<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
(AMENDMENT NO. 5)
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of the Securities Exchange Act of 1934
MEDICAL ASSET MANAGEMENT, INC.
(Name of Small Business Issuer in its charter)
Delaware 33-0359976
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4447 E. Broadway, Suite 102
Mesa, Arizona 85206
Telephone: 602-830-7414
JOHN W. REGAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MEDICAL ASSET MANAGEMENT, INC.
4447 E. BROADWAY, SUITE 102
MESA, ARIZONA 85206
(800) 777-8831
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
Securities to be registered under Section 12(b) of the Act:
Title of each class to Name of each exchange on which
be so registered each class to be registered
N/A N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
COMPANY OVERVIEW.
Medical Asset Management, Inc. (the "Company" or "MAM") is a physician
practice management company that develops contractual affiliations with
physician practices that provide for management by the Company and clinical
autonomy for the physicians. As of December 31, 1996, the Company had developed
equity affiliations with 33 physician practices having a total of 60 physicians
in eight states. Pursuant to these equity affiliations, the Company has
exchanged cash and its Common Stock for the ownership of the selected business
assets of such practices and the right to manage such practices. Through its
subsidiary, Healthcare Professional Management, Inc. ("HPM"), the Company also
offers a full array of management services to affiliated physicians and other
independent healthcare entities under long-term service contracts as a
management service organization ("MSO"). As of December 31, 1996, the Company
had long-term MSO contracts with three medical group practices having a total of
44 physicians in two states. HPM also provides management services on a
consulting basis to over 300 physicians in Pennsylvania, West Virginia and Ohio.
Under the Company's standard equity arrangements, physician
affiliations are established through the exchange of cash and Common Stock of
the Company for the ownership of selected business assets, pursuant to an asset
purchase agreement, and the right to manage the practice, pursuant to a
management service agreement. Although the amounts and terms of such
arrangements are separately negotiated with each affiliated practice, the
Company typically purchases the practice's accounts receivables and office
equipment and enters into a 25 year practice management agreement that provides
for business administration, management of non-medical personnel, human resource
management, reimbursement management, an integrated information system
(including electronic patient records) and other daily operational systems. The
Company's revenues under such agreements are derived from the medical service
revenues generated by the physicians and consist of management fees, based on a
percentage of the medical service revenue earned by the practices, and the
reimbursement of the practice's operating expenses.
In addition, the Company through HPM provides services to medical
practices through long-term service contracts without an equity component and
consulting arrangements. Services provided under current long-term service
contracts, which range from four to eight years in length, include billing and
collections, accounting, human resource management, financial management and
marketing. The Company's revenues under such contracts consist of management
fees based on a percentage of the medical service revenue earned by the
practice. Services provided under consulting arrangements include practice
management, accounting, tax preparation, employee benefits analysis and
retirement and estate planning.
The Company's strategy is to develop physician-driven, integrated
provider networks that deliver high quality, cost-effective health care in
selected geographic markets. The Company believes that the keys to its continued
growth will be its ability to expand its markets by entering into additional
equity and non-equity management service affiliations with physician practices
and by promoting the growth of such practices, to enhance the operating
efficiency and profits at such practices and to provide an integrated
information system to such practices.
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BACKGROUND.
The Company was incorporated in Delaware on January 23, 1986, under the
name Eagle High Enterprises, Inc., to raise investor capital to fund the
Company's acquisition of an existing business. From 1986 to June 1994, the
Company engaged in a search for technologies, properties or businesses that had
long term growth potential. Although the Company considered a number of proposed
acquisition candidates, it never undertook an acquisition. The Company's
activities during this period were largely funded from the proceeds of a limited
offering of the Company's Common Stock.
Recapitalization. In June, 1994, the Company entered into a stock
exchange agreement with the shareholders of Medical Asset Management, Inc., a
closely held Delaware corporation incorporated on May 12, 1989 ("Old MAM"),
pursuant to which control of the Company was acquired by the shareholders of Old
MAM. Old MAM had been engaged in the business of managing medical practices
since 1991 and owned certain franchise rights under the name "Occu-Med." See
"--Occu-Med Franchises." In June 1994, Old MAM provided management services to
three affiliated physicians in one state, which continue to be managed by the
Company.
In connection with this transaction, the shareholders of Old MAM
transferred their business to the Company in exchange for 6,960,000 newly issued
shares of the Company's Common Stock, which represented 80% of the then
outstanding shares of the Company. The transaction between the Company and Old
MAM was treated as a recapitalization of Old MAM, with Old MAM as the acquiror
for accounting purposes, i.e. a reverse acquisition. As such, no revaluation of
net assets was recorded. Pursuant to the recapitalization, the Company became
the surviving entity, thus allowing the shareholders to take advantage of the
already existing market for the Company's shares, and changed its name to
"Medical Asset Management, Inc."
Acquisitions and Recent Developments. Since June 1994, the Company has
entered into equity arrangements with 32 medical practices having a total of 57
physicians, and has acquired HPM, a physician practice management company. In
1994, the Company entered into equity arrangements with 10 medical practices
having a total of 12 physicians, as compared to six medical practices having a
total of eight physicians in 1995 and 18 medical practices having a total of 39
physicians in 1996. In its largest acquisition to date, the Company in April
1996 purchased certain business assets of, and entered into a 25-year management
service agreement with, OB-GYN Associates, P.C. ("OB-GYN") of Denver, Colorado,
in exchange for $1,606,202 in cash and 730,000 shares of the Company's Common
Stock. The Company believes that this medical group, consisting of nine OB/GYN
physicians in four offices in the Rocky Mountain region, is the largest OB/GYN
single-specialty medical group in the Rocky Mountain region. For financial
information concerning OB-GYN, see "Index to Financial Information--OB-GYN."
Effective December 31, 1995, the Company acquired HPM, a physician
practice management company located in Pittsburgh, Pennsylvania, in exchange for
433,332 shares of the Company's Common Stock. HPM has provided management
services to physician practices for over 35 years and currently provides such
services on a long-term contractual as well as a consulting basis to physicians
in Pennsylvania, Ohio and West Virginia.
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The Company is currently negotiating with a number of physicians to
enter into equity arrangements and/or non-equity long-term management services
contracts. There can be no assurance that any of these potential contractual
affiliations will be completed.
HEALTH CARE INDUSTRY OVERVIEW.
Concerns over the accelerating cost of health care have resulted in the
increasing prominence of managed care over traditional fee-for-service medicine.
As managed care penetrates a larger number of geographic markets, managed care
organizations ("MCOs") and health care providers confront pressures to provide
high quality health care in a cost-effective manner. Employer groups have begun
to bargain as consumers of health care in an effort to reduce premiums and
achieve greater accountability of MCOs and health care providers with respect to
accessibility, choice of provider, quality of care and other indicators of
consumer satisfaction.
The focus on cost containment has placed small to mid-sized physician
groups and sole practitioners at a disadvantage. Such physician groups typically
have higher operating costs because they often have little purchasing power with
suppliers and lack the capital to purchase either new technologies that can
improve quality and reduce costs or the cost accounting and quality management
systems necessary to enter into sophisticated risk-sharing contracts with
payors.
In order to compete effectively, health care providers have sought to
reorganize themselves into health care delivery systems that are better suited
to the managed care environment. Primary care physicians have increasingly
become the conduit for the delivery of medical care by acting as gatekeepers and
directing referrals to certain specialists, hospitals, alternate-site facilities
and diagnostic facilities. Many physicians are concluding that they must have
control over the delivery and financial impact of a broader range of health care
services through the acceptance of global capitation. Groups of independent
physicians and medical groups are accordingly taking steps to assume
responsibility and financial risk for integrated health care services. In brief,
physicians are increasingly abandoning traditional private practice in favor of
affiliations with larger organizations that offer skilled and innovative
management, sophisticated information systems and capital resources.
COMPANY OPERATIONS.
To meet payor demand for price competitive, quality services, the
Company utilizes a market based approach, the goal of which is to establish a
base of primary care physicians allied with specialty physicians into a network
of providers serving a targeted geographic area. Affiliated primary care
physicians currently include physicians in family practice, internal medicine,
pediatrics and obstetrics/gynecology. Key specialties of affiliated physicians
currently include orthopedics, cardiology, podiatry, nephrology, urology,
surgery and oncology. The Company markets its physician affiliations to managed
care and third-party payors, referring physicians and hospitals. Affiliated
physicians also treat fee-for-service patients on a per-occurrence basis.
After-hours care is available in several of the Company's clinics.
Under the Company's standard equity arrangements, physician
affiliations are established through the exchange of cash and Common Stock of
the Company in amounts and on terms that are separately negotiated with each
individual physician or practice group. This consideration is payable in
installments over an agreed period of time, usually four years. The relationship
between the
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Company and its affiliated physicians is set forth in asset purchase and
management service agreements.
Through the asset purchase agreement, the Company acquires the assets
utilized in the practice and may also assume certain liabilities of the
physician group. The assets to be acquired by the Company under the asset
purchase agreement will vary, although all have involved the acquisition of
certain selected business assets, such as desks, computers, typewriters or
filing cabinets, and the majority have involved the acquisition of accounts
receivable. The Company may also acquire the lease or fee interest of the
physician-owners in the physical location of the practice. Of the practices
currently under management by the Company, three have involved the acquisition
of real property by the Company.
Under management service agreement, a physician group or sole
practitioner delegates to the Company administrative, management and support
functions required in connection with its or his medical practice. The
management service agreements typically have terms of 25 years and provide the
physicians with access to capital, management expertise, an integrated
information system and managed care contracts negotiated by the Company, while
enabling affiliated physicians to retain clinical control and autonomy through
their professional corporations or similar entities. The Company also provides
the medical group or physician with the equipment used in its medical practice,
manages practice operations and employs substantially all of the practice's
non-physician personnel, except for certain allied health professionals, such as
nurse practitioners, physician assistants and physical therapists. The agreement
provides that the affiliated professional corporation or entity will not compete
with the Company. The Company does not, however, control the practice of
medicine by physicians or compliance by them with licensure or certification
requirements. The Company's affiliated physicians maintain full professional
control over their medical practices, determine which physicians to hire or
terminate and set their own standards of practice in order to promote quality
health care.
The management services agreement with the practice specifies the
percentage of the net collected revenues to be paid to the affiliated physicians
and the percentage to be received by the Company. The net revenue distributed to
the physician pays for professional expenses, such as physicians' and nurse
practitioners' salaries and benefits and professional malpractice insurance. The
net revenue amounts received by the Company are applied to pay the Company's
management fee and the practice's business expenses, such as salaries and
benefits for receptionists and medical secretaries, billing and collection
expenses, office supplies, real property lease payments, property insurance
expenses and an integrated information system. If, after business costs are
covered, the collected revenue is insufficient to pay the Company its minimum
guaranteed management fee, the Company is authorized to reduce the amount of
revenue paid to the affiliated physicians to the extent necessary to pay the
minimum guaranteed management fee. On average, since 1994 the Company has earned
management fees of between 5% and 10% of annual medical service revenues.
The Company enhances growth in its practices by expanding managed care
arrangements (to which the affiliated physician groups are typically party),
assisting in the recruitment of new physicians and expanding and adding services
that have historically been performed outside of the practices. The Company
works closely with affiliated physicians in targeting and recruiting physicians
and in merging sole practitioners or single specialty groups into affiliated
physician groups. The Company assists in the development of new and expanded
ancillary services, such as
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birthing centers, surgery centers, and diagnostic labs, by offering management
services and needed capital resources.
The Company, under the terms of its standard equity management service
agreement, employs all non-medical personnel and has the authority to make any
changes required to improve practice efficiency and productivity and, thus, has
the ability to control all non-physician operating costs. The Company does,
however, establish an advisory committee for the practice, consisting of Company
and professional personnel, that recommends guidelines and budgets for the
practice, including staffing, personnel issues (both medical and non-medical),
capital expenditures, practice acquisitions and practice expansion (including
patient source and physician recruitment issues). To reduce or control expenses
the Company, among other things, negotiates national purchasing contracts for
key items, reviews staffing levels to make sure they are appropriate and assists
the physicians in developing more cost-effective clinical practice patterns
through the use of its integrated information system.
The Company offers affiliated physicians who enter into asset purchase
and management service agreements with the Company the option to repurchase
tangible assets and the management service agreement. All standard equity
management service agreements are subject to early termination on the terms
summarized below. During the first four years of the agreements, the repurchase
of tangible assets requires the return of all consideration paid by the Company
and the repayment of all money invested in, or advanced to, the practice by the
Company. The repurchase of the management service agreement requires the return
of all consideration paid by the Company for the acquisition of the management
service agreement. In the event of a repurchase during the first four years, the
medical practice also forfeits all management fees earned by, and all accounts
receivable that have been assigned to, the Company as of the date of the
repurchase. After the first four years of the equity arrangements, termination
of the affiliation requires the practice to pay the Company a negotiated amount
of cash for liquidated damages or obligates the medical providers to abide by a
contract not to compete. Of the physicians who have placed their business assets
under the management of the Company since the inception of Old MAM, only two
have terminated their affiliation with the Company. Such terminations have not
had a material effect on the Company's revenues.
The table below indicates the number of practices and physicians
affiliated with the Company pursuant to such equity arrangements at the end of
the years indicated:
<TABLE>
<CAPTION>
Year Ended
December 31,
1995 1995 1994
---- ---- ----
<S> <C> <C> <C>
Number of affiliated 33 16 8
practices
Number of affiliated 60 24 13
physicians
</TABLE>
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Through HPM, the Company also provides services to medical practices
pursuant to non-equity long-term service contracts and consulting arrangements.
As of December 31, 1996, the Company had entered into long term service
contracts, ranging from four to eight years in length, with three medical group
practices having a total of 44 physicians. The Company's revenues under such
arrangements consist of management fees based on a percentage of the medical
service revenue earned by the practice. Services provided under current
long-term service agreements include billing and collections, accounting, human
resource management, financial management and marketing. Through HPM, the
Company also provides management services to over 300 physicians on a consulting
basis. Such consulting services include practice management, accounting, tax
preparation, employee benefits analysis and retirement and estate planning.
Revenues attributable to HPM services accounted for 42%, 12%, 12% and ___% of
the Company's revenues in 1994, 1995 and the first nine months of 1995 and 1996,
respectively.
The Company believes that its various management service arrangements
are attractive to physicians seeking to remain independent by offering economies
of scale in the marketplace and access to enhanced risk-sharing arrangements and
other strategic alliances within the Company's network. The Company believes
that the expansion of its network operations is important to the future growth
of the Company. Many of the physicians who contract with the Company have a
significant number of patients who do not currently participate in a prepaid
health plan and thus do not have access to enhanced risk-sharing arrangements.
Such physicians may therefore seek to form physician group alliances that may
become affiliated with the Company.
AFFILIATED MEDICAL PRACTICES.
As of December 31, 1996, the Company was managing 36 medical practices
and clinics and 104 physicians under equity or non-equity management service
arrangements. For the first nine months of 1996, one of the Company's affiliated
practices accounted for approximately 25% of the Company's total revenue in that
period. No other practice accounted for more than 10% of the Company's total
revenue. Information concerning the practices is set forth below based on the
region in which the practices are located:
NORTHWEST. The Company manages 16 practices in the Northwestern region
of the United States, eight in Washington, seven in northern California, and two
in Alaska, consisting of eight primary care physicians and 15 specialists.
ROCKY MOUNTAIN. The Company manages 10 practices in the Rocky Mountain
region of the United States, all in Colorado, consisting of nine primary care
physicians and 18 specialists.
NORTHEAST. The Company manages four medical practices in the
Northeastern part of the United States, three in Pennsylvania and one in Ohio,
consisting of 46 primary care physicians.
SOUTHWEST. The Company manages four medical practices in the
Southwestern region of the United States, one in Arizona and three in southern
California, consisting of six specialists.
SOUTHEAST. The Company manages two medical practices in the
Southeastern region of the United States, one in Mississippi and one in Florida,
consisting of two primary care physicians.
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The Company has one employee in each of the Northwestern, Rocky
Mountain, Southwestern, Southeastern, and Northeastern regions who actively
searches for physicians whose affiliation would be consistent with the Company's
business strategy and who are interested in an affiliation similar to that
offered by the Company. Existing affiliated physicians and the hospitals in
which current affiliated physicians practice are the primary sources of
referrals of new acquisitions and management service relationships for the
Company.
INFORMATION SYSTEM.
The Company has purchased and is implementing an integrated information
system to support its growth and acquisition plans. The Company's current plan
is to provide this information system to all affiliated practices by the first
quarter of 1998. The Company's overall information system design is open,
modular and flexible and is intended to give affiliated physicians and staff
efficient and rapid access to complex clinical data. The system is driven by an
individual patient electronic medical record ("EMR") to complement practice
management and billing functions. The Company's use of the EMR enhances
operational efficiencies through automation of many routine clinical functions.
The EMR also improves the capacity to link treatment protocols by diagnosis and
physician, thus allowing physicians to check their treatments against such
protocols at the time of service.
As affiliated physicians enter into more capitation contracts, the
Company believes that effective and efficient access to key clinical patient
data will be critical to improving costs and quality outcomes. The Company
utilizes its information system to improve productivity, manage complex
reimbursement procedures, measure patient care satisfaction and outcomes of
care, and integrate information from multiple facilities throughout the
Company's network of affiliated physicians. This system also allows the Company
to analyze clinical and cost data so that it is able to assist its affiliated
physicians to effectively achieve thresholds of profitability.
OCCU-MED FRANCHISES.
In 1988, Old MAM acquired two franchise rights to a concept known as
"Occu-Med" from Occu-Med, Inc. for the area surrounding Carson, California. The
"Occu-Med" concept involves the marketing of programs designed to reduce lost
work time from work-related injuries. The franchise rights were purchased from a
former shareholder of Old MAM, who is now a holder of all of the Company's Class
A Preferred Stock. In 1989, Old MAM acquired the right to market Occu-Med, first
in Los Angeles County, California, and subsequently in the area south of San
Luis Obispo, California. Management does not regard these franchise rights as
material to the primary business of the Company and has determined not to
acquire any additional franchises. However, such franchise rights have been a
source of patient referrals for the Company's affiliated practice located in
Carson, California.
COMPANY STRATEGY
The Company's strategy is to develop physician-driven, integrated
provider networks that deliver high quality, cost-effective health care in
selected geographic markets. The Company believes that the keys to its continued
growth will be: (i) its ability to expand its markets by making additional
acquisitions of practice assets, by entering into long term management service
contracts and by promoting the growth of its affiliated practices; (ii) its
ability to enhance the operating
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efficiency and profits of its affiliated practices; and (iii) its ability to
provide a sophisticated information system to its affiliated practices. The key
elements of this strategy are as follows:
EXPANSION OF MARKETS. The Company's strategy is to expand its markets
through its acquisition of the operating assets of additional medical practices,
its entry into additional long term management service contracts and its
promotion of the growth of its existing affiliated practices. The Company seeks
to promote the growth of its existing practices by creating alliances among its
affiliated physician groups, either by forming horizontally structured,
single-specialty networks or integrated, multi-specialty networks built upon a
base of primary care physicians in selected regional markets. The Company also
seeks to further enhance its existing market share by increasing managed care
enrollment and fee-for-service business in its existing affiliated physician
groups.
INCREASED OPERATIONAL EFFICIENCIES AND COST REDUCTIONS. The Company
seeks to increase revenues and control costs at its affiliated practices through
a combination of one or more methods. To increase the revenue of the affiliated
practices, the Company recruits additional physicians, merges other physicians
practicing in the same geographic area into larger affiliated physician groups,
develops new clinic sites, develops ancillary services and/or negotiates
contracts with managed care organizations. To reduce and control costs at its
affiliated practices, the Company negotiates national purchasing contracts,
provides a single, fully-integrated information system that can assist the
physicians in developing more cost-effective practice patterns, and/or
centralizes the business management of multiple practices in selected regions of
the country to allow physicians to create economies of scale that would not
otherwise be possible.
SOPHISTICATED INFORMATION SYSTEM. The Company believes that information
technology is critical to the growth of its integrated health care provider
networks and that the availability of detailed clinical data is fundamental to
quality control and cost containment. By the first quarter of 1998, the Company
plans to provide all affiliated practices with a sophisticated management
information system, including an electronic patient record. Such a system will
collect and analyze clinical and administrative data in order to allow the
Company to effectively control overhead expenses, maximize reimbursement and
provide the information to assist in effective utilization management. The
Company evaluates the administrative and clinical operations of affiliated
practices and re-engineers these functions as appropriate in conjunction with
the implementation of the Company's management information system to maximize
the benefits of the system. The Company, through its integrated information
system and accounting department, expects to be able to provide the financial
and clinical data necessary to quantify actual costs related to the delivery of
medical care within the individual practices, within the Company's network,
within the region and nationally.
COMPETITION.
The physician practice management industry is highly competitive. The
Company's operations compete with national, regional and local companies in
providing physician practice management services. In addition, certain
companies, including hospitals and insurers, are expanding their presence in the
physician management market. Some of the Company's competitors are larger and
better capitalized, provide a wider variety of services, and have greater
experience in providing health care management services. The industry is also
subject to continuing changes in the provision of services and the selection and
compensation of providers.
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The Company believes that it can effectively compete by: (i) providing
a broad range of management and support services (including an integrated
information system) to small and medium, as well as larger, physician groups,
while, at the same time, offering physicians greater medical autonomy than
permitted by a competitor's arrangements; and (ii) offering equity in the
Company as partial consideration for the acquisition of practice assets and
management service contracts.
GOVERNMENT REGULATIONS.
As a participant in the health care industry, the Company's operations
and relationships are subject to extensive and increasing regulation by a number
of governmental entities at the federal, state, and local levels. The ability of
the Company to operate profitably will depend in part upon the Company and its
affiliated physician groups obtaining and maintaining all necessary licenses,
certificates of need and other approvals and operating in compliance with
applicable health care regulations. The Company believes that its operations are
in material compliance with applicable law and expects to modify its agreements
and operations to conform in all material respects to future regulatory changes.
Nevertheless, while physician affiliations are becoming more common, many
aspects of the Company's business operations have not been the subject of state
or federal regulatory interpretation. The Company is also unable to predict what
additional government regulations, if any, affecting its business may be enacted
in the future or how existing or future laws and regulations might be
interpreted. Accordingly, there can be no assurance that a review of the
Company's or its affiliated physicians' businesses by courts or regulatory
authorities will not result in a determination that could adversely affect the
operations of the Company or the affiliated physicians or that the health care
regulatory environment will not change so as to restrict the Company's or the
affiliated physicians' existing operations or their expansion.
The Company and its affiliated physicians are also subject to federal,
state and local laws dealing with issues such as occupational safety,
employment, medical leave, insurance regulations, civil rights and
discrimination, and medical waste and other environmental issues. At an
increasing rate, federal, state and local governments are expanding the
regulatory requirements on businesses, including medical practices. The
imposition of these regulatory requirements may have the effect of increasing
operating costs and reducing the profitability of the Company's operations.
The Company negotiates contracts with licensed insurance companies,
such as HMOs, under which the affiliated physicians assume financial risk in
connection with providing health care services under various capitation
arrangements. To the extent the affiliated physicians are in the business of
insurance as a result of entering into such risk-sharing arrangements, they may
be subject to a variety of regulatory and licensing requirements applicable to
insurance companies or HMOs.
EMPLOYEES.
As of December 31, 1996, the Company employed 230 employees, including
33 employees at the Company's headquarters and three regional offices and 197
employees at its affiliated physician practices. Of these employees, 187 were
full time and 43 were part time. No employee of the Company or of any affiliated
physician group is a member of a labor union or subject to a collective
bargaining agreement. The Company considers its relations with its employees to
be good.
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INSURANCE
The Company maintains insurance, including insurance for any vicarious
liability of the Company that may result from its relationship with its
affiliated physician groups, in an amount that it believes to be sufficient
based on historical claims and the nature and risk of its business. In addition,
the Company requires each affiliated physician to maintain professional
liability insurance coverage in accordance with applicable state regulations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Selected Financial Data
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The following table sets forth certain selected historical financial
data ("selected financial data") for the periods since June 1994 during which
the Company has operated as a physician practice management company. The
selected financial data for the two years in the period ended December 31, 1995
are derived from the restated audited financial statements of the Company. The
selected financial data for the nine month periods ended September 30, 1996 and
1995 are derived from unaudited interim financial statements and are not
necessarily indicative of the results for the remainder of the year or any
future period. In the opinion of management, the interim financial statements
reflect all adjustments that are of a normal recurring nature and necessary for
a fair statement of the results for the interim periods presented. This selected
financial data should be read in conjunction with the financial statements
included elsewhere in this Form 10-SB, including the pro forma financial
statements that give effect to the acquisition of OB-GYN in April 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and "Index to Financial Information."
MEDICAL ASSETS MANAGEMENT, INC.
(in thousands, except for per share data)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1995 1994 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of Operations Data: (unaudited)
Net Revenue $ 8,747 $ 2,651 $ 11,924 $ 5,974
Operating Expenses:
Clinic expenses(1) 5,329 1,431 7,288
Corporate salaries(1)(2) 923
General and administrative 1,841 1,283 1,055 4,746
Depreciation and amortization 292 149 390 115
-------- -------- -------- --------
Income from operations 1,285 (212) 2,268 1,113
Other income (expense) (289) (147) (160) (134)
Income taxes (418) 0 (632) (367)
-------- -------- -------- --------
Net income $ 578 (65) $ 1,476 612
Net income per share 0.05 (.006) 0.12 0.05
Weighted-average number of
Common Stock and Common Stock equivalents 12,252 10,364 12,644 11,169
Balance Sheet Data:
Cash $ 132 $ 50 $ 4,819 $ 210
Working capital 2,817 2,061 10,498 2,628
Total assets 11,420 7,436 31,659 11,650
Long term debt and obligations under capital 2,422 824 1,109
leases, excluding current portion 411 1,773 26,226 6,450
Total stockholders equity 6,658
</TABLE>
(1) Prior to 1996, the Company did not maintain records for interim periods that
would provide it with a sufficient basis to disaggregate clinic expenses or
corporate salaries from general and administrative expenses. Accordingly, for
comparative purposes, clinic expenses and general and administrative expenses
need to be combined for the nine months ended September 30, 1996 to be compared
to general and administrative expenses for the nine months ended September 30,
1996.
(2) Prior to 1996, the Company did not maintain records that would provide it
with a sufficient basis to disaggregate corporate salaries from general and
administrative expenses. Accordingly, for comparative purposes, corporate
salaries and general and administrative expenses need to be combined for the
nine months ended September 30, 1996 to be compared to general and
administrative expenses for years ended December 31, 1995 and 1994.
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Overview
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General. MAM is a physician practice management company that develops
contractual affiliations with physician practices that provide for management by
the Company and clinical autonomy for the physicians. As of December 31, 1996,
the Company had developed equity affiliations with 33 physician practices having
a total of 60 physicians in eight states. Pursuant to these equity affiliations,
the Company has exchanged cash and its Common Stock for the ownership of the
selected business assets of such practices and the right to manage such
practices. The Company also offers a full array of management services as an MSO
under long term service contracts, to both affiliated physicians and other
independent healthcare entities, directly and through its subsidiary, HPM. As of
December 31, 1996, the Company had long-term MSO contracts with three medical
group practices having a total of 44 physicians in two states. HPM also provides
management services on a consulting basis to over 300 physicians in
Pennsylvania, West Virginia and Ohio.
Under the Company's standard equity arrangements, the management
services agreement with the practice specifies the percentage of the
net collected revenues to be paid to the affiliated physicians and the
percentage to be received by the Company. The net revenue distributed to the
physician pays for professional expenses, such as physicians' and nurse
practitioners' salaries and benefits and professional malpractice insurance. The
net revenue amounts received by the Company are applied to pay the Company's
management fee and the practice's business expenses, such as salaries and
benefits for receptionists and medical secretaries, billing and collection
expenses, office supplies, real property lease payments, property insurance
expenses and an integrated information system.
Through HPM, the Company also provides a full array of management
services under long term service contracts and consulting arrangements. The
Company's revenues under long-term service contracts, which range from four
to eight years in length, consist of management fees based on a percentage of
the medical service revenue earned by the practice. Services provided under
current long-term service contracts include billing and collections, accounting,
human resource management, financial management and marketing. Through HPM, the
Company also provides management services on a consulting basis. Such consulting
services include practice management, accounting, tax preparation, employee
benefits analysis and retirement and estate planning. Revenues attributable to
HPM accounted for 42%, 12%, 12% and 6% of the Company's revenues in 1994, 1995
and the first nine months of 1995 and 1996, respectively.
Accounting Information. From its incorporation in 1986 through June
1994, the Company raised investor capital for, and engaged in a search for,
technologies, properties or business that had long-term growth potential. Since
a recapitalization in June 1994, the Company has operated as a physician
practice management company. Because the Company prior to 1994 was a
non-operating company, the Company believes that the financial information for
periods prior to 1994 is not comparable to or indicative of the financial
information for subsequent periods.
- 12 -
<PAGE> 14
The Company has restated the prior years' financial statements for
contingent stock grants and amounts due to physicians. The restatement in part
related to changes in the accounting for contingent stock grants whereby the
shares are treated as compensation rather than purchase price consideration. The
Company continues to account for nonforfeitable Common Stock (Common Stock to be
issued based solely on the passage of time) committed to be issued for
management agreements acquired subsequent to 1994 as a component of purchase
price to be amortized over 25 years or the life of the agreement, whichever is
shorter. The restatement also related to recognition of amounts due to
physicians for contractual amounts due such physicians as the related revenue is
recognized. The Company previously did not recognize this liability until the
related receivable was liquidated. Additionally, the contractual allocations of
revenues to medical owner(s) of clinics and practices managed by the Company has
been reclassified from consulting fees to a reduction in net revenue.
- 13 -
<PAGE> 15
Results of Operations
- ---------------------
The following table sets forth the percentages of revenue represented
by certain items reflected in the Company's Statement of Income.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, (1) September 30, (2)
1995 1994 1996 1995
------------------- --------------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Clinic expenses(1) 61% 54% 61.1%
Corporate salaries(1)(2) 7.7%
General and 21% 48% 8.8% 79.5%
administrative
Depreciation and amortization 3.3% 5.6% 3.3% 1.9%
Income from operations 14.7% (8.0%) 19.1% 18.6%
Other income (expense) (3.3%) (5.5%) (1.3%) (2.2%)
Income taxes 4.8% --% 5.3% 6.1%
---- ----- ---- ----
Net income 6.6% (2.5)% 12.5% 10.3%
==== ====== ===== =====
</TABLE>
(1) Prior to 1996, the Company did not maintain records for interim periods that
would provide it with a sufficient basis to disaggregate clinic expenses or
corporate salaries from general and administrative expenses. The Company
believes that the percentage of revenues represented by such expenses for the
nine months ended September 30, 1995, is comparable to the percentage of revenue
represented by such expenses for the year ended December 31, 1995. Accordingly,
for comparative purposes, clinic expenses and general and administrative
expenses need to be combined for the nine months ended September 30, 1996 to be
compared to general and administrative expenses for the nine months ended
September 30, 1996.
(2) Prior to 1996, the Company did not maintain records that would provide it
with a sufficient basis to disaggregate corporate salaries from general and
administrative expenses. Accordingly, for comparative purposes, corporate
salaries and general and administrative expenses need to be combined for the
nine months ended September 30, 1996 to be compared to general and
administrative expenses for years ended December 31, 1995 and 1994.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995.
At September 30, 1996, the Company managed 33 practices having a total
of 62 affiliated physicians, pursuant to its standard equity arrangements, as
compared to 19 practices having a total of 28 physicians at September 30, 1995.
During the first nine months of 1996, the Company entered into new equity
arrangements with 13 practices as compared to four practices in the first nine
months of 1995, the results of which are included in the Company's operating
results from the dates of affiliation. Changes in the results of operations from
the first nine months of 1995 as compared to the first nine months of 1996 were
caused primarily by affiliations with these additional practices, particularly
the April 1996 acquisition of OB-GYN, the Company's largest acquisition to date.
See "Index to Financial Information--OB-GYN."
- 14 -
<PAGE> 16
Revenue for the first nine month ended September 30, 1996 increased
$6.0 million, or 100%, over the comparable prior year period. As indicated in
the following table, substantially all of the increases in revenue were
attributable to the addition of new management agreements:
<TABLE>
<CAPTION>
Nine Months
Ended September 30, (1)
1996 1995
-----------------------------------
<S> <C> <C>
Revenue from Existing Management Agreements $ 6,530 $ 5,351
Revenue from New Management Agreements 5,394 623
--------- ----------
Total Revenue from Management Agreements $ 11,924 $ 5,974
========= ==========
</TABLE>
(1) The Company has estimated the following revenue amounts based on the
average percentage of revenues retained by the Company from the total medical
service revenues earned by its affiliated practices during those periods.
The increase in period to period revenue from existing management agreements
resulted from the addition of new physicians, increases in patient volume,
increases in fees and the expansion of ancillary services.
Clinic and general and administrative expenses on a combined basis
include both corporate non-salary operating expenses and practice expenses borne
by the Company pursuant to its standard equity arrangements with affiliated
practices. These expenses for the nine months ended September 30, 1996 increased
by $3.9 million, or 186%, over the comparable prior year period. Substantially
all of these increases were attributable to the addition of new affiliated
practices.
Depreciation and amortization expenses for the nine months ended
September 30, 1996 increased $275,000, or 239%, over the comparable prior year
period. These increases were primarily the result of the amortization and
depreciation of newly acquired management agreements and fixed assets.
Income from Operations increased $1.2 million, or 104%, to $2.3 million
for the nine months ended September 30, 1996, from $1,113,000 for the nine
months ended September 30,
- 15 -
<PAGE> 17
1995. Substantially all of this increase was attributable to the addition of new
affiliated practices.
Other income (expense), or net interest expense, for the nine months
ended September 30, 1996 increased $26,000, or 19%, over the comparable prior
year period. The increase was primarily attributable to interest paid on the
Company's 12% Convertible Subordinated Debentures issued in April 1995.
Income taxes resulted from the taxable income earned by the Company,
which was taxed at a 30% effective rate in 1996 and 37% effective rate in 1995.
Changes in the tax provision relate to the increase in taxable income for the
first nine months of 1996 as compared to the comparable prior year period.
Net Income increased $864,000, or 141%, to $1.5 million for the nine
months ended September 30, 1996, from $612,000 for the nine months ended
September 30, 1995. Substantially all of this increase was attributable to the
addition of new affiliated practices.
- 16 -
<PAGE> 18
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994.
At December 31, 1995, the Company managed 20 practices having a total
of 40 physicians in four states pursuant to its standard equity arrangements, as
compared to six practices having a total of 12 affiliated physicians in three
states as of December 31, 1994. During 1995, the Company entered into equity
arrangements with six additional practices as compared to 10 additional
practices in 1994. Changes in the results of operations from 1994 to 1995 were
caused primarily by affiliations with these additional practices.
Revenue increased $6.0 million, or 230%, to $8.7 million in 1995, as
compared to $2.7 million in 1994. As indicated in the following table, the
Company's revenue growth has occurred primarily from the addition of new
management agreements:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Revenue from Existing Management Agreements $ 1,946 $ 435
Revenue from New Management Agreements 6,801 2,216
----------- -----------
Total Revenue from Management Agreements $ 8,747 $ 2,651
</TABLE>
The increase in period to period growth in revenue from existing management
agreements resulted from the addition of new physicians, increases in patient
volume and increases in fees and the expansion of ancillary services.
General and administrative expenses consist of salaries paid to clinic
and corporate staffs, other practice costs, and corporate and development costs.
