<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
</TABLE>
Medical Alliance, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transaction applies:
N/A
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
The fee was determined as follows:
one-fiftieth of one percent of $14.4 million.
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$14,400,000
-----------------------------------------------------------------------
(5) Total fee paid:
$2,880.00
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
MEDICAL ALLIANCE, INC.
2445 GATEWAY DRIVE
SUITE 150
IRVING, TX 75063
November 8, 2000
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders (the
"Meeting") of Medical Alliance, Inc., a Texas corporation ("Medical Alliance"),
to be held at 10:00 a.m., local time, on Thursday, December 7, 2000, at the
Harvey Hotel, 4545 W. John Carpenter Freeway, Irving, Texas 75063. The attached
Notice of Annual Meeting and Proxy Statement fully describe the formal business
to be transacted at the Meeting, which includes the approval of the transactions
contemplated by the Asset Purchase Agreement, including the sale of
substantially all of the assets constituting the medical business of Medical
Alliance, the approval to amend Medical Alliance's Articles of Incorporation to
change the name of Medical Alliance to "MAII Holdings, Inc.," the election of
two directors, and such other matters that shall properly come before the
Meeting or any adjournments thereof. We have enclosed a copy of Medical
Alliance's Annual Report for the fiscal year ended December 31, 1999.
Directors and officers of Medical Alliance will be present to help host the
Meeting and to respond to any questions that our shareholders may have. I hope
that you will be able to attend.
Medical Alliance's Board of Directors believes that a favorable vote on
each of the matters to be considered at the Meeting is in the best interest of
Medical Alliance and its shareholders and unanimously recommends a vote "FOR"
each such matter. Accordingly, we urge you to review the attached material
carefully and to return the enclosed Proxy promptly. Whether or not you plan to
attend the Meeting, please complete, sign, date and return your proxy in the
enclosed envelope. If you attend the Meeting, you may vote in person if you
wish, even though you have previously returned your Proxy. It is important that
your shares be represented and voted at the Meeting.
On behalf of your Board of Directors, thank you for your support.
Sincerely,
/S/ PAUL R. HERCHMAN
Paul R. Herchman
Chairman of the Board
and Chief Executive Officer
<PAGE> 3
MEDICAL ALLIANCE, INC.
2445 GATEWAY DRIVE
SUITE 150
IRVING, TX 75063
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 7, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Meeting") of Medical Alliance, Inc. (the "Company") will be held at 10:00 a.m.,
local time, on December 7, 2000, at the Harvey Hotel, 4545 John Carpenter
Freeway, Irving, Texas 75063, for the following purposes:
(1) The approval of the transactions contemplated by the Asset
Purchase Agreement, including the sale of substantially all of the assets
constituting the medical business of the Company in exchange for
approximately $14.4 million in cash and the assumption of certain
liabilities.
(2) The approval to amend the Company's Articles of Incorporation to
change the name of the Company to MAII Holdings, Inc.
(3) The election of three members of the Board of Directors, which
currently consists of seven directors, and will consist of seven directors
on the date of the Meeting, for the term of office stated in the Proxy
Statement.
(4) Such other business as may properly come before the Meeting or any
adjournments thereof.
The close of business on November 1, 2000, has been fixed as the record
date for determining shareholders entitled to notice of and to vote at the
Meeting or any adjournments thereof. For a period of at least 10 days prior to
the Meeting, a complete list of shareholders entitled to vote at the Meeting
will be open for examination by any shareholder during ordinary business hours
at the Company's offices at 2445 Gateway Drive, Suite 150, Irving, Texas 75063.
Information concerning the matters to be acted upon at the Meeting is set
forth in the accompanying Proxy Statement.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY TO ASSURE
THAT YOUR SHARES ARE REPRESENTED AT THE MEETING. A RETURN ENVELOPE (WHICH IS
POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS PROVIDED. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
By Order Of The Board Of Directors,
/s/ MARK NOVY
Mark Novy
Secretary
Irving, Texas
November 8, 2000
<PAGE> 4
MEDICAL ALLIANCE, INC.
2445 GATEWAY DRIVE
SUITE 150
IRVING, TX 75063
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 7, 2000
This Proxy Statement is being first mailed on or about November 8, 2000, to
shareholders of Medical Alliance, Inc., a Texas corporation ("Medical
Alliance"), by the Board of Directors to solicit proxies (the "Proxies") for use
at the Annual Meeting of Shareholders (the "Meeting") to be held at 10:00 a.m.,
local time, on December 7, 2000, or at such other time and place to which the
Meeting may be adjourned (the "Meeting Date").
The purpose of the Meeting is to consider and act upon (i) the transactions
contemplated by the Asset Purchase Agreement by and among Medical Alliance and
ICN Pharmaceuticals California, Inc., including the sale of substantially all of
the assets constituting the medical business of Medical Alliance in exchange for
approximately $14.4 million in cash and the assumption of certain liabilities
(the "Sale"), (ii) an amendment to Medical Alliance's Articles of Incorporation
to change Medical Alliance's name to MAII Holdings, Inc. (the "Name Change"),
(iii) the election of three directors for terms expiring in 2003 (the
"Election"), and (iv) such other matters as may properly come before the Meeting
or any adjournments thereof. Medical Alliance has selected
PricewaterhouseCoopers LLP as independent public accountants for Medical
Alliance for the fiscal year ended December 31, 2000. A representative from
PricewaterhouseCoopers LLP will be present at the Meeting and will have the
opportunity to make a statement if they desire to do so and to answer any
appropriate questions from shareholders.
All shares represented by valid Proxies, unless the shareholder otherwise
specifies, will be voted (i) FOR the Sale under "Proposal I -- Sale of Assets,"
(ii) FOR the Name Change under "Proposal II -- Name Change of Medical Alliance,"
(iii) FOR the Election under "Proposal III -- Election of Directors" as nominees
for election as directors of Medical Alliance for the term described therein,
and (iv) at the discretion of the Proxy holders, with regard to any other matter
that may properly come before the Meeting or any adjournments thereof.
Where a shareholder has appropriately specified how a Proxy is to be voted,
it will be voted accordingly. The Proxy may be revoked at any time by providing
written notice of such revocation to ChaseMellon Shareholder Services, L.L.C.,
2323 Bryan Street, Suite 2300, Dallas, Texas 75201, Attention: Tim Reagan,
by , 2000. If notice of revocation is not received by such date, a
shareholder may nevertheless revoke a Proxy if such shareholder attends the
Meeting and desires to vote in person; however, if your shares are held of
record by a broker, bank or other nominee and you wish to vote at the meeting,
you must obtain from the record holder a Proxy issued in your name.
RECORD DATE AND VOTING SECURITIES
The record date for determining the shareholders entitled to vote at the
Meeting is the close of business on November 1, 2000, (the "Record Date"), at
which time Medical Alliance had issued and outstanding shares of common
stock, par value $.002 per share (the "Common Stock"). Common Stock is the only
class of outstanding voting securities of Medical Alliance.
<PAGE> 5
SUMMARY TERM SHEET
This summary term sheet relates to the Sale discussed in more detail below
under the section entitled "Proposal I -- Sale of Assets." Neither this summary
nor the discussion under Proposal 1 below contain all of the information that is
important to you. You should carefully read the entire Proxy Statement and the
Asset Purchase Agreement to fully understand the Sale. The Asset Purchase
Agreement is attached to this Proxy Statement as Appendix A. We encourage you to
read the Asset Purchase Agreement, as it is the legal document that governs the
Sale. A more detailed discussion of the summary terms set forth below is
included in this Proxy Statement under Proposal I.
PROPOSED ACQUISITION
Stockholder Vote. You are being asked to vote to approve an asset sale
transaction whereby we will sell substantially all of the assets constituting
our medical business to ICN Pharmaceuticals California, Inc., a wholly owned
subsidiary of ICN Pharmaceuticals, Inc. ("ICN").
The Acquiror. ICN is a publicly held Delaware corporation that develops,
manufactures, distributes and sells pharmaceutical, research and diagnostic
products, and is pursuing a global expansion strategy, which includes the
acquisition of high margin products and the creation of new-product pipelines
through internal research and development, strategic partnerships and licensing
arrangements. ICN is acquiring substantially all of our assets of Medical
Alliance through a wholly-owned subsidiary, ICN Pharmaceuticals California, Inc.
Consideration To Medical Alliance. The consideration payable by ICN to us
for the assets will consist of:
- cash in an amount of $14.4 million subject to possible post-closing
adjustments (See p. 4 of this Proxy Statement); and
- the assumption of the assumed liabilities (as defined in the Asset
Purchase Agreement) (See p. 6 of this Proxy Statement).
At the closing, ICN will:
- pay to us by wire transfer to an account designated by us, the entire
portion of the purchase price in cash (See p. 5 of this Proxy Statement);
and
- assume the assumed liabilities (See p. 6 of this Proxy Statement).
INDEMNIFICATION AND SURVIVAL
We have agreed to indemnify ICN for damages arising from any breach of our
representations, warranties or covenants in the Asset Purchase Agreement, but
only to the extent such damages in the aggregate exceed $100,000, and in no
event shall we be liable for any damages in excess of $7,200,000 in the
aggregate.
ICN has agreed to indemnify us for damages arising from any breach of a
representation, warranty or covenant of ICN.
The representations and warranties of Medical Alliance in the Asset
Purchase Agreement will survive the closing as follows:
- claims relating to the Transferred Assets or products liability will
survive indefinitely;
- claims relating to the payment of taxes or compliance with tax laws will
survive for the relevant statute(s) of limitations plus three months;
- all other claims will survive for 18 months.
2
<PAGE> 6
CONDITIONS TO COMPLETING THE SALE
The completion of the Sale depends on a number of conditions listed in the
Asset Purchase Agreement being met, including the approval of the Sale by our
shareholders (See p. 7 of this Proxy Statement).
FAIRNESS OF THE SALE
Our Board of Directors has received an opinion from Hoak Breedlove Wesneski
& Co. as to the fairness of the Sale to us and our shareholders. This opinion
appears below under the section entitled "Opinion of the Financial Advisor."
Hoak Breedlove Wesneski & Co. has carefully considered the Sale and the price
for the assets being sold, and believes that it has found the best reasonably
available price for Medical Alliance, after considering a number of possible
transactions. Hoak Breedlove Wesneski & Co. concluded that the price we will
receive for such assets is fair to us and to our shareholders.
INTERESTS OF DIRECTORS AND OFFICERS IN THE SALE THAT DIFFER FROM YOUR INTERESTS
Some of our directors and officers have interests in the Sale that are
different from, or are in addition to, their interests as shareholders in
Medical Alliance. The members of our Board of Directors knew about these
additional interests, and considered them, when they approved the Asset Purchase
Agreement. These interests include change of control severance agreements for
Paul Herchman and Gary Hill. In addition, Messrs. Herchman and Hill have each
been offered one-year employment agreements with ICN, effective as of the
closing of the sale, each of which employment agreements provides for a $150,000
base salary.
UNANIMOUS BOARD RECOMMENDATION
The Board of Directors has unanimously approved the Sale and recommends
that our shareholders vote to approve the Sale.
3
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS TO BE
HELD DECEMBER 7, 2000..................................... 1
SUMMARY TERM SHEET.......................................... 2
Proposed Acquisition...................................... 2
Fairness of the Sale...................................... 2
Unanimous Board Recommendation............................ 2
Conditions to Completing the Sale......................... 2
QUORUM AND VOTING........................................... 4
PROPOSAL I -- SALE OF ASSETS................................ 4
Reasons for the Sale...................................... 4
Effective Time of the Asset Purchase Agreement............ 5
Representations and Warranties............................ 5
Covenants................................................. 6
Conditions Precedent...................................... 6
Indemnification and Survival.............................. 6
The Business of ICN Pharmaceuticals, Inc. ................ 7
The Business of Medical Alliance.......................... 7
Dissenter's Rights........................................ 8
Interests of Directors and Officers in the Sale that
Differ From Your Interests............................. 9
Regulatory Approvals...................................... 9
History of the Asset Purchase Agreement................... 9
Opinion of the Financial Advisor.......................... 12
Unanimous Board Recommendation............................ 14
Accounting Treatment of the Sale.......................... 14
Selected Financial Data................................... 15
Medical Alliance, Inc. and Subsidiaries Unaudited Pro
Forma Consolidated Financial Statements................ 16
Unaudited Pro Forma Consolidated Statement of Operations
For the six months ended June 30, 2000 and the
year-ended December 31, 2000........................... 16
Unaudited Pro Forma Consolidated Balance Sheet June 30,
2000................................................... 17
PROPOSAL II -- COMPANY NAME CHANGE.......................... 18
PROPOSAL III -- ELECTION OF DIRECTORS....................... 18
BOARD OF DIRECTORS.......................................... 19
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS........... 20
PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWNERSHIP............. 21
SUMMARY COMPENSATION TABLE.................................. 22
OPTION GRANTS IN 1999....................................... 23
COMPENSATION OF DIRECTORS................................... 24
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS ON EXECUTIVE COMPENSATION....................... 26
COMPENSATION OF EXECUTIVE OFFICERS.......................... 26
COMPENSATION COMMITTEE...................................... 26
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION............................................. 27
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 28
SHAREHOLDER PROPOSALS....................................... 28
OTHER BUSINESS.............................................. 28
AVAILABLE INFORMATION....................................... 28
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 29
MISCELLANEOUS............................................... 29
PROXY.......................................................
</TABLE>
4
<PAGE> 8
QUORUM AND VOTING
The presence at the Meeting, in person or by proxy, of the holders of a
majority of the issued and outstanding shares of Common Stock is necessary to
constitute a quorum to transact business. Each share represented at the Meeting
in person or by proxy will be counted toward a quorum. In deciding all questions
and other matters, a holder of Common Stock on the Record Date shall be entitled
to cast one vote for each share of Common Stock registered in his or her name.
Approval of the Sale requires the affirmative vote of two-thirds of the
shares of Common Stock outstanding and entitled to vote thereon. Abstentions on
such proposal may be specified and will have the same effect as a vote against
such proposal.
Approval of the Name Change requires the affirmative vote of two-thirds of
the shares of Common Stock outstanding and entitled to vote thereon. Abstentions
on such proposal may be specified and will have the same effect as a vote
against such proposal.
In order to be elected as a director, a nominee must receive the
affirmative vote of a plurality of the shares of Common Stock voted in person or
by proxy at the Meeting. Votes may be cast in favor of or withheld with respect
to a director nominee. Votes that are withheld will be counted toward a quorum
but will not be counted for purposes of the election of directors.
A "broker non-vote" occurs when a broker or nominee holding shares for a
beneficial owner does not vote on a particular proposal because the broker or
nominee does not have discretionary voting power with respect to that item and
has not received voting instructions from the beneficial owner. Broker non-votes
will be treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. However, for purposes of determining the
outcome of any matter in which brokers or nominees have no discretionary power
to vote, broker non-votes will be treated as not present and not entitled to
vote with respect to that matter (even though those shares are considered
entitled to vote for quorum purposes and may be entitled to vote on other
matters).
Brokers or nominees do not have discretionary power to vote with respect to
Proposals No. 1 or 2, and do have discretionary power to vote with respect to
Proposal 3. Accordingly, broker non-votes with respect to Proposals No. 1 and 2
will not be counted in favor of or against such proposal, but will be counted
toward a quorum.
PROPOSAL I -- SALE OF ASSETS
We have entered into an Asset Purchase Agreement with ICN Pharmaceuticals
California, Inc., a California corporation and wholly-owned subsidiary of ICN
Pharmaceuticals, Inc. ("ICN"), a Delaware corporation, dated September 15, 2000,
pursuant to which we have agreed to sell substantially all of the assets
constituting our medical business (the "Asset Purchase Agreement"). The
aggregate consideration for the assets to be conveyed equals $14.4 million and
the assumption of certain liabilities, subject to possible post-closing
adjustments. Subject to the terms of the Asset Purchase Agreement, we have
agreed to sell, with limited exceptions, all of our rights, titles, interests,
properties, assets, and liabilities in our medical business including, but not
limited to, all inventories, supplies, printed materials, prepaid expenses,
fixtures, furniture, machinery, equipment, patents, inventions, contracts,
permits, licenses, books, records, and vehicles (the Transferred Assets").
REASONS FOR THE SALE
Despite the recent positive results of our medical business, the market
continues to undervalue our Common Stock. In order to maximize shareholder
value, our Board of Directors has determined to pursue the sale of substantially
all of our assets constituting our medical business to ICN, a strategic buyer
who is positioned to fully realize the market potential of those assets. We will
then have a sufficient cash position which should be attractive to potential
acquisition candidates or would be available to make acquisitions.
5
<PAGE> 9
The following is a summary of certain material provisions of the Asset
Purchase Agreement, and is qualified in its entirety by the terms of the Asset
Purchase Agreement.
EFFECTIVE TIME OF THE ASSET PURCHASE AGREEMENT
The closing of the transactions contemplated by the Asset Purchase
Agreement will take place as soon as practicable, but no later than December 31,
2000 or such other date as agreed upon by the parties in writing. The closing
cannot take place until after our shareholders approve the Sale. See the Asset
Purchase Agreement for a description of the conditions that the parties must
satisfy prior to the closing.
Consideration To Medical Alliance. The consideration payable by ICN to
Medical Alliance for the assets will consist of:
- cash in an amount of $14.4 million subject to possible post-closing
adjustments; and
- the assumption of the assumed liabilities (as defined in the Asset
Purchase Agreement).
At the closing, ICN will:
- pay to us by wire transfer to an account designated by us, the entire
portion of the purchase price in cash; and
- assume the assumed liabilities.
We are not selling certain excluded assets, including cash, bank deposits,
securities, minute books, tax returns and rights to refunds of taxes and certain
receivables. We are also not selling certain excluded liabilities, including any
claims, debts, liabilities, obligations, expenses, taxes or commitments that may
arise prior to the closing.
REPRESENTATIONS AND WARRANTIES
With respect to the Sale, we have made certain representations and
warranties relating to, among other things:
- corporate existence;
- corporate power and authority to execute the Asset Purchase Agreement;
- absence of necessary governmental consents and approvals;
- the filing of all required financial statements and reports with the
Securities and Exchange Commission;
- absence of material changes and events and the conduct of business in the
ordinary course;
- good and marketable title to all Transferred Assets;
- disclosure of all patents, trademarks, and trade names;
- disclosure of any litigation involving Medical Alliance;
- disclosure of all insurance policies;
- disclosure of all leases;
- disclosure of all managed care contracts;
- disclosure of all material contracts;
- disclosure of certain customers;
- compliance with all laws;
- necessary permits and licenses;
6
<PAGE> 10
- disclosure, condition and sufficiency of tangible assets;
- filing of tax returns and reports;
- absence of broker agreements (except Hoak Breedlove Wesneski & Co.,
Inc.);
- inventories;
- absence of material defaults in contracts and leases;
- disclosure of transactions with Medical Alliance management; and
- accounts receivable.
