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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13009
MEDICAL RESOURCES MANAGEMENT, INC.
(Name of small business issuer as specified in its charter)
NEVADA 95-4607643
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
932 GRAND CENTRAL AVENUE GLENDALE, CALIFORNIA 91201
(Address of principal executive offices) (Zip Code)
(818) 240-8250
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Common Stock,
Section 12(g) of the Exchange Act: par value $.001 per share
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The Registrant's revenues for the fiscal year ended October 31, 1997 were
$8,105,140.
As of January 30, 1998, the aggregate market value of the voting stock held
by non-affiliates of the Registrant (based upon the average of the closing
bid and asked prices on such date) was approximately $2,096,000.
Documents incorporated by reference: Certain responses to Part III are
incorporated herein by reference to information contained in the Registrant's
definitive proxy statement for its 1998 Annual Meeting of Stockholders as filed
with the Securities and Exchange Commission on or before February 28, 1998.
Exhibits index page number: 19
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PART I
FORWARD-LOOKING STATEMENTS
This Report on Form 10-KSB includes certain statements that may be deemed
to be "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The sections of this Report on
Form 10-KSB containing such forward-looking statements include "Description
of Business," "Historical Background," "Growth," "Acquisitions," "Products
and Services," "Marketing and Sales," "Markets" and "Competition" under Item
1 below, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" under Item 2 below. Statements in this Form 10-KSB
which address activities, events or developments that the registrant expects
or anticipates will or may occur in the future, including such topics as
future issuances of shares, future capital expenditures (including the amount
and nature thereof), expansion and other development and technological trends
of industry segments in which the registrant is active, business strategy,
expansion and growth of the registrant's and its competitors' business and
operations and other such matters are forward-looking statements. Although
the registrant believes the expectations expressed in such forward-looking
statements are based on reasonable assumptions within the bounds of its
knowledge of its business, a number of factors could cause actual results to
differ materially from those expressed in any forward-looking statements,
whether oral or written, made by or on behalf of the registrant.
The registrant's operations are subject to factors outside its control.
Any one, or a combination, of these factors could materially affect the
results of the registrant's operations. These factors include: (a) changes
in levels of competition from current competitors and potential new
competition; (b) loss of a significant customer; and (c) changes in
availability or terms of working capital financing from vendors and lending
institutions. The foregoing should not be construed as an exhaustive list of
all factors that could cause actual results to differ materially from those
expressed in forward-looking statements made by the registrant.
Forward-looking statements made by or on behalf of the registrant are based
on a knowledge of its business and the environment in which it operates, but
because of the factors listed above, actual results may differ from those
anticipated results described in these forward-looking statements.
Consequently, all of the forward-looking statements made are qualified by
these cautionary statements and there can be no assurance that the actual
results or developments anticipated by the registrant will be realized or,
even if substantially realized, that they will have the expected consequences
to or effects on the registrant or its business or operations.
ITEM 1. DESCRIPTION OF BUSINESS
Medical Resources Management, Inc. ("MRM" or the "Company") makes mobile
laser/surgical services available to its customers by providing this
equipment on a per procedure basis to hospitals, out patient surgery centers,
and physicians' offices. MRM provides these mobile lasers with technical
support to ensure the lasers are working correctly for the physicians. The
Company also provides other medical equipment on a rental basis to hospitals
and surgery centers. This equipment is used throughout such facilities to
supplement their requirement for certain medical equipment. The combination
of mobile laser/surgical services and medical equipment rental illustrates
the overall strategy and focus on diversification of the Company.
2
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MRM's laser/surgical services have appeal for two of the most rapidly
growing areas of the health care industry: managed care and cosmetic surgery.
For managed care, minimally invasive procedures can be performed by
physicians at hospitals that find the investment in the latest laser surgery
equipment and trained technicians to be uneconomical. For cosmetic surgery,
the physicians benefit from having a multitude of different laser
technologies available to offer to their patients without the burden of
investing a significant amount of money. In both instances, physicians and
hospitals receive technical support and expertise which is provided with the
equipment, which allows the staff to focus on their duties without the
additional tasks of running a laser.
The Company believes it enjoys an advantage that the small competitor
cannot match due to the quantity and variety of its laser equipment, its
highly trained technicians, and the training courses it provides for
technicians and health care professionals. The Company has approximately 600
active accounts in California, Arizona, Utah, Colorado and Nevada and
experiences a higher than 90% rate of repeat business from the hospitals,
surgery centers and doctors that it serves. The market encompasses many
disciplines including plastic/cosmetic surgery, dermatology, orthopedic
surgery, otolaryngology, urology, obstetrics, gynecology, ophthalmology,
general surgery, podiatry and dentistry. Equipment is becoming more
specialized to the medical procedures involved, and technical training of the
physician, regarding the use of equipment, is a significant part of MRM's
business.
MRM is the successor entity pursuant to a reorganization which occurred on
July 31, 1996 between Physiologic Reps, Inc. ("PRI"), which has been active
in this business since 1973, and Kendall Management Corporation, a public
company which previously was inactive. PRI continues as a wholly owned
subsidiary of MRM. THROUGHOUT THIS DOCUMENT "MRM" IS USED TO REFER TO MRM
AND ITS WHOLLY OWNED SUBSIDIARIES, INCLUDING PRI, EVEN IN HISTORICAL CONTEXT.
The Company is headquartered at 932 Grand Central Ave., Glendale,
California. See "Reorganization" and "Acquisitions."
HISTORICAL BACKGROUND
MRM's largest wholly owned operating subsidiary, PRI, was incorporated in
California in 1973 and moved to its present headquarters building in 1994,
located in Glendale, California. The Company also has sales and service
offices in Stockton, CA, Dublin, CA and Phoenix, AZ. PRI produced
approximately 83% of the consolidated revenues of MRM during the year ended
October 31, 1997.
MRM entered the hospital equipment rental market in 1974, the mobile
laser/surgical services market in 1987, cosmetic skin resurfacing in 1994 and
leg vein treatment and tattoo removal in 1997. The Company began to expand
its mobile laser/surgical services to the doctors' offices and their clinics
in 1995. This business is complementary to the existing laser/surgical
services MRM has provided to hospitals. In 1997, the Company made the
decision to expand its cosmetic services to include specialized lasers for
treatment of vascular lesions, pigmented lesions and tattoo removal.
Additionally, the Company has acquired new laser technology to assist in the
removal of leg veins and continues to evaluate lasers for the removal of
unwanted hair.
3
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During the past few years, revenue from the Company's mobile
laser/surgical services business has greatly exceeded the medical equipment
rental business. However, MRM has a large array of general medical equipment
which it rents, primarily to hospitals, and has acquired substantial
additional general medical equipment during fiscal 1997. The Company's
inventory of medical equipment includes an extensive variety of medical
devices, serving a broad range of hospital departments or needs. This wide
array of medical rental equipment, delivered to customers on very short
notice, was the Company's primary business until about 1987, when the Company
developed the mobile surgical laser business. During fiscal 1997, the
Company began to renew its emphasis on the rental of general medical
equipment.
GROWTH
Since its inception, MRM has focused on providing rental and other
services to its clients on an as needed basis. As a result, the Company has
established long-term relationships with a number of physicians, hospitals
and other medical care providers. The Company's management believes that
such relationships provide an opportunity to introduce additional products to
these customers by expanding MRM's product lines beyond laser/surgical
services and medical equipment rentals. This strategy could also have a
beneficial effect when coupled with the growth strategy of MRM through
acquisition of similar companies. See "Acquisitions."
MRM's strategic plan is to acquire other companies in the medical services
and equipment rental business to take advantage of current opportunities in
the market place. Opportunities for growth are created because a wider range
of new surgical laser equipment is coming to market with features oriented
toward a wider variety of medical specialties. Surgical laser procedures are
also becoming more popular with the public. This increased popularity is
increasing the number of surgical laser procedures performed. Another factor
favoring growth of surgical laser rentals by hospitals is the effort by
managed care to reduce costs through less invasive procedures. The managed
care effort has also reduced funds available for investment in new equipment
and training. Part of MRM's business strategy is to take advantage of
hospitals' decreased ability to invest in capital equipment, as well as the
synergy between mobile laser/surgical services and medical equipment rental,
to increase revenue and reduce costs.
ACQUISITIONS
On March 31 1997, the Company acquired 100% of the issued and outstanding
capital stock of Pulse Medical Products, Inc. ("Pulse"), headquartered in
Boise, ID, in exchange for 325,000 shares of its own common stock. As a
result, Pulse became a wholly owned subsidiary of MRM.
Pulse rents medical equipment and sells related equipment and supplies.
Pulse conducts its business in Idaho, Montana, Utah, Colorado, Minnesota and
Wyoming. Pulse will continue to operate as a wholly owned subsidiary of MRM,
and its headquarters will remain in Boise, ID.
On June 30 1997, MRM acquired 100% of the issued and outstanding capital
stock of Laser Medical, Inc. ("Laser Medical"), headquartered in Murray, UT,
in exchange for 190,000 shares of its own common stock. As a result, Laser
Medical became a wholly owned subsidiary of MRM. In addition, the Company
obtained a non-compete agreement from the principal former shareholder of
Laser Medical in consideration of the payment of $80,000 in cash.
Laser Medical provides mobile laser/surgical services to hospitals, out
patient surgery centers, and physicians' offices. Laser Medical operates its
business in Utah and Colorado. Since the date of its acquisition by MRM,
Laser Medical has operated as a wholly owned subsidiary of MRM, and will
continue to do so.
4
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Also on June 30, 1997, the Company acquired 100% of the issued and
outstanding capital stock of Med Surg Specialties, Inc. ("Med Surg"), located
in Brea, CA, in exchange for 214,667 shares of its common stock. As a
result, Med Surg became a wholly owned subsidiary of MRM. In addition, the
Company obtained a non-compete agreement from the principal former
shareholder of Med Surg in consideration of the payment of $138,000 in cash
($50,000 in July, 1997 with the balance payable $50,000 in 1998 and $38,000
in 1999).
Med Surg makes mobile laser/surgical services available to hospitals, out
patient surgery centers, and physician's offices. Med Surg's operations,
which were conducted primarily in the Southern California area, were absorbed
into PRI at the time of the acquisition.
MRM intends to continue the pursuit of its strategic plan of acquiring
other companies in the medical services and equipment rental business to take
advantage of current opportunities in the market place. The Company intends
to establish a nationwide presence through acquisitions and thus position
itself to service chains of hospitals and clinics which are currently only
served inefficiently on a fractionated basis.
PRODUCTS AND SERVICES
MRM's technicians deliver equipment and provide technical support to
physicians and operating room ("O.R.") personnel as needed. Once the
technician is at the customer site, he posts required warning notices outside
the O.R., issues safety equipment to the O.R. staff, provides any disposable
materials needed, and supplies equipment certifications or documentation
required for hospital record-keeping. The MRM technician sets the
physician's requested power settings and maintains a laser safe environment
during the surgical procedure. Hospitals and surgery facilities, especially
those with fluctuating occupancy levels, find this outsourcing of trained
technicians, on an as-needed basis, a cost effective alternative to training
and staffing their own personnel. More than 60% of the Company's revenue was
generated from the rental of technician supported equipment during each of
the last two fiscal years.
The Company's lasers encompass the latest technology in CO2, Nd:YAG, Pulse
Dye, KTP/YAG, and Holmium YAG models. MRM has established an excellent
working relationship with the leading laser manufacturers and is often the
first service company to receive new laser technology in its markets. The
Company is constantly reviewing developments in the medical laser field to
stay abreast of the latest technology available.
MRM also provides its customers with disposable products and/or
attachments that are needed for a given procedure. This applies primarily to
laser related rentals requiring laser drapes, masks, fibers, tubing, etc.
The customers benefit from this added service since they save the added costs
that would be incurred if they had to purchase a large inventory of these
disposable products.
Additionally, MRM offers a broad spectrum of general medical equipment to
the medical market that it serves. The Company's inventory of equipment
includes an extensive variety of devices, serving a broad range of hospital
departments and needs, such as CO2 monitors, defibrillators, feeding pumps,
PCA pumps, ECG monitors, infusion pumps, neo-natal monitors, and pulse
oximeters.
Due in part to its varied inventory of equipment, MRM is usually capable
of offering delivery and support of rental items with only a few hours'
notice. Mobile laser/surgical services are ordered in advance and
re-confirmed with the customer the day before the procedure by the scheduling
department.
5
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MARKETING AND SALES
The principal focus of the business is providing mobile laser/surgical
services. Commencing in the latter part of the fiscal year ended October
31, 1997, the Company began to offer new lasers designed for a variety of
medical procedures including cosmetic and dermatological treatments, such as
(i) treatment of leg veins, (ii) removal of unwanted hair, and (iii) skin
rejuvenation.
Additionally, the Company is expanding its business of renting medical
equipment to hospitals, surgery centers and physicians in their offices. The
Company also plans on selectively adding to its disposable products. MRM
believes that it will be able to take advantage of the excellent working
relationship it enjoys with its customers as an avenue for new product sales.
Management believes that this approach will add to the revenue of the Company
and will complement the services currently being provided to customers.
The Company's sales efforts are supported by a direct sales force which
focuses on providing timely service and products to MRM's customers. In
addition, the Company sponsors educational seminars on new laser technology,
which are attended by physicians. This allows the direct sales force to
introduce new laser technology and procedures to the Company's customer base
as soon as new lasers are offered by manufacturers. This method has proven
to be successful in developing new business from physicians. The Company
benefits from the physician training which occurs at these educational
seminars because the physicians can immediately implement the new laser
technology offered by MRM.
MRM's sales representatives attend national and regional physician medical
seminars and trade shows to present the Company's services and products.
MRM also creates markets for its products and services through direct mailing
of marketing literature and promotional materials regarding its complete
range of laser/surgical services to hospitals, surgery centers and physicians.
MARKETS
The Company's principal markets, and percent of revenue from each, during
fiscal years ended October 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
<S> <C> <C>
Mobile Laser/Surgical Services 45% 61%
Cosmetic Mobile Laser/Surgical Services
(Primarily Physician Office Based) 17% 12%
Medical Equipment Rentals 23% 13%
Equipment and Disposable Sales 15% 14%
</TABLE>
Medical Data International, Inc. defined the total market for surgical
procedures (in and out of hospital), market growth and segmentation in a
report issued in 1996. This report indicates that there were 29 million
total surgical procedures performed in the U.S. in 1994, which was an
increase of 12.4% over the 25.8 million procedures in 1990. Outpatient
procedures increased 70.8% from 11 million to 18.9 million, while the
percentage of total procedures performed on an outpatient basis grew to 65%
from 43%. The percentage of surgical procedures performed in physicians'
offices grew to 12% from 6% during the same time.
6
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HOSPITAL MOBILE LASER/SURGICAL SERVICES
MRM was one of the first companies to provide mobile laser/surgical
services to hospitals and surgery centers. Because of MRM's long tenure of
providing laser surgical services in the Southern California market and the
emergence of fragmented competition, this has become a mature market place
with growth dependent on new procedures and products. This situation does
not exist in most other parts of the country, providing the Company with a
growth opportunity in other geographic markets.
The mobile laser/surgical services, both hospital/surgery center based and
physician office based, provide a quick entry into new geographic markets
with multiple strategies. Once a facility is established in a new geographic
market, the opportunity exists to use that facility as a dispatch point for
equipment rentals and new products.
COSMETIC MOBILE LASER/SURGICAL SERVICES
The cosmetic laser business is primarily physician office based. This
market did not emerge for the Company until early 1995, and has been
characterized by rapid changes in specific techniques as new technology
emerges.
In recent years, skin resurfacing cosmetic laser surgery has shown
significant growth. However, price competition is emerging in this market
from smaller start up companies. Recent legislation in California and some
other states restricting anesthesia in doctors' offices may redirect much of
this cosmetic surgery to hospitals and surgery centers where MRM has a strong
base. As the skin rejuvenation market matures, new markets will be emerging
for the treatment of leg veins and the removal of unwanted hair. Because of
customer inquiries, the Company believes that recently developed laser
technology for collapsing veins so that they are no longer visible will
produce a significant increase in the number of doctors using mobile lasers.
In addition, the anticipated introduction to the market of new lasers for
unwanted hair removal will add a companion procedure to the vein procedure.
An American Academy of Cosmetic Surgery survey reported that approximately
2.7 million cosmetic surgery procedures were performed in the U.S. in 1994.
A survey by the American Society of Plastic and Reconstructive Surgeons
reported that patients between the ages of 35 and 50 represented 41% of the
cosmetic surgery procedures performed in the U.S. in 1994. The survey also
reported that approximately 36% of the cosmetic procedures performed in the
U.S. in 1994 were performed in physicians' offices. The market for specific
cosmetic laser surgery procedures, as documented in various medical journals,
has been estimated as follows:
<TABLE>
<CAPTION>
PROCEDURE PERCENT OF PROCEDURE PERCENT OF
POPULATION POPULATION
<S> <C> <C> <C>
Red Lesions 8% Brown Lesions 10%
Tattoo Removal 8% Stretch Marks 25%
Balding 30% Wrinkles 38%
Varicose Veins 25% Warts 20%
Hair Removal 30%
</TABLE>
7
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HOSPITAL MEDICAL EQUIPMENT RENTALS
MRM entered the hospital equipment rental market in 1974, and maintained
that business as its primary source of revenue until the mobile
laser/surgical services became predominate in 1987. That transition took
place because of competition from national medical rental companies and high
demand for the newly developed mobile laser/surgical services.
The hospital equipment rental market has been reduced to two dominant
national companies. The older and smaller of these companies is Universal
Hospital Services ("UHS"), which provides medical equipment within the
hospital on a fee for use basis. Management believes that UHS does not focus
on the larger portion of that market which is supplemental equipment rentals.
The larger company is Mediq PRN ("Mediq"), which is dominant in the
supplemental rental business through contracts with large hospital management
companies. MRM has identified an excellent opportunity to service Mediq's
customers on a second call basis (as an alternative supplier to these
customers) at reasonable prices.
MRM believes that it has a competitive advantage in the market, since it
is one of the few companies that provide both mobile laser/surgical services
and medical equipment rental. There are a number of synergies among the
mobile laser/surgical services and the medical equipment rental business,
including:
- Shared facilities
- Shared warehouse and delivery employees
- Shared delivery vehicles
- Complimentary scheduling and booking staff
- Common management
- Shared sales staff at start up
EQUIPMENT AND DISPOSABLE SALES
MRM continues to evaluate several lines of disposable medical products to
introduce to its customers. As the medical rental market continues to be
challenged by smaller competitors, the Company intends to respond by offering
new products, as well as remaining competitive on current market pricing.
This is a natural progression for MRM, since it has a large customer base
typified by repeat business and ongoing personal contact between the
Company's sales representatives and the customers.
Another source of revenue is the re-marketing of used equipment. As a
result of its practice of updating laser and medical rental equipment, the
Company on occasion does sell used equipment. This used equipment is an
excellent choice for surgery centers or physicians that are looking for low
cost equipment that still meets the expectations of physicians and the
standards of regulatory agencies, while avoiding the high cost of new
equipment.
8
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GOVERNMENT REGULATIONS
The healthcare industry is subject to extensive federal and state regulation.
Promulgation of new laws and regulations, or changes in or re-interpretations
of existing laws or regulations, may significantly affect the Company's
business, operating results or financial condition. There can be no
assurance that a review of the Company's operations by courts or regulatory
authorities will not result in a determination that could adversely affect
the operations of the Company. In addition, there can be no assurance that
the regulatory environment in which the Company operates will not change
significantly in the future, which change could adversely affect the
Company's operations, financial condition, business opportunities or future
expansion. Furthermore, the manufacturers of medical equipment utilized by
the Company are subject to extensive regulation by the Food and Drug
Administration ("FDA"). Failure of such manufacturers to comply with FDA
regulations could result in the loss of approval by the FDA of such medical
equipment, which could adversely affect the Company's operating results or
financial condition. As consolidation among physician groups continues and
provider networks continue to be created, purchasing decisions may shift to
persons with whom the Company has not had prior contact. There can be no
assurance that the Company will be able to maintain its physician, payor or
manufacturer relationships under such circumstances.
POTENTIAL EXPOSURE TO LIABILITY
Physicians, hospitals and other providers in the healthcare industry are
subject to lawsuits which may allege medical malpractice or other claims.
Many of these lawsuits result in substantial defense costs and judgments or
settlements. The Company does not engage in the practice of medicine, nor
does it control the practice of medicine by physicians utilizing its services
or their compliance with regulatory requirements directly applicable to such
physicians or physician groups. However, the services provided by the
Company to physicians, including actions by the Company's technicians, its
establishment of protocols and its training programs, could give rise to
liability claims. Although the Company has not recently been a party to any
material litigation, including litigation relating to the practice of
medicine, there can be no assurance that the Company will not become involved
in such litigation in the future, or that any claim or claims arising from
such litigation will not exceed the Company's insurance coverage or that such
coverage will continue to be available.