Salaries paid to non-medical practice and corporate staffs increased by $2.1
million, or 237%, to $3.0 million in 1995, from $902,000 in 1994. This increase
was attributable to 10 practices added in December 1994 and six practices added
in 1995. Other practice costs, consisting of clinic medical supplies and other
operating expenses borne by the Company increased by $1.6 million, or 294%, to
$2.1 million in 1995, as compared to $529,000 in 1994. This increase was due to
the addition of affiliated practices pursuant to equity arrangements in late
1994 and 1995. Corporate and development costs increased by $558,000, or 43%, to
$1.8 million in 1995, from approximately $1.3 million
- 17 -
<PAGE> 19
in 1994. The primary reason for this increase was growth in the Company's
corporate staff to support additional practices under management.
Depreciation and amortization expenses for 1995 increased by $143,000,
or 95%, to $292,000, as compared to $149,000 for 1994. This increase was
primarily the result of the amortization and depreciation of newly acquired
management service agreements and fixed assets. Depreciation of equipment,
buildings or leasehold improvements is recorded on a straight-line basis over
the estimated useful life of the assets or underlying leases. Amortization of
management service agreements and franchise fees for agreements with certain
related parties is calculated using the straight-line method over 25 years.
Interest expense increased $266,000, or 1056%, to $292,000 in 1995, as
compared to $25,000 in 1994 as a result of the borrowings under certain bank
facilities and the issuance of $762,000 in 12% Series B Convertible Redeemable
Secured Subordinated Debentures in April 1995. This issuance of these debentures
added $91,000 of interest expense annually. The growth in interest expense was
offset somewhat by the repayment of $550,000 in liabilities in 1995, along with
the retirement of $1.9 million in debt (including accrued and accumulated
interest of $400,000) as a result of the 1995 revaluation of certain obligations
in connection with the renegotiation of certain management agreements.
Specifically, $1.5 million of receivables acquired from a single practice in
1991 were determined in 1995 to be uncollectible and worthless. The notes owed
to the owner of this practice were revalued downward by agreement to reflect the
decline in the value of assets received for the debt.
Other income (expense) in 1994 consisted of $170,000 in miscellaneous
income that the Company recognized as the result of debt forgiveness, offset by
$22,000 in interest expense net of interest income. Other income in 1995 of
$3,000 consisted of miscellaneous income.
Income from Operations increased $1.5 million, or 707%, to $1.3 million
in 1995 from a loss of $212,00 in 1994. Substantially all of this increase was
attributable to the addition of new affiliated practices.
Income tax expenses increased to $418,000 in 1995. The Company had no
income tax expense in 1994. Due to its loss from operations, a valuation
allowance was applied to the anticipated benefit of approximately $27,000.
Net Income increased $643,000, or 994%, to $578,000 in 1995 from a net
loss of 65,000 in 1994. Substantially all of this increase was attributable to
the addition of new affiliated practices.
- 18 -
<PAGE> 20
Liquidity and Capital Resources
The Company requires capital primarily to acquire long-term management
agreements and the nonmedical assets of affiliated medical practices and
clinics. To fund its growth since June 1994, the Company has obtained
acquisition financing and funded its working capital needs through private
placements of Common Stock and convertible debt securities and borrowings under
its bank credit facility, together with management fees received from its
affiliated physician practices.
Working Capital. At September 30, 1996, the Company's net working
capital was $10.5 million, as compared to $2.8 million at December 31, 1995. The
Company estimates that its net working capital for the year ended December 31,
1996 will be $10 million. The principal component of the Company's working
capital is accounts receivable.
Accounts receivable increased only $416,000, or 8.6%, to $5.2 million
in 1995 from $4.8 million in 1994, as compared to a 73% increase from 1993 to
1994. This more modest increase can be attributed to two major factors: first,
the Company's ability to accelerate collections through the consolidation of
billing and collection functions in certain markets; and second, a trend in
certain markets toward capitation, in which services are paid for in advance,
thus eliminating accounts receivable. As of September 30, 1996, accounts
receivable had risen to $9.2 million as a result of increasing number of
practices brought under affiliation.
In 1995, the Company achieved a 100-day turnover for accounts
receivable, as compared to a 317-day turnover in 1994. During the first nine
months of 1996, accounts receivable turnover was at an 80-day rate. The Company
believes that the turnover rate in accounts receivable could be impacted by each
additional acquisition depending on the dollar value of accounts receivable
purchased as compared to the accounts receivable of the Company at the time of
the acquisition.
The Company has established provisions for the non-collection of
accounts receivable and estimated third-party adjustments. During the initial
years of a management agreement, the Company believes it has minimized the
actual risk of non-collection of revenues through its use of notes payable to
the doctors from whom the accounts are acquired. If significant losses are to be
taken on acquired accounts receivable, notes given in return for these accounts
will be reduced. For instance, the Company retired approximately $1.9 million
(including accrued interest) in notes payable to Dr. Edward Dickstein, a founder
of Old MAM, as a result of a re-evaluation of accounts receivable acquired from
him in 1991. In subsequent years, the Company believes that it can minimize the
risk by using the collection experience it has gained for the individual
practice or clinic to estimate the proper reserve.
To the extent that the Company's normal allocation of cash collections
of a practice under management is not sufficient to cover the Company's
operating costs and its management fee associated with the practice, the Company
establishes a management fee receivable. This management fee receivable will
either be repaid from future physician compensation or from charges against the
physician-owner(s), including the right to offset unpaid management fees against
the allocation of cash collections otherwise due to the physician-owner(s). The
Company's reserves for doubtful accounts receivable have a direct impact on
management fee recognition as the net of accounts receivable and due to
physician groups is essentially the receivable for the management fee plus
amounts to cover non-medical operating expenses. Increases in the reserve for
doubtful accounts necessitate a corresponding decrease in the amounts due to
- 19 -
<PAGE> 21
physician groups, and as a result the net amount of the change (a portion of
which represents the adjustment to the management fee receivable) represents
the adjustment of net revenues.
Cash Flows. Net cash used in investing activities in 1995 was $246,000,
a $140,000 increase over the $106,000 used in investing activities during 1994.
Net cash used in investing activities during the first nine months in 1996 was
$3.9 million, a $3.8 million increase over the $102,000 used during the
comparable period in 1995. These increases were due to cash payments for the
acquisition of non-medical assets and management contracts.
Net cash used in financing activities during 1995 was $124,000, a $1.25
million decrease over the $1.1 million net cash provided by financing activities
during 1994. This decrease was due to repayment of notes payable to affiliated
physicians in connection with equity arrangements. This net cash used in
financing activities during 1995 was partially offset by the issuance in April
1995 of $762,000 principal amount of 12% Series B Convertible Redeemable Secured
Subordinated Debentures and the net proceeds of $386,850 from the issuance of
Common Stock to investors.
Net cash provided by financing activities during the first nine months
in 1996 was approximately $6.8 million, an approximately $6.7 million increase
over the $87,000 in cash provided during the comparable period in 1995. This
increase resulted primarily from a private placement of Common Stock on May 31,
1996, which yielded proceeds, net of offering expenses, of $7,165,000.
Approximately $1.6 million of these proceeds were used to retire short term debt
consisting of notes due to practices and clinics for the acquisition of
receivables and other assets in prior transactions. The Company also entered
into a loan agreement and revolving credit/term facility ("Credit Facility"),
under which the Company can borrow up to $2,500,000. On December 31, 1996, the
Company had an outstanding balance of $800,000 under the credit facility. The
increase in net cash provided by financing activities during the first nine
months of 1996 was partially offset by the repayment of notes payable to
affiliated physicians in connection with equity arrangements.
Cash derived from operations in 1995 was $451,000, a $1.5 million
increase over the $1.1 million used in operating activities in 1994. This
increase was due to the increase in the number of practices affiliated with the
Company and increased collections of accounts receivables. Cash derived from
operations was $1.8 million for the first nine months of 1996, an increase of
$1.6 million over the comparable period in 1995. The increase was due primarily
to the increase in the number of practices affiliated with the Company.
Commitments. Since its recapitalization in June 1994, the Company has
acquired 10 practices with an aggregate fair value of $426,426 in assets in
1994, six practices with an aggregate fair value of $2,841,250 in assets in
1995, and 18 practices with an aggregate fair value of $13,814,159 in assets
- 20 -
<PAGE> 22
in 1996. The breakdown of consideration for these acquisitions was as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash and Transaction Costs $ 2,352,000 $ 5,316 $ 98,477
Short Term and Subordinated Notes 1,730,000 471,559 - 0 -
Common Stock issued and to be issued (at 8,863,000 2,499,375 696,538
fair value)
Total Costs $12,945,000 $ 2,976,250 $ 759,015
=========== =========== ===========
</TABLE>
The cash portion of the purchase price was funded by a combination of operating
cash flow, the proceeds from the sale of Common Stock and borrowings under the
Credit Facility. For transactions completed through September 30, 1995, the
scheduled issuance of Common Stock that the Company is committed to deliver
after the passage of time are 153,381 in 1996, 678,519 shares in 1997,
678,519 shares in 1998, 599,779 shares in 1999 and 446,398 in 2000.
Future Financing Plans. The Company expects that its principal use of
funds in the near future will be in connection with anticipated transactions
with affiliated physician groups and related purchase of property, plant and
equipment. The Company believes that its existing cash resources, together with
management fee revenues, will be sufficient to provide for the working capital
needs of the Company, to pay scheduled maturities of outstanding promissory
notes and to finance the acquisition of a portion of the physician affiliations
currently identified. However, in order to finance a substantial number of
additional acquisitions, the Company plans to raise additional capital through
the issuance of long-term or short-term indebtedness or the issuance of
additional equity securities in private or public transactions, at such times
and on such terms as the Company deems appropriate, subject to market
conditions.
- 21 -
<PAGE> 23
ITEM 3. DESCRIPTION OF PROPERTY.
The Company leases or owns offices in six different locations. The
Company's executive offices are in leased facilities in Mesa, Arizona. The
Company also maintains three administrative offices in leased facilities in the
following locations: Orange County, California; Seattle, Washington; and
Pittsburgh, Pennsylvania. The Company owns three office buildings in Colorado,
Mississippi and Florida in which its affiliated physicians practice medicine.
The Company believes that all of its real property is adequately covered by
insurance.
The Company's leased office space is governed by lease agreements that
expire at various dates through 2005. The cost of leased facilities for the
Company's offices was $239,089 in 1994, as compared to $971,890 for 1995 and
$931,600 in 1996. See note 10 of the Company's audited financials for future
minimum lease payments due under noncancellable operating leases. Although the
Company believes that, at the present time, these leased facilities are adequate
for its needs, the Company is currently considering whether the addition or
relocation of administrative offices would materially aid in the growth and
development of the Company. The Company does not believe that it will have any
material difficulty in securing the type and scope of facilities that it may
need now or in the future.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of December 31, 1996, the names,
addresses, positions with the Company, if any, and stock ownership in the
Company for the current executive officers of the Company and every person known
to the Company to own 5% or more of the issued and outstanding shares of the
Company's Common Stock:
- 22 -
<PAGE> 24
<TABLE>
<CAPTION>
Shares Beneficially
Owned at
Title of Name and Address of Position with the December 31, Percentage
Class Beneficial Owner Company, if any 1996 of Class(1)
- -------- --------------------------- ------------------ ------------------- -----------
<S> <C> <C> <C> <C>
Common John W. Regan President and 5,145,094 34.9%
4447 E. Broadway Chairman of the
Suite 102 Board of Directors
Mesa, AZ 85206
Common Dennis Calvert Senior Vice 1,184,096 8.0%
24831 Alicia Pkwy President and a
C-240 Director
Laguna Hills, CA
92653
Common Clarke Underwood Vice President and 181,035 1.2%
Medical Asset Chief Financial
Management, Inc. Officer
25241 Paseo de Alcia,
Suite 230
Laguna Hills, CA
92653
Common Michael A. Zaic Vice President and --- ---
24831 Alicia Pkwy Director
C-240
Laguna Hills, CA
92653
Common Kent Norton Vice President --- ---
Medical Asset
Management, Inc.
2406 Shadowed Circle
Salt Lake City, UT
84117
Common Phillip L. Thomas Director 150,000 1.0%
The P.L. Thomas Group
Two North Riverside
Plaza, Suite 1760
Chicago, IL 60606-2095
Common Anthony F. Aulicino Senior Vice 151,332 1.0%
Health Care Professional President and a
Management, Inc. Director
Four Station Square,
Suite 250
Pittsburgh, PA 15219
Common All Officers and Directors 6,811,557 46.1%
as a Group
</TABLE>
(1) Based on the number of shares currently outstanding, without giving effect
to the conversion of Class A Preferred Stock, the future issuance of
nonforfeitable shares to affiliated physicians pursuant to existing equity
arrangements or the exercise of the warrant by Cruttenden Roth, Incorporated.
- 23 -
<PAGE> 25
The Company also has 3,000,000 shares of Class A Preferred Stock
currently outstanding, all of which are held by Dr. Edward Dickstein, one of the
founders of Old MAM. Such shares may be converted into Common Stock on the basis
of one share of Class A Preferred Stock for each share of Common Stock, subject
to the limitation that no more than 25% may be converted into Common Stock in
any one calendar year, and at no time may the holders of the Class A Preferred
Stock hold directly or indirectly more than 4.9% of the shares of Common Stock
outstanding. See "Description of Securities."
Although there are no options for shares currently outstanding, the
Company is considering the adoption of a non-qualified stock option plan
providing for the issuance of up to 2,000,000 shares to key employees and
directors.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Information concerning the current executive officers and directors of
the Company is set forth in the following table:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
John W. Regan 47 President and Chairman of
the Board of Directors
Dennis Calvert 33 Senior Vice President and
Director
Anthony F. Aulicino 55 Senior Vice President and
Director
Clarke Underwood 51 Vice President and Chief
Financial Officer
Michael A. Zaic 39 Vice President and Director
Kent Norton 45 Vice President
Phillip L. Thomas 62 Director
</TABLE>
Mr. Regan served as President and a director of Old MAM from 1986 until
June 1994 and has been President and a director of the Company since June 1994.
Mr. Calvert served as Vice President and a director of Old MAM from
1986 until June 1994 and has been Senior Vice President and a director of the
Company since June 1994. Prior to joining Old MAM in 1991, Mr. Calvert was
employed by medical personnel recruitment firms.
- 24 -
<PAGE> 26
Mr. Aulicino has been employed by HPM for 30 years and served as its
Chief Executive Officer and a director from 1992 until its acquisition by the
Company in December 1995. Mr. Aulicino was elected Senior Vice President and a
director of the Company in December, 1996.
Mr. Underwood served as a director of Old MAM from 1989 to 1994, during
which time he directed the financial reporting and planning activities of Old
MAM. Following the Company's acquisition of Old MAM, Mr. Underwood directed the
reporting and planning activities of the Company, initially as an independent
contractor, working on specific projects and compensated on an hourly basis.
Since September 1996, Mr. Underwood has served as Vice President and Chief
Financial Officer of the Company.
Mr. Zaic served as Vice President and a director of Old MAM from 1992
to June 1994 and has been a Vice President and a director of the Company since
June 1994. Prior to joining Old MAM in 1992, Mr. Zaic was employed by medical
personnel recruitment firms.
Mr. Norton was engaged in several private businesses and property
development companies prior to becoming a Vice President of the Company in 1995.
He is an attorney by training and has approximately twenty years experience as a
commentator with KSL Television in Salt Lake City.
Mr. Thomas has served as the President and a director of The P.L.
Thomas Group, a public relations firm in Chicago, Illinois, since 1984. Mr.
Thomas has been a director of the Company since August 1996.
The officers and directors of the Company are elected to one year
terms. No director or officer of the Company is an affiliate of any other
reporting company. There are no family relationships between any officers and
directors.
- 25 -
<PAGE> 27
ITEM 6. EXECUTIVE COMPENSATION.
The following table provides information about the compensation paid by
the Company to its Chief Executive Officer and one other current executive
officer who received in excess of $100,000 during any of the past three years:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
ANNUAL COMPENSATION
-------------------
NAME AND YEAR SALARY
PRINCIPAL POSITION
<S> <C> <C>
JOHN W. REGAN, Chairman and 1996 $200,000
President of the Company(1) 1995 96,000
1994 96,000
ANTHONY F. AULICINO, Senior 1996 $200,000
Vice President and Manager of
HPM(2)
</TABLE>
(1) For the three years beginning January 1, 1995, Messrs. Regan, Calvert and
Zaic were paid less than what was provided for in their employment
agreements discussed below. These employees have agreed to waive their right
to this additional compensation, except for purpose of calculating any
severance benefits, as discussed below.
(2) HPM was acquired by the Company effective December 31, 1995.
Messrs. Regan, Calvert and Zaic have entered into employment agreements
with the Company for three years beginning January 1, 1995. These agreements
require that the employee devote 100% of his time to the business of the
Company. In addition to salary, the Company has agreed to reimburse each
employee for all authorized actual travel, promotion and entertainment expenses
incurred in connection with performance of his duties. The employee is also
entitled to any employer-paid benefits otherwise made available to employees of
the Company. At the present time, the Company is not offering any employer-paid
benefits. Employees are entitled to sick leave and paid holidays pursuant to the
Company policy. The employment agreements with these three senior executive
officers provide that if any of them is terminated through no cause or fault of
his own, the terminated officer will receive the balance of the then-applicable
base salaries for purposes of their severance benefits through the termination
date of the employment agreement. The base salaries for Messrs. Regan, Calvert
and Zaic for purpose of their severance benefits under their employment
contracts for the 12 months ended December 31, 1997, are $250,000, $187,500 and
$93,750, respectively. Additional terms of employment are set forth in the
respective employment agreements, which are included as exhibits to this Form
10-SB.
The officers who serve as directors of the Company receive no
additional compensation for such service. Mr. Thomas has been reimbursed only
for the expenses he has incurred as a director of the Company. The Company is,
however, considering the adoption of a stock option plan for directors and key
employees.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During 1996, an outstanding shareholder loan from Mr. Regan in the
amount of $177,445 was repaid; this loan represented deferral of compensation or
expense reimbursement accrued in
- 26 -
<PAGE> 28
prior periods. The Company is currently not a party to any reportable
transactions in which a director, officer, significant shareholder or any of
their family members has had a material interest.
ITEM 8. DESCRIPTION OF SECURITIES.
The Company is authorized to issue 50,000,000 shares of Common Stock,
par value $.001 per share. The holders of Common Stock are entitled to the
following rights: (i) equal, ratable rights to dividends from funds legally
available, when, as and if declared by the Board of Directors of the Company;
(ii) the right to share ratably in all the assets of the Company available for
distribution to holders of Common Stock upon liquidation, dissolution or winding
up of the affairs of the Company. The holders of Common Stock do not have
preemptive or redemption rights. The holders of shares of Common Stock of the
Company do not have cumulative voting rights, which means that the holders of
more than 50% of such outstanding shares, voting for the election of directors,
can elect all of the directors of the Company if they so choose and, in such
event, the holders of the remaining shares will not be able to elect any of the
Company's directors. All shares of Common Stock are fully paid and
non-assessable, with no personal liability associated with their ownership. As
of December 31, 1996, 14,763,339 shares of common stock were outstanding, of
which affiliates, officers and directors of the Company owned 46.1%, without
giving effect to the conversion of outstanding Class A Preferred Stock, to the
future issuance of nonforfeitable Common Stock to affiliated physicians pursuant
to existing equity arrangements or the exercise of the warrant by Cruttenden
Roth Incorporated ("Cruttenden Roth").
The Company is authorized to issue 10,000,000 shares of preferred
stock, with such rights as the Board of Directors may designate. The Company has
designated one class of preferred stock, Class A Preferred Stock, par value
$.0001, consisting of 5,000,000 shares. Three million shares of Class A
Preferred Stock are issued and outstanding, all of which are held by the
Dickstein Family Trust. The characteristics of the Class A Preferred Stock are
as follows: (1) the Class A Preferred Stock has no voting rights; (2) the Class
A Preferred Stock may be converted into Common Stock on the basis of one share
of Class A Preferred Stock for each share of Common Stock, subject to the
limitation that no more than 25% may be converted into Common Stock in any one
calendar year, and at no time may the holders of the Class A Preferred Stock
hold directly or indirectly more than 4.9% of the shares of Common Stock
outstanding; (3) the Class A Preferred Stock carries no dividend rights, except
in liquidation; (4) the Class A Preferred Stock has no liquidation preference
over any other class of the Company's preferred stock or Common Stock; in any
liquidation, shares of Class A Preferred Stock share ratably in any liquidating
dividend with the holders of common stock; and (5) the Class A Preferred Stock
has no redemption rights.
On May 31, 1996, the Company issued to Cruttenden Roth a Common Stock
warrant entitling Cruttenden Roth to purchase 140,000 shares of the Company's
Common Stock at an exercise price of $7.05 per share. This warrant expires
May 31, 2001.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS.
Neither the Company's Common Stock nor its Class A Preferred Stock is
listed on any exchange or major reporting system. The Company's Common Stock is
traded over the counter
- 27 -
<PAGE> 29
by means of the NASDAQ Bulletin Board system. The Company has filed an
application with the NASD to have the Company's Common Stock quoted through the
NASDAQ Small Cap Market, which application has not been acted upon to date.
The range of the high bid and low bid prices of the Company's Common
Stock since the recapitalization in June 1994 is as follows:
<TABLE>
<CAPTION>
Quarter Ending High Bid Low Bid
-------------- -------- -------
<S> <C> <C> <C>
1997 March 31 (through $ 4.12 $ 4.00
- ---- February 7)
1996 December 31 4.94 4.88
- ---- September 30 6.13 5.12
June 30 8.50 3.37
March 31 5.50 1.92
1995 December 31 4.75 1.75
- ---- September 30 5.375 4.75
June 30 6.25 5.00
March 31 6.43 5.37
1994 December 31 6.25 5.87
- ---- September 30 5.375 5.00
</TABLE>
There was no market activity for the Company's Common Stock prior to June 1994.
The above prices (based on IDD Information Services/Tradeline) reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not represent actual transactions.
As of December 31, 1996, there were approximately 232 holders of record
of the Company's Common Stock and one holder of record of the Class A Preferred
Stock. There is no market for Class A Preferred Stock.
The Company has paid no dividends in the past on any class of stock.
There are no restrictions that limit the payment of future dividends on Common
Stock. No dividends are payable on the Class A Preferred Stock, except in the
event of liquidation.
ITEM 2. LEGAL PROCEEDINGS.
No material litigation is currently pending against the Company, and
the Company is not aware of any outstanding claims against an affiliated
physician group that would have a material adverse effect on the Company's
financial condition or results of operations. The Company expects its affiliated
physician groups to be involved in legal proceedings incident to their business,
most of which are expected to involve claims related to the alleged medical
malpractice of its affiliated physicians.
- 28 -
<PAGE> 30
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
As reported in a Form 8-K filed by the Company on November 22, 1996,
the Company appointed Ernst & Young, LLP, on November 15, 1996, as the Company's
independent public accountants to audit the Company's financial statements for
the year ended December 31, 1996. Harlan & Boettger audited the Company's
financial statements for the years ended December 31, 1995 and 1994.
The decision to change independent accountants was recommended by the
Company's management and approved by the Board of Directors. The change from
Harlan & Boettger to Ernst & Young, LLP, resulted from the rapid expansion of
the Company's operations on a national basis and the Company's belief that a
nationally recognized accounting firm with an expertise in health care would
provide valuable assistance to the Company. The report of Harlan & Boettger on
the financial statements of the Company for the years ended December 31, 1995
and 1994 as restated did not contain an adverse opinion or a disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles. During the years ended December 31, 1995 and 1994, there
were no disagreements with Harlan & Boettger on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Harlan &
Boettger, would have caused it to make a reference to the subject matter of the
disagreements in connection with its reports.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In June 1994, the Company issued 6,960,000 shares of its Common Stock
to the shareholders of Old MAM in return for all of the issued and outstanding
shares of common stock of Old MAM. The effect of this transaction was for Old
MAM to acquire control of the Company, and thereafter to merge the business of
Old MAM with and into the Company, with the Company being the surviving entity.
This stock was exchanged pursuant to an agreement between the fifteen
shareholders of Old MAM and the Company. The two largest shareholders of the
Company, Messrs. Regan and Calvert, also were controlling shareholders of
Old MAM. These shareholders exchanged their shares of Old MAM (69% for Regan and
16% for Calvert) initially for 62% of the shares of the Common Stock of the
Company. In total, the shareholders of Old MAM acquired 80% of the shares of the
Company as of the date of the closing of the transaction. The Company shares
were issued in reliance on the exemption under Section 4(2) of the Securities
Act of 1933.
In 1994, the Company sold 21,400 shares of restricted Common Stock for
cash at $2.50 per share to accredited investors. That same year, the Company
also exchanged 366,478 shares of restricted Common Stock with approximately 12
physicians for assets with a net book value of $370,432, or the equivalent of
$1.01 per share, in reliance on the exemption under Section 4(2) of the
Securities Act of 1933. The Company issued 354,286 shares of Common Stock
pursuant to Regulation S to overseas investors during 1994 in consideration for
the cancellation of promissory notes in a principal amount of $550,000. Certain
other de minimis sales of shares of Common Stock to investors also occurred in
1994 pursuant to Section 4(2) of the Securities Act of 1933. No underwriter was
used in connection with any of these transactions.
- 29 -
<PAGE> 31
During 1995, the Company sold $762,000 principal amount of 12% Series B
Convertible Redeemable Secured Subordinated Debentures, through Global
Securities Corporation of Vancouver, British Columbia. Interest is payable
semiannually, principal and any unpaid interest is due April 28, 2000. Upon
maturity, the holder shall have the right of option, but not the obligation, to
convert all or part of these debentures into shares of Common Stock of the
Company at the conversion price of $5 per share. The sale of these debentures
was limited to non-residents of the United States. The Company relied on
Regulation S for an exemption from registration. These debentures were converted
into 150,305 shares of Common Stock in 1996.
During the period from August through December 1995, the Company sold
575,000 shares of Common Stock to eight accredited investors in eight individual
transactions for a total consideration of $775,000 pursuant to Section 4(2) of
the Securities Act of 1933.
On May 31, 1996 the Company sold 2,000,000 shares of Common Stock to 30
accredited investors for $8,000,000, or $4.00 per share. Cruttenden Roth
Incorporated of Irvine, California, was the selling agent. The Company issued
these shares in reliance upon the exemption provided under Section 4(2) of the
Securities Act of 1933. On August 1, 1996 the Company filed a Registration
Statement on Form SB-2 under the Securities Act of 1933 to enable the resale of
these 2,000,000 shares as agreed in connection with that private placement. This
registration statement has not been declared effective. On May 31, 1996, the
Company also issued to Cruttenden Roth a warrant to purchase 140,000 shares of
the Company's Common Stock at an exercise price of $7.05 per share.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under its certificate of incorporation, the directors and officers of
the Company are indemnified from expenses, amounts paid on judgments, counsel
fees and amounts paid in settlement for any claim asserted against them by
reason of their having been an officer or director of the Company, except in
matters in which the director or officer is adjudged liable for his own
negligence or misconduct in the performance of his duty. Under Delaware law, the
officers and directors are entitled to be indemnified by the Company for any
claim arising out of the performance of their duties, except for matters in
which the officers and directors may be found to have been guilty of gross
negligence.
- 30 -
<PAGE> 32
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Contents Page
- -------- ----
<S> <C>
MAM
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors ........................................................ F-1
Consolidated Balance Sheets as of December 31, 1995 and 1994 (audited) ................ F-2
Consolidated Statements of Operations for the Years Ended December 31, 1995
and 1994 (audited) .................................................................. F-4
Consolidated Statement of Changes in Stockholders' Equity for the Years Ended
December 31, 1995 and 1994 (audited) ................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995 and 1994
(audited) ........................................................................... F-6
Notes to Consolidated Financial Statements ............................................ F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1995 (unaudited) ...................... F-23
Consolidated Statement of Income for the Three Months Ended September 30,
1996 and 1995 and the Nine Months Ended September 30, 1996 and 1995 (unaudited) ..... F-24
Consolidated Statements of Cash Flow for the Nine Months Ended September 30, 1996
and 1995 (unaudited) ................................................................ F-25
Notes to Consolidated Financial Statements ............................................ F-26
OB-GYN
Report of Independent Auditors ........................................................ F-31
Balance Sheet as of December 31, 1995 (audited) ....................................... F-32
Statement of Operations for the Year Ended December 31, 1995 (audited) ................ F-33
Statement of Stockholders' Equity for the Year Ended December 31, 1995 ................ F-34
Statement of Cash Flows for the Year Ended December 31, 1995 (audited) ................ F-35
Notes to Financial Statements ......................................................... F-36
UNAUDITED INTERIM FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited) ................. F-43
Statements of Operation for the Three Months Ended March 31, 1996 and
1995 (unaudited) .................................................................... F-44
Statements of Cash Flows for the Three Months Ended March 31, 1996 and
1995 (unaudited) .................................................................... F-45
Notes to Unaudited Financial Statements ............................................... F-46
PRO FORMA FINANCIAL STATEMENTS
Pro forma Balance Sheet as of March 31, 1996 (unaudited) .............................. F-48
Pro forma Statements of Operations for the Three Months Ended
March 31, 1996 (unaudited) .......................................................... F-49
Pro forma Statement of Operatins for the Year Ended December, 31, 1995 ................ F-50
Notes to Unaudited Pro forma Financial Statements ..................................... F-51
</TABLE>
<PAGE> 33
Report of Independent Auditors
To the Board of Directors
and Stockholders of
Medical Asset Management, Inc.
Mesa, Arizona
We have audited the consolidated balance sheets of Medical Asset Management,
Inc. as of December 31, 1995 and 1994, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medical Asset Management, Inc.
as of December 31,1995 and 1994, and the results of its operations and cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1, the accompanying consolidated financial statements have
been restated for the correction of an error.
San Diego, California
May 1, 1996, except
for Note 1 as to which
the date is November 10, 1996.
F-1
<PAGE> 34
Medical Asset Management, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
--------------------------------
(Restated)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 131,873 $ 50,382
Accounts receivable, less $715,962 and $633,705 of allowance
for doubtful accounts 5,213,803 4,797,809
Management fee receivable 913,828 231,570
Other current assets 99,841 3,942
Income tax assets - 218,238
--------------------------------
Total current assets 6,359,345 5,301,941
Property and equipment, net 528,409 435,418
Intangible assets, net 4,516,008 1,690,353
Other assets 15,842 8,133
--------------------------------
Total assets $11,419,604 $7,435,845
================================
</TABLE>
F-2
<PAGE> 35
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
--------------------------------
(Restated)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 308,555 $ 281,398
Accrued payroll taxes 105,553 146,509
Other accrued expenses 9,847 -
Income taxes payable 200,251 -
Related party debt 183,361 166,049
Due to physician groups 1,668,417 1,535,299
Current portion of long-term liabilities 1,066,626 1,112,113
--------------------------------
Total current liabilities 3,542,610 3,241,368
--------------------------------
Long-term debt:
Notes payable 341,430 2,414,646
Capital lease obligations 69,887 7,132
--------------------------------
Total long-term debt 411,317 2,421,778
--------------------------------
Convertible subordinated debt 808,095 -
Commitments and contingencies (Note 10) - -
--------------------------------
Total liabilities 4,762,022 5,663,146
--------------------------------
STOCKHOLDERS' EQUITY
Preferred stock (convertible)--$.001 par value--10,000,000 shares
authorized; Class A--3,000,000 shares issued and outstanding
at December 31, 1995 and 1994, respectively 3,000 3,000
Common Stock--$.001 par value--50,000,000 shares authorized, 10,619,256
and 9,451,486 issued and outstanding at December 31, 1995 and 1994,
respectively 10,619 9,451
Additional paid-in capital 4,212,231 1,747,003
Common stock to be issued, 902,709 and 367,925 shares at December 31,
1995 and 1994, respectively 2,129,760 367,925
Unearned remuneration (289,185) (367,925)
Retained earnings 591,157 13,245
--------------------------------
Total stockholders' equity 6,657,582 1,772,699
--------------------------------
Total liabilities and stockholders' equity $11,419,604 $7,435,845
================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 36
Medical Asset Management, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
---------------------------------
(Restated)
<S> <C> <C>
Net revenue $ 8,746,833 $2,651,222
---------------------------------
Operating expenses:
Practice salaries, wages, and benefits 3,041,648 901,977
Other practice costs 2,086,329 528,922
Consulting fees 200,864 -
General and administrative 1,840,991 1,283,068
Depreciation and amortization 291,823 149,303
---------------------------------
Total operating expenses 7,461,655 2,863,270
---------------------------------
Income from operations 1,285,178 (212,048)
Other income (expense):
Interest income - 3,000
Interest expense (291,657) (25,240)
Other (net) 2,880 169,630
---------------------------------
Total other income (expense) (288,777) 147,390
---------------------------------
Income (loss) before income taxes 996,401 (64,658)
Income tax expense 418,488 -
---------------------------------
Net income (loss) $ 577,913 $ (64,658)
---------------------------------
Income (loss) per common share:
Primary $ .06 $ (.007)
---------------------------------
Fully diluted $ .05 $ (.006)
---------------------------------
Weighted average number of shares and share equivalents outstanding:
Primary 10,108,943 9,168,762
=================================
Fully diluted 12,251,918 10,363,675
=================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 37
Medical Asset Management, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
--------------------------------------------- PAID-IN COMMON STOCK UNEARNED RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL TO BE ISSUED REMUNERATION EARNINGS TOTAL
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1993 9,133,332 $ 9,133 3,000,000 $3,000 $1,397,067 $ - $ - $ 77,903 $1,487,103
Issuance of
common stock 21,400 21 - - 53,479 - - - 53,500
Medical practice
transactions:
Stock issued 296,754 297 - - 296,457 - - - 296,457
Value of 367,925
shares to be issued - - - - - 367,925 (367,925) - -
Net income (loss) - - - - - - - (64,658) (64,658)
-------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1994 9,451,486 $ 9,451 3,000,000 $3,000 $1,747,003 $ 367,925 $(367,925) $ 13,245 $1,772,699
-------------------------------------------------------------------------------------------------------------
Issuance of
common stock 189,000 189 - - 386,661 - - - 386,850
Medical practice
transactions:
Stock issued 482,796 483 - - 1,234,579 - - - 1,235,062
Value of 902,709
shares to be
issued - - - - - 1,840,575 - - 1,840,575
Issued shares of
common stock for
services 78,740 79 - - 236,141 (78,740) 78,740 - 236,220
Debt and payables
exchanged for
common stock 417,234 417 - - 591,947 - - - 592,364
Capital contributed - - - 16,000 - - - 16,000
Net income - - - - - - - 577,913 577,913
-------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1995 10,619,256 $10,619 3,000,000 $3,000 $4,212,331 $2,129,760 $(289,185) $591,157 $6,657,582
-------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-5
<PAGE> 38
Medical Asset Management, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
---------------------------------
(Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 577,913 $ (64,658)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 304,422 152,250
Changes in operating assets and liabilities, net of effects
of acquisitions:
Accounts receivable (429,277) (1,781,777)
Management fee receivable (682,258) (48,599)
Other current assets (103,608) 40,500
Accounts payable 63,126 71,338
Accrued payroll taxes (40,956) (73,268)
Other accrued expenses 210,516 (34,192)
Income taxes payable 418,489 -
---------------------------------
Due to physician groups 133,118 675,618
---------------------------------
Net cash provided by (used in) operating activities 451,485 (1,062,788)
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used to fund acquisitions (5,316) (98,477)
---------------------------------
Purchases of property and equipment (241,041) (7,969)
---------------------------------
Net cash used in investing activities (246,357) (106,446)
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt issuances 982,211 1,567,980
Repayment of debt (1,515,252) (478,061)
Payments under capital lease obligations (10,758) (15,000)
Issuance (repayment) of related party debt 17,312 -
Capital contribution 16,000 -
Proceeds from issuances of common stock 386,850 53,500
---------------------------------
Net cash (used in) provided by financing activities (123,637) 1,128,419
---------------------------------
Net increase (decrease) in cash 81,491 (40,815)
Cash, beginning of year 50,382 91,197
---------------------------------
Cash, end of year $ 131,873 $ 50,382
=================================
</TABLE>
See accompanying notes
F-6
<PAGE> 39
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Medical Asset Management, Inc. (Company), a Delaware corporation, is
engaged in the business of meeting the several urgent needs of practicing
physicians and exploiting emerging opportunities in the practice of
medicine through business management services. Its management services
involve the acquisition of assets of medical practices, which it enhances
by increasing patient collections and lowering costs through its
management and marketing expertise and volume purchasing power. At
December 31, 1995, Medical Asset Management, Inc. has management service
agreements with 16 physician practices in four states.
