior to the repair and
otherwise in accordance with Valleylab's normal accounting procedures)
plus $100 per hour for labor, which amounts MAI shall pay Valleylab
within thirty (30) days after invoice by Valleylab or (b) engaging a
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qualified third party to repair the item at MAI's sole cost and
expense; provided, however, that if Valleylab's prior written
authorization as to such third party's engagement is not obtained
(which authorization shall not be unreasonably withheld), Valleylab
shall have no obligation to continue to maintain the Equipment
requiring repair, as otherwise would be required by this Section
10(e). Before returning any Equipment to Valleylab 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 Valleylab.
Upon such repair, however, Valleylab shall continue to supply the
subject Equipment at the scheduled Fee rate in effect at the time of
the event necessitating the repair.
(ii) If any Equipment requires replacement that is not
covered by Valleylab's warranty or maintenance obligations as set
forth in this Section 10, Valleylab shall supply MAI the replacement
Equipment, F.O.B. Valleylab's facility, at a charge equal to
Valleylab's actual cost therefor (determined immediately prior to such
occurrence and otherwise in accordance with Valleylab's normal
accounting procedures) plus an additional ten percent (10%) of such
cost, which amounts MAI shall pay Valleylab within thirty (30) days
after invoice by Valleylab. Upon such replacement, however, Valleylab
shall continue to supply the subject Equipment at the scheduled Fee
rate in effect at the time of the event necessitating the replacement.
(iii) Valleylab may, from time to time and at its option,
obtain items of Equipment to be provided to MAI under this Agreement
from third parties. Valleylab shall have no warranty obligation to MAI
respecting such items of Equipment, but shall use reasonable efforts
to provide MAI with the benefit of any warranties offered by the maker
of such items of equipment. However, Valleylab shall maintain and
repair/replace all such Equipment according to this Section 10.
(iv) In returning any item of Equipment, whether or not under
warranty and whether or not for repair, inspection, calibration,
replacement or other action, MAI shall follow Valleylab's established
procedures governing such return, including without limitation,
procedures governing the issuance of return authorization numbers, the
address to which such item is to be shipped, and the manner in which
it is to be decontaminated and/or cleaned, packed, shipped and insured
provided that Valleylab has adequately notified MAI of such
procedures.
11. ACCESSIONS; INSPECTION; ALTERATIONS. All replacements or
substitutions of parts, of or in any of the Equipment, shall constitute
accessions thereto and shall become part of the Equipment owned by Valleylab;
provided, however, that MAI may add components to the Equipment if such act
would not cause material damage (as defined below) to the Equipment during use
(which additions shall not void the warranties provided herein). Any components
added by MAI to the Equipment shall remain the property of MAI and may be
removed by MAI upon the termination of this Agreement if (a) MAI removes such
components, at MAI's sole cost and expense, at the end of the applicable Term
and (b) such
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removal can be effected without causing material damage (as defined below) to
the Equipment. The term "material damage" as used in the preceding sentence
shall mean damage the nature of which has a measurable effect on the economic
value or resaleability of the Equipment in question. Upon reasonable notice from
Valleylab and during regular business hours, MAI will permit Valleylab to have
access to MAI records relating to the maintenance of the Equipment for the
purpose of inspection and examination.
12. USE OF EQUIPMENT; COMPLIANCE WITH LAWS AND REGULATORY
STANDARDS. MAI shall be entitled to the right to exclusive possession and
control of the Equipment and the use thereof during the Term so long as
Valleylab has not exercised any rights to regain possession and control of the
Equipment as provided herein. Both parties shall comply with all present and
future applicable federal, state and local laws, regulations and ordinances
applicable to the physical possession, operation, condition, use and
maintenance of the Equipment, 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 Equipment, and to establish and maintain all third
party payor and reimbursement contract standards. MAI will establish and
maintain required reporting programs respecting the Equipment, and will timely
provide Valleylab with all information necessary or reasonably requested by
Valleylab to permit Valleylab to meet its regulatory obligations and quality
assurance requirements.
13. EVENTS OF DEFAULT; REMEDIES; EXPENSES.
(a) Default by MAI. In the event that:
(i) MAI shall default in the payment of any
installment of any Fee or other sum payable hereunder when
due, and such default is not cured within thirty (30) days
after written notice from Valleylab to MAI;
(ii) 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 thirty (30) days (unless another period is specified
herein) after written notice from Valleylab to MAI;
(iii) 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
(iv) 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
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in connection with any action or proceeding against MAI or its
property whereby the Equipment or any substantial part of
MAI's property may be taken or restrained:
then, and in any such event, Valleylab may, by written notice
("Valleylab Termination Notice") to MAI (to the extent legally
permitted to do so), do the following:
(I) at Valleylab's option, immediately
terminate this Agreement (in whole as to all
Equipment or in part as to only a portion of the
Equipment), and MAI's rights hereunder with respect
thereto, in which event Valleylab shall (unless
prohibited by applicable law or court order), at
Valleylab's election, either (i) obtain return of all
Equipment, with all costs associated with such return
(including but not limited to freight, carriage and
insurance) to be paid by MAI, and receive from MAI,
immediately upon demand, payment for the Equipment at
a price equal to difference between the Depreciated
Asset Value of such Equipment and Valleylab's
original cost thereof or (ii) require MAI to purchase
and take title to the Equipment at the aggregate
Transfer Invoice Prices for such Equipment.