With respect to the Sale, ICN made certain representations and warranties
relating to, among other things:
- corporate existence;
- corporate power and authority to execute the Asset Purchase Agreement;
- absence of necessary governmental consents and approvals;
- absence of any litigation;
- absence of broker agreements; and
- non-applicability of Texas sales or use taxes.
COVENANTS
With respect to the Sale, we have made covenants, among other things, to
the following:
- we will not compete against ICN in the medical business we were
conducting for a period of five (5) years;
- we will use commercially reasonable efforts to obtain all required
consents to assignments; and
- we will hold a meeting of shareholders, file this Proxy Statement, and
use commercially reasonable efforts to obtain approval and adoption of
the Asset Purchase Agreement.
CONDITIONS PRECEDENT
Our obligations and ICN's obligations under the Asset Purchase Agreement
are subject, among other things, to the following:
- no material adverse change;
- absence of any litigation that would prohibit or seeks to prohibit
consummation of the Sale;
- receipt by each party of certain required consents from third parties;
and
- our shareholders shall have approved the Sale.
In addition to the mutual conditions described above, ICN's obligations
under the Asset Purchase Agreement are subject to the following:
- good condition of the assets being transferred, and the absence of any
material changes; and
- ICN's successful negotiation and agreement with certain employees of
terms and conditions of employment with ICN.
7
<PAGE> 11
INDEMNIFICATION AND SURVIVAL
We have agreed to indemnify ICN for damages arising from any breach of our
representations, warranties or covenants in the Asset Purchase Agreement, but
only to the extent such damages in the aggregate exceed $100,000, and in no
event shall we be liable for any damages in excess of $7,200,000 in the
aggregate.
ICN has agreed to indemnify us for damages arising from any breach of a
representation, warranty or covenant of ICN.
The representations and warranties of Medical Alliance in the Asset
Purchase Agreement will survive the closing as follows:
- claims relating to the Transferred Assets or products liability will
survive indefinitely;
- claims relating to the payment of taxes or compliance with tax laws will
survive for the relevant statute(s) of limitations plus three months;
- all other claims will survive for 18 months.
CONTACT INFORMATION
Our principal executive offices are located at 2445 Gateway Drive, Suite
150, Irving, Texas 75063, (972) 580-8999.
ICN's principal executive offices are located at 3300 Hyland Avenue, Costa
Mesa, California 92626, (714) 545-0100.
THE BUSINESS OF ICN PHARMACEUTICALS, INC.
ICN is a global, research-based pharmaceutical company that develops,
manufactures, distributes and sells pharmaceutical, research and diagnostic
products. In 1999, ICN had revenues of $747.4 million and net income of $118.6
million. Based on the closing price of ICN's common stock on the New York Stock
Exchange on March 23, 2000, ICN has an equity market capitalization of
approximately $2.1 billion.
ICN distributes and sells a broad range of prescription and
over-the-counter pharmaceutical and nutritional products in over 90 countries.
These pharmaceutical products treat viral and bacterial infections, diseases of
the skin, neuromuscular disorders, cancer, cardiovascular disease, diabetes and
psychiatric disorders.
ICN pursues a strategy of international expansion which includes: (i) the
acquisition of high margin products that complement existing product lines and
can be introduced into additional markets to meet the specific needs of those
markets; (ii) the creation of a pipeline of new products through internal
research and development, as well as strategic partnerships and licensing
arrangements; and (iii) the consolidation of ICN's leadership position in
Central and Eastern Europe, including Russia. In executing this strategy, ICN
believes that it is uniquely positioned to continue to exploit its basic
competitive advantages: (i) large enough economies of scale in its global
distribution network not enjoyed by smaller pharmaceutical companies that
provide opportunities to develop and register multi-regional products; and (ii)
small enough economies of scale in much of its manufacturing and production
facilities and its local and regional sales and marketing groups that provide
for higher profitability on ICN's smaller, niche products that cannot be
achieved by the larger pharmaceutical companies.
ICN operates in two principal business areas: the pharmaceutical business
which comprises approximately 92% of ICN's total revenue, and the biomedical
business which makes up the remainder. ICN's pharmaceutical business operates as
five regional businesses: North America, Latin America, Western and Central
Europe (including Poland, Hungary and Czech Republic), Eastern Europe, and Asia,
Africa and Australia. ICN's biomedical business operates in three primary areas:
research chemicals, dosimetry and diagnostic equipment. The regional businesses
are each comprised of a number of local operating subsidiaries most of which are
owned directly or indirectly through ICN's principal operating company in the
United States.
8
<PAGE> 12
The information contained herein is taken from ICN's 10-K/A for the year
ended December 31, 1999.
THE BUSINESS OF MEDICAL ALLIANCE
We are a leading national provider of high quality mobile surgical
services, providing physicians with access to the latest technology and
technical services enabling them to perform minimally invasive surgery in their
office or the health care facility of their choice. We provide our services
along three primary business lines -- medical surgical services, aesthetic
elective services, and medical equipment sales. Our medical surgical services
allow physicians to perform approximately 25 different office-based surgical
procedures and are used primarily by gynecologists, urologists, podiatrists and
otolaryngologists. Our aesthetic elective services are used primarily by
dermatologists and plastic surgeons. We currently have approximately 2,600
physician users who perform over 6,000 procedures monthly using our services.
HISTORY OF THE ASSET PURCHASE AGREEMENT
On November 29, 1999, Paul Herchman, CEO of Medical Alliance, and Mark
Taylor, Vice President of Corporate Development of ICN, had an initial telephone
conversation regarding their respective businesses and the synergies that
existed between Medical Alliance and ICN. The following day, Mr. Herchman sent a
Medical Alliance marketing package and a Medical Alliance investor package for
Mr. Taylor's review.
On December 9, 1999, Mr. Herchman and Mr. Taylor had a follow-up telephone
conversation to further discuss the opportunities and goals of a possible
acquisition of Medical Alliance by ICN.
On December 16, 1999, Mr. Herchman and Bob Beattie of ICN's Biomedicals
Division agreed in a telephone conversation to move forward with presentations
of the acquisition to ICN's management in California.
On December 28, 1999, Mr. Herchman wrote a letter to Marc Clement, CEO, SLS
Biophile, Ltd., ("SLS") enclosing a Medical Alliance marketing package and a
Medical Alliance Investor package for Dr. Clement's review.
On January 4, 2000, Mr. Herchman made a presentation to several of the
managers in ICN's Dermatology business, and offered suggestions that would
benefit Medical Alliance and ICN in the event of an acquisition. Medical
Alliance's financial information was also presented to ICN. Mr. Herchman had an
initial meeting with ICN's Chairman and Chief Executive Officer, Milan Panic, at
Mr. Panic's home. A Confidentiality Agreement was signed between Medical
Alliance and ICN.
On January 10, 2000, Mr. Herchman and Mr. Taylor discussed SLS' position in
the contemplated transaction.
On January 19, 2000, Mr. Herchman and Mr. Taylor continued discussions
regarding the contemplated transaction.
On January 24, 2000 Medical Alliance publicly announced that its Board of
Directors had determined that, in order to maximize shareholder value, Medical
Alliance should pursue the sale of its medical business to a strategic buyer
positioned to fully realize Medical Alliance's market potential, and that the
Company had retained Hoak Breedlove Wesneski & Co. ("HBW") in connection with
the Sale.
During the week of January 31, 2000, Mr. Herchman and Pat Clark visited Dr.
Clement in Wales, United Kingdom. On his return, Mr. Herchman sent Dr. Clement
Mr. Clark's Confidential Internal Review of SLS, and discussed SLS with Mr.
Taylor.
During the week of March 21, 2000, the parties discussed a prospective
letter of intent from ICN to Medical Alliance. Thereafter, ICN sent a letter of
intent to William Ashbaugh, a Managing Director at HBW, expressing ICN's desire
to purchase Medical Alliance's medical business.
On March 28, 2000, Mr. Herchman and Mr. Taylor discussed the terms of the
letter of intent.
9
<PAGE> 13
On March 30, 2000, Mr. Ashbaugh had a telephone conversation with Mr.
Taylor and wrote a letter to him regarding the letter of intent. Mr. Herchman
agreed to prepare a schedule of assets and liabilities associated with the
business operations that Medical Alliance proposed to sell. A "stand still"
period of two to three weeks was proposed, during which time ICN could perform
more detailed analysis and due diligence. At the end of such period, the parties
would execute a letter of intent which would expire if the definitive agreement
was not signed within three weeks of the execution of the letter of intent.
On April 6, 2000, Mr. Herchman, Mr. Taylor, Mr. Ashbaugh and Chris Timmons,
in house counsel for ICN, discussed issues related to the contemplated
transaction, including employee severance agreements, a period of exclusivity
for negotiations, and economies.
On April 13, 2000, Mr. Herchman, Gary Hill, Mr. Clark and Mark Novy met
with several members of ICN's management at ICN's headquarters in Costa Mesa,
California, presented a summary of Medical Alliance's operations, and engaged in
further discussions relating to the contemplated transaction.
On April 17, 2000, Mr. Herchman and Dr. Clement discussed Medical Alliance
and SLS. Mr. Herchman mailed Medical Alliance information to Dr. Clement for his
review.
On April 19, 2000 and April 25, 2000, Mr. Herchman and Mr. Taylor discussed
synergies and efficiencies between Medical Alliance and ICN, and the potential
transaction.
On April 26-27, 2000, Mr. Herchman, Mr. Ashbaugh, and Richard Dahlson, of
Jackson Walker L.L.P., Medical Alliance's legal counsel, traveled to New York to
meet with Mr. Panic, Mr. Taylor, and Clifford Saffron, counsel for ICN. At the
meeting, the attendees discussed structural details and pricing issues.
On April 28, 2000, Mr. Herchman and Mr. Taylor discussed the structure of a
potential transaction. Mr. Herchman and Mr. Taylor agreed to consider a cash
transaction, and agreed upon an asset purchase.
On May 5, 2000 and June 14, 2000, Mr. Herchman, Mr. Taylor, Mr. Ashbaugh
and Mr. Timmons, discussed the contemplated post-transaction structures of
Medical Alliance and ICN, the purchase of the medical business, maintenance of
management staff, and the necessity of Medical Alliance shareholder approval.
On June 6, 2000, Mr. Herchman and Mr. Taylor discussed FDA approval status
of N-Lite, SLS' proprietary laser system for the non-ablative treatment of
wrinkles.
On June 13, 2000, Mr. Herchman and Mr. Taylor discussed Medical Alliance's
accounts receivables, its marketing plan and financial model, employee
severance, costs that could potentially be shared between SLS, Ltd. and Medical
Alliance, and various other issues.
On June 15, 2000 and June 16, 2000, the parties and their consultants
discussed the post-acquisition organization and the prospect of building a total
solution dermatology and plastic surgery distribution company; the productivity
and capacities of the Medical Alliance and ICN sales forces; as well as
revenues-per-delivery analysis.
On June 19, 2000, Mr. Herchman received an e-mail from Mr. Taylor
requesting additional due diligence information in advance of a letter of
intent.
On June 26, 2000, Mr. Ashbaugh received a letter of intent from ICN
offering terms on which ICN would agree to purchase Medical Alliance's medical
business.
On June 28, 2000, Mr. Herchman and Mr. Taylor discussed the letter of
intent, and ways in which Medical Alliance would use its current field personnel
to launch the N-Lite product, in the event the transaction were completed.
On June 30, 2000, Mr. Herchman and Mr. Taylor discussed ways to enhance
revenues without increasing costs.
10
<PAGE> 14
On July 7, 2000, Mr. Herchman received a revised letter of intent from ICN
regarding ICN's offer to purchase the medical business of Medical Alliance, and
additional discussions followed.
On July 10, 2000, Mr. Herchman received an amended letter of intent from
ICN and discussed the letter of intent with Mr. Taylor.
On July 11, 2000, Mr. Herchman and Mr. Beattie discussed the upside
possibilities of the contemplated transaction.
From June 26, 2000 to July 12, 2000 the parties and their respective
advisors negotiated the letter of intent.
On July 12, 2000, the letter of intent was agreed to and executed. Mr.
Herchman and Mr. Taylor discussed the capital lease, fixed assets, insurance,
etc.
On July 14, 2000, Mr. Herchman and Mr. Taylor discussed product management,
brand protection, and a marketing position statement.
On July 31, 2000, Mr. Herchman had a telephone conversation with Mr. Taylor
regarding FDA approval of the NLite system. Mr. Herchman faxed to Mr. Taylor a
proposal prepared by Mr. Clark relating to activities to be undertaken and
completed prior to FDA approval of N-Lite.
On August 15, 2000, Mr. Herchman and Mr. Taylor discussed other new product
opportunities.
On August, 23, 2000, Mr. Herchman and Mr. Taylor discussed internal support
issues related to the contemplated transaction.
On August 29, 2000, Mr. Herchman received a fax from Roy Phelps, the
General Manager of SLS, attaching the Letters of FDA Approval for N-Lite.
On September 6, 2000, Mr. Herchman, Mr. Taylor and Greg Gust discussed
alignment and analysis of territories after the transaction.
From July 26-September 15, 2000, the parties negotiated a definitive Asset
Purchase Agreement and related documents.
On September 15, 2000, Mr. Herchman and Mr. Dahlson reviewed the definitive
Asset Purchase Agreement on behalf of Medical Alliance.
OPINION OF THE FINANCIAL ADVISOR
The Board has received an opinion, rendered by Hoak Breedlove Wesneski &
Co. ("HBW"), One Galleria Tower, 13355 Noel Road, Suite 1650, Dallas, Texas
75240, as to whether the consideration for the Sale pursuant to the Asset
Purchase Agreement is fair, from a financial point of view, to the Company (the
"Opinion"). HBW is not our affiliate. We did not have any material relationship
with HBW prior to this engagement.
It is the Opinion of HBW that the purchase price of $14.4 million is fair,
from a financial point of view, to us. In reaching this Opinion, HBW reviewed
and considered, among other things, the Asset Purchase Agreement, certain of our
business and financial information, including financial forecasts, projected
earnings and operating data. HBW also reviewed and considered publicly available
market information, including the financial terms of other similar transactions.
Other than as noted herein, HBW relied upon the accuracy and completeness of all
of the information that it received from us, and HBW did not make an independent
evaluation or appraisal of the assets and liabilities of the Company or any of
its subsidiaries and was not furnished with any such evaluation or appraisal.
HBW was not requested to evaluate the potential tax or other financial impact of
the Sale on us or the redeployment by us of the purchase price received for the
assets.
In preparing its Opinion, HBW performed a variety of financial and
comparative analyses, including those described below. The summary of such
analyses does not purport to be a complete description of the analyses
underlying HBW's Opinion. The preparation of a fairness opinion is a complex
analytic process involving
11
<PAGE> 15
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, HBW believes that its analyses must be
considered as a whole and that selecting portions of its analyses and factors,
without considering all analyses and factors, could create a misleading or
incomplete view of the processes underlying such analyses and opinion. In its
analyses, HBW made numerous assumptions with respect to the assets being sold
(the "Medical Business"), industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond our
control, such as, among other things, the impact of competition on our business
and the medical services industry generally, industry growth, and the absence of
any material adverse change in the financial markets in general. The estimates
contained in such analyses and the valuation ranges resulting from any
particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty.
In arriving at its Opinion, HBW reviewed the Asset Purchase Agreement and
held discussions with certain senior officers, directors and other
representatives of Medical Alliance concerning the operations and prospects of
the Medical Business. In connection with HBW's engagement, HBW approached
approximately 80 third parties to solicit indications of interest in the
acquisition of the Medical Business, and approximately 27 third parties received
confidential information regarding the Medical Business.
The following is a summary of the material analyses performed by HBW in
connection with its Opinion dated October 3, 2000:
Selected Company Analysis. Using publicly available information, HBW
analyzed, among other things, the market values and trading multiples of the
following selected publicly traded companies in the medical services industry:
Apria Healthcare Group, Inc., Interwest Home Medical, Inc., Laser Vision
Centers, Inc., Lincare Holdings, Inc., Medstone International, Inc., and Prime
Medical Services, Inc. (the "Selected Companies"). HBW compared adjusted market
values (market value, plus total debt, less cash) as multiples of latest 12
months' revenues, latest 12 months' earnings before interest, taxes,
depreciation and amortization ("EBITDA") and earnings before interest and taxes
("EBIT"). All multiples were based on closing stock prices as of September 29,
2000. In addition, HBW compared the Selected Companies' relative growth rates,
levels of capital expenditures versus EBITDA, and other operating data to that
of the Medical Business. HBW noted that the three-year average of the ratio of
capital expenditures to EBITDA of the Medical Business was higher than for any
of the Selected Companies. Applying a range of multiples for the Selected
Companies of latest 12 months' revenue, EBITDA, and EBIT, adjusted for a 30
percent acquisition premium, to corresponding financial data for the Medical
Business resulted in an enterprise reference range for our Medical Business of
approximately $10.0 million to $14.0 million, as compared to the implied
enterprise value of $13.6 million in the Asset Purchase Agreement.
No company or business used in the "Selected Company Analysis" as a
comparison is identical to us or to the transactions contemplated by the Asset
Purchase Agreement. Accordingly, an analysis of the results of the foregoing is
not entirely mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors that could affect the public trading or other values of the
Selected Companies or the business segment, company or transaction to which they
are being compared.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, HBW analyzed the implied purchase prices and transaction
value multiples in five selected merger and acquisition transactions (the
"Selected Transactions") in the medical services industry. HBW compared
transaction values as multiples of latest 12 months' revenues, EBITDA, and EBIT.
In addition, HBW compared the relative growth rates of the companies involved in
the Selected Transactions, levels of capital expenditures versus EBITDA, and
other operating data to that of the Medical Business. HBW noted that the
three-year average of the ratio of capital expenditures to EBITDA of the Medical
Business was higher than for any of the
12
<PAGE> 16
Selected Transactions for which data is available. All multiples were based on
publicly available information at the time of announcement of such transaction.