In June 1994, the Company acquired 100% of the outstanding common stock of
Medical Asset Management, Inc. (MAM) in exchange for 6,960,000 shares of
common stock of the Company along with the right to issue 3,000,000 shares
of the Company's Class A Preferred Stock in exchange for the 1,176,581
shares of MAM's Class A Preferred Stock and the 133,000 shares of MAM's
Class B Preferred Stock. This transaction was recorded as a
recapitalization of MAM with MAM as the acquirer for accounting purposes
(reverse acquisition). As such, no revaluation of net assets acquired was
recorded.
Subsequent to this acquisition and pursuant to the approval of a majority
of the Company's common stockholders, the Company changed its name from
Eagle High Enterprises, Inc. to Medical Asset Management, Inc.
The following is a summary of the Company's significant accounting
policies:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Medical
Asset Management, Inc., its wholly owned subsidiaries, Medical Asset
Corporation, Inc., and Healthcare Professional Management, Inc. (together
"the Company"). All significant intercompany balances and transactions are
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-7
<PAGE> 40
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESTATEMENT
During 1996, the Company restated the prior years financial statements for
contingent stock grants and amounts due to physician groups. The
restatement related to contingent stock grants which treat the shares as
compensation rather than purchase price consideration. The Company
continues to account for nonforfeitable stock (stock to be issued based
solely on the passage of time) committed to be issued for management
agreements acquired subsequent to 1994 as a component of purchase price
amortized over 25 years or the life of the agreement, whichever is
shorter. Both nonforfeitable and contingent stock committed to be issued
in future periods are shown as a separate component of shareholders'
equity. The restatement related to amounts due to physicians records
contractual amounts due physicians as the related revenue is recognized.
The Company previously did not recognize this liability until the related
receivable was liquidated. The following schedule summarizes the effect of
restating the companies 1995 and 1994 financial statements.
<TABLE>
<CAPTION>
NET INCOME STOCKHOLDERS'
NET INCOME PER SHARE EQUITY
----------------------------------------------
<S> <C> <C> <C>
1994:
As previously reported $380,213 $ .04 $2,733,604
Adjustment (444,871) (960,905)
As presented herein $(64,658) $(.007) $1,772,699
1995:
As previously reported $883,113 $ .10 $5,938,166
Adjustment (305,200) 719,416
As presented herein $577,913 $ .05 $6,657,582
</TABLE>
Additionally, certain reclassifications were made to reflect revenues net
of contractual allocations to the medical provider-owner(s) of the clinics
and practices. These reclassifications had no effect on net income.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, and depreciated using the
straight-line method over the estimated useful lives of the assets, or the
underlying leases. Estimated useful lives range from 3 to 5 years for
equipment, 3 to 7 years for leasehold improvement and 15 to 25 years for
buildings and improvements based upon the type and condition of assets.
Maintenance,
F-8
<PAGE> 41
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
repairs and minor renewals are charged to operations as incurred. Major
replacements or betterments are capitalized. When properties are retired
or otherwise disposed, the related cost and accumulated depreciation are
eliminated from the respective accounts and any gain or loss on
disposition is reflected as income or expense.
INTANGIBLE ASSETS
Management Service Agreements
Management Service Agreements consist of the Company's exclusive right to
manage the business side of a physician or physician group's practice over
a 25-year period. These costs are amortized on a straight-line basis over
the initial 25-year (or less) terms of the related management service
agreements. In the event of termination of a service agreement, the
related physician or physician group is required to purchase all clinic
assets, including intangible assets, generally at then current book value.
Franchise Fees
Franchise fees are agreements with certain related parties. Franchise fees
are amortized using the straight-line method over 25 years.
Amortization and Recovery
The carrying value of the management service agreements and franchise fees
is reviewed for impairment when events or changes in circumstances
indicate their recorded cost may not be recoverable. If the review
indicates that the undiscounted cash flows from operations of the related
management service or franchise fee agreement over the remaining
amortization period is less than the recorded amount of the management
service agreement, the Company's carrying value of the related agreement
will be reduced to its estimated net realizable value. Net realizable
value is measured based on discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds.
COMMON STOCK TO BE ISSUED
As part of entering into long-term management services agreements with
medical practices as described in Note 2, the Company has made
nonforfeitable commitments to issue shares of common stock at specified
future dates for no further consideration. Common stock to be issued
F-9
<PAGE> 42
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMMON STOCK TO BE ISSUED (CONTINUED)
is shown as a separate component of shareholders' equity and the amounts,
upon issuance of the shares, will be reclassified to par value and
additional paid-in capital. Additionally, contingent shares to be issued
as remuneration related to services provded by physicians for acquisitions
in 1994 (Note 14) is included in common stock to be issued. Unearned
renumeration related to the contingent stock has been recorded as a
separate component of equity equal to the estimated fair market value of
the stock on the effective date of the acquisition. Renumeration expense
is recorded at the estimated fair value of the stock on the date the
performance criteria are met. Upon issuance of the contingent shares,
their value is reclassified to par value and additional paid-in-capital.
REVENUE RECOGNITION
The Company's revenues are the estimated realizable amounts earned from
billings to patients, third-party payors and others for services rendered
at the company's affiliated clinics and practices, reduced by contractual
adjustments and the contractual allocation of revenues to the medical
provider-owner(s) of the clinics and practices. Contractual adjustments
arise due to the terms of certain reimbursement and managed care
contracts. These adjustments represent the difference between charges at
established rates and estimated recoverable amounts and are recognized in
the period the services are rendered. Any differences between estimated
contractual adjustments and actual final settlements under reimbursement
contracts are reported as contractual adjustments in the year final
settlements are determined.
INCOME TAXES
Income taxes are provided for using the liability method of accounting in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes." Deferred tax assets and liabilities
are recognized for future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis.
NET INCOME PER SHARE
Net income per share is computed based upon the weighted average number of
shares of common stock and common stock equivalents outstanding during the
periods. All commitments to issue common stock at specified future dates
based upon the mere passage of time have been
F-10
<PAGE> 43
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE (CONTINUED)
included in both primary and fully diluted calculation. Additionally,
contingent shares are included in both primarily and fully diluted
computations if the conditions for their issuance are currently being met.
If additional shares would be contingently issuable if a higher earnings
were being attained currently, the additional shares are included only in
fully diluted computations. Common stock equivalents, such as convertible
preferred stock are also considered in both primary and fully diluted
earnings per share calculations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Company will adopt the Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," during the first quarter of 1996.
The adoption of this Statement is not expected to have a material effect
on the Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). SFAS No. 123 establishes financial
accounting and reporting standards for stock-based compensation plans and
for transactions in which an entity issues its equity instruments to
acquire goods and services from nonemployees. The new accounting standards
prescribed by SFAS No. 123 are optional, and the Company is permitted to
account for its stock incentive and stock purchase plans under previously
issued accounting standards. The Company does not expect to adopt the new
accounting standard; consequently, SFAS No. 123 will not have an impact on
the Company's results of operations.
2. ACQUISITIONS
On December 29, 1995, the Company exchanged 433,332 shares of its common
stock valued at $1,168,288 for 100% of the outstanding common stock of
Healthcare Professional Management, Inc. The Company has recorded the
transaction under the Pooling of Interest Method for Business
Combinations.
F-11
<PAGE> 44
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS (CONTINUED)
The following represents the results of operations of Healthcare
Professional Management, Inc. for the years ended December 31, 1995 and
1994 that are included in the combined net income of the Company.
<TABLE>
<CAPTION>
1995 1994
------------------------------
<S> <C> <C>
Revenues $1,090,304 $1,124,978
Net (loss) income (17,270) 40,809
</TABLE>
In addition to the Healthcare Professional Management, Inc. transaction,
from January 1, 1994 through December 31, 1995, the Company entered into
long-term management service agreements with 16 medical groups.
These agreements provided for the Company to acquire all the non medical
assets and properties which the physician's own in connection with the
conduct of the physicians medical practice. The assets included (i) all of
the physicians accounts receivable as reflected on the physicians books
and records, on the effective date of the agreement and at all times
during the terms of the agreement, all accounts receivable acquired are
reflected on the Company's balance sheet with a corresponding allowance
account for those accounts considered possibly uncollectible, (ii) all
administrative (i.e., nonmedical) aspects of every kind and character
pertaining to the operations of the Clinic, and (iii) all other assets as
described in the agreement. Total consideration paid for the medical
groups to enter into long-term management service agreements and for the
nonmedical assets described above includes cash, the issuance of common
stock, the estimated value of nonforfeitable commitments by the Company to
issue common stock at future dates for no additional consideration and
short-term and subordinated notes. The Company has recorded the business
acquisitions at the fair market value of the assets acquired (purchase).
The purchase price was allocated based upon their fair market value at the
date of the agreement.
The Company has legal title to patient accounts receivable, and therefore
recognizes these amounts in the financial statements. The Company is
liable for certain operating expenses of the practices, and therefore
records them as operating expenses. Under these agreements the Company is
to receive a base of five percent (5%) up to a maximum of thirty percent
(30%) of net billings of the practice as a management fee. The Company
records the management fees earned as net revenues and the related
management fee receivable. Additionally, the Company records a receivable
for funds advanced to practices to pay practice operating expenses under
the terms of the Management Services Agreements. Management of the Company
evaluates collectibility of the management fee receivable on an ongoing
basis and records collectibility reserves if deemed necessary. The Company
is also obligated to pay a stipulated percentage of
F-12
<PAGE> 45
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS (CONTINUED)
net billings to the physicians, and records such amounts as a reduction of
revenues on its statements of operations with a corresponding liability in
accounts payable.
The Company offers affiliated physicians who enter into an Asset Purchase
and Management Agreement with the Company the option to repurchase
tangible assets and an option to repurchase the Management Agreement with
the medical practice, acquired by the Company. During the first four years
of each agreement, the repurchase of tangible assets requires the return
of all consideration paid by the Company, a mandatory repurchase of the
Management Agreement, and repayment to the Company of all money invested
or advanced to the practice. The repurchase of the Management Agreement
requires the return of all consideration paid by the Company for the
acquisition of the Management Agreement. In the event of a repurchase, the
medical practice forfeits all management fees earned by the Company as of
the date of the repurchase. The accounts receivable of the medical
practice are owned or assigned to the company as of the date of the
repurchase. In the event of a repurchase, the practice is not bound by any
covenant not to compete.
After the first four years of each agreement, a termination provision is
offered. The termination provision requires the Practice to pay the
Company a negotiated amount of cash for liquidated damages, or obligates
the medical providers to abide by a covenant not to compete.
During 1995, the Company acquired the nonmedical assets and entered into
long-term management service agreements with seven medical groups on the
effective dates indicated as follows:
<TABLE>
<S> <C> <C>
Samuel Spigelman, MD Tarzana, CA 3/31/95
Costantino Gallo, MD San Jose, CA 3/31/95
Dennis S. Mann, DO Seattle, WA 4/31/95
Aurora Foot and Ankle (2 Groups) Edmonds, WA 10/1/95
Habib A. Tobbagi, MD San Jose, CA 12/18/95
Ronald H. Yanagihara, MD Gilroy, CA 12/28/95
</TABLE>
F-13
<PAGE> 46
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS (CONTINUED)
During 1994, the Company acquired the nonmedical assets and entered into
long-term management service agreements with ten medical groups on the
effective dates indicated as follows:
<TABLE>
<S> <C> <C>
Family Medical Clinic of Soldotna Soldotna, AK 6/14/94
Family Medical Clinic of Seward Seward, AK 11/1/94
Brent Davidson, MD San Jose, CA 11/1/94
David Lydell, RPT Kirkland, WA 11/1/94
William J. Scheyer, MD Kirkland, WA 12/1/94
Steven T. Bramwell, MD Kirkland, WA 12/15/94
Richard Angelo, MD Kirkland, WA 12/31/94
Stanley G. Newell, DPM Kirkland, WA 12/31/94
Washington Sports & Family Medicine Kirkland, WA 12/31/94
A Women's Wellness Center Kirkland, WA 12/31/94
</TABLE>
Total acquisition transaction consideration is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
------------------------------
<S> <C> <C>
Cash and transaction costs $ 5,316 $ 98,477
Short-term and subordinated notes 471,559 -0-
Common stock issued and to be issued (at fair value) 2,499,375 696,538
Liabilities assumed -0- -0-
------------------------------
Total costs $2,976,250 $795,015
==============================
</TABLE>
The shares of common stock to be issued at specified future dates were
valued at the average market value during the preceeding 90 day period.
The common stock in all of the transactions is delivered 20% at closing
and 20% each on the first, second, third, and fourth anniversaries.
For transactions completed through December 31, 1995, the scheduled
issuance of shares of common stock that the Company is committed to
deliver after the passage of time are 225,677 in 1996, 225,677 in 1997,
225,677 in 1998, and 225,678 in 1999. The accompanying financial
statements include the results of operations derived from the management
services agreements from their respective effective dates. The following
unaudited pro forma information presents the results of operations of the
Company for the year ended December 31, 1994 as if the 1995 and 1994
transactions had been consummated on January 1, 1994 and for the year
ended
F-14
<PAGE> 47
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS (CONTINUED)
December 31, 1995 as if the 1995 transactions were consummated on January
1, 1995. Such information is based on the historical financial information
of the medical groups and does not include operational or other changes
which might have been affected pursuant to the Company's management of the
nonmedical aspects of such groups.
The pro forma information presented below is for illustrative information
only and is not necessarily indicative of results which would have been
achieved or results which may be achieved in the future (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
YEAR ENDED DECEMBER 31
----------------------
1995 1994
--------------------------
<S> <C> <C>
Revenue 8,880 7,993
Net income 700 630
Net income per share .06 .06
</TABLE>
3. ACCOUNTS RECEIVABLE
The Company has established an allowance for doubtful accounts based upon
anticipated actual collections as determined by management in an amount
between 10% and 20% of the gross accounts receivable balance. Management
feels that this amount is reasonable.
4. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-----------------------------
<S> <C> <C>
Furniture and equipment $1,002,339 $ 761,298
Less accumulated depreciation (473,930) (325,880)
-----------------------------
Property and equipment, net $ 528,409 $ 435,418
=============================
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1994 was
$148,050 and $65,814, respectively.
F-15
<PAGE> 48
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-----------------------------
<S> <C> <C>
Acquired management contracts $3,870,964 $ 888,937
Franchise fees 1,210,000 1,210,000
-----------------------------
5,080,964 2,098,937
Less accumulated amortization 564,956 408,584
-----------------------------
$4,516,008 $1,690,353
=============================
</TABLE>
The increase in acquired management contracts in 1995 is related to the
acquisition of seven management agreements. Amortization expense was
$156,372 and $86,436 for the years ended December 31, 1995 and 1994,
respectively.
6. DEBT
RELATED PARTY DEBT
Related party debt consists of 8% demand notes payable to two officers of
the Company as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------
<S> <C> <C>
John Regan $177,449 $160,575
Dennis Calvert 5,912 5,474
---------------------------
$183,361 $166,049
===========================
</TABLE>
F-16
<PAGE> 49
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. DEBT (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
-----------------------------
<S> <C> <C>
Notes payable to various individuals in
conjunction with asset acquisition,
collateralized with accounts receivable,
interest payable at 10%, matures at
various dates in 1996 and 1997, all unpaid
principal and accrued interest are due at
due date $1,152,243 $1,014,410
Notes payable to various individuals, interest
payable at 8%, principal and any accrued
interest due on demand 236,863 -
Note payable to an individual, collateralized
by accounts receivable, interest
payable at 10%, principal and interest
payable at $45,000 monthly through
December 1996. During 1995 the note was
eliminated as a result of a re-valuation
of accounts receivable purchased with the note. - 1,940,236
Notes payable, interest payable at 12%, principal
and any accrued interest due on demand. Notes
may be converted into 338,494 shares of the
Company's common stock in 1995. - 550,000
Capital lease obligations 88,837 29,245
-----------------------------
1,477,943 3,533,891
Less current portion 1,066,626 1,112,113
-----------------------------
$ 411,317 $2,421,778
=============================
</TABLE>
F-17
<PAGE> 50
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. DEBT (CONTINUED)
LONG-TERM DEBT (CONTINUED)
Future principal maturities, including capital lease obligations, as of
December 31, 1996 is as follows:
DECEMBER 31
1996 $1,066,626
1997 355,433
1998 16,602
1999 18,788
2000 20,494
----------
$1,477,943
==========
7. CONVERTIBLE SUBORDINATED DEBT
During 1995, the Company issued $762,000 of 12% Series B Convertible
Redeemable Secured Subordinated Debentures. Interest is payable
semiannually with principal and any unpaid interest due April 28, 2000.
Upon maturity the holder shall have the right of option, but not the
obligation, to convert all or part of the debt into fully paid shares of
the Company's common stock at the conversion price of $5.00 per share.
Principal and accrued interest at December 31, 1995 was $808,095.
8. REVENUE
The following presents the amounts included in the determination of the
Company's revenues (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
--------------------------
<S> <C> <C>
Medical service revenue $13,076 $3,784
Amounts retained by medical groups 4,329 1,133
--------------------------
$ 8,747 $2,651
==========================
Medical service agreements at year-end 16 10
</TABLE>
The range of net billing percentages that the Company is obligated to pay
to physicians pursuant to their consulting arrangements is 33%-38%.
F-18
<PAGE> 51
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. REVENUE (CONTINUED)
In 1995, 60% of the Company's revenues were derived from four medical
groups which provided 15% or more of revenues.
For the years ended December 31, 1995 and 1994, the medical groups derived
approximately 35% and 30% of their medical service revenue from services
provided under Medicare and Medicaid programs and 30% and 30% from
contractual fee-for-service arrangements with numerous payors and managed
care programs, none of which individually aggregated more than 10% of
medical service revenue. The remaining 35% was derived from various
fee-for-service payors. Capitation revenues were less than 20% of total
revenue in 1995. Changes in the medical group's payor mix can affect the
Company's revenue.
Accounts receivable principally represent receivables from patients and
third-parties for medical services provided by physician groups. Such
amounts are recorded net of contractual allowances and estimated bad
debts. Accounts receivable are a function of net physician practice
revenue rather than net revenue of the company. Receivables from the
Medicare and State Medicaid programs are considered to have minimal credit
risk and no other payor comprised more than 10% of accounts receivable at
December 31, 1995.
9. INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------------
<S> <C> <C> <C>
Current:
Federal $388,688 $ -
State 29,800 -
----------------------------
Total current $418,488 $ -
============================
</TABLE>
F-19
<PAGE> 52
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under operating leases which expire
at various dates through the year 2005. The accompanying statement of
operations includes expenses from operating leases of $971,890 and
$239,089 for 1995 and 1994, respectively. Future minimum lease payments,
due under noncancelable operating leases as of December 31, 1995 are as
follows:
1996 $ 931,600
1997 601,056
1998 601,056
1999 414,566
2000 383,352
2001 148,632
2002 148,632
2003 56,460
2004 56,460
2005 56,460
----------
$3,398,274
==========
The Company is subject to legal proceedings and claims arising in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position of the Company.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of accounts receivable,
management fee receivable, accounts payable, related party debt and
long-term debt, and convertible subordinated debt. At December 31, 1995
and 1994, fair values of these instruments approximates carrying value.
F-20
<PAGE> 53
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information for the years ended
December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------
<S> <C> <C>
Cash paid for interest: $ 291,657 $ 25,240
Noncash investing and financing activities:
Assets acquired by capital lease 70,350 -
Assets acquired with stock issuance 1,235,062 296,754
Stock issued for debt 592,364 -
Stock issued for services 236,220 -
</TABLE>
13. EQUITY
In June 1994, the Company's shareholders approved proposals to cancel
2,000,000 shares of common stock and effect a 1-for-3.5 reverse stock
split of the Company's common stock. The effect of the reverse split was
to convert three and one half (3.5) shares of common stock into one (1)
share of common stock.
The Company's preferred shares (1) carry no voting rights; (2) may be
converted into common shares on a one-to-one basis subject to the
limitation that no more than 25% may be converted into common shares in
any one year and at no time may the holders of the Class A preferred hold
directly or indirectly 4.9% of the common shares outstanding; (3) the
shares carry no dividend right, except in liquidation; and (4) the shares
have no redemption rights.
14. SUBSEQUENT EVENTS
On December 31, 1995 the Company entered into an Clinic Management
Agreement with OB-GYN Associates. In April 1996 the Company entered into
an Asset Purchase Agreement with OB-GYN Associates. In May 1996 the Asset
Purchase Agreement was finalized with the Company agreeing to issue
730,000 shares of its common stock, valued at $2,920,000 and paying
$1,606,202 in cash for a total acquisition price of $4,526,202. As of May
31, 1996 the Company has issued 146,000 shares of its common stock as part
of this acquisition. The remaining 584,000 shares are to be issued at
146,000 shares each December through 1999.
F-21
<PAGE> 54
Medical Asset Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. SUBSEQUENT EVENTS (CONTINUED)
This acquisition has been accounted for as a purchase. The accounts
receivable were valued at net collectible value based upon an analysis by
the Company. The estimated fair value of assets is summarized as follows:
<TABLE>
<S> <C>
Accounts receivable, net $1,722,084
Property and equipment 305,413
Management service agreement 2,431,936
Other 66,769
----------
4,526,202
Less value of stock issued and to be issued 2,920,000
----------
Cash purchase price $1,606,202
==========
</TABLE>
For the year ended December 31, 1995 the financial statements of the
Company do not include any financial results of OB-GYN Associates.
Unaudited pro forma results of operations for 1995 and 1994, assuming the
acquisition of OB-GYN Associates was consummated January 1, 1994, are as
follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------------
<S> <C> <C>
Net revenue $11,405,400 $7,356,377
Net earnings 672,664 254,411
Earnings per share .06 .03
</TABLE>
F-22
<PAGE> 55
MEDICAL ASSET MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1996
------------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash 4,818,500
Accounts receivable 9,178,500
Management fee receivable 632,000
Prepaid expenses 316,800
Notes receivable 107,800
Other assets 53,000
----------
15,106,600
PROPERTY, PLANT AND EQUIPMENT, NET 2,535,400
FRANCHISE FEES, NET 865,700
ACQUIRED MANAGEMENT AGREEMENTS, NET 13,151,600
----------
16,552,700
----------
TOTAL ASSETS 31,659,300
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Credit line 800,000
Capital lease obligations 40,000
Notes payable, shareholders 25,000
Payroll taxes payable 30,000
Notes payable - accounts receivable 1,661,500
Accrued liabilities 475,300
Accrued income taxes payable 1,488,000
Current portion - long term debt 44,000
Convertible subordinated debt 45,000
---------
4,608,800
---------
LONG TERM DEBT
Long term debt, less current portion 644,300
Obligations under capital lease, less current portion 180,000
-------
824,300
-------
SHAREHOLDERS' EQUITY
Preferred stock -- $.001 par value; 10,000 shares authorized;
Class A - 3,000,000 shares issued,
2,600,000 outstanding 2,600
Common stock -- $.001 par value; 50,000,000
shares authorized; 13,473,374 shares issued
and outstanding 13,473
Common stock to be issued;
2,403,215 shares 10,045.790
Additional paid-in capital 14,147,527
Unearned remuneration (1,062,990)
Retained earnings 3,079,800
---------
26,226,200
----------
TOTAL LIABILITIES AND EQUITY 31,659,300
==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-23
<PAGE> 56
MEDICAL ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET REVENUE 4,142,400 2,180,700 11,924,000 5,973,500
---------- ---------- ---------- ----------
EXPENSES
Clinic operating expenses 2,327,500 7,288,500
Salaries 351,600 87,000 922,500 261,000
General and administrative 443,400 1,969,600 1,054,800 4,484,500
Depreciation and amortization 103,900 36,700 390,200 115,000
Interest 24,300 160,000 134,000
---------- ---------- ---------- ----------
3,250,700 2,093,300 9,816,000 4,994,500
========== ========== ========== ==========
NET INCOME BEFORE
INCOME
TAXES 891,700 87,400 2,108,000 979,000
PROVISION FOR INCOME 174,300 18,400 632,400 367,100
---------- ---------- ---------- ----------
TAXES
NET INCOME 717,400 69,000 1,475,600 611,900
========== ========== ========== ==========
WEIGHTED-AVERAGE
NUMBER OF
COMMON STOCK AND
COMMON
STOCK EQUIVALENTS 12,643,857 11,169,295 12,643,857 11,169,295
========== ========== ========== ==========
NET INCOME PER SHARE 0.06 0.01 0.12 0.05
==== ==== ==== ====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT. MEDICAL ASSET
F-24
<PAGE> 57
MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1996
---- ----
<S> <C> <C>
Net Income 1,475,600 611,900
Adjustments to reconcile net income to net cash provided by
operating activities, depreciation and amortization 390,200 115,000
Cash provided net of effects of medical transactions by
changes in:
Accounts receivable (812,800) (612,400)
Management fee receivables 281,800 231,600
Other assets (242,100) (448,000)
Capital leases 131,400 (7,100)
Accounts payable (77,200) (84,100)
Accrued liabilities 632,400 367,400
------- -------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 1,779,300 174,300
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (1,553,100) (96,700)
Net payments in medical practice transactions (2,351,700) (5,300)
---------- ------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (3,904,800) (102,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank indebtedness 800,000
Repayment of indebtedness (1,610,800) (340,400)
Sale of common stock 7,622,900 427,300
--------- -------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 6,812,100 86,900
NET INCREASE (DECREASE) IN CASH 4,686,600 159,200
CASH, AT THE BEGINNING OF THE YEAR 131,900 50,400
CASH, AT END OF PERIOD 4,818,500 209,600
========= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-25
<PAGE> 58
Medical Asset Management, Inc.
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
Note 1 -- Basis of Presentation and Restatement
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the unaudited consolidated financial statements in
this report reflect normal occurring adjustments considered necessary for a fair
presentation of the financial position and results of operations for the interim
period presented. To conform to the presentation for the three months ended
September 30, 1996, the contractual allocation of revenues to medical-owner(s)
of clinics and practices managed by the Company has been reclassified as a
reduction of net revenues in the nine months ended September 30, 1996 and the
three and nine months ended September 30, 1995. Previously, these contractual
allocations were reported as consulting fees. This reclassification had no
effect on net income for any period presented.
During the third quarter of 1996, it was determined that the Company had
incorrectly accounted for contingent stock committed to be issued in future
years under management agreements acquired in 1994 as purchase price adjustments
rather than compensation expense as required by generally accepted accounting
principles. The Company continues to account for nonforfeitable stock committed
to be issued for management agreements acquired in 1995 and 1996 as a component
of their purchase price and be amortized over 25 years or the life of the
agreement, whichever is shorter; however, nonforfeitable and contingent common
stock committed to be issued in future periods is shown as a separate component
in shareholders equity in accordance with generally accepted accounting
principles. These amounts were previously reported as unissued. The unearned
remuneration associated with contingent shares is also shown as a component of
equity. The following schedule summarizes the effect of restating the Company's
1995 and 1996 financial statements:
F-26
<PAGE> 59
Medical Asset Management, Inc.
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
NET INCOME NET INCOME SHAREHOLDER'S
PER SHARE EQUITY
---------- --------- -------------
<S> <C> <C> <C>
FISCAL 1995
- -----------
Quarter ended March 31:
As previously reported $ 291,945 $ 0.03 $3,012.765
Adjustment (70,933) 460,144
As presented herein 221,012 0.02 3,472,909
Quarter ended June 30:
As previously reported 230,798 0.02 3,312,590
Adjustment (82,821) 920,287
As presented herein 147,998 0.01 4,232,877
Quarter ended September 30:
As previously reported 157,749 0.01 6,450,300
Adjustment (88,749) 1,380,431
As presented herein 69,000 0.01 7,830,731
FISCAL 1996
- -----------
Quarter ended March 31:
As previously reported 496,598 0.05 6,892,695
Adjustment (124,034) 2,204,000
As presented herein 372,564 0.03 9,096,695
Quarter ended June 30:
As previously reported 525,297 0.03 14,693,595
Adjustment (139,634) 4,408,000
As presented herein 385,663 0.03 19,101,595
</TABLE>
The presentation of the Company's financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses as well as disclosures on contingent assets and
liabilities. Because of inherent uncertainties in the process, actual future
results could differ from those expected, and thus accrued, at the reporting
date. These unaudited financial statements, footnote disclosures and other
information should be read in conjunction with the financial statements and
notes thereto included in the Company's Form 10-KSB, as may be amended.
F-27
<PAGE> 60
Medical Asset Management, Inc.
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
Note 2 -- Medical Service Revenue
Medical service revenue for services to patients by clinics and practices
affiliated with the . Company is recorded when services are rendered based upon
established or negotiated charges reduced by contractual adjustments and
allowances for doubtful accounts. Differences between estimated contractual
adjustments and final settlements are reported in the period when final
settlements are determined. Medical service revenue of the affiliated clinics
and practices is also reduced by the contractual amounts retained by the medical
groups to arrive at the Company's revenue shown on it's income statement.
The following presents the amounts included in the determination of the
Company's net revenue (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
--------------- -------------------
<S> <C> <C> <C> <C>
Medical service revenue $6,265 $3,115 $17,931 $8,916
Amounts retained by
medical groups 2,123 933 6,007 2,942
----- --- ----- -----
Net Revenue $4,142 $2,182 $11,924 $5,974
====== ====== ======= ======
Number of management
Number of management
service agreements at
end of period 32 19 32 19
</TABLE>
Note 3 -- Medical Practice Transactions
During the first nine months of 196, the Company acquired certain non-medical
assets of and entered into long-term management service agreements with twelve
medical practices, respectively. The transactions have been accounted for as
asset purchases. The following presents the aggregate consideration required to
complete those transactions (in thousands):
F-28
<PAGE> 61
Medical Asset Management, Inc.
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
-------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Cash and transaction costs $2,352 -0- $2,352 $ 5
Issuance of notes 1,730 68 1,730 472
Common stock 8,363 110 8,863 2,499
(Include shares to be issued)
</TABLE>
The Company is currently committed to issue shares of Common Stock pursuant to
completed acquisition transactions as follows: 153,381 shares in 1996; 678,519
shares in 1997; 678,519 shares in 1998; 599,779 shares in 1999; and 446,398
shares in 2000. Although such shares are not issued or outstanding for legal
purposes, such shares are nonforfeitable and considered as outstanding for per
share calculations.
The accompanying unaudited consolidated financial statements include the results
of operations from the Company's management service agreements from their
respective effective dates. The following unaudited proforma information
presents the results of operations for the nine months ended September 30, 1995,
assuming all 1995 and 1996 transactions were consummated on January 1, 1995 and
for the nine months ended September 30, 1996 assuming all 1996 transactions were
consummated January 1, 1996. Such proforma information is based on the
historical financial information of the medical practices and does not include
operational or other changes which might have been effected pursuant to the
Company's management of the nonmedical aspects of such practices. The proforma
information presented below is for illustrative information only and is not
necessarily indicative of results which would have been achieved or results
which may be achieved in the future (in thousands, except share amounts):
<TABLE>
<CAPTION>
Nine Months
Ended September 30
1996 1995
-------------------------
<S> <C> <C>
Annualized revenue $25,593 $22,255
Annualized net income 3,327 2,893
Annualized net income per share 0.26 0.22
</TABLE>
F-29
<PAGE> 62
Medical Asset Management, Inc.
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
Note 4 -- Capitalization
As part of entering into long-term management agreements with medical practices
described in Note 3, the Company has nonforfeitable commitments to issue shares
of Common Stock at specified future dates for no further consideration. Both
contingent and nonforfeitable common stock to be issued is shown as a separate
component in shareholders' equity and the amounts, upon issuance of the shares,
will be reclassified to par value and additional paid in capital.
During the first quarter of 1996, the Company raised $457,931 through a private
placement through the sale of 273,695 shares of the Company's stock.
On May 31, 1996, the Company completed a private placement of 2,000,000 shares
of common stock that yielded the Company $7,165,000. There was no significant
gain on the conversion.
In August, the Company called its $762,000 Convertible Subordinated Debenture
and converted $751,525 into 150,305 shares of common stock.
Note 5 -- Net Income Per Share
The computation of net income per share is based on the weighted average number
of shares of Common Stock and Common Stock share equivalents outstanding during
the periods in accordance with the requirements of the Securities and Exchange
Commission (SEC). Fully diluted net income per share has not been presented
because it does not differ materially from the primary per share computations.
The following table summarizes the determination of shares used in per share
calculations (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
---------------------- --------------------
<S> <C> <C> <C> <C>
Outstanding at end of period
Common Stock 13,473 11,386 13,473 11,386
Common Stock to be issued 2,403 850 2,403 850
----- --- ----- ---
15,876 12,236 15,876 12,236
Effect of weighting (3,233) (1,067) (3,233) (1,067)
------ ------ ------ ------
Shares used in per share
calculations 12,643 11,169 12,643 11,169
====== ====== ====== ======
</TABLE>
F-30
<PAGE> 63
C O N T E N T S
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT...................................................................................1
FINANCIAL STATEMENTS:
BALANCE SHEET.............................................................................................2
STATEMENT OF OPERATIONS...................................................................................3
STATEMENT OF STOCKHOLDERS' EQUITY.........................................................................4
STATEMENT OF CASH FLOWS...................................................................................5
NOTES TO FINANCIAL STATEMENTS.............................................................................6-10
</TABLE>
<PAGE> 64
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF
MEDICAL ASSET MANAGEMENT, INC.:
We have audited the accompanying balance sheet of OB-GYN Associates, P.C. (a
Colorado corporation) as of December 31, 1995, and the related statement of
operations and retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OB-GYN Associates, P.C. as of
December 31, 1995, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting
principles.
Harlan & Boettger, CPAs
San Diego, California
September 23, 1996
F-31
<PAGE> 65
OB-GYN ASSOCIATES, P.C.