Valleylab shall inform MAI of its election hereunder
in the Valleylab 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 up and until
the date of determination;
provided, however, that if MAI does not comply with the
provisions of Subsections 13(a)(I) and (II) above, Valleylab
may (to the extent legally permitted to do so) do the
following:
(1) 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
(2) without necessity of process or
other legal action, enter onto the premises of MAI or
such other premises as the Equipment may then be
located and take possession of the Equipment.
(b) Cumulative Valleylab 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 Valleylab's remedies hereunder, including placing any Equipment
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 Valleylab at
law or in Equity.
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(c) Default by Valleylab. In the event that:
(i) Valleylab 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 thirty (30) days (unless
another period is specified herein) after written notice from MAI to
Valleylab;
(ii) Valleylab 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 Valleylab
or for a substantial part of its property, or bankruptcy,
reorganization, insolvency, or similar proceedings shall be instituted
by or against Valleylab; or
(iii) an order, judgment, or decree shall be entered against
Valleylab 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 Valleylab or its property whereby the
Equipment or any substantial part of Valleylab's property may be taken
or restrained;
then, and in any such event, MAI may, by written notice ("MAI Termination
Notice") to Valleylab (to the extent legally permitted to do so), at MAI's
option, immediately terminate this Agreement (in whole as to all Equipment or
in part as to only a portion of the Equipment), and Valleylab'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
Valleylab the Equipment, with all costs associated with such return (including
but not limited to freight, carriage and insurance) to be paid by Valleylab, or
(ii) purchase and take title to the Equipment at a price equal to the
Depreciated Asset Value thereof. MAI shall inform Valleylab of its election
hereunder in the MAI Termination Notice, and Valleylab shall have fifteen (15)
business days within which to perform pursuant to such election. If Valleylab
does not comply with the provisions of this Subsection 13(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 Valleylab of the
applicable covenants of this Agreement or to recover damages for the breach
thereof.
(d) Cumulative MAI Remedies. In addition, Valleylab 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.
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14. MISCELLANEOUS
(a) Assignment. MAI shall not assign (including by operation of
law) this Agreement or any interest herein, or sublease any Equipment, or part
with possession of any Equipment, without the prior written consent of
Valleylab, which consent shall not be unreasonably withheld. Valleylab shall
not assign (including by operation of law) this Agreement or any interest
herein without the prior written consent of MAI. Any permitted assignee shall
have all the rights, powers, privileges, and remedies of the assigning party
hereunder.
(b) Return of Equipment. If at any time pursuant to the provisions
of this Agreement, MAI is required or elects to return any Equipment or item
thereof to Valleylab (whether for return, replacement or repair), MAI shall
crate the Equipment to Valleylab in a proper manner, adequately protected for
shipment. Unless Equipment is being returned to Valleylab specifically for
repair or replacement purposes, the Equipment shall be in good operating
condition.
(c) Amendments: New Procedures and Technology; Entire Agreement.
This Agreement may not be altered, amended, changed, or terminated without a
written agreement signed by authorized officers of Valleylab and MAI. Without
in any way limiting the generality of the foregoing, the parties may, from time
to time, amend the items or quantities of the Equipment, the Services, the
Limited Life Components, the geographic regions included in the Districts, or
the Fee, in each case as will be more fully set forth on one or more additions
to the Exhibits attached hereto, to be signed by both parties from time to time
during the Term, all upon the terms and conditions set forth herein, such
signed addition to constitute a valid amendment to such Exhibits. Valleylab may
substitute, for any item of the Equipment, equivalent equipment and instruments
in support of the Procedures and any proposed new procedures, subject to MAI's
written approval, which approval shall not be unreasonably withheld. Valleylab
may propose to MAI that the Procedures be modified to include new
microlaparoscopy procedures and technology in MAI's arrangements with
physicians and/or third party providers. This Agreement and the Exhibits
represent the entire agreement between Valleylab and MAI with respect to the
subject matter hereof, and supersedes any and all existing and prior agreements
between the parties with respect thereto.
(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
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<PAGE> 16
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 Valleylab: Valleylab, Inc.
5920 Longbow Drive
Boulder, Colorado 80301
Attention: John V. Scibelli, Ph.D., President
Telecopier No.: (303) 581-6632
with a copy to: Valleylab, Inc.
5920 Longbow Drive
Boulder, Colorado 80301
Attention: Division Counsel
Telecopier No.: (303) 581-6632
If to MAI: Medical Alliance, Inc.