Applying a range of multiples for the Selected Transactions of latest 12 months'
revenue, EBITDA, and EBIT, to corresponding financial data for the Medical
Business resulted in an enterprise reference range for the Medical Business of
approximately $13.0 million to $16.0 million, as compared to the implied
enterprise value of $13.6 million in the Asset Purchase Agreement.
Discounted Cash Flow Analysis. The discounted cash flow analysis provides a
net present valuation of management projections of the projected after-tax
unlevered free cash flows based upon financial projections for the Medical
Business. Utilizing such financial forecasts, HBW calculated a range of present
values for the Medical Business using a range of after-tax discount rates from
14% to 18% and a terminal value in 2005, based upon a range of multiples of
EBITDA, from 5.0x to 6.0x. Based upon the discount rates and the range of the
terminal values, the reference range for the Medical Business was approximately
$10.0 million to $14.0 million, as compared to the implied enterprise value of
$13.6 million in the Asset Purchase Agreement.
Other Factors and Comparative Analyses. In rendering its Opinion, HBW
considered certain other factors and conducted certain other comparative
analyses, including, among other things, a review of indications of interests
received from third parties other than ICN and the reported prices and trading
activity of Medical Alliance's stock.
Pursuant to the terms of HBW's engagement, we have agreed to pay HBW for
its services in connection with the Sale, an aggregate financial advisory fee
based on the purchase price. The fee payable to HBW is $430,000. In addition, we
have agreed to pay HBW a fee of $50,000 upon delivery of the Opinion. We have
also agreed to reimburse HBW for reasonable travel and other out-of-pocket
expenses incurred by HBW in performing its services, and to indemnify HBW
against certain liabilities under the Federal securities laws, arising out of
HBW's engagement.
HBW has advised us that, in the ordinary course of business, HBW and its
affiliates may actively trade or hold our Common Stock or the securities of ICN
for their own account or for the account of customers and, accordingly, may at
any time hold a long or short position in such securities.
HBW is an investment and merchant-banking firm, headquartered in Dallas,
and specializing in providing financial services to private and public
middle-market growth companies within targeted industries since 1996. HBW has
broad financial services experience, including private equity financing, private
debt and equity financing, merger and acquisition advisory services, industry
and equity research coverage, institutional equity sales and trading, and
merchant banking/private equity investment. HBW is a member of the National
Association of Securities Dealers and the Securities Investor Protection
Corporation.
The Opinion is attached to this Proxy Statement as Appendix B.
INTERESTS OF DIRECTORS AND OFFICERS IN THE SALE THAT DIFFER FROM YOUR INTERESTS
Some of our directors and officers have interests in the Sale that are
different from, or are in addition to, their interests as shareholders in
Medical Alliance. The members of our Board of Directors knew about these
additional interests, and considered them, when they approved the Asset Purchase
Agreement. These interests include change of control severance agreements for
Paul Herchman and Gary Hill. In addition, Messrs. Herchmann and Hill have each
been offered one-year employment agreements with ICN, effective as of the
closing of the sale, each of which employment agreements provides for a $150,000
base salary.
REGULATORY APPROVALS
At any time before or after the completion of the Sale, the Antitrust
Division of the Justice Department, the Federal Trade Commission or another
third party could seek to enjoin or rescind the Sale on antitrust grounds. In
addition, at any time before or after the completion of the Sale, any state
could take action under state antitrust laws that it deems necessary or
desirable in the public interest. We believe that the Sale will not violate any
antitrust laws, that no federal or state regulatory requirements must be
complied with and that no federal or state regulatory approval must be obtained
in connection with the Sale. However, we cannot assure
13
<PAGE> 17
you that there will be no challenge to the Sale on antitrust grounds, or if such
a challenge is made, what the result will be.
ACCOUNTING TREATMENT OF THE SALE
The Asset Purchase Agreement contemplates a cash transaction and ICN's
assumption of certain liabilities. The Sale will be accounted for under the
purchase method of accounting.
DISSENTER'S RIGHTS
Any of our shareholders of record may exercise dissenters' rights in
connection with the Sale by properly complying with the requirements of Articles
5.11, 5.12 and 5.13 of the Texas Business Corporation Act ("TBCA"). The required
procedure set forth in Articles 5.11, 5.12 and 5.13 of the TBCA must be followed
exactly or you may lose your right to dissent from the Sale. The information
that follows is a general summary of dissenters' rights and, as a summary, is
qualified by and not a substitute for the provisions of Articles 5.11, 5.12 and
5.13 of the TBCA.
Each holder of shares of our Common Stock which were outstanding as of the
Record Date who follows the procedures set forth in Articles 5.11, 5.12 and 5.13
of the TBCA will be entitled to demand the purchase of such shareholder's shares
of our Common Stock for a purchase price equal to the fair value of such
holder's shares. Under Texas law, fair value of shares for purposes of the
exercise of dissenters' rights is defined as the value of the shares as of the
day immediately preceding the day the vote is taken authorizing the Sale,
excluding any increase or decrease in value of the shares in anticipation of the
proposed Sale. Such fair value is determined in the first instance by appraisers
appointed by the court, who are directed to make such determination "upon such
investigation as to them may seem proper."
In order to be entitled to exercise your dissenters' rights, you must file
a written objection to the Sale with us prior to the Meeting Date. The written
objection must state (1) that you will exercise your right to dissent if the
Sale becomes effective and (2) your address where notice of the effectiveness of
the Sale should be delivered or mailed. You should send this written objection
to us at 2445 Gateway Drive, Suite 150, Irving, Texas 75063, Attention:
Secretary. Neither a Proxy nor a vote against the Sale are sufficient to
constitute a written objection as required under the TBCA. Failure to vote
against the Sale will not affect your appraisal rights (discussed below).
If the Sale is approved by our shareholders and subsequently becomes
effective, within 10 days of the effectiveness of the Sale, we must deliver or
mail notice of the effectiveness of the Sale to each dissenting shareholder that
did not vote in favor of the Sale. Any dissenting shareholder that did not vote
in favor of the Sale may then make a written demand on us for the payment of the
fair value of the shareholder's shares within 10 days of the delivery or mailing
of the notice by us. Such demand must state the number of shares of Common Stock
owned by the dissenting shareholder and the dissenting shareholder's estimate of
the fair value of his or her Common Stock as of the day immediately prior to the
Meeting Date, excluding any increase or decrease in value of the shares in
anticipation of the proposed Sale. Any shareholder that fails to make such a
demand within the 10-day period will lose the right to dissent and will be bound
by the terms of the Sale. In order to preserve dissenters' rights, within 20
days of making a demand for payment, a dissenting shareholder must also submit
such shareholder's stock certificates to us for the appropriate notation of the
demand. At our option we may terminate the dissenting shareholder's rights under
Article 5.12 of the TBCA for failure to submit the stock certificates within the
20 day period unless a court of competent jurisdiction directs otherwise upon a
showing to the court by the shareholder that there is good and sufficient cause.
Within 20 days of receipt of a proper demand for payment by a dissenting
shareholder, we must deliver or mail to the dissenting shareholder written
notice that either (1) we accept the amount the dissenting shareholder claimed
and agree to pay the amount of the shareholder's demand within 90 days after the
effectiveness of the Sale upon receipt of the dissenting shareholder's duly
endorsed share certificates or (2) contains an estimate by us of the fair value
of the dissenting shareholders' Common Stock and an offer to pay the amount of
our estimate within 90 days after the effectiveness of the Sale and upon receipt
of notice within 60 days after such date that the dissenting shareholder agrees
to accept our estimate and upon receipt
14
<PAGE> 18
of the dissenting shareholder's duly endorsed stock certificates. If we and the
dissenting shareholder agree upon the value of the dissenting shareholder's
shares within 60 days after the effectiveness of the Sale, we shall pay the
amount of the agreed value to the dissenting shareholder upon receipt of the
dissenting shareholder's duly endorsed share certificates within 90 days of the
effectiveness of the Sale. Upon payment of the agreed value, the dissenting
shareholder will no longer have any interest in such shares of Medical Alliance.
If we and the dissenting shareholder do not agree upon the value of the
dissenting shareholder's shares within 60 days after the effectiveness of the
Sale, then either the dissenting shareholder or we may, within 60 days after the
expiration of such 60-day period, file a petition in a court of competent
jurisdiction in Dallas County, Texas, seeking a determination of the fair value
of the dissenting shareholder's Common Stock. We shall file with the court a
list of all shareholders who have demanded payment for their shares with whom an
agreement as to value has not been reached within 10 days following receipt of
such a petition filed by a dissenting shareholder or upon the filing of such a
claim by us. The clerk of the court will give notice of the hearing of any such
claim to us and to all of the dissenting shareholders on the list provided by
us. We and all dissenting shareholders notified in this manner will be bound by
the final judgment of the court as to the value of the shares.
In considering such a petition, the court will determine which of the
dissenting shareholders have complied with the provisions of the TBCA and are
entitled to the payment of the fair value of their shares and will appoint one
or more qualified appraisers to determine the fair value of the shares. The
appraisers will also allow us and the dissenting shareholders to submit to them
evidence as to the fair value of the shares.
Upon receipt of the appraisers' report, the court will determine the fair
value of the shares of the dissenting shareholders and will direct the payment
to the dissenting shareholders of the amount of the fair value of their
respective shares, with interest from the date 91 days after the effectiveness
of the Sale to the date of the judgment, by us, upon receipt of the dissenting
shareholder's share certificates. Upon payment of the judgment, the dissenting
shareholders will no longer have any interest in such shares of Medical
Alliance.
Any dissenting shareholder may withdraw such shareholder's demand at any
time before receiving payment for the shares or before a petition has been filed
seeking determination of the fair value of the shares. No dissenting shareholder
may withdraw his or her demand after payment has been made or, unless we consent
to the withdrawal, where a petition has been filed.
Any dissenting shareholder who has properly demanded payment for such
shareholder's shares of Common Stock will not have any rights as a shareholder,
except the right to receive payment for such shares and the right to claim that
the transactions contemplated by the Asset Purchase Agreement, including the
Sale, were fraudulent.
If you are considering dissenting from the Sale, you are urged to consult
your own legal counsel.
UNANIMOUS BOARD RECOMMENDATION
Our Board of Directors believes that the approval of the transactions
contemplated by the Asset Purchase Agreement, including the Sale, are in our
best interests and the best interests of our shareholders. Accordingly, our
Board has approved the Asset Purchase Agreement and recommends that shareholders
vote FOR Proposal 1 to approve the Sale.
15
<PAGE> 19
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
Medical Alliance for the periods and at the dates indicated. Medical Alliance's
statement of operations data for each of the years in the five year period ended
December 31,1999, and the six-month periods ending June 30, 1999 and 2000, and
its balance sheet data as of December 31, 1995, 1996, 1997, 1998, 1999, and as
of June 30, 1999 and 2000 are derived from Medical Alliance's financial
statements.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ---------------------
1995 1996 1997 1998 1999 2000 1999
------- ------- ------- ------- ------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenues........................... $11,177 $17,350 $18,821 $16,132 $17,105 $ 9,962 $ 8,318
Cost and Expenses:
Salaries and benefits................ 3,721 5,137 8,353 7,328 7,751 4,225 3,882
Selling, general, and
administrative..................... 3,620 5,510 7,857 6,306 6,710 3,858 3,596
Depreciation and amortization........ 719 1,595 3,152 2,337 2,401 1,084 1,209
Provision for uncollectible
accounts........................... 1,885 3,408 3,871 1,690 1,130 604 588
------- ------- ------- ------- ------- --------- ---------
Total costs and
expenses.................... 9,945 15,650 23,233 17,661 17,992 9,771 9,275
------- ------- ------- ------- ------- --------- ---------
Operating income
(loss)...................... 1,232 1,700 (4,412) (1,529) (887) 191 (957)
Other (income) expense:
Interest income and other,
net................................ 12 (172) (778) (814) (723) (451) (353)
Interest expense..................... 247 270 111 59 41 5 20
------- ------- ------- ------- ------- --------- ---------
Income (loss) before income
taxes....................... 973 1,602 (3,745) (774) (205) 637 (624)
Income tax expense (benefit)........... 395 683 (848) -- -- -- --
------- ------- ------- ------- ------- --------- ---------
Net income (loss)............. $ 578 $ 919 $(2,897) $ (774) $ (205) $ 637 $ (624)
======= ======= ======= ======= ======= ========= =========
Net income (loss) applicable to common
stock................................ $ 311 $ 832 $(2,897) $ (774) $ (205) 637 (624)
======= ======= ======= ======= ======= ========= =========
Earnings (loss) per share
(basic).............................. $ .15 $ .26 $ (.48) $ (.12) $ (.03) .10 (.10)
Earnings (loss per share (diluted)..... $ .11 $ .26 $ (.48) $ (.12) $ (.03) .10 (.10)
Weighted average number of common
shares outstanding (basic)........... 2,117 3,215 6,061 6,214 6,131 6,107 6,126
Weighted average number of common
shares outstanding (diluted)......... 3,690 3,559 6,061 6,214 6,131 6,335 6,126
Dividends declared on convertible
preferred stock...................... $ 87 $ 87 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- -----------------
1995 1996 1997 1998 1999 2000 1999
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $1,409 $20,537 $14,903 $14,378 $13,394 $13,964 $13,546
Working capital............................ 1,913 22,094 17,575 16,434 15,927 17,039 15,892
Total assets............................... 6,443 30,708 26,505 24,521 23,946 25,004 23,961
Total debt and capital lease obligation.... 2,354 355 489 240 89 428 191
Retained earnings (accumulated deficit).... (562) 393 (2,504) (3,278) (3,483) (2,846) (3,902)
Total shareholders' equity................. 2,431 26,085 23,678 22,554 22,282 22,985 21,958
</TABLE>
16
<PAGE> 20
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial information is
based on the historical consolidated financial statements of Medical Alliance as
adjusted to give effect to the Sale as detailed in the Asset Purchase Agreement.
The unaudited pro forma consolidated balance sheet as of June 30, 2000
gives effect to the Sale as if it had occurred on that date. The unaudited pro
forma adjustments are based upon available information and certain assumptions
that we believe are reasonable under the circumstances. The unaudited pro forma
consolidated financial statements do not purport to represent what our results
of operations or financial condition would actually have been had the Sale in
fact occurred on such date, nor do they purport to project our results of
operations or financial condition for any future period or date. The information
set forth below should be read together with the other information contained in
the 1999 Form 10-K of Medical Alliance and the March 31, 2000 and June 30, 2000
Form 10-Qs of Medical Alliance.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND THE YEAR-ENDED DECEMBER 31, 2000
Upon the completion of the Sale there will be no remaining operations.
Therefore, the unaudited pro forma consolidated statement of operations has not
been presented. On a pro forma basis, management estimates the remaining general
and administrative cost to be approximately $67,000 (($.01) per share) and
$166,000 (($.03) per share) for the six months ended June 30, 2000 and the
year-ended December 31, 2000, respectively.
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PROFORMA
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $13,964,229 $12,329,000(1) $26,293,229
Accounts receivable, net.................................. 2,251,464 (2,251,464) 0
Prepaid expenses and other................................ 2,039,877 (1,933,364) 106,513
Refundable federal and state income taxes................. 43,839 -- 43,839
Deferred income taxes..................................... 263,331 (263,331) 0
----------- ----------- -----------
Total current assets................................ 18,562,740 7,880,841 26,443,581
Property and equipment, net................................. 5,731,013 (5,731,013) 0
Intangible assets, net...................................... 710,644 (710,644) 0
----------- ----------- -----------
Total assets........................................ $25,004,397 $1,439,184 $26,443,581
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... 730,459 -- 730,459
Accrued expenses.......................................... 593,881 (121,629) 472,252
Capital lease obligations................................. 194,723 (194,723) 0
Deferred revenue.......................................... 4,490 (4,490) 0
----------- ----------- -----------
Total current liabilities........................... 1,523,553 (320,842) 1,202,711
Capital lease obligations, net of current maturities........ 232,853 (232,853) 0
Deferred income taxes....................................... 263,331 (187,751) 75,580
----------- ----------- -----------
Total liabilities................................... 2,019,737 (741,446) 1,278,291
----------- ----------- -----------
Stockholder's Equity:
Common stock, $0.002 par value, 30,000,000 shares
authorized; 6,452,866 shares issued and 6,119,563 shares
outstanding............................................. 12,871 -- 12,871
Capital in excess of par value............................ 26,766,856 -- 26,766,856
Accumulated deficit....................................... (2,845,916) 2,180,630(2) (665,286)
Treasury stock at cost, 333,303 shares.................... (949,151) -- (949,151)
----------- ----------- -----------
Total stockholders' equity.......................... 22,984,660 2,180,630 25,165,290
----------- ----------- -----------
Total liabilities & stockholders' equity............ $25,004,397 $1,439,184 $26,443,581
=========== =========== ===========
</TABLE>
17
<PAGE> 21
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Cash received from the Sale, net of transaction and severance cost is:
<TABLE>
<S> <C>
Sale of assets.......................................... $14,400,000
-----------
Less: Estimated transaction costs....................... 730,000
Estimated severance and income tax payments........ 1,341,000
-----------
Total estimated transaction costs............. 2,071,000
-----------
Net cash proceeds from the Sale......................... $12,329,000
===========
</TABLE>
(2) Represents the after-tax gain from the Sale.
PROPOSAL II -- NAME CHANGE OF MEDICAL ALLIANCE
In connection with the transactions contemplated by the Asset Purchase
Agreement, the Board has adopted resolutions approving an amendment to Medical
Alliance's Articles of Incorporation to change the name of the Medical Alliance
to "MAII Holdings, Inc." The Amended Articles of Incorporation, assuming
approval by our shareholders, will be filed with the Secretary of State of the
State of Texas as soon as practicable after the Meeting.
Subject to the approval of the shareholders of the transactions
contemplated by the Asset Purchase Agreement as set forth under Proposal I
above, the Board recommends that the shareholders vote FOR the proposal to
approve the change of our name to "MAII Holdings, Inc."
PROPOSAL III -- ELECTION OF DIRECTORS
The Board is divided into three classes and presently consists of eight
directors. On the Meeting Date, the size of the Board will be eight directors,
with two classes consisting of three directors and one class consisting of two
directors, with the term of one class expiring each year and with the directors
of each class, upon election, holding a three year term. Each director shall
serve until the Annual Meeting of Shareholders in the year in which his term
expires or until his successor is elected and shall have qualified.
Three directors, Gary Hill, Leon Pritzker and Richard F. Dahlson, are in
the class whose term of office expires in 2000. The Board has nominated Messrs.