COMPETITION
The market for MRM's services is highly competitive. Companies,
particularly in the laser surgery industry, are competing by cutting prices,
and therefore profit margins. In spite of such competition, the management
of MRM believes that it can compete successfully. MRM is one of the few
companies that provide surgical laser equipment to hospitals, ambulatory
surgery centers and doctors' offices. MRM is able to build its business on
the interrelation of these market segments.
MRM's competition for mobile laser surgery equipment rental is primarily
from a number of small companies with only a few surgical lasers each. In
most cases, these competing companies are founded by technicians who have
left doctors' offices or hospitals and sell their services to a limited
number of customers.
Management believes that the largest company currently in the surgical
laser rental business is Medical Alliance, Inc. ("MAI"), of Irving, TX, a
publicly traded company with current revenues of about $20 million. MAI has
recently concentrated its efforts on renting equipment mainly in physician
offices. This approach is limited to procedures done without general
anesthesia. MRM services the same physicians' office market, plus the larger
market of hospitals, which provides a more consistent business base.
9
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Major competitors in the hospital medical equipment rental market include
Universal Hospital Services and Mediq PRN. The Company believes that, as a
specialist, it can better satisfy the hospitals' needs for medical rental
equipment at satisfactory profit margins. Even though management believes it
will continue to be able to compete, there can be no assurance that the
Company will be successful in doing so.
REORGANIZATION
On July 31, 1996, PRI entered into a Plan and Agreement of Reorganization
("Plan") with Kendall Management Corporation ("Kendall"). Pursuant to the
Plan, Kendall acquired all of PRI's common stock in exchange for 5,100,720
shares of Kendall common stock representing approximately 83.6% of the
outstanding common stock of Kendall. In addition, Kendall issued its options
exercisable into 81,804 shares of Kendall common stock in exchange for PRI
options. Subsequent to the reorganization, Kendall changed its name to
Medical Resources Management, Inc. As a result, PRI became a subsidiary of
Kendall.
The tax-free exchange was pursuant to the provisions of Sections 351 and
368(a)(1)(B) of the Internal Revenue Code. For financial statement purposes,
the transaction has been accounted for as a reverse acquisition as if PRI
issued its common stock for the net assets of Kendall. Kendall was not an
operating company.
YEAR 2000 ISSUES
The Company believes that entering into the year 2000 will have little or
no impact on its systems.
EMPLOYEES
As of October 31, 1997, the Company employed 91 full time persons, 44 of
which were involved in technical activities (most of these were active as
field technicians), 22 of which were involved in sales and marketing, and 25
of which were involved in administration and accounting. In addition, the
Company employs 8 part time and occasional employees as technicians to handle
overload situations. None of these employees is represented by a union. The
Company believes that its relationship with its employees is good.
10
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ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 14,500 square feet of space for its
headquarters in Glendale, California on a lease that expires in 2001, for
$9,830 per month, with a CPI based rent escalation clause. The Company also
leases about 2,000 square feet of space for its field and sales office in
Dublin, California under a lease that expires in 2001, for $1,907 per month,
with a CPI based rent escalation clause.
In addition, it leases field and sales offices in Stockton, CA, Boise, ID,
Englewood, CO, Phoenix, AZ and Las Vegas, NV. Total combined square footage
is 11,200 for approximately $9,900 per month, and each lease is for three
years or less.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
11
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The common stock of the Company is traded under the symbol "MRMC" in the
over-the-counter market through the NASD's electronic OTC Bulletin Board
service. The following table sets forth the range of high and low bid and
ask prices per share of the common stock for each of the periods indicated.
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commissions, and may not necessarily represent actual
transactions. Quotations for periods prior to July 31, 1996 are for the
common stock of Kendall Management Corporation prior to the Reorganization.
<TABLE>
<CAPTION>
Bid Prices
-------------------
High Low
---- ---
<S> <C> <C>
Quarter ended:
January 31, 1996 $ 1.50 $ 1.50
April 30, 1996 $ 2.50 $ 0.875
July 31, 1996 $ 3.00 $ 1.125
October 31, 1996 $ 3.00 $ 1.125
January 31, 1997 $ 2.25 $ 1.25
April 30, 1997 $ 2.00 $ 1.25
July 31, 1997 $ 1.87 $ 1.00
October 31, 1997 $ 1.50 $ 0.625
January 30, 1998 $ 0.9375 $ 0.625
</TABLE>
HOLDERS OF COMMON STOCK
As of October 31, 1997, the number of holders of record of common stock
was 411, excluding approximately eight accounts in "nominee" or "street" name.
DIVIDENDS
To date, the Company has not paid any cash dividends on its common stock
and does not anticipate paying cash dividends in the foreseeable future. The
Company anticipates that all earnings, if any, for the foreseeable future
will be retained for development of the Company's business.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read together with the
financial statements and notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items included in the Statements of
Income:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
------- -------
<S> <C> <C>
Net revenues ................................. 100.0% 100.0%
Cost of revenues ............................. 55.7 57.0
------- -------
Gross profit ................................. 44.3 43.0
Selling expenses ............................. 18.3 14.7
General and administrative expenses .......... 19.9 18.3
------- -------
Operating income ............................. 6.1 10.0
Interest expense ............................. 6.0 4.6
------- -------
Income before income taxes ................... 0.1 5.4
Provision for income taxes ................... 0.0 2.3
------- -------
Net income ................................... 0.1% 3.1%
------- -------
------- -------
</TABLE>
YEAR ENDED OCTOBER 31, 1997 COMPARED TO YEAR ENDED OCTOBER 31, 1996
Net revenues for the year ended October 31, 1997 were $8.11 million,
compared to $6.69 million for the prior fiscal year, an increase of $1.41
million, or 21.1%. The increase in net revenues for fiscal 1997 over fiscal
1996 is entirely the result of (1) revenues from the operations of Pulse of
$1.07 million since the date of its acquisition, (2) revenues from Laser
Medical of $225,000 since the date of its acquisition and (3) an increase of
$118,000 in revenues of PRI.
Cost of revenues for the year ended October 31, 1997 was $4.52 million, or
55.7% of net revenues, compared to $3.82 million, or 57.0% of net revenues,
in the prior fiscal year, an increase of $702,000, or 18.4%. The increase in
cost of revenues for the most recent fiscal year compared to the prior year
is attributable to (1) cost of revenues from the operations of Pulse of
$742,000 since the date of its acquisition and (2) cost of revenues from
Laser Medical of $131,000 since the date of its acquisition, offset in part
by a decrease of $171,000 in the cost of revenues of PRI, principally as a
result of lower depreciation expense. The decrease in cost of revenues as a
percentage of net revenues is primarily attributable to increased revenues
from medical equipment rentals, which generally have lower cost of revenues
than mobile laser/surgical services.
Gross profit for the fiscal year ended October 31, 1997 was $3.59 million,
or 44.3% of net revenues, compared to $2.88 million, or 43.0% of net
revenues, in the year ended October 31, 1996, an increase of $709,000, or
24.6%. The increase in gross profit for fiscal 1997 compared to fiscal 1996
is principally due to (1) the addition of $326,000 of gross profit from the
operations of Pulse since the date of its acquisition, (2) the addition of
$94,000 of gross profit from the operations of Laser Medical since the date
of its acquisition, and (3) an increase of $289,000 in the gross profit of
PRI due to an increase in higher margin equipment rental revenues, as well as
lower depreciation expense. The increase in gross profit as a percentage of
revenues is principally attributable to an increase in overall revenues from
medical rentals, which generally have higher gross profit margins that
revenues than revenues from mobile laser/surgical services.
13
<PAGE>
Selling expenses for the year ended October 31, 1997 increased by $501,000,
or 51.1%, from $981,000 during the prior fiscal year. As a percentage of net
revenues, selling expenses increased to 18.3% in the year ended October 31,
1997, compared to 14.7% in the prior fiscal year. The increase in selling
expense is primarily the result of (1) the addition of $162,000 of selling
expenses from the operations of Pulse since the date of its acquisition, (2)
the addition of $26,000 of selling expenses from the operations of Laser
Medical since the date of its acquisition, and (3) an increase of $313,000 in
the selling expenses of PRI due to (a) the addition of sales representatives in
the California market, (b) an increase in the compensation levels of existing
sales personnel and (c) the addition of marketing personnel.
General and administrative ("G&A") expenses increased from $1.22 million
in the year ended October 31, 1996 to $1.61 million in the year ended October
31, 1997, an increase of $391,000, or 31.9%. As a percentage of net
revenues, such expenses increased from 18.3% in the prior fiscal year to
20.0% in the current fiscal year. The increase in G&A expenses is
principally attributable to (1) the addition of $149,000 of G&A expenses from
the operations of Pulse since the date of its acquisition, (2) the addition
of $5,000 of G&A expenses from the operations of Laser Medical since the date
of its acquisition, and (3) an increase of $237,000 in the G&A expenses of
PRI due to (a) higher salaries and wages resulting from the hiring of certain
new employees in the accounting and finance departments of the Company, (b)
increased costs associated with public relations and the administration of a
public company and (c) increased amortization expenses relating to goodwill,
non-compete agreements and customer list.
Operating income was $490,000 in the year ended October 31, 1997, or 6.1%
of revenues, compared to $673,000 in the year ended October 31, 1996, or
10.1% of net revenues. This decrease in operating income of $183,000 from
the 1996 fiscal year to the 1997 fiscal year is attributable to the factors
previously cited above.
Interest expense for the year ended October 31, 1997 was $487,000,
compared to $308,000 in the prior fiscal year, an increase of $179,000, or
58.1%. The increase in interest expense is the result of (1) the addition of
$93,000 of interest expense relating to the operations of Pulse since the
date of its acquisition, (2) the addition of $17,000 of interest expense
relating to the operations of Laser Medical since the date of its
acquisition, and (3) an increase of $69,000 in the interest expense of PRI
due to an increased level of indebtedness relating to the acquisition of
laser and medical rental equipment during fiscal year 1997.
Income before income taxes was $2,000 in the year ended October 31, 1997
compared to income before taxes of $365,000 in the year ended October 31,
1996, a decrease of $363,000. Income before income taxes, as a percentage of
revenues, declined to 0.1% in the year ended October 31, 1997 from 5.5% in
the year ended October 31, 1996 as a result of the aforementioned factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from the funding of its working
capital needs, principally accounts receivable and inventories, as well as
its capital expenditure needs. The Company's primary source for working
capital has historically been borrowings under debt facilities, as well as
the sale of common stock.
Net cash provided by operating activities during the year ended October
31, 1997 was $111,000, which resulted primarily from (a) net income of $1,000
and (b) depreciation and amortization expense of $966,000. These sources of
cash were offset in part by (a) a net increase of approximately $838,000 in
working capital items and (b) a decrease in long-term deferred income tax
liabilities of $18,000.
14
<PAGE>
Net cash used for investing activities during the fiscal year ended
October 31, 1997 was $731,000, which consisted of (a) $444,000 in capital
expenditures, (b) the payment of $130,000 for non-compete agreements and (c)
an increase in deposits and other assets of $157,000.
During the year ended October 31, 1997, the Company's cash provided by
financing activities totaled $673,000, consisting primarily of (a) $1.23
million in borrowings under term debt facilities, (b) $1.19 million in
borrowings related to capital leases for existing equipment and (c) $324,000
in net proceeds from the Company's private offering of units consisting of
common stock and warrants. Such cash provided by financing activities was
offset in part by (a) principal payments on long-term debt of $665,000 and
(b) principal payments on capital lease obligations of $1.32 million.
Between November 1, 1996 and April 30, 1997, the Company received $324,000
(net of related expenses) from the issuance of 291,600 units in a private
placement. Each unit consisted of (1) one share of common stock, (2) one
Class A warrant to purchase one share of common stock, at any time prior to
November 1, 1999, at a price of $2.50 per share, and (3) one Class B warrant
to purchase one share of common stock, at any time prior to November 1, 1999,
at a price of $4.00 per share.
COMMITMENTS
The Company had no material commitments for capital expenditures at
October 31, 1997. However, although it has no present commitments or
agreements to make such capital expenditures, during the next 12 months the
Company expects to make substantial capital expenditures, in accordance with
its historical practice. The mobile laser/surgical services and medical
equipment rental businesses are capital intensive. The Company believes that
funds generated from operations, together with funds available from capital
lease facilities that the Company expects to obtain during the year ending
October 31, 1998, will be sufficient to finance its working capital and
capital expenditure requirements for the next 12 months.
ITEM 7. FINANCIAL STATEMENTS.
See financial statements included herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
15
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following information concerns the directors and executive officers of
the Registrant as of October 31, 1997:
The information contained in the Company's Proxy Statement to be filed
with the Securities and Exchange Commission, on or before February 28, 1998,
with respect to directors and executive officers of the Company and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" is
hereby incorporated by reference in response to this item.
ITEM 10. EXECUTIVE COMPENSATION
The information contained in the Company's Proxy Statement to be filed
with the Securities and Exchange Commission, on or before February 28, 1998,
with respect to executive compensation and transactions, is hereby
incorporated by reference in response to this item.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Company's Proxy Statement to be filed
with the Securities and Exchange Commission, on or before February 28, 1998,
with respect to security ownership of certain beneficial owners and
management, is hereby incorporated by reference in response to this item.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in the Company's Proxy Statement to be filed
with the Securities and Exchange Commission, on or before February 28, 1998,
with respect to certain relationships and related transactions, is hereby
incorporated by reference in response to this item.
16
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. Financial Statements: PAGE
Report of Independent Auditors F-1
Consolidated Balance Sheet - October 31, 1997 F-2
Consolidated Statements of Income - Years Ended October 31,
1997 and 1996 F-4
Consolidated Statements of Changes in Shareholders' Equity -
Years Ended October 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows - Years Ended
October 31, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
2. Exhibits:
See Exhibits Index. The exhibits listed in the accompanying
Exhibit Index are filed or incorporated by reference as part of this
report.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the quarter
ended October 31, 1997.
17
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized in
the City of Glendale, California on the 12th day of February, 1998.
MEDICAL RESOURCES MANAGEMENT, INC.
By /s/ Allen H. Bonnifield
----------------------------------------------------
Allen H. Bonnifield, President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 12th day of February, 1998.
SIGNATURE TITLE
By /s/ ALLEN H. BONNIFIELD
----------------------------------
Allen H. Bonnifield President and CEO
By /s/ DOUG HANSEN
----------------------------------
Doug Hansen Vice President, CFO and
Principal Accounting Officer
By /s/ ROBERT STUCKELMAN
----------------------------------
Robert Stuckelman Director
By /s/ STEPHEN COUGHLIN
----------------------------------
Stephen Coughlin Director and President of
Pulse Medical Products, Inc.
By /s/ GREGORY BONNIFIELD
----------------------------------
Gregory Bonnifield Director and President of
Physiologic Reps, Inc.
18
<PAGE>
EXHIBITS INDEX
EXHIBIT EXHIBIT DESCRIPTION
NUMBER
2.1 Articles of Incorporation and Amendments thereto. (1)
2.2 By-Laws of the Registrant. (1)
3.1 Copy of a Warrant Agreement and Warrant issued between November 1996
and March 1997 to investors in the Registrant's Private Placement. (1)
6.1 Plan and Agreement of Reorganization between the Registrant and
Physiologic Reps, Inc. dated July 31, 1996. (1)
6.2 Registrant's 1996 Stock Incentive Plan. (1)
6.3 Term Loan and Security Agreement dated March 28, 1995 between the
Registrant and Merrill Lynch Business Financial Services, Inc. (1)
6.4 Term Loan and Security Agreement dated June 5, 1996 between the
Registrant and Merrill Lynch Business Financial Services, Inc. (1)
6.5 WCMA Note, Loan and Security Agreement dated June 5, 1996 between the
Registrant and Merrill Lynch Business Financial Services, Inc. (1)
6.6 Plan and Agreement of Reorganization between the Registrant and Pulse
Medical Products, Inc. dated March 31, 1997. (1)
6.7 Equipment Note Loan and Security Agreement dated April 24, 1997
between the Registrant and LINC Capital Management, a division of LINC
Capital, Inc. (1)
6.8 Collateral Note No. 1 dated April 28, 1997 between the Registrant and
LINC Capital, Inc. (1)
6.9 Lease Modification Agreement dated April 24, 1997 between Pulse
Medical Products, Inc. and LINC Capital Management, a division of LINC
Capital, Inc. (1)
6.10 Warrant Purchase Agreement dated April 24, 1997 between the Registrant
and LINC Capital Management, a division of LINC Capital, Inc. (1)
6.11 Warrant to Purchase Shares of Common Stock dated April 24, 1997
between the Registrant and LINC Capital Management, a division of LINC
Capital, Inc. (1)
6.12 Term Note and Security Agreement dated July 10, 1997 between the
Registrant and Merrill Lynch Business Financial Services. (2)
19
<PAGE>
EXHIBIT EXHIBIT DESCRIPTION
NUMBER
6.13 Plan and Agreement of Reorganization between the Registrant and
Laser Medical, Inc. dated June 27, 1997. (3)
6.14 Plan and Agreement of Reorganization between the Registrant and
Med Surg Specialties, Inc. dated June 30, 1997. (3)
(1) Exhibit filed with Registrant's Form 10-SB on May 16, 1997 and
incorporated by reference herein.
(2) Exhibit filed with Registrant's Form 10-QSB for the quarter ended July 31,
1997 and incorporated by reference herein.
(3) Exhibit filed herewith.
20
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Medical Resources Management, Inc.