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 8,518
Investment (Note C) 378,654
Accounts receivable, trade, net of allowance for doubtful
accounts of $683,670 (Note A) 1,366,065
Accounts receivable, other 216,072
Accounts receivable, shareholder 21,003
Prepaid expenses and other current assets 105,668
-----------
TOTAL CURRENT ASSETS 2,095,980
PROPERTY AND EQUIPMENT, net (Note B) 318,749
-----------
TOTAL ASSETS $ 2,414,729
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 258,422
Bank overdraft 162,888
Line of credit - current (Note G) 35,000
Capital lease obligations 76,669
Accrued pension contribution payable (Note D) 5,340
Note payable - current (Note F) 180,073
Income taxes payable (Note E) 95,443
Deferred income taxes (Notes A and E) 86,500
-----------
TOTAL CURRENT LIABILITIES 900,335
COMMITMENTS (Note H) -
NOTE PAYABLE-LESS CURRENT PORTION(Note F) 1,407,494
-----------
TOTAL LIABILITIES 2,307,829
STOCKHOLDERS' EQUITY
Common stock, $1 par value; 50,000 shares
authorized; 12,500 shares issued and outstanding 12,500
Additional paid-in-capital 524,768
Stock subscription receivable (Note I) (160,098)
Retained deficit (270,270)
-----------
TOTAL STOCKHOLDERS' EQUITY 106,900
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,414,729
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 66
OB-GYN ASSOCIATES, P.C.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
INCOME
Professional fees $5,212,881
Interest income 33,207
Other income 319,374
----------
TOTAL INCOME 5,565,462
OPERATING EXPENSES
Payroll and payroll taxes 2,878,709
Liability insurance 235,293
Officer's insurance 57,077
General and administrative 799,642
Office expense 167,943
Management fees 72,278
Miscellaneous 17,093
Depreciation 126,626
Pension plan contributions (Note D) 25,652
Property tax, dues & subscriptions 71,987
Contract labor 140,194
Medical supplies 194,465
Lab fees 48,999
Consulting 18,450
Interest expense 190,154
Loss on sale of equipment 80,922
Legal and accounting 42,310
----------
TOTAL OPERATING EXPENSES 5,167,794
INCOME BEFORE PROVISION FOR TAXES 397,668
INCOME TAXES (Notes A and E) 95,433
----------
NET INCOME $ 302,235
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 67
OB-GYN ASSOCIATES, P.C.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Shares Amount Capital Deficit Total
------ ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 12,500 $12,500 $524,768 $(572,505) $ (35,237)
Stock subscription receivable - - - - (160,098)
------ ------- --------
Net income 12,500 $12,500 $524,768 302,235 302,235
====== ======= ======== --------- ---------
DECEMBER 31, 1995 $(270,270) $ 106,900
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 68
OB-GYN ASSOCIATES, P.C.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ 302,235
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization (274,898)
Change in assets and liabilities:
Increase in accounts receivable - trade (337,314)
Increase in receivable - other (128,747)
Decrease in shareholder receivable 71,480
Increase in prepaid expenses and other (56,544)
Decrease in accounts payable and accrued expenses (176,528)
Increase in bank overdraft 162,888
Decrease in deferred compensation (140,721)
Increase in income taxes payable 17,533
Decrease in deferred loss on sale of equipment (16,140)
----------
NET CASH USED IN OPERATING ACTIVITIES (576,756)
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of fixed assets 569,315
Increase in investments (66,996)
----------
NET CASH USED IN INVESTING ACTIVITIES 502,319
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on line of credit 35,000
Principal payments on capital leases (84,747)
Decrease in notes payable (45,871)
Principal payments in notes payable - long-term (17,715)
Proceeds from common stock receivable 179,813
----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 66,480
----------
NET (DECREASE) IN CASH (7,957)
----------
CASH, BEGINNING OF YEAR 16,475
----------
CASH, END OF YEAR $ 8,518
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 69
OB-GYN ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
OB-GYN Associates, P.C. (the Company) was incorporated as Stuart O.
Silverberg, M.D. and Herbert L. Jacobs, M.D., P.C. under the laws of the
State of Colorado on July 1, 1969. The corporate name was changed to OB-GYN
Associates, P.C. on January 21, 1971. The Company provides neonatal medical
services through its three outpatient facilities located in the Denver area.
Basis of Accounting
The Company's policy is to prepare its financial statements on an accrual
basis of accounting. Accordingly, the accompanying financial statements are
intended to present the financial position, results of operations and cash
flows in conformity with generally accepted accounting principles.
Cash
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less and money market funds to be cash equivalents.
Accounts Receivable
Accounts receivable are stated at net realizable value. An allowance for
doubtful accounts has been reflected in the financial statements to reduce
accounts receivable for managed care contracts and Medi-Cal charges which
the Company has agreed to accept at a discounted fee. The total mandatory
adjustments at 1995 are $683,670.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided by the
straight-line method over their estimated useful lives as follows:
Leasehold improvements 5 years (term of lease)
Furniture and fixtures 7 years
F-36
<PAGE> 70
OB-GYN ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
Equipment 5 - 7 years
Software 3 years
Upon retirement or disposal of depreciated assets, the cost and related
depreciation are removed and the resulting gain or loss is reflected in
income. Major renewals and betterments are capitalized while maintenance
costs and repairs are expensed in the year incurred.
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Income Taxes
Deferred tax liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
settled. The effect on deferred tax liabilities of a change in tax rates is
recognized in income in the period in which the change is enacted. Temporary
differences related principally to differences between the accrual method of
accounting used for financial statement purposes and the cash method of
accounting used for tax purposes.
Concentration of Credit Risk
Substantially all of the Company's accounts receivables are concentrated
within the medical industry, primarily health insurance companies and
government insurance providers.
B. PROPERTY AND EQUIPMENT:
Property and equipment as of December 31, 1995 are summarized as follows:
Furniture and fixtures $ 27,106
Equipment 924,170
Leasehold improvements 200,147
----------
1,151,423
F-37
<PAGE> 71
OB-GYN ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
(CONTINUED)
Less: accumulated depreciation 832,674
----------
$ 318,749
==========
C. INVESTMENT:
The Company maintains an investment in the form of an annuity with General
Services Life Insurance Company. This investment is carried at its cash
surrender value, net of any fees applicable in accordance with the annuity
contract. At December 31, 1995 the annuity had a cash surrender value of
$378,654.
F-38
<PAGE> 72
OB-GYN ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
(CONTINUED)
D. ACCRUED PENSION AND PROFIT SHARING EXPENSE:
The Company maintains a defined contribution profit sharing plan covering
substantially all employees subject to minimum age and service requirements.
Contributions to the profit sharing plan are at the discretion of the Board
of Directors. Total pension and profit sharing expense was $25,652 for the
year ended December 31, 1995.
It is the policy of the Company to fund accrued pension and profit sharing
contributions prior to the filing of the corporate income tax returns.
E. INCOME TAXES:
As discussed in Note A, the Company adopted SFAS 109, "Accounting for Income
Taxes" in 1993 and applied the provisions of this statement retroactively to
January 1, 1992. SFAS 109 requires the use of the balance sheet method of
accounting for income taxes. Under this method, a deferred tax asset or
liability represents the tax effect of temporary differences between
financial statement and tax bases of assets and liabilities and is measured
using the latest enacted tax rates.
The provision for income taxes for the year ended December 31, 1995 is
$95,443:
Current provision $ 95,443
Deferred liability 86,500
--------
Net liability $181,943
========
F. NOTES PAYABLE:
<TABLE>
<S> <C>
Note payable to bank bearing interest at the bank's variable reference rate
plus 2% (8% at December 31, 1995) payable in monthly installments of $6,000
plus interest, secured by substantially all the assets of the Company,
matures March 1999 $1,165,850
Note payable to bank bearing interest at 6% payable in monthly installments
of $5,370 including interest, secured by substantially all the assets of the
Company, matures January 1996 7,629
</TABLE>
F-39
<PAGE> 73
OB-GYN ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
(CONTINUED)
<TABLE>
<S> <C>
Note payable to bank bearing interest at the bank's adjustable reference rate
(10.25% at December 31, 1995) payable in monthly installments of $2,500 plus
interest, secured by substantially all the assets of the Company, matures
February 1999 95,000
</TABLE>
F-40
<PAGE> 74
OB-GYN ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
(CONTINUED)
F. NOTES PAYABLE: (CONTINUED)
<TABLE>
<S> <C>
Note payable to bank bearing interest at 8% payable in monthly installments
of $4,000 plus interest through December 1, 1995 and $6,000 monthly plus
interest thereafter through the maturity date of June 1998, secured by
substantially all the assets of the Company 145,898
Note payable to bank bearing interest at 8% payable in interest only monthly
installments of $1,000 to be negotiated in 1996. 104,833
Note payable to bank bearing interest at the bank's reference rate plus 1%
(8% at December 31, 1995) payable in monthly installments of $935 plus
interest, unsecured, matures September 1998 68,357
----------
1,587,567
Less current portion 180,073
----------
$1,407,494
==========
</TABLE>
G. LINE OF CREDIT:
The Company maintains a line of credit facility with a bank which bears
interest at 8.75% payable in monthly interest only installments and secured
by substantially all the assets of the Company. The final outstanding
balance is due and payable at the maturity date of September 1996.
The following is a schedule of future maturities of the line of credit as of
December 31, 1995:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1996 $35,000
Thereafter -
-------
$35,000
=======
</TABLE>
F-41
<PAGE> 75
OB-GYN ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
(CONTINUED)
H. COMMITMENTS:
The Company has entered into noncancelable building leases for its operating
facilities. The agreements call for annual base rents adjusted annually for
changes in the consumer price index as well as common area expenses.
Net future minimum rental payments required under this lease as of December
31, 1995 are as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
------------
<S> <C>
1996 $ 266,879
1997 173,884
1998 154,810
1999 154,810
2001 161,002
Thereafter 341,581
----------
$1,252,966
==========
</TABLE>
Total rent expense charged to operations for the year ended December 31,
1995 was $387,097.
I. SUBSCRIPTION RECEIVABLE:
During the years ended 1994 and 1995, the Company issued stock to certain
physicians to join the Company. In exchange for their membership the
physicians each individually issued subscriptions receivable at varying
interest rates and due dates. The balance of these subscriptions at December
31, 1995 is $160,098. Accordingly, the subscribed amount is reflected in the
accompanying financial statements as a separate component of stockholders'
equity.
J. SUBSEQUENT EVENT:
On December 30, 1995 the OB-GYN Associates, P.C. signed a contract with
Medical Asset Management, Inc. Under the terms of the agreement the Company
exchanged the fixed assets and accounts receivables for cash. The cash was
obligated to be used to pay accounts payable and the St. Anthony's note and
the Colorado National Lease.
The cash was received and all related obligations settled by May 31, 1996.
F-42
<PAGE> 76
OB-GYN ASSOCIATES, P.C.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
TOGETHER WITH AUDITORS' REPORT
<PAGE> 77
Medical Asset Management, Inc.
Unaudited Pro forma Financial Statements
OB-GYN Associates, P.C.
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
-----------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 118,514 $ 8,518
Investment 378,654 378,654
Accounts receivable, net of allowance for doubtful accounts of $617,516
and $683,670, respectively 1,571,733 1,603,140
Other assets 110,683 105,668
-----------------------------
2,179,584 2,095,980
Property, plant, and equipment, net 278,742 318,749
-----------------------------
Total assets $2,458,326 $2,414,729
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 260,433 $ 426,650
Current portion of long-term debt and capital leases 257,848 256,742
Income taxes payable 121,622 95,443
Deferred income taxes 86,500 86,500
Line of credit 91,000 35,000
-----------------------------
817,403 900,335
Long-term debt 1,346,495 1,407,494
-----------------------------
Total liabilities 2,163,898 2,307,829
Stockholders' equity:
Common stock, $1 par value; 50,000 shares authorized; 12,500 and 12,500
issued and outstanding, respectively 12,500 12,500
Additional paid-in capital 505,018 524,768
Stock subscription receivable (140,348) (160,098)
Retained earnings (deficit) (82,742) (270,270)
-----------------------------
Total stockholders' equity 294,428 106,900
-----------------------------
Total liabilities and stockholders' equity $2,458,326 $2,414,729
=============================
</TABLE>
See accompanying notes.
F-43
<PAGE> 78
OB-GYN Associates, P.C.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
----------------------------
<S> <C> <C>
Net revenue $1,286,002 $1,343,140
Expenses:
Practice salaries and benefits 529,186 521,056
Other practice costs 245,945 255,625
General and administrative 349,374 506,974
Depreciation and amortization 40,005 37,080
Other (net) (125,252) (72,435)
---------------------------
1,039,258 1,248,300
Net income before income taxes 246,744 94,840
Provision for income taxes 59,216 22,762
---------------------------
Net income $ 187,528 $ 72,078
===========================
</TABLE>
See accompanying notes.
F-44
<PAGE> 79
OB-GYN Associates, P.C.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 187,528 $ 72,078
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 40,007 37,080
Change in assets and liabilities:
Decrease in accounts receivable--trade 31,407 27,069
Increase in other current assets (5,015) (19,394)
(Decrease) increase in accounts payable and accrued expenses (166,217) 151,052
Increase in income taxes payable 26,179 (174,422)
--------------------------
Net cash provided by operating activities 113,889 93,463
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment - (11,369)
Increase in investment - (25,480)
--------------------------
Net cash used in investing activities - (36,849)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on line of credit 56,000 -
Principal payments on capital leases (16,041) (25,678)
Decrease in term-debt (43,852) (45,339)
Proceeds from common stock receivable - 625
--------------------------
Net cash used in financing activities (3,893) (70,392)
--------------------------
Net increase (decrease) in cash 109,996 (13,778)
Cash, beginning of the period 8,518 16,475
--------------------------
Cash, end of the period $ 118,514 $ 2,697
==========================
</TABLE>
See accompanying notes.
F-45
<PAGE> 80
OB-GYN Associates, P.C.
Notes to Unaudited Financial Statements
1. INTERIM STATEMENT PRESENTATION
The unaudited financial statements have been prepared by OB-GYN Associates,
P.C. (the Company) pursuant to the rules and regulations of the Securities and
Exchange Commission and in accordance with generally accepted accounting
principles for the preparation of interim financial statements. Accordingly,
certain information and footnote disclosures normally included in annual
financial statements have been omitted or condensed. It is suggested that these
financial statements be read in conjunction with the audited financial
statements and notes thereto included in this Form 8-K/A.
In the opinion of management, all necessary adjustments have been made to
present fairly OB-GYN Associates, P.C.'s financial position, results of
operations and cash flows. Such adjustments are of a normal, recurring nature.
The results of this interim period are not necessarily indicative of results
for the entire year or any other interim period.
2. SUBSCRIPTION RECEIVABLE
During the year ended December 31, 1995, the Company issued stock to certain
physicians to join the Company. In exchange for their membership, the
physicians each individually issued subscriptions receivable at varying
interest rates and due dates. The balance of these subscriptions at March 31,
1996 and December 31, 1995 is $140,348 and $160,098, respectively. Accordingly,
the subscribed amount is reflected in the accompanying financial statements as
a separate component of stockholders' equity.
3. SUBSEQUENT EVENTS
On December 30, 1995, the OB-GYN Associates, P.C. signed a contract with
Medical Asset Management, Inc. (MAM). Under the terms of the agreement MAM
managed the Company under a short-term management agreement from December 31,
1995 to April 1, 1996. On April 1, 1996, MAM purchased the accounts receivable
and nonmedical assets of the Company in addition to entering into a twenty-five
year management agreement for $4,526,206 consisting of cash of $1,606,202 and
730,000 shares of MAM stock.
F-46
<PAGE> 81
Medical Asset Management, Inc.
Unaudited Pro forma Financial Statements
The unaudited pro forma financial information presented in the unaudited pro
forma financial statements is included in order to illustrate the effect on the
Medical Asset Management, Inc.'s (the "Company" or MAM) financial statements of
the acquisition of OB-GYN Associates, P.C. on April 1, 1996 (the
"Acquisition").
The unaudited pro forma balance sheet at March 31, 1996 presents adjustments
for the Acquisition as if the Acquisition had occurred on March 31, 1996.
The unaudited pro forma statements of operations for the three months ended
March 31, 1996 and for the year ended December 31, 1995 present adjustments for
the Acquisition as if the Acquisition had occurred on January 1, 1995.
In the opinion of management, all adjustments have been made that are necessary
to present fairly the pro forma data.
The unaudited pro forma financial statements should be read in conjunction with
the Company's historic consolidated financial statements and notes thereto, and
the historic financial statements and the notes thereto of OB-GYN Associates,
P.C. The unaudited pro forma statements of operations are not necessarily
indicative of the results that would have been reported had such events
actually occurred on the date specified, nor are they indicative of the
Company's future results.
F-47
<PAGE> 82
Medical Asset Management, Inc.
Unaudited Pro forma Balance Sheet
March 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR OB-GYN
COMPANY AS ASSOCIATES, P.C. COMPANY
REPORTED TRANSACTION PRO FORMA
---------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 169,490 $ 169,490
Accounts receivable 6,081,321 $1,722,084 (a) 7,803,405
Management fee receivable 1,094,350 1,094,350
Other assets 115,683 66,769 (a) 182,452
----------- -----------
7,460,844 9,249,697
Property, plant, and equipment, net 772,385 305,413 (a) 1,077,798
Intangible assets, net 8,393,243 2,431,936 (a) 10,825,179
----------- -----------
9,165,628 11,902,977
----------- -----------
Total assets $16,626,472 $21,152,674
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to OB-GYN Associates, P.C. $ - $1,606,202 (a) $ 1,606,202
Related party debt 186,910 186,910
Accrued payroll taxes 92,012 92,012
Other accrued liabilities 314,219 314,219
Due to physician groups 1,668,417 1,668,417
Accrued income taxes payable 507,187 507,187
Current portion--long-term liabilities 1,311,511 1,311,511
----------- -----------
4,080,256 5,686,458
----------- -----------
Long-term liabilities:
Long-term debt 341,400 341,400
Obligations under capital lease 65,100 65,100
Convertible subordinated debt 773,524 773,524
Shareholders' equity:
Preferred stock (convertible)--$.001 par value; 10,000,000
shares authorized
Class A--3,000,000 shares issued; 3,000,000 outstanding 3,000 3,000
Common stock--$.001 par value; 50,000,000 shares
authorized; 11,423,708 shares outstanding (pro
forma--11,569,708 shares (a)) 11,325 146 (a) 11,471
Common stock to be issued--1,208,708 shares (pro
forma--1,792,708 shares (a)) 5,437,781 2,336,000 (a) 7,773,781
Additional paid-in capital 6,184,835 583,854 (a) 6,768,689
Unearned remuneration (1,216,470) (1,216,470)
Retained earnings 945,721 945,721
----------- -----------
11,366,192 14,286,192
----------- -----------
Total liabilities and shareholders'equity $16,626,472 $21,152,674
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-48
<PAGE> 83
Medical Asset Management, Inc.
Unaudited Pro forma Statement of Operations
Three Months ended March 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
OB-GYN FOR OB-GYN
COMPANY ASSOCIATES, ASSOCIATES, P.C. COMPANY PRO
AS REPORTED P.C. TRANSACTION FORMA
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $3,533,473 $1,286,002 $(630,141)(b) $4,189,334
Expenses:
Practice salaries and benefits 981,022 529,186 (321,961)(c) 1,188,247
Other practice costs - 245,945 (45,691)(c) 200,254
General and administrative 1,742,247 349,374 (28,875)(c) 2,062,746
Depreciation and amortization 87,197 40,005 24,319 (d) 151,521
Other expense (income), net 75,560 (125,252) (45,588)(c) (95,280)
---------------------------------------------------------------------
2,886,026 1,039,258 (417,796) 3,507,488
---------------------------------------------------------------------
Net income before income taxes 647,447 246,744 (212,345) 681,846
Provision for income taxes 291,883 59,216 (64,724)(e) 286,375
---------------------------------------------------------------------
Net income $ 355,564 $ 187,528 $(147,621) $ 395,471
=====================================================================
Weighted average number of common
stock and common stock equivalents
outstanding:
Primary 10,692,491 11,422,491
Income per common share:
Primary $0.03 $0.03
</TABLE>
The accompanying notes are an integral part of this statement.
F-49
<PAGE> 84
Medical Asset Management, Inc.
Unaudited Pro forma Statement of Operations
Year ended December 31, 1995
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
OB-GYN FOR OB-GYN
COMPANY ASSOCIATES, ASSOCIATES, P.C. COMPANY PRO
AS REPORTED P.C. TRANSACTION FORMA
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $8,746,833 $5,212,881 $(2,554,314) (b) $11,405,400
Expenses:
Practice salaries and benefits 3,041,648 2,961,438 (2,016,454)(c) 3,986,632
Other practice costs 2,086,329 690,938 (39,752)(c) 2,737,515
Consulting fees 200,864 18,450 - 219,314
General and administrative 1,840,991 1,099,266 (204,135)(c) 2,736,122
Depreciation and amortization 291,823 126,626 97,277 (d) 515,726
Other expense (income), net 288,777 (81,505) (156,947)(c) 50,325
-----------------------------------------------------------------------
7,750,432 4,815,213 (2,320,011) 10,245,634
-----------------------------------------------------------------------
Net income before income taxes 996,401 397,668 (234,303) 1,159,766
Provision for income taxes 418,488 95,433 (26,819)(e) 487,102
-----------------------------------------------------------------------
Net income $ 577,913 $ 302,235 $ (207,484) $ 672,664
=======================================================================
Weighted average number of common
stock and common stock equivalents
outstanding:
Primary 10,108,943 10,838,943
Fully diluted 12,251,918 12,981,918
Income per common share:
Primary $0.06 $0.06
Fully diluted $0.05 $0.05
</TABLE>
The accompanying notes are an integral part of this statement.
F-50
<PAGE> 85
Medical Asset Management, Inc.
Notes to Unaudited Pro forma Financial Statements
(a) to record acquisition of accounts receivable, property, plant, and
equipment, management service agreement and other assets of OB-GYN
Associates, P.C. for $1,606,202 in cash and 730,000 shares of MAM stock
valued at $2,920,000. Stock issued at closing represented 20% or 146,000
shares of the total to be issued. The remaining 80% will be issued at 20%
per year over the next four years.
The cash portion of the purchase price is shown as a due to OB-GYN
Associates, P.C. in the pro forma presentation. This amount was ultimately
paid from proceeds of private placement stock offerings. The offerings were
not specifically made for the purpose of this transaction.
(b) to record contractual allocation of revenues to medical owners of OB-GYN
Associates, P.C. managed by the Company, net of the management fee of 5%
(c) to remove medical side expenses to be paid by medical owners of OB-GYN
Associates, P.C.
(d) to record amortization of acquired management contract over 25 years
straight-line
(e) to record estimated tax provision related to the operations of the assets
acquired at an assumed effective rate of approximately 42% for the three
months ended March 31, 1996 and the year ended December 31, 1995
F-51
<PAGE> 86
PART III
ITEM 1 AND 2. INDEX TO EXHIBITS AND DESCRIPTION.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION LOCATION NO.
- --- ----------- ------------
<S> <C> <C>
CHARTER AND BY-LAWS
-------------------
2.1 Certificate of Incorporation of Eagle High Enterprises, Inc., filed
January 23, 1986.
2.1(a) Certificate of Amendment of Certificate of Incorporation of Eagle
High Enterprises, Inc., filed June 21, 1994.
2.2 Bylaws of Eagle High Enterprises, Inc.
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
---------------------------------------------------
3.1 Board resolutions defining rights of Class A
Preferred Stock.*
Contracts Relating to Sale of 2,000,000 Shares of Common Stock on
-----------------------------------------------------------------
May 31, 1996
------------
3.2 Placement Agreement between Crutterden Roth Incorporated and Medical Asset Management,
Incorporated, dated April 30, 1996.
3.3 Medical Asset Management, Inc. Declaration of Registration Rights.
3.4 Medical Asset Management, Inc. Common Stock Warrant
MATERIAL CONTRACTS
------------------
Compensation Agreements with Officers
-------------------------------------
6.1 Employment Agreement between Medical Asset Management, Inc. and
John Regan, dated January 1, 1995.
6.2 Employment Agreement between Medical Asset Management, Inc. and
Dennis Calvert, dated January 1, 1995.
6.3 Employment Agreement between Medical Asset Management, Inc. and
Michael Zaic, dated January 1, 1995.
- ---------------------------
* To be filed by amendment.
</TABLE>
III-1
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION LOCATION NO.
- --- ----------- ------------
<S> <C> <C>
PLANS OF ACQUISITION, REORGANIZATION, ARRANGEMENT,
--------------------------------------------------
LIQUIDATION OR SUCCESSION
-------------------------
8.1 Stock Exchange Agreement with Shareholders of Medical Asset
Management, Inc. and Eagle High Enterprises, Inc., dated
June 24, 1994.
8.2 Agreement with Healthcare Professional Management, Inc. dated
December 29, 1995.
8.3 Asset Purchase and Medical Practice Management Agreement
between the Company and OB-GYN Associates, P.C., dated
December 31, 1995.
CONSENTS
--------
10.1 Consent of Harlan & Boettger, independent accountants for
Medical Asset Management, Inc., dated February 12, 1996.
</TABLE>
III-2
<PAGE> 88
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, this
registrant has caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
MEDICAL ASSET MANAGEMENT, INC.
Dated: February 13, 1997
By: /s/ JOHN REGAN
-----------------------
John W. Regan, President
III-3
<PAGE> 1
EXHIBIT 2.1
ARTICLES OF INCORPORATION
OF
EAGLE HIGH ENTERPRISES, INC.
That we, the undersigned, having this day associated ourselves together
for the purpose of forming a corporation under and by virtue of the laws of the
State of Delaware, hereby adopt the following Articles of Incorporation:
ARTICLE I
Name
The name of this corporation is Eagle High Enterprises, Inc.
ARTICLE II
Duration
The duration of this corporation is perpetual.
ARTICLE III
Purposes
The Corporation is organized and authorized to pursue any lawful
purpose or purposes including, but not limited to, a blind pool for
establishing, acquiring, consolidating, merging with or into, or being acquired
by, a business in the field of high technology, manufacturing and marketing.
The Corporation shall further have all powers and engage in any lawful
acts or activities for which corporations may be organized under the General
Corporation Law of Delaware.
<PAGE> 2
ARTICLE IV
Stock
The corporation shall have the authority to issue fifty million
(50,000,000) shares of common stock with a par value of $.001 per share, all
stock of the corporation shall be of the same class common and shall have the
same rights and preferences, fully paid stock of this corporation shall not be
liable to any further call or assessment.
ARTICLE V
Amendment
These Articles of Incorporation may be amended by the affirmative vote
of a majority of the shares entitled to vote on each such amendment.
ARTICLE VI
Shareholder Rights
The authorized and treasury stock of this corporation may be issued at
such time, upon such terms and conditions and for such consideration as the
Board of Directors shall determine. Shareholders shall not have pre-emptive
rights to acquire unissued shares of the stock of this corporation and
cumulative voting is denied.
ARTICLE VII
Initial Office and Agent
The address of the initial registered office of the corporation is
Corporation Trust Center, 1209 Orange Street, New Castle county Wilmington,
Delaware 19801, and the name of the corporation's initial registered agent at
such address is Corporation Trust Company.
2
<PAGE> 3
ARTICLE IX
Directors
The number of Directors constituting the initial Board of Directors of
this corporation shall be three (3) in number, provided, however, that the
number of directors may be changed from time to time by a provision of the
Bylaws, but in no event shall the number of directors be less than three (3) or
more than ten (10).
The names and addresses of the initial board of directors who shall
hold office until the first annual meeting of shareholders, or until their
successors are elected and qualified are:
Craig L. Niebuhr 1800 South West Temple
Salt Lake City, Utah 84115
Daniel J. Young 4072 Killarney Circle
Granger, Utah 84119
John C. Brooks 1800 S. W. Temple, Suite 401
Salt Lake City, Utah 84115
ARTICLE X
Incorporator
The name and address of the incorporator is:
George L. Ralphs 9 Exchange Place, Suite 200
Salt Lake City, Utah 84111
3
<PAGE> 4
ARTICLE XI
Indemnification of Directors and Officers
The Corporation shall indemnify any and all persons who may serve at
any time as directors or officers or who at the request of the Board of
Directors of the Corporation may serve or at any time have served as directors
or officers of another corporation in which the Corporation at such time owned
or may own shares of stock or of which it was or may be a creditor, and their
respective heirs, administrators, successors, and assignees, against any and
all expenses, including amounts paid upon judgments, counsel fees and amounts
paid in settlement (before or after suit is commenced), actually and
necessarily incurred by such persons in connection with the defense or
settlement of any claim, action, suit or proceeding in which they, or any of
them are made parties, or a party, or which may be asserted against them or
any of them, by reason of being or having been directors or officers or a
director or officer of the Corporation, or such other corporation, except in
relation to matters as to which any such director or officer or former
director or officer or person shall be adjudged in any action, suit or
proceeding to be liable for his own negligence or misconduct in the
performance of his duty. Such indemnification shall be in addition to any
other rights to which those indemnified may be entitled under any law, By-law,
agreement, vote of shareholders or otherwise.
ARTICLE XII
Common Directors - Transactions Between Corporations
No contract or other transaction between this corporation and one or
more of its directors or any other corporation, firm, association or entity in
which one or more of its directors are directors or officers or are financially
interested, shall be either
4
<PAGE> 5
void or voidable because of such relation or interest, or because such director
or directors are present at the meeting of the Board of Directors, or a
committee thereof which authorizes, approves or ratified such contract or
transaction, or because his or their votes are counted for such purpose if: (a)
the fact of such relationship or interest is disclosed or known to the Board of
Directors or committee which authorizes, approves, or ratifies this contract or
transaction by vote or consent sufficient for the purpose without counting the
votes or consents of such interested directors; or (b) the fact of such
relationship or interest is disclosed or known to the shareholders entitled to
vote and they authorize, approve, or ratify such contract or transaction by
vote or written consent; (c) the contract or transaction is fair and reasonable
to the corporation.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or committee
thereof which authorizes, approves or ratifies such contract or transaction.
DATED this 20th day of January, 1986.
/s/ GEORGE L. RALPHS
------------------------------
George L. Ralphs
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
I, the undersigned, being first duly sworn on oath, depose and say:
That I am the incorporator hereinbefore named; that I have read the foregoing
Articles of
5
<PAGE> 6
Incorporation and know the contents thereof and that the same is true of my own
knowledge, except as to matters therein stated upon information and belief, and
as to those, I believe them to be true.
/s/ GEORGE L. RALPHS
-------------------------------
George L. Ralphs
On the 20th day of January, 1986, personally appeared before me, GEORGE
L. RALPHS, signer of the above Articles of Incorporation, who duly acknowledged
to me that he executed the same.
/s/ YOLANDA TYRRELL
-------------------------------
Yolanda Tyrrell
NOTARY PUBLIC
Residing in: Salt Lake County
My Commission Expires:
9/19/88
- -----------------
6
<PAGE> 1
EXHIBIT 2.1(a)
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF INCORPORATION OF
EAGLE HIGH ENTERPRISES, INC.
Pursuant to Section 242 of Title 8 of the General Corporation Law of
the State of Delaware, the undersigned corporation hereby adopts the following
Certificate of Amendment to its Certificate of Incorporation:
FIRST: The name of the corporation is Eagle High Enterprises, Inc.
SECOND: The following amendments to the Certificate of incorporation of
Eagle High Enterprises, Inc., were duly adopted by the directors and the
stockholdere of the corporation at a meeting held June 21, 1994, in the manner
prescribed by the General Corporation Law of the State of Delaware, to Wit:
ARTICLE I - Name
The name of this corporation is MEDICAL ASSET MANAGEMENT, INC.
ARTICLE IV - Capital Stock Classes
The total number of shares of all classes of capital stock which the
Corporation has the authority to issue is 60,000,000 shares which are divided
into two classes as follows:
10,000,000 shares of Preferred Stock (Preferred Stock) $.001 par value
per share, and
50,000,000 shares of Common Stock (Common Stock) $.001 par value per
share.
The designations, voting powers, preferences and relative,
participating, optional or other special rights, and qualification, limitations
or restrictions of the above classes of stock are as follows:
Preferred Stock
1. Issuance in Series. Shares of Preferred Stock may be issued in
one or more series at such time or times, and for such consideration or
considerations as the Board of Directors may determine. All shares of
any one series of Preferred Stock will be identical with each other in
all respects, except that shares of one series issued at different times
may differ as to dates from which dividends thereon may be cumulative.
All series will rank equally and be identical in all respects, except as
permitted by the following provisions of paragraph 2.
<PAGE> 2
2. Authority of the Board with Respect to Series. The Board of
Directors is authorized, at any time and from time to time, to provide
for the issuance of shares of Preferred Stock in one or more series with
such designations, preferences and relative, participating, optional or
other special rights and qualifications, limitations or restrictions
thereof as are stated and expressed in the resolution or resolutions
providing for the issue thereof adopted by the Board of Directors, and
as are not stated and expressed in these Articles of Incorporation or
any amendment thereto including, but not limited to, determination of
any of the following:
(a) the distinctive serial designation and the number of shares
constituting a series:
(b) the dividend rate or rates, whether dividends are
cumulative and, if so, from which date, the payment date or dates
for dividends, and the participating or other special rights, if
any, with respect to dividends;
(c) the voting powers, full or limited, if any, of the shares
of the series;
(d) whether the shares are redeemable and, if so, the price or
prices at which, and the terms and conditions on which, the shares
may be redeemed;
(e) the amount or amounts payable upon the shares in the event
of voluntary or involuntary liquidation, dissolution or winding up
of the Corporation prior to any payment or distribution of the
assets of the Corporation to any class or classes of stock of the
Corporation ranking junior to the Preferred Stock;
(f) whether the shares are entitled to the benefit of a sinking
or retirement fund to be applied to the purchase or redemption of
shares of a series and, if so entitled, the amount of the fund and
the manner of its application, including the price or prices at
which the shares may be redeemed or purchased through the
application of the fund;
(g) whether the shares are convertible into, or exchangeable
for, shares of any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, the conversion
price or prices, or the rates of exchange, and the adjustments
thereof, if any, at which the conversion or exchange may be made,
and any other terms and conditions of the conversion or exchange;
and
2
<PAGE> 3
(h) any other preferences, privileges and powers, and relating
participating, optional or other special rights, and qualifications,
limitations or restrictions of a series, as the Board of Directors
may deem advisable and as are not inconsistent with the provisions
of this Certificate of Incorporation.
3. Dividends. Before any dividends on any class or classes of stock
of the Corporation ranking junior to the Preferred Stock (other than
dividends payable in shares of any class or classes of stock of the
corporation ranking junior to the Preferred Stock) may be declared or
paid or set apart for payment, the holders of shares of Preferred Stock
of each series are entitled to such cash dividends, but only when and as
declared by the Board of Directors out of funds legally available
therefor, as they may be adopted by the Board of Directors providing for
the issue of the series, payable on such dates in each year as may be
fixed in the resolution or resolutions. The term "class or classes of
stock of the Corporation ranking junior to the Preferred Stock" means
the Common Stock and any other class or classes of stock of the
Corporation hereafter authorized which rank junior to the Preferred
Stock as to dividends or upon liquidation.
4. Reacquired Shares. Shares of Preferred Stock which have been
issued and reacquired in any manner by the Corporation (excluding, until
the corporation elects to retire them, shares which are held as treasury
shares but including shares redeemed, shares purchased and retired and
shares which have been converted into shares of Common Stock) will have
the status of authorized and unissued shares of Preferred Stock and may
be reissued.
5. Voting Rights. Unless and except to the extent otherwise required
by law or provided in the resolution or resolutions of the Board of
Directors creating any series of Preferred Stock the holders of the
Preferred Stock shall have no voting power with respect to any matter
whatsoever.
Common Stock
1. Dividends. Subject to the preferential rights of the Preferred
Stock, the holders of the Common Stock are entitled to receive, to the
extent permitted by law, such dividends as may be declared from time to
time by the Board of Directors.
2. Liquidation. In the event of the voluntary or involuntary
liquidation, dissolution, distribution of assets or winding up of the
Corporation, after distribution in full of the preferential amounts, if
any, to be distributed to the holders of shares of Preferred Stock,
holders of Common Stock shall be entitled to receive all of the
remaining assets of
3
<PAGE> 4
the Corporation of whatever kind available for distribution to
Stockholders ratably in proportion to the number of shares of Common
Stock held by them respectively. The Board of Directors may distribute
in kind to the holders of Common Stock such remaining assets of the
Corporation or may sell, transfer or otherwise dispose of all or any
part of such remaining assets to any other corporation, trust or other
entity and receive payment therefor in cash, stock or obligations of
such other corporation, trust or other entity, or any combination
thereof, and may sell all or any part of the consideration so received
and distribute any balance thereof in kind to holders of Common Stock.