2445 Gateway Drive
Suite 150
Dallas, Texas 75069
Attention: Paul Herchman, President
Telecopier No.: (972) 580-8680
with a copy to: Jackson & Walker, L.L.P.
901 Main Street
Suite 6000
Dallas, Texas 75202
Attention: Richard F. Dahlson
Telecopier No.: (972) 953-6187
(e) Non-Waiver. No failure by either part 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 between 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 thirty (30) 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
16
<PAGE> 17
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 thirty (30) 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 14(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 State of Texas, without regard to
choice of law principles.
(j) Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of Valleylab and MAI and their respective
legal representatives, successors, and permitted assigns.
(k) Further Assurance. Each party shall promptly execute and
deliver to the other party such further documents and take such further action
as such party may request in order to more effectively carry out the intent and
purpose hereof and to fully protect such party's interests hereunder in
accordance with the Uniform Commercial Code or other applicable law, including
without limitation, the filing of financing and continuation statements,
whether for informational purposes or otherwise.
(l) 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.
17
<PAGE> 18
(m) Force Majeure. Neither MAI nor Valleylab shall be penalized
under any non-performance 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 Valleylab agree, however, to use their best efforts to remedy such
mishaps and restore normal business activities within a reasonable period of
time.
(n) 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.
(o) 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.
IN WITNESS WHEREOF, Valleylab and MAI have caused this Agreement to be
duly executed and is effective as of the date and year first above written.
VALLEYLAB, INC.
By:/s/ JOHN V. SCIBOLLI
----------------------
Name: John V. Scibolli
--------------------
Title: President
-------------------
MEDICAL ALLIANCE, INC.
By:/s/ PAUL HERCHMAN
----------------------
Name: Paul Herchman
-------------------
Title: President/CEO
-------------------
18
<PAGE> 1
EXHIBIT 10.14
EXCLUSIVE PROVIDER AGREEMENT
BETWEEN IMAGYN MEDICAL, INC. AND MEDICAL ALLIANCE, INC.
This Exclusive Provider Agreement (this "Agreement"), dated as of the
9th day of February, 1997, is by and between Imagyn Medical, Inc., a Delaware
corporation ("Imagyn"), and Medical Alliance Inc. a Texas corporation ("MAI").
Imagyn and MAI are sometimes referred to herein as a "Party" or collectively,
as the "Parties."
WITNESSETH
WHEREAS, Imagyn is presently the holder of patent rights, technology and
know-how relating to hysteroscopic evaluation and treatment of the uterus
utilizing the MicroSpan microhysteroscopy system (the "Proprietary Rights");
and
WHEREAS, Imagyn has developed and manufactures products incorporating
the Proprietary Rights, which products are described in Schedule A (individual
products or their functional equivalent described in Schedule A shall be
referred to herein as a "Product" and all products and their functional
equivalents described in Schedule A shall be referred to herein as the
"Products"); and
WHEREAS, MAI is a provider of mobile medical services which allow
physicians to perform selected procedures in their offices, and has established
a delivery network for medical products and has an existing customer base for
such products; and
WHEREAS, Imagyn and MAI desire to enter into this Agreement for the
purpose of delivering the Products to the medical community and its patients;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and on the terms and conditions
contained herein, the Parties agree as follows:
1. Exclusive Delivery of the Products.
(a) The Parties hereby agree that, within the Territory (as
defined in Section 2), MAI shall have the sole and exclusive right to offer the
Products to physicians or offer the Products for the use by physicians, on a
"mobile" basis. For the purposes of this Agreement, the offering of the
Products on a "mobile" basis shall mean the offering of the Products to
physicians, or the offering of the Products for the use by physicians, through
specialized physician office mobile delivery services which allow physicians to
perform selected procedures in their offices. The term "physician" shall mean
any person legally authorized to utilize the Products for their intended use.
Imagyn shall not be entitled to compete directly or indirectly with MAI for the
offering of the Products to physicians on a mobile basis or for the use by
physicians or technicians on a mobile basis. Imagyn agrees not to enter into an
agreement or arrangement with any person or entity which permits such person or
entity to
<PAGE> 2
sell, lease, or offer on a mobile basis, the Products within the Territory,
subject to the provisions of Section 6(f) hereof.
(b) MAI shall not be entitled to compete directly or
indirectly with Imagyn for the offering of the Products to physicians other
than on a mobile basis or for the use by physicians or technicians other than
on a mobile basis. The Parties hereby agree that MAI shall not enter into any
other arrangement or agreement to sell, lease or rent products used to perform
microhysteroscopy procedures to any other person for use on a mobile or any
other basis within the Territory. MAI shall not knowingly allow the Products to
be used by any person not legally authorized to do so. MAI shall use the
Products in accordance with applicable state and federal laws, and shall not
make any unauthorized modifications to the Products, or knowingly allow repair
or modifications to be performed by unauthorized personnel, or take any action
which would void any warranty or service contract covering the Products. MAI
shall not resell any Products purchased hereunder, except for those Products
purchased from Imagyn and not returned to Imagyn upon termination of this
Agreement.