We have audited the accompanying consolidated balance sheet of Medical
Resources Management, Inc. and subsidiaries as of October 31, 1997, and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the two years in the period ended October 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Medical Resources Management, Inc. and subsidiaries at October 31, 1997,
and the results of their operations and their cash flows for each of the two
years in the period ended October 31, 1997, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
February 10, 1998
F-1
<PAGE>
<TABLE>
<CAPTION>
Medical Resources Management, Inc. and Subsidiaries
Consolidated Balance Sheet
October 31, 1997
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 64,356
Accounts receivable, less allowance of $72,000 (NOTE 4) 1,829,695
Inventories (NOTE 4) 583,149
Prepaid expenses 94,378
Income tax receivable 55,113
------------
Total current assets 2,626,691
Property and equipment (NOTES 3 AND 4):
Rental equipment (NOTE 3) 16,216,245
Transportation equipment 847,492
Office furniture and equipment 311,657
Leasehold improvements 86,074
------------
17,461,468
Less accumulated depreciation 6,670,474
------------
Net property and equipment 10,790,994
Other assets:
Goodwill, net of accumulated amortization of $9,178 394,983
Covenants not to compete, net of accumulated amortization of $23,111 106,889
Customer list, net of accumulated amortization of $9,722 190,278
Deposits and other assets 175,563
------------
Total other assets 867,713
------------
Total assets $ 14,285,398
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 882,966
Accrued expenses 564,300
Notes payable 56,457
Current portion of long-term debt (NOTE 4) 527,771
Current portion of obligations under capital leases (NOTE 3) 1,495,611
------------
Total current liabilities 3,527,105
Long-term debt, net of current portion (NOTE 4) 2,090,695
Obligations under capital leases, net of current portion (NOTE 3) 4,728,500
Deferred income taxes (NOTE 5) 948,496
Commitments (NOTES 4 AND 9)
Shareholders' equity (NOTE 6):
Common stock, $.001 par value:
Authorized shares - 100,000,000
Issued and outstanding shares - 7,345,927 7,346
Additional paid-in capital 1,639,366
Retained earnings 1,343,890
------------
Total shareholders' equity 2,990,602
------------
Total liabilities and shareholders' equity $ 14,285,398
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1997 1996
--------------------------
<S> <C> <C>
Revenue $ 8,105,140 $ 6,694,074
Cost of revenue, including depreciation expense of
$868,975 in 1997 and $690,504 in 1996 4,517,885 3,815,784
----------- -----------
Gross profit 3,587,255 2,878,290
Selling expenses 1,482,244 981,427
General and administrative expenses 1,615,612 1,223,965
----------- -----------
Operating income 489,399 672,898
Interest expense 487,391 307,746
----------- -----------
Income before income taxes 2,008 365,152
Provision for income taxes (NOTE 5) 800 156,098
----------- -----------
Net income $ 1,208 $ 209,054
----------- -----------
----------- -----------
Net income per common share $ .00 $ .04
----------- -----------
----------- -----------
Weighted average common shares 6,773,302 5,085,904
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
Medical Resources Management, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
Common Stock Additional Retained
Shares Amount Paid-in Capital Earnings Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1995 4,744,632 $ 4,745 $ 134,829 $ 1,133,628 $ 1,273,202
Issuance of stock 1,356,088 1,356 98,744 - 100,100
Net income for year - - - 209,054 209,054
----------------------------------------------------------------------
Balance at October 31, 1996 6,100,720 6,101 233,573 1,342,682 1,582,356
Issuance of stock (NOTES 2 and 6) 1,245,207 1,245 1,405,793 - 1,407,038
Net income for year - - - 1,208 1,208
----------------------------------------------------------------------
Balance at October 31, 1997 7,345,927 $ 7,346 $ 1,639,366 $ 1,343,890 $ 2,990,602
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1997 1996
---------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,208 $ 209,054
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 966,436 844,172
Deferred income taxes (17,752) 194,087
Changes in operating assets and liabilities:
Accounts receivable (342,684) (84,949)
Inventories (279,267) 3,378
Prepaid expenses (39,890) (53,702)
Income tax receivable (18,859) (36,254)
Accounts payable (96,799) 67,174
Accrued expenses (61,605) (50,104)
Income taxes payable - (143,500)
---------------------------
Net cash provided by operating activities 110,788 949,356
INVESTING ACTIVITIES
Purchases of property and equipment (444,150) (1,249,147)
Payments for non-compete agreements (130,000) -
Increase in deposits and other assets (157,331) (3,472)
---------------------------
Net cash used for investing activities (731,481) (1,252,619)
FINANCING ACTIVITIES
Issuance of common stock 324,480 100,100
Borrowings on notes payable 24,185 -
Borrowings on long-term debt 1,231,024 1,468,862
Borrowings on capital lease refinancing 1,185,810 -
Principal payments on notes payable - shareholders - (35,872)
Principal payments on notes payable (111,191) (40,612)
Principal payments on long-term debt (664,872) (558,868)
Principal payments on capital lease obligations (1,316,869) (644,083)
---------------------------
Net cash provided by financing activities 672,567 289,527
Net increase (decrease) in cash 51,874 (13,736)
Cash and cash equivalents at beginning of period 12,482 26,218
---------------------------
Cash and cash equivalents at end of period $ 64,356 $ 12,482
---------------------------
---------------------------
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest $ 464,253 $ 310,662
---------------------------
---------------------------
Taxes $ 40,050 $ 141,765
---------------------------
---------------------------
Capital lease obligations entered into for equipment $ 3,089,726 $ 975,589
---------------------------
---------------------------
Common stock issued for acquired companies $ 802,634 $ -
---------------------------
---------------------------
Common stock issued in exchange for forgiveness of debt $ 253,550 $ -
---------------------------
---------------------------
Common stock issued for forgiveness of accrued liabilities $ 26,325 $ -
---------------------------
---------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Medical Resources Management, Inc. (MRM or the Company) engages in the
business of renting medical equipment, providing associated technical
support, and also selling related supplies. Customers of the Company are
located throughout much of the western United States. The financial
statements include MRM, the holding company, consolidated with all of its
wholly owned subsidiaries (see Note 2 for 1997 acquisitions). All
significant intercompany accounts and transactions have been eliminated.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with maturities of three months or less when purchased to
be cash equivalents.
INVENTORIES
Inventories, consisting primarily of supplies, are stated at the lower of
cost (first-in, first-out) or market basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, which
vary from five to ten years. Capitalized leases and leasehold improvements
are being amortized using the straight-line method over the shorter of the
lease term or estimated useful lives. Amortization of capital leases is
included in depreciation expense.
Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalized. Expenditures for maintenance and
repairs are charged as incurred.
INTANGIBLE ASSETS
Goodwill is amortized over a period of 15 years. Payments for non-compete
agreements are capitalized and then amortized over the period of the
non-compete agreement. Customer lists are amortized over a period of 12
years.
INCOME TAXES
The Company utilizes Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which prescribes the use of the liability
method to compute the differences between the tax basis of assets and
liabilities and the related financial reporting amounts using currently
enacted laws and rates.
F-7
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue at the time that the rental service is
rendered to the customer, including the providing of technical support.
STOCK-BASED COMPENSATION
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees," and intends
to continue doing so. In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123). SFAS 123 established a fair
value-based method of accounting for compensation costs related to stock
options and other forms of stock-based compensation plans. However, SFAS 123
allows an entity to continue to measure compensation costs using the
principles of APB 25 if certain pro forma disclosures are made. SFAS 123 is
effective for fiscal years beginning after December 15, 1995. The Company
provides proforma disclosures of net income and earnings per share as if the
fair value-based method prescribed by SFAS 123 had been applied in measuring
compensation expense (Note 8).
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with banks.
Concentrations of credit risk with respect to trade receivables are limited
due to the Company's large number of customers primarily with small balances.
Management reviews these balances on a monthly basis and maintains reserves
for potential credit losses, which losses have historically been within
management's expectations. The Company generally sells on credit terms of 30
days and requires no collateral.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could vary from those estimates.
EARNINGS PER SHARE
Net income per share has been computed based on the weighted average number
of shares of common stock outstanding. Stock options have not been
considered because the effect was either not material or antidilutive.
LONG-LIVED ASSETS
Long-lived assets used in operations are reviewed periodically to determine
that the carrying values are not impaired. If indicators of impairment are
present, or if long-lived assets are expected to be disposed of at a loss,
impairment losses are recorded.
F-8
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's outstanding balances under its long-term
debt instruments approximates fair value because the interest rates on
outstanding borrowings vary according to current market rates or are set to
approximate market rates.
FINANCIAL STATEMENT PRESENTATION
Certain balances from the October 31, 1996 financial statements have been
reclassified to conform to the October 31, 1997 presentation.
NEW ACCOUNTING PRINCIPLES
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Accounting for Earnings Per
Share" (SFAS 128). This statement establishes standards for computing and
presenting earnings per share (EPS) and applies to entities with publicly
held common stock or potential common stock. SFAS 128 simplifies the
standards for computing EPS previously found in APB Opinion No. 15, Earnings
Per Share, and makes them comparable to international EPS. This statement is
effective for financial statements issued for periods ending after December
15, 1997. The Company will adopt this new standard in fiscal year 1998, and
has determined that the impact on the financial statements will be
insignificant.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). This statement establishes standards for reporting and
displaying comprehensive income and its components (revenue, expenses, gains
and losses) in financial statements. SFAS 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. It is effective for
fiscal years beginning after December 15, 1997. The Company does not believe
that the current financial statement disclosure will need to be modified
based upon current operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (SFAS 131). This statement requires that
a public business enterprise report financial and descriptive information
about its reportable operating segments. Generally, financial information is
required to be reported on the basis that it is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. SFAS 131 is effective for fiscal years beginning after December
15, 1997. The Company is reviewing the standard and does not believe that
there will be a significant impact on financial disclosures.
F-9
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS
Effective March 31, 1997, the Company acquired 100% of the common stock of
Pulse Medical Products, Inc. (Pulse). Pulse provides medical rental
equipment in the Rocky Mountain area. The purchase price was $357,500
consisting of 325,000 shares of MRM's common stock (valued at $1.10 per
share). The transaction was accounted for as a purchase and, accordingly,
the results of operations of Pulse have been included in the statement of
income since April 1, 1997.
Effective June 30, 1997, the Company acquired 100% of the common stock of
Laser Medical, Inc. (Laser Medical). Laser Medical provides mobile
laser/surgical services principally in the states of Utah and Colorado. The
purchase price was $209,000 consisting of 190,000 shares of MRM's common
stock (valued at $1.10 per share). In addition, the Company obtained a
non-compete agreement from the principal former shareholder of Laser Medical
in consideration of the payment of $80,000 in cash. This transaction was
accounted for as a purchase and, accordingly, the results of operations of
Laser Medical have been included in the statement of income since July 1,
1997.
Also effective June 30, 1997, the Company acquired 100% of the common stock
of Med Surg Specialties, Inc. (Med Surg). The purchase price was $236,134
consisting of 214,667 shares of MRM's common stock (valued at $1.10 per
share). Med Surg provides mobile laser/surgical services in the Southern
California area. In addition, the Company obtained a non-compete agreement
from the principal former shareholder of Med Surg in consideration of the
payment of $138,000 in cash ($50,000 at closing, with the balance payable
$50,000 in 1998 and $38,000 in 1999). This transaction was accounted for as a
purchase and, accordingly, the results of operations of Med Surg have been
included in the statement of income since July 1, 1997.
The following unaudited proforma summary statements of earnings for the years
ended October 31, 1997 and 1996 of the Company and the acquisitions discussed
previously assuming all were effective on November 1, 1995. The proforma
information gives effect to certain adjustments, including primarily the
amortization of excess of costs over net assets acquired. This proforma
summary does not necessarily reflect the results of operations as they would
have been if the Company and the acquisitions had been a single entity during
such periods:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1997 1996
-----------------------------
<S> <C> <C>
Total revenues $ 9,887,000 $ 10,820,000
Total expenses 10,028,000 10,572,000
-----------------------------
Net income (loss) $ (141,000) $ 248,000
-----------------------------
-----------------------------
Net income (loss) per common share $ (.02) $ .04
-----------------------------
-----------------------------
</TABLE>
Effective July 16, 1997, the Company acquired a 21.8% interest for $17,500 in
Santa Barbara Equipment, LLC (SBEL), a limited liability company formed by
the Company and certain physicians to operate a laser in Santa Barbara,
California. The Company manages SBEL and provides accounting and other
services to SBEL. The Company accounts for its interest in SBEL using the
equity method of accounting.
F-10
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain equipment under capital lease obligations which
contain purchase options. Cost and accumulated depreciation of equipment
under capital leases included in equipment as of October 31, 1997 are as
follows:
<TABLE>
<S> <C>
Rental equipment $ 12,146,452
Less accumulated depreciation 4,879,719
------------
Net book value $ 7,266,733
------------
------------
</TABLE>
The following is a schedule by year of future minimum lease payments required
under the leases, together with their present value as of October 31, 1997:
<TABLE>
<S> <C>
1998 $ 2,217,636
1999 2,128,647
2000 1,825,226
2001 1,304,649
2002 623,899
-----------
Total minimum lease payments 8,100,057
Less amount representing interest 1,875,946
-----------
Present value of minimum lease payments due under capital leases 6,224,111
Less current portion 1,495,611
-----------
Obligations under capital leases, net of current portion $ 4,728,500
-----------
-----------
</TABLE>
F-11
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT
Long-term debt consists of the following at October 31, 1997:
<TABLE>
<S> <C>
Note payable to a finance company, payable in 60 monthly
installments of $33,333 plus interest at the 30-day
commercial paper rate plus 2.75% (8.2% at October 31, 1997),
secured by accounts receivable, inventories, equipment and the
personal guarantee of certain shareholders. $ 1,966,667
Various notes payable in monthly installments totaling $11,206
including interest varying between 9% and 16% per annum,
collateralized by trucks, vans and automobiles, maturing
through March 2002. 336,641
Notes payable to a finance company for a line of credit of
$300,206 maturing April 2001, bearing interest at a rate of
12% per annum, interest payable monthly, secured by the
accounts receivable and inventories of Pulse. 300,206
Other 14,952
-----------
Total long-term debt 2,618,466
Less current portion 527,771
-----------
Long-term debt, net of current portion $ 2,090,695
-----------
-----------
</TABLE>
Long-term debt matures as follows during the years ending October 31:
<TABLE>
<S> <C>
1998 $ 527,771
1999 498,338
2000 488,355
2001 734,584
2002 369,418
-----------
$ 2,618,466
-----------
-----------
</TABLE>
F-12
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. PROVISION FOR INCOME TAXES
The provisions for income taxes for the years ended October 31, 1997 and 1996
consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1997
CURRENT DEFERRED TOTAL
--------------------------------------
<S> <C> <C> <C>
Federal $ - $ (13,698) $ (13,698)
State 800 13,698 14,498
--------------------------------------
$ 800 $ - $ 800
--------------------------------------
--------------------------------------
YEAR ENDED OCTOBER 31, 1996
CURRENT DEFERRED TOTAL
--------------------------------------
Federal $ (32,588) $ 152,092 $ 119,504
State (5,401) 41,995 36,594
--------------------------------------
$ (37,989) $ 194,087 $ 156,098
--------------------------------------
--------------------------------------
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
at October 31, 1997 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 480,330
Allowance for doubtful accounts 62,848
Other 43,428
------------
Total deferred assets 586,606
Deferred tax liabilities:
Depreciation (1,534,527)
Other (575)
------------
Total deferred liabilities (1,535,102)
------------
Net deferred liabilities $ (948,496)
------------
------------
</TABLE>
A reconciliation of the provision for income taxes with the amounts obtained
by applying the federal statutory tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1997 1996
---------------------
<S> <C> <C>
Income tax based on federal statutory rate $ 683 $ 124,150
State tax, net of federal tax benefit 106 22,316
Non-deductible expenses and other 11 9,632
------ ----------
$ 800 $ 156,098
------ ----------
------ ----------
</TABLE>
F-13
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. EQUITY
Between November 1, 1996 and March 31, 1997, the Company sold 291,600 Units
in a private offering. These Units consisted of 291,600 shares of common
stock, as well as 291,600 Class A warrants and 291,600 Class B warrants to
purchase, in the aggregate, 583,200 shares of common stock. The Units were
sold at $1.25 per Unit, resulting in gross proceeds of $364,500 and net
proceeds of $324,480 after expenses. The Class A and Class B warrants have
an exercise price of $2.50 and $4.00, respectively, and expire on November 1,
1999. As of October 31, 1997 no such warrants had been exercised.
During March 1997, the Company issued an additional 202,840 Units to certain
shareholders (including the principal officer of the Company) in exchange for
$253,550 of indebtedness owed to these shareholders. These Units consisted
of 202,840 shares of common stock, as well as 202,840 Class A warrants and
202,840 Class B warrants to purchase, in the aggregate, 405,680 shares of
common stock. The Units were issued at a rate of one Unit for each $1.25 of
shareholder debt forgiven. The Class A and Class B warrants have an exercise
price of $2.50 and $4.00, respectively, and expire on November 1, 1999. As
of October 31, 1997 no such warrants had been exercised.
In April 1997, in connection with a loan from a finance company, warrants
were granted to the finance company to purchase 100,000 shares of common
stock at a price of $2.00 per share, exercisable at any time during the six
years following the date of the loan.
7. BENEFIT PLAN
In June 1997, the Company adopted a defined contribution retirement plan
(Plan) which qualifies under Section 401(k) of the Internal Revenue Code.
The Plan covers substantially all employees with over one year of service.
The Company makes an annual election to provide matching contributions of up
to 50% of each participant's deferral up to a maximum of 3% of compensation.
The amount of matching contributions included in expense for the year ended
October 31, 1997 was $26,468.
F-14
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. STOCK OPTIONS
In September 1996, the Company adopted the 1996 Stock Incentive Plan (Plan)
to allow officers, employees and certain non-employees to receive certain
options to purchase common stock and to receive grants of common stock
subject to certain restrictions. Under the Plan, regular salaried employees,
including directors, who are full time employees, may be granted options
exercisable at not less than 100 percent of the fair market value of the
shares at the date of grant. The exercise price of any option granted to an
optionee who owns stock possessing more than ten percent of the voting power
of all classes of common stock of the Company must be 110 percent of the fair
market value of the common stock on the date of grant, and the duration may
not exceed five years. Options generally become exercisable at a rate of
one-third of the shares subject to option on each of the first, second and
third anniversary dates of the grant. The duration of options may not exceed
ten years. A maximum number of 1,500,000 shares of common stock may be
issued under the Plan. The following table summarizes stock option activity:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1997 1996
----------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
----------------------- ---------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 424,804 $ 1.31 81,804 $ 0.50
Granted 874,000 $ 1.50 343,000 $ 1.50
Exercised - - - -
Forfeited or cancelled (52,500) $ 1.50 - -
----------------------- ---------------------
Outstanding at end of year 1,246,304 $ 1.44 424,804 $ 1.31
----------------------- ---------------------
----------------------- ---------------------
Options exercisable at year-end 149,856 $ 1.14 26,995 $ 0.50
----------------------- ---------------------
----------------------- ---------------------
</TABLE>
The weighted average fair value of options granted during the years ended
October 31, 1997 and 1996 was $1.34 and $1.18 at October 31, 1997 and 1996,
respectively. The weighted average remaining contractual life of stock
options was 9.28 years as of October 31, 1997. The range of prices of
outstanding options under the Plan at October 31, 1997 was $0.50 to $2.125.
F-15
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1997 1996
------------- -----------
<S> <C> <C>
Net income as reported $ 1,208 $ 209,054
------------ -----------
------------ -----------
Proforma net income (loss) $ (173,220) $ 191,497
------------ -----------
------------ -----------
Net income per common share as reported $ .00 $ .03
------------ -----------
------------ -----------
Proforma net income (loss) per common share $ (.02) $ .03
------------ -----------
------------ -----------
</TABLE>
The Company utilized the Black-Scholes method to estimate the fair value of
options, which includes the weighted average calculation of the fair value
using the following assumptions: (i) a risk-free interest rate of 10%; (ii)
an expected life of 8 years; (iii) expected volatility of 1.6; and (iv) no
expected dividends.
9. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Company leases premises under non-cancelable operating leases expiring in
various years through 2001. The lease on the corporate headquarters contains
provisions for cost of living increases and certain options to renew for a
period of five additional years. Other facilities are on a month to month
basis. Future minimum lease payments are as follows during the years ending
October 31:
<TABLE>
<S> <C>
1998 $ 219,400
1999 201,174
2000 171,976
2001 81,410
2002 -
----------
$ 673,960
----------
----------
</TABLE>
Rent expense was $218,337 and $141,794 for the years ended October 31, 1997
and 1996, respectively.
The Company has borrowed money from two principal shareholders, including the
principal officer of the Company. The notes payable to shareholders bore
interest at rates ranging from 10% to 12% and were subordinated to the notes
payable to a finance company. In 1997, amounts owed pursuant to such
borrowings were repaid with common stock of the Company (see Note 6).
The Company paid consulting fees to a member of the Board of Directors in the
amount of $48,000 during the fiscal year ended October 31, 1997.
10. EMPLOYEE STOCK OWNERSHIP PLAN
On August 7, 1992, the Company formed an employee stock ownership plan (ESOP)
for the benefit of all employees meeting certain minimum age and length of
service requirements. Contributions are discretionary and are determined
annually by the Board of Directors. No contribution was made for either of
the years ended October 31, 1997 or 1996.
F-16
<PAGE>
EXHIBIT 6.13
PLAN AND AGREEMENT OF REORGANIZATION
This PLAN AND AGREEMENT OF REORGANIZATION (the "Agreement") is entered
into on this 27th day of June, 1997, by and between MEDICAL RESOURCES
MANAGEMENT, INC., a Nevada corporation ("MRM") and LASER MEDICAL, INC., a
Utah corporation ("LM"), and those persons listed in EXHIBIT A hereto, being
all of the shareholders of LM who own individually at least five percent (5%)
of the outstanding stock of LM and together hold over 50% of the outstanding
stock of LM as of the date this Agreement is executed.
PLAN OF REORGANIZATION
The transaction contemplated by this Agreement is intended to be a "tax
free" exchange as contemplated by the provisions of Sections 351 and
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. MRM will
acquire up to 100% of LM's issued and outstanding common stock (no par value
per share), and all warrants and options outstanding (the "LM Stock" or the
"LM Shares"), in exchange for 190,000 shares of MRM's common stock ($.001 par
value per share) (the "Exchange Stock") (collectively, the "Exchange
Transaction"). The Exchange Transaction will result in LM becoming a wholly
owned subsidiary of MRM.
AGREEMENT
SECTION 1
TRANSFER OF LM SHARES
1.1 All shareholders of LM (the "Shareholders" or the "LM
Shareholders") as of the date of Closing, as such term is defined in Section
3 herein (the "Closing" or the "Closing Date"), shall transfer, assign,
convey and deliver to MRM at the Closing Date certificates representing 100%
of the LM shares then issued and outstanding, or such lesser percentage as
shall be acceptable to MRM, but in no event less than 95% of the LM Shares.
The transfer of the LM Shares shall be made free and clear of all liens,
mortgages, pledges, encumbrances or charges, whether disclosed or
undisclosed, except as the LM Shareholders and MRM shall have otherwise
agreed in writing.