The merger or consolidation of the Corporation into or with any other
corporation, or the merger or any other corporation into it, or any
purchase or redemption of shares of stock of the Corporation of any
class, shall not be deemed to be a dissolution, liquidation or winding
up of the Corporation for the purposes of this paragraph.
3. Voting Rights. Except as may be otherwise required by law or this
Certificate of Incorporation, each holder of Common Stock has one vote
in respect of each share of stock held by him or record on the books of
the corporation on all matters voted upon by the Stockholders.
Other Provisions
1. Pre-emptive Rights. No Stockholder shall have any pre-emptive
right to subscribe to an additional issue of stock of any class or
series or to any securities of the Corporation convertible into such
stock.
2. Changes in Authorized Capital Stock. Subject to the protective
conditions and restrictions of any outstanding Preferred Stock, any
amendment to these Articles of Incorporation which increases or
decreases the authorized capital stock of any class or classes may be
adopted by the affirmative vote of the holders of a majority of the
outstanding shares of the voting stock of the Corporation.
THIRD: The number of shares of the Corporation outstanding at the time
of the adoption of such amendments was 8,090,000 and the number entitled to
vote thereon was 8,090,000.
FOURTH: The designation and number of outstanding shares of each class
entitled to vote thereon as a class were as follows, to-wit:
Class Number of Shares
----- ----------------
Common Stock 8,090,000
4
<PAGE> 5
FIFTH: The number of shares voted for such amendments was 5,790,000,
with 0 opposing and 0 abstaining.
SIXTH: These amendments do not provide for any exchange,
reclassification or cancellation of issued shares.
SEVENTH: These amendments do effect a change in the stated capital of
the corporation as set forth above.
IN WITNESS WHEREOF, the undersigned president and secretary, having
been thereunto duly authorized, have executed the foregoing Certificate of
Amendment to Certificate of Incorporation for the corporation this 21th day of
June, 1994.
MEDICAL ASSET MANAGEMENT, INC.
By: /s/ CRAIG L. NIEBUHR
------------------------------
Craig L. Niebuhr, President
and Secretary
5
<PAGE> 1
Exhibit 2.2
BYLAWS
OF
EAGLE HIGH ENTERPRISES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Article I. Office 1
Article II. Shareholders' Meeting 1
Section 2.1 Annual Meetings 1
Section 2.2 Special Meetings 2
Section 2.3 Notice of Shareholders' Meeting 2
Section 2.4 Waiver of Notice 2
Section 2.5 Place of Meeting 3
Section 2.6 Closing of Transfer Books or Filing Record Date 3
Section 2.7 Quorum of Shareholders 4
Section 2.8 Voting Lists 4
Section 2.9 Voting 4
Section 2.10 Proxies 5
Section 2.11 Informal Action by Shareholders 5
Article III. Board of Directors 5
Section 3.1 General Powers 5
Section 3.2 Number, Tenure and Qualifications 5
Section 3.3 Election of Board of Directors 6
Section 3.4 Regular Meetings 6
Section 3.5 Special Meetings 6
Section 3.6 Waiver of Notice 6
Section 3.7 Quorum 7
Section 3.8 Manner of Acting 7
Section 3.9 Powers of Directors 7
Section 3.10 Vacancies 7
Section 3.11 Removals 8
Section 3.12 Resignations 8
Section 3.13 Presumption of Assent 9
Section 3.14 Compensation 9
Section 3.15 Emergency Power 9
Section 3.16 Chairman 9
Article IV. Officers
Section 4.1 Number 10
Section 4.2 Election and Term of Office 10
Section 4.3 Resignations 10
Section 4.4 Removal 10
</TABLE>
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<TABLE>
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PAGE
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Section 4.5 Vacancies 11
Section 4.6 President 11
Section 4.7 Vice President 11
Section 4.8 Secretary 11
Section 4.9 Treasurer 12
Section 4.10 General Manager 12
Section 4.11 Other Officers 13
Section 4.12 Salaries 13
Section 4.13 Surety Bonds 13
Article V. Committees
Section 5.1 Executive Committee 14
Section 5.2 Other Committees 14
Article VI. Contracts, Loans, Deposits and Checks
Section 6.1 Contracts 14
Section 6.2 Loans 15
Section 6.3 Deposits 15
Section 6.4 Checks and Drafts 15
Section 6.5 Bonds and Debentures 15
Article VII. Capital Stock
Section 7.1 Certificate of Share 16
Section 7.2 Transfer of Shares 16
Section 7.3 Transfer Agent and Registrar 17
Section 7.4 Lost or Destroyed Certificates 17
Section 7.5 Consideration for Shares 17
Section 7.6 Registered Shareholders 17
Article VIII. Indemnification
Section 8.1 Indemnification 18
Section 8.2 Other Indemnification 19
Section 8.3 Insurance 19
Section 8.4 Settlement by Corporation 19
Article IX. Amendments 19
Article X. Fiscal Year 20
Article XI. Dividends 20
Article XII. Corporate Seal 20
</TABLE>
<PAGE> 3
BYLAWS
OF
EAGLE HIGH ENTERPRISES, INC.
ARTICLE 1
OFFICE
------
Section 1.1 Office. The principal office of the Corporation in the
State of Delaware shall be located at 1209 Orange Street, Wilmington, Delaware
19801. The Corporation may maintain such other offices, within or without the
State of Delaware, as the Board of Directors may from time to time designate.
The location of the principal office may be changed by the Board of Directors.
ARTICLE II
SHAREHOLDERS' MEETING
---------------------
Section 2.1 Annual Meetings. The annual meeting of the
shareholders of the Corporation shall be held at such place within or without
the State of Delaware as shall be set forth in compliance with these Bylaws.
The meeting shall be held on the second Tuesday of April of each year beginning
with the year 1986 at 10:00 a.m. If such day is a legal holiday, the meeting
shall be on the next business day. This meeting shall be for the election of
directors and for the transaction of such other business as may properly come
before it.
In the event that such annual meeting is omitted by oversight or
otherwise on the date herein provided for, the directors shall cause a meeting
in lieu thereof to be held as soon thereafter as conveniently may be, and any
business transacted or elections held at such meeting shall be as valid as if
transacted or held at the annual meeting. If the election of directors
shall not be held on the date designated herein for any annual meeting of
shareholders, or at any adjournment thereof, the Board of Directors shall cause
the election to be held at a special meeting of shareholders as soon thereafter
<PAGE> 4
as may conveniently be called. Such subsequent meetings shall be called in the
same manner as is provided for the annual meeting of shareholders.
Section 2.2 Special Meetings. Special meetings of shareholders,
other than those regulated by statute, may be called at any time by the
President, or by a majority of the directors, and must be called by the
President upon written request of the holders of not less than 10% of the
issued and outstanding shares entitled to vote at such special meeting.
Section 2.3 Notice of Shareholders' Meetings. The President, Vice
President or Secretary shall give written notice stating the place, day and
hour of the meeting, and in the case of a special meeting the purpose or
purposes of which the meeting is called, which shall be delivered not less than
ten nor more than fifty days before the day of the meeting, either personally
or by mail to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the
United States mail addressed to the shareholder at his address as it appears on
the books of the Corporation, with postage thereon prepaid.
Any meeting of which all shareholders shall at any time waive or have
waived notice in writing shall be a legal meeting for the transaction of
business notwithstanding that notice has not been given as hereinbefore
provided.
Section 2.4 Waiver of Notice. Whenever any notice whatever is
required to be given by these Bylaws, or the Articles of Incorporation, or by
any of the Corporation Laws of the State of Delaware, a shareholder may waive
the notice of meeting by attendance, either in person or by proxy, at the
meeting, or by so stating in writing, either before or after such meeting.
Attendance at a meeting for the express purpose of objecting that the meeting
was not lawfully called or convened shall not, however, constitute a waiver of
notice.
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Section 2.5 Place of Meeting. The Board of Directors may designate
any place, either within or without the State of Delaware, as the place of
meeting for any annual meeting or for any special meeting called by the Board
of Directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the registered office of the Corporation.
Section 2.6 Closing of Transfer Books or Fixing Record Date. For
the purpose of determining shareholders entitled to notice or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
period not to exceed in any case 50 days. If the stock transfer books shall be
closed for the purpose of determining stockholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least 10
days immediately preceding the date determined to be the date of record. In
lieu of closing the stock transfer books, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than 50 days and in case of a meeting of
shareholders not less than 10 days prior to the date on which the particular
action requiring such determination of shareholders is to be taken. If the
stock transfer books are not closed and no record date is fixed for the
determination of shareholders entitled to notice or to vote at a meeting of
shareholders or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be deemed the date of record for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been
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made as provided in this section, such determination shall apply to any
adjournment thereof.
Section 2.7 Quorum of Shareholders. Except as herein provided and as
otherwise provided by law, at any meeting of shareholders a majority in interest
of all the shares issued and outstanding represented by shareholders of record
in person or by proxy shall constitute a quorum, but a less interest may adjourn
any meeting and the meeting may be held as adjourned without further notice;
provided, however, that directors shall not be elected at the meeting so
adjourned. When a quorum is present at any meeting, a majority in interest of
the shares represented thereat shall decide any question brought before such
meeting, unless the question is one upon which the express provision of law or
of the Articles of Incorporation or of the these Bylaws a larger or different
vote is required, in which case such express provision shall govern and
control the decision of such question.
Section 2.8 Voting Lists. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make a complete list of
the shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
held by each, which list shall be produced and kept open at the time and place
of the meeting and shall be subject to the inspection of any shareholder, for
any purpose germane to the meeting, during the whole time of the meeting. The
original stock transfer books shall be prima-facie evidence as to who are the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
Section 2.9 Voting. A holder of an outstanding share entitled to vote
at a meeting may vote at such meeting in person or by proxy. Except as may
otherwise be provided in the Articles of Incorporation, every shareholder shall
be entitled to one vote for each share standing in his name on the record of
shareholders. Except as
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herein or in the Articles of Incorporation otherwise provided, all corporate
action shall be determined by a majority of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote thereon.
Section 2.10 Proxies. At all meetings of shareholders, a
shareholder may vote in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
Section 2.11 Informal Action by Shareholders. Any action required
to be taken at a meeting of the shareholders, or any action which may be taken
at a meeting of the shareholders, may be taken without a meeting if a consent
in writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 3.1 General Powers. The business and affairs of the
Corporation shall be managed by its Board of Directors. The Board of Directors
may adopt such rules and regulations for the conduct of their meetings and the
management of the Corporation as they deem proper.
Section 3.2 Number, Tenure and Qualifications. The number of
directors for the Board of Directors of the Corporation shall be not less than
three nor more than ten. Each director shall hold office until the next annual
meeting of shareholders and until his successor shall have been elected and
qualified. Directors need not be residents of the State of Delaware or
shareholders of the Corporation.
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Section 3.3 Election of Board of Directors. The Board of Directors
shall be chosen by ballot at the annual meeting of shareholders or at any
meeting held in place thereof as provided by law.
Section 3.4 Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than by this Bylaw, immediately
following and at the same place as the annual meeting of the shareholders. The
Board of Directors may provide by resolution the time and place for the
holding of additional regular meetings without other notice than this
resolution.
Members of the Board of Directors may participate in a meeting of the
Board by means of conference telephone or similar communications equipment by
which all persons participating in the meeting can hear each other and
participation in a meeting under this subsection shall constitute presence in
person at the meeting.
Section 3.5 Special Meetings. Special meetings of the Board of
Directors may be called by order of the Chairman of the Board, the President or
by one-third of the directors. The Secretary shall give notice of the time,
place and purpose or purposes of each special meeting by mailing the same at
least two days before the meeting or by telephoning or telegraphing the same at
least one day before the meeting to each director.
Section 3.6 Waiver of Notice. Whenever any notice whatever is
required to be given by these Bylaws, or the Articles of Incorporation of the
Corporation, or by any of the Corporation Laws of the State of Delaware, a
director may waive the notice of meeting by attendance in person at the
meeting, or by so stating in writing, either before or after such meeting.
Attendance at a meeting for the express purpose of objecting that the meeting
was not lawfully called or convened shall not, however, constitute a waiver of
notice.
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Section 3.7 Quorum. A majority of the members of the Board of
Directors shall constitute a quorum for the transaction of business, but less
than a quorum may adjourn any meeting from time to time until a quorum shall be
present, whereupon the meeting may be held, as adjourned, without further
notice. At any meeting at which every director shall be present, even though
without any notice, any business may be transacted.
Section 3.8 Manner of Acting. At all meetings of the Board of
Directors, each director shall have one vote. The act of a majority present at
a meeting shall be the act of the Board of Directors, provided a quorum is
present. Any action required to be taken or which may be taken at a meeting
of the directors may be taken without a meeting if a consent in writing setting
forth the action so taken shall be signed by all the directors. The directors
may conduct a meeting by means of a conference telephone or any similar
communication equipment by which all persons participating in the meeting can
hear each other.
Section 3.9 Powers of Directors. The Board of Directors shall have
the responsibility for the entire management of the business of the
Corporation. In the management and control of the property, business and
affairs of the Corporation the Board of Directors is hereby vested with all of
the powers possessed by the Corporation itself so far as this delegation of
authority is not inconsistent with the laws of the State of Delaware and with
the Articles of Incorporation or with these Bylaws. The Board of Directors
shall have the power to determine what constitutes net earnings, profits and
surplus, respectively, and what amounts shall be reserved for working capital
and for any other purpose and what amounts shall be declared as dividends, and
such determination by the Board of Directors shall be final and conclusive.
Section 3.10 Vacancies. A vacancy in the Board of Directors shall
be deemed to exist in case of death, resignation or removal of any director, or
if the authorized
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number of directors be increased, or if the shareholders fail at any meeting of
shareholders at which any director is to be elected, to elect the full
authorized number to be elected at that meeting.
Any vacancy occurring in the Board of Directors may be filled by an
affirmative vote of the majority of the remaining directors though less than a
quorum of the Board of Directors, unless otherwise provided by law or the
Articles of Incorporation. A director elected to fill a vacancy shall be elected
for the unexpired term of his predecessor in office. Any directorship to be
filled by reason of an increase in the number of directors shall be filled by
election at the annual meeting or at a special meeting of shareholders called
for that purpose.
Section 3.11 Removals. Directors may be removed at any time, at a
meeting called expressly for that purpose by a vote of the shareholders holding
a majority of the shares issued and outstanding and entitled to vote. Such
vacancy shall be filled by the directors then in office, though less than a
quorum, to hold office until the next annual meeting or until his successor is
duly elected and qualified, except that any directorship to be filled by reason
of removal by the shareholders may be filled by election, by the shareholders,
at the meeting at which the director is removed. No reduction of the authorized
number of directors shall have the effect of removing any director prior to the
expiration of his term of office.
Section 3.12 Resignations. A director may resign at any time by
delivering written notification thereof to the President or Secretary of the
Corporation. Such resignation shall become effective upon its acceptance by the
Board of Directors; provided, however, that if the Board of Directors has not
acted thereon within ten days from the date of its delivery, the resignation
shall upon the tenth day be deemed accepted.
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Section 3.13 Presumption of Assent. A director of the Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as the
Secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary of the Corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 3.14 Compensation. By resolution of the Board of Directors, the
directors shall be paid their expenses, if any, of attendance of each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 3.15 Emergency Power. When, due to a national disaster or
death, a majority of the directors are incapacitated or otherwise unable to
attend the meetings and function as directors, the remaining members of the
Board of Directors shall have all the powers necessary to function as a complete
Board and, for the purpose of doing business and filling vacancies, shall
constitute a quorum until such time as all directors can attend or vacancies
can be filled pursuant to these Bylaws.
Section 3.18 Chairman. The Board of Directors may elect from its own
number a Chairman of the Board, who shall preside at all meetings of the Board
of Directors, and shall perform such other duties as may be prescribed from time
to time by the Board of Directors.
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ARTICLE IV
OFFICERS
Section 4.1 Number. The officers of the Corporation shall be a
President, one or more Vice Presidents, a Secretary and a Treasurer, each of
whom shall be elected by a majority of the Board of Directors. Such other
officers and assistant officers as may be deemed necessary may be elected or
appointed by the Board of Directors. In its discretion, the Board of Directors
may leave unfilled for any such period as it may determine any office except
those of President and Secretary. Any two or more offices may be held by the
same person. Officers may or may not be directors or shareholders of the
Corporation.
Section 4.2 Election and Term of Office. The officers of the
Corporation are to be elected by the Board of Directors at the first meeting of
the Board of Directors held after each annual meeting of the shareholders. If
the election of officers shall not be held at such meeting, such election shall
be held as soon thereafter as convenient. Each officer shall hold office until
his successor shall have been duly elected and shall have qualified or until
his death or until he shall resign or shall have been removed in the manner
hereinafter provided.
Section 4.3 Resignation. Any officer may resign at any time by
delivering a written resignation either to the President or to the Secretary.
Unless otherwise specified therein, such resignation shall take effect upon
delivery.
Section 4.4 Removal. Any officer or agent may be removed by the
Board of Directors whenever in its judgment the best interests of the
Corporation will be served thereby but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
Any such removal shall require a majority vote of the Board of Directors,
exclusive of the officer in question if he is also a director.
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Section 4.5 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, or if a new office shall be
created, may be filled by the Board of Directors for the unexpired portion of
the term.
Section 4.6 President. The President shall be the chief executive and
administrative officer of the Corporation. He shall preside at all meetings of
the shareholders and, in the absence of the Chairman of the Board, at meetings
of the Board of Directors. He shall exercise such duties as customarily pertain
to the office of President and shall have general and active supervision over
the property, business and affairs of the Corporation and over its several
officers. He may appoint officers, agents or employees other than those
appointed by the Board of Directors. He may sign, execute and deliver in the
name of the Corporation, powers of attorney, certificates of stock, contracts,
bonds, deeds, mortgages and other obligations and shall perform such other
duties as may be prescribed from time to time by the Board of Directors or by
the Bylaws.
Section 4.7 Vice President. The Vice President shall have such powers
and perform such duties as may be assigned to him by the Board of Directors or
the President. In the absence of disability of the President, the Vice President
designated by the board or the President shall perform the duties and exercise
the powers of the President. In the event there is more than one Vice President
and the Board of Directors has not designated which Vice President is to act as
President, then the Vice President who was elected first shall act as President.
A Vice President may sign and execute contracts and other obligations pertaining
to the regular course of his duties.
Section 4.8 Secretary. The Secretary shall keep the minutes of all
meetings of the shareholders and of the Board of Directors and to the extent
ordered by the Board of Directors or the President, the minutes of meetings of
all committees. He shall cause notice to be given of meetings of shareholders,
of the Board of Directors and
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of any committee appointed by the board. He shall have custody of the corporate
seal and general charge of the records, documents and papers of the Corporation
not pertaining to the performance of the duties vested in other officers, which
shall at all reasonable times be open to the examination of any director. He
may sign or execute contracts with the President or Vice President thereunto
authorized in the name of the Corporation and affix the seal of the Corporation
thereto. He shall perform such other duties as may be prescribed from time to
time by the Board of Directors or by the Bylaws. He shall be sworn to the
faithful discharge of his duties. Assistant Secretaries shall assist the
Secretary and shall keep and record such minutes of meetings as shall be
directed by the Board of Directors.
Section 4.9 Treasurer. The Treasurer shall have general custody of
the collection and disbursement of funds of the Corporation for collection
checks, notes, and other obligations and shall deposit the same to the credit
of the Corporation in such bank or banks or depositories as the Board of
Directors may designate. He may sign, with the President, or such other persons
as may be designated for the purpose by the Board of Directors, all bills of
exchange or promissory notes of the Corporation. He shall enter or cause to be
entered regularly in the books of the Corporation full and accurate accounts of
all monies received and paid by him on account of the Corporation; shall at all
reasonable times exhibit his books and accounts to any director of the
Corporation upon application at the office of the Corporation during business
hours; and, whenever required by the Board of Directors or the President, shall
render a statement of his accounts. He shall perform such other duties as may
be prescribed from time to time by the Board of Directors or by the Bylaws.
Section 4.20 General Manager. The Board of Directors may employ and
appoint a General Manager who may, or may not, be one of the officers or
directors of the Corporation. If employed by the Board of Directors he shall be
the chief operating
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officer of the Corporation and, subject to the directions of the Board of
Directors, shall have general charge of the business operations of the
Corporation and general supervision over its employees and agents. He shall have
the exclusive management of the business of the Corporation and of all of its
dealings, but at all times subject to the control of the Board of Directors.
Subject to the approval of the Board of Directors or the executive committee, he
shall employ all employees of the Corporation, or delegate such employment to
subordinate officers, or such division officers, or such division chiefs, and
shall have authority to discharge any person so employed. He shall make a
quarterly report to the President and directors, or more often if required to do
so setting forth the result of the operations under his charge, together with
suggestions looking to the improvement and betterment of the condition of the
Corporation, and to perform such other duties as the Board of Directors shall
require.
Section 4.11 Other Officers. Other officers shall perform such duties
and have such powers as may be assigned to them by the Board of Directors.
Section 4.12 Salaries. The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by the Board of
Directors except that the Board of Directors may delegate to any person or group
of persons the power to fix the salaries or other compensation of any
subordinate officers or agents. No officer shall be prevented from receiving any
such salary or compensation by reason of the fact that he is also a director of
the Corporation.
Section 4.13 Surety Bonds. In case the Board of Directors shall so
require, any officer or agent of the Corporation shall execute to the
Corporation a bond in such sums and with sureties as the Board of Directors may
direct, conditioned upon the faithful performance of his duties to the
Corporation, including responsibility for negligence and for the accounting for
all property, monies or securities of the Corporation which may come into his
hands.
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ARTICLE V
COMMITTEES
Section 5.1 Executive Committee. The Board of Directors may appoint
from among its members an Executive Committee of not less than two nor more
than seven members, one of whom shall be the President, and shall designate one
or more of its members as alternates to serve as a member or members of the
Executive Committee in the absence of a regular member or members. The Board of
Directors reserves to itself alone the power to declare dividends, issue stock,
recommend to shareholders any action requiring their approval, change the
membership of any committee at any time, fill vacancies therein, and discharge
any committee either with or without cause at any time. Subject to the
foregoing limitations, the Executive Committee shall possess and exercise all
other powers of the Board of Directors during the intervals between meetings.
Section 5.2 Other Committees. The Board of Directors may also
appoint from among its own members such other committees as the Board may
determine, which shall in each case consist of not less than two directors, and
which shall have such powers and duties as shall from time to time be
prescribed by the Board. The President shall be a member ex officio of each
committee appointed by the Board of Directors. A majority of the members of any
committee may fix its rules of procedure.
ARTICLE VI
CONTRACTS, LOANS, DEPOSITS AND CHECKS
Section 6.1 Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and
such authority may be general or confined to specific instances.
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Section 6.2 Loans. No loan or advances shall be contracted on
behalf of the Corporation, no negotiable paper or other evidence of its
obligation under any loan or advance shall be issued in its name, and no
property of the Corporation shall be mortgaged, pledged, hypothecated or
transferred as security for the payment of any loan, advance, indebtedness or
liability of the corporation unless and except as authorized by the Board of
Directors. Any such authorization may be general or confined to specific
instances.
Section 6.3 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may select, or as may be selected by any officer or agent authorized to do so
by the Board of Directors.
Section 6.4 Checks and Drafts. All notes, drafts, acceptances,
checks, endorsements and evidences of indebtedness of the Corporation shall be
signed by such officer or officers or such agent or agents of the Corporation
and in such manner as the Board of Directors from time to time may determine.
Endorsements for deposit to the credit of the Corporation in any of its duly
authorized depositories shall be made in such manner as the Board of Directors
from time to time may determine.
Section 6.5 Bonds and Debentures. Every bond or debenture issued by
the Corporation shall be evidenced by an appropriate instrument which shall be
signed by the President or a Vice President and by the Treasurer or by the
Secretary, and sealed with the seal of the Corporation. The seal may be
facsimile, engraved or printed. Where such bond or debenture is authenticated
with the manual signature of an authorized officer of the Corporation or other
trustee designated by the indenture of trust or other agreement under which such
security is issued, the signature of any of the Corporation's officers named
thereon may be facsimile. In case any officer who signed, or whose facsimile
signature has been used on any such bond or debenture, shall cease
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to be an officer of the Corporation for any reason before the same has been
delivered by the Corporation, such bond or debenture may nevertheless be
adopted by the Corporation and issued and delivered as though the person who
signed it or whose facsimile signature has been used thereon had not ceased to
be such officer.
ARTICLE VII
CAPITAL STOCK
Section 7.1 Certificate of Share. The shares of the Corporation
shall be represented by certificates prepared by the Board of Directors and
signed by the President or the Vice President, and by the Secretary, or an
Assistant Secretary, and sealed with the seal of the Corporation or a facsimile.
The signatures of such officers upon a certificate may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the Corporation itself or one of its employees. All certificates for
shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the stock transfer
books of the Corporation. All certificates surrendered to the Corporation for
transfer shall be cancelled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the Corporation
as the Board of Directors may prescribe.
Section 7.2 Transfer of Shares. Transfer of shares of the
Corporation shall be made only on the stock transfer books of the Corporation
by the holder of record thereof or by his legal representative, who shall
furnish proper evidence of authority to transfer, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation, and on surrender for cancellation of
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the certificate for such shares. The person in whose name shares stand on the
books of the Corporation shall be deemed by the Corporation to be the owner
thereof for all purposes.
Section 7.3 Transfer Agent and Registrar. The Board of Directors
shall have power to appoint one or more transfer agents and registrars for the
transfer and registration of certificates of stock of any class, and may
require that stock certificates shall be countersigned and registered by one or
more of such transfer agents and registrars.
Section 7.4 Lost or Destroyed Certificates. The Corporation may issue
a new certificate to replace any certificate theretofore issued by it alleged
to have been lost or destroyed. The Board of Directors may require the owner
of such a certificate or his legal representatives to give the Corporation a
bond in such sum and with such sureties as the Board of Directors may direct to
indemnify the Corporation and its transfer agents and registrars, if any,
against claims that may be made on account of the issuance of such new
certificates. A new certificate may be issued without requiring any bond.
Section 7.5 Consideration for Shares. The capital stock of the
Corporation shall be issued for such consideration, but not less than the par
value thereof, as shall be fixed from time to time by the Board of Directors.
In the absence of fraud, the determination of the Board of Directors as to the
value of any property or services received in full or partial payment of shares
shall be conclusive.
Section 7.6 Registered Shareholders. The Corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder
thereof in fact, and shall not be bound to recognize any equitable or other
claim to or on behalf of the Corporation, any and all or the rights and powers
incident to the ownership of such stock at any such meeting, and shall have
power and authority to execute and deliver
17
<PAGE> 20
proxies and consents on behalf of the Corporation in connection with the
exercise by the Corporation of the rights and powers incident to the ownership
of such stock. The Board of Directors, from time to time may confer like powers
upon any other person or persons.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnification. No officer or director shall be personally
liable for any obligations arising out of any acts or conduct of said officer or
director performed for or on behalf of the Corporation. The Corporation shall
and does hereby indemnify and hold harmless each person and his heirs and
administrators who shall serve at any time hereafter as a director or officer of
the Corporation from and against any and all claims, judgments and liabilities
to which such persons shall become subject by reason of any action alleged to
have been heretofore or hereafter taken or omitted to have been taken by him as
such director or officer, and shall reimburse each such person for all legal and
other expenses reasonably incurred by him in connection with any such claim or
liability; including power to defend such person from all suits as provided for
under the provisions of the Delaware Corporation Laws; provided, however that no
such person shall be indemnified against, or be reimbursed for, any expense
incurred in connection with any claim or liability arising out of his own
negligence or willful misconduct. The rights accruing to any person under the
foregoing provisions of this section shall not exclude any other right to which
he may lawfully be entitled, nor shall anything herein contained restrict the
right of the Corporation to indemnify or reimburse such person in any proper
case, even though not specifically herein provided for. The Corporation, its
directors, officers, employees and agents shall be fully protected in taking any
action or making any payment or in refusing so to do in reliance upon the
advice of counsel.
18
<PAGE> 21
Section 8.2 Other Indemnification. The indemnification herein provided
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer or employee and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 8.3 Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer or employee
of the Corporation or is or was serving at the request of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
him against liability under the provisions of this Article 8 or the laws of the
State of Delaware.
Section 8.4 Settlement by Corporation. The right of any person to be
indemnified shall be subject always to the right of the Corporation by its Board
of Directors, in lieu of such indemnity, to settle any such claim, action, suit
or proceeding at the expense of the Corporation by the payment of the amount of
such settlement and the costs and expenses incurred in connection therewith.
ARTICLE IX
AMENDMENTS
These Bylaws may be altered, amended, repealed, or added to by the
affirmative vote of the holders of a majority of the shares entitled to vote in
the election of any director at an annual meeting or at a special meeting
called for that purpose, provided that a written notice shall have been sent to
each shareholder of record entitled to vote at such meetings at least ten days
before the date of such annual or special
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<PAGE> 22
meetings, which notice shall state the alterations, amendments, additions, or
changes which are proposed to be made in such Bylaws. Only such changes shall
be made as have been specified in the notice. The Bylaws may also be altered,
amended, repealed, or new Bylaws adopted by a majority of the entire Board of
Directors at any regular or special meeting. Any Bylaws adopted by the Board
may be altered, amended, or repealed by a majority of the shareholders entitled
to vote.
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall be December 31st and may be
varied by resolution of the Board of Directors.
ARTICLE XI
DIVIDENDS
The Board of Directors may at any regular or special meeting, as they
deem advisable, declare dividends payable out of the unreserved and
unrestricted earned surplus of the Corporation except the directors may declare
dividends in accordance with the laws of the State of Delaware.
ARTICLE XII
CORPORATE SEAL
The seal of the Corporation shall be in the form of a circle and shall
bear the name of the Corporation and the year of incorporation.
Adopted by resolution of the Board of Directors the 24th day of
January, 1986.
--------------------------------------
20
<PAGE> 1
[CRUTTENDEN ROTH LETTERHEAD] Exhibit 3.2
Via Facsimile and Mail
April 30, 1996
John Regan
President
Medical Asset Management, Inc.
4447 E. Broadway, Suite 102
Mesa, AZ 85206
Dear Mr. Regan:
As a follow-up to our discussions, this letter (the "Placement Agreement")
constitutes an agreement whereby Cruttenden Roth Incorporated ("CRI" or the
"Placement Agent") will assist Medical Asset Management, Inc. (the "Company")
in obtaining equity financing and will provide such other services as may be
within the scope of CRI's activities. Accordingly, we mutually agree as
follows:
1. The Company agrees to sell approximately 1,000,000 to 1,200,000 shares
of its common stock (the "Shares"), at a price range of $3.50 to $4.00
per share, with the final price to be determined on or before Friday,
May 3, 1996, through a private placement under Regulation D of the
Securities Act of 1933, as amended; such placement shall be managed by
CRI. This Placement Agreement will terminate not later than August 15,
1996 (such period between the date of this letter and August 15, 1996
shall be "Term") unless extended by the Company. CRI will act on a best
efforts basis to close this placement the week of May 20, 1996. It is
anticipated that the Placement Agreement relating to the Shares will
contain the following additional terms:
The Shares will carry registration rights such that they will be
included in any registration filed to effect a public offering of the
Company's common stock within six (6) months of the closing of this
offering and will be subject to the Underwriter's lock-up or holdback
restrictions. If such an offering is not consummated within the six
month period, the Company agrees to register the Shares on a Form S-3,
SB-2 or other equivalent form. This registration statement, the Company
hereby warrants, will be filed within two (2) months from the close of
this offering and the Company will use its best efforts to cause such
registration statement to be declared effective as soon as possible,
thereafter. Further, the Company agrees to use reasonable efforts to
effect blue sky clearance in the states pertaining to the investors'
residences.
Upon signing this Agreement, the Company will pay to CRI a one-time
retainer of $15,000, such retainer will apply to expenses and be
accounted for in the closing and will be non-refundable should a closing
not occur. Upon closing, there shall become due and payable to CRI from
the proceeds of the transaction, a cash fee equal to seven percent (7%)
of the gross value of the transaction. As additional consideration, the
Company shall grant to CRI a five-year warrant to purchase shares equal
to ten percent (10%) of the total number of shares being offered hereby
at an exercise price equal to 120% of the Bid price of fully registered
and publicly traded common shares of the Company on the date the price
or the offering is determined. Such warrant shall contain standard net
issuance provisions, and the shares underlying such warrant shall be
registered in all appropriate jurisdiction concurrently with the Shares
offered herein.
<PAGE> 2
[CRUTTENDEN ROTH LETTERHEAD]
Medical Asset Management, Inc.
April 30, 1996
Page 2
The Company acknowledges that CRI shall be exclusive agent during the
term of this Agreement, and that CRI shall act on a "best efforts"
basis. The Company shall have the right to refuse any proposal
presented to it for acceptance by CRI that significantly deviates from
the transaction outlined herein without incurring any obligations to
CRI.
2. The Company and CRI each agree to comply with all applicable securities
laws, and the Company will be responsible for obtaining any required
permits. The Company agrees to notify CRI promptly of any adverse
changes to its business. Breaking of escrow will be subject to
completion of satisfactory due diligence and agreement on all relevant
terms and conditions.
3. The Company agrees to hold harmless and indemnify CRI in any action
arising out of this transaction in which CRI is named, present or
future, between the Company and any third party not a party to this
Agreement, provided however that CRI is not guilty or gross negligence
or willful misconduct.
4. Upon closing of the offering contemplated hereby, the Company will pay
CRI an advisory fee equal to three percent (3.0%) of the aggregate
offering price of the Shares sold in the private placement with due
credit given to the $15,000 retainer. In addition to the compensation
to be paid to CRI as provided above, the Company shall pay to, or on
behalf of CRI, promptly as billed, all reasonable out-of-pocket expenses
(including all reasonable fees and expenses of CRI's counsel, if any,
and messenger, overnight courier, fax, telephone, copying, printing,
database and travel related expenses) incurred by CRI in connection with
the Private Placement. CRI will not incur such expenses in excess of
$35,000.00 without the Company's prior approval.
5. CRI agrees that certain information furnished by the Company is
confidential and no portion of it shall be disclosed to others, except
to those employees and agents of CRI whose knowledge of the information
is required to consummate the transactions contemplated herein and who
shall assume the same obligations as CRI with respect to this Section 6.
6. For a period of two years after the closing of this offering or until an
offering occurs which the Placement Agent declined, the Company shall
notify the Placement Agent in writing at least ten (10) days before the
proposed private or public offering of any debt or equity securities
(other than bank debt or seller financing related to an acquisition that
the Company may undertake) by the Company or by any of its majority
owned or controlled subsidiaries (collectively referred to herein as the
Company) or any of its stockholders owning at least five percent of the
Company's Common Stock ("Principal Shareholders") so that the Placement
Agent, shall have the right of first refusal to effect the offering as
agent, co-agent, manager or co-manager such that the Placement Agent
participates in at least 50% of the fees associated therewith. We agree
to notify the Company if we intend to exercise the right of first
refusal within ten (10) days of receipt by us of such notice from the
Company. If the Placement Agent fails to exercise the right of first
refusal within the ten day period and the terms of the proposed
subsequent financings thereafter are altered in any material respect,
the Company shall again offer to the Placement Agent the right of first
refusal to effect subsequent financings upon such altered terms and the
Representative shall have ten (10) days from the date of receipt to
notify the Company of its acceptance. This right of first refusal shall
not extend to private offerings of the Company's
<PAGE> 3
[CRUTTENDEN ROTH LETTERHEAD]
Medical Asset Management, Inc.