Hill, Pritzker and Dahlson for election as directors at the Meeting, each to
serve for a three-year term expiring at our Annual Meeting of Shareholders in
2003 or until his successor is elected and shall have qualified.
Each of the nominees has indicated his willingness to serve as a member of
the Board if elected; however, in case any nominee shall become unavailable for
election to the Board for any reason not presently known or contemplated, the
Proxy holders have discretionary authority to vote the Proxy for a substitute
nominee or nominees. Proxies cannot be voted for more than two nominees. The
following sets forth information as of the Record Date as to the nominees for
election at the Meeting and each of the directors whose term of office will
continue after the Meeting, including their ages, present principal occupations,
other business experience
18
<PAGE> 22
during the last five years, membership on committees of the Board and
directorships in other publicly-held companies.
<TABLE>
<CAPTION>
YEAR CURRENT
NAME AGE POSITION TERM EXPIRES
---- --- -------- ------------
<S> <C> <C> <C>
NOMINEES FOR A THREE-YEAR TERM
ENDING IN 2003:
Leon Pritzker (2)................. 78 Director 2000
Gary Hill......................... 51 Director, President and Chief 2000
Operating officer
Richard F. Dahlson................ 42 Director 2000
CONTINUING DIRECTORS:
Jim Silcock (1)(2)(3)............. 50 Director 2001
Tom Montgomery (1)(3)............. 43 Director 2001
Paul Herchman..................... 44 Chairman of the Board and Chief 2002
Executive Officer
David Kallenberger, M.D........... 52 Medical Director and Director 2002
Tony LeVecchio (1)(2)(3).......... 53 Director 2002
</TABLE>
---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Incentive Plan Committee
BOARD OF DIRECTORS
LEON PRITZKER, a director of Medical Alliance since 1989, has been
self-employed as a management consultant since 1990. From 1985 to 1990, Mr.
Pritzker served as the Executive Vice President of Campbell Taggart, Inc. From
1967 to 1984, Mr. Pritzker served in various capacities with Anheuser-Busch
Companies, Inc., most recently as Director, Management Systems Group. Mr.
Pritzker is a fellow of the American Statistical Association. Mr. Pritzker
received a Bachelor of Science degree from College of the City of New York and a
Master of Arts degree from the University of Pennsylvania.
PAUL HERCHMAN is a co-founder of Medical Alliance and has served as
Chairman of the Board and Chief Executive Officer since its inception in 1989.
Mr. Herchman served as President from 1989 until December 1997. 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.
GARY HILL has served as President and Chief Operating Officer of Medical
Alliance since December 1997 and has served as a director since February 1998.
From January 1994 to April 1996, Mr. Hill served as President of the North Texas
Division of Columbia/HCA. Prior thereto, Mr. Hill was Senior Vice President of
Region II for Galen Health Care Inc. and Columbia from 1992 to 1994. From 1976
to 1992, Mr. Hill served in various capacities with Humana Inc., most recently
as Vice President for its hospital and insurance operations in central Kentucky
and Cincinnati. Mr. Hill received a Bachelor of Science degree from the
University of North Alabama.
DAVID KALLENBERGER, M.D. is a co-founder of Medical Alliance 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 Oklahoma Health
Science Center and as the Program Director of the Henry G. Bennett Fertility
Institute at Integris Baptist Medical Center. Dr. Kallenberger received his
Medical Doctorate degree from The University of Oklahoma.
19
<PAGE> 23
TONY LEVECCHIO has been a director of Medical Alliance since 1997 and
advisor to Medical Alliance since 1990. Mr. LeVecchio is a member of the Audit
Committee, the Compensation Committee, and the Incentive Plan Committee. Mr.
LeVecchio is President of The James Group, a business advisory firm, where he
has been a principal since 1989. Prior to The James Group, Mr. LeVecchio was
Senior Vice President and Chief Financial Officer for VHA Southwest Inc., a
regional health care division of Voluntary Hospitals of America, Inc. Mr.
LeVecchio received a Bachelor of Economics degree and a Master of Business
Administration degree from Rollins College in 1968 and 1969, respectively.
THOMAS MONTGOMERY is a co-founder of Medical Alliance and has served as a
director of Medical Alliance since 1989. Mr. Montgomery is a member of the Audit
Committee, the Compensation Committee and the Incentive Plan Committee. Mr.
Montgomery is a partner of Montgomery, Baggett & Drews, L.L.P., and Chief
Financial Officer of Solution 6 Holdings, Ltd., an Australian public company.
From December 1982 to December 1990, Mr. Montgomery served in various capacities
with Arthur Andersen & Co., and as the Senior Tax Manager of the Enterprise
Group since 1985. Mr. Montgomery received a Bachelor of Business Administration
degree from Texas Tech University and a Master of Science degree from Texas Tech
University.
JIM SILCOCK has been a director of Medical Alliance since February 1996.
Mr. Silcock is a member of the Audit Committee, the Compensation Committee, and
the Incentive Plan Committee. Mr. Silcock has served as a general partner of
Mapleleaf Capital Ltd., a general partner of Sunwestern Associates III, a
general partner of Sunwestern Investment Fund III, a venture capital fund, since
1988, and as a general partner of T.V.P. Associates Limited, the general partner
of Texas Venture Partners, a venture capital fund, since 1984. Mr. Silcock
received a Bachelor of Arts degree from Dartmouth College and a Master of
Business Administration degree from the Amos Tuck School of Business
Administration at Dartmouth College.
RICHARD F. DAHLSON has been a director of Medical Alliance since October
2000 and has served as outside legal counsel to Medical Alliance since 1992. Mr.
Dahlson is a partner of Jackson Walker L.L.P., a law firm headquartered in
Dallas, Texas. Mr. Dahlson has been with Jackson Walker since 1984. Mr. Dahlson
received his B.S.B.A. from the University of Minnesota and a J.D. degree from
the University of Wisconsin.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of Medical Alliance is managed under the direction of the
Board. The Board meets on a regularly scheduled basis to review significant
developments affecting Medical Alliance and to act on matters requiring approval
of the Board. It also holds special meetings when an important matter requires
action by the Board between scheduled meetings. The Board met seventeen times
and acted by unanimous written consent five times during 1999. During 1999, each
member of the Board participated in at least 75% of all Board and applicable
committee meetings held during the period for which he was a director.
The Board has three standing committees: the Audit Committee, the
Compensation Committee and the Incentive Plan Committee. The functions of these
committees, their current members, and the number of meetings held during the
fiscal year ending December 31, 1999, are described below.
Audit Committee. The Audit Committee makes recommendations to the Board
regarding the appointment of independent auditors, reviews the plan and scope of
any audit to Medical Alliance's financial statements and reviews Medical
Alliance's significant accounting policies and related matters. The Board has
adopted a written charter for the Audit Committee. A copy of the Charter is
attached to this Proxy Statement as Appendix C. The Audit Committee did not meet
in 1999. The Audit Committee has reviewed and discussed Medical Alliance's
audited financial statements with the Board. The Audit Committee has received
the written disclosures and the letter from PricewaterhouseCoopers LLP required
by Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), as may be modified or supplemented. Based on the review
above, the Audit Committee recommended to the Board that the audited financial
statements be included in Medical Alliance's annual report. The Audit Committee
is comprised of Messrs. Pritzker, LeVecchio and Silcock, each of whom is an
independent director.
20
<PAGE> 24
Compensation Committee. The Compensation Committee makes recommendations to
the Board regarding the compensation of executive officers. Prior to the
formation of the Incentive Plan Committee in 1997, the Compensation Committee
was responsible for the administration of Medical Alliance's 1994 Amended and
Restated Long-Term Incentive Plan (the "Incentive Plan"). The Compensation
Committee is comprised of Messrs. LeVecchio, Pritzker, and Silcock. The
Compensation Committee met two times in 1999.
Incentive Plan Committee. The Incentive Plan Committee was established in
1997 and administers the Incentive Plan. The Incentive Plan Committee is
comprised of Messrs. Montgomery, LeVecchio and Silcock. The Incentive Plan
Committee met two times in 1999.
Medical Alliance does not have a nominating committee. The functions
customarily performed by a nominating committee are performed by the Board as a
whole.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWNERSHIP
The following table sets forth information with respect to beneficial
ownership of Common Stock as of September 28, 2000, by (i) all persons known to
Medical Alliance to be the beneficial owner of 5% or more of the Common Stock,
(ii) each director of Medical Alliance, (iii) the chief executive officer and
each of Medical Alliance's other most highly compensated executive officers
whose total annual compensation for 1999 based on salary and bonus earned during
1999 exceeded $100,000 (the "Named Executive Officers") and (iv) all Medical
Alliance directors and executive officers as a group. This table does not
include shares of Common Stock that may be purchased pursuant to options not
exercisable within 60 days of September 28, 2000. All persons listed have sole
voting and investment power with respect to their shares unless otherwise
indicated.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
------------------------------------ --------------------- ---------------------
<S> <C> <C>
NAMED EXECUTIVE OFFICERS
Paul Herchman(2)......................................... 467,046 7.4%
Gary Hill(3)............................................. 140,000 2.2%
DIRECTORS
David Kallenberger, M.D.(4).............................. 172,214 2.7%
Tony LeVecchio(5)........................................ 50,275 0.8%
Thomas Montgomery(6)..................................... 267,586 4.2%
Leon Pritzker(7)......................................... 88,914 1.4%
Jim Silcock(8)........................................... 1,007,653 15.9%
Richard F. Dahlson(9).................................... 14,385 0.2%
All Executive Officers and Directors as a Group (7
persons)(10)........................................... 2,208,073 34.7%
OTHER 5% SHAREHOLDERS
Mapleleaf Capital, Ltd.(11).............................. 746,790 11.8%
Patrick Rivelli(12)...................................... 1,016,553 16.0%
Satana Corporation(13)................................... 494,645 7.8%
Dimensional Fund Advisors, Inc.(14)...................... 427,300 6.7%
</TABLE>
---------------
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Common Stock subject to options or warrants that are currently
exercisable or exercisable within 60 days are deemed to be outstanding and
to be beneficially owned by the person or entity holding such options.
(2) Includes 51,000 shares underlying currently exercisable options to purchase
Common Stock. The business address of Mr. Herchman is 2445 Gateway Drive,
Suite 150, Irving, Texas 75063.
(3) Includes 125,000 shares underlying currently exercisable options to
purchase Common Stock. The business address of Mr. Hill is 2445 Gateway
Drive, Suite 150, Irving, Texas 75063.
21
<PAGE> 25
(4) Includes 21,187 shares underlying currently exercisable options to purchase
Common Stock. The business address of Dr. Kallenberger is 3433 N.W. 56th
Street, Suite 310, Oklahoma City, Oklahoma 73112.
(5) Includes 8,460 shares underlying currently exercisable options to purchase
Common Stock. The business address of Mr. LeVecchio is 4975 Preston Park
Blvd., Suite 150, Plano, Texas 75093.
(6) Includes 8,460 shares underlying currently exercisable options to purchase
Common Stock, 7,805 shares of Common Stock held by Mr. Montgomery's
spouse's profit sharing plan, 10,000 shares of Common Stock held by Mr.
Montgomery's spouse's pension plan and 53,610 shares of Common Stock held
by Montgomery, Jessup and Company L.L.P.'s ("MJC") profit sharing plan, of
which Mr. Montgomery is a partner. As a partner of MJC, Mr. Montgomery may
be deemed to be the indirect owner of the shares beneficially owned by MJC
by virtue of his authority to make investment decisions regarding the
voting and disposition of such shares. The business address of Mr.
Montgomery is 5220 Spring Valley, Suite 600, Dallas, Texas 75240.
(7) Includes 8,460 shares underlying currently exercisable options to purchase
Common Stock. The business address of Mr. Pritzker is 3825 Echo Brook Lane,
Dallas, Texas 75229.
(8) Includes 746,790 shares beneficially owned by Mapleleaf Capital, Ltd.,
which includes 8,460 shares underlying currently exercisable options to
purchase Common Stock, 135,649 shares beneficially owned by Sunwestern
Cayman 1988 Partners, and 125,214 shares beneficially owned by Sunwestern
Investment Fund III, all of which are affiliates of Mr. Silcock. Mr.
Silcock may be deemed to be the indirect beneficial owner of shares
beneficially owned by such entities by virtue of his authority to make
investment decisions regarding the voting and disposition of such shares.
Mr. Silcock disclaims beneficial ownership of the shares owned by Mapleleaf
Capital, Ltd., Sunwestern Cayman 1988 Partners and Sunwestern Investment
Fund III. The business address of Mr. Silcock is 12221 Merit Drive, Suite
935, Dallas, Texas 75251.
(9) Includes 400 shares held by Mr. Dahlson's spouse, 7,805 shares held by Mr.
Dahlson's spouse's IRA plan and 4,080 shares underlying currently
exercisable options to purchase Common Stock. The business address of Mr.
Dahlson is 901 Main Street, Suite 6000, Dallas, Texas 75201.
(10) Includes the shares referenced in footnotes (2)-(9).
(11) Includes 8,460 shares underlying currently exercisable options to purchase
Common Stock. The business address of Mapleleaf Capital, Ltd., is 12221
Merit Drive, Suite 935, Dallas, Texas 75251.
(12) Includes 746,790 shares beneficially owned by Mapleleaf Capital, Ltd.,
which includes 8,460 shares underlying currently exercisable options to
purchase Common Stock, 135,649 shares beneficially owned by Sunwestern
Cayman 1988 Partners, and 125,214 shares beneficially owned by Sunwestern
Investment Fund III, all of which are affiliates of Mr. Rivelli. Mr.
Rivelli may be deemed to be the indirect beneficial owner of shares
beneficially owned by such entities by virtue of his authority to make
investment decisions regarding the voting and disposition of such shares.
Mr. Rivelli disclaims beneficial ownership of the shares owned by Mapleleaf
Capital, Ltd., Sunwestern Cayman 1988 Partners and Sunwestern Investment
Fund III. The business address of Mr. Rivelli is 12221 Merit Drive, Suite
935, Dallas Texas 75251.
(13) Includes 2,000 shares underlying currently exercisable options to purchase
Common Stock. The business address of Satana Corporation is National Plaza
2, Suite 102, Amarillo, Texas 79101.
(14) Dimensional Fund Advisors, Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of 1940, and serves as investment manager to
certain other investment vehicles, including commingled group trusts.
(These investment companies and investment vehicles are the "Portfolios").
In its role as investment advisor and investment manager, Dimensional
possesses both voting and investment power over 427,300 shares of Medical
Alliance's Common Stock as of June 30, 2000. The Portfolios own all
securities reported in this statement, and Dimensional disclaims beneficial
ownership of such securities. The business address of Dimensional Fund
Advisors, Inc. is 1299 Ocean Avenue, 11th Floor, Santa Monica, California
90401.
22
<PAGE> 26
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during each of Medical Alliance's last three fiscal years to Medical
Alliance's Chief Executive Officer and Medical Alliance's other most highly
compensated executive officer, based on salary and bonus earned during 1997,
1998, and 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
---------------------- ------------------------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) COMPENSATION ($)
--------------------------- ------ ---------- --------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Paul Herchman................... 1999 $200,000 0 0 100,000 $5,240(1)
Chairman of the Board and 1998 200,000 0 0 0 5,700
Chief Executive Officer 1997 155,510 0 0 1,000 5,700
Gary Hill(3).................... 1999 $200,000 0 0 0 $5,420(2)
President and 1998 200,000 0 0 151,540 5,420
Chief Operating Officer 1997 16,667 0 0 98,460 350
</TABLE>
---------------
(1) Represents a $350 per month automobile allowance paid to Mr. Herchman, and
$1,040 of annual premiums on a life insurance policy, of which Mr.
Herchman's spouse is the beneficiary, paid by Medical Alliance on Mr.
Herchman's behalf.
(2) Represents a $350 per month automobile allowance paid to Mr. Hill, and
$1,220 of annual premiums on a life insurance policy, of which Mr. Hill's
spouse is the beneficiary, paid by Medical Alliance on Mr. Hill's behalf.
(3) Mr. Hill's employment term with Medical Alliance began in December 1997.
OPTION GRANTS IN 1999
The following table provides information related to options granted to the
Named Executive Officers during 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
----------------------------------------------------------- -------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE
NAME GRANTED (#) FISCAL YEAR ($/SH)(2) EXPIRATION DATE 5% ($) 10% ($)
---- ------------ ------------ ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Paul Herchman(3)..... 100,000 22% $1.91 12-15-09 $120,119 $304,405
Gary Hill............ N/A N/A N/A N/A N/A N/A
</TABLE>
---------------
(1) The dollar amounts in these columns represent potential value that might be
realized upon exercise of the options immediately prior to the expiration of
their term, assuming that the market price of the Common Stock appreciates
in value from the date of grant at the 5% and 10% annual rates prescribed by
regulation, and therefore are not intended to forecast possible future
appreciation, if any, of the price of the Common Stock.
(2) The exercise price of each option was equal to the fair market value of the
Common Stock on the date of the grant.
(3) Options granted to Mr. Herchman were related to 1999.
23
<PAGE> 27
AGGREGATE OPTION VALUES AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
EXERCISED OPTIONS/SARS AT FY-END(#) OPTIONS/SARS AT FY-END($)(1)
----------------------------------- -----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Paul Herchman.......... 0 101,000 $0 $15,000
Gary Hill.............. 125,000 125,000 0 0
</TABLE>
---------------
(1) These values assume a valuation of $2.06 per share at December 31, 1999.
Value is calculated based on the difference between the option price and
$2.06 multiplied by the number of shares of Common Stock underlying the
options.
COMPENSATION OF DIRECTORS
It is the policy of Medical Alliance that directors who are not employees
of Medical Alliance ("Independent Directors") receive $500 for each Board
meeting attended. All directors of Medical Alliance are reimbursed for travel,
lodging and other out-of-pocket expenses in connection with their attendance at
Board and committee meetings. Under the terms of the Incentive Plan, so long as
Medical Alliance is a reporting company subject to the terms of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), Independent Directors
will receive an option to purchase 2,500 shares of Common Stock upon his or her
initial election to the Board and an option to purchase 5,000 shares of Common
Stock at each annual meeting of the shareholders thereafter while he or she
continues to serve as a director of Medical Alliance. Such options will be
non-qualified stock options, will have an exercise price equal to the fair
market value of the Common Stock at the date of grant, will become exercisable
one-third on each of the first, second and third anniversaries thereof, and will
expire ten years from the date of grant. As of September 28, 2000, the current
Independent Directors and their affiliated entities have been granted options to
purchase a total of 94,915 shares of Common Stock at exercise prices ranging
from $2.16 to $13.50 per share pursuant to the Incentive Plan.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
Medical Alliance has entered into an Employment Agreement with Paul
Herchman, dated as of January 1, 1998, (the "Herchman Employment Agreement").