1
<PAGE>
SECTION 2
ISSUANCE OF EXCHANGE STOCK AND ADDITIONAL
STOCK TO LM SHAREHOLDERS
2.1 As consideration for the transfer, assignment, conveyance and
delivery of the LM Stock hereunder, MRM shall, at the Closing, issue to the
LM Shareholders, pro rata in accordance with each Shareholder's percentage
ownership of LM immediately prior to the Closing, certificates for 190,000
shares of Exchange Stock. The parties intend that the Exchange Stock being
issued will be used to acquire all issued and outstanding LM Shares. To the
extent that less than 100% of the LM Stock is acquired, the number of shares
of Exchange Stock issuable to those LM Shareholders who have elected to
participate in the exchange described in this Agreement (the "Exchange")
shall increase proportionately.
2.2 The issuance of the Exchange Stock shall be made free and clear of
all liens, mortgages, pledges, encumbrances or charges, whether disclosed or
undisclosed, except as the LM Shareholders and MRM shall have otherwise agree
in writing. As provided herein, and immediately prior to the Closing, MRM
shall have issued and outstanding: (i) not more than 7,200,000 shares of
common stock; (ii) not more than 1,300,000 options outstanding; (iii) not
more than 515,540 Class A warrants issued in conjunction with a recent
Private Offering; (iv) not more than 515,540 Class B warrants issued in
conjunction with a recent Private Offering; (v) 140,000 warrants held by an
investment relations firm; (vi) 100,000 warrants held by a lender; and (vii)
shall not have any shares of preferred stock issued and outstanding. All
options and warrants provide for the purchase of one share of common stock
for each option or warrant.
2.3 None of the Exchange Stock issued to the LM Shareholders, nor any
of the LM Stock transferred to MRM hereunder shall, at the time of Closing,
be registered under federal securities laws but, rather, shall be issued
pursuant to an exemption therefrom and be considered "restricted stock"
within the meaning of Rule 144 promulgated under the Securities Act of 1933,
as amended (the "Act"). All of such shares shall bear a legend worded
substantially as follows:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 (the "Act") and are 'restricted
securities' as that term is defined in Rule 144 under the Act. The
shares may not be offered for sale, sold or otherwise transferred
except pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of the
Company."
The respective transfer agents of MRM and LM shall annotate their records to
reflect the restrictions on transfer embodied in the legend set forth above.
There shall be no requirement that MRM register the Exchange Stock under the
Act, nor shall LM or the Shareholders be required to register any LM Shares
under the Act.
2
<PAGE>
SECTION 3
CLOSING
3.1 CLOSING OF TRANSACTION. Subject to the fulfillment or waiver of
the conditions precedent set forth in Section 11 hereof, the Closing shall
take place on the Closing Date at the offices of Medical Resources
Management, Inc., 932 Grand Central Avenue, Glendale, California at 10:00
a.m., local time, or at such other time on the Closing Date as LM and MRM
shall mutually agree in writing.
3.2 CLOSING DATE. The Closing Date of the Exchange shall take place on
a date chosen by mutual agreement of LM and MRM within sixty (60) days from
the date of this Agreement, or such later date upon which LM and MRM may
mutually agree in writing, or as extended pursuant to subsection 12.1(b)
herein.
3.3 DELIVERIES BY LM AT CLOSING. LM shall deliver or cause to be
delivered to MRM at the Closing:
(a) certificates representing all shares, or an amount of shares
acceptable to MRM, of the LM Stock as described in Section 1,
each endorsed in blank by the registered owner;
(b) an agreement from each Shareholder surrendering his or her
shares agreeing to a restriction on the transfer of the
Exchange Stock as described in Section 2 hereof;
(c) a copy of a consent by LM's Board of Directors authorizing LM
to take the necessary steps toward closing the transaction
described by this Agreement in the form set forth in EXHIBIT B;
(d) a copy of a Certificate of Good Standing for LM issued not
more than thirty (30) days prior to the Closing Date by the
Utah Secretary of State;
(e) an opinion of C. Jeffrey Thompson, counsel to LM, dated the
Closing Date, in a form deemed acceptable by MRM and its
counsel;
(f) Articles of Incorporation and Bylaws of LM certified as of the
Closing Date by the President and Secretary of LM;
(g) all of LM's corporate records;
(h) executed bank forms for LM bank accounts reflecting a change
in management and signatories to said bank accounts;
3
<PAGE>
(i) such other documents, instruments or certificates as shall be
reasonably requested by MRM or its counsel.
3.4 DELIVERIES BY MRM AT CLOSING. MRM shall deliver or cause to be
delivered to LM at the Closing:
(a) a copy of a consent of MRM's Board of Directors authorizing
MRM to take the necessary steps toward closing the transaction
described by this Agreement in the form set forth in EXHIBIT C;
(b) a copy of a Certificate of Good Standing for MRM issued not
more than thirty (30) days prior to the Closing by the
Secretary of State of Nevada;
(c) stock certificate(s) or a computer listing from MRM's transfer
agent representing the Exchange Stock to be newly issued by
MRM under this Agreement, which certificates shall be in the
names of the appropriate LM Shareholders, each in the
appropriate denomination as described in Section 2;
(d) an opinion of William B. Barnett, Esq., special counsel to
MRM, dated the Closing Date, in a form deemed acceptable to LM
and its counsel;
(e) Articles of Incorporation and Bylaws of MRM certified as of
the Closing Date by the President and Secretary of MRM;
(f) such other documents, instruments or certificates as shall be
reasonably requested by LM or its counsel.
3.5 FILINGS, COOPERATION.
(a) Prior to the Closing, the parties shall proceed with due
diligence and in good faith to make such filings and take such
other actions as may be necessary to satisfy the conditions
precedent set forth in Section 11 below.
(b) On and after the Closing Date, MRM, LM and the Shareholders
set forth in EXHIBIT A shall, on request and without further
consideration, cooperate with one another by furnishing or
using their best efforts to cause others to furnish any
additional information and/or executing and delivering or
using their best efforts to cause others to execute and
deliver any additional documents and/or instruments, and doing
or using their best efforts to cause others to do any and all
such other things as may be reasonably required by the parties
or their counsel to consummate or otherwise implement the
transactions contemplated by this Agreement.
4
<PAGE>
SECTION 4
REPRESENTATIONS AND WARRANTIES BY
LM AND CERTAIN SHAREHOLDERS
4.1 SUBJECT TO THE SCHEDULES OF EXCEPTIONS ATTACHED HERETO AND
INCORPORATED HEREIN BY THIS REFERENCE (WHICH SCHEDULES SHALL BE ACCEPTABLE TO
MRM), LM AND THOSE SHAREHOLDERS LISTED ON EXHIBIT A REPRESENT AND WARRANT TO
MRM AS FOLLOWS:
(a) ORGANIZATION AND GOOD STANDING OF LM. LM is a corporation
duly organized, validly existing and in good standing under
the laws of the State of Utah, and has full corporate power
and authority to own or lease its properties and to carry on
its business as now being conducted and as proposed to be
conducted. The Articles of Incorporation of LM and all
Amendments thereto as presently in effect, certified by the
Secretary of State of Utah, and the Bylaws of LM as presently
in effect, certified by the President and Secretary of LM,
have been delivered to MRM and are complete and correct, and
since the date of such delivery, there has been no amendment,
modification or other change thereto.
(b) CAPITALIZATION. LM's authorized capital stock is 100,000
shares of no par value common stock (defined herein as "LM
Common Stock"), of which 100,000 shares are issued and
outstanding prior to the Closing Date, and held of record by
two (2) persons, who are currently residents of one of the
following jurisdictions: Utah. All of such outstanding shares
are validly issued, fully paid and non-assessable. All
securities issued by LM as of the date of this Agreement have
been issued in compliance with all applicable state and
federal laws. Except as set forth in SCHEDULE 4.1(b), no other
equity securities or debt obligations of LM are authorized,
issued or outstanding.
(c) SUBSIDIARIES. LM has no subsidiaries and no other
investments, directly or indirectly, or other financial
interest in any other corporation or business organization,
joint venture or partnership of any kind whatsoever.
(d) FINANCIAL STATEMENTS. LM will deliver to MRM, prior to the
Closing, a copy of LM's unaudited financial statements through
December 31, 1996 and through April 30, 1997 (the "LM
Financial Statements"), which will be true and complete. The
LM Financial Statements will be signed by the President and
Secretary of LM certifying that, to the best of their
knowledge, such financial statements are true and complete.
Other than changes in the usual and ordinary conduct of the
business, since April 30, 1997 there have been, and at the
Closing Date there will be, no material adverse changes in
such financial statements.
5
<PAGE>
(e) ABSENCE OF UNDISCLOSED LIABILITIES. LM has no liabilities
which are not adequately reflected or reserved against in the
LM Financial Statements or otherwise reflected in this
Agreement, and LM shall not have as of the Closing Date any
liabilities (secured or unsecured and whether accrued,
absolute, direct, indirect or otherwise) which were incurred
after April 30, 1997, and would be, individually or in the
aggregate, materially adverse to the results of operations or
financial condition of LM as of the Closing Date.
(f) LITIGATION. Except as disclosed in SCHEDULE 4.1(f), there are
no outstanding orders, judgments, injunctions, awards or
decrees of any court, governmental or regulatory body, or
arbitration tribunal against LM or its properties. Except as
disclosed in SCHEDULE 4.1(f), there are no actions, suits or
proceedings pending, or, to the knowledge of LM, threatened
against or affecting LM, any of its officers or directors
relating to their positions as such, or any of its properties,
at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board,
bureau, agency or instrumentality, foreign or domestic, in
connection with the business, operations or affairs of LM,
which might result in any material adverse change in the
operations or financial condition of LM, or which might
prevent or materially impede the consummation of the
transactions under this Agreement.
(g) COMPLIANCE WITH LAWS. To the best of its knowledge, the
operations and affairs of LM do not violate any law,
ordinance, rule or regulation currently in effect, or any
order, writ, injunction or decree of any court or governmental
agency, the violation of which would substantially and
adversely affect the business, financial condition or
operations of LM.
(h) ABSENCE OF CERTAIN CHANGES. Except as set forth in SCHEDULE
4.1(h), or otherwise disclosed in writing to MRM, since April
30, 1997: (i) LM has not entered into any material
transaction; (ii) there has been no change in the condition
(financial or otherwise), business, property, prospects,
assets or liabilities of LM as shown in the LM Financial
Statements, other than changes that both individually and in
the aggregate do not have a consequence that is materially
adverse to such condition, business, property, prospects,
assets or liabilities; (iii) there has been no damage to,
destruction of or loss of any of the properties or assets of
LM (whether or not covered by insurance) materially and
adversely affecting the condition (financial or otherwise),
business, property, prospects, assets or liabilities of LM;
(iv) LM has not declared or paid any dividend, made any
distribution on its capital stock, redeemed, purchased or
otherwise acquired any of its capital stock, granted any
options to purchase shares of its stock, or issued any shares
of its capital stock; (v) there has been no material adverse
change,
6
<PAGE>
except in the ordinary course of business, in the contingent
obligations of LM by way of guaranty, endorsement, indemnity,
warranty or otherwise; (vi) there have been no loans made by
LM to its employees, officers or directors; (vii) there has
been no waiver or compromise by LM of a valuable right or of a
material debt owed to it; (viii) there has been no
extraordinary increase in the compensation of any of LM'
employees; (ix) there has been no agreement of commitment by
LM to do or perform any of the acts described in this Section
4.1(h); and (x) there has been no other event or conditions
of any character which might reasonably be expected either to
result in a material and adverse change in the condition
(financial or otherwise), business, property, prospects,
assets or liabilities of LM, or to materially impair the
ability of LM to conduct the business now being conducted.
(i) EMPLOYEES. Except as disclosed in SCHEDULE 4.1(i), there are
no collective bargaining, bonus, profit sharing, compensation
or other plans, agreements or arrangements between LM and any
of its employees, officers or directors, and there are no
employment, consulting, severance or indemnification
arrangements, agreements or understandings between LM (on the
one hand), and any current or former employees, officers or
directors (on the other hand). The LM Shareholders assume all
responsibility for any claims by or damages to any current or
former LM employees and their families. The LM Shareholders
will indemnify and hold blameless MRM from any and all such
claims and damages that may result from litigation or
otherwise from any current or former LM employees or their
families.
(j) ASSETS. All of the assets reflected on the LM Financial
Statements or acquired and held as of the Closing Date will be
owned by LM on the Closing Date. Except as set forth in
SCHEDULE 4.1(j), LM owns outright and has good and marketable
title, or holds valid and enforceable leases, to all of such
assets. None of LM's equipment used by LM in connection with
its business has any material defects, and all such equipment
is, in all material respects, in good operating condition and
repair, and is adequate for the uses to which it is being put.
None of LM' equipment is in need of maintenance or repairs,
except for ordinary, routine maintenance and repair.
Furthermore, LM represents that, except to the extent
disclosed in SCHEDULE 4.1(j) to this Agreement or reserved
against on its balance sheet as of April 30, 1997, it is not
aware of any accounts or contracts receivable existing that,
in its judgment, would be uncollectible.
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(k) TAX MATTERS. LM represents that, except as set forth in
SCHEDULE 4.1(k), all federal, foreign, state and local tax
returns, reports and information statements required to be
filed by or with respect to the activities of LM have been
timely filed. Since April 30, 1997, LM has not incurred any
liability with respect to any federal, foreign, state or local
taxes except in the ordinary and regular course of business.
Such returns, reports and information statements are true and
correct in all material respects insofar as they relate to the
activities of LM. On the date of this Agreement, LM is not
delinquent in the payment of any such tax or assessment, and
no deficiencies for any amount of such tax have been proposed
or assessed. Any tax sharing agreement among or between LM
and any affiliate thereof shall be terminated as of the
Closing Date.
(l) CONTRACTS. Set forth on SCHEDULE 4.1(l) hereto is a true and
complete list of all material contracts, agreements or
commitments to which LM is a party or is bound. All such
material contracts, agreements and commitments are valid and
biding on LM in accordance with their terms.
(m) INSURANCE. Set forth on SCHEDULE 4.1(m) hereto is a list of
insurance policies currently maintained by LM in full force
and effect which provide for coverages which are usual and
customary in its business as to amount and scope, and are
adequate to protect LM against any reasonably foreseeable risk
of loss.
(n) OPERATING AUTHORITIES. To the best of its knowledge, LM has
all material operating authorities, governmental certificates,
and licenses, permits, authorizations and approvals (the
"Permits" or, individually, "Permit") required to conduct its
business as presently conducted. Such Permits are set forth
on SCHEDULE 4.1(n). Since LM's inception (i) there has not
been any notice or adverse development regarding such Permits;
(ii) such Permits are in full force and effect; (iii) no
material violations are or have been recorded in respect of
any Permit; and (iv) no proceeding is pending or threatened to
revoke or limit any Permit.
(o) CONTINUATION OF KEY MANAGEMENT. To the best of its knowledge,
LM's key management personnel intend to continue their
employment with LM after the Closing. For purposes of this
subsection 4.1(o), "key management personnel" shall include
Douglas Horne, Robert Webster, Gean Abbott and Karl Keller.
(p) BOOKS AND RECORDS. The books and records of LM are complete
and correct, are maintained in accordance with good business
practice, and accurately reflect, in all material respects,
all of the transactions described therein, and there have been
no material transactions
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involving LM which properly should have been set forth therein
and which have not been accurately so set forth.
(q) AUTHORITY TO EXECUTE AGREEMENT. The Board of Directors of LM,
pursuant to the power and authority legally vested in it, has
duly authorized the execution and delivery by LM of this
Agreement, and has duly authorized each of the transactions
hereby contemplated. LM has the power and authority to
execute and deliver this Agreement, to consummate the
transactions hereby contemplated, and to take all other
actions required to be taken by it pursuant to the provisions
hereof. LM has taken all actions required by law, its Articles
of Incorporation, as amended, its Bylaws, as amended, or
otherwise, to authorize the execution and delivery of this
Agreement. This Agreement is valid and binding upon LM and
those LM Shareholders listed in EXHIBIT A hereto in accordance
with its terms. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions
contemplated hereby, will constitute a violation or breach of
the Articles of Incorporation, as amended, or the Bylaws, as
amended, of LM, or of any agreement, stipulation, order, writ,
injunction, decree, law, rule or regulation applicable to LM.
(r) FINDER'S FEES. LM is not, and on the Closing Date will not
be, liable or obligated to pay any finder's, agent's or
broker's fee arising out of or in connection with this
Agreement or the transactions contemplated by this Agreement.
4.2 DISCLOSURE. At the date of this Agreement, LM and those LM
Shareholders listed in EXHIBIT A have, and at the Closing Date they will
have, disclosed all events, conditions and facts materially affecting the
business and prospects of LM. LM and such Shareholders have not now, and
will not have at the Closing Date, withheld knowledge of any such events,
conditions or facts which they know, or have reasonable grounds to know, may
materially affect LM' business or prospects. Neither this Agreement, nor any
certificate, exhibit, schedule or other written document or statement,
furnished to MRM by LM and/or by such Shareholders in connection with the
transactions contemplated by this Agreement, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a
material fact necessary to be stated in order to make the statements
contained herein or therein not misleading.
SECTION 5
REPRESENTATIONS AND WARRANTIES BY MRM
5.1 Subject to the schedules of exceptions, attached hereto and
incorporated herein by this reference (which schedules shall be acceptable to
LM), MRM represents and warrants to LM and those Shareholders listed in
EXHIBIT A as follows:
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(a) ORGANIZATION AND GOOD STANDING OF MRM. MRM is a corporation
duly organized, validly existing and in good standing under
the laws of the State of Nevada, and has full corporate power
and authority to own or lease its properties and to carry on
its business as now being conducted and as proposed to be
conducted. MRM is qualified to conduct business as a foreign
corporation in no other jurisdiction, and the failure to so
qualify in any other jurisdiction does not materially
adversely affect the ability of MRM to carry on its business
as most recently conducted. The Articles of Incorporation of
MRM, and all amendments thereto, as presently in effect,
certified by the Secretary of State of Nevada, and the Bylaws
of MRM as presently in effect, certified by the President and
Secretary of MRM, have been delivered to LM and are complete
and correct, and since the date of such delivery, there has
been no amendment, modification or other change thereto.
(b) CAPITALIZATION. MRM's authorized capital stock consists of
100,000,000 shares of $.001 par value common stock (defined
herein as "MRM Common Stock"), approximately 7,200,000 shares
of which will be issued and outstanding prior to the Closing
Date. All authorized and/or outstanding options and warrants
are set forth on SCHEDULE 5.1(b). Except as set forth on
SCHEDULE 5.1(b), no other equity securities or debt
obligations of MRM are authorized, issued or outstanding, and
as of the Closing Date, there will be no other outstanding
options, warrants, agreements, contracts, calls, commitments
or demands of any character, preemptive or otherwise, other
than this Agreement, relating to any of the MRM Common Stock,
and there will be no outstanding security of any kind
convertible into MRM Common Stock. The shares of MRM Common
Stock are free and clear of all liens, charges, claims,
pledges, restrictions and encumbrances whatsoever of any kind
or nature that would inhibit, prevent or otherwise interfere
with the transactions contemplated hereby. All of the
outstanding shares of MRM Common Stock are validly issued,
fully paid and non-assessable, and there are no voting trust
agreements or other contracts, agreements, or arrangements
restricting or affecting voting or dividend rights or
transferability with respect to the outstanding shares of MRM
Common Stock.
(c) ISSUANCE OF EXCHANGE STOCK. All of the MRM Common Stock to be
issued to or transferred to LM Shareholders pursuant to this
Agreement, when issued, transferred and delivered as provided
herein, will be duly authorized, validly issued, fully paid
and non-assessable, and will be free and clear of all liens,
charges, claims, pledges, restrictions and encumbrances
whatsoever of any kind or nature, except those restrictions
imposed by state or federal corporate and securities
regulations.
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(d) APPROVAL OF THE TRANSACTION. MRM will use its best efforts to
forthwith obtain any approval of the transactions set forth in
this Agreement relating to its outstanding shares if required
by the General Corporation Law of California.
(e) VIOLATIONS, CONFLICTS. Neither the execution and delivery of
this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by MRM with any of the
provisions hereof will: (i) violate or conflict with, or
result in a breach of any provisions of, or constitute a
default (or an event which, with notice or lapse of time or
both, would constitute a default) under, any of the terms,
conditions or provisions of the Articles of Incorporation or
Bylaws of MRM, or any note, bond, mortgage, indenture, deed of
trust, license, agreement or other instrument to which MRM is
a party, or by which it or its properties or assets may be
bound or affected; or (ii) violate any order, writ,
injunction, decree, statute, rule, permit or regulations
applicable to MRM or to any of its properties or assets.
(f) FINANCIAL STATEMENTS. MRM will deliver to LM, prior to the
Closing, a copy of MRM's audited financial statements through
October 31, 1996 (the "MRM Financial Statements"), which will
be true and complete, and which have been prepared in
accordance with generally accepted accounting principles.