April 30, 1996
Page 3
common stock of less than $2,000,000 to "friends" and current
shareholders of the Company.
7. The Company agrees that it will engage its legal counsel to assist in
the preparation of any private placement memorandum, subscription
agreement, or other legal documents that CRI deems necessary to
facilitate the transaction contemplated herein; and that, subsequent to
the successful closing of this transaction, the Company and its legal
counsel will work diligently and expeditiously to register (including
its obligations under Section 1), any shares issued as a result of the
private offering contemplated herein, including shares underlying the
warrants due to CRI.
8. Any controversy arising out of or relating to this Agreement in
connection with transactions between CRI and the Company or pursuant to
this Agreement or the breach thereof shall be settled by arbitration in
accordance with the rules, then in effect, of the National Association
of Securities Dealers, Inc.
9. This Agreement supersedes any and all other agreements, either oral or
written, between the parties hereto with respect to this Agreement.
Each party to this Agreement acknowledges that no representation,
inducements, promises or agreement, orally or otherwise, have been made
by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding. Any modification
of this Agreement will be effective only if it is in writing and signed
by all parties.
If the above meets with your agreement, please execute two copies of this
letter agreement, retaining one original for your files and returning one
original to us. We look forward to a successful engagement and a cooperative
working relationship with you and your staff.
Sincerely, Accepted:
CRUTTENDEN ROTH INCORPORATED MEDICAL ASSET
MANAGEMENT, INC.
/s/ CHRISTOPHER D. JENNINGS /s/ JOHN REGAN
- -------------------------------- --------------------------------
Christopher D. Jennings John Regan
Managing Director President
Date: 4/30/96
--------------------
<PAGE> 1
Exhibit 3.3
SCHEDULE 1
MEDICAL ASSET MANAGEMENT, INC.
DECLARATION OF REGISTRATION RIGHTS
This Declaration of Registration Rights ("Declaration") is made as
of , 1996, by Medical Asset Management, Inc., a Delaware
corporation (the "Company"), for the benefit of subscribers (the "Subscribers")
to the Company's Common Stock pursuant to that certain Subscription Agreement
by and among the Company and such Subscribers dated , 1996 (the
"Subscription Agreement").
1. DEFINITIONS. As used in this Declaration:
a. "1934 Act" means the Securities Exchange Act of 1934,
as amended.
b. "Act" means the Securities Act of 1933, as amended.
c. "Commission" means the Securities and Exchange
Commission.
d. "Form S-3" means such form under the Act as in effect
on the date hereof or any registration form under the Act subsequently adopted
by the Commission which similarly permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the Commission.
c. "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 9 hereof.
f. "Registrable Securities" means (1) the Common Stock
issued to Subscriber pursuant to the Subscription Agreement (the "Securities")
or (2) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, such Common Stock, excluding in all cases, however, any
Registrable Securities sold by a Subscriber in a transaction in which the
rights under this Section 1 are not assigned pursuant to Section 9 hereof.
Terms not otherwise defined herein have the meanings given to them in
the Subscription Agreement.
2. REGISTRATION OF REGISTRABLE SECURITIES. The Company shall use
its best efforts to register under the Act the Registrable Securities, and in
connection therewith shall prepare and file with the Commission within sixty
(60) days following the closing of the private placement of the Securities and
shall use its best efforts to cause to become effective promptly thereafter, a
registration statement in such form as is then available under the Act covering
the registration of the Registrable Securities; provided however, that each
Holder shall provide all such information and materials and take all such
action as may be required in order to permit the Company to comply with all
applicable requirements of the Commission and to obtain any desired
acceleration of the effective date of such registration statement, such
provision of information and materials to be a condition precedent to the
obligations of the Company pursuant to this Declaration. The offerings made
pursuant to such registration shall not be underwritten,
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<PAGE> 2
unless specifically requested in writing by the Holders of at least fifty-one
percent (51%) of the Registrable Securities.
3. POSTPONEMENT OF REGISTRATION. Notwithstanding Section 2 above,
the Company shall be entitled to postpone the declaration of effectiveness of
the registration statement prepared and filed pursuant to Section 2 for a
reasonable period of time, but not in excess of thirty (30) calendar days after
the applicable deadline, if the Company's Board of Directors, acting in good
faith, determines that there exists material non-public information about the
Company, which would require such postponement while the Company makes such
information public.
4. OBLIGATIONS OF THE COMPANY. The Company shall (i) prepare and
file with the Commission the registration statement in accordance with Section
2 hereof with respect to the Registrable Securities and shall use its best
efforts to cause such registration statement to become effective as promptly as
practicable after filing and to keep such registration statement effective
until the earlier of the sale of all of the Registrable Securities so
registered or two (2) years after the effective date of the registration
statement; (ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary and to comply with the provisions of the Act with
respect to the sale or other disposition of all securities proposed to be
registered in such registration statement until the earlier of the sale of all
of the shares of Registrable Securities so registered or two (2) years after
the effective date of the registration statement; (iii) furnish to each Holder
such number of copies of any prospectus (including any preliminary prospectus
and any amended or supplemented prospectus) in conformity with the requirements
of the Act, and such other documents, as each Holder may reasonably request in
order to effect the offering and sale of the shares of the Registrable
Securities to be offered and sold, but only while the Company shall be required
under the provisions hereof to cause the registration statement to remain
current; (iv) use its commercially reasonable efforts to register or qualify
the shares of the Registrable Securities covered by such registration statement
under the securities or blue sky laws of such jurisdictions as each Holder
shall reasonably request (provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such jurisdiction where it
has not been qualified), and do any and all other acts or things which may be
necessary or advisable to enable each Holder to consummate the public sale or
other disposition of the Registrable Securities in such jurisdictions; (v)
notify each Holder upon the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statement therein not
misleading in light of the circumstances then existing; (vi) so long as the
registration statement remains effective, promptly prepare, file and furnish
to each Holder a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of the Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing; (vii) notify each Holder, promptly
after it shall receive notice thereof, of the date and time the registration
statement and each post-effective amendment thereto has become effective or a
supplement to any prospectus forming a part of such registration statement has
been filed; (viii) notify each Holder promptly of any request by the Commission
for the amending or supplementing of the registration statement or prospectus or
for additional information; and (ix) advise each Holder, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the Commission suspending the effectiveness of the registration
statement or the initiation or threatening of any proceeding for that purpose
and promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal if such stop order should be issued. If requested by
the holders of at least fifty-one percent (51%) of the Registrable Securities,
and provided that the underwriter or underwriters selected by such holders are
reasonably satisfactory to the Company, the Company shall enter into and
perform its
<PAGE> 3
obligations under an underwriting agreement with a nationally recognized
investment banking firm or firms containing representations, warranties,
indemnities and agreements then customarily included by an issuer in
underwriting agreements with respect to secondary distributions; provided,
however, that each Holder with shares of Registrable Securities included in
such offering shall also enter into and perform its obligations under such an
agreement. In connection with any offering of Registrable Securities
registered pursuant to this Declaration, the Company shall (x) furnish each
Holder, at the Company's expense, with unlegended certificates representing
ownership of the shares of Registrable Securities being sold in such
denominations as each Holder shall request and (y) instruct the transfer agent
and registrar of the Registrable Securities to release any stop transfer orders
with respect to the shares of Registrable Securities being sold subject to
compliance by the Holder with any required prospectus delivery requirements.
5. Availability of Form S-3. The Company represents that if Form
S-3 (or a successor form) is not available for use by the Company, the Company
shall file the required registration statement on Form S-1 to satisfy its
obligations under Section 2 hereof. The Company further represents that it
believes it is currently eligible to utilize Form S-3 and currently believes
that there is no material non-public information which would preclude it from
filing and having declared effective a registration statement on Form S-3.
6. Expenses. The Company shall pay all of the out-of-pocket
expenses incurred, other than underwriting discounts and commissions, in
connection with any registration of Registrable Securities pursuant to this
Declaration, including, without limitation, all Commission, National
Association of Securities Dealers and blue sky registration and filing fees,
printing expenses, transfer agents' and registrars' fees, and the reasonable
fees and disbursements of the Company's outside counsel and independent
accountants and a single counsel for all of the Holders.
7. Indemnification. In the event of any offering registered
pursuant to this Declaration:
a. The Company will indemnify each Holder, each of its
officers, directors and partners and such Holder's legal counsel and
independent accountants, and each person controlling such Holder within the
meaning of Section 15 of the Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Declaration,
and each underwriter, if any, and each person who controls any underwriter
within the meaning of Section 15 of the Act, against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact maintained in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they are made, not misleading, or any
violation by the Company of any rule or regulation promulgated under the Act,
or state securities laws, or common law, applicable to the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors and partners and
such Holder's legal counsel and independent accountants, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in conformity
with written information furnished to the Company in an instrument duly
executed by such Holder or underwriter and stated to be specifically for use
therein.
3.
<PAGE> 4
b. Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and its legal counsel and independent accountants,
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Act, and each other such
Holder, each of its officers and directors and each person controlling such
Holder within the meaning of Section 15 of the Act, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such Holders, such
directors, officers, legal counsel, independent accountants, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein; provided, however, that the
obligations of such Holders hereunder shall be limited to an amount equal to
the gross proceeds before expenses and commissions to each such Holder of
Registrable Securities sold as contemplated herein.
c. Each party entitled to indemnification under this
Section 7 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has written notice of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense as such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Declaration, except to the
extent, but only to the extent, that the Indemnifying Party's ability to defend
against such claim or litigation is materially and adversely impaired as a
result of such failure to give notice. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
d. The obligations of the Company and each Holder under
this Section 7 shall survive the completion of any offering of stock in a
registration statement under this Declaration and otherwise.
8. Reports Under Securities Exchange Act of 1934. The Company
agrees to:
a. use its commercially reasonable efforts to file with
the Commission in a timely manner all reports and other documents required of
the Company under the Act and the 1934 Act; and
b. furnish to each Holder, forthwith upon request (1) a
written statement by the Company that it has complied with the reporting
requirements of the Act and the 1934 Act, or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and (ii) such other
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<PAGE> 5
information as may be reasonably requested in availing each Holder of any rule
or regulation of the Commission which permits the selling of any such
securities pursuant to Form S-3.
9. Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Declaration may be
assigned by a Holder to a transferee of Registerable Securities only if: (a)
the Company is, within reasonable time after such transfer, furnished with
written notice of the name and address of such transferee and the Registrable
Securities with respect to which such registration rights are being assigned
and a copy of a duly executed written instrument in form reasonably satisfactory
to the Company by which such transferee assumes all of the obligations and
liabilities of its transferor hereunder and agrees itself to be bound hereby;
and (b) immediately following such transfer, disposition of such Registrable
Securities by the transferee is restricted under the Act.
10. Liquidated Damages
a. The parties hereto agree that the holders of
Registrable Securities will suffer damages and that it would not be feasible to
ascertain the extent of such damages with precision if the registration
statement covering the resale of the Registrable Securities has not been filed
with the Commission within sixty (60) days of the Closing Date (the "Failed
Filing Date"). Accordingly, in the event of such failure, the Company agrees
to pay, as liquidated damages, and not as a penalty, to each holder of
Registrable Securities, an additional amount (the "Liquidated Damages Amount")
equal to (i) $200,000 divided by the aggregate dollar amount raised in the
private placement of the Securities multiplied by (ii) the aggregate dollar
amount paid by the Subscriber in the private placement of Securities.
b. The Company shall pay the liquidated damages due on the
Registrable Securities by depositing with a trustee, as designated by
Cruttenden Roth Incorporated, for the benefit of the holders thereof, sums
sufficient to pay the liquidated damages then due. The liquidated damages
amount due shall be payable to the record holder of the Registrable Securities
at the close of business on the Failed Filing Date. The trustee shall be
entitled, on behalf of the holders of Registrable Securities, to seek any
available remedy for the enforcement of this Declaration, including for the
payment of such liquidated damages.
c. The parties hereto agree that the liquidated damages
provided for in this Section 10 constitute a reasonable estimate of the
damages that may be incurred by holders of Registrable Securities by reason of
the failure of the registration to be filed and declared effective in
accordance with the provisions hereof.
11. Amendment of Registration Rights. Holders of a majority of the
Registrable Securities may, with the consent of the Company, amend the
registration rights granted hereunder.
12. Termination. The registration rights set forth in this
Declaration shall terminate with respect to a Holder at such time as all of the
Registrable Securities then held by such Holder can be sold by such Holder in a
3-month period in accordance with Rule 144 under the Act.
5
<PAGE> 6
APPENDIX
--------
RULE 501
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"Accredited investor" shall mean any person who comes within any of the
following categories at the time of the sale of the securities to that person:
(1) Any bank as defined in section 3(a)(2) of the Securities Act of 1933
(the "1933 Act") or any savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the 1933 Act whether
acting in its individual or fiduciary capacity; any broker dealer
registered pursuant to Section 15 of the Securities Exchange Act of
1934; any insurance company as defined in Section 2(13) of the 1933 Act;
any investment company registered under the Investment Company Act of
1940 or a business development company as defined in Section 2(a)(48) of
that Act; any Small Business Investment Company licensed by the U.S.
Small Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958; any plan established and maintained by
a State, its political subdivisions, or any agency or instrumentality of
a State or its political subdivisions, for the benefit of its employees,
if such plan has total assets in excess of $5,000,000; any employee
benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such Act, which is either a
bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in
excess of $5,000,000, or, if a self-directed plan, with investment
decisions made solely by persons that are accredited investors;
(2) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the issuer of the
securities being offered or sold, or any director, executive officer, or
general partner of a general partner of that issuer;
(5) Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year;
(7) Any trust with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii)
promulgated under the 1933 Act; and
(8) Any entity in which all of the equity owners are accredited investors.
Appendix
<PAGE> 1
EXHIBIT 3.4
MEDICAL ASSET MANAGEMENT, INC.
COMMON STOCK WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY RECEIVES
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
This certifies that, for good and valuable consideration, receipt of
which is hereby acknowledged, Cruttenden Roth Incorporated ("Holder") is
entitled to purchase, subject to the terms and conditions of this Warrant, from
Medical Asset Management, Inc., a Delaware corporation (the "Company"), 140,000
fully paid and nonassessable shares of the Common Stock ("Common Stock") of the
Company, in accordance with Section 2 during the period commencing the date
hereof and ending at 5:00 p.m. California time, May 31, 2001 (the "Expiration
Date"), at which time this Warrant will expire and become void unless earlier
terminated as provided herein. The shares of Common Stock of the Company for
which this Warrant is exercisable as adjusted from time to time pursuant to the
terms hereof, are hereinafter referred to as the "Shares."
1. Exercise Price. The initial purchase price for the Shares
shall be $7.05 per share. Such price shall be subject to adjustment pursuant
to the terms hereof (such price, as adjusted from time to time, is hereinafter
referred to as the "Exercise Price").
2. Exercise and Payment.
(a) Cash Exercise. This Warrant may be exercised, in whole
or in part, from time to time by the Holder, during the term hereof, by
surrender of this Warrant and the Notice of Exercise annexed hereto duly
completed and executed by the Holder to the Company at the principal executive
offices of the Company, together with payment in the amount obtained by
multiplying the Exercise Price then in effect by the number of Shares thereby
purchased, as designated in the Notice of Exercise. Payment may be in cash or
by check payable to the order of the Company.
1.
<PAGE> 2
(b) Net Issuance. In lieu of payment of the Exercise Price
described in Section 2(a), the Holder may elect to receive, without the payment
by the Holder of any additional consideration, shares equal to the value of
this Warrant or any portion hereof by the surrender of this Warrant or such
portion to the Company, with the net issue election notice annexed hereto duly
executed, at the office of the Company. Thereupon, the Company shall issue to
the Holder such number of fully paid and nonassessable shares of Common Stock
as is computed using the following formula:
where: X=Y (A-B)
-----
A
X = the number of shares to be issued to the Holder pursuant to this
Section 2.
Y = the number of shares covered by this Warrant in respect of which the
net issuance election is made pursuant to this Section 2.
A = the fair market value of one share of Common Stock, as determined in
accordance with the provisions of this Section 2.
B = the Exercise Price in effect under this Warrant at the time the net
issuance election is made pursuant to this Section 2.
For purposes of this Section 2, the "fair market value" per share of the
Company's Common Stock shall mean:
i. If the Common Stock is traded on a national securities
exchange or admitted to unlisted trading privileges on such an exchange,
or is listed on the National Market (the "national market") of the
National Association of Securities Dealers Automated Quotations System
(the "Nasdaq") or other over-the-counter quotation system, the fair
market value shall be the last reported sale price of the common Stock
on such exchange or on the Nasdaq National Market on the last business
day before the effective date of exercise of the net issuance election
or if no such sale is made on such day, the mean of the closing bid and
asked prices such day on such exchange or on the Nasdaq National Market;
and
ii. If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and ask prices are not reported, the
fair market value shall be the price per share which the Company could
obtain from a willing buyer for shares sold by the Company from
authorized but unissued shares, as such price shall be determined by
mutual agreement of the Company and the Holder of this Warrant.
3. Delivery of Stock Certificates. Within a reasonable time after
exercise, in whole or in part, of this Warrant, the Company shall issue in the
name of and deliver to the Holder, a certificate or certificates for the number
of fully paid and nonassessable shares of Common Stock which the Holder shall
have requested in the Notice of Exercise. If this Warrant
2.
<PAGE> 3
is exercised in part, the Company shall deliver to the Holder a new Warrant for
the unexercised portion of this Warrant at the time of delivery of such stock
certificate or certificates.
4. No Fractional Shares. No fractional shares or scrip
representing fractional shares will be issued upon exercise of this Warrant.
If upon any exercise of this Warrant a fraction of a share results, the Company
will pay the Holder the difference between the cash value of the fractional
share and the portion of the Exercise Price allocable to the fractional share.
5. Charges, Taxes and Expenses. The Holder shall pay all transfer
taxes or other incidental charges, if any, in connection with the transfer of
the Shares purchased pursuant to the exercise hereof from the Company to the
Holder.
6. Loss, Theft, Destruction or Mutilation of Warrant. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor and dated as of such
cancellation, in lieu of this Warrant.
7. Saturdays, Sundays, Holidays, Etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday or a Sunday or shall be a legal holiday,
then such action may be taken or such right may be exercised on the next
succeeding weekday which is not a legal holiday.
8. Adjustment of Exercise Price and Number of Shares. The number
of and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the
Company shall at any time after the date hereof but prior to the expiration of
this Warrant subdivide its outstanding securities as to which purchase rights
under this Warrant exist, by split-up or otherwise, or combine its outstanding
securities as to which purchase rights under this Warrant exist, the number of
Shares as to which this Warrant is exercisable as of the date of such
subdivision, split-up or combination shall forthwith be proportionately
increased in the case of a subdivision, or proportionately decreased in the case
of a combination. Appropriate adjustments shall also be made to the purchase
price payable per share, but the aggregate purchase price payable for the total
number of Shares purchasable under this Warrant as of such date shall remain
the same.
(b) Stock Dividend. If at any time after the date hereof
the Company declares a dividend or other distribution on Common Stock payable
in Common Stock or other securities or rights convertible into Common Stock
("Common Stock Equivalents") without payment of any consideration by such
holder for the additional shares of Common Stock or the
3.
<PAGE> 4
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon exercise or conversion thereof), then the number of shares of
Common Stock for which this Warrant may be exercised shall be increased as of
the record date (or the date of such dividend distribution if no record date is
set) for determining which holders of Common Stock shall be entitled to receive
such dividend, in proportion to the increase in the number of outstanding
shares (and shares of Common Stock issuable upon conversion of all such
securities convertible into Common Stock) of Common Stock as a result of such
dividend, and the Exercise Price shall be adjusted so that the aggregate amount
payable for the purchase of all the Shares issuable hereunder immediately after
the record date (or on the date of such distribution, if applicable), for such
dividend shall equal the aggregate amount so payable immediately before such
record date (or on the date of such distribution, if applicable).
(c) Other Distributions. If at any time after the date
hereof the Company distributes to holders of its Common Stock, other than as
part of its dissolution or liquidation or the winding up of its affairs, any
shares of its capital stock, any evidence of indebtedness or any of its assets
(other than cash, Common Stock or securities convertible into Common Stock),
then the Company may, at its option, either (i) decrease the per share Exercise
Price of this Warrant by an appropriate amount based upon the value distributed
on each share of Common Stock as determined in good faith by the Company's
Board of Directors or (ii) provide by resolution of the Company's Board of
Directors that on exercise of this Warrant, the Holder hereof shall thereafter
be entitled to receive, in addition to the shares of Common Stock otherwise
receivable on exercise hereof, the number of shares or other securities or
property which would have been received had this Warrant at the time been
exercised.
(d) Merger. If at any time after the date hereof there
shall be a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation then the Holder
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the aggregate Exercise Price
then in effect, the number of shares or other securities or property of the
successor corporation resulting from such merger or consolidation, which would
have been received by Holder for the shares of stock subject to this Warrant
had this Warrant at such time been exercised.
(e) Reclassification, Etc. If at any time after the date
hereof there shall be a change or reclassification of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, then the Holder shall
thereafter be entitle to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Exercise Price then in effect,
the number of shares or other securities or property resulting from such change
or reclassification, which would have been received by Holder for the shares of
stock subject to this Warrant had this Warrant at such time been exercised.
9. Notice of Adjustments; Notices. Whenever the Exercise Price or
number of Shares purchasable hereunder shall be adjusted pursuant to Section 8
hereof, the Company shall execute and deliver to the Holder a certificate
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment
4.
<PAGE> 5
was calculated and the Exercise Price and number of shares purchasable hereunder
after giving effect to such adjustment, and shall cause a copy of such
certificate to be mailed (by first class mail, postage prepaid) to the Holder.
10. Rights As Stockholder. Prior to exercise of this Warrant, the
Holder shall not be entitled to any rights as a stockholder of the Company with
respect to the Shares, including (without limitation) the right to vote such
Shares, receive dividends or other distribution thereon, or be notified of
stockholder meetings, and the Holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company.
However, in the event of any taking by the Company of a record of the holders
of any class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to
receive any other right, the Company shall mail to each Holder of this Warrant,
at least 10 days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
11. Restricted Securities. The Holder understands that this
Warrant and the Shares purchasable hereunder constitute "restricted securities"
under the federal securities laws inasmuch as they are, or will be, acquired
from the Company in transactions not involving a public offering and
accordingly may not, under such laws and applicable regulations, be resold or
transferred without registration under the Securities Act of 1933, as amended
(the "1933 Act") or an applicable exemption from such registration. In
connection therewith, the Holder acknowledges that Rule 144 of the Commission
is not now, and may not in the future be, available for resales of the Warrant
and the Shares purchasable hereunder. Unless the Shares are subsequently
registered pursuant to Section 14, the Holder further acknowledges that the
securities legend on Exhibit A to the Notice of Exercise attached hereto shall
be placed on any Shares issued to the Holder upon exercise of this Warrant.
12. Certification of Investment Purpose. Unless a current
registration statement under the 1933 Act shall be in effect with respect to
the securities to be issued upon exercise of this Warrant, the Holder covenants
and agrees that, at the time of exercise hereof, it will deliver to the Company
a written certification executed by the Holder that the securities acquired by
him upon exercise hereof are for the account of such Holder and acquired for
investment purposes only and that such securities are not acquired with a view
to, or for sale in connection with, any distribution thereof.
13. Disposition of Shares. Holder hereby agrees not to make any
disposition of any Shares purchased hereunder unless and until:
(a) Holder shall have notified the Company of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition;
5.
<PAGE> 6
(b) Holder shall have complied with all requirements of
this Warrant applicable to the disposition of the Shares; and
(c) Holder shall have provided the Company with written
assurances, in form and substance satisfactory to legal counsel of the Company,
that (i) the proposed disposition does not require registration of the Shares
under the 1933 Act or (ii) all appropriate action necessary for compliance with
the registration requirements of the 1933 Act or of any exemption from
registration available under the 1933 Act has been taken.
The Company shall not be required (i) to transfer on its books any
Shares which have been sold or transferred in violation of the provisions of
this Section 13 or (ii) to treat as the owner of the Shares, or otherwise to
accord voting or dividend rights to, any transferee to whom the Shares have
been transferred in contravention of the terms of this Warrant.
14. Registration Rights.
(a) Piggbyback Registration. If, at any time during the
term of this Warrant, the Company shall determine to register for its own
account or the account of others under the 1933 Act any of its equity
securities, other than on Form S-4 or Form S-8 or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business, or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each Holder of Warrants or Shares, who is entitled to registration
rights under this Section 14(a), written notice of such determination and, if
within twenty (20) days after receipt of such notice, such Holder shall so
request in writing (hereafter a "Selling Holder"), the Company shall include in
such Registration Statement all or any part of the Shares issuable upon exercise
of the Warrants (the "Registrable Securities") such Selling Holder requests to
be registered. The obligations of the Company under this Section 14(a) may be
waived by Holders holding a majority in interest of the Registrable
Securities. In the event that the managing underwriter for said offering
advises the Company in writing that the inclusion of such securities in the
offering would be materially detrimental to the offering, such securities shall
nevertheless be included in the Registration Statement, provided that the
Holder and each holder of Shares desiring to have their Shares included in
the Registration Statement agree in writing, for a period of 90 days following
such offering, not to sell or otherwise dispose of such Shares pursuant to such
Registration Statement, which Registration Statement the Company shall keep
effective for a period of at least nine months following the expiration of such
90 day period.
(b) Demand Registration. In addition to any Registration
Statement pursuant to subparagraph (a) above, during the term of this Warrant,
the Company will, as promptly as practicable (but in any event within 60 days),
after written request (the "Request") by the Holder, or by a person or persons
holding (or having the right to acquire by virtue of holding the Warrants) at
least 50% of the shares of Common Stock which have been (or may be) issued upon
exercise of the Warrants prepare and file at its own expense a Registration
Statement with the Commission and appropriate "blue sky" authorities sufficient
to permit the public offering of the Registrable Securities and will use its
best efforts at its own expense
6.
<PAGE> 7
through its officers, directors, auditors and counsel, in all matters necessary
or advisable, to cause such Registration Statement to become effective as
promptly as practicable and to maintain such effectiveness so as to permit
resale of the Shares covered by the Request until the earlier of the time that
all such Shares have been sold or the expiration of 90 days from the effective
date of the Registration Statement, provide, however, that the Company shall
only be obligated to file one such Registration Statement under this Section
14(b).
(c) Registration of Private Placement Stock. In lieu of any
Registration Statement pursuant to subparagraph (a) and (b) above, in the event
the Company files a Registration Statement for the account of holders of Common
Stock issued pursuant to the terms of that certain Confidential Private
Placement Memorandum dated may 15, 1996, as supplemented by Supplement No. 1
dated May 20, 1996, and the related Subscription Agreement and Declaration of
Registration Rights attached thereto, then the Company shall include in such
Registration Statement all of the Shares issuable upon exercise of the Warrants.
(d) Obligations of the Holders. In connection with the
registration of the Registrable Securities pursuant to Sections 14(a), (b) or
(c), the Selling Holders shall have the following obligations:
i. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to each Selling Holder that such Selling Holder shall furnish to the
Company such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities held by
it as shall be reasonably required to effect the registration of the
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At lease fifteen (15) days
prior to the first anticipated filing date of the Registration Statement, the
Company shall notify each Selling Holder of the information the Company requires
from each such Selling Holder (the "Requested Information") in the case of a
Registration Statement being prepared pursuant to Section 14(b) or (c) or if
such Selling Holder elects to have any of such Selling Holder's Registrable
Securities included in the Registration Statement in the case of a Registration
Statement being prepared pursuant to Section 14(a).
ii. Each Selling Holder by such Selling Holder's
acceptance of the Registrable Securities agrees to cooperate with the Company
as reasonably requested by the Company in connection with the preparation and
filing of the Registration Statement hereunder, unless such Selling Holder has
notified the Company in writing of such Selling Holder's election to exclude
all of such Selling Holder's Registrable Securities from the Registration
Statement; and
iii. No Selling Holder may participate in any
underwritten registration hereunder unless such Selling Holder (i) agrees to
sell such Selling Holder's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Selling Holders entitled hereunder to
approve such arrangements, (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other
7.
<PAGE> 8
documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and other fees and expenses of investment bankers and
any manager or managers of such underwriting, except as provided in Section
14(e) below.
(e) Expenses of Registration. All expenses, other than
underwriting discounts and commissions and other fees and expenses of
investment bankers and other than brokerage commissions, incurred in
connection with registrations, filings or qualifications pursuant to Section
14(a), 14(b) or 14(c), including, without limitation, all registration, listing
and qualifications fees, printers and accounting fees and the fees and
disbursements of counsel for the Company and the Selling Holders, shall be
borne by the Company; provided, however, that the Company shall only be
required to bear the fees and out-of-pocket expenses of one legal counsel
selected by the Selling Holders in connection with such registration.
(f) Indemnification. In the event any Registrable
Securities are included in a Registration Statement under this Agreement:
i. To the extent permitted by law, the Company
will indemnify and hold harmless each Selling Holder who holds such Registrable
Securities, the directors, if any, of such Selling Holder, the officers, if
any, of such Selling Holder, each person, if any, who controls any Selling
Holder within the meaning of the 1933 Act, any underwriter (as defined in the
1933 Act) for the Selling Holders, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the 1933 Act (each, an
"Indemnified Person"), against any losses, claims, damages, expenses or
liabilities (joint or several) (collectively, "Claims") to which any of them
may become subject under the 1933 Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statements or alleged untrue
statement of a material fact contained in the Registration Statement when it
first became effective, or any related final prospectus, amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which the statements therein were
made, not misleading (a "Violation"). The Company shall reimburse the Selling
Holders and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 14(f)(i) shall
not apply in such case to the extent any such Claim arising out of or based
upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, and shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld.
8.
<PAGE> 9
ii. In connection with any Registration Statement in which
a Selling Holder is participating, each such Selling Holder agrees to indemnify
and hold harmless, to the same extent and in the same manner set forth in
Section 14(f)(i), the Company, each of its directors, each of its officers who
signs the Registration Statement, each person, if any, who controls the
Company within the meaning of the 1933 Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the 1933 Act (collectively and together with
an Indemnified Person, an "indemnified party"), against any claim to which any
of them may become subject, under the 1933 Act or otherwise, insofar as such
Claim arises out of or is based upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Selling
Holder expressly for use in connection with such Registration Statement, and
such Selling Holder will reimburse any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section
14(f)(ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Selling
Holder, which consent shall not be unreasonably withheld.
iii. The Company shall be entitled to receive indemnities
from underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in any distribution to the same extent as
provided above, with respect to information furnished in writing by such
persons expressly for inclusion in the Registration Statement.
iv. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 14(f) of notice of the commencement of
any action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is made against any
indemnifying party under this Section 14(f), deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to
assume control of the defense thereof with counsel mutually satisfactory to the
indemnifying parties; provide, however, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if, in the reasonable
opinion of counsel retained by the indemnifying party, the representation by
such counsel of the Indemnified Person or Indemnified Party and the
indemnifying party would be inappropriate due to actual or potential differing
interests between such Indemnified Person or Indemnified Party and any other
party represented by such counsel in such proceeding. The Indemnifying Party
shall pay for only one separate legal counsel for the Indemnified Parties; such
legal counsel shall be selected by the Indemnified Parties holding a majority
in interest of the Registrable Securities. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement
of any such action shall not relieve such indemnifying party of any liability
to the Indemnified Person or Indemnified Party under this Section 14(f), except
to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 14(f) shall be
made by periodic payments of the amount thereof during
9.
<PAGE> 10
the course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
v. Notwithstanding any of the foregoing, if, in
connection with an underwritten public offering of Registrable Securities, the
Company, the Selling Holders and the underwriter(s) enter into an underwriting
or purchase agreement relating to such offering which contains provisions
covering indemnification and contribution among the parties, the indemnification
and contribution provisions of this Section 14(f) shall be deemed inoperative
for purposes of such offering.
(g) Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 14(f) to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 14(f), (b) no seller of
Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation, and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
(h) Reports Under Exchange Act. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the 1933
Act or any other similar rule or regulation of the SEC that may at any time
permit the Holders to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to:
i. make and keep public information available, as
those terms are understood and defined in Rule 144; and
ii. file with the SEC in a timely manner all
reports and other documents required of the Company under the 1933 Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
iii. furnish to each Holder so long as such Holder
owns Registrable Securities, promptly upon request, (i) a written statement by
the Company that it has complied with the reporting requirements of Rule 144,
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested to permit the Holders to sell such
securities without registration pursuant to Rule 144.
(i) Assignment of the Registration Rights. The rights to
have the Company register Registrable Securities pursuant to this Agreement
shall be automatically assigned by the Holders to transferees or assignees of
all or any portion of such securities only if: (a) the Holder agrees in writing
with the transferee or assignee to assign such rights, (b) the
10
<PAGE> 11
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of the name and address of such transferee or
assignee (c) such assignment is in accordance with and permitted by law and all
other agreements between the transferor or assignor and the Company, including
without limitation, stockholder's agreements, warrants and subscription
agreements, and the transferor or assignor otherwise is not in material default
of any obligation to the Company under any such other agreement, and (d) at or
before the time the Company received the written notice contemplated by clause
(b) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein.
(j) Termination of Registration Rights. No Holder of
Warrants or Shares shall be entitled to exercise any right provided for in this
Section 14 at such time as such Holder would be able to dispose of all of its
Registrable Securities in any three (3) month period under SEC Rule 144.
15. Transferability.
(a) General. This Warrant shall be transferable only on
the books of the Company maintained at its principal office in Mesa, Arizona or
wherever its principal office may then be located, upon delivery thereof duly
endorsed by the Holder or by its duly authorized attorney or representative,
accompanied by proper evidence of succession, assignment or authority to
transfer. Upon any registration of transfer, the Company shall execute and
deliver new Warrants to the person entitled thereto.
(b) Limitations on Transfer. This Warrant shall not be
sold, transferred, assigned or hypothecated by the Holder except to (i) one or
more persons, each of whom on the date of transfer is an officer of the Holder;
(ii) a general partnership or general partnerships, the general partners of
which are the Holder and one or more persons, each of whom on the date of
transfer is an officer of the Holder; (iii) a successor to the Holder in any
merger or consolidation; (iv) a purchaser of all or substantially all of the
Holder's assets; or (v) any person receiving this Warrant from one or more of
the persons listed in this Section 15(b) at such persons's or persons' death
pursuant to will, trust or the laws of intestate succession. This Warrant may
be divided or combined, upon request to the Company by the Holder, into a
certificate or certificates representing the right to purchase the same
aggregate number of Shares.
16. Miscellaneous.
(a) Construction. Unless the context indicates otherwise
the term "Holder" shall include any transferee or transferees of this Warrant
pursuant to Section 15(b), and the term "Warrant" shall include any and all
warrants outstanding pursuant to this Agreement, including those evidenced by a
certificate or certificates issued upon division, exchange, substitution or
transfer pursuant to Section 15(b).
11.
<PAGE> 12
(b) Restrictions. By receipt of this Warrant, the Holder
makes the same representations with respect to the acquisition of this Warrant
as the Holder is required to make upon the exercise of this Warrant and
acquisition of the Shares purchasable hereunder as set forth in the Form of
Investment Letter attached as Exhibit A to the Notice of Exercise attached
hereto.
(c) Notices. Unless otherwise provided, any notice
required or permitted under this Warrant shall be given in writing and shall be
deemed effectively given upon personal delivery to the party to be modified or
three (3) days following deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified (or one (1) day following timely deposit with a reputable overnight
courier with next day delivery instructions), or upon confirmation of receipt
by the sender of nay notice by facsimile transmission, at the address indicated
below or at such other address as such party may designate by ten (10) days'
advance written notice to the other parties.