The Herchman Employment Agreement may be terminated by Medical Alliance upon
twelve months prior notice and may be terminated by Mr. Herchman upon (3) three
months prior notice. The Herchman Employment Agreement provides that Mr.
Herchman receive a base salary of $200,000 per year and is eligible to receive
bonuses based upon Medical Alliance's financial performance. The Herchman
Employment Agreement requires Mr. Herchman to maintain the confidentiality of
Medical Alliance's proprietary information during his employment and thereafter
and prohibits Mr. Herchman from competing with Medical Alliance during his
employment and for a period of one year thereafter.
Medical Alliance has entered into a Change of Control Agreement with Paul
Herchman, dated as of July 5, 2000, (the "Herchman Change of Control
Agreement"). The Herchman Change of Control Agreement will, by its terms,
continue in effect for a period of eighteen months following its execution. The
Herchman Change of Control Agreement provides that upon a change of control of
Medical Alliance, as defined therein, Medical Alliance will pay to Mr. Herchman
(i) unpaid base salary, bonuses and business expenses incurred through the date
of the change of control and (ii) within fifteen days following the date of the
change of control, a lump sum severance payment equalling Mr. Herchman's annual
base salary plus the annual cost of COBRA benefits, exclusive of 401(k)
benefits, provided to Mr. Herchman by Medical Alliance, multiplied by (1.5) one
and one-half. The Herchman Change of Control Agreement further provides for the
amendment of Mr. Herchman's existing stock option agreements with Medical
Alliance to trigger the immediate vesting and exercisability of all options
granted to Mr. Herchman as of the date of the change of control and shall remain
exercisable for the original remaining term. Any payments made pursuant
24
<PAGE> 28
to the Herchman Change of Control Agreement are in lieu of payments made under
the Herchman Employment Agreement, which shall be deemed to be canceled prior to
a change of control.
Medical Alliance has entered into an Employment Agreement with Gary Hill,
dated as of December 2, 1997, (the "Hill Employment Agreement"). The Hill
Employment Agreement provides that Mr. Hill will receive a base salary of
$200,000 per year and is eligible to receive bonuses based upon Medical
Alliance's financial performance. The Hill Employment Agreement is terminable by
Medical Alliance with twelve months prior notice and may be terminated by Mr.
Hill upon (3) three months prior notice. The Hill Employment Agreement requires
Mr. Hill to maintain the confidentiality of Medical Alliance's proprietary
information during his employment and thereafter and prohibits Mr. Hill from
competing with Medical Alliance during his employment and for a period of one
year thereafter.
Medical Alliance has entered into a Change of Control Agreement with Gary
Hill, dated as of July 5, 2000, (the "Hill Change of Control Agreement"). The
Hill Change of Control Agreement will, by its terms, continue in effect for a
period of eighteen months following its execution. The Hill Change of Control
Agreement provides that upon a change of control of Medical Alliance, as defined
therein, Medical Alliance will pay to Mr. Hill (i) unpaid base salary, bonuses
and business expenses incurred through the date of the change of control and
(ii) within fifteen days following the date of the change of control, a lump sum
severance payment equalling Mr. Hill's annual base salary plus the annual cost
of COBRA benefits, exclusive of 401(k) benefits, provided to Mr. Hill by Medical
Alliance, multiplied by (1.5) one and one-half. The Hill Change of Control
Agreement further provides for the amendment of Mr. Hill's existing stock option
agreements with Medical Alliance to trigger the immediate vesting and
exercisability of all options granted to Mr. Hill as of the date of the change
of control and shall remain exercisable for the original remaining term. Any
payments made pursuant to the Hill Change of Control agreement shall be in lieu
of payments under the Hill Employment Agreement, which shall be deemed to be
canceled prior to the change of control.
REPORT OF THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Medical Alliance is engaged in a unique business niche. In order to
succeed, Medical Alliance believes that it must be able to attract and retain
qualified executives. The Compensation Committee has been primarily responsible
for determining executive compensation. All of Medical Alliance's executive
officers are parties to employment agreements (the "Executive Employment
Agreements"), which provide for their base compensation level, as well as annual
incentives based on Company performance. The Compensation Committee intends that
future determination of executive compensation will continue to take into
account input from Medical Alliance's senior management and, among other things,
one or more of the following goals:
- Aligning Company, employee and shareholder interests;
- Rewarding executives for successful strategic management;
- Recognizing outstanding performance;
- Providing incentives and rewards that will attract and retain highly
qualified and productive people;
- Motivating employees to high levels of performance; and
- Ensuring external competitiveness and internal equity.
To achieve these goals, Medical Alliance's executive compensation policies
will continue to integrate annual base compensation with bonuses based upon a
variety of factors that may include Medical Alliance's operating performance and
individual initiatives and performance. In measuring Medical Alliance's
operating performance, the Compensation Committee may consider, among other
things, Medical Alliance's attainment of gross margin, operating profit and
growth targets, limits on corporate general and administrative expenses, net
income and earnings per share targets, and debt to capital ratio levels. The
Compensation Committee has not applied a formula assigning specific weights to
any such factors. Compensation through stock options is
25
<PAGE> 29
designed to attract and retain qualified executives and to ensure that such
executives have a continuing stake in the long-term success of Medical Alliance.
When granting stock options, the Compensation Committee may consider, among
other things, a number of criteria and factors including the recipient's level
of cash compensation, years of service with Medical Alliance, position with
Medical Alliance and the number of unexercised options held by the recipient. In
order to continue to provide management the long-term incentives afforded by
stock options, during 1999, the Compensation Committee approved the grant of
options to a number of Medical Alliance's officers, directors and employees.
COMPENSATION OF EXECUTIVE OFFICERS
Compensation of Medical Alliance's executive officers is generally
comprised of base salary, quarterly and annual cash bonuses, and long-term
incentive compensation in the form of stock options. In determining salaries for
the executive officers in 1999, the Board took into account individual
experience and performance of its executive officers. In determining stock
option grants for the executive officers, the Compensation Committee evaluated a
number of criteria, including the recipient's level of cash compensation, years
of service with Medical Alliance, position with Medical Alliance and the number
of unexercised options held by the recipient.
This report is submitted by the members of the Compensation Committee:
COMPENSATION COMMITTEE
TOM MONTGOMERY
TONY LEVECCHIO
JIM SILCOCK
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, the Compensation Committee made recommendations to the Board
regarding compensation of Medical Alliance's executive officers and the Board
approved all of such recommendations. The Compensation Committee was comprised
of Tom Montgomery, Tony LeVecchio, and Jim Silcock during 1999. No executive
officer of Medical Alliance served as a member of the Compensation Committee or
similar committee or board of directors of any other entity which an executive
officer thereof served on the Compensation Committee or Board.
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STOCK PERFORMANCE CHART
The following chart compares the yearly percentage change in the cumulative
total shareholder return on the Common Stock from October 11, 1996, through
December 31, 1999, with the cumulative total return on the Nasdaq Stock Market
and the S&P Small Cap 600. Medical Alliance does not believe it is feasible to
provide a comparison against a group of peer companies, as there is an
insufficient number of similar publicly traded companies. The comparison assumes
$100 was invested immediately prior to such period in Common Stock and in each
of the foregoing indices and assumes reinvestment of dividends. Dates on the
following chart represent the last day of the indicated fiscal year. Medical
Alliance paid no dividends during such period.
[CHART]
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
10/11/96 12/31/96 12/31/97 12/31/98 12/31/99
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Medical Alliance, Inc. 100.00 104.55 36.36 18.18 18.73
S&P Small Cap 600 100.00 104.74 130.42 127.40 142.40
Nasdaq Stock Market 100.00 104.37 126.95 177.26 328.97
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Medical Alliance's officers and
directors, and persons who own more than 10% of a registered class of Medical
Alliance's equity securities, to file initial reports of ownership and reports
of changes in ownership with the Commission. Such persons are required by the
Commission to furnish Medical Alliance with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of such forms received by it with
respect to fiscal year 1999, or written representations from certain reporting
persons, Medical Alliance believes that all filing requirements applicable to
its officers, directors and persons who own more than 10% of Medical Alliance's
Common Stock have been complied with.
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<PAGE> 31
SHAREHOLDER PROPOSALS
Shareholders may submit proposals on matters appropriate for shareholder
action at subsequent annual meetings of Medical Alliance consistent with Rule
14a-8 promulgated under the Exchange Act. For such proposals to be considered in
the Proxy Statement and Proxy relating to the Meeting, such proposals must be
received by Medical Alliance, Attention: Secretary, at the address set forth on
the first page of this Proxy Statement, no later than August 9, 2001 in order to
be included in Medical Alliance's proxy materials and form of proxy relating to
that meeting. Shareholder proposals must also be otherwise eligible for
inclusion.
OTHER BUSINESS
Medical Alliance does not intend to bring any business before the Meeting
other than those described herein and at this date Medical Alliance has not been
informed of any matters that may be presented at the Meeting by others; however,
if any other matters properly come before the Meeting or any adjournment
thereof, it is intended that the persons named in the accompanying Proxy will
vote pursuant to such Proxy in accordance with their best judgment on such
matters.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, file
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by us with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549; at the Commission's
Chicago Regional office located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and at the Commission's New
York Regional office located at 7 World Trade Center, Room 1300, New York, New
York 10048. Copies of such material may also be obtained at prescribed rates
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Additionally, the
Commission maintains a website (http://www.sec.gov) that contains reports, proxy
statements and information statements and other information regarding
registrants that file electronically with the Commission. Our Common Stock is
listed on the Nasdaq National Market System ("Nasdaq"). Reports, proxy
statements and other information concerning us can be inspected at the offices
of Nasdaq.
Our principal executive offices are located at 2445 Gateway Drive, Suite
150, Irving, Texas 75063, (972) 580-8999.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which we have filed with the Commission, are
incorporated herein by reference and made a part hereof:
(a) Annual Report on Form 10-K for the year ended December 31, 1999;
(b) Quarterly Report on Form 10-Q for the quarter ended March 31,
2000; and
(c) Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
All documents filed by us pursuant to Sections 13(a), 13(c), 14 and 15(d)
of the Exchange Act subsequent to the date of this Proxy and prior to the
meeting shall be deemed to be incorporated by reference herein and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
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<PAGE> 32
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy.
We will provide, without charge, to each person to whom a copy of this
Proxy is delivered, upon the written or oral request of such person, a copy of
any or all of the documents incorporated herein by reference (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference in such documents). Written or telephone requests for such documents
should be directed to Mark A. Novy, 2445 Gateway Drive, Suite 150, Irving, Texas
75063, (972) 580-8999, ext. 210.
MISCELLANEOUS
All costs of solicitation of Proxies will be borne by Medical Alliance. In
addition to solicitation by mail, the officers and employees of Medical Alliance
may solicit Proxies by telephone or personally, without additional compensation.
Medical Alliance may also make arrangements with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of shares of Common Stock held of record by
such persons, and Medical Alliance may reimburse them for their out-of-pocket
expenses incurred in connection therewith. Medical Alliance's regularly retained
investor relations firm, Corporate Communications, Inc., may also be called upon
to solicit proxies by telephone or mail. The cost for the solicitation of
shareholders is estimated to be $ .
The Annual Report to Shareholders of Medical Alliance, including financial
statements for the fiscal year ended December 31, 1999, accompanies this Proxy
Statement. The Annual Report is not to be deemed part of this Proxy Statement.
By Order Of The Board Of Directors,
/s/ MARK NOVY
Mark Novy
Secretary
Irving, Texas
November 8, 2000
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<PAGE> 33
APPENDIX A
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (together with all exhibits, schedules and
other documents attached hereto, hereinafter referred to as the "Agreement") is
made by and between Medical Alliance, Inc., a Texas corporation (the "Seller"),
and ICN Pharmaceuticals California, Inc., a California corporation (the
"Purchaser"), on this 15th day of September, 2000.
WITNESSETH:
WHEREAS, Seller desires to sell to the Purchaser, and the Purchaser desires
to purchase from the Seller, certain of the assets, properties and rights
comprising the Seller's medical surgical and aesthetic elective business (the
"Business").
NOW THEREFORE, for and in consideration of the premises, mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged and agreed, and
intending to be legally bound, the parties agree as follows:
ARTICLE 1.
ASSETS, LIABILITIES AND PURCHASE PRICE
1.01. Purchase and Sale of Assets. Subject to the terms and conditions of
this Agreement, the Seller agrees to sell, transfer, convey, assign and deliver
("Transfer") to the Purchaser, and the Purchaser shall purchase, acquire and
accept from the Seller, all of the Seller's rights, titles, interests,
properties, assets, whether tangible or intangible, and wherever located (but
excluding the Excluded Assets (as hereinafter defined) and all liabilities other
than the Assumed Liabilities (as hereinafter defined)), owned by the Seller and
necessary and sufficient for the Purchaser to obtain the full benefit of the
acquisition of the Business as a going concern (hereinafter collectively
referred to as the "Transferred Assets") free and clear of all Liens (as defined
in Section 3.07), other than the Liens set forth on Schedule 3.07, including
without limitation:
(a) all inventories of the Business (the "Inventories");
(b) all supplies and printed materials of the Business;
(c) all prepaid expenses of the Business;
(d) all fixtures, furniture, machinery, equipment, tools and spare
parts of the Business that are reflected on Schedule 1.01(d) including
without limitation all computer hardware, computer software and all
documentation related thereto including source code and systems
documentation, subject to the licenses granted by third parties therefor;
(e) all of the following which shall be specifically set forth on
Schedule 1.01(e): (1) United States and foreign patents and all
applications therefor, and inventions made prior to today's date by
employees of the Seller and which are used in the conduct of the Business
and owned or licensed by the Seller as of today's date; (2) United States
and foreign copyright rights and registrations and applications therefore,
for copyright works created prior to today's date by employees of the
Seller and are used in the conduct of the Business and which works and
copyright rights are in the possession of and/or owned or licensed by the
Seller as of the date hereof; (3) United States and foreign trademarks,
registered or unregistered, adopted for use in the conduct of the Business,
which are owned or licenced by the Seller as of today's date, and any
trademark registrations therefore (or applications for trademark
registrations), together with the goodwill of the Business associated
therewith; (4) all un-patented inventions, trade secrets, confidential and
proprietary information and know-how that originated out of the Business
and are, immediately prior to the date hereof, in possession of, used in
and owned by the Seller in the conduct of the Business; and (5) all rights
to sue third parties for infringement with respect to the foregoing;
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(f) all rights in, to and under the contracts and agreements of the
Business which are set forth on Schedule 1.01(f) (the "Material
Agreements");
(g) all marketing and sales materials, advertising materials,
catalogues and sales brochures of the Business;
(h) all permits, licenses, license applications, approvals, product
registrations and product clearances that are used in the conduct of the
Business including those that are set forth on Schedule 1.01(h) (to the
extent the same are transferable);
(i) all books, records, manuals, files and other documentation,
whether written, electronic or otherwise, of the Business, including
without limitation, customer records, supplier lists, distributor lists,
purchase and sale records, price lists, correspondence, quality control
records, research and development files, drawings, blue prints, designs and
accounting records; and
(j) all automobiles, trucks, vans or other vehicles of the Business
set forth on Schedule 1.01(j).
1.02. Limited Assumption of Liabilities. Subject to the terms and
conditions of this Agreement, and subject to the Seller's retention of the
Excluded Liabilities set forth below, on the Closing Date the Purchaser shall
assume and agree to pay, perform and discharge when due, the following ("Assumed
Liabilities"):
(a) Obligations and liabilities to discharge the liabilities of Seller
constituting Seller's Accrued Vacation, so far as such liabilities relate
to employees of Seller who are actually hired by Purchaser on Closing,
which employees are listed on Schedule 1.02(a).
(b) Future and ongoing obligations under the Material Agreements;
(c) Any claims in respect of an action, occurrence or event occurring
on or after the Closing Date with respect to personal injury, property
damage, product liability or breach of warranty for which the Purchaser is
liable under law, except for such claims or that portion of any claim in
respect of an action, occurrence or event occurring prior to the Closing
Date; and
(d) Deferred revenues -- seminars, of Seller that are referenced in a
line item on Seller's June 30, 2000, balance sheet.
1.03. Excluded Liabilities. Except for the Assumed Liabilities specified in
Section 1.02, the Purchaser shall not assume, and shall have no obligation or
liability for, any claims, debts, liabilities (in contract, tort or otherwise),
obligations, expenses, taxes, contracts or commitments of the Seller or the
Business of any kind, character or description, whether absolute, contingent, or
otherwise (including without limitation any obligation to Seller's employees for
commissions relating to products and or services sold or performed prior to the
date of Closing.) (the "Excluded Liabilities").
1.04. Excluded Assets. Seller shall retain ownership and possession of the
following assets and properties of Seller (the "Excluded Assets"): (a) all
rights of Seller arising under this Agreement and the consummation of the
transactions contemplated hereby; (b) all cash, bank deposits and marketable
securities; (c) the items listed on Schedule 1.04, which are not being acquired
by the Purchaser; (d) all corporate minute books, stock records, and tax returns
of Seller and such other similar corporate books and records of Seller as may
exist on the Closing Date; provided, however, that Purchaser shall be entitled
to obtain copies of such records of Seller relating to the Transferred Assets as
Purchaser may reasonably require in connection with the operation of the
Business or use of the Transferred Assets subsequent to the Closing; (e) all
rights to refunds of taxes applicable to periods prior to July 1, 2000; and (f)
all assets of Seller not used or useful in the Business.
1.05. Purchase Price. The aggregate purchase price for the Transferred
Assets to be paid by the Purchaser to the Seller by wire transfer to Seller's
denominated account on Closing, shall be FOURTEEN MILLION FOUR HUNDRED THOUSAND
DOLLARS ($14,400,000) (the "Purchase Price"), and shall be allocated as set
forth on Schedule 1.05.
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1.06. Post-Closing Purchase Price Adjustment.