Other than changes in the usual and ordinary conduct of the
business, since October 31, 1996 there have been, and at the
Closing Date there will be, no material adverse changes in
such financial statements.
(g) ABSENCE OF UNDISCLOSED LIABILITIES. MRM has no liabilities
which are not adequately reflected or reserved against in the
MRM Financial Statements or otherwise reflected in this
Agreement, and MRM shall not have as of the Closing Date any
liabilities (secured or unsecured and whether accrued,
absolute, direct, indirect or otherwise) which were incurred
after October 31, 1996, and would be, individually or in the
aggregate, materially adverse to the results of operations or
financial condition of MRM as of the Closing Date.
(h) LITIGATION. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, governmental or
regulatory body, or arbitration tribunal against MRM or its
properties. There are no actions, suits or proceedings
pending, or, to the knowledge of LM, threatened against or
affecting MRM, any of its officers or directors relating to
their positions as such, or any of its properties, at law or
in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau,
agency or instrumentality, foreign or domestic, in connection
with the business, operations or affairs of MRM which might
result in any material adverse change in the operations or
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financial condition of MRM, or which might prevent or
materially impede the consummation of the transactions under
this Agreement.
(i) COMPLIANCE WITH LAWS. To the best of its knowledge, the
operations and affairs of MRM do not violate any law,
ordinance, rule or regulation currently in effect, or any
order, writ, injunction or decree of any court or governmental
agency, the violation of which would substantially and
adversely affect the business, financial condition or
operations of MRM.
(j) TAX MATTERS. MRM represents that, except as set forth in
SCHEDULE 5.1(j), all federal, foreign, state and local tax
returns, reports and information statements required to be
filed by or with respect to the activities of MRM have been
timely filed. Since October 31, 1996, MRM has not incurred
any liability with respect to any federal, foreign, state or
local taxes except in the ordinary and regular course of
business. Such returns, reports and information statements
are true and correct in all material respects insofar as they
relate to the activities of MRM. On the date of this
Agreement, MRM is not delinquent in the payment of any such
tax or assessment, and no deficiencies for any amount of such
tax have been proposed or assessed. Any tax sharing agreement
among or between MRM and any affiliate thereof shall be
terminated as of the Closing Date.
(k) BOOKS AND RECORDS. The books and records of MRM are complete
and correct, are maintained in accordance with good business
practice, and accurately reflect, in all material respects,
all of the transactions described therein, and there have been
no material transactions involving MRM which properly should
have been set forth therein and which have not been accurately
so set forth.
(l) AUTHORITY TO EXECUTE AGREEMENT. The Board of Directors of
MRM, pursuant to the power and authority legally vested in it,
has duly authorized the execution and delivery by MRM of this
Agreement and the Exchange Stock, and has duly authorized each
of the transactions hereby contemplated. MRM has the power
and authority to execute and deliver this Agreement, to
consummate the transactions hereby contemplated, and to take
all other actions required to be taken by it pursuant to the
provisions hereof. MRM has taken all actions required by law,
its Articles of Incorporation, as amended, it Bylaws, as
amended, or otherwise, to authorize the execution and delivery
of this Agreement and the Exchange Stock, pursuant to the
provisions hereof. This Agreement is valid and binding upon LM
in accordance with its terms. Neither the execution and
delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will constitute a violation
or breach of the Articles of Incorporation, as amended, or the
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Bylaws, as amended, of MRM, or of any agreement, stipulation,
order, writ, injunction, decree, law, rule or regulation
applicable to MRM.
(m) FINDER'S FEES. MRM is not, and on the Closing Date will not
be, liable or obligated to pay any finder's, agent's or
broker's fee arising out of or in connection with this
Agreement or the transactions contemplated by this Agreement.
5.2 DISCLOSURE. At the date of this Agreement, MRM has, and at the
Closing Date it will have, disclosed all events, conditions and facts
materially affecting the business and prospects of MRM. MRM has not now, and
will not have at the Closing Date, withheld knowledge of any such events,
conditions or facts which it knows, or has reasonable grounds to know, may
materially affect MRM's business or prospects. Neither this Agreement, nor
any certificate, exhibit, schedule or other written document or statement,
furnished to LM or the LM Shareholders by MRM in connection with the
transactions contemplated by this Agreement, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a
material fact necessary to be stated in order to make the statements
contained herein or therein not misleading.
SECTION 6
ACCESS AND INFORMATION
6.1 AS TO LM. Subject to the protections provided by subsection 9.4
herein, LM shall give to MRM and to MRM's counsel, accountants and other
representatives full access during normal business hours throughout the
period prior to the Closing to all of LM' properties, books, contracts,
commitments and records, including information concerning products and
customer base, and patents held by, or assigned to, LM, and shall furnish to
MRM during such period all such information concerning LM' affairs as MRM may
reasonably request.
6.2 AS TO MRM. Subject to the protections provided by subsection 9.4
herein, MRM shall give to LM, the LM Shareholders and to LM's counsel,
accountants and other representatives full access during normal business
hours throughout the period prior to the Closing to all of MRM's properties,
books, contracts, commitments and records, and shall furnish to LM and the LM
Shareholders during such period all such information concerning MRM's affairs
as LM and the LM Shareholders may reasonably request.
SECTION 7
COVENANTS OF LM AND LM SHAREHOLDERS
7.1 NO SOLICITATION. LM and the LM Shareholders listed on EXHIBIT A,
to the extent within each Shareholder's control, will use their best efforts
to cause LM's offic ers, employees, agents and representatives not, directly
or indirectly , to solicit, encourage, or initiate any discussions with, or
negotiate or otherwise deal with, or
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provide any information to, any person or entity other than MRM and its
officers, employees and agents, concerning any merger, sale of substantial
assets, or similar transaction involving LM, or any sale of any of its
capital stock or of the capital stock held by such Shareholders in excess of
10% of such Shareholder's current stock holdings, except as otherwise
disclosed in this Agreement. LM will notify MRM immediately upon receipt of
an inquiry, offer, or proposal relating to any of the foregoing. None of the
foregoing shall prohibit providing information to others in a manner in
keeping with the ordinary conduct of LM's business, or providing information
to government authorities.
7.2 CONDUCT OF BUSINESS PENDING THE TRANSACTION. LM and the LM
Shareholders listed on EXHIBIT A, to the extent within each Shareholder's
control, covenant and agree with MRM that, prior to the consummation of the
transaction called for by this Ag reement, and the Closing, or the
termination of this Agreement pursuant to its terms, unless MRM shall
otherwise consent in writing, and except as otherwise contemplated by this
Agreement, they will each comply with all of the following:
(a) LM's business shall be conducted only in the ordinary and
usual course. LM shall use reasonable efforts to keep intact
its business organization and good will, keep available the
services of its respective officers and employees, and
maintain good relations with suppliers, creditors, employees,
customers and others having business or financial
relationships with LM, and LM shall immediately notify MRM of
any event or occurrence which is material to, and not in the
ordinary and usual course of, the business of LM.
(b) LM shall not (i) amend its Articles of Incorporation or
Bylaws, or (ii) split, combine, or reclassify any of its
outstanding securities, or (iii) declare, set aside, or pay
any dividend or other distribution on, or make or agree or
commit to make any exchange for or redemption of any such
securities payable in cash, stock or property.
(c) LM shall not (i) issue or agree to issue any additional shares
of, or rights of any kind to acquire any shares of, its
capital stock of any class, or (ii) enter into any contract,
agreement, commitment, or arrangement with respect to any of
the foregoing, except as set forth in this Agreement.
(d) LM shall not create, incur, or assume any long-term or
short-term indebtedness for money borrowed, or make any
capital expenditures or commitment for capital expenditures,
except in the ordinary course of business and consistent with
past practice.
(e) LM shall not (i) adopt, enter into, or amend any bonus, profit
sharing, compensation, stock option, warrant, pension,
retirement, deferred compensation, employment, severance,
termination or other employee benefit plan, agreement, trust
fund, or arrangement for the benefit or
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welfare of any officer, director or employee, or (ii) agree to
any material (in relation to historical compensation) increase
in the compensation payable or to become payable to, or any
increase in the contractual term of employment of, any officer,
director or employee, except, with respect to employees who
are not officers or directors, in the ordinary course of
business in accordance with past practices, or with the
written approval of MRM.
(f) LM shall not sell, lease, mortgage, encumber or otherwise
dispose of, or grant an interest in, any of its assets or
properties, except for: (i) sales, encumbrances and other
dispositions or grants in the ordinary course of business and
consistent with past practice; (ii) liens for taxes not yet
due; (iii) liens or encumbrances that are not material in
amount or effect and that do not impair the use of the
property; or (iv) as specifically provided for or permitted in
this Agreement.
(g) Neither LM nor any of its subsidiaries shall enter into any
agreement, commitment, or understanding, whether in writing or
otherwise, with respect to any of the matters referred to in
subparagraphs (a) through (f) above.
(h) LM will continue to properly and promptly file when due all
federal, state, local, foreign and other tax returns, reports
and declarations required to be filed by it, and will pay, or
make full and adequate provision for the payment of, all taxes
and governmental charges due from or payable by LM.
(i) LM will comply with all laws and regulations applicable to it
and to its operations.
(j) LM will maintain in full force and effect insurance coverage
of a type and in such amounts as are customary in its
business, but not less than that set forth in SCHEDULE 4.1(m).
SECTION 8
COVENANTS OF MRM
8.1 NO SOLICITATION. MRM will not discuss or negotiate with any other
corporation, firm or other person or entertain or consider any inquiries or
proposals relating to the possible disposition of its shares of capital
stock, or its assets, and will conduct business only in the ordinary course.
Notwithstanding the foregoing, MRM shall be free to engage in activities
mentioned in the preceding sentence which are designed to further the mutual
interests of the parties to this Agreement.
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8.2 CONDUCT OF MRM PENDING CLOSING. MRM covenants and agrees with LM
that, prior to the consummation of the transactions called for by this
Agreement, and the Closing, or the termination of this Agreement pursuant to
its terms, unless LM shall otherwise consent in writing, and except as
otherwise contemplated by this Agreement, MRM will comply with all of the
following:
(a) No change will be made in MRM's Articles of Incorporation or
Bylaws, or in MRM's authorized or issued shares of capital
stock, except as may be first approved in writing by LM.
(b) No dividends shall be declared, no stock options granted and
no employment agreements shall be entered into with officers
or directors of MRM, except as may be first approved in
writing by LM.
SECTION 9
ADDITIONAL COVENANTS OF THE PARTIES
9.1 COOPERATION. Both LM and MRM will cooperate with each other and
with their respective counsel, accountants and agents in carrying out the
transaction contemplated by this Agreement, and in delivering all documents
and instruments deemed reasonably necessary or useful by the other party.
9.2 EXPENSES. Each of the parties hereto shall pay all of its
respective costs and expenses (including attorneys' and accountants' fees,
costs and expenses) incurred in connection with this Agreement and the
consummation of the transactions contemplated herein.
9.3 PUBLICITY. Prior to the Closing, any written news releases or
public disclosure by either party pertaining to this Agreement shall be
submitted to the other party for its review and approval prior to such
release or disclosure, provided, however, that (a) such approval shall not be
unreasonably withheld, and (b) such review and approval shall not be required
of disclosures required to comply, in the judgment of counsel, with federal
or state securities or corporate laws or policies.
9.4 CONFIDENTIALITY. While each party is obligated to provide access
to and furnish information in accordance with Sections 4 and 5 herein, it is
understood and agreed that such disclosure and information subsequently
obtained as a result of such disclosures are proprietary and confidential in
nature. Each party agrees to hold such information in confidence and not to
reveal any such information to any person who is not a party to this
Agreement, or an officer, director or key employee of MRM or LM, and not to
use the information obtained for any purpose other than assisting in its due
diligence inquiry precedent to the Closing. Upon request of any party
hereto, a confidentiality agreement, acceptable to the disclosing party, will
be executed by any person selected to receive such proprietary information,
prior to receipt of such information.
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SECTION 10
SURVIVAL OF REPRESENTATIONS,
WARRANTIES AND COVENANTS
10.1 The representations, warranties and covenants of LM, and of those
Shareholders listed on EXHIBIT A contained herein, shall survive the
execution and delivery of this Agreement, the Closing and the consummation of
the transactions called for by this Agreement. The representations,
warranties and covenants of MRM contained herein shall survive the execution
and delivery of this Agreement, the Closing and the consummation of the
transactions called for by this Agreement.
SECTION 11
CONDITIONS PRECENDENT TO OBLIGATIONS OF THE PARTIES
11.1 The obligations of MRM, LM and the LM Shareholders listed on
EXHIBIT A under this Agreement shall be subject to the fulfillment, on or
prior to the Closing, of all conditions elsewhere herein set forth,
including, but not limited to, receipt by the appropriate party of all
deliveries required by Sections 4 and 5 herein, and the fulfillment, prior to
Closing, of each of the following conditions:
(a) All representations and warranties made in this Agreement by
MRM, LM and the LM Shareholders listed on EXHIBIT A shall be
true and correct in all material respects on and as of the
Closing Date with the same effect as if such representations
and warranties had been made on and as of the Closing Date.
(b) MRM, LM and the LM Shareholders listed on EXHIBIT A shall have
performed or complied with all covenants, agreements and
conditions contained in this Agreement on their part required
to be performed or complied with at or prior to the Closing.
(c) All material authorizations, consents or approvals of any and
all governmental regulatory authorities necessary in connection
with the consummation of the transactions contemplated by this
Agreement shall have been obtained and be in full force and
effect.
(d) The Closing shall not violate any permit or order, decree or
judgment of any court or governmental body having competent
jurisdiction, and there shall not have been instituted any
legal or administrative action or proceeding to enjoin the
transaction contemplated hereby or seeking damages from any
party with respect thereto.
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(e) Each LM Shareholder acquiring Exchange Stock will be required,
at the Closing, to submit an agreement confirming that all of
the Exchange Stock received will be acquired for investment
and not with a view to, or for sale in connection with, any
distribution thereof, and agreeing not to transfer any of the
Exchange Stock for a period of one year from the date of the
Closing, except to those persons approved by legal counsel to
MRM as falling within the exemption from registration under
the Securities Act of 1933 and any applicable state securities
laws, which transfers do not constitute a public distribution
of securities, and in which the transferees execute an
investment letter in forma and substance satisfactory to
counsel for MRM. Each LM Shareholder acquiring Exchange Stock
will be required to transfer to MRM at the Closing his or her
respective LM Shares, free and clear of all liens, mortgages,
pledges, encumbrances or charges, whether disclosed or
undisclosed.
(f) All schedules prepared by LM shall be current or updated as
necessary as of the Closing Date.
(g) Each party shall have received favorable opinions from the
other party's counsel on such matters in connection with the
transactions contemplated by this Agreement as are reasonable.
(h) Each party shall have satisfied itself that since the date of
this Agreement the business of the other party has been
conducted in the ordinary course. In addition, each party
shall have satisfied itself that no withdrawals of cash or
other assets have been made and no indebtedness has been
incurred since the date of this Agreement, except in the
ordinary course of business or with respect to services
rendered or expenses incurred in connection with the Closing
of this Agreement, unless said withdrawals or indebtedness
were either authorized by the terms of this Agreement or
subsequently consented to in writing by the parties hereto.
(i) Each party covenants that, to the best of its knowledge, it
has complied in all material respects with all applicable
laws, orders and regulations of federal, state, municipal
and/or other governments and/or any instrumentality thereof,
foreign or domestic, applicable to their assets, to the
business conducted by them and to the transactions
contemplated by this Agreement.
(j) MRM shall have provided to LM audited financial statements of
MRM as of October 31, 1996 and for the year then ended,
prepared in accordance with generally accepted accounting
principles.
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(k) LM shall have provided to MRM unaudited financial statements
of LM as of December 31, 1996 and for the year then ended and
as of April 30, 1997 and for the four months then ended,
prepared in accordance with generally accepted accounting
principles.
(l) Each party hereto shall have granted to the other party
(acting through its management personnel, counsel, accountants
or other representatives designated by it) full opportunity to
examine its books and records, properties, plant and
equipment, proprietary rights and other instruments, rights
and papers of all kinds in accordance with Sections 4 and 5
hereof, and each party shall be satisfied to proceed with the
transactions contemplated by this Agreement upon completion of
such examination and investigation.
(m) If LM Shareholders who in the aggregate own more than five
percent (5%) of the LM Shares dissent from the proposed Exchange
Transaction, or are unable or for any reason refuse to transfer
any of all of their LM Shares to MRM in accordance with Section 1
of this Agreement, then MRM, at its sole option, may terminate
this Agreement.
(n) Each party shall have satisfied itself that all transactions
contemplated by this Agreement, including those contemplated
by the exhibits and schedules attached hereto, shall be legal
and binding under applicable statutory and case law of the
State of California, including, but not limited to, California
securities laws and all other applicable state securities laws.
(o) MRM and LM shall agree to indemnify each other against any
liability to any broker or finder to which that party may
become obligated.
(p) The Exchange Transaction shall be approved by the Boards of
Directors of both LM and MRM. Furthermore, the Exchange
Transaction shall be approved by the shareholders of LM and
MRM, if deemed necessary of appropriate by counsel for the
same, within forty-five (45) days following execution of this
Agreement. If such a shareholder meeting is deemed necessary,
the management of LM and MRM agree to recommend approval of
the Exchange Transaction to their respective shareholders and
to solicit proxies in support of the same.
(q) MRM and LM and their respective legal counsel shall have
received copies of all certificates, opinions and other
documents and instruments as each party or its legal counsel
may reasonably request pursuant to this Agreement or otherwise
in connection with the consummation of the transactions
contemplated hereby, and all such certificates, opinions and
other documents and instruments received by each party shall
be
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reasonably satisfactory, in form and substance, to each party
and to its legal counsel.
(r) Both LM and MRM shall have the right to waive any or all of
the conditions precedent to its obligations hereunder not
otherwise legally required; provided, however, that no waiver
by a party of any conditions precedent to its obligations
hereunder shall constitute a waiver by such party of any other
condition.
SECTION 12
TERMINATION, AMENDMENT, WAIVER
12.1 This Agreement may be terminated at any time prior to the Closing,
and the contemplated transactions abandoned, without liability to either
party hereto, except with respect to the obligations of MRM, LM and the LM
Shareholders under Section 9.4 hereof:
(a) By mutual agreement of MRM and LM.
(b) If the Closing (as defined in Section 3) shall not have taken
place on or prior to August 26, 1997, this Agreement can be
terminated upon written notice given by MRM or LM, provided
that such party giving notice is not in material default.
(c) By MRM, if in its reasonable belief there has been a material
misrepresentation or breach of warranty on the part of any
Shareholder in the representations and warranties set forth in
the Agreement.
(d) By LM or by a majority (as measured by their equity interest)
of those LM Shareholders listed on EXHIBIT A if, in the
reasonable belief of LM or of any such Shareholders, there has
been a material misrepresentation or breach or warranty on the
part of MRM in the representations and warranties set forth in
this Agreement.
(e) By MRM if, in its opinion or that of its counsel, the Exchange
does not qualify for exemption from registration under
applicable federal or state securities laws, or qualification,
if obtainable, cannot be accomplished (in MRM's opinion or
that of its counsel) without unreasonable expense or effort.
(f) By MRM if, in its opinion or that of its counsel, the Exchange
cannot be consummated under California or other relevant state
corporate law or, if consummation is possible, that it cannot
be accomplished (in MRM's opinion or that of its counsel)
without unreasonable expense or effort.
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(g) By MRM or by a majority (as measured by their equity interest)
of the LM Shareholders listed on EXHIBIT A if either party shall
determine in its sole discretion that the Exchange has become
inadvisable or impracticable by reason of the institution or
threat by state, local or federal governmental authorities, or
by any other person, of material litigation or proceedings
against any party [it being understood and agreed that a written
request by a governmental authority for information with respect
to the Exchange Transaction, which information could be used in
connection with such litigation or proceedings, may be deemed to
be a threat of material litigation or proceedings regardless of
whether such request is received before or after the signing of
this Agreement].
(h) By MRM if the business or assets or financial condition of LM,
taken as a whole, have been materially and adversely affected,
whether by the institution of litigation or be reason of
changes or developments, or in operations in the ordinary
course of business, or otherwise; or, by a majority (as
measured by their equity interest) of those LM Shareholders
listed on EXHIBIT A if the business or assets or financial
condition of MRM, taken as a whole, have been materially and
adversely affected, whether by the institution of litigation
or by reason of changes or developments, or in operations in
the ordinary course of business, or otherwise.
(i) By MRM if holders of more than five percent (5%) of the LM
Shares fail to tender their Shares at the Closing of the
Exchange Transaction.