2. Geographical Territory. The Parties agree that the Territory
shall be defined as the continental United States.
3. Marketing and Operations Provisions.
(a) Marketing. MAI agrees to exercise best commercial efforts
in actively promoting the Products within the Territory including, to the
extent permitted under any agreement between MAI and any third party, best
commercial efforts to induce existing MAI customers using functional
equivalents of the Products to begin using the Products. Imagyn agrees that if
it contacts any potential purchaser (a "Prospect") of the Products and such
Prospect does not enter into an agreement for the placement of Products with
the Prospect, Imagyn shall inform such Prospect of the availability of MAI's
services. Imagyn shall supply MAI with sufficient information to allow MAI to
contact the Prospect. Imagyn may contact MAI's customer base in order to
encourage the use of the Products. Imagyn may not contact, or cause to be
contacted any current customer of MAI who had contracted with MAI for the
provision of hysteroscopy services before October 1, 1996 ("Existing MAI
Customers"), for the purchase of the Products. Existing MAI Customers are
identified on Schedule C hereto. Further, Imagyn may not place products with an
Existing MAI customer on a rental, "as needed" or any other basis. If an
Existing MAI Customer solicits Imagyn for the purchase of a Product, Imagyn
shall provide MAI fourteen (14) days written notice prior to selling any
Product to such customer.
(b) Authorization. MAI may describe itself as the "Authorized
Imagyn Mobile Provider" in the course of promoting the Products during the Term
and is further authorized to use and display all Imagyn emblems, logos and
trademarks in furtherance of such promotion; provided, however, that any such
usage or display shall at all times be subject to the reasonable direction and
control and prior approval of Imagyn. Except with the written consent of
Imagyn, MAI shall not make any representations as to the use or capability of
the Products other than as set forth in the Product operating manuals and
Imagyn promotional materials.
-2-
<PAGE> 3
(c) Intellectual Property. In connection with its use,
distribution and promotion of the Products as provided in this Agreement, MAI
is hereby granted a non-exclusive license to use the Proprietary Rights and
trademarks and copyrights incident or relating to the Products; it being agreed
and understood that nothing in this Agreement shall constitute any transfer or
conveyance of Imagyn's right, title or interest in, or to any of Imagyn's
trademarks or copyrights.
4. Product Delivery and Pricing.
(a) Equipment. Imagyn will provide MAI fifteen MicroSpan
scopes and thirty hand instruments. Imagyn shall provide two additional hand
instruments to MAI with each MicroSpan scope subsequently provided pursuant to
this Agreement. Should Imagyn introduce additional hand instruments during the
initial Term, Imagyn shall provide MAI with one such additional hand instrument
for each MicroSpan scope provided pursuant to this Agreement. Imagyn agrees to
provide all the Products according to such timing and to such locations as
specified by MAI. Title to Products delivered under this Agreement, except for
those Products purchased by MAI, shall remain with Imagyn. Upon termination or
expiration of this Agreement, the Products, except for those Products purchased
by MAI, shall be returned to Imagyn at Imagyn's sole expense.
(b) Additional Products, Upgrades. Upon the request of MAI,
Imagyn shall supply such additional Products to MAI as mutually agreed upon
between MAI and Imagyn; provided however, that Imagyn may not unreasonably
refuse to supply MAI with a total of forty MicroSpan scopes during the term of
this Agreement. Imagyn agrees to provide MAI with all Product upgrades or
enhancements as soon as they are commercially available.
(c) Purchase of Products by MAI. In addition to those Products
to be supplied to MAI pursuant to Section 4(b) above, MAI shall have the right
to purchase Products from Imagyn at a price equal to 50% of Imagyn's then
current list price for such Products. Products purchased from Imagyn hereunder
shall be covered under Imagyn's standard one-year warranty, a copy of which is
attached hereto as Schedule B.
(d) Sheaths and Outflow Tubes. During the term of this
Agreement, Imagyn shall sell its operative sheaths to MAI at a price of $35.00
per sheath for the first 2,500 sheaths ordered by MAI and $70.00 per sheath
ordered by MAI thereafter. Imagyn also agrees to provide all of MAI's
requirements for outflow tubes, at a price of $5.00 per tube (provided that
Imagyn will provide one free tube with each tube purchased). Upon the execution
of this agreement by MAI, MAI shall cause to be issued a purchase order to
Imagyn for MAI's estimated volume of operative sheaths for the first six months
of this Agreement. Thereafter, MAI will issue to Imagyn rolling quarterly six-
month forecasts of MAI's operative sheath requirements.