To Holder: Cruttenden Roth Incorporated
18301 Von Karman
Suite 100
Irvine, CA 92715
Attention: Christopher Jennings
To the Company: Medical Asset Management, Inc.
4447 East Broadway
Suite 102
Mesa, AZ 85206
Attention: John Regan
(d) Governing Law. This Warrant shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
(e) Entire Agreement. This Warrant, the exhibits and
schedules hereto, and the documents referred to herein, constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof, and supersede all prior and contemporaneous agreements and
understandings, whether oral or written, between the parties hereto with
respect to the subject matter hereof.
(f) Binding Effect. This Warrant and the various rights
and obligations arising hereunder shall inure to the benefit of and be binding
upon the Company and its successors and assigns, and Holder and its successors
and assigns.
(g) Waiver; Consent. This Warrant may not be changed,
amended, terminated, augmented, rescinded or discharged (other than by
performance), in whole or in part, except by a writing executed by the parties
hereto, and no waiver of any of the provisions or conditions of this Warrant or
any of the rights of a party hereto shall be effective or binding
12.
<PAGE> 13
unless such waiver shall be in writing and signed by the party claimed to have
given or consented thereto.
(h) Severability. If one or more provisions of this
Warrant are held to be enforceable under applicable law, such provision shall
be excluded from this Warrant and the balance of the Warrant shall be
interpreted as if such provision were so excluded and the balance shall be
enforceable in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this Common
Stock Warrant effective as of the date hereof.
DATED: May 31, 1996 THE COMPANY:
Medical Asset Management, Inc.
By: [SIG]
--------------------------------
Its: President
--------------------------------
HOLDER:
Cruttenden Roth Incorporated
By: [SIG]
--------------------------------
Its: Vice-President
--------------------------------
13.
<PAGE> 14
NOTICE OF EXERCISE
To: MEDICAL ASSET MANAGEMENT, INC.
1. The undersigned hereby elects to purchase ____________ shares of
Common Stock ("Stock") of Medical Asset Management, Inc., a Delaware corporation
(the "Company") pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price pursuant to the terms of the Warrant.
2. Attached as Exhibit A is an appropriate investment
representation letter addressed to the Company and executed by the undersigned
as required by Section 12 of the Warrant.
3. Please issue certificates representing the shares of Stock
purchased hereunder in the names and in the denominations indicated on Exhibit
A attached hereto.
4. Please issue a new Warrant for the unexercised portion of the
attached Warrant, if any, in the name of the undersigned.
Dated: ________________________ ______________________________________
1.
<PAGE> 15
NET ISSUANCE ELECTION NOTICE
To: MEDICAL ASSET MANAGEMENT, INC. Date:__________________
The undersigned hereby elects under Section 2 of the attached Warrant
to surrender the right to purchase __________ shares of Common Stock pursuant
to the attached Warrant. The Certificate(s) for the shares issuable upon such
net issuance election shall be issued in the name of the undersigned or as
otherwise indicated below.
---------------------------------------
Signature
---------------------------------------
Name for Registration
---------------------------------------
Mailing Address
<PAGE> 16
EXHIBIT A
To: MEDICAL ASSET MANAGEMENT, INC.
In connection with the purchase by the undersigned of shares of
the Common Stock (the "Stock") of Medical Asset Management, Inc., a Delaware
corporation (the "Company"), upon exercise of that certain Common Stock Warrant
dated as of , 1996 the undersigned hereby represents and warrants
as follows:
1. The shares of Stock to be received by the undersigned upon
exercise of the Warrant are being acquired for its own account, not as a nominee
or agent, and not with a view to resale or distribution of any part thereof,
and the undersigned has no present intention of selling, granting any
participation in, or otherwise distributing the same. The undersigned further
represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person or to any third person, with respect to the Stock. The undersigned
believes it has received all the information it considers necessary or
appropriate for deciding whether to purchase the Stock.
2. The undersigned understands that the shares of Stock are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in transactions not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended ("the Act"), only in certain limited circumstances. In this
connection, the undersigned represents that it is familiar with SEC Rule 144,
as presently in effect, and understands the resale limitations imposed thereby
and by the Act.
3. Without in any way limiting the representations set forth
above, the undersigned agrees not to make any disposition of all or any portion
of the Stock unless and until:
(a) There is then in effect a registration statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) The undersigned shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii)
if requested, the undersigned shall have furnished the Company with an opinion
of counsel, reasonably satisfactory to the Company that such disposition will
not require registration of such shares under the Act. The Company will not
require an opinion of counsel for sales made pursuant to Rule 144 except in
unusual circumstances.
A-1
<PAGE> 17
4. The undesigned understands the instruments evidencing the Stock
may bear the following legend:
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY RECEIVES
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Dated:_____________________ _______________________________
A-2
<PAGE> 1
EXHIBIT 6.1
EMPLOYMENT AGREEMENT
AGREEMENT, made as of this 1st day of January, 1995 between Medical
Asset Management, Inc., a Delaware corporation with its principal office at
4447 E. Broadway, Suite 102, Mesa, Arizona 85206 ("Employer"), and John
Regan ("Employee").
WHEREAS, Employer is in the business of providing management services
to medical service affiliates; and
WHEREAS, Employer desires to employ Employee as President of the
Employer and Employee wishes to be so employed, all upon the terms and
conditions hereafter set forth.
In consideration of the mutual promises herein contained, it is agreed
as follows:
1. TERMS OF EMPLOYMENT; COMPENSATION
1.1 Employer hereby employs Employee as President of the Employer
for a thirty-six (36) month period commencing January 1, 1995.
1.2 As consideration of the services to be provided hereunder,
Employer shall pay to Employee consideration of:
(1) A base salary as follows:
(A) On a semi-monthly basis, one-hundred fifty
thousand dollars ($150,000) for the twelve (12)
month period ending December 31, 1995;
(B) On a semi-monthly basis, two-hundred thousand
dollars ($200,000) for the twelve (12) month
period ending December 31, 1996; and
(C) On a semi-monthly basis, two-hundred fifty
thousand dollars ($250,000) for the twelve (12)
month period ending December 31, 1997.
(2) Any stock option bonus as the Board of Directors of the
Employer sees fit to authorize.
Page 1
<PAGE> 2
1.3 In the event of "cause" which shall include competition in violation of
this Agreement, pending criminal charges prior to conviction,
incapacity due to illness, accident or other disability when the
Employee is unable to perform his duties, breach of the terms of the
Agreement, personal or professional conduct of Employee which, in the
reasonable and good faith judgment of the Employer, injures or tends to
injure the reputation of Employer, or gross neglect by the Employee of
his duties hereunder, Employer may terminate Employee's employment
hereunder and all rights hereunder of Employee shall cease.
1.4 In the event the Employee desires to terminate his employment with the
Employer, Employee shall give three (3) months' written notice to the
Employer.
2. EXPENSES, BENEFITS AND MISCELLANEOUS
2.1 Employer shall reimburse Employee for all authorized actual
travel, promotion and entertainment expenses advanced by
Employee in the course of his employment. Reimbursement
shall be provided upon the submission of receipts by Employee
to Employer.
2.2 Employee will be entitled to any and all Employer-paid benefits
as they are made available to senior management. At the
present time, Employer is not offering any Employer-paid
benefits.
2.3 If the Employee is terminated through no fault or cause of his
own, he will receive the balance of the then base salary due
until through the ending date of this Agreement.
2.4 Employee will be entitled to sick leave and paid holidays as
per the Employer policy.
3. DUTIES OF EMPLOYEE
3.1 Employee shall perform such duties as are generally associated
with his position as President and as may be entrusted to him
by the Employer or by resolution of the Board of Directors of
the Employer.
3.2 Employee shall, during the term of this employment, devote one
hundred percent (100%) of his professional time and attention
to the business of the Employer.
4. PROHIBITION AGAINST ENGAGING IN COMPETITION
4.1 Employee shall not, during the term of this Agrement and three
(3) years thereafter, acquire or hold any interest as
stockholder, director, agent or otherwise in or for any
corporation in competition with Employer without the consent
of the Board of Directors of Employer, and shall not engage in
any business competing
Page 2
<PAGE> 3
with that of the Employer in the States of Arizona, California,
Washington or Alaska.
4.2 In the event the Employee terminates this Agreement or in the event
Employer's employment is terminated by Employee, the Employee shall
not, within three (3) years after such termination of employment with
Employer, engage in any activity, directory or indirectly, which is in
competition with the business of the Employer in the States of Arizona,
California, Washington or Alaska.
4.3 It has been agreed between the parties that, due to the personal nature
of the relationship created hereunder, neither party shall be entitled
to assign or otherwise transfer the rights or obligations associated
with this Agreement without the written consent of the other party.
4.4 Because of the unique and critical nature of the Employee's position
within the Employer, the loss of the Employee to the Employer could not
be reasonably compensated by an action at law for damages; and for that
reason, Employer is entitled to an injunction and other equitable
relief to prevent Employee's breach of this agreement or in the event of
a breach of Employee's enforceable fiduciary duties to Employer.
5. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
Employee shall not, during the term of his employment or at any time
thereafter, impart to any competitor of Employer, or other individual or
entity, or otherwise use for the purpose of competition with Employer, any
proprietary, financial or confidential information he may require in the
performance of his duties hereunder.
6. COMPLETE AGREEMENT; ATTORNEYS' FEES; ARIZONA LAW TO GOVERN
6.1 This Agreement represents the complete understanding between the
parties, and no modification of the terms contained herein shall be
effective unless in writing and signed by the parties.
6.2 Should legal action be necessary for the enforcement of any of the
terms or conditions contained herein, the prevailing party shall be
entitled to reasonable attorneys' fees and court costs from the other
party.
6.3 The law governing this Agreement and any further agreements or
contractual relation between the Employer and the Employee shall be the
law of the State of Arizona.
Page 3
<PAGE> 4
Executed at Mesa, Arizona on the date first above written.
EMPLOYER: EMPLOYEE:
MEDICAL ASSET MANAGEMENT, INC.
By /s/ Dennis Calvert /s/ John W. Regan
--------------------------- -------------------------
Dennis Calvert John W. Regan
Senior Vice President
Page 4
<PAGE> 1
EXHIBIT 6.2
EMPLOYMENT AGREEMENT
AGREEMENT, made as of this 1st day of January, 1995 between Medical
Asset Management, Inc., a Delaware corporation with its principal office at
4447 E. Broadway, Suite 102, Mesa, Arizona 85206 ("Employer"), and Dennis
Calvert ("Employee").
WHEREAS, Employer is in the business of providing management services
to medical service affiliates; and
WHEREAS, Employer desires to employ Employee as Senior Vice President
of the Employer and Employee wishes to be so employed, all upon the terms and
conditions hereafter set forth.
In consideration of the mutual promises herein contained, it is agreed
as follows:
1. TERMS OF EMPLOYMENT; COMPENSATION
1.1 Employer hereby employs Employee as Senior Vice President of
the Employer for a thirty-six (36) month period commencing
January 1, 1995.
1.2 As consideration for the services to be provided hereunder,
Employer shall pay to Employee consideration of a base salary,
equal to seventy-five percent (75%) of that received or owed to
the President of the Employer and any stock option bonus as the
Board of Directors of the Employer sees fit to authorize.
1.3 In the event of "cause" which shall include competition in
violation of this Agreement, pending criminal charges prior to
conviction, incapacity due to illness, accident or other
disability when the Employee is unable to perform his duties,
breach of the terms of this Agreement, personal or professional
conduct of Employee which, in the reasonable and good faith
judgment of the Employer, injures or tends to injure the
reputation of Employer, or gross neglet by the Employee of his
duties hereunder, Employer may terminate Employee's employment
hereunder and all rights hereunder of Employee shall cease.
1.4 in the event the Employee desires to terminate his employment
with the Employer, Employee shall give three (3) months'
written notice to the Employer.
2. EXPENSES, BENEFITS AND MISCELLANEOUS
2.1 Employer shall reimburse Employee for all authorized actual
travel, promotion and entertainment expenses advanced by
Employee in the course of his employment. Reimbursement shall
be provided upon the submission of receipts by Employee to
Employer.
Page 1
<PAGE> 2
2.2 Employee will be entitled to any and all Employer-paid benefits
as they are made available to senior management. At the
present time, Employer is not offering any Employer-paid
benefits.
2.3 If the Employee is terminated through no fault of his own, he
will receive the balance of the then base salary due until
through the ending date of this contract.
2.4 Employee will be entitled to sick leave and paid holidays as
per the Employer policy.
3. DUTIES OF EMPLOYEE
3.1 Employee shall perform such duties as are generally associated
with his postion as Senior Vice President and as may be
entrusted to him by Employer or by resolution of the Board
of Directors of the Employer.
3.2 Employee shall, during the term of this employment, devote one
hundred percent (100%) of his professional time and attention
to the business of the Employer.
4. PROHIBITION AGAINST ENGAGING IN COMPETITION
4.1 Employee shall not, during the term of this Agreement and three
(3) years thereafter, aquire or hold any interests as
stockholder, director, agent or otherwise in or for any
corporation in competition with the Employer without consent of
the Board of Directors of Employer, and shall not engage in any
business competing with that of the Employer in the States of
Arizona, California, Washington or Alaska.
4.2 In the event the Employee terminates this Agreement or in the
event the Employer's employemt is terminated by Employee, the
Employee shall not, within three (3) years after such
termination of employment with Employer, engage in any
activity, directory or indirectly, which is in competition with
the business of the Employer in the states of Arizona,
California, Washington or Alaska.
4.3 It has been agreed between the parties that, due to the
personal nature of the relationship created hereunder, neither
party shall be entitled to assign or otherwise transfer the
rights or obligations associated with this Agreement without
the written consent of the other party.
4.4 Because of the unique and critical nature of the Employee's
position within the Employer, the loss of the Employee to the
Employer could be reasonably compensated by an action at law
for damages; and for that reason, Employer is entitled to an
injunction and other equitable relief to prevent Employee's
breach of
Page 2
<PAGE> 3
this agreement or in the event of a breach of Employee's
enforceable fiduciary duties to Employer.
5. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
Employee shall not, during the term of his employment or at any time
thereafter, impart to any competitor of Employer, or other individual or entity,
or otherwise use for the purpose of competition with Employer, any proprietary,
financial or confidential information he may require in the performance of his
duties hereunder.
6. COMPLETE AGREEMENT, ATTORNEYS' FEES; ARIZONA LAW TO GOVERN
6.1 This Agreement represents the complete understanding between
the parties, and no modification of the terms contained herein
shall be effective unless in writing and signed by the parties.
6.2 Should legal action be necessary for the enforcement of any of
the terms or conditions contained herein, the prevailing party
shall be entitled to reasonable attorneys' fees and court costs
from the other party.
6.3 The law governing this Agreement and any further agreements or
contractual relation between the Employer shall be the law of
the State of Arizona.
Executed at Mesa, Arizona on the date first above written.
EMPLOYER: EMPLOYEE:
MEDICAL ASSET MANAGEMENT, INC.
By /s/ John W. Regan, President /s/ Dennis Calvert
----------------------------- --------------------------------
John W. Regan, President Dennis Calvert
Page 3
<PAGE> 1
EXHIBIT 6.3
EMPLOYMENT AGREEMENT
AGREEMENT, made as of this 1st day of January, 1995 between Medical
Asset Management, Inc., a Delaware corporation with its principal office at
4447 E. Broadway, Suite 102, Mesa, Arizona 85206 ("Employer"), and Michael Zaic
("Employee").
WHEREAS, Employer is in the business of providing management services
to medical service affiliates; and
WHEREAS, Employer desires to employ Employee as Vice President of the
Employer and Employee wishes to be so employed, all upon the terms and
conditions hereafter set forth.
In consideration of the mutual promises herein contained, it is agreed
as follows:
1. TERMS OF EMPLOYMENT, COMPENSATION
1.1 Employer hereby employs Employee as Senior Vice President of
the Employer for a thirty-six (36) month period commencing
January 1, 1995.
1.2 As consideration for the services to be provided hereunder,
Employer shall pay to Employee consideration of a base salary
equal to fifty percent (50%) of that received or owed to the
Senior Vice President of the Employer, Dennis Calvert, and any
stock option bonus as the Board of Directors sees fit to
authorize.
1.3 In the event of "cause" which shall include competition in
violation of this Agreement, pending criminal charges prior to
conviction, incapacity due to illness, accident or other
disability when the Employee is unable to perform his duties,
breach of the terms of this Agreement, personal or professional
conduct of Employee which, in the reasonable and good faith
judgment of the Employer, injures or tends to injure the
reputation of Employer, or gross neglect by the Employee of his
duties hereunder. Employer may terminate Employee's employment
hereunder and all rights hereunder of employee shall cease.
1.4 In the event the Employee desires to terminate his employment
with the Employer, Employee shall give three (3) months'
written notice to the Employer.
2. EXPENSES, BENEFITS AND MISCELLANEOUS
2.1 Employer shall reimburse Employee for all authorized actual
travel, promotion and entertainment expenses advanced by
Employee in the course of his employment. Reimbursement shall
be provided upon the submission of receipts by Employee to
Employer.
Page 1
<PAGE> 2
2.2 Employee will be entitled to any and all Employer-paid benefits
as they are made available to senior management. At the
present time Employer is not offering any Employer-paid
benefits.
2.3 If the Employee is terminated through no fault or cause of his
own, he will receive the balance of the then base salary due
until through the ending date of this contract.
2.4 Employee will be entitled to sick leave and paid holidays as
per the Employer policy.
3. DUTIES OF EMPLOYEE
3.1 Employee shall perform such duties as are generally associated
with his position as Senior Vice President and as may be
entrusted to him by the Employer or by resolution of the
Board of Directors of the Employer.
3.2 Employee shall, during the term of this employment, devote one
hundred percent (100%) of his time and attention to the
business of the Employer.
4. PROHIBITION AGAINST ENGAGING IN COMPETITION
4.1 Employee shall not, during the term of this Agreement and three
(3) years thereafter, acquire or hold any interest as
stockholder, director, agent or otherwise in or for any
corporation in competition with Employer without the consent of
the Board of Directors of Employer, and shall not engage in any
business competing with that of the Employer in the States of
Arizona, California, Washington or Alaska.
4.2 In the event the Employee terminates this Agreement or in the
event Employer's employment is terminated by Employee, the
Employee shall not, within three (3) years after such
termination of employment with Employer, engage in any
activity, directory or indirectly, which is in competition
with the business of the Employer in the States of Arizona,
California, Washington or Alaska.
4.3 It has been agreed between the parties that, due to the
personal nature of the relationship created hereunder, neither
party shall be entitled to assign or otherwise transfer the
rights or obligations associated with this Agreement without
the written consent of the other party.
4.4 Because of the unique and critical nature of the Employee's
position within the Employer, the loss of the Employee to the
Employer could not be reasonably compensated by an action at
law for damages; and for that reason, Employer is entitled to
an injunction and other equitable relief to prevent Employee's
breach of
Page 2
<PAGE> 3
this agreement or in the event of a breach of Employee's
enforceable fiduciary duties to Employer.
5. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
Employee shall not, during the term of his employment or at any time
thereafter, impart to any competitor of Employer, or other individual or
entity, or otherwise use for the purpose of competition with Employer, any
proprietary, financial or confidential information he may require in the
performance of his duties hereunder.
6. COMPLETE AGREEMENT: ATTORNEYS' FEES; ARIZONA LAW TO GOVERN
6.1 This Agreement represents the complete understanding between
the parties, and no modification of the terms contained herein
shall be effective unless in writing and signed by the parties.
6.2 Should legal action be necessary for the enforcement of any of
the terms or conditions contained herein, the prevailing party
shall be entitled to reasonable attorneys' fees and court costs
from the other party.
6.3 The law governing this Agreement and any further Agreements or
contractual relation between the employer and the Employee
shall be the law of the State of Arizona.
Executed at Mesa, Arizona on the date first above written.
EMPLOYER: EMPLOYEE:
MEDICAL ASSET MANAGEMENT, INC.
By /s/ John W. Regan /s/ Michael Zaic
------------------------------ -------------------------------
John W. Regan, President Michael Zaic
Page 3
<PAGE> 1
EXHIBIT 8.1
STOCK EXCHANGE AGREEMENT
AGREEMENT dated May 10, 1994, between Eagle High Enterprises, Inc., a
Delaware corporation, (hereinafter the "Buyer"), and the shareholders whose
names appear on "Exhibit A" attached hereto and who appoint John Regan as their
duly authorized and appointed agent (hereinafter collectively, the "Sellers")
and who constitute all of the Class A Common shareholders of Medical Asset
Management, a Delaware corporation (hereinafter referred to as "MAM").
This Agreement sets forth the terms and conditions upon which the
Sellers are today exchanging with the Buyer 1,505,330 Class A Common shares of
MAM stock, par value $0.0001 per share, representing all of the issued and
outstanding shares of Class A Common Stock of MAM (hereinafter the "Shares").
In consideration of the mutual agreement contained herein, the parties
hereby agree as follows:
1. EXCHANGE OF SHARES
1.01 Shares Being Exchanged. Subject to the terms and conditions of
this Agreement, the Sellers are exchanging, assigning, and delivering the Shares
to the Buyer at the closing provided for in Section 1.03 hereof (the "Closing")
1,505,330 shares of Class A Common Stock of MAM which constitutes all of the
issued and outstanding Class A Common shares of MAM, free and clear of all
liens, charges, or encumbrances of whatsoever nature.
1.02 Consideration. At the Closing, the Buyer is delivering to the
Sellers 6,950,300 shares of "restricted" Common Stock of the Buyer as that term
is defined in Rule 144 of the Securities Act of 1933, as amended. All Eagle
stock certificates issued to MAM shareholders shall contain a legend
substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES ACT AND MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE STATE SECURITIES ACTS; OR (B) EAGLE HIGH
ENTERPRISES, INC. HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL
ACCEPTABLE TO EAGLE TO THE EFFECT THAT NO REGISTRATION IS LEGALLY
REQUIRED FOR SUCH TRANSFER; OR (C) THESE SECURITIES ARE SOLD IN
COMPLIANCE WITH RULE 144 PROMULGATED UNDER THE ACT.
1.03 Closing. The Closing of the transactions provided for in
Section 1.04 and 1.05 shall take place within 10 days of the date of the Eagle
shareholder's meeting called in connection with this transaction.
(a) As a condition of the closing the Buyer will provide to
Seller or Seller's counsel all corporate records of the Buyer including but not
limited to stock records, minutes and minute book, articles of incorporation,
by-laws, offering documents, legal opinions and financial reports for review by
Seller's counsel. Closing shall be subject to the opinion of Seller's counsel
that Seller's corporate records are in satisfactory condition or may be waived
by the parties.
(b) In addition to all other material to be provided at the
Closing the Buyer will provide to Seller an opinion of counsel that the shares
of Seller delivered at the Closing have been duly authorized, are validly
issued and all corporate actions required to be done have been done in
accordance with law. The form of the opinion shall be satisfactory to counsel
of Seller.
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<PAGE> 2
1.04 Delivery by the Sellers. At the Closing, the Sellers are
delivering to the Buyer: (i) certificates representing the Shares, endorsed in
blank and otherwise in form acceptable for transfer on the books of MAM, with
all necessary transfer tax stamps attached.
1.05 Delivery by the Buyer. At the Closing the Buyer is delivering to
the Sellers, stock certificates in the denominations set forth in "Exhibit B."
2. RELATED TRANSACTIONS
2.01 Expenses of the Transactions. The Sellers shall be responsible for
paying all expenses of this transaction, including but not limited to filing
fees, legal fees, accounting fees, escrow agent fees, printing expenses,
certificate engraving fees and transfer fees.
2.02 No Dissent. The Sellers shall not dissent with respect to this
transaction.
2.03 Resignation. At the Closing, all of the current directors and
officers of Buyer shall deliver their resignations. John Regan, Mike Zaic and
Dennis Calvert will be elected to the Board of Directors of Eagle High
Enterprises, Inc.
3. REPRESENTATIONS AND WARRANTIES BY THE BUYER
The Buyer hereby represents and warrants as follows:
3.01 Organization, Capitalization, etc.
(a) The Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Delaware,
and is qualified in no other state.
(b) The capitalization of Eagle is comprised of one class
of stock which is designated common stock which consists of 50,000,000
shares of common stock $.001 par value of which 8,090,000 shares are
issued and outstanding. All outstanding shares have been duly authorized,
validly issued and fully paid. There are no other outstanding or presently
authorized securities, warrants or options or related commitments of any
nature not disclosed herein or contemplated hereby. All of the
outstanding shares are non-assessable and free of cumulative voting or
preemptive rights. Two million of the 8,090,000 shares of Eagle issued
and outstanding shall be contributed to the Company by its president and
cancelled at no cost to the Company. Subsequent to the cancellation of
such shares, there shall be 6,090,000 shares of Eagle issued and
outstanding. Eagle shall effect a 1-for-3.5 reverse split of its issued
and outstanding shares prior to the date of closing and there shall not be
more than 1,740,000 shares of Eagle issued and outstanding immediately
prior to the time of closing.
(c) The Buyer has the corporate power and authority to carry
on its business as presently conducted.
3.02 Non Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
constitute a violation or default under any term or provision of the Certificate
of Incorporation or bylaws of the Buyer, or of any contract, commitment,
indenture, other agreement or restriction of any kind or character to which the
Buyer is a party or by which the Buyer is bound.
3.03 Financial Statement. The Buyer has delivered to the Seller the
balance sheet of the Buyer as at December 31, 1993 prepared by David T. Thomson,
P.C. The balance sheet is true and correct and
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<PAGE> 3
a fair and accurate presentation of the financial condition, assets and
liabilities (whether accrued, absolute, contingent, or otherwise) of the Buyer
as of the date thereof in accordance with generally accepted principals of
accounting applied on a consistent basis.
3.04 Tax Returns. The Buyer has duly filed all tax reports and
returns required to be filed by it and has fully paid all taxes and other
charges claimed to be due from it by federal, state, or local taxing
authorities (including without limitation those due in respect of its
properties, income, franchises, licenses, sales, and payrolls): there are not
liens upon any of the Buyer's property or assets: there are not now any
pending questions relating to, or claims asserted for, taxes or assessments
asserted against the Buyer.
3.05 Title to Properties: Encumbrances. The Buyer has good and
marketable title to all of its properties and assets, real and personal,
tangible and intangible, including without limitation the properties and assets
reflected in the December 31, 1993 balance sheet of the Buyer. All such
properties and assets reflected in that balance sheet have fair market or
realizable value at least equal to the value thereof as reflected upon the
balance sheet, and they are subject to no mortgage, pledge, lien, conditional
sale agreement, encumbrance, or charge of whatsoever nature.
3.06 Accounts Receivable. All accounts receivable of the Buyer,
whether reflect in the Buyer's December 31, 1993 balance sheet or otherwise,
represent sales actually made in the ordinary course of business and reserve
for uncollectability of receivables as reflected in the aforesaid balance sheet
is adequate and was calculated in a way consistent with past practice. Except
to extent set forth herein, there are not now any questions, controversies, or
disputes relating to any account receivable of the Buyer.
3.07 Undisclosed Liabilities. Except to the extent reflected or
reserved against in the December 31, 1993 balance sheet of the Buyer or as
disclosed in any Schedule attached hereto, the Buyer has no liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise
and whether due or to become due. The Buyer has no accounts payable except as
set forth on the Schedules attached hereto.
3.08 Absence of Certain Changes. The Buyer has not since December
31, 1993:
(a) Suffered any material adverse change in financial condition,
assets, liabilities, or business;
(b) Incurred any obligation or liability (whether absolute,
accrued, contingent, or otherwise) other than in the ordinary
course of business and consistent with past practice;
(c) Paid any claim or discharged or satisfied any lien or
encumbrance or paid or satisfied any liability (whether
absolute, accrued, contingent, or otherwise) other than
liabilities shown or reflected in the Buyer's December 31, 1993
balance sheet or liabilities incurred since December 31, 1993,
in the ordinary course of business and consistent with past
practices;
(d) Permitted or allowed any of its assets, tangible or intangible,
to be mortgaged, pledged, or subjected to any liens or
encumbrances;
(e) Written down the value of any inventory or written-off as
uncollectible any notes or accounts receivable or any portion
thereof, except for write-offs of such items in the ordinary
course of business;
(f) Canceled any other debts or claims or waived any rights of
substantial value, or sold or transferred any of its assets or
properties, tangible or intangible, other than sales of
inventory or merchandise made in the ordinary course of
business and consistent with past practice;
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<PAGE> 4
(g) Made any capital expenditures or commitments in excess of $7,500
for additions to property, plant or equipment;
(h) Declared, paid or set aside for payment to its stockholders any
dividend or other distribution in respect of its capital stock or
redeemed or purchased or otherwise acquired any of its capital
stock or any options relating thereto or agreed to take any such
action;
(i) Made any material change in any method of accounting or accounting
practice.
3.09 Litigation. There are no actions, claims, proceedings, or
investigations pending or, to the knowledge of the Buyer, threatened against
the Buyer, and the Buyer knows or has any reason to know of any basis for any
such action, proceeding, or investigation. There is no event or condition of
any kind or character pertaining to the business, assets, or prospects of the
buyer that may materially and adversely affect such business, assets or
prospects.
3.10 Disclosure. To the best of its knowledge the Buyer has disclosed
to the Sellers all facts material to the assets, prospects, and business of the
Buyer. No representation or warranty by the Buyer contained in this Agreement,
and no statement contained in any instrument, list, certificate, or writing
furnished to the Sellers pursuant to the provisions hereof or in connection
with the transaction contemplated hereby, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading or necessary in order to
provide a prospective purchaser of the business of the Buyer with proper
information as to the buyer and its affairs.
3.11 SEC Filings. The Buyer has no outstanding obligations to file
reports with the United States Securities and Exchange Commission (hereinafter
the "SEC"), however, after the date of this agreement, should the Buyer be
required to file any reports with the SEC, MAM agrees to assume and pay all
costs and expenses incurred in connection therewith, including but not limited
to legal and accounting fees.
3.12 Legend. The Certificates representing the Shares delivered
pursuant to this Agreement shall bear a legend in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 (the "Act"), as amended, or any other
applicable federal or state securities acts; and are 'restricted
securities' as defined by Rule 144 of the Act. The shares may not be
transferred, sold or otherwise disposed of unless: (1) a registration
statement with respect to the shares shall be effective under the act
or any other federal or state securities acts and (2) Buyer shall have
received an opinion of counsel for Buyer, that no violations of any
securities acts will be involved in any transfer."
4. REPRESENTATIONS AND WARRANTIES BY THE SELLERS AND MAM
The Sellers and MAM hereby represents and warrants as follows:
4.01 Organization. MAM is a corporation duly organized, validly
existing and in good standing in the laws of the State of Delaware and has all
other requisite licenses, qualifications, corporate power and authority to own,
lease and operate its assets and to carry on its business as now being
conducted and is in good standing and duly qualified to do business in each
state and jurisdiction where the failure to qualify would have a material
affect on the business or property of MAM. MAM has authorized capital stock of
20,000,000 shares of Common Stock divided into Class A and Class B, par value
$0.0001, 10,000,000 shares of Preferred Stock, par value $0.0001 with 1,553,330
shares of Common Stock issued and outstanding, and 1,166,956 shares of
Preferred Stock issued and outstanding.
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<PAGE> 5
4.02 Authority. The execution and delivery of this Agreement by the
Sellers has been duly approved by all of the Class A Common shareholders of MAM
who are parties hereto. Said parties have the ability to enter into this
Agreement on their own behalf. Sellers are the owners of all of the issued and
outstanding shares of Class A Common stock of MAM (the "MAM Shares"). The MAM
Shares are free from claims, liens or other encumbrances and subject to
compliance with applicable Securities law, sellers have the unqualified right
to sell, transfer and dispose of the MAM Shares. Sellers represent and warrant
that in regard to their MAM Shares, they have the full right and authority to
execute this Agreement and to transfer their MAM Shares to Eagle.
4.03 No Violation. Neither the execution nor the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
constitute a violation or default under any term or provision of the
certificate of incorporation or bylaws of the MAM, or of any contact,
commitment, indenture, or other agreement or restriction of any kind or
character to which the MAM is a party or by which the Seller's are bound.
4.04 Representations Regarding the Acquisition of the Shares.
Seller jointly and severally represents and warrants to Buyer as follows:
(a) The undersigned, MAM and Sellers understand that the
BUYERS SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION;
(b) The Sellers are not underwriters and are acquiring the
Buyer's Shares solely for investment for his or her own
account and not with a view to, or for, resale in
connection with any distribution with in the meaning of
the federal securities act, the state securities acts or
any other applicable state securities acts;
(c) The Sellers understand the speculative nature and risks
of investments associated with the Buyer and confirm
that the Shares are suitable and consistent with his or
her investment program and that his or her financial
position enables him or her to bear the risks of this
investment; and that there may not be any public market
for the Shares subscribed for herein;
(d) The Shares subscribed for herein may not be transferred,
encumbered, sold, hypothecated, or otherwise disposed of
to any person, without the express prior written consent
of the Buyer and the prior opinion of counsel for the
Buyer that such disposition will not violate federal
and/or state securities acts. Disposition shall include,
but is not limited to acts of selling, assigning,
transferring, pledging, encumbering, hypothecating,
gibing, and any form of conveying, whether voluntary or
not;
(e) To the extent that any federal, and/or state securities
laws shall require, the Sellers hereby agree that any
Shares acquired pursuant to this Agreement shall be
without preference as to assets;
(f) The Buyer is under no obligation to register or seek an
exemption under any federal and/or state securities acts
for any stock of the Buyer or to cause or permit such
stock to be transferred in the absence of any such
registration or exemption and that the Sellers herein
must hold such stock indefinitely unless such stock is
subsequently registered under any federal and/or state
securities acts or any exemption from registration is
available;
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<PAGE> 6
(g) The Sellers have had the opportunity to ask questions of the
Buyer and receive additional information from the Buyer to the
extent that the Buyer possessed such information, or could
acquire it without unreasonable effort or expense necessary to
evaluate the merits and risks of any investment in the Buyer.
Further, the Sellers have been given: (1) All material books
and records of the Buyer; (2) all material contracts and
documents relating to the proposed transactions; and, (3) an
opportunity to question the Buyer and the appropriate
executive officers;
(h) The Sellers have satisfied the suitability standards imposed
by their respective state securities laws. The Shares being
acquired from the Buyer have not been registered under federal
or state securities laws. The Sellers acknowledges that the
Buyer has not have complied with any state securities laws in
seeking an exemption from the transactions contemplated by
this Agreement;
(i) Seller has the right, power, legal capacity and authority to
enter into, and perform their obligations under this
Agreement, and no approvals or consents of any persons other
than Seller is necessary or required.
4.05 Financial Statement. MAM has delivered to the Buyer audited
financial statements of MAM for the years ended December 31, 1992 and December
31, 1993. MAM represents the balance sheet and income statements are true and
correct and a fair and accurate presentation or the financial condition and
assets and liabilities (whether accrued, absolute, contingent, or otherwise) of
MAM as of the date thereof in accordance with generally accepted principals of
accounting applied on a consistent basis, and such financial statements and
accounting information have not misstated or otherwise misrepresented the
financial condition of MAM.