(j) By MRM if, in its sole discretion, it appears that the
combined entity will not be auditable.
(k) By LM if MRM fails to perform material conditions as set forth
in Section 11 herein.
(l) By LM if examination of MRM's books and records pursuant to
Section 5 herein uncovers a material deficiency.
(m) By MRM if LM fails to perform material conditions as set forth
in Section 11 herein.
(n) By MRM if examination of LM's books and records pursuant to
Section 4 herein uncovers a material deficiency.
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SECTION 13
MISCELLANEOUS
13.1 ENTIRE AGREEMENT. This Agreement (including the exhibits and
schedules attached hereto) contains the entire agreement between the parties
hereto with respect to the transactions contemplated hereby, and supersedes
all negotiations, representations, warranties, commitments, offers,
contracts, and writings prior to the date hereof. No waiver and no
modification or amendment of any provision of this Agreement shall be
effective unless specifically made in writing and duly signed by the parties
to be bound thereby.
13.2 BINDING AGREEMENT.
(a) This Agreement shall become binding upon the parties hereto
when, but only when, it shall have been signed on behalf of
all parties hereto.
(b) Subject to the condition stated in subsection (a) of this
Section 13.2, this Agreement shall be binding upon, and inure
to the benefit of, the respective parties hereto and their
legal representatives, successors and assigns. This
Agreement, in all of its particulars, shall be enforceable by
the means set forth in subsection 13.9 for the recovery of
damages or by way of specific performance, and the terms and
conditions of this Agreement shall remain in full force and
effect subsequent to the Closing and shall not be deemed to be
merged into any documents conveyed and delivered at the time
of Closing.
(c) In the event that subsection 13.9 hereof is found to be
unenforceable as to any party for any reason, or is not
invoked by any party, and any person is required to initiate
any action at law or in equity for the enforcement of this
Agreement, the prevailing party in such litigation shall be
entitled to recover from the party determined to be in default
all of its reasonable costs incurred in said litigation,
including attorneys' fees.
13.3 SHAREHOLDERS OWNING AT LEAST 5% OF LM STOCK. The LM Shareholders
owning at least five percent (5%) of the issued and outstanding common stock
of LM (see EXHIBIT A hereto) are executing this Agreement only with respect
to sections 3.4, 4, 7, 9.4, 10, 11, 12.1 (d and g), 13.2, 13.3, 13.4, 13.8
and 13.9.
13.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which may be deemed an original, but all of which
together shall constitute one and the same instrument.
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13.5 SEVERABILITY. If any provision(s) hereof shall be held invalid or
unenforceable by any court of competent jurisdiction or as a result of future
legislative action, such holding or action shall be strictly construed and
shall not affect the validity or effect of any other provision hereof.
13.6 ASSIGNABILITY. This Agreement shall be binding upon and inure to
the benefit of the successors and assigns of the parties hereto; provided,
however, that neither this Agreement nor any right hereunder shall be
assignable by LM or MRM without prior written consent of the other party
hereto.
13.7 CAPTIONS. The captions of the various sections of this Agreement
have been inserted only for convenience of reference, and shall not be deemed
to modify, explain, enlarge or restrict any of the provisions of this
Agreement.
13.8 GOVERNING LAW. The validity, interpretation and effect of this
Agreement shall be governed exclusively by the laws of the State of
California.
13.9 DISPUTE RESOLUTION. In the event of a dispute between the parties
hereto involving a claim of breach of representation or warranty hereunder,
or to enforce a covenant herein (either or both of which are referred to
hereafter as a "Claim"), if it is the desire of any party for quick
resolution, the rights and obligations of the parties hereto arising under
the terms of this Agreement with respect to such Claims and/or resolutions of
such disputes will be by the means of the judgment of an independent third
party ("Rent-a-Judge") who has been selected and hired through the mutual
agreement of the parties hereto. The utilization of this subsection 13.9, if
invoked by any party hereto, shall be the exclusive remedy for resolving a
Claim regardless of whether legal action has or has not been otherwise
instituted. If legal action has been instituted by any party, and this
subsection 13.9 is invoked in a timely manner, any such legal action shall be
void ab initio and immediately withdrawn.
(a) In the event of a Claim by any party, any party may make a
written request upon the other parties for a Rent-a-Judge. A
request by any party for the employment of a Rent-a-Judge to
resolve the Claim shall be binding on all other parties to
this Agreement in accordance with the terms hereof.
(b) The parties may agree upon one Rent-a-Judge, but in the event
that they cannot so agree, there shall be three Rent-a-Judges
selected, one named in writing by each of the parties hereto
(MRM and LM) within twenty (20) days after the initial demand
for employment of a Rent-a-Judge, and a third chosen by the
two so appointed. Should either party refuse or neglect to
join in the appointment of the Rent-a-Judge, or to furnish the
Rent-a-Judge(s) with any papers or information demanded, the
Rent-a-Judge(s) are empowered by all parties to this Agreement
to proceed ex parte.
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(c) Claim resolution proceedings shall take place in the City or
County of Los Angeles, State of California, and the hearing
before the Rent-a-Judge(s) of the matter to be arbitrated
shall be at the time and place within said city or county as
is selected by the Rent-a-Judge(s). The Rent-a-Judge(s) shall
select such time and place promptly after appointment and
shall give written notice thereof to each party at least
thirty (30) days prior to the date so fixed. At the hearing,
any relevant evidence may be presented by either party, and
the formal rules of evidence applicable to judicial
proceedings shall not govern. Evidence may be admitted or
excluded in the sole discretion of the Rent-a-Judge(s). Said
Rent-a-Judge(s) shall hear and determine the matter and shall
execute and acknowledge their award in writing, and cause a
copy thereof to be delivered to each of the parties.
(d) If there is only one Rent-a-Judge, his or her decision shall
be binding and conclusive on the parties. If there are three
(3) Rent-a-Judges, the decision of any two (2) shall be
binding and conclusive on the parties.
(e) If three Rent-a-Judges are selected under the foregoing
procedure, but two (2) of the three (3) fail to reach an
agreement in the determination of the matter in question, the
matter shall be decided by three (3) new Rent-a-Judges who
shall be appointed and shall proceed in the same manner as set
forth in this section, and the process shall be repeated until
a decision is finally reached by two (2) of the three (3)
Rent-a-Judges selected.
(f) The costs of such Claim resolution shall be borne by the
parties equally and each party shall pay its own attorneys'
fees, provided, however, that in the event either party
challenges or in any way seeks to have the decision or award
of the Rent-a-Judge(s) vacated, corrected or modified, if the
challenge is denied or the original decision or award is
affirmed, the challenging party shall pay the costs and fees,
including reasonable attorneys' fees, of the non-challenging
party, both for the challenge and for the original Claim
resolution process.
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13.10 NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and delivered in person or sent by
certified mail, postage prepaid and properly addressed as follows:
TO LM:
Douglas Horne, President
Laser Medical, Inc.
845 East Silvershadow Road
Murray, Utah 84107
WITH A COPY TO:
C. Jeffrey Thompson
Woodlands Business Center
4021 S. 100 East, Suite 400
Salt Lake City, Utah 84107
TO MRM:
Allen H. Bonnifield, President
Medical Resources Management, Inc.
932 Grand Central Avenue
Glendale, California 91201
WITH A COPY TO:
William B. Barnett, Esq.
Transworld Bank Plaza
15233 Ventura Blvd., Suite 1110
Sherman Oaks, California 91403
Any party may from time to time change its address for the purpose of
notices to that party by a similar notice specifying a new address, but no
such change shall be deemed to have been given until it is actually received
by the other party hereto.
All notices and other communications required or permitted under this
Agreement which are addressed as provided in this section 13.10, if delivered
personally, shall be effective upon delivery; and, if delivered by mail, shall
be effective three (3) days following deposit in the United States mail, postage
prepaid.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
MEDICAL RESOURCES MANAGEMENT, INC.
a Nevada corporation
By: /s/ ALLEN H. BONNIFIELD
----------------------------------
Allen H. Bonnifield, President
LASER MEDICAL, INC.
a Utah corporation
By: /s/ DOUGLAS S. HORNE
----------------------------------
Douglas S. Horne, President
FIVE PERCENT SHAREHOLDERS OF LASER MEDICAL, INC.
/s/ ROBERT H. HORNE
- ----------------------------------
Robert H. Horne
/s/ DOUGLAS S. HORNE
- ----------------------------------
Douglas S. Horne
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EXHIBIT 6.14
PLAN AND AGREEMENT OF REORGANIZATION
This PLAN AND AGREEMENT OF REORGANIZATION (the "Agreement") is entered
into on this 30th day of June, 1997, by and between MEDICAL RESOURCES
MANAGEMENT, INC., a Nevada corporation ("MRM") and MED SURG SPECIALTIES,
INC., a California corporation ("MSS"), and those persons listed in EXHIBIT A
hereto, being all of the shareholders of MSS who own individually at least
five percent (5%) of the outstanding stock of MSS and together hold over 50%
of the outstanding stock of MSS as of the date this Agreement is executed.
PLAN OF REORGANIZATION
The transaction contemplated by this Agreement is intended to be a "tax
free" exchange as contemplated by the provisions of Sections 351 and
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. MRM will
acquire up to 100% of MSS' issued and outstanding common stock (no par value
per share), and all warrants and options outstanding (the "MSS Stock" or the
"MSS Shares"), in exchange for approximately 235,000 shares of MRM's common
stock ($.001 par value per share) (the "Exchange Stock") (collectively, the
"Exchange Transaction"). The Exchange Transaction will result in MSS becoming
a wholly owned subsidiary of MRM.
AGREEMENT
SECTION 1
TRANSFER OF MSS SHARES
1.1 All shareholders of MSS (the "Shareholders" or the "MSS
Shareholders") as of the date of Closing, as such term is defined in Section
3 herein (the "Closing" or the "Closing Date"), shall transfer, assign,
convey and deliver to MRM at the Closing Date certificates representing 100%
of the MSS shares then issued and outstanding, or such lesser percentage as
shall be acceptable to MRM, but in no event less than 95% of the MSS Shares.
The transfer of the MSS Shares shall be made free and clear of all liens,
mortgages, pledges, encumbrances or charges, whether disclosed or
undisclosed, except as the MSS Shareholders and MRM shall have otherwise
agreed in writing.
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SECTION 2
ISSUANCE OF EXCHANGE STOCK AND ADDITIONAL
STOCK TO MSS SHAREHOLDERS
2.1 As consideration for the transfer, assignment, conveyance and
delivery of the MSS Stock hereunder, MRM shall, at the Closing, issue to the
MSS Shareholders, pro rata in accordance with each Shareholder's percentage
ownership of MSS immediately prior to the Closing, certificates for 214,667
shares of Exchange Stock. The parties intend that the Exchange Stock being
issued will be used to acquire all issued and outstanding MSS Shares. To the
extent that less than 100% of the MSS Stock is acquired, the number of shares
of Exchange Stock issuable to those MSS Shareholders who have elected to
participate in the exchange described in this Agreement (the "Exchange")
shall increase proportionately.
2.2 An additional 22,000 shares of MRM common stock ("Additional
Stock") shall be issued pro rata to the MSS Shareholders pro rata in
accordance with each Shareholder's percentage ownership of MSS prior to the
Closing, provided that such Additional Stock shall only be issued in
accordance with the following terms and conditions: such Additional Stock
shall be held pending the completion of a sales tax audit of MSS currently
being conducted by California taxing authorities. Upon the completion and
final determination as a result of such audit, the liability of MSS
(including sales tax, penalties and interest) for such audit shall be
subtracted from the value of the Additional Stock, which is stipulated by the
parties hereto to be $33,000 for purposes of this paragraph, with each such
share valued at a price of $1.50 per share. If the value of the Additional
Stock exceeds the audit liability of MSS, then the difference shall be
distributed as Additional Stock to the MSS Shareholders at the rate of one
share of common stock for each $1.50 of such difference. If, however, the
audit liability exceeds $33,000 then no Additional Stock will be issued and
the MSS Shareholders agree to reimburse MSS for any such excess liability
within ten (10) days of notice from MSS.
2.3 The issuance of the Exchange Stock and Additional Stock shall be
made free and clear of all liens, mortgages, pledges, encumbrances or
charges, whether disclosed or undisclosed, except as the MSS Shareholders and
MRM shall have otherwise agree in writing. As provided herein, and
immediately prior to the Closing, MRM shall have issued and outstanding: (i)
not more than 7,200,000 shares of common stock; (ii) not more than 1,300,000
options outstanding; (iii) not more than 515,540 Class A warrants issued in
conjunction with a recent Private Offering; (iv) not more than 515,540 Class
B warrants issued in conjunction with a recent Private Offering; (v) 140,000
warrants held by an investment relations firm; (vi) 100,000 warrants held by
a lender; and (vii) shall not have any shares of preferred stock issued and
outstanding. All options and warrants provide for the purchase of one share
of common stock for each option or warrant.
2.4 None of the Exchange Stock or Additional Stock issued to the MSS
Shareholders, nor any of the MSS Stock transferred to MRM hereunder shall, at
the time
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of Closing, be registered under federal securities laws but, rather, shall be
issued pursuant to an exemption therefrom and be considered "restricted
stock" within the meaning of Rule 144 promulgated under the Securities Act of
1933, as amended (the "Act"). All of such shares shall bear a legend worded
substantially as follows:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 (the "Act") and are 'restricted
securities' as that term is defined in Rule 144 under the Act. The
shares may not be offered for sale, sold or otherwise transferred
except pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of the
Company."
The respective transfer agents of MRM and MSS shall annotate their records to
reflect the restrictions on transfer embodied in the legend set forth above.
There shall be no requirement that MRM register the Exchange Stock under the
Act, nor shall MSS or the Shareholders be required to register any MSS Shares
under the Act.
SECTION 3
CLOSING
-------
3.1 CLOSING OF TRANSACTION. Subject to the fulfillment or waiver of
the conditions precedent set forth in Section 11 hereof, the Closing shall
take place on the Closing Date at the offices of Medical Resources
Management, Inc., 932 Grand Central Avenue, Glendale, California at 10:00
a.m., local time, or at such other time on the Closing Date as MSS and MRM
shall mutually agree in writing.
3.2 CLOSING DATE. The Closing Date of the Exchange shall take place on
a date chosen by mutual agreement of MSS and MRM within sixty (60) days from
the date of this Agreement, or such later date upon which MSS and MRM may
mutually agree in writing, or as extended pursuant to subsection 12.1(b)
herein.
3.3 DELIVERIES BY MSS AT CLOSING. MSS shall deliver or cause to be
delivered to MRM at the Closing:
(a) certificates representing all shares, or an amount of shares
acceptable to MRM, of the MSS Stock as described in Section 1,
each endorsed in blank by the registered owner;
(b) an agreement from each Shareholder surrendering his or her
shares agreeing to a restriction on the transfer of the Exchange
Stock as described in Section 2 hereof;
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(c) a copy of a consent by MSS' Board of Directors authorizing MSS
to take the necessary steps toward closing the transaction
described by this Agreement in the form set forth in EXHIBIT B;
(d) a copy of a Certificate of Good Standing for MSS issued not more
than thirty (30) days prior to the Closing Date by the
California Secretary of State;
(e) an opinion of Bandy & Bandy, counsel to MSS, dated the Closing
Date, in a form deemed acceptable by MRM and its counsel;
(f) Articles of Incorporation and Bylaws of MSS certified as of the
Closing Date by the President and Secretary of MSS;
(g) all of MSS' corporate records;
(h) executed bank forms for MSS bank accounts reflecting a change in
management and signatories to said bank accounts;
(i) such other documents, instruments or certificates as shall be
reasonably requested by MRM or its counsel.
3.4 DELIVERIES BY MRM AT CLOSING. MRM shall deliver or cause to be
delivered to MSS at the Closing:
(a) a copy of a consent of MRM's Board of Directors authorizing MRM
to take the necessary steps toward closing the transaction
described by this Agreement in the form set forth in EXHIBIT C;
(b) a copy of a Certificate of Good Standing for MRM issued not more
than thirty (30) days prior to the Closing by the Secretary of
State of Nevada;
(c) stock certificate(s) or a computer listing from MRM's transfer
agent representing the Exchange Stock to be newly issued by MRM
under this Agreement, which certificates shall be in the names
of the appropriate MSS Shareholders, each in the appropriate
denomination as described in Section 2;
(d) an opinion of William B. Barnett, Esq., special counsel to MRM,
dated the Closing Date, in a form deemed acceptable to MSS and
its counsel;
(e) Articles of Incorporation and Bylaws of MRM certified as of the
Closing Date by the President and Secretary of MRM;
(f) such other documents, instruments or certificates as shall be
reasonably requested by MSS or its counsel.
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3.5 FILINGS, COOPERATION.
(a) Prior to the Closing, the parties shall proceed with due
diligence and in good faith to make such filings and take such
other actions as may be necessary to satisfy the conditions
precedent set forth in Section 11 below.
(b) On and after the Closing Date, MRM, MSS and the Shareholders set
forth in EXHIBIT A shall, on request and without further
consideration, cooperate with one another by furnishing or using
their best efforts to cause others to furnish any additional
information and/or executing and delivering or using their best
efforts to cause others to execute and deliver any additional
documents and/or instruments, and doing or using their best
efforts to cause others to do any and all such other things as
may be reasonably required by the parties or their counsel to
consummate or otherwise implement the transactions contemplated
by this Agreement.
SECTION 4
REPRESENTATIONS AND WARRANTIES BY
MSS AND CERTAIN SHAREHOLDERS
4.1 SUBJECT TO THE SCHEDULES OF EXCEPTIONS ATTACHED HERETO AND
INCORPORATED HEREIN BY THIS REFERENCE (WHICH SCHEDULES SHALL BE ACCEPTABLE TO
MRM), MSS AND THOSE SHAREHOLDERS LISTED ON EXHIBIT A REPRESENT AND WARRANT TO
MRM AS FOLLOWS:
(a) ORGANIZATION AND GOOD STANDING OF MSS. MSS 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 own or lease its properties and to carry on its
business as now being conducted and as proposed to be conducted.
The Articles of Incorporation of MSS and all Amendments thereto
as presently in effect, certified by the Secretary of State of
California, and the Bylaws of MSS as presently in effect,
certified by the President and Secretary of MSS, have been
delivered to MRM and are complete and correct, and since the
date of such delivery, there has been no amendment, modification
or other change thereto.
(b) CAPITALIZATION. MSS' authorized capital stock is 1,000,000
shares of no par value common stock (defined herein as "MSS
Common Stock"), of which 50,000 shares are issued and outstanding
prior to the Closing Date, and held of record by one (1) person,
who are currently residents of one of the following
jurisdictions: California. All of such outstanding shares are
validly issued, fully paid and non-assessable. All securities
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issued by MSS as of the date of this Agreement have been issued
in compliance with all applicable state and federal laws. Except
as set forth in SCHEDULE 4.1(b), no other equity securities or
debt obligations of MSS are authorized, issued or outstanding.
(c) SUBSIDIARIES. MSS has no subsidiaries and no other investments,
directly or indirectly, or other financial interest in any other
corporation or business organization, joint venture or
partnership of any kind whatsoever.
(d) FINANCIAL STATEMENTS. MSS will deliver to MRM, prior to the
Closing, a copy of MSS' unaudited financial statements through
December 31, 1996 and April 30, 1997 (the "MSS Financial
Statements"), which will be true and complete. The MSS Financial
Statements will be signed by the President and Secretary of MSS
certifying that, to the best of their knowledge, such financial
statements are true and complete. Other than changes in the
usual and ordinary conduct of the business, since April 30, 1997
there have been, and at the Closing Date there will be, no
material adverse changes in such financial statements.
(e) ABSENCE OF UNDISCLOSED LIABILITIES. MSS has no liabilities
which are not adequately reflected or reserved against in the
MSS Financial Statements or otherwise reflected in this
Agreement, and MSS shall not have as of the Closing Date any
liabilities (secured or unsecured and whether accrued, absolute,
direct, indirect or otherwise) which were incurred after April
30, 1997, and would be, individually or in the aggregate,
materially adverse to the results of operations or financial
condition of MSS as of the Closing Date.
(f) LITIGATION. Except as disclosed in SCHEDULE 4.1(f), there are
no outstanding orders, judgments, injunctions, awards or decrees
of any court, governmental or regulatory body, or arbitration
tribunal against MSS or its properties. Except as disclosed in
SCHEDULE 4.1(f), there are no actions, suits or proceedings
pending, or, to the knowledge of MSS, threatened against or
affecting MSS, any of its officers or directors relating to their
positions as such, or any of its properties, at law or in equity,
or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, foreign or domestic, in connection with the
business, operations or affairs of MSS, which might result in
any material adverse change in the operations or financial
condition of MSS, or which might prevent or materially impede the
consummation of the transactions under this Agreement.