(e) Service. Except for those Products purchased by MAI,
Imagyn shall, at no cost to MAI, maintain in proper working order those
Products provided to MAI pursuant to this Agreement. Imagyn hereby agrees to
maintain, repair or replace, at Imagyn's discretion, within 72 hours of
notification (subject to availability, provided that Imagyn will use reasonable
commercial efforts to have sufficient quantities available), all Products
provided hereunder, except those Products
-3-
<PAGE> 4
purchased by MAI. In the event that MicroSpan scopes or hand instruments
require replacement due to abuse or misuse by MAI, Imagyn shall provide
replacements to MAI at a purchase price equal to 50% of Imagyn's then current
list price.
5. Term and Termination.
(a) Term. This Agreement shall have an initial term (the
"Initial Term") commencing as of the date hereof and ending at 11:59 p.m.,
January 31, 1998. Either Party may terminate this Agreements for any reason
after July 31, 1997 upon 90 days prior written notice. If Imagyn cancels the
Agreement for any reason, or if MAI terminates the Agreement due to a default
by Imagyn or because Imagyn is acquired by an entity engaged in the provision
of mobile medical services, Imagyn shall, for a period of one year after the
date of termination, sell operative sheaths and outflow tubes to MAI in
accordance with the pricing terms specified herein, and shall sell MicroSpan
scopes and hand instruments to MAI at 50% of Imagyn's then current list prices.
Imagyn's obligation to sell MicroSpan scopes to MAI under this Section 5(a)
shall be limited to a total of 40 MicroSpan scopes. If MAI terminates this
Agreement for any reason other than a default by Imagyn, Imagyn shall sell such
operative sheaths, outflow tubes, MicroSpan scopes and hand instruments as MAI
orders at a price equal to Imagyn's then current list price. Unless earlier
terminated in accordance with this agreement or unless either party gives
written notice of nonrenewal within 30 days prior to the expiration of the
initial term of this agreement or any renewal term, this agreement shall
automatically renew for a period of one year upon the expiration of the initial
term or any renewal term.
Upon expiration or termination of this agreement, MAI will return all
hand instruments and scopes to Imagyn.
(b) Default.
(i) MAI shall be in default of this Agreement if it: (a)
fails to use the Products in the manner provided for herein, (b) uses the
Products outside of the Territory, (c) fails to maintain proper insurance
coverage as provided for herein, (d) breaches any other provision hereof and
such breach is not cured within 30 days of receipt of written notice specifying
such default, (e) merges, consolidates, or transfers all or substantially all
of its business assets with or into a competitor of Imagyn, (f) dissolves or
ceases its business operations, or (g) becomes insolvent, makes an assignment
for the benefit of creditors, or files for or suffers to exist a petition in
bankruptcy or other insolvency law.
(ii) Imagyn shall be in default of this Agreement if it:
(a) fails to provide Products or services as set forth herein, (b) violates its
obligation to make the Products available to MAI for mobile medical services in
accordance with the terms of this Agreement, (c) fails to maintain proper
insurance coverage as provided for herein, (d) breaches any other provision
hereof, and such breach is not cured within 30 days of receipt of written
notice specifying such default, (e) merges, consolidates, or transfers all or a
substantial part of its business assets with or into a competitor of MAI that
is engaged in delivery of mobile medical services (f) dissolves or ceases its
business
-4-
<PAGE> 5
operations or (g) becomes insolvent, makes an assignment for the benefit of its
creditors, or files for or suffers to exist a petition in bankruptcy or other
insolvency law.
(c) Effect of Default or Termination. Upon default by MAI,
Imagyn may, upon thirty days prior written notice to MAI, elect to terminate
this Agreement and recover those Products (excluding sheaths and outflow tubes)
not purchased by MAI. Upon default by Imagyn, MAI may, upon thirty days prior
written notice to Imagyn, terminate this Agreement and return at Imagyn's sole
expense those Products not purchased by MAI or purchase all such Products at a
price equal to 50% of Imagyn's then current list prices.
6. Miscellaneous Provisions.
(a) Insurance. During the term of this Agreement, MAI shall
insure the Products against general liability, theft and other casualty damage,
and shall maintain sufficient worker's compensation and automotive liability
against losses that may result as a result of the performance of MAI's
obligations hereunder. Imagyn shall maintain product liability insurance, with
a vendor's endorsement, with respect to the Products. All insurance maintained
by either party pursuant to the terms of this Section 6(a) shall be in such
amounts as are customary and typical, in the exercise of reasonable business
judgment, for companies engaged in similar lines of business.