(a) Within 60 days after the Closing Date, the management of Seller
who have agreed to employment with Purchaser after the Closing and who
prepared Seller's Form 10-Q for the quarter ended June 30, 2000 (the "June
10-Q") shall prepare and deliver to Purchaser a special purpose balance
sheet as of the Closing Date (the "Special Purpose Balance Sheet"). The
Special Purpose Balance Sheet shall be prepared by such management in a
manner consistent with the June 10-Q (both in procedures used by management
and application of generally accepted accounting principles consistent with
Seller's use thereof in the June 10-Q). Upon completion of the Special
Purpose Balance Sheet, the same shall be reviewed by Purchaser's auditors
to the extent of, and consistent with, PricewaterhouseCoopers LLP's review
of the June 10-Q. The Special Purpose Balance Sheet shall include the
following line items: (i) receivables, miscellaneous accounts receivables,
medical supplies, prepaid expenses (associated with the business) deposits
(associated with the business), goodwill and fixed assets (net) which shall
equal the value of the Transferred Assets as of the Closing Date, and (ii)
accrued vacation, deferred revenues (seminars) and capital leases which
shall equal the value of the Assumed Liabilities as of the Closing Date.
Upon completion of the auditors' review of the Special Purpose Balance
Sheet, Purchaser shall deliver the same to Seller. Purchaser and its
auditors will make available to Seller and its auditors all records and
work papers used in preparing the Special Purpose Balance Sheet. If Seller
disagrees with the computation of the Transferred Assets or the Assumed
Liabilities reflected on the Special Purpose Balance Sheet, Seller may,
within 15 days after receipt of the Special Purpose Balance Sheet, deliver
a notice (an "Objection Notice") to Purchaser setting forth Seller's
calculation of the Transferred Assets and/or Assumed Liabilities. Purchaser
and Seller will use reasonable best efforts to resolve any disagreements as
to the computation of the Transferred Assets or the Assumed Liabilities,
but if they do not obtain a final resolution within 30 days after Purchaser
has received the Objection Notice, Purchaser and Seller will jointly retain
an independent accounting firm of recognized national standing (the
"Arbitrating Accountant") to resolve any remaining disagreements. If
Purchaser and Seller are unable to agree on the choice of the Arbitrating
Accountant, then the Arbitrating Accountant will be a "big-five" accounting
firm (or a successor) selected by lot (after excluding one firm designated
by Purchaser and one firm designated by Seller). Purchaser and Seller will
direct the Arbitrating Accountant to render a determination within 30 days
of its retention and Purchaser, Seller, and their respective agents will
cooperate with the Arbitrating Accountant during its engagement. The
Arbitrating Accountant will consider only those items and amounts in the
Special Purpose Balance Sheet set forth in the Objection Notice which
Purchaser and Seller are unable to resolve. Purchaser and Seller shall each
submit a binder to the Arbitrating Accountant promptly (and in any event
within 30 days after the Arbitrating Accountant's engagement), which binder
shall contain such party's computation of the Transferred Assets and the
Assumed Liabilities and information, arguments, and support for such
party's position. The determination of the Arbitrating Accountant will be
conclusive and binding upon the parties. Purchaser and Seller shall bear
the costs and expenses of the Arbitrating Accountant based on the
percentage which the portion of the contested amount not awarded to each
party bears to the amount actually contested by the parties.
(b) If the amount equal to (i) the Transferred Assets minus (ii) the
Assumed Liabilities (the "Transferred Net Worth") is less than $9,681,674,
then Seller will, within five (5) business days after the determination
thereof, pay to Purchaser an amount equal to any such shortfall. Such
payment will be made by wire transfer or delivery of other immediately
available funds. If the Transferred Net Worth is equal to or greater than
$9,681,674, then no payment under this Section 1.06 shall be due or
payable. Any payment made pursuant to this Section 1.06(b) or Section
1.06(c) below shall be treated as an adjustment to the Purchase Price for
tax purposes.
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(c) In addition, in the event that within 180 days following the
Closing Date, Purchaser has not collected accounts receivable included in
the Transferred Assets ("Seller A/Rs") in a minimum amount determined by
the following formula:
(i) $9,681,674, minus
(ii) The amount of any payment made by Seller under subsection (b)
above, minus
(iii) The value of the Transferred Assets set forth on the Special
Purpose Balance Sheet (excluding accounts receivable), plus
(iv) The value of the Assumed Liabilities set forth on the Special
Purpose Balance Sheet.
(the "Minimum A/R Collection Amount"), then within five business days after
receipt of written notice from Purchaser to Seller of the amount of any
shortfall between the Minimum A/R Collection Amount and the amount of
collections (the "Shortfall"), Seller shall pay to Purchaser an amount
equal to such Shortfall, if any, with such payment being made by wire
transfer or delivery of other immediately available funds. Purchaser agrees
that to the extent Purchaser collects Seller A/Rs following the end of such
180 day period, then Purchaser shall on a monthly basis pay to Seller an
amount equal to the amount of Seller A/Rs collected during such month;
provided, however, that such payments shall not exceed in the aggregate the
Shortfall; and provided further, that Purchaser's obligations under this
sentence shall terminate on the second anniversary of the Closing Date. The
payments described in the above sentence shall be made within 30 days after
the end of each calendar month and shall be made by wire transfer or
delivery of other immediately available funds. Purchaser agrees to use all
commercially reasonable efforts to collect the Seller A/Rs.
(d) Notwithstanding the above, Purchaser agrees that in the event the
Closing occurs and Seller has not received all consents to assignment
required by Section 6.01(g), that said failure shall not affect the
Purchase Price.
ARTICLE 2.
CLOSING
2.01. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") will be no later than December 31, 2000 or such later
date as the Purchaser and Seller may agree in writing (the "Closing Date"), and
take place at the Seller's place of business at 2445 Gateway Drive, Suite 150,
Irving, Texas 75063. At the Closing, the Purchaser shall pay the Purchase Price
to Seller by wire transfer of immediately available funds to an account
identified in writing by the Seller to the Purchaser.
2.02. Deliveries of Seller. At the Closing, Seller shall deliver to the
Purchaser the following:
(a) a Bill of Sale, Assignment and Assumption Agreement;
(b) an officer's certificate of Seller, dated the Closing Date, as to
the material truth and correctness of the representations and warranties of
Seller contained herein;
(c) an officer's certificate of Seller, dated the Closing Date, as to
the material performance of and compliance by Seller with all covenants of
Seller contained herein on and as of the Closing Date; and
(d) a secretary's certificate of Seller, dated the Closing Date, as to
approval of the transactions contemplated by this Agreement by the Board of
Directors of Seller.
2.03. Deliveries of the Purchaser. At the Closing, Purchaser shall deliver
to the Seller the following:
(a) the Purchase Price in immediately available funds;
(b) a Bill of Sale, Assignment and Assumption Agreement;
(c) an officer's certificate of Purchaser, dated the Closing Date, as
to the material truth and correctness of the representations and warranties
of Purchaser contained herein; and
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(d) an officer's certificate of Purchaser, dated the Closing Date, as
to the material performance and compliance by Purchaser with all covenants
of Purchaser contained herein on and as of the Closing date.
2.04. Further Assurances. From time to time after the Closing, and without
further consideration:
(a) The Seller shall execute and deliver such other instruments of
conveyance, assignment, transfer and delivery and take such other actions
as the Purchaser may reasonably request in order to more effectively
Transfer to the Purchaser the rights, properties, and assets of the
Business intended to be Transferred hereunder; and
(b) The Purchaser shall take such actions as the Seller may reasonably
request in order to assure the assumption and payment and discharge of the
Assumed Liabilities by the Purchaser.
2.05. Transfer Taxes. Any taxes arising as a result of the Transfers
contemplated by this Agreement shall be paid by the party hereto that is
responsible for payment under applicable law. Each party shall indemnify the
other from and against any and all such taxes for which the indemnifying party
is so responsible.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Except as set forth in the disclosure schedule attached hereto (the
"Disclosure Schedule") the Seller hereby represents and warrants to the
Purchaser as follows:
3.01. Corporate Existence. The Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the state of Texas and
has full corporate power and authority to conduct its business as it is now
being conducted and to own or lease its properties and assets. The Seller is
duly qualified or licensed to do business as a foreign corporation, and is in
good standing as a foreign corporation, in every jurisdiction in which the
ownership of the Business's property or assets or the conduct of the Business
requires such qualification or license (as set forth on Schedule 3.01), except
where the failure to be so qualified would not have a material adverse affect on
the Business.
3.02. Corporate Power and Authority. The Seller has full corporate power
and authority to enter into this Agreement, perform its obligations hereunder,
Transfer the Transferred Assets and carry out the transactions contemplated
hereby. The execution and delivery of this Agreement, the performance by the
Seller of its obligations hereunder and the consummation of the transactions
contemplated herein have been duly authorized by all corporate, shareholder and
other actions on the part of the Seller required by applicable law, its articles
of incorporation and its by-laws. This Agreement constitutes the legal, valid
and binding obligation of the Seller, enforceable against it in accordance with
its terms, except (a) as the same may be limited by bankruptcy, insolvency
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditor's rights generally and (b) that the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
3.03. No Violation. Neither the execution and delivery of this Agreement
nor the performance by the Seller of its obligations hereunder nor the
consummation of the transactions contemplated hereby will (a) contravene any
provision of the articles of incorporation or by-laws of the Seller; (b) except
for provisions relating to the assignment of contracts, violate, be in conflict
with, constitute a default under, permit the termination of, cause the
acceleration of the maturity of any debt or obligation of the Seller or the
Business hereunder, require the consent of any other party to, constitute a
breach of, create a loss of a material benefit under, or result in the creation
or imposition of any Lien, upon any property or assets of the Business under any
mortgage, indenture, lease, contract, agreement or instrument to which the
Seller or the Business is a party or by which the Seller or the Business, or any
of either of their assets or properties may be bound; (c) to the best of the
Seller's knowledge, violate any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority to which the Seller or
the Business is subject or by which the Seller or Business, or any of either of
their assets or properties are bound; or (d) result in the loss of any material
license, permit, or agreement benefiting the Business.
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3.04. Consents and Approvals of Governmental Authorities. No consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required to be made or obtained by the
Seller or the Business in connection with the execution, delivery or performance
of this Agreement by the Seller.
3.05. SEC Reports; Financial Statements. Seller has filed all required
forms, reports and documents with the Securities and Exchange Commission ("SEC")
pursuant to the Securities Exchange Act of 1934, as amended, since December 31,
1999 (collectively, the "Seller's SEC Reports"). The audited financial
statements of Seller contained, or incorporated by reference, in Seller's Form
10-K for the year ended December 31, 1999, which consists of (i) consolidated
balance sheets as of December 31, 1998 and 1999, (ii) consolidated statements of
income, stockholders' equity and cash flows for each of the three fiscal years
in the period ended December 31, 1999, and (iii) the notes thereto, certified by
PriceWaterhouseCoopers LLP ("Seller's Auditors"), whose report thereon is
included therewith, were prepared in accordance with GAAP and present fairly
Seller's financial condition and the results of its operations as of the
relevant dates thereof and for the periods covered thereby. The unaudited
financial statements of Seller contained in its Quarterly Reports on Form 10-Q
for the quarterly periods ended March 31, 2000 and June 30, 2000, were prepared
in accordance with GAAP and present fairly Seller's financial condition and the
results of its operations as of the relevant dates thereof and for the periods
covered thereby, subject to year-end adjustments.
3.06. Absence of Certain Changes. Except as set forth on Schedule 3.06,
since June 30, 2000, the Seller has conducted the Business in all material
respects in the ordinary course of business and the Business has not:
(a) suffered any material adverse change in its condition, operations,
assets or business;
(b) suffered any damage, destruction or loss materially adversely
affecting its business, operations, assets or condition;
(c) except in the ordinary course of business, canceled or compromised
any material debts, or waived any material claims or rights, or sold,
assigned or transferred any of its properties or assets material to the
Business;
(d) entered into any agreement that calls for the payment or receipt
of more than $10,000.00;
(e) made any change in any method of accounting or accounting
practice; or
(f) entered into any agreement to take any action referred to in this
Section 3.06.
3.07. Title to Properties; Encumbrances. The Seller has good and marketable
title to all of its properties and assets constituting the Transferred Assets.
Except as set forth on Schedule 3.07, none of the Transferred Assets are subject
to any Lien. When used in this Agreement, "Lien" shall mean any mortgage,
pledge, security interest, conditional sale or other title retention agreement,
encumbrance, lien, easement, claim, right, covenant, restriction, right of way,
warrant, option or charge of any kind.
3.08. Patents, Trademarks, Trade Names. Schedule 1.01(e) contains a true
and complete list of (a) all present patents, trademark registrations and
copyright registrations originating out of and owned by and material to the
Business, all applications for registration thereof and all intellectual
property license agreements relating thereto and (b) all material agreements in
existence on today's date relating to technology, know-how or processes that are
necessary to conduct the Business that the Business is licenced or authorized to
use by third parties or licenses or authorizes others to use. No licenses,
sub-licenses or agreements with third parties exist as of today's date that were
entered into by the Business granting rights in such patents, trademarks or
copyrights included in the Transferred Assets, except as described in Schedule
1.01(e). The Seller has the right to use all information and know-how that are
used in the conduct of the Business as currently conducted. Except as set forth
in Schedule 3.08, all items listed on Schedule 1.01(e) are transferred free and
clear of all Liens. The operations of the Business as conducted as of today's
date, to the Seller's knowledge, do not infringe any third-party patents or
trademarks.
3.09. Litigation. Other than as set forth on Schedule 3.09, there are no
actions, claims, proceedings or investigations (collectively "Actions") pending,
or threatened, against the Business or any of its assets,
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properties or rights before any court, arbitrator, mediator or administrative or
governmental body. There is no Action pending, or threatened, against the Seller
or any of its assets, properties or rights before any court, arbitrator,
mediator, or administrative or governmental body that questions or challenges
the validity of this Agreement or any Actions taken or proposed to be taken by
the Seller pursuant to this Agreement.
3.10. Insurance. Schedule 3.10 sets forth a true and complete list of all
policies of liability insurance owned or held by the Seller for the benefit of
the Business. The Seller has not received any notice of cancellation with
respect thereto. All such policies are valid and binding and in full force and
effect as of the date hereof.
3.11. Leases. Schedule 1.01(f) sets forth a true and complete list of all
leases held by or on behalf of the Seller for the benefit of the Business. The
Seller has not received any notice of cancellation, or escalation of rent with
respect thereto. All such leases are valid and binding on Seller, and, to the
best knowledge of Seller, on the other parties thereto.
3.12. Managed Care Agreements. Schedule 1.01(f) sets forth a true and
complete list of all contracts and agreements with managed care groups and
insurance companies held by or on behalf of the Seller for the benefit of the
Business. The Seller has not received any notice of cancellation with respect
thereto. All such contracts and agreements are valid and binding on Seller, and,
to the best knowledge of Seller, on the other parties thereto.
3.13. Contracts and Commitments.
(a) Schedule 3.13 and the technology licenses and agreements set forth
on Schedule 1.01(f), contain a true and complete list of:
(i) All contracts or agreements with distributors, brokers,
manufacturer's representatives, sales representatives, service or
warranty representatives or others engaged in the sale, distribution,
service or repair of the Business's products;
(ii) Any outstanding purchase orders issued by the Business in
excess of $10,000.00, and any outstanding sales order accepted by the
Business in excess of $10,000.00; and
(iii) All joint venture or similar agreements to which the Seller
is a party that provide for the manufacture, marketing, sale or
distribution of any products of the Business.
(b) The Seller has made available to the Purchaser copies of the
Material Agreements and shall deliver true and complete copies of all other
agreements and documents as the Purchaser may reasonably request.
(c) Except for licenses, distributorship agreements and similar
agreements, that by their terms are for specific geographical areas,
neither the Business nor the Seller is a party to any agreement that would
restrict the Business from carrying on its business anywhere in the world.
(d) Each of the Material Agreements that calls for the receipt of
payment of more than $10,000.00 has been entered into in the ordinary
course of business. The business has not received written notice of any
asserted claim of default by the Seller with respect to any of the Material
Contracts that calls for the receipt or payment of more than $10,000.00.
3.14. Suppliers and Customers. Schedule 3.14 contains a true and complete
list of all customers, and those suppliers who bill Seller $10,000 or more
annually, with whom Seller did business during the twenty four (24) month period
ended June 30, 2000. The Seller has no knowledge that any such supplier or
customer expects materially to reduce its business with the Business.
3.15. Employment Law Matters. The Business is in compliance with all laws
and regulations relating to employment practices. The Seller, with respect to
the conduct of the Business, has not received written notice within the last
year that it has not complied with any applicable law relating to the employment
of labor, including any provisions thereof relating to the wages, hours,
collective bargaining, the payment of social security and similar taxes, equal
employment opportunity, employment discrimination and employment safety,
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or that it is liable for any arrearage of wages or any taxes or penalties for
failure to comply with any of the foregoing. If required under the Worker
Adjustment, Retraining and Notification Act or other similar law, the Seller
shall timely file and comply with all notice and other requirements therein or
under such laws.
3.16. Environmental Matters. The Business is in compliance with all
federal, state and local environmental laws and regulations (collectively,
"Environmental Laws"). The Seller has obtained all permits, licenses and other
authorizations that are required under Environmental Laws with respect to the
conduct of the Business and is in compliance in all respects therewith. Set
forth on Schedule 3.16 are all Actions about which the Seller has received
written notice that are pending before any court or governmental agency or,
threatened (a) for noncompliance by the Business with any Environmental Law or
regulation, or (b) relating to the release into the environment by the Business
of any pollutant, toxic, radioactive or hazardous material or waste generated by
the Business, whether or not occurring at or on a site owned, leased, occupied,
or operated by the Business.
3.17. Compliance with Laws. During the previous three (3) years, the
Business has not been charged with, and is not threatened with or under any
investigation with respect to, any charge concerning any violation of any
material federal, state, local or foreign law or regulation affecting the
Business. The Seller is not in default with respect to any order, writ,
injunction or decree of any court, agency or instrumentality issued to or
against the Business.
3.18. Licenses, Permits and Authorizations. The Business has all licenses
and permits (collectively "Permits") required for the Business to conduct its
business as it is now being conducted, the lack of which would have an adverse
affect on the Business. All such Permits are valid and in full force and effect.
Schedule 3.18 contains a true and complete list of all such Permits. There is no
Action pending, or threatened, that disputes the validity of such Permit.
3.19. Equipment; Condition of Tangible Assets. Schedule 1.01(d) contains a
true and complete list of all machinery, equipment, and other tangible personal
property owned by the Business as of June 30, 2000 (broken down by location),
and to be included in the Transferred Assets as of the date hereof (except for
dispositions and acquisitions in the ordinary course of business after June 30,
2000). The Business's tangible assets that are included in the Transferred
assets are in good operating condition given their age and level of
depreciation, normal wear and tear excepted, and are adequate for the use to
which they have been put by the Business.