(g) COMPLIANCE WITH LAWS. To the best of its knowledge, the
operations and affairs of MSS do not violate any law, ordinance,
rule or regulation
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currently in effect, or any order, writ, injunction or decree of
any court or governmental agency, the violation of which would
substantially and adversely affect the business, financial
condition or operations of MSS.
(h) ABSENCE OF CERTAIN CHANGES. Except as set forth in SCHEDULE
4.1(h), or otherwise disclosed in writing to MRM, since April 30,
1997: (i) MSS has not entered into any material transaction; (ii)
there has been no change in the condition (financial or
otherwise), business, property, prospects, assets or liabilities
of MSS as shown in the MSS Financial Statements, other than
changes that both individually and in the aggregate do not have
a consequence that is materially adverse to such condition,
business, property, prospects, assets or liabilities; (iii) there
has been no damage to, destruction of or loss of any of the
properties or assets of MSS (whether or not covered by insurance)
materially and adversely affecting the condition (financial or
otherwise), business, property, prospects, assets or liabilities
of MSS; (iv) MSS has not declared or paid any dividend, made
any distribution on its capital stock, redeemed, purchased or
otherwise acquired any of its capital stock, granted any options
to purchase shares of its stock, or issued any shares of its
capital stock; (v) there has been no material adverse change,
except in the ordinary course of business, in the contingent
obligations of MSS by way of guaranty, endorsement, indemnity,
warranty or otherwise; (vi) there have been no loans made by
MSS to its employees, officers or directors; (vii) there has
been no waiver or compromise by MSS of a valuable right or of a
material debt owed to it; (viii) there has been no
extraordinary increase in the compensation of any of MSS'
employees; (ix) there has been no agreement of commitment by
MSS to do or perform any of the acts described in this Section
4.1(h); and (x) there has been no other event or conditions of
any character which might reasonably be expected either to
result in a material and adverse change in the condition
(financial or otherwise), business, property, prospects, assets
or liabilities of MSS, or to materially impair the ability of
MSS to conduct the business now being conducted.
(i) EMPLOYEES. Except as disclosed in SCHEDULE 4.1(i), there are no
collective bargaining, bonus, profit sharing, compensation or
other plans, agreements or arrangements between MSS and any of
its employees, officers or directors, and there are no
employment, consulting, severance or indemnification
arrangements, agreements or understandings between MSS (on the
one hand), and any current or former employees, officers or
directors (on the other hand). MSS agrees to terminate in
writing all of its employees prior to the Closing and to pay
prior to the Closing all wages, commissions, vacation pay and
any other monies owed to each employee. MSS also agrees to
terminate all insurance and benefit packages that have been
made available to each
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employee prior to the Closing. The MSS Shareholders assume all
responsibility for any claims by or damages to any current or
former MSS employees and their families. The MSS Shareholders
will indemnify and hold blameless MRM from any and all such
claims and damages that may result from litigation or otherwise
from any current or former MSS employees or their families.
(j) ASSETS. All of the assets reflected on the MSS Financial
Statements as of April 30, 1997 or acquired and held as of the
Closing Date will be owned by MSS on the Closing Date. Except
as set forth in SCHEDULE 4.1(j), MSS owns outright and has good
and marketable title, or holds valid and enforceable leases, to
all of such assets. None of MSS' equipment used by MSS in
connection with its business has any material defects, and all
such equipment is, in all material respects, in good operating
condition and repair, and is adequate for the uses to which it
is being put. None of MSS' equipment is in need of maintenance
or repairs, except for ordinary, routine maintenance and repair.
(k) TAX MATTERS. MSS represents that, except as set forth in
SCHEDULE 4.1(k), all federal, foreign, state and local tax
returns, reports and information statements required to be filed
by or with respect to the activities of MSS have been timely
filed. Since April 30, 1997, MSS has not incurred any liability
with respect to any federal, foreign, state or local taxes
except in the ordinary and regular course of business. Such
returns, reports and information statements are true and correct
in all material respects insofar as they relate to the activities
of MSS. On the date of this Agreement, MSS is not delinquent in
the payment of any such tax or assessment, and no deficiencies
for any amount of such tax have been proposed or assessed. Any
tax sharing agreement among or between MSS and any affiliate
thereof shall be terminated as of the Closing Date.
(l) CONTRACTS. Set forth on SCHEDULE 4.1(l) hereto is a true and
complete list of all material contracts, agreements or
commitments to which MSS is a party or is bound. All such
material contracts, agreements and commitments are valid and
biding on MSS in accordance with their terms.
(m) INSURANCE. Set forth on SCHEDULE 4.1(m) hereto is a list of
insurance policies currently maintained by MSS in full force and
effect which provide for coverages which are usual and customary
in its business as to amount and scope, and are adequate to
protect MSS against any reasonably foreseeable risk of loss.
(n) OPERATING AUTHORITIES. To the best of its knowledge, MSS has all
material operating authorities, governmental certificates, and
licenses,
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permits, authorizations and approvals (the "Permits" or,
individually, "Permit") required to conduct its business as
presently conducted. Such Permits are set forth on SCHEDULE
4.1(n) Since MSS' inception (i) there has not been any notice or
adverse development regarding such Permits; (ii) such Permits
are in full force and effect; (iii) no material violations
are or have been recorded in respect of any Permit; and (iv)
no proceeding is pending or threatened to revoke or limit any
Permit.
(o) BOOKS AND RECORDS. The books and records of MSS are complete
and correct, are maintained in accordance with good business
practice, and accurately reflect, in all material respects,
all of the transactions described therein, and there have been
no material transactions involving MSS which properly should
have been set forth therein and which have not been accurately
so set forth.
(p) AUTHORITY TO EXECUTE AGREEMENT. The Board of Directors of
MSS, pursuant to the power and authority legally vested in it,
has duly authorized the execution and delivery by MSS of this
Agreement, and has duly authorized each of the transactions
hereby contemplated. MSS has the power and authority to
execute and deliver this Agreement, to consummate the
transactions hereby contemplated, and to take all other
actions required to be taken by it pursuant to the provisions
hereof. MSS has taken all actions required by law, its
Articles of Incorporation, as amended, its Bylaws, as amended,
or otherwise, to authorize the execution and delivery of this
Agreement. This Agreement is valid and binding upon MSS and
those MSS Shareholders listed in EXHIBIT A hereto in
accordance with its terms. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will constitute a violation or breach of
the Articles of Incorporation, as amended, or the Bylaws, as
amended, of MSS, or of any agreement, stipulation, order,
writ, injunction, decree, law, rule or regulation applicable
to MSS.
(p) FINDER'S FEES. MSS is not, and on the Closing Date will not
be, liable or obligated to pay any finder's, agent's or
broker's fee arising out of or in connection with this
Agreement or the transactions contemplated by this Agreement.
4.2 DISCLOSURE. At the date of this Agreement, MSS and those MSS
Shareholders listed in EXHIBIT A have, and at the Closing Date they will
have, disclosed all events, conditions and facts materially affecting the
business and prospects of MSS. MSS and such Shareholders have not now, and
will not have at the Closing Date, withheld knowledge of any such events,
conditions or facts which they know, or have reasonable grounds to know, may
materially affect MSS' business or prospects. Neither this Agreement, nor
any certificate, exhibit, schedule or other written document or statement,
furnished to MRM by MSS and/or by such Shareholders in connection with
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the transactions contemplated by this Agreement, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a
material fact necessary to be stated in order to make the statements
contained herein or therein not misleading.
SECTION 5
REPRESENTATIONS AND WARRANTIES BY MRM
5.1 Subject to the schedules of exceptions, attached hereto and
incorporated herein by this reference (which schedules shall be acceptable to
MSS), MRM represents and warrants to MSS and those Shareholders listed in
EXHIBIT A as follows:
(a) ORGANIZATION AND GOOD STANDING OF MRM. MRM is a corporation
duly organized, validly existing and in good standing under
the laws of the State of Nevada, and has full corporate power
and authority to own or lease its properties and to carry on
its business as now being conducted and as proposed to be
conducted. MRM is qualified to conduct business as a foreign
corporation in no other jurisdiction, and the failure to so
qualify in any other jurisdiction does not materially
adversely affect the ability of MRM to carry on its business
as most recently conducted. The Articles of Incorporation of
MRM, and all amendments thereto, as presently in effect,
certified by the Secretary of State of Nevada, and the Bylaws
of MRM as presently in effect, certified by the President and
Secretary of MRM, have been delivered to MSS and are complete
and correct, and since the date of such delivery, there has
been no amendment, modification or other change thereto.
(b) CAPITALIZATION. MRM's authorized capital stock consists of
100,000,000 shares of $.001 par value common stock (defined
herein as "MRM Common Stock"), approximately 7,200,000 shares
of which will be issued and outstanding prior to the Closing
Date. All authorized and/or outstanding options and warrants
are set forth on SCHEDULE 5.1(b). Except as set forth on
SCHEDULE 5.1(b), no other equity securities or debt
obligations of MRM are authorized, issued or outstanding, and
as of the Closing Date, there will be no other outstanding
options, warrants, agreements, contracts, calls, commitments
or demands of any character, preemptive or otherwise, other
than this Agreement, relating to any of the MRM Common Stock,
and there will be no outstanding security of any kind
convertible into MRM Common Stock. The shares of MRM Common
Stock are free and clear of all liens, charges, claims,
pledges, restrictions and encumbrances whatsoever of any kind
or nature that would inhibit, prevent or otherwise interfere
with the transactions contemplated hereby. All of the
outstanding shares of MRM Common Stock are validly issued,
fully paid and non-assessable, and there are no
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voting trust agreements or other contracts, agreements, or
arrangements restricting or affecting voting or dividend rights
or transferability with respect to the outstanding shares of MRM
Common Stock.
(c) ISSUANCE OF EXCHANGE STOCK. All of the MRM Common Stock to be
issued to or transferred to MSS Shareholders pursuant to this
Agreement, when issued, transferred and delivered as provided
herein, will be duly authorized, validly issued, fully paid
and non-assessable, and will be free and clear of all liens,
charges, claims, pledges, restrictions and encumbrances
whatsoever of any kind or nature, except those restrictions
imposed by state or federal corporate and securities
regulations.
(d) APPROVAL OF THE TRANSACTION. MRM will use its best efforts to
forthwith obtain any approval of the transactions set forth in
this Agreement relating to its outstanding shares if required
by the General Corporation Law of California.
(e) VIOLATIONS, CONFLICTS. Neither the execution and delivery of
this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by MRM with any of the
provisions hereof will: (i) violate or conflict with, or
result in a breach of any provisions of, or constitute a
default (or an event which, with notice or lapse of time or
both, would constitute a default) under, any of the terms,
conditions or provisions of the Articles of Incorporation or
Bylaws of MRM, or any note, bond, mortgage, indenture, deed of
trust, license, agreement or other instrument to which MRM is
a party, or by which it or its properties or assets may be
bound or affected; or (ii) violate any order, writ,
injunction, decree, statute, rule, permit or regulations
applicable to MRM or to any of its properties or assets.
(f) FINANCIAL STATEMENTS. MRM will deliver to MSS, prior to the
Closing, a copy of MRM's audited financial statements through
October 31, 1996 (the "MRM Financial Statements"), which will
be true and complete, and which have been prepared in
accordance with generally accepted accounting principles.
Other than changes in the usual and ordinary conduct of the
business, since October 31, 1996 there have been, and at the
Closing Date there will be, no material adverse changes in
such financial statements.
(g) ABSENCE OF UNDISCLOSED LIABILITIES. MRM has no liabilities
which are not adequately reflected or reserved against in the
MRM Financial Statements or otherwise reflected in this
Agreement, and MRM shall not have as of the Closing Date any
liabilities (secured or unsecured and whether accrued,
absolute, direct, indirect or otherwise) which were incurred
after October 31, 1996, and would be, individually or in the
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aggregate, materially adverse to the results of operations or
financial condition of MRM as of the Closing Date.
(h) LITIGATION. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, governmental or
regulatory body, or arbitration tribunal against MRM or its
properties. There are no actions, suits or proceedings
pending, or, to the knowledge of MSS, threatened against or
affecting MRM, any of its officers or directors relating to
their positions as such, or any of its properties, at law or
in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau,
agency or instrumentality, foreign or domestic, in connection
with the business, operations or affairs of MRM which might
result in any material adverse change in the operations or
financial condition of MRM, or which might prevent or
materially impede the consummation of the transactions under
this Agreement.
(i) COMPLIANCE WITH LAWS. To the best of its knowledge, the
operations and affairs of MRM do not violate any law,
ordinance, rule or regulation currently in effect, or any
order, writ, injunction or decree of any court or governmental
agency, the violation of which would substantially and
adversely affect the business, financial condition or
operations of MRM.
(j) TAX MATTERS. MRM represents that, except as set forth in
SCHEDULE 5.1(j), all federal, foreign, state and local tax
returns, reports and information statements required to be
filed by or with respect to the activities of MRM have been
timely filed. Since October 31, 1996, MRM has not incurred
any liability with respect to any federal, foreign, state or
local taxes except in the ordinary and regular course of
business. Such returns, reports and information statements
are true and correct in all material respects insofar as they
relate to the activities of MRM. On the date of this
Agreement, MRM is not delinquent in the payment of any such
tax or assessment, and no deficiencies for any amount of such
tax have been proposed or assessed. Any tax sharing agreement
among or between MRM and any affiliate thereof shall be
terminated as of the Closing Date.
(k) BOOKS AND RECORDS. The books and records of MRM are complete
and correct, are maintained in accordance with good business
practice, and accurately reflect, in all material respects,
all of the transactions described therein, and there have been
no material transactions involving MRM which properly should
have been set forth therein and which have not been accurately
so set forth.
(l) AUTHORITY TO EXECUTE AGREEMENT. The Board of Directors of
MRM, pursuant to the power and authority legally vested in it,
has duly authorized the execution and delivery by MRM of this
Agreement and
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the Exchange Stock, and has duly authorized each of the
transactions hereby contemplated. MRM has the power and
authority to execute and deliver this Agreement, to consummate
the transactions hereby contemplated, and to take all other
actions required to be taken by it pursuant to the provisions
hereof. MRM has taken all actions required by law, its
Articles of Incorporation, as amended, it Bylaws, as amended,
or otherwise, to authorize the execution and delivery of this
Agreement and the Exchange Stock, pursuant to the provisions
hereof. This Agreement is valid and binding upon MSS in
accordance with its terms. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will constitute a violation or breach of
the Articles of Incorporation, as amended, or the Bylaws, as
amended, of MRM, or of any agreement, stipulation, order,
writ, injunction, decree, law, rule or regulation applicable
to MRM.
(m) FINDER'S FEES. MRM is not, and on the Closing Date will not
be, liable or obligated to pay any finder's, agent's or
broker's fee arising out of or in connection with this
Agreement or the transactions contemplated by this Agreement.
5.2 DISCLOSURE. At the date of this Agreement, MRM has, and at the
Closing Date it will have, disclosed all events, conditions and facts
materially affecting the business and prospects of MRM. MRM has not now, and
will not have at the Closing Date, withheld knowledge of any such events,
conditions or facts which it knows, or has reasonable grounds to know, may
materially affect MRM's business or prospects. Neither this Agreement, nor
any certificate, exhibit, schedule or other written document or statement,
furnished to MSS or the MSS Shareholders by MRM in connection with the
transactions contemplated by this Agreement, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a
material fact necessary to be stated in order to make the statements
contained herein or therein not misleading.
SECTION 6
ACCESS AND INFORMATION
6.1 AS TO MSS. Subject to the protections provided by subsection 9.4
herein, MSS shall give to MRM and to MRM's counsel, accountants and other
representatives full access during normal business hours throughout the
period prior to the Closing to all of MSS' properties, books, contracts,
commitments and records, including information concerning products and
customer base, and patents held by, or assigned to, MSS, and shall furnish to
MRM during such period all such information concerning MSS' affairs as MRM
may reasonably request.
6.2 AS TO MRM. Subject to the protections provided by subsection 9.4
herein, MRM shall give to MSS, the MSS Shareholders and to MSS' counsel,
accountants and other representatives full access during normal business
hours throughout the period prior
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to the Closing to all of MRM's properties, books, contracts, commitments and
records, and shall furnish to MSS and the MSS Shareholders during such period
all such information concerning MRM's affairs as MSS and the MSS Shareholders
may reasonably request.
SECTION 7
COVENANTS OF MSS AND MSS SHAREHOLDERS
7.1 NO SOLICITATION. MSS and the MSS Shareholders listed on EXHIBIT A,
to the extent within each Shareholder's control, will use their best efforts
to cause MSS' offic ers, employees, agents and representatives not, directly
or indirectly , to solicit, encourage, or initiate any discussions with, or
negotiate or otherwise deal with, or provide any information to, any person
or entity other than MRM and its officers, employees and agents, concerning
any merger, sale of substantial assets, or similar transaction involving MSS,
or any sale of an y of its capital stock or of the capital stock held by
such Shareholders in excess of 10% of such Shareholder's current stock
holdings, except as otherwise disclosed in this Agreement. MSS will notify
MRM immediately upon receipt of an inquiry, offer, or proposal relating to
any of the foregoing. None of the foregoing shall prohibit providing
information to others in a manner in keeping with the ordinary conduct of
MSS' business, or providing information to government authorities.
7.2 CONDUCT OF BUSINESS PENDING THE TRANSACTION. MSS and the MSS
Shareholders listed on EXHIBIT A, to the extent within each Shareholder's
control, covenant and agree with MRM that, prior to the consummation of the
transaction called for by this Ag reement, and the Closing, or the
termination of this Agreement pursuant to its terms, unless MRM shall
otherwise consent in writing, and except as otherwise contemplated by this
Agreement, they will each comply with all of the following:
(a) MSS' business shall be conducted only in the ordinary and
usual course. MSS shall use reasonable efforts to keep intact
its business organization and good will, keep available the
services of its respective officers and employees, and
maintain good relations with suppliers, creditors, employees,
customers and others having business or financial
relationships with MSS, and MSS shall immediately notify MRM
of any event or occurrence which is material to, and not in
the ordinary and usual course of, the business of MSS.
(b) MSS shall not (i) amend its Articles of Incorporation or
Bylaws, or (ii) split, combine, or reclassify any of its
outstanding securities, or (iii) declare, set aside, or pay
any dividend or other distribution on, or make or agree or
commit to make any exchange for or redemption of any such
securities payable in cash, stock or property.
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(c) MSS shall not (i) issue or agree to issue any additional
shares of, or rights of any kind to acquire any shares of, its
capital stock of any class, or (ii) enter into any contract,
agreement, commitment, or arrangement with respect to any of
the foregoing, except as set forth in this Agreement.
(d) MSS shall not create, incur, or assume any long-term or
short-term indebtedness for money borrowed, or make any
capital expenditures or commitment for capital expenditures,
except in the ordinary course of business and consistent with
past practice.
(e) MSS shall not (i) adopt, enter into, or amend any bonus,
profit sharing, compensation, stock option, warrant, pension,
retirement, deferred compensation, employment, severance,
termination or other employee benefit plan, agreement, trust
fund, or arrangement for the benefit or welfare of any
officer, director or employee, or (ii) agree to any material
(in relation to historical compensation) increase in the
compensation payable or to become payable to, or any increase
in the contractual term of employment of, any officer,
director or employee, except, with respect to employees who
are not officers or directors, in the ordinary course of
business in accordance with past practices, or with the
written approval of MRM.
(f) MSS shall not sell, lease, mortgage, encumber or otherwise
dispose of, or grant an interest in, any of its assets or
properties, except for: (i) sales, encumbrances and other
dispositions or grants in the ordinary course of business and
consistent with past practice; (ii) liens for taxes not yet
due; (iii) liens or encumbrances that are not material in
amount or effect and that do not impair the use of the
property; or (iv) as specifically provided for or permitted in
this Agreement.
(g) Neither MSS nor any of its subsidiaries shall enter into any
agreement, commitment, or understanding, whether in writing or
otherwise, with respect to any of the matters referred to in
subparagraphs (a) through (f) above.
(h) MSS will continue to properly and promptly file when due all
federal, state, local, foreign and other tax returns, reports
and declarations required to be filed by it, and will pay, or
make full and adequate provision for the payment of, all taxes
and governmental charges due from or payable by MSS.
(i) MSS will comply with all laws and regulations applicable to it
and to its operations.
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(j) MSS will maintain in full force and effect insurance coverage
of a type and in such amounts as are customary in its
business, but not less than that set forth in SCHEDULE 4.1(m).