(b) Indemnification. Imagyn hereby agrees to indemnify, defend
and hold MAI harmless from and against all losses, claims, obligations,
demands, assessments, penalties, liabilities, costs, damages, attorneys' fees
and expenses, asserted against or incurred by MAI by reason of or resulting
from a malfunction of the Products or the failure of the Products to perform as
warranted, to the extent that such claims or liabilities are not attributable
to the negligent actions or willful misconduct of MAI. MAI hereby agrees to
indemnify, defend and hold Imagyn harmless against from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities, costs,
damages, attorneys' fees and expenses, asserted against or incurred by Imagyn
by reason or resulting from the negligent actions or willful misconduct of MAI,
to the extent that such claims or liabilities are attributable to the negligent
actions or willful misconduct of MAI. MAI shall further indemnify Imagyn
against damage or loss of the Products delivered to MAI hereunder, to the
extent such damage or loss is attributable to MAI.
(c) Assignments. This Agreement and the rights and obligations
of the Parties hereunder shall be binding upon and inure to the benefit of the
Parties and their respective successors and assignees. Neither Party shall
assign this Agreement or any rights or obligations hereunder without first
obtaining the written consent of the other Party.
(d) Confidentiality. All information disclosed by any Party or
its agents or representatives to any other Party except (i) information which
is otherwise made available to the public through no action or inaction of the
recipient, (ii) information which is already in the possession of the recipient
prior to disclosure by discloser, (iii) information which is obtained by the
recipient from a third party without breach of such third party's
confidentiality obligations, and (iv) information independently developed by
the recipient without use of or reference to the discloser's
-5-
<PAGE> 6
confidential information shall be held in strict confidence and shall not be
used by the Party to whom it is disclosed or the agents and representatives of
such Party, except in the completion of the transactions contemplated hereby or
as otherwise required by law.
(e) Non-Solicitation. During the term of this Agreement and
for a period of one year following the termination or expiration hereof,
neither Party shall hire or solicit for hire any employee of the other Party,
except with the prior written consent of such Party.
(f) Non-Competition. During the term of this Agreement, and
for a period of one year following the termination or expiration hereof,
Imagyn, or its officers or directors, shall not start, purchase, manage, invest
in, own (whether wholly or in part, unless the aggregate ownership of Imagyn,
its officers and directors is less than 5% of such entity and neither Imagyn
nor its officers or directors performs any management functions for such
entity), or operate any entity providing mobile medical services in the
Territory, provided, however, that the acquisition of Imagyn by a company
engaged in the provision of mobile medical services shall not constitute a
breach of this Section 6(f). During the term of this Agreement, and for a
period of one year following the termination or expiration hereof, MAI, or its
officers or directors, shall not start, purchase, invest in, own (whether
wholly or in part, unless the aggregate ownership of MAI, its officers and
directors is less than 5% of such entity and neither MAI nor its officers or
directors performs any management functions for such entity), or operate any
entity engaged in the manufacture or sale of products of similar medical
function or products competitive with the Products, provided, however, that the
acquisition of MAI by a company engaged in the manufacture, distribution,
marketing or sale of products similar to or competitive with the Products shall
not be considered a breach of this Section 6(f).
(g) Complete Agreement. This Agreement contains all of the
agreements, understandings, representations, conditions, warranties and
covenants made between the Parties hereto with respect to the subject matter
hereof, and any modification or amendments hereto must be in writing and
executed by both Parties.
(h) Severability. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present of future laws effective
during this Term, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never comprised a part hereof, and the remaining provisions hereof
shall remain in full force and effect and shall not be effected by the illegal,
invalid, or unenforceable provision or by its severance here from. Furthermore,
in lieu of such illegal, invalid or unenforceable provision, there shall be
added automatically as part of this Agreement a provision as similar in terms
to such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
(i) Controlling Law and Venue. The validity, interpretation
and performance of this Agreement shall be controlled by and construed under
the laws of the State of Delaware.
(j) Arbitration. Any and all disputes or disagreements arising
out of or in connection with this Agreement shall be submitted to a mandatory
and binding arbitration,
6
<PAGE> 7
administered by the commercial rules of the American Arbitration Association in
Phoenix, Arizona, whereby each party agrees to the complete resolution of the
subject dispute by said arbitrators. The arbitrators are authorized to go
forward even though one of the parties refuses to participate.
Notwithstanding anything to the contrary contained herein, it is
acknowledged that the right to termination as provided herein shall not be
affected by this Section 6(j).
(k) Attorney's Fees. Should either Party hereto bring an
action to enforce any of the terms and conditions contained herein, the
prevailing Party shall be entitled to reasonable attorney fees, as well as
costs of suit.
(l) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
shall constitute one and the same instrument, but only one of which need to be
produced.
EXECUTED as of the date first above written.
MEDICAL ALLIANCE, INC. IMAGYN MEDICAL, INC.