3.20. Sufficiency of Assets. Except for the Excluded Assets, the
Transferred Assets constitute all property, assets and contractual rights
necessary for the conduct of the Business as currently conducted. The Business
has, as of the date hereof, a normal operating supply of Inventories, equipment
and supplies, sufficient to last at least sixty (60) days of normal operation.
3.21. Tax Returns and Payments. All of the tax returns and reports of the
Seller with respect to the Business required by law to be filed have been duly
filed and all taxes shown as due thereon have been paid (except in instances
where extensions have been filed.) None of the Transferred Assets is subject to
any Lien for taxes that are delinquent or due and payable. The provisions of
this Section 3.21 shall include all reports, returns and payments due under all
federal, state, or local laws or regulations relating to income taxes,
withholding taxes, unemployment insurance, social security, worker's
compensation, sales taxes, use taxes, property taxes, franchise taxes and other
obligations of a similar nature. With respect to the Business, to the Seller's
knowledge, there are no suits, actions, claims, investigations, inquiries or
proceedings now pending against the Seller in respect of taxes or claims for
additional taxes. The Seller has withheld from each payment made to its
employees of the Business the amount of all taxes (including without limitation,
income taxes, payroll taxes and FICA taxes) required to be withheld therefrom
and has paid or made provision for the payment of the same to the proper tax
authorities.
3.22. Broker's and Finder's Fees. Except for its obligations to Hoak,
Breedlove (for which Seller shall be solely responsible and shall indemnify
Purchaser from and against), the Seller is not a party to, nor in any way
obligated to make any payment relating to, any contract for the payment of any
broker's or finder's fee in connection with the origin, negotiation, execution
or performance of this Agreement.
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3.23. Inventories. The Inventories of the Business included in the
Transferred Assets consist of items of a quality and quantity usable and
saleable in the normal course of its business.
3.24. Defaults. The Seller is not in default in any respect under any
contract, agreement or lease material to the Business. To Seller's knowledge, no
other party to any contract or agreement material to the Business to which the
Seller is a party and which relates to the Business is in material default under
or in material breach of any material provision thereof.
3.25. Transactions with Management. Except as set forth on Schedule 3.25,
during the past year, no current director, officer, or employee of the Business
has engaged in any material transaction with the Business except for the receipt
of compensation for services rendered as an employee.
3.26. Accounts Receivable. All accounts receivable shown on the June 30,
2000 balance sheet have, and all accounts receivable acquired by the Seller
subsequent to the date of the June 30, 2000 balance sheet will have, arisen in
the ordinary course of the Business and are net of reserves according to
Seller's accounting practices and policies.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Seller as follows:
4.01. Existence. The Purchaser is a corporation, duly organized, validly
existing and in good standing under the laws of the State of California and has
full corporate power and authority to conduct its business as it is now being
conducted and to own or lease its properties and assets. The Purchaser is duly
qualified or licensed to do business as a foreign corporation, and is in good
standing as a foreign corporation, in every jurisdiction in which the ownership
of the Business's property or assets or the conduct of its business requires
such qualification or license, except where the failure to be so qualified would
not have a material adverse effect on the Purchaser.
4.02. Corporate Power and Authority. The Purchaser has full corporate power
and authority to enter into this Agreement, perform its obligations hereunder,
purchase the Transferred Assets and carry out the transactions contemplated
herein. The execution and delivery of this Agreement, the performance by the
Purchaser of its obligations hereunder and the consummation of the transactions
contemplated herein have been duly authorized by all corporate, shareholder and
other actions on the part of the Purchaser required by applicable law, its
certificate of incorporation and its by-laws. This Agreement constitutes the
legal, valid and binding obligation of the Purchaser, enforceable against it in
accordance with its terms, except (a) as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditor's rights generally and (b) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
4.03. No Violation. Neither the execution and delivery of this Agreement
nor the performance by the Purchaser of its obligations hereunder nor the
consummation of the transactions contemplated hereby will (a) contravene any
provision of the certificate of incorporation or by-laws of the Purchaser; (b)
violate, be in conflict with, constitute a default under, permit the termination
of, cause the acceleration of the maturity of any debt or obligation of the
Purchaser under, require the consent of any other party to, constitute a breach
of, create a loss of a material benefit under, or result in the creation or
imposition of any Lien upon any property or assets of the Purchaser under any
mortgage, indenture, lease, contract, agreement, instrument or commitment to
which the Purchaser is a party or by which the Purchaser, or any of its assets
or properties may be bound; (c) to the Purchaser's knowledge, violate any
statute or law or any judgment, decree, order, regulation or rule of any court
or governmental authority to which the Purchaser is subject or by which the
Purchaser, or any of its assets or properties are bound; (d) result in the loss
of any license, privilege or certificate benefiting the Purchaser; (e) violate
any contract or agreement to which any of the Purchaser's
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directors, officers or shareholders are bound; or (f) violate any stock exchange
or commission rule or regulation.
4.04. Consents and Approvals of Governmental Authorities. No consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required to be made or obtained by the
Purchaser in connection with the execution, delivery or performance of this
Agreement by the Purchaser.
4.05. Litigation. There is no Action pending, or threatened, against the
Purchaser or any of its assets, properties or rights before any court,
arbitrator, mediator, or administrative or governmental body that questions or
challenges the validity of this Agreement or any Actions taken or proposed to be
taken by the Purchaser pursuant to this Agreement.
4.06. Brokers and Finder's Fees. The Purchaser is not a party to, nor in
any way obligated to make any payment relating to, any contract for the payment
of any broker's or finder's fee in connection with the origin, negotiation,
execution or performance of this Agreement. Purchaser shall be solely
responsible for, and shall indemnify Seller from and against, any such payment,
contract or fee.
4.07. Sales Tax. The transactions contemplated by this Agreement are not
subject to Texas sales or use taxes.
ARTICLE 5.
COVENANTS OF SELLER AND PURCHASER
5.01. Books and Records; Access. Unless otherwise consented to in writing
by the Seller, for a period of seven (7) years after the Closing, the Purchaser
shall not destroy, alter or otherwise dispose of any original books or records
of the Business included in the Transferred Assets without first offering to
surrender such books and records to the Seller and shall maintain such books and
records in good condition in a reasonably accessible location. The Purchaser
shall allow the Seller reasonable access during normal business hours to examine
and copy such books and records at Seller's expense.
5.02. Cooperation. The Seller shall use commercially reasonable efforts to
seek the consent of customers to assign customer agreements. The Seller shall
give prompt notice to the Purchaser of any written notice from any third party
alleging that the consent of such third party is or may be required in
connection with the transaction contemplated by this Agreement.
5.03. Non-Compete Covenant. Pursuant to an agreement in the form attached
hereto as Exhibit 5.03, for a period of five (5) years, Seller will not enter
into the Business or a similar business in the markets in which the Business
currently competes.
5.04. Assets. After the Closing, the Seller shall turn over to the
Purchaser any and all Transferred Assets that are in or come into the possession
of the Seller.
5.05. Employees. Purchaser will offer employment to those employees working
in the Business set forth on Schedule 5.05, such employment to be effective as
of the Closing Date, at their current base salary (as of August 31, 2000) and
current commission structure (as of August 31, 2000 with the exception that
Purchaser shall not be liable for commissions relating to sales or service which
occurred prior to the Closing Date) with respect to Seller's current product
lines (excluding the N-Lite(R) product), subject to modification from time to
time consistent with Seller's past practices, and with a commission structure
applicable to the N-Lite(R) product at Purchaser's sole discretion. Such of
Seller's employees who accept employment with Purchaser shall receive full
credit for years of service with Seller for purposes of benefit eligibility
(including, without limitation, for purposes of vacation and severance (with the
further exception that Paul Herchman and Gary Hill shall not receive credit for
years of service with Seller for purposes of severance)) and related
calculations under Purchaser's benefit plans.
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5.06. Assignments and Consents. The Seller shall use all reasonable
commercial efforts, before Closing, to obtain consents to the assignment to the
Purchaser of all the Material Agreements, trademarks and trade names to be
included in the Transferred Assets.
5.07. Shareholders' Meeting. Seller shall call a meeting of its
shareholders to be held as promptly as practicable after the date hereof for the
purpose of voting upon this Agreement and the transactions contemplated hereby
and any other purpose Seller may desire. Seller shall use its best efforts to
file with the SEC its proxy materials relating to such meeting as soon as
practicable following the date of this Agreement, and shall not delay the filing
of such materials as a result of issues or transactions related to Seller's
merger with, or acquisition of or by, another entity. Subject to the fiduciary
duties of its Board of Directors, Seller shall, through its Board of Directors,
recommend to its shareholders approval of this Agreement and the transactions
contemplated hereby and not rescind such recommendation, and Seller shall use
all commercially reasonable efforts to obtain approval and adoption of this
Agreement and the transactions contemplated hereby by its shareholders.
5.08. Amendment of Schedules. Seller may amend the Disclosure Schedule
attached hereto to reflect changes therein as have occurred after (but not
before) the date of this Agreement by providing written notice of such amendment
to Purchaser (the "Schedule Amendment"); provided, however, that Seller may not
amend the following Schedules without the prior written consent of Purchaser:
1.01(e), 1.01(f) (unless such agreements were entered into in the ordinary
course of business), 1.04, 1.05, 3.07, 3.08, 3.13 (unless such agreements were
entered into in the ordinary course of business), 5.05, 6.01(g) and 6.01(h).
Upon delivery of a Schedule Amendment to Purchaser, and, if required by the
foregoing proviso, upon Purchaser's written consent to such Schedule Amendment,
this Agreement shall be amended to include such Schedule Amendment.
5.09. Reports to Seller. For purposes of Seller's calculation of
commissions due its employees, Purchaser shall on a monthly basis, no later than
the tenth (10th) calendar day following the end of such month, provide Seller
with a report of the accounts receivable collected in such month which relate to
sales made by Seller's employees prior to the Closing Date. Such obligation
shall end upon the second anniversary of the Closing Date.
ARTICLE 6.
CONDITIONS TO OBLIGATIONS
6.01. Conditions to Purchaser's Obligations. Each and every obligation of
the Purchaser under this Agreement to be performed on or before the Closing Date
shall be subject to the satisfaction, on or before the Closing Date, of each of
the following conditions.
(a) Representations and Warranties True. The representations and
warranties of the Seller contained in this Agreement shall be true and
accurate in all material respects as of the Closing Date with the same
effect as if made on and as of the Closing Date.
(b) Performance. The Seller shall have performed and complied with all
material agreements, obligations, covenants and conditions required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date.
(c) No Material Adverse Changes. No portion of the Transferred Assets
shall have been damaged, destroyed or taken by condemnation to such an
extent that the substantial operation of the Business cannot continue. The
Business shall not have suffered or become subject to changes of any kind
or nature that either individually or in the aggregate materially adversely
affect the ability of the Business to continue its business taken as a
whole.
(d) Transfer Instruments. The Seller shall have delivered to the
Purchaser all documents, duly executed, referred to in Section 2.02 of this
Agreement.
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(e) Proceedings. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement, and all documents
incident thereto, shall be in form and substance reasonably satisfactory to
the Purchaser and its counsel and the Purchaser and its counsel shall have
received all such originals or certified copies of such copies of such
documents as it may reasonably request.
(f) Absence of Litigation. There shall be no Action pending or
threatened that seeks to invalidate or set aside, in whole or in part, this
Agreement; to restrain, prohibit, invalidate, or set aside, in whole or in
part, the consummation of the transactions contemplated hereby; or to
obtain damages in connection therewith.
(g) Assignments. The Seller shall have obtained consents to the
assignment to the Purchaser of those Material Agreements, trademarks and
trade names to be included in the Transferred Assets set forth on Schedule
6.01(g).
(h) Employment of Seller's Employees. Purchaser shall have
successfully negotiated and agreed on terms and conditions of employment
with (a) those key employees listed on Schedule 6.01(h), and (b) no less
than 90% of Seller's District Managers, 70% of Seller's District Sales
Representatives, and 50% of the remainder of Seller's field personnel;
provided that the key employees listed on Schedule 6.01(h) shall be
included in the calculation of the percentages in this Section 6.01(h).
(i) Shareholder Approval. The shareholders of Seller shall have, in
accordance with applicable law and the articles of incorporation and
by-laws of Seller, approved this Agreement and the transactions
contemplated hereby.
6.02. Conditions to Seller's Obligations. Each and every obligation of the
Seller under this Agreement to be performed on or before the Closing Date shall
be subject to the satisfaction, on or before the Closing Date, of each of the
following conditions.
(a) Representations and Warranties True. The representations and
warranties of the Purchaser contained in this Agreement shall be true and
accurate in all material respects as of the Closing Date with the same
effect as if made on and as of the Closing Date.
(b) Performance. The Purchaser shall have performed and complied with
all material agreements, obligations, covenants and conditions required by
this Agreement to be performed or complied with by it on or prior to the
Closing Date.
(c) Proceedings. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement, and all documents
incident thereto, shall be in form and substance reasonably satisfactory to
the Seller and its counsel and the Seller and its counsel shall have
received all such originals or certified copies of such copies of such
documents as it may reasonably request.
(d) Absence of Litigation. There shall be no Action pending or
threatened that seeks to invalidate or set aside, in whole or in part, this
Agreement; to restrain, prohibit, invalidate, or set aside, in whole or in
part, the consummation of the transactions contemplated hereby; or to
obtain damages in connection therewith.
(e) Transfer Instruments and Other Items. The Purchaser shall have
delivered to the Seller all documents, duly executed, and other items
referred to in Section 2.03 of this Agreement.
(f) Consent to Assignments. The lessors of Sellers facilities located
at 2445 Gateway Drive, Suite 150, Irving, Texas 75063 and 3242 Skyway
Circle North, Irving, Texas 75038 shall have consented to the assignment of
the leases covering such facilities; or Purchaser shall have agreed to
sublease such facilities from Purchaser according to the same terms Seller
currently leases such facilities, and such sublease is permitted under the
applicable lease.
(g) Shareholder Approval. The shareholders of Seller shall have, in
accordance with applicable law and the articles of incorporation and
by-laws of Seller, approved this Agreement and the transactions
contemplated hereby. Provided however that Seller shall have complied with
its obligations set forth in Section 5.07 hereof.
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ARTICLE 7.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
7.01. Survival of Representations and Warranties. Notwithstanding the
making of this Agreement, any examination made by or on behalf of the parties
hereto and the Closing hereunder, the representations and warranties of the
Seller contained in this Agreement or in any agreement or document delivered in
connection with the transactions contemplated by this Agreement shall survive
the Closing as follows:
(a) Claims for breach of any representation or warranty relating to
title to the Transferred Assets or products liability matters shall survive
this Agreement indefinitely, and there shall be no time limit within which
to bring a claim;
(b) Claims for breach of any representation or warranty relating to
the payment taxes, or compliance with tax laws, whether federal, state, or
local, shall survive the Closing for the relevant statute(s) of limitations
plus three months; and
(c) Claims for breach of any other representation or warranty not set
forth in Section 7.01 subsections (a) and (b) shall survive the Closing for
a period of 18 months.
7.02. Indemnification. Subject to Section 7.01 above, from and after the
Closing, the Seller and the Purchaser each shall indemnify and save harmless,
the party seeking indemnification and its officers, directors, employees and
advisers (the "Indemnified Party") from and against any loss, claim, liability,
expense (including reasonable attorney's fees) or other damage of any kind or
nature (collectively the "Damages") caused the Indemnified Party by or arising
out of (a) the failure by the party against which indemnification is sought (the
"Indemnifying Party") to perform any covenant or agreement required to be
performed by it in this Agreement or in any agreement or document delivered in
connection with the transactions contemplated by this Agreement; (b) any breach
of warranty or misrepresentation in this Agreement or in any agreement or
document delivered in connection with the transactions contemplated by this
Agreement; or (c) failure of either party to fulfill its obligation regarding
liability as apportioned in Section 1.02 above. The Indemnified Party shall
notify the Indemnifying Party in writing, within the limitations period as set
forth in Section 7.01 above, and in accordance with Section 8.04 below.
7.03. Conditions of Indemnification. The respective obligations and
liabilities of Seller and Purchaser (the "Indemnifying Party") to the
Indemnified Party under Section 7.02 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
pleadings, the Indemnified Party shall give the Indemnifying Party written
notice thereof together with a copy of such claim, process or other legal
pleadings, and the Indemnifying Party shall have the right to undertake the
defense thereof by representatives of its own choosing (reasonably
acceptable to the Indemnified Party) (Purchaser and Seller hereby agree
that each of Jackson & Walker L.L.P. and Kane, Russell, Coleman & Logan,
P.C., is an acceptable legal representative) and at its own expense;
provided that the Indemnified Part may participate in the defense with
counsel of its own choice, the fees and expenses of which counsel shall be
paid by the Indemnified Party 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 Indemnified Party and the Indemnified Party 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 Indemnified Party 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
Indemnified party, 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
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and expenses of more than one separate firm of attorneys (and appropriate
local counsel) at any time for the Indemnified Party, which firm shall be
designated in writing by the Indemnified Party).
(b) Notwithstanding the foregoing, the Indemnifying Party shall not
settle any claim without the consent of the Indemnified Party unless such
settlement involves only the payment of money and the claimant provides to
the Indemnified Party 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 Indemnified Party.
(c) Notwithstanding any other provision of this Agreement to the
contrary, (i) the Purchaser shall be entitled to indemnification only for
those Damages in excess of $100,000 in the aggregate (it being agreed that
Purchaser shall bear the first $100,000 of Damages), and (ii) in no event
shall the Seller be liable under or with respect to this Agreement for any
Damages or any portion of any Damages in excess of $7,200,000 in the
aggregate.
ARTICLE 8.
MISCELLANEOUS PROVISIONS
8.01. Public Announcements. Except as the other party hereto shall
authorize in writing or as required by law, including without limitation,
applicable securities laws, the parties hereto shall not, and shall cause their
respective officers, directors, employees, affiliates and advisors not to
disclose any matter or matters relating to this transaction to any person not an
officer, director, employee, affiliate or advisor of such party. The Purchaser
and Seller shall discuss, and offer input regarding the content of any statement
or communication to the government (but not to the public or the press, to which
statements and communications must be approved by both the Purchaser and the
Seller), prior to issuing any such statement or communication regarding the
transactions contemplated by this Agreement.