SECTION 8
COVENANTS OF MRM
8.1 No Solicitation. MRM will not discuss or negotiate with any other
corporation, firm or other person or entertain or consider any inquiries or
proposals relating to the possible disposition of its shares of capital
stock, or its assets, and will conduct business only in the ordinary course.
Notwithstanding the foregoing, MRM shall be free to engage in activities
mentioned in the preceding sentence which are designed to further the mutual
interests of the parties to this Agreement.
8.2 Conduct of MRM Pending Closing. MRM covenants and agrees with MSS
that, prior to the consummation of the transactions called for by this
Agreement, and the Closing, or the termination of this Agreement pursuant to
its terms, unless MSS shall otherwise consent in writing, and except as
otherwise contemplated by this Agreement, MRM will comply with all of the
following:
(a) No change will be made in MRM's Articles of Incorporation or
Bylaws, or in MRM's authorized or issued shares of capital
stock, except as may be first approved in writing by MSS.
(b) No dividends shall be declared, no stock options granted and
no employment agreements shall be entered into with officers
or directors of MRM, except as may be first approved in
writing by MSS.
SECTION 9
ADDITIONAL COVENANTS OF THE PARTIES
9.1 COOPERATION. Both MSS and MRM will cooperate with each other and
with their respective counsel, accountants and agents in carrying out the
transaction contemplated by this Agreement, and in delivering all documents
and instruments deemed reasonably necessary or useful by the other party.
9.2 EXPENSES. Each of the parties hereto shall pay all of its
respective costs and expenses (including attorneys' and accountants' fees,
costs and expenses) incurred in connection with this Agreement and the
consummation of the transactions contemplated herein.
9.3 PUBLICITY. Prior to the Closing, any written news releases or
public disclosure by either party pertaining to this Agreement shall be
submitted to the other
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party for its review and approval prior to such release or disclosure,
provided, however, that (a) such approval shall not be unreasonably withheld,
and (b) such review and approval shall not be required of disclosures
required to comply, in the judgment of counsel, with federal or state
securities or corporate laws or policies.
9.4 CONFIDENTIALITY. While each party is obligated to provide access
to and furnish information in accordance with Sections 4 and 5 herein, it is
understood and agreed that such disclosure and information subsequently
obtained as a result of such disclosures are proprietary and confidential in
nature. Each party agrees to hold such information in confidence and not to
reveal any such information to any person who is not a party to this
Agreement, or an officer, director or key employee of MRM or MSS, and not to
use the information obtained for any purpose other than assisting in its due
diligence inquiry precedent to the Closing. Upon request of any party
hereto, a confidentiality agreement, acceptable to the disclosing party, will
be executed by any person selected to receive such proprietary information,
prior to receipt of such information.
SECTION 10
SURVIVAL OF REPRESENTATIONS,
WARRANTIES AND COVENANTS
10.1 The representations, warranties and covenants of MSS, and of those
Shareholders listed on EXHIBIT A contained herein, shall survive the
execution and delivery of this Agreement, the Closing and the consummation of
the transactions called for by this Agreement. The representations,
warranties and covenants of MRM contained herein shall survive the execution
and delivery of this Agreement, the Closing and the consummation of the
transactions called for by this Agreement.
SECTION 11
CONDITIONS PRECENDENT TO OBLIGATIONS OF THE PARTIES
11.1 The obligations of MRM, MSS and the MSS Shareholders listed on
EXHIBIT A under this Agreement shall be subject to the fulfillment, on or
prior to the Closing, of all conditions elsewhere herein set forth,
including, but not limited to, receipt by the appropriate party of all
deliveries required by Sections 4 and 5 herein, and the fulfillment, prior to
Closing, of each of the following conditions:
(a) All representations and warranties made in this Agreement by
MRM, MSS and the MSS Shareholders listed on EXHIBIT A shall be
true and correct in all material respects on and as of the
Closing Date with the same effect as if such representations
and warranties had been made on and as of the Closing Date.
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(b) MRM, MSS and the MSS Shareholders listed on EXHIBIT A shall
have performed or complied with all covenants, agreements and
conditions contained in this Agreement on their part required
to be performed or complied with at or prior to the Closing.
(c) All material authorizations, consents or approvals of any and
all governmental regulatory authorities necessary in
connection with the consummation of the transactions
contemplated by this Agreement shall have been obtained and be
in full force and effect.
(d) The Closing shall not violate any permit or order, decree or
judgment of any court or governmental body having competent
jurisdiction, and there shall not have been instituted any
legal or administrative action or proceeding to enjoin the
transaction contemplated hereby or seeking damages from any
party with respect thereto.
(e) Each MSS Shareholder acquiring Exchange Stock will be
required, at the Closing, to submit an agreement confirming
that all of the Exchange Stock received will be acquired for
investment and not with a view to, or for sale in connection
with, any distribution thereof, and agreeing not to transfer
any of the Exchange Stock for a period of one year from the
date of the Closing, except to those persons approved by legal
counsel to MRM as falling within the exemption from
registration under the Securities Act of 1933 and any
applicable state securities laws, which transfers do not
constitute a public distribution of securities, and in which
the transferees execute an investment letter in forma and
substance satisfactory to counsel for MRM. Each MSS
Shareholder acquiring Exchange Stock will be required to
transfer to MRM at the Closing his or her respective MSS
Shares, free and clear of all liens, mortgages, pledges,
encumbrances or charges, whether disclosed or undisclosed.
(f) All schedules prepared by MSS shall be current or updated as
necessary as of the Closing Date.
(g) Each party shall have received favorable opinions from the
other party's counsel on such matters in connection with the
transactions contemplated by this Agreement as are reasonable.
(h) Each party shall have satisfied itself that since the date of
this Agreement the business of the other party has been
conducted in the ordinary course. In addition, each party
shall have satisfied itself that no withdrawals of cash or
other assets have been made and no indebtedness has been
incurred since the date of this Agreement, except in the
ordinary course of business or with respect to services
rendered or expenses incurred in connection with the Closing
of this Agreement,
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unless said withdrawals or indebtedness were either authorized
by the terms of this Agreement or subsequently consented to in
writing by the parties hereto.
(i) Each party covenants that, to the best of its knowledge, it
has complied in all material respects with all applicable
laws, orders and regulations of federal, state, municipal
and/or other governments and/or any instrumentality thereof,
foreign or domestic, applicable to their assets, to the
business conducted by them and to the transactions
contemplated by this Agreement.
(j) MRM shall have provided to MSS audited financial statements of
MRM as of October 31, 1996 and for the year then ended,
prepared in accordance with generally accepted accounting
principles.
(k) MSS shall have provided to MRM unaudited financial statements
of MSS as of December 31, 1996 and for the year then ended and
as of April 30, 1997 and for the four months then ended,
prepared in accordance with generally accepted accounting
principles.
(l) Each party hereto shall have granted to the other party
(acting through its management personnel, counsel, accountants
or other representatives designated by it) full opportunity to
examine its books and records, properties, plant and
equipment, proprietary rights and other instruments, rights
and papers of all kinds in accordance with Sections 4 and 5
hereof, and each party shall be satisfied to proceed with the
transactions contemplated by this Agreement upon completion of
such examination and investigation.
(m) If MSS Shareholders who in the aggregate own more than five
percent (5%) of the MSS Shares dissent from the proposed
Exchange Transaction, or are unable or for any reason refuse
to transfer any of all of their MSS Shares to MRM in
accordance with Section 1 of this Agreement, then MRM, at its
sole option, may terminate this Agreement.
(n) Each party shall have satisfied itself that all transactions
contemplated by this Agreement, including those contemplated
by the exhibits and schedules attached hereto, shall be legal
and binding under applicable statutory and case law of the
State of California, including, but not limited to, California
securities laws and all other applicable state securities laws.
(o) MRM and MSS shall agree to indemnify each other against any
liability to any broker or finder to which that party may
become obligated.
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(p) The Exchange Transaction shall be approved by the Boards of
Directors of both MSS and MRM. Furthermore, the Exchange
Transaction shall be approved by the shareholders of MSS and
MRM, if deemed necessary of appropriate by counsel for the
same, within forty-five (45) days following execution of this
Agreement. If such a shareholder meeting is deemed necessary,
the management of MSS and MRM agree to recommend approval of
the Exchange Transaction to their respective shareholders and
to solicit proxies in support of the same.
(q) MRM and MSS and their respective legal counsel shall have
received copies of all certificates, opinions and other
documents and instruments as each party or its legal counsel
may reasonably request pursuant to this Agreement or otherwise
in connection with the consummation of the transactions
contemplated hereby, and all such certificates, opinions and
other documents and instruments received by each party shall
be reasonably satisfactory, in form and substance, to each
party and to its legal counsel.
(r) Both MSS and MRM shall have the right to waive any or all of
the conditions precedent to its obligations hereunder not
otherwise legally required; provided, however, that no waiver
by a party of any conditions precedent to its obligations
hereunder shall constitute a waiver by such party of any other
condition.
SECTION 12
TERMINATION, AMENDMENT, WAIVER
12.1 This Agreement may be terminated at any time prior to the Closing,
and the contemplated transactions abandoned, without liability to either
party hereto, except with respect to the obligations of MRM, MSS and the MSS
Shareholders under Section 9.4 hereof:
(a) By mutual agreement of MRM and MSS.
(b) If the Closing (as defined in Section 3) shall not have taken
place on or prior to August 30, 1997, this Agreement can be
terminated upon written notice given by MRM or MSS, provided
that such party giving notice is not in material default.
(c) By MRM, if in its reasonable belief there has been a material
misrepresentation or breach of warranty on the part of any
Shareholder in the representations and warranties set forth in
the Agreement.
(d) By MSS or by a majority (as measured by their equity interest)
of those MSS Shareholders listed on EXHIBIT A if, in the
reasonable belief of
20
<PAGE>
MSS or of any such Shareholders, there has been a material
misrepresentation or breach or warranty on the part of MRM in
the representations and warranties set forth in this Agreement.
(e) By MRM if, in its opinion or that of its counsel, the Exchange
does not qualify for exemption from registration under
applicable federal or state securities laws, or qualification,
if obtainable, cannot be accomplished (in MRM's opinion or
that of its counsel) without unreasonable expense or effort.
(f) By MRM if, in its opinion or that of its counsel, the Exchange
cannot be consummated under California or other relevant state
corporate law or, if consummation is possible, that it cannot
be accomplished (in MRM's opinion or that of its counsel)
without unreasonable expense or effort.
(g) By MRM or by a majority (as measured by their equity interest)
of the MSS Shareholders listed on EXHIBIT A if either party shall
determine in its sole discretion that the Exchange has become
inadvisable or impracticable by reason of the institution or
threat by state, local or federal governmental authorities, or by
any other person, of material litigation or proceedings against
any party [it being understood and agreed that a written request
by a governmental authority for information with respect to the
Exchange Transaction, which information could be used in
connection with such litigation or proceedings, may be deemed to
be a threat of material litigation or proceedings regardless of
whether such request is received before or after the signing of
this Agreement].
(h) By MRM if the business or assets or financial condition of
MSS, taken as a whole, have been materially and adversely
affected, whether by the institution of litigation or be
reason of changes or developments, or in operations in the
ordinary course of business, or otherwise; or, by a majority
(as measured by their equity interest) of those MSS
Shareholders listed on EXHIBIT A if the business or assets or
financial condition of MRM, taken as a whole, have been
materially and adversely affected, whether by the institution
of litigation or by reason of changes or developments, or in
operations in the ordinary course of business, or otherwise.
(i) By MRM if holders of more than five percent (5%) of the MSS
Shares fail to tender their Shares at the Closing of the
Exchange Transaction.
(j) By MRM if, in its sole discretion, it appears that the
combined entity will not be auditable.
21
<PAGE>
(k) By MSS if MRM fails to perform material conditions as set
forth in Section 11 herein.
(l) By MSS if examination of MRM's books and records pursuant to
Section 5 herein uncovers a material deficiency.
(m) By MRM if MSS fails to perform material conditions as set
forth in Section 11 herein.
(n) By MRM if examination of MSS' books and records pursuant to
Section 4 herein uncovers a material deficiency.
SECTION 13
MISCELLANEOUS
13.1 ENTIRE AGREEMENT. This Agreement (including the exhibits and
schedules attached hereto) contains the entire agreement between the parties
hereto with respect to the transactions contemplated hereby, and supersedes
all negotiations, representations, warranties, commitments, offers,
contracts, and writings prior to the date hereof. No waiver and no
modification or amendment of any provision of this Agreement shall be
effective unless specifically made in writing and duly signed by the parties
to be bound thereby.
13.2 BINDING AGREEMENT.
(a) This Agreement shall become binding upon the parties hereto
when, but only when, it shall have been signed on behalf of
all parties hereto.
(b) Subject to the condition stated in subsection (a) of this
Section 13.2, this Agreement shall be binding upon, and inure
to the benefit of, the respective parties hereto and their
legal representatives, successors and assigns. This
Agreement, in all of its particulars, shall be enforceable by
the means set forth in subsection 13.9 for the recovery of
damages or by way of specific performance, and the terms and
conditions of this Agreement shall remain in full force and
effect subsequent to the Closing and shall not be deemed to be
merged into any documents conveyed and delivered at the time
of Closing.
(c) In the event that subsection 13.9 hereof is found to be
unenforceable as to any party for any reason, or is not
invoked by any party, and any person is required to initiate
any action at law or in equity for the enforcement of this
Agreement, the prevailing party in such litigation shall be
entitled to recover from the party determined to be in default
all of its reasonable costs incurred in said litigation,
including attorneys' fees.
22
<PAGE>
13.3 SHAREHOLDERS OWNING AT LEAST 5% OF MSS STOCK. The MSS Shareholders
owning at least five percent (5%) of the issued and outstanding common stock
of MSS (see EXHIBIT A hereto) are executing this Agreement only with respect
to sections 3.4, 4, 7, 9.4, 10, 11, 12.1 (d and g), 13.2, 13.3, 13.4, 13.8
and 13.9.
13.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which may be deemed an original, but all of which
together shall constitute one and the same instrument.
13.5 SEVERABILITY. If any provision(s) hereof shall be held invalid or
unenforceable by any court of competent jurisdiction or as a result of future
legislative action, such holding or action shall be strictly construed and
shall not affect the validity or effect of any other provision hereof.
13.6 ASSIGNABILITY. This Agreement shall be binding upon and inure to
the benefit of the successors and assigns of the parties hereto; provided,
however, that neither this Agreement nor any right hereunder shall be
assignable by MSS or MRM without prior written consent of the other party
hereto.
13.7 CAPTIONS. The captions of the various sections of this Agreement
have been inserted only for convenience of reference, and shall not be deemed
to modify, explain, enlarge or restrict any of the provisions of this
Agreement.
13.8 GOVERNING LAW. The validity, interpretation and effect of this
Agreement shall be governed exclusively by the laws of the State of
California.
13.9 DISPUTE RESOLUTION. In the event of a dispute between the parties
hereto involving a claim of breach of representation or warranty hereunder,
or to enforce a covenant herein (either or both of which are referred to
hereafter as a "Claim"), if it is the desire of any party for quick
resolution, the rights and obligations of the parties hereto arising under
the terms of this Agreement with respect to such Claims and/or resolutions of
such disputes will be by the means of the judgment of an independent third
party ("Rent-a-Judge") who has been selected and hired through the mutual
agreement of the parties hereto. The utilization of this subsection 13.9, if
invoked by any party hereto, shall be the exclusive remedy for resolving a
Claim regardless of whether legal action has or has not been otherwise
instituted. If legal action has been instituted by any party, and this
subsection 13.9 is invoked in a timely manner, any such legal action shall be
void ab initio and immediately withdrawn.
(a) In the event of a Claim by any party, any party may make a
written request upon the other parties for a Rent-a-Judge. A
request by any party for the employment of a Rent-a-Judge to
resolve the Claim shall be binding on all other parties to
this Agreement in accordance with the terms hereof.
23
<PAGE>
(b) The parties may agree upon one Rent-a-Judge, but in the event
that they cannot so agree, there shall be three Rent-a-Judges
selected, one named in writing by each of the parties hereto
(MRM and MSS) within twenty (20) days after the initial demand
for employment of a Rent-a-Judge, and a third chosen by the
two so appointed. Should either party refuse or neglect to
join in the appointment of the Rent-a-Judge, or to furnish the
Rent-a-Judge(s) with any papers or information demanded, the
Rent-a-Judge(s) are empowered by all parties to this Agreement
to proceed ex parte.
(c) Claim resolution proceedings shall take place in the City or
County of Los Angeles, State of California, and the hearing
before the Rent-a-Judge(s) of the matter to be arbitrated
shall be at the time and place within said city or county as
is selected by the Rent-a-Judge(s). The Rent-a-Judge(s) shall
select such time and place promptly after appointment and
shall give written notice thereof to each party at least
thirty (30) days prior to the date so fixed. At the hearing,
any relevant evidence may be presented by either party, and
the formal rules of evidence applicable to judicial
proceedings shall not govern. Evidence may be admitted or
excluded in the sole discretion of the Rent-a-Judge(s). Said
Rent-a-Judge(s) shall hear and determine the matter and shall
execute and acknowledge their award in writing, and cause a
copy thereof to be delivered to each of the parties.
(d) If there is only one Rent-a-Judge, his or her decision shall
be binding and conclusive on the parties. If there are three
(3) Rent-a-Judges, the decision of any two (2) shall be
binding and conclusive on the parties.
(e) If three Rent-a-Judges are selected under the foregoing
procedure, but two (2) of the three (3) fail to reach an
agreement in the determination of the matter in question, the
matter shall be decided by three (3) new Rent-a-Judges who
shall be appointed and shall proceed in the same manner as set
forth in this section, and the process shall be repeated until
a decision is finally reached by two (2) of the three (3)
Rent-a-Judges selected.
(f) The costs of such Claim resolution shall be borne by the
parties equally and each party shall pay its own attorneys'
fees, provided, however, that in the event either party
challenges or in any way seeks to have the decision or award
of the Rent-a-Judge(s) vacated, corrected or modified, if the
challenge is denied or the original decision or award is
affirmed, the challenging party shall pay the costs and fees,
including reasonable attorneys' fees, of the non-challenging
party, both for the challenge and for the original Claim
resolution process.
24
<PAGE>
13.10 NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and delivered in person or sent by
certified mail, postage prepaid and properly addressed as follows:
TO MSS:
Jerry W. McFarland, President
Med Surg Specialties, Inc.
2903 Saturn Street, Suite E
Brea, California 92621
WITH A COPY TO:
Bandy & Bandy
Thomas E. Bandy
20709 Golden Springs Drive, Suite 101
Diamond Bar, CA 91789-3847
TO MRM:
Allen H. Bonnifield, President
Medical Resources Management, Inc.
932 Grand Central Avenue
Glendale, California 91201
WITH A COPY TO:
William B. Barnett, Esq.
Transworld Bank Plaza
15233 Ventura Blvd., Suite 1110
Sherman Oaks, California 91403
Any party may from time to time change its address for the purpose of
notices to that party by a similar notice specifying a new address, but no such
change shall be deemed to have been given until it is actually received by the
other party hereto.
All notices and other communications required or permitted under this
Agreement which are addressed as provided in this section 13.10, if delivered
personally, shall be effective upon delivery; and, if delivered by mail, shall
be effective three (3) days following deposit in the United States mail, postage
prepaid.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
MEDICAL RESOURCES MANAGEMENT, INC.
a Nevada corporation
By: /s/ ALLEN H. BONNIFIELD
--------------------------------
Allen H. Bonnifield, President
MED SURG SPECIALTIES, INC.
a California corporation
By: /s/ JERRY W. MCFARLAND
--------------------------------
Jerry W. McFarland, President
FIVE PERCENT SHAREHOLDERS OF MED SURG SPECIALTIES, INC.
/S/ JERRY W. MCFARLAND
- --------------------------------
Jerry W. McFarland
26
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<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> OCT-31-1996 OCT-31-1997
<PERIOD-START> NOV-01-1995 NOV-01-1996
<PERIOD-END> OCT-31-1996 OCT-31-1997
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<CASH> 12,482 64,356
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<ALLOWANCES> 85,000 72,000
<INVENTORY> 118,490 583,149
<CURRENT-ASSETS> 1,349,919 2,626,691
<PP&E> 10,225,834 17,461,468
<DEPRECIATION> 5,773,222 6,670,474
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<SALES> 6,694,074 8,105,140
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<CGS> 3,815,784 4,517,885
<TOTAL-COSTS> 3,815,784 4,517,885
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 307,746 487,391
<INCOME-PRETAX> 365,152 2,008
<INCOME-TAX> 156,098 800
<INCOME-CONTINUING> 0 0
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