By:/s/ PAUL HERCHMAN By: /s/ SUSAN E. DUBE
--------------------------- ---------------------------------
Paul Herchman Susan E. Dube
President & CEO Vice President, Marketing &
Corporate Development
<PAGE> 8
SCHEDULE A
<TABLE>
<CAPTION>
PRODUCT MODEL NUMBER
------- ------------
<S> <C>
MicroSpan Hysteroscope MS-3000
2 mm MicroSpan Biopsy Cup MSI-2200
2 mm MicroSpan Scissors MSI-2300
MicroSpan Sheath (10 pack) MS-1500
MicroSpan Outflow Cannula (10 pack) MS-1000
Universal Light Cable VS-3550
</TABLE>
<PAGE> 9
SCHEDULE B
IMAGYN STANDARD WARRANTY
<TABLE>
<S> <C> <C>
MicroSpan Hysteroscope MS-3000 One Year
2mm MicroSpan Biopsy Cup MSI-2200 90 days
2mm MicroSpan Scissors MSI-2300 90 days
Universal Light Cable VS-3550 90 days
</TABLE>
<PAGE> 10
SCHEDULE C
DISTRICT - ATLANTA
McBrayer, D
Richmond, A
Pope, L
Martin, D
Crossing, N
Gingrey, J.P.
Elsner, CA
Christmas, R
Pugh, John
Goldman
Klein, Von
Lewis, B
Zahner, L
Taylor, E
Harrison, A.N.
Jones-Bailey, A
McNamara
Madden, C
Lynch-Miller, S
Putre, Kel
Mojcik, M
Levitt, B
Campbell, M
Mull, M
Hleap, C
Scott, A
Shelton, A
Walker, G
Haberstroh, W
Harley, S
Albert, S
Echemendia, M
Dawson, F
Stovall, W
Pomerance, A
McLane, J
McCoy, M
McLane, J
Kale, L
Killebrew, E
Thompson, S
Randall, C.L.
Love, B.R.
<PAGE> 11
DISTRICT - CHICAGO
Sundar, K
Maldonado, J. O.
Coupet, E
Maddanes
Cullington
Siegel, MA
Hite, S
Meynen, C
Milam
Struwe, J
Ladpli, C
Feldstein
Hriljic, M
Rebandel, M
Mehta, M
Czarnecki
Fox, M
Striecker
Tabbar, A
Friedell
Popper, F
Gomez, J
Griffiths
Demir
Chamberlain
Passavoy
Palmore
Strohmayer
Lane, F
Jacobi, E
Olson, C
Merrick, F
<PAGE> 12
DISTRICT - NORTH TEXAS
Donovitz
Franklin, S
Whitfield, J
Herzog, B
Fuller, D
Taylor, J
Defrank, P
Adami, B
Peterson, W.A.
Axline, B
Howard, W.F.
Irwin, P
Cowen, A
Preston, T
Eisenberg
Kuhne, R
Wynn, Cand
White
Siri, V
Mendez, A
Rad, M.J.
Weinstein, S
Fleming, B
Webb
Freeman, J
Gupta, R
Gorski, T
Hyslop
Boyd, J
Brettell, J
Woodbridge, A
Dotson, R
Darrow, R
Williams, E.W.
Clark, C
Rumsey
Safely, C
McCoy, J
Spurdon, A.C.
Sarmini, O.R.
Schklair, P
Seligman, S
Kilson
Kilianski, J
Ketter, G
Kauffman, R
<PAGE> 13
DISTRICT - CINCINNATI
Wolf, F
Hewitt, K
Bowen, D
Kerr
Morales, L
Perry, Nic
Busacco, B
Altman, Al
Avery, W
Gildenblat
Watkins, F.B.
White
Kassem
Grim, H
Singh
Carreli
Vardaka
Clark, M
Ezenagu
Chung, Y
Bhatia, K
Tabrah, N
Bowling, M
Rusterholz, J
Moran, W
Frasier, P
Stalter
Kuhn, A
Schwemlein, G
<PAGE> 14
DISTRICT - KANSAS CITY
Younglove, H
Ellis, H
Stone, M.K.
Udell, Kim
Bock, D
Stone, M.K.
Martin, T
DISTRICT - MINNEAPOLIS
Kilberg, E
Kleager, B
Presthus, J
Shold, A.J.
Neilson, J
Lin, Perry
Raders, J
Wheeler, P
Hallstrom, J
Smeby, L
Leafblad, D
Wilcox, L
Kilberg, H
Paley, J
Adefris, W
Everson, L
Dickerson, N
Yeager, T
Immerman, M
Hachiya, J
Ulland, R
Thorp, D
Capecchi, J
MacDonald, L
Lais, C
Shakerin, L
<PAGE> 15
Maxey
Kuhne, R. Chris
Mantri, S
Madden
DISTRICT - OKLAHOMA
Kallenberger
Shane, Joh
Resneder, J
Miggciaccio
Goldstein, J
Prough, S
Carlson, K
Blackwell, J
Chambers, S
Huff, D
Truitt, L
Everett, R
Baum
Bhargava, A
Anderson, C
Wall, J
Reshef, E
Nilson, A.C.