8.02. Amendment; Waiver. Neither this Agreement, nor any of the terms or
provisions hereof, may be amended, modified, supplemented or waived, except by a
written instrument signed by the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof, nor shall such waiver constitute a continuing waiver. No
failure of either party to insist upon strict compliance by the other party with
any obligation, covenant, agreement or condition contained in this Agreement
shall operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
8.03. Fees and Expenses. Each of the parties shall bear and pay its own
costs and expenses incurred in connection with the origin, preparation,
negotiation, execution and delivery of this Agreement and the agreements,
instruments, documents and transactions referred to in or contemplated by this
Agreement including, without limitation, any fees, expenses or commissions of
any of its advisors, agents, finders or brokers. The Purchaser shall indemnify
the Seller against any claims of third parties of any brokerage, finder's
agent's or similar fees or commissions in connection with the transactions
contemplated hereby insofar as such claims are alleged to be based on
arrangements or contacts made by, to or with the Purchaser or its respective
advisors or representatives. The Seller shall indemnify the Purchaser against
all such claims insofar as they are alleged to be based on arrangements or
contacts made by, to or with the Seller or its advisors or representatives.
Notwithstanding the above, Purchaser shall at the Closing reimburse Seller for
the costs of holding the shareholders' meeting discussed in Section 5.07 above
(but not to exceed $50,000 in the aggregate).
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8.04. Notices. All notices and other communications required or permitted
under this Agreement shall be in writing and mailed by certified mail, faxed
with a copy by certified mail or delivered by courier with signature required
for delivery:
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(a) If to Seller prior to Closing, Medical Alliance, Inc.
to: 2445 Gateway Drive, Suite 150
Dallas, Texas 75063
Fax No. (972) 550-7330
Attn: Chief Executive Officer
with a copy to: Richard F. Dahlson
Jackson Walker L.L.P.
901 Main Street, Ste. 6000
Dallas, Texas 75202
Fax No. (214) 953-6137
(b) If to Seller after Closing, to: Richard F. Dahlson
Jackson Walker L.L.P.
901 Main Street, Ste. 6000
Dallas, Texas 75202
Fax No. (214) 953-6137
(c) If to the Purchaser, to: ICN Pharmaceuticals California, Inc.
c/o ICN Pharmaceuticals, Inc.
3300 Hyland Avenue
Costa Mesa, California 92626
Fax No. (714) 641-7274
Attention: General Counsel
</TABLE>
All notices that are addressed as provided in this Section 8.04, (a) if
delivered personally against proper receipt or by fax with copy by certified
mail shall be effective upon delivery, and (b) if delivered by certified by
registered mail with postage prepaid or by Federal Express or similar Courier
service with courier fees paid by the sender shall be effective upon receipt.
8.05. Assignment. This Agreement and all of the provisions hereof shall be
binding and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Purchaser may assign any or all of the rights,
interests or obligations hereunder to an affiliated entity without the prior
written consent Seller, however any such assignment by Seller shall require the
prior written consent of Purchaser. Any assignment that is in violation of this
Section 8.05 shall be void ab initio.
8.06. Governing Law. This Agreement shall be governed by the internal laws
of the State of Texas without regard to or effect of the conflicts of laws
provisions thereof.
8.07. Severability. The parties agree that each of the provisions of this
Agreement shall stand on its own, and in the event any portion of the Agreement
is deemed invalid, unlawful, or unenforceable, the remainder of the Agreement
shall remain in full force and effect, as though the invalid, unlawful, or
unenforceable provision or provisions were originally omitted.
8.08. Entire Agreement. This Agreement constitutes the entire understanding
of the parties with respect to its subject matter.
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IN WITNESS WHEREOF, the parties have executed this Agreement, effective as
of the date first set forth above.
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MEDICAL ALLIANCE, INC. ICN PHARMACEUTICALS CALIFORNIA INC.
By: /s/ MARK TAYLOR
By: /s/ PAUL HERCHMAN -----------------------------------------------------
Mark Taylor
----------------------------------------------------- Attorney-in-Fact
Paul Herchman
Chief Executive Officer
</TABLE>
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APPENDIX B
CONFIDENTIAL
October 3, 2000
Board of Directors
Medical Alliance, Inc.
2445 Gateway Drive, Suite 150
Irving, Texas 75063
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to Medical Alliance, Inc. ("MAI" or the "Company") of the consideration
to be received pursuant to the terms and subject to the conditions set forth in
the asset purchase agreement dated September 18, 2000 (the "Agreement"), between
ICN Pharmaceuticals, Inc. ("ICN") and MAI. As more fully described in the
Agreement, MAI will sell to ICN, with limited exceptions, all of its rights,
titles, interests, properties, assets and liabilities in the business of MAI
including, but not limited to, all inventories, supplies, printed materials,
prepaid expenses, fixtures, furniture, machinery, equipment, patents,
inventions, contracts, permits, licenses, books, records, and vehicles
(collectively, the "Medical Business") for consideration of $14.4 million in
cash (the "Asset Sale").
In arriving at our opinion, we reviewed the Agreement and held discussions
with certain senior officers, directors and other representatives of MAI
concerning the operations and prospects of the Medical Business. We examined
certain available business and financial information relating to the Medical
Business as well as certain financial forecasts and other information and data
for the Medical Business which were provided to or otherwise discussed with us
by the management of MAI. We reviewed the financial terms of the Agreement in
relation to, among other things, the historical and projected earnings and other
operating data of the Medical Business and the financial condition of the
Medical Business and the reported prices and trading activity of the Company's
stock. We considered, to the extent publicly available, the financial terms of
certain other transactions recently effected which we considered relevant in
evaluating the Asset Sale and certain financial, stock market and other publicly
available information relating to the businesses of other companies whose
operations we considered relevant in evaluating those of the Medical Business.
In connection with our engagement, we approached approximately 80 third parties
to solicit indications of interest in the acquisition the Medical Business, and
approximately 27 third parties received confidential information regarding the
Medical Business.
We have relied upon the accuracy and completeness of all of the financial
and other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In addition,
we have not made an independent evaluation or appraisal of the assets and
liabilities of the Company or any of its subsidiaries and we have not been
furnished with any such evaluation or appraisal. We have not been requested to
evaluate, and have not evaluated, the potential tax or other financial impact of
the Asset Sale on MAI or the redeployment of all or any part of the cash
consideration received by MAI from the Asset Sale.
We have acted as financial advisors to MAI in connection with the Asset
Sale and will receive a fee contingent upon the consummation of the Asset Sale.
We also will receive a fee upon the delivery of this opinion. In the ordinary
course of business, Hoak Breedlove Wesneski & Co. and its affiliates may
actively trade the equity securities of the Company for their own accounts and
for the accounts of customers and, accordingly, may at any time hold long or
short positions in such securities.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of MAI, and our opinion is not intended to
be and does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed Asset Sale. Our opinion may not be
published or otherwise used or referred to, nor shall any public reference to
Hoak Breedlove Wesneski & Co.
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Board of Directors
Medical Alliance, Inc.
October 3, 2000
Page Two
be made, without our prior written consent, except that this letter may be
disclosed in connection with any proxy statement used in connection with the
Asset Sale.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof $14.4 million in cash to be received by MAI from the Asset Sale is
fair from a financial point of view to the Company.
Very truly yours,
HOAK BREEDLOVE WESNESKI & CO.
By: /s/ ALAN K. PIERCE
----------------------------------
Alan K. Pierce, Vice President
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AUDIT COMMITTEE CHARTER
The Board of Directors (the "Board") of Medical Alliance, Inc., a Texas
corporation (the "Company"), approves and adopts the following Audit Committee
Charter to specify the composition, roles and responsibilities of the Audit
Committee. As used in this Charter, (i) "Company" includes the Company and its
subsidiaries unless the context otherwise requires, (ii) "Nasdaq" means the
Nasdaq National Market and (iii) "SEC" means the Securities and Exchange
Commission.
PURPOSE
The function of the Audit Committee is to assist the Board in fulfilling
its oversight responsibilities with respect to the accounting, financial
reporting and related matters described below.
COMPOSITION
The Audit Committee shall consist of not less than three members, comprised
solely of independent directors, each of whom shall not have:
- been employed by the Company or its affiliates in the current or past
three years;
- accepted any compensation from the Company or its affiliates in excess of
$60,000 during the previous fiscal year, except for board service,
retirement plan benefits or non-discretionary compensation;
- an immediate family member who is, or has been in the past three years,
employed by the Company or its affiliates as an executive officer;
- been a partner, controlling shareholder or an executive officer of any
for-profit business to which the Company made, or from which it received,
payments, other than those which arise solely from investments in the
Company's securities, that exceed five percent of the Company's
consolidated gross revenues for that year, or $200,000, whichever is
more, in any of the past three years; or
- been employed as an executive of another entity where any of the
Company's executives serve on such entity's compensation committee.
[Nasdaq 4200(a)(14)]
In addition, each member of the Audit Committee shall be able to read and
understand fundamental financial statements, including the Company's balance
sheet, income statement and cash flow statement, or will become able to do so
within a reasonable period of time after his or her appointment to the Audit
Committee. Moreover, at least one member of the Audit Committee shall have past
employment experience in finance or accounting, requisite professional
certification in accounting or any comparable experience or background which
results in financial sophistication, including being or having been a chief
executive officer, chief financial officer or other senior officer with
financial oversight responsibilities. [Nasdaq 4310(c)(26)(B)(i)] The
qualifications required of Audit Committee members shall be interpreted in
conformity with Rules 4200(a)(14) and 4310(c)(26)(B) of the Nasdaq Marketplace
Rules.
The Chairman of the Audit Committee shall be designated by the Board;
provided that if a Chairman is not designated by the Board or present at a
meeting, the Audit Committee may designate a Chairman by majority vote of the
Audit Committee members then in office.
ROLES AND RESPONSIBILITIES
Relationship with the Outside Auditors
The Company's outside auditors are ultimately responsible to the Board and
the Audit Committee, as representatives of the Company's shareholders. [Nasdaq
4310(c)(26)(A)(iii)]
The Board and the Audit Committee, as the Company's shareholders
representatives, have the ultimate authority and responsibility to select,
evaluate and, where appropriate, replace the outside auditors (or to nominate
the outside auditors to be proposed for shareholder approval in any proxy
statement). [Nasdaq 4310(c)(26)(A)(ii) and (iii)] The Audit Committee also has
the authority and responsibility to evaluate
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and make recommendations to the Board regarding the selection and replacement of
outside auditors (or the nomination of the outside auditors to be proposed for
stockholder approval in any proxy statement). [Nasdaq 4310(c)(26)(A)(ii) and
(iii)]
The Audit Committee has the further authority and responsibility to review
the fees charged by the outside auditors, the scope of their engagement and
proposed audit approach and to recommend such review or auditing steps as the
Audit Committee may consider desirable.
The Audit Committee shall review and confirm the independence of the
outside auditors by requiring that the outside auditors submit to the Audit
Committee on a periodic basis a formal written statement delineating all
relationships between the outside auditors and its related entities and the
Company and its related entities, engaging in a dialogue with the outside
auditors with respect to any disclosed relationships or services that may impact
their objectivity and independence and taking, or recommending, that the Board
take appropriate action to oversee the independence of the outside auditors.
[Nasdaq 4310(c)(26)(A)(ii)] In addition to disclosing all relationships between
the outside auditors and its affiliates and the Company and its affiliates, the
outside auditors' formal written statement shall also contain a confirmation
that, in the outside auditors' professional judgment, it is independent of the
Company within the meaning of the federal securities laws. [Nasdaq
4310(c)(26)(A)(ii) and Independence Standards Board Standard No. 1]
Management is responsible for preparing the Company's financial statements.
The Company's outside auditors are responsible for auditing the financial
statements. The activities of the Audit Committee are in no way designed to
supersede or alter these traditional responsibilities.
Internal Controls
In consultation with management and the outside auditors, the Audit
Committee shall consider the Company's significant financial risk exposures and
the steps management has taken to monitor, control and report such exposures.
The Audit Committee shall consider the extent to which internal control
recommendations made by outside auditors have been implemented by management.
The Audit Committee shall request that the outside auditors keep the Audit
Committee informed about fraud, illegal acts and deficiencies in internal
controls that come to their attention and such other matters as the outside
auditors conclude should be brought to the attention of the Audit Committee.
Financial Reporting
General
The Audit Committee shall review with management and the outside auditors
significant accounting and reporting issues applicable to the Company, including
recent professional and regulatory pronouncements, and their impact on the
financial statements.
Annual Financial Statements
The Audit Committee shall meet with management and the outside auditors to
review the annual financial statements and the results of the annual audit prior
to the release to the public of the results of operations for each fiscal year.
[SEC SK sec. 306(a)(1)]
The Audit Committee shall review the annual financial statements prior to
release to the public or filing with the SEC. [SEC SK sec. 306(a)(1)]
The Audit Committee shall consider management's handling of proposed audit
adjustments identified by the outside auditors.
The Audit Committee shall discuss with management and the outside auditors
any significant changes to the Company's accounting principles, the degree of
aggressiveness or conservatism of the accounting principles and underlying
estimates used in the preparation of the Company's financial statements, and any
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items required to be communicated by the outside auditors in accordance with
Statement of Auditing Standards ("SAS") No. 61. [SEC SK sec. 306(a)(2) and note
29 to SEC Release 34-42266]
Based on the review and discussions with management and outside auditors
contemplated by this Charter, the Audit Committee shall recommend to the Board
whether the audited annual financial statements be included in the Company's
Form 10-K Annual Report. [SEC SK sec. 306(b)(4)]
Interim Financial Statements
The Audit Committee shall meet with management and the outside auditors to
review the interim financial statements and the results of the auditors' review
thereof prior to the release to the public of the results for each quarter.
The Audit Committee shall review the quarterly financial statements prior
to release to the public or filing with the SEC.
Compliance with Laws and Regulations
The Audit Committee shall review the effectiveness of the system for
monitoring compliance with laws and regulations and the results of management's
investigation of and follow-up (including disciplinary action) on any fraudulent
acts or accounting irregularities.
Compliance with Codes of Conduct
The Audit Committee shall review the program for monitoring compliance with
the codes of conduct.
Other Responsibilities
The Audit Committee may meet with the outside auditors, management and any
employee seeking to meet with the Audit Committee about any matter within its
purview in separate executive sessions to discuss any matters that the Committee
or these persons believe should be discussed privately.
The Audit Committee shall review, with the Company's counsel, any legal
matters that could have a significant impact on the Company's financial
statements.
The Audit Committee shall perform other oversight functions as requested by
the Board.
Charter Scope
The Audit Committee shall review and reassess the adequacy of this Charter
at least annually. [Nasdaq 4310(c)(26)(A)]
The Audit Committee shall submit this Charter to the Board for approval,
and have the Charter published at least every three years in accordance with the
rules of the SEC from time to time in effect. [SEC Schedule 14A Item
7(e)(iv)(A)]
Reporting Responsibilities
The Audit Committee shall regularly update the Board about Audit Committee
activities and make appropriate recommendations.
The Audit Committee shall annually prepare a report to stockholders as
required by SEC rules for inclusion in the Company's proxy statement. [SEC SK
sec. 306; SEC Schedule 14A Item 7(e)(3)]
MEETINGS
The Audit Committee shall meet at least four times annually and may meet
more frequently as circumstances dictate.
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Meetings of the Audit Committee may be in person or by conference call in
accordance with the Bylaws of the Company.
Meetings of the Audit Committee shall be held at such time and place, and
upon such notice, as the Chairman of the Audit Committee may from time to time
determine.
The Chairman of the Audit Committee shall develop the agenda for each
meeting and in doing so may consult with management and the outside auditors.
Except as specifically provided in this Charter, the provisions of the
Bylaws of the Company with respect to committees of the Board shall apply to the
Audit Committee.
AUTHORITY
The Audit Committee shall have the authority to conduct any investigation
appropriate to fulfilling its responsibilities and shall have direct access to
the outside auditors as well as anyone in the Company.
The Audit Committee shall have the ability to retain, at the Company's
expense, such special legal, accounting or other consultants or experts it deems
necessary in the performance of its duties.
The Audit Committee may from time to time delegate to its Chairman or any
of its members the responsibility for any particular matters.
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MEDICAL ALLIANCE, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 7, 2000
PROXY
The undersigned hereby appoints Paul R. Herchman and Mark A. Novy,
jointly and severally, proxies, with full power of substitution and with
discretionary authority, to vote all shares of Common Stock that the undersigned
is entitled to vote at the Annual Meeting of Shareholders of Medical Alliance,
Inc. ("Medical Alliance") to held on December 7, 2000, at the
_____________________________________, at 10:00 a.m., or at any adjournment
thereof, hereby revoking any proxy heretofore given.
The proxy, when properly executed, will be voted in the manner directed
herein, and in the absence of specific directions to the contrary, this proxy
will be voted (i) FOR the approval of transactions contemplated by the Asset
Purchase Agreement, including the sale of substantially all of the assets of
Medical Alliance's medical business to ICN for $14.4 million in cash and the
assumption of certain liabilities, (ii) FOR the approval of the amendment to
Medical Alliance's articles of incorporation to change of the name of Medical
Alliance to MAII Holdings, Inc., (iii) FOR the election of the three nominees
for director, (iv) in the discretion of the proxyholders on any other matters
that may properly come before the meeting and any adjournments thereof. Each of
the foregoing are proposals of Medical Alliance.
The undersigned hereby acknowledges receipt of the Notice of, and Proxy
Statement for, the aforesaid Annual Meeting.
(change of address)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
------------------------------------------- (if you have written in the above
space, please mark the corresponding box on the reverse side of this card)
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
o FOLD AND DETACH HERE o
<PAGE> 56
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE. PLEASE MARK FOR EACH
DIRECTOR NOMINEE. YOUR VOTES AS [X] INDICATED IN THIS EXAMPLE.
(1) Approval of the Asset Purchase Agreement
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(2) Approval of Medical Alliance Name Change
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(3) Election as Directors of the two nominees listed below (except as indicated
to the contrary below)
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FOR all WITHHOLD AUTHORITY INSTRUCTION: To withhold authority to vote for any individual nominee, check the
nominees to vote on one or more Withhold box and write the nominee's name on the space provided opposite his name.
listed to nominees listed to the Gary Hill, Leon Pritzker and Richard Dahlson
the right right, but vote FOR
the remaining nominees
[ ] [ ]
</TABLE>
(4) With discretionary authority as to such other matters as may properly come
before the Annual Meeting.
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CHANGE
OF [ ]
ADDRESS
SIGNATURE SIGNATURE DATE
-------------------------------------------- ------------------------------------ ------------------
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
</TABLE>
o FOLD AND DETACH HERE o