Smith, J
Haggard, D
Mackie, L
Larson, L
Lunn, R
DISTRICT - ST. LOUIS
O'Dell, D
Tobler,R
Hogan
Chang, S
Levy,E
Hamilton, J
Applebaum, J
Hartman, R
Malnar, G
Gimpleson, R
Probst, J
Perez, R
Palmer, A
Uhls
Weinstein, D
Sachar, J
<PAGE> 16
Biest, S
Oliver
Martin, D
DISTRICT - SOUTH TEXAS
Marquez, L
Safro, I
Husain
Shapiro, I
Baden, R
Nusnelly
Love, B. R.
Urano, Gar
Leibman, M
Boyd, B
Medrano, J
Battaglia, F
Podoba
Uribe, M (A)
Creel, N
Chupp, L
Nguyen, T
Saarikoski, H
Rawson, J
Robinson
Reed, J
Ward, D
Uzquiano, N
Brown, J
Zanders, M
Taylor, R
Hjerpe, R
Gonik,M
Fromm, G.L.
Eicheldorfen, S
Giammarco, D
Garza, D
McKinney
Morgan, M
Cohan
DISTRICT - WASHINGTON DC
Hardy-Cartwright
Townsend, L
Gschwend, J
<PAGE> 17
Lieberman
Becker, A
Yudkoff
Asterbadi, N
Badwey, R
Kogan,I
Michetti, M
Roberts, H
Mirkin, G
Bird, J
Band, D
Youssefi, N
Cochrin, J
Band, B
Bond, D
Simon, G
Wilkerson - FO
Ilupyo, O
Vatin, M
Kolkas-MCCA
<PAGE> 1
EXHIBIT 11.1
MEDICAL ALLIANCE, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net Income ................................................. $ 192,179 $ 578,149 $ 919,000
Less: Series A Preferred dividends ......................... 75,000 87,000 87,000
Less: Charge for cancellation of put feature ............... 180,000
---------- ---------- ----------
Net Income applicable to common stock ...................... 117,179 311,149 832,000
Weighted average common shares outstanding before SAB
Topic 4-D shares ......................................... 1,843,644 2,117,443 3,215,318
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
Incremental common shares outstanding applicable to
the Series B Preferred Stock issued within one year
of the Offering (3) ................................ 565,863 565,863
---------- ---------- ----------
Common Stock outstanding including all SAB Topic 4-D
Shares .................................................... 2,583,887 2,857,686 3,215,318
========== ========== ==========
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) (4) .................................. 26,891 152,822 325,024
---------- ---------- ----------
Primary shares outstanding ................................. 2,610,778 3,010,508 3,540,342
========== ========== ==========
Primary earnings per common share (5) ...................... $ 0.04 $ 0.10 $ 0.24
========== ========== ==========
COMPUTATION OF FULLY DILUTED SHARES OUTSTANDING:
Incremental common shares outstanding applicable
to "In the Money" options and warrants based on
the estimated year end fair market value of the
stock (2) (4) ............................................ 26,891 152,822 344,138
Incremental common shares outstanding applicable to
Series A Preferred Stock (3) ............................. 679,035 679,035
---------- ---------- ----------
Fully diluted shares outstanding ........................... 3,289,813 3,689,543 3,559,456
========== ========== ==========
Fully diluted earnings per common share (6) .............. $ 0.04 $ 0.10 $ 0.24
========== ========== ==========
</TABLE>
(1) SAB Topic 4-D requires the Company 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 prior to the offering.
(2) Determined using the Treasury Stock Method.
(3) Determined using the "If Converted" Method.
(4) The estimated average fair market value during the year and the estimated
fair market value at the end of the year were determined to be equal for
1994 and 1995.
(5) Computed as net income applicable to common shares divided by primary
shares outstanding.
(6) Computed as the more dilutive of either primary earning per share or net
income divided by fully diluted shares outstanding.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 1,408,508 20,536,787
<SECURITIES> 0 0
<RECEIVABLES> 3,682,000 6,274,481
<ALLOWANCES> 1,113,314 1,859,621
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,207,516 26,003,585
<PP&E> 3,892,721 7,740,908
<DEPRECIATION> 1,699,930 3,190,725
<TOTAL-ASSETS> 6,443,363 30,707,919
<CURRENT-LIABILITIES> 2,294,175 3,909,392
<BONDS> 2,353,415 355,494
4,678 11,948
0 0
<COMMON> 1,595 0
<OTHER-SE> 2,424,253 26,072,965
<TOTAL-LIABILITY-AND-EQUITY> 6,443,363 30,707,919
<SALES> 0 0
<TOTAL-REVENUES> 11,177,138 17,350,384
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,884,709 3,408,360
<INTEREST-EXPENSE> 246,655 269,532
<INCOME-PRETAX> 973,491 1,602,240
<INCOME-TAX> 395,342 683,240
<INCOME-CONTINUING> 578,149 919,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 578,149 919,000
<EPS-PRIMARY> .10 .24
<EPS-DILUTED> .10 .24
</TABLE>