4.06 Tax Returns. MAM has duly filed all tax reports and returns
acquired to be filed by it and has fully paid all taxes and other charges
claimed to be due from it by federal, state, or local taxing authorities
(including without limitation those due in respect of its properties, income,
franchises, licenses, sales, and payrolls); there are no liens upon any of
MAM's property or assets; there are not any pending questions relating to, or
claims asserted for, taxes or assessments asserted against MAM. MAM has not
filed corporate tax returns for 1991 or 1992. MAM is in the process of
preparing these returns. MAM has no tax liability for these tax years as a
result of (a) net operating loss carry forwards, and (b) no recorded profits on
a tax basis. Since the date of the MAM Balance Sheet, MAM has not incurred any
tax liabilities other than in the ordinary course of business. MAM shall remain
liable for the filing of all tax returns and reports and for the payment of all
federal, state and local taxes of Seller relating to the Sellers business for
any period ending on or prior to the Closing Date and Seller shall remain so
liable for the payment of all of his taxes attributable to or relating to the
consummation of the transactions contemplated herein, and shall indemnify,
defend and hold Buyer harmless from and against all liability in connection
therewith. In addition there are payroll tax liabilities as reserved on this
balance sheet being paid per agreements with the respective taxing authorities.
4.07 Title to Properties: Encumbrances. MAM has good and marketable
title to all of its properties and assets, real and personal, tangible and
intangible, including without limitation the properties and assets reflected in
the audited December 31, 1993 balance sheet of MAM or acquired thereafter. All
such properties and assets reflected in that audited balance sheet have a fair
market or realizable value at least equal to the value thereof as reflected upon
the balance sheet, and they are subject to no mortgage, pledge, lien,
conditional sale agreement, encumbrance, or charge of whatsoever nature, except
as shown in said audited statement.
4.08 Accounts Receivable. All accounts receivable of MAM, whether
reflected in MAM's December 31, 1993 balance sheet or otherwise, represent
sales actually made in the ordinary course of
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<PAGE> 7
business and the reserve for uncollectability of receivables as reflected in
the aforesaid balance sheet is adequate and was calculated in a way consistent
with past practice. Except to the extent set forth herein, there are not now
any questions, controversies, or disputes relating to any accounts receivable
of MAM.
4.09 Undisclosed Liabilities. MAM is not subject to any liability
of any kind whatsoever (whether accrued, absolute, contingent or otherwise)
that are individually or in the aggregate material to MAM taken as a whole
other than: (a) liabilities disclosed or provided for in the MAM financial
statements, (b) liabilities incurred in the ordinary course of business since
the date of MAM's financial statement consistent with past practice.
4.10 Absence of Certain. MAM has not since the date of its last
Balance Sheet:
(a) Suffered any material adverse change in financial condition,
assets, liabilities, business, or prospects;
(b) incurred any obligation or liability (whether absolute,
accrued, contingent, or otherwise) other than in the ordinary
course of business and consistent with past practice;
(c) Paid any claim or discharged or satisfied any lien or
encumbrances or paid or satisfied any liability (whether
absolute, accrued, contingent, or otherwise) other than
liabilities shown or reflected in MAM's December 31, 1993
balance sheet or liabilities incurred since December 31, 1993,
in the ordinary course of business and consistent with past
practices;
(d) Permitted or allowed any of its assets, tangible or
intangible, to be mortgaged, pledged, or subjected to any
liens or encumbrances;
(e) Written down the value of any inventory or written-off as
uncollectible any notes or accounts receivable or any portion
thereof, except for write-offs of such items in the ordinary
course of business;
(f) Canceled any other debts or claims or waived any rights of
substantial value, or sold or transferred any of its assets or
properties, tangible or intangible, other than sales of
inventory or merchandise made in the ordinary course of
business and consistent with past practice;
(g) Made any capital expenditures or commitments in excess of
$25,000 for additions to property, plant or equipment;
(h) Declared, paid, or set aside for payment to its stockholders
any dividend or other distribution in respect of its capital
stock or any options relating thereto or agreed to take any
such options relating thereto or agreed to take any such
action;
(i) Made any material change in any method of accounting or
accounting practice.
4.11 Litigation. MAM is a defendant and a cross complainant in a
suit for damages by a collection client, HARCO Management, Inc., Los Angeles
Superior Court Case No. LC 023280. In Orange County, California Superior
Court, Case No. 712544, an action for rent by the landlord of a former company
office resulted in an unentered judgement against MAM.
No claim, investigation, proceeding or litigation shall be pending or
threatened against Seller for the purpose of enjoining or preventing the
consummation of the transaction contemplated by this Agreement or otherwise
claiming that this Agreement or such transactions are improper, or which might
adversely affect
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<PAGE> 8
the right of Seller to own and use the medical practice management assets; and
there shall not have been enacted or proposed by any governmental body or agency
any law or regulation that may or will adversely affect the medical practice
management assets or the business operation of the Seller.
4.12 No Employee Benefit Plans. MAM has no stock option plans,
pension plans, profit sharing plans or employee benefit plans of any type or
kind.
4.13 Disclosure. MAM has disclosed to the Buyer all facts material
to the assets, prospects, and business of MAM. No representation or warranty
by the MAM contained in this agreement, and no statement contained in any
instrument, list, certificate, or writing furnished to the MAM pursuant to the
provisions hereof or in connection with the transaction contemplated hereby,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading or necessary in order to provide a prospective purchaser of the
business of MAM with proper information as to MAM and its affairs.
5. CONDITIONS OF MAM AND SELLERS
The obligations of MAM and Sellers to consummate the Acquisition is
subject to the fulfillment by Eagle, prior to or as of the Effective Time, of
each of the following considerations, any of which may, at the sole option of
MAM or Sellers, be waived:
5.01 Representations. The representations and warranties by or on
behalf of Eagle contained in this Agreement or in any certificate or documents
delivered to MAM pursuant to the provisions hereof shall be true in all
material respects at the Effective Time as though such representations and
warranties were made at and as of such time.
5.02 Compliance. Eagle shall have performed and complied with all
covenants, agreements, and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing at the Effective
Time.
5.03 No Material Adverse Change. Except for costs related to this
Acquisition, there shall not have occurred (i) any material adverse change since
December 31, 1993 in the business, properties, results of operations or
financial condition of Eagle; or (ii) any loss or damage to any of the
properties or of assets of Eagle which will materially affect or impair its
ability to conduct after the Merger the business now being conducted by it.
5.04 Eagle Shareholders' Meeting. As a condition to the Closing of
the Acquisition, Eagle shall obtain its shareholders' approval of the following
proposals:
(a) the adoption and approval of the Stock Exchange Agreement;
(b) the election of John W. Regan, Michael Allen Zaic and Dennis P.
Calvert as directors of Eagle;
(c) A 1-for-3.5 reverse split of Eagle's outstanding common stock;
(d) a change of Eagle's name to Medical Asset Management, Inc. and
(e) a modification of the authorized capital of Eagle as agreed to
by the parties.
5.05 Absence of Litigation. There shall not be any litigation,
proceeding or governmental investigation pending, threatened or reasonably
believed by MAM to be in prospect pertaining to Eagle.
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<PAGE> 9
5.06 Good Standing. Eagle will be in good standing in the State of
Delaware at the Effective Time and each shall deliver a Certificate of Good
Standing to MAM at the Effective Time.
5.07 Appointment Officers. At the Effective Time, Eagle shall
appointment the following as officers:
John W. Regan President
Dennis P. Calvert Senior Vice President, Secretary
Michael Allen Zaic Vice President
6. CONDITIONS OF EAGLE
The obligations of Eagle to consummate the Merger is subject to the
fulfillment by MAM and Sellers, prior to or as of the Effective Time, of each of
the following conditions, any of which may, at the sole option of Eagle, be
waived:
6.01 Representations. The representations and warranties by on behalf
of MAM and Sellers contained in this Agreement or in any certificate or
documents delivered by MAM pursuant to the provisions hereof shall be true in
all material respects at the Effective Time as though such representations and
warranties were made at and as of such time.
60.2 Compliance, MAM and Sellers shall have performed and complied with
all covenants, agreements and conditions required by this Agreement to be
performed or complied with by them prior to or at the Closing at the Effective
Time.
6.03 No Material Adverse Change. There shall not have occurred (i) any
material adverse change since the date of the MAM Financial Statements; or (ii)
any loss or damage to any of the properties of or assets of MAM which will
materially affect or impair its ability to conduct after the Acquisition the
business now being conducted by it.
6.04 Absence of Litigation. There shall not be any litigation,
proceeding or governmental investigation pending, threatened or reasonably
believed by Eagle to be in prospect pertaining to MAM or the Acquisition.
6.05 Good Standing. MAM will be in good standing in the State of
Delaware at the Effective Time and shall deliver a Certificate of Good Standing
to Eagle at the Effective Time.
6.06 Investment Letters. Sellers shall deliver to Eagle a letter
commonly known as an "investment letter" agreeing that the shares of stock in
Eagle are being acquired for investment purposes, and not with a view to public
resale, and that the materials, including current financial statements and other
documents provided to Sellers, have been read and understood by Sellers, that
Sellers are acquiring the Eagle shares under Section 4(2), commonly known as the
private offering exemption of the Securities Act of 1933, and that the shares
are restricted and may not be resold, except in reliance of an exemption under
the Act.
7. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
7.01 Survival of Representations. All representations, warranties, and
agreements made by the Sellers as part of the due diligence inquiries, in this
Agreement, or pursuant hereto shall survive the execution and delivery hereof
and any investigation at any time made by or on behalf of any party.
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<PAGE> 10
7.02 Indemnification by Sellers. Sellers agrees to Indemnify, defend
and hold harmless Buyer from and against any losses, costs, damages and expenses
(including, without limitation, attorneys' fees and costs) incurred by Buyer and
resulting from any breach by Sellers of any of Seller's representations,
warranties and covenants set forth in this Agreement. In furtherance, and not
in limitation, of the foregoing indemnity, Sellers shall indemnify, defend and
hold harmless from and against all claims asserted against, and all losses,
costs, damages and expenses incurred by Buyer arising from either the business
conducted by Sellers at the Premises prior to the Closing, and the violation of
any local, state or federal law relating to hazardous substances or toxic waste
by reason of the presence on or under the Premises of hazardous substances or
toxic waste, which substances or waste were present prior to the Closing,
provided that the presence of such hazardous substances or toxic waste was
caused by the Sellers.
Buyers shall promptly notify Sellers of the existence of any claim,
demand or other matter to which Seller's indemnification obligations would apply
and shall give Sellers reasonable opportunity to defend the same at their own
expense and with counsel of their own selection; provided, that Buyer shall at
all times also have the right to fully participate in the defense at his own
expense. If Sellers shall, within a reasonable time after this notice, fail to
defend, Buyer shall have the right but not the obligation to undertake the
defense of, and to compromise or settle (exercising reasonable business
judgment), the claim or other matter on behalf of Sellers. If the claim is one
that cannot by its nature be defended solely by Sellers, Buyer shall make
available all information and assistance that Sellers may reasonably request.
Any time after the Closing Date, but not later than one (1) year after
the Closing Date, Buyer shall inform Sellers by written notification ("Claim
Notice") of any claim for indemnification under this Section. Sellers shall
have ten (10) days from the date of delivery of the Claim Notice in which to
dispute any such claim. In the event that all or any portion of a claim remains
unresolved twenty (20) days after the date of Seller's Notice after good faith
efforts to resolve the claim, Buyer and Seller shall attempt to resolve such
claim through mediation, and then, if necessary, by arbitration in accordance
with the procedures described in Sections 9.09 and 9.10.
8. CONDUCT PRIOR TO CLOSING
8.01 Conduct of Business. Prior to the Effective Date, MAM and Eagle
shall conduct their business only in the ordinary course consistent with past
practice.
8.02 Additional Covenants by MAM and Sellers. Between the date hereof
and the Effective Time, except in the ordinary course of business or with prior
written consent of Eagle, which consent shall not unreasonably be withheld, MAM
shall not:
(a) make any change in MAM's Certificate of Incorporation or Bylaws:
(b) make any change in the authorized or issued shares of MAM without
the prior approval of Eagle;
(c) make any payment or distribution to its shareholders or purchase
or redeem any shares or capital stock;
(d) mortgage, pledge, or subject to lien or encumbrance any of its
assets, tangible or intangible;
(e) cancel any debts or claims or waive any rights of value;
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<PAGE> 11
(f) incur any indebtedness or guarantees or enter into any
commitment or make any material capital expenditures or
investments; and
(g) make any loan, accrual or arrangement for or payment of bonuses
or special compensation of any kind or any severance or
termination pay to any of its present or former officers or
employees:
(h) make any material change in its method of management,
operation, or accounting; or
(i) except in the ordinary course of business, enter into any other
material transactions;
(j) hire any person as an employee except in the ordinary course of
business;
(k) adopt any profit sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan,
payment, or arrangement made to, for, or with its officers,
directors, or employees.
(l) grant or agree to grant any options, warrants, or other rights
for its stocks, bonds, or other corporate securities calling
for the issuance thereof;
(m) sell or transfer, or agree to sell or transfer, any of its
assets, property, or rights or cancel or agreed to cancel, any
debts or claims; or
(n) make or permit any amendment or termination of any material
contract, agreement or license to which it is a party except
with prior approval of Eagle.
8.03 Additional Covenants by Eagle. Between the date hereof and the
Effective Time, except as contemplated in this Agreement, arising in the
ordinary course of business or with prior written consent of MAM, which consent
shall not be unreasonably withheld, Eagle shall not;
(a) make any change is Eagle's Certificate of Incorporation or
Bylaws;
(b) make any change in the authorized or issued shares of Eagle;
(c) make any payment or distribution to its shareholders or
purchase or redeem any shares or capital stock;
(d) mortgage, pledge, or subject to lien or encumbrance any of its
assets, tangible or intangible;
(e) cancel any debts or claims or waive any rights of value;
(f) incur any indebtedness or guarantees or enter into any
commitment or make any material capital expenditures or
investments; and
(g) make any loan, accrual or arrangement for or payment of bonuses
or special compensation of any kind or any severance or
termination pay to any of its present or former officers or
employees;
(h) make any material change in its method of management, operation,
or accounting; or
(i) except in the ordinary course of business, enter into any other
material transactions;
Page 11 of 15
<PAGE> 12
(j) hire any person as an employee except in the ordinary course of
business;
(k) adopt any profit sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan,
payment, or arrangement made to, for or with its officers,
directors, or employees.
(l) grant or agree to grant any options, warrants, or other rights
for its stocks, bonds, or other corporate securities calling
for the issuance thereof;
(m) sell or transfer, or agree to sell or transfer, any of its
assets, property, or rights or cancel or agreed to cancel, any
debts or claims; or
(n) make or permit any amendment or termination of any material
contract, agreement or license to which it is a party except
with prior approval of MAM.
8.04 Access. MAM shall give access to Eagle (and its auditors,
counsel and other authorized representatives), and Eagle agrees to give access
to MAM (and its auditors, counsel and other authorized representatives) to each
of their premises and books and records, including minute books and stock
transfer records, and all contracts, agreements and documents whether or not
listed, herein; provided, however, that any such investigation shall not affect
any of the representations and warranties hereunder or the right of any party
hereto to rely thereon; and provided further, than any such investigation shall
be conducted in such a manner as not to interfere unreasonably with the
operation of the business of MAM and Eagle. MAM and Eagle agree to use all
reasonable efforts to keep confidential any information obtained pursuant to
their respective inspections under this Agreement unless (i) such information
is ascertainable from public sources or is or becomes public other than through
the inspecting party or its representatives, or (ii) disclosure of such
information is required by applicable securities or other laws. Moreover, in
the event of the termination of this Agreement, MAM and Eagle agree that it
will not disclose, utilize or exploit to its advantage any information obtained
from the other pursuant to its examinations under this Agreement, unless
necessary to comply with applicable law or to enforce its rights hereunder.
8.05 Compliance with Blue Sky Law. The parties shall jointly take
such action, make such filings and pay such filing fees as may be reasonably
necessary to comply with all applicable federal and state blue sky laws, rules
and regulations relating to the issuance of securities in the Conversion. Such
filings shall include, but are not limited to the filing of a Form D with the
Securities and Exchange Commission and the filing of appropriate State Blue Sky
documents.
9. COOPERATION, ARBITRATION, INTERPRETATION, MODIFICATION,
ATTORNEY FEES AND MISCELLANEOUS PROVISIONS
9.01 Cooperation of Parties: The parties further agree that they
will do all that is required and necessary to accomplish and facilitate the
purposes of this Agreement and that they will sign and execute any and all
documents necessary to bring about and perfect the purposes of this Agreement.
9.02 Interpretations of Agreement: The parties hereto agree that
should any provision of this Agreement be found to be ambiguous in any way, such
ambiguity shall not be resolved by construing such provisions or any part of or
the entire Agreement in favor of or against any party herein, but rather by
construing the terms of this Agreement fairly and reasonably in accordance with
their generally accepted meaning.
9.03 No Presumption Against Drafting Party: This Agreement and the
provisions contained herein shall not be construed or interpreted for or
against any party hereto because said party drafted or caused the party's legal
representative to draft any of its provisions.
Page 12 of 15
<PAGE> 13
9.04 Amendments Modifications and Waivers: No amendment, modification
or waiver of any provision of this Agreement shall in any event be effective
unless the same shall be in writing and signed by the parties hereto. No
failure or delay on the part of any party in exercising any power, right
privilege or remedy under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy
constitute a waiver of any other or further exercise of any right, power or
remedy. Any waiver of any provision of this Agreement, and any consent to any
departure by any of the parties from the terms of any provision of this
Agreement, shall be effective only in the specific instance and for the
specific purpose for which given.
9.05 Severability of Provisions: This Agreement shall be performed
and shall be enforceable to the full extent allowable by applicable law. In
the event that any provision to this Agreement is declared by a court of
competent jurisdiction to be illegal, invalid, or unenforceable that provision
will be served from the Agreement and the Agreement shall be read as if it did
not contain said provision. Any such provision and its severance shall not
affect the legality, validity, applicability, enforceability or effect of the
remaining provisions of this Agreement.
9.06 Assignments: None of the parties rights, duties or obligation
under this Agreement are assignable by any of the parties hereto without the
prior written consent of the other party and any attempted assignment without
prior written consent shall be null and void.
9.07 Entire Agreement: This Agreement constitutes the entire Agreement
and understanding of the parties hereto with respect to the matters herein set
forth, and all prior negotiations, writings and understandings relating to the
subject matter of this Agreement are merged herein and are superseded and
canceled by this Agreement, except for the survival of warranties and
representations expressly provided for in Section 7.01. In executing this
Agreement, the parties have not and do not rely on any statements, inducements,
promises, or representations made by the other party or their agents,
representatives or attorneys with regard to the subject matter, basis, or effect
of this Agreement, except for those specifically provided for in Section 7.01.
The parties acknowledge that the terms of this Agreement are contractual and
provided for in Section 7.01. The parties acknowledge that the terms of this
Agreement are contractual and not a mere recital. Each party hereto further
certifies that it is fully familiar with the provisions of this Agreement.
9.08 Successors: This Agreement shall be binding upon and shall inure
to the benefit of the respective parties thereto, their parent corporations,
subsidiaries and legal representatives.
9.09 Governing Law: This Agreement shall be governed by and construed
and enforced in accordance with the laws then prevailing in California, without
regard to its conflict-of-laws rules.
9.10 Arbitration, Legal Proceedings and Venue: The parties will
attempt through good faith negotiation to resolve their disputes. The term
"disputes" includes, without limitation, any disagreements between the parties
concerning the existence, formation and interpretation of this Agreement and
their obligation thereunder. If the parties hereto are unable to resolve their
disputes by negotiation, they shall attempt to resolve their disputes through
a mutually acceptable mediator. If the parties can not agree on a mediator or
if mediation proves unsuccessful, then either party may commence a legal action
in the Superior Court of California or U.S. District Court for the Central
District of California.
9.11 Attorney Fees: If any legal action or any arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of the Agreement, the successful or prevailing party shall be
entitled to recover reasonable attorney's fees and other costs incurred in that
action or proceeding, in addition to any other relief to which it may be
entitled.
Page 13 of 15
<PAGE> 14
9.12 Remedies Cumulative: Except as otherwise expressly set forth in
this Agreement, the rights and remedies herein provided are cumulative and are
not exclusive of any rights or remedies that any party may otherwise have at
law or in equity.
9.13 Headings: The section and paragraph headings contained in this
Agreement are for reference and convenience only. They do not form a part
hereof, and do not in any way codify, interpret, or reflect the intent of the
parties. Said headings shall not be used to construe or interpret any
provision of this Agreement.
9.14 Notices. All notices, requests, demands, and other communications
hereunder shall in writing and shall be deemed to have been duly given if
delivered mailed (registered or certified mail, postage prepaid, return receipt
requested) as follows:
If to the Buyer: Eagle High Enterprises, Inc.
% Wilkins, Oritt & Headman, L.C.
111 East Broadway, Suite 1650
Salt Lake City, UT 84111
Attn: Bud Headman
If to the Sellers: Medical Asset Management
123 North Centennial Way
Suite 106
Mesa, Arizona 85201
Attn: John Regan
9.15 Gender and Number: In this Agreement where the context so
requires, the masculine, feminine or neuter gender shall be deemed to include
each other, and the singular to include the plural.
9.16 Counterparts: This Agreement may be signed in one or more
counterparts.
9.17 Facsimile Transmission Signature: A signature received pursuant
to a facsimile transmission shall be sufficient to bind a party to this
Agreement.
9.18 Bank Account. Buyer agrees to transfer the assets in the
corporation including but not limited to a minimum of fifteen thousand dollars
($15,000) to a bank account of MAM at closing.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year fist indicated below and this Agreement is effective as of
______, 1994.
Medical Assets Management, Inc.
Dated: May 10, 1994 By: /s/ John W. Regan
-------------- ------------------------------
John W. Regan, President
Dated: May 10, 1994 /s/ John W. Regan
-------------- ------------------------------
John W. Regan, an Individual
Representing the Class A
Common shareholders of
Medical Asset Management, Inc.
Eagle High Enterprises, Inc.
Dated: May 10, 1994 By: /s/ Craig L. Niebuhr
-------------- -------------------------------
Craig L. Niebuhr, President
Page 15 of 15
<PAGE> 1
EXHIBIT 8.2
AGREEMENT
By and Between
HEALTHCARE PROFESSIONAL MANAGEMENT, INC.
and
MEDICAL ASSET MANAGEMENT, INC.
December 29, 1995
<PAGE> 2
DRAFT 12/29/95
AGREEMENT
THIS AGREEMENT, made this 29th day of December, 1995, by and between
Medical Asset Management, Inc., a Delaware corporation ("MAM"), and Healthcare
Professional Management, Inc., a Pennsylvania corporation ("HPM").
WITNESSETH:
WHEREAS, the parties intend that, subject to the terms and conditions
of this Agreement, a Pennsylvania corporation to be formed on the date hereof
by MAM that is a wholly-owned subsidiary of MAM ("HPM Acquisition Corporation")
shall be merged with and into HPM in a statutory merger (the "Merger"), with
HPM to be the surviving corporation of the Merger, all pursuant to the terms
and conditions of this Agreement and applicable law;
WHEREAS, the Merger is intended to be a tax-free plan of reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and is intended by the parties to qualify for "pooling of interests"
accounting treatment; and
WHEREAS, upon the effectiveness of the Merger, all the capital stock of
HPM outstanding immediately prior thereto shall be converted into shares of the
Common stock of MAM plus cash for eliminated fractional shares;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements set forth in this Agreement and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and intending to be legally bound hereby, the parties hereto agree
as follows:
1. Plan of Reorganization
----------------------
1.1 The Merger of HPM Acquisition Corporation into HPM.
---------------------------------------------------
Subject to the terms and upon the conditions set forth herein, on or
prior to the Closing Date (as defined in Article 2 hereof), HPM shall, and MAM
shall cause HPM Acquisition Corporation to, execute and deliver the Plan of
Merger substantially in the form of Exhibit A attached hereto. Additionally, on
the Closing Date, HPM and HPM Acquisition Corporation shall cause Articles of
Merger to be executed and filed with the Secretary of the Commonwealth of
Pennsylvania substantially in the form attached as Schedule I to the Plan of
Merger (the "Articles of Merger").
1.2 Effective Time and Effective Date.
----------------------------------
The effective date of the merger of HPM Acquisition Corporation with
and into HPM (the "Merger") shall be the date upon which the Articles of Merger
are filed with the Secretary of
<PAGE> 3
the Commonwealth of Pennsylvania, as provided in the Plan of Merger (the
"Effective Date"), and the effective time of the Merger shall be the time at
which the Articles are filed with the Secretary of the Commonwealth of
Pennsylvania (the "Effective Time"). At the Effective Time, HPM Acquisition
Corporation will be merged with and into HPM in accordance with the Plan of
Merger, with HPM as the surviving corporation, and the separate existence of
HPM Acquisition Corporation shall cease.
1.3 Conversion of Capital Stock.
----------------------------
(a) At the Effective Time on the Effective Date, the capital stock of
HPM and the capital stock of HPM Acquisition Corporation outstanding
immediately prior thereto shall be canceled or converted, as the case may be,
by virtue of the Merger and without the need for any actin on the part of any
holder of any of the shares described below, as follows: at the Effective Time,
each of the 400 shares of common stock, par value $1.00 per share of HPM ("HPM
Common Stock") issued and outstanding immediately prior thereto shall be
converted into 1,083.33 shares of common stock of MAM, $.0001 par value, ("MAM
Common Stock") and each share of HPM Common Stock issued and held in the
treasury of HPM shall be canceled and retired; and at the Effective Time, each
share of common stock, par value $.01 per share, of HPM Acquisition Corporation
("HPM Acquisition Corporation Common Stock") issued and outstanding immediately
prior thereto shall be converted into one share of common stock, par value
$1.00 per share, of HPM, the surviving corporation, and each share of HPM
Acquisition Corporation Common Stock issued and held in the treasury of HPM
Acquisition Corporation shall be canceled and retired.
(b) The MAM Common Stock issued in connection with the Merger has not
been registered under the Securities Act of 1933 or any state securities laws
and therefore may not be sold or otherwise transferred except in compliance
with the registration provisions of such securities laws or pursuant to an
exemption therefrom.
1.4 Fractional Shares.
------------------
No fractional shares of MAM Common Stock shall be issued in connection
with the Merger. In lieu thereof, each holder of HPM Stock who would otherwise
be entitled to receive a fraction of a share of MAM Common Stock, after
aggregating all shares of MAM Common Stock to be received by such holder, shall
instead receive from MAM, within twenty (20) business days after the Effective
Time, an amount of cash equal to the $3.00 multiplied by the fraction of a
shares of MAM Common Stock to which such holder would otherwise be entitled.
1.5 Tax Free Reorganization.
------------------------
The parties intend to adopt this Agreement as a tax-free plan of
reorganization and to consummate the Merger as a reverse triangular merger in
accordance with the provisions of Section 368(a)(1)(A) by virtue of the
provisions of Section 368(a)(2)(E) of the Code. The MAM Common Stock issued in
the Merger shall be issued solely in exchange for HPM Stock, and no other
transaction other than the Merger represents, provides for or is intended to be
an adjustment to, the consideration paid for HPM Stock. Except for cash paid in
lieu of fractional shares, and
-2-
<PAGE> 4
cash paid for dissenting shares, if any, no consideration that could constitute
"other property" within the meaning of Section 356(b) of the Code is being paid
by MAM for HPM Stock in the Merger. The parties shall not take a position on
any tax returns inconsistent with this Section 1.5. In addition, MAM represents
as of the date of this Agreement, and as of the Closing Date, that it presently
intends to continue HPM's historic business or use a significant portion of
HPM's business assets in a business. Neither MAM nor HPM shall intentionally
take or cause to be taken action which would disqualify the Merger as a
reorganization within the meaning of Section 368(a)(1)(A) by virtue of the
provisions of Section 368(a)(2)(E) of the Code.
1.6 Pooling of Interests.
---------------------
The parties intend that the Merger be treated as a "pooling of
interests" for accounting purposes.
2. Closing, Closing Date and Conversion of Capital Stock
-----------------------------------------------------
2.1 The Closing and Closing Date.
-----------------------------
The closing of the transactions contemplated hereby (the "Closing")
shall take place at the offices of Buchanan Ingersoll Professional Corporation,
One Oxford Centre, 301 Grant Street, 20th Floor, Pittsburgh, PA 15219, at 10:00
a.m. local time on December 29, 1995. The date of the Closing is hereinafter
referred to as the "Closing Date."
2.2 Further Assurances.
-------------------
HPM agrees that if, at any time after the Effective Time, MAM considers
or is advised that any further deeds, assignments or assurances are reasonably
necessary or desirable to be obtained from HPM or its officers or directors, to
consummate the Merger or to carry out the purposes of this Agreement at or
after the Effective Time, then MAM, HPM and their respective officers and
directors may execute and deliver all such proper deeds, assignments and
assurances and do all other things necessary or desirable to consummate the
Merger and to carry out the purposes of this Agreement, in the name of HPM or
otherwise.
3. Representations and Warranties of HPM
-------------------------------------
HPM represents and warrants to MAM and covenants and agrees with MAM
as follows:
3.1 Organization, Qualification and Status.
---------------------------------------
HPM is a corporation duly incorporated and organized, validly existing
and in good standing under the laws of the Commonwealth of Pennsylvania. HPM
has full corporate power and authority to own, lease and use its properties and
to carry on its business as presently conducted. HPM is duly qualified or
licensed to do business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified could reasonably be
expected to have a material adverse effect on its operations or financial
condition.
-3-
<PAGE> 5
3.2 Capitalization.
---------------
The authorized capital stock of HPM consists of 10,000 shares of common
stock, $1.00 par value per share, of which 400 shares are issued and
outstanding (the "Shares") and held beneficially and of record by the HPM
Shareholders listed on Schedule 3.2 hereto (the "HPM Shareholders"), and no
shares are held in the treasury of HPM. All of said issued and outstanding
Shares of the common stock are validly issued, fully paid and non-assessable
and none of such shares has been issued in violation of any preemptive rights
of shareholders or transferred in violation of any transfer restrictions
relating thereto. There are no authorized or outstanding options, warrants,
convertible securities, subscription rights, puts, calls, unsatisfied
pre-emptive rights or other rights of any nature to purchase or otherwise
receive, or to require HPM to purchase, redeem or acquire, any shares of the
capital stock or other securities of HPM and there is no outstanding security
of any kind convertible into such capital stock. Except as disclosed on
Schedule 3.2 hereto, there are no existing shareholder agreements, voting
agreements or voting trusts respecting any shares of the capital stock of HPM.
3.3 Ownership of Shares.
--------------------
The HPM Shareholders listed on Schedule 3.2 hereto own and hold,
beneficially and of record, the entire right, title and interest in and to the
number of Shares set forth opposite their names, free and clear of any claim,
suit, proceeding, call, commitment, voting trust, proxy, restriction,
limitation, security interest, pledge or lien or encumbrance of any kind or
nature whatsoever, and have full power and authority to vote said Shares and to
approve the transactions contemplated by this Agreement, such Shares
constituting, in the aggregate, all of the issued and outstanding shares of
capital stock of HPM. Each such HPM Shareholder has full power and authority to
vote, transfer and dispose of the Shares owned and held by him, free and clear
of any claim, suit, proceeding, call, voting trust, proxy, restriction,
security interest, lien or other encumbrance of any kind or nature whatsoever.
3.4 No Subsidiary.
--------------
HPM does not have any subsidiary or any ownership interest in any other
entity. HPM is not a party to any joint venture arrangement and does not have
the right to acquire any securities of or ownership interests in any other
person or entity.
3.5 Authorization; Valid and Binding Obligation.
--------------------------------------------
HPM has full corporate power and authority to execute and deliver this
Agreement, the Plan of Merger and the Articles of Merger and full corporate
power and authority to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. This Agreement,
the Plan of Merger and the Articles of Merger have been duly authorized,
executed and delivered by HPM. All corporate action required in order to
authorize the execution, delivery and performance of this Agreement, the Plan
of Merger and the Articles of Merger has been taken. Each of this Agreement,
the Plan of Merger and the Articles of Merger constitutes, and the other
instruments to be executed and delivered in connection
-4-
<PAGE> 6
therewith when duly executed and delivered by HPM each will constitute, the
valid and binding obligation of HPM enforceable against it in accordance with
its terms.
3.6 No Violation.
-------------
Neither the execution and delivery of this Agreement, the Plan of
Merger and the Articles of Merger by HPM, nor the consummation of the
transactions contemplated hereby or thereby, nor compliance with the terms
hereof or thereof, will (i) conflict with or result in a breach of any of the
terms, conditions or provisions of the Articles of Incorporation or By-Laws of
HPM, nor (ii) violate, conflict with or result in a breach of or default under
any of the terms, conditions or provisions of any material instrument,
agreement, contract or commitment, nor (iii) accelerate or give to others any
interests or rights, including rights of acceleration, termination,
modification or cancellation, under any material instrument, agreement,
contract or commitment in or with respect to the business or assets of HPM, nor
(iv) result in the creation of any lien, claim, charge or encumbrance on the
assets, capital stock or properties of HPM, nor (v) conflict with, violate or
result in a breach of or constitute a default under any law, statute, rule,
judgment, order, decree, injunction, ruling or regulation of any government,
governmental agency, authority or instrumentality, court or arbitration
tribunal to which HPM or any of its assets or properties is subject. The
consummation of the Merger shall not require the consent of any third party
(other than the legally required approval of HPM's shareholders which has
already been obtained).
3.7 Financial Statements.
---------------------
Schedule 3.7 hereto contains true and correct and complete copies of
the following financial statements of HPM at the dates and for the periods
specified:
(a) An unaudited Balance Sheet of HPM as of December 31, 1995 (the
"Balance Sheet") and an unaudited Balance Sheet as of November 30, 1995 (the
"Interim Balance Sheet"); and
(b) An unaudited Income Statement and Statements of Cash Flows of HPM
for the period ended December 31, 1995; and unaudited Income Statements and
Statements of Cash Flows for the 11 month period ended November 30, 1995, in
each case together with the notes thereto. Each of the foregoing financial
statements fairly presents the financial condition at the dates and for the
periods specified and are in accordance with the books and records of HPM. HPM
has no material debt or liability of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, that is not
reflected or reserved against in the Balance Sheet, except for those that may
have been incurred after the date of the Balance Sheet in the ordinary course
of its business consistent with past practice. All reserves established by HPM
and set forth in the Balance Sheet were reasonably adequate. At the Balance
Sheet Date, there were no material loss contingencies (as such term is used in
Statement of Financial Accounting Standards No. 5 issued by the Financial
Accounting Standards Board in March 1975) which are not adequately provided for
in the Balance Sheet as required by said Statement No. 5.
-5-
<PAGE> 7
3.8 No Adverse Changes.
-------------------
Except as set forth on Schedule 3.8 hereto, since the Interim Balance
Sheet Date there has not been:
(a) a material adverse change in the condition (financial or
otherwise), properties, assets, liabilities, rights, operations or business of
HPM;
(b) the issuance by HPM of any notes, bonds or other debt securities or
any equity securities;
(c) the borrowing of any amount of money or the incurring of or
becoming subject to any liabilities, except (i) current liabilities incurred in
the ordinary course of business, and (ii) liabilities under contracts entered
into in the ordinary course of business;
(d) any damage, theft, destruction or casualty loss, whether or not
covered by insurance, adversely affecting the properties or operations of HPM;
(e) any sale, lease, transfer or assignment of any asset (tangible or
intangible) of HPM or the cancellation of any debt or claim except for a fair
consideration and in the ordinary course of business;
(f) any loss, waiver or release of any material rights of HPM, whether
or not in the ordinary course of business or consistent with past practice;
(g) the negotiation or execution of any arrangement, agreement or
understanding to which HPM is a party which cannot be terminated by HPM on
notice of thirty (30) days or less without cost or penalty;
(h) any increase in salary, bonus, fringe benefit, or incentive or
other compensation payable or to become payable to any officer, director,
employee, affiliate or other person receiving compensation of any nature from
HPM or any increase in the number of shares obtainable under, or acceleration
of the time of exercisability of, any stock option, stock bonus or similar
plan of HPM;
(i) any capital expenditures or commitments therefor by HPM that
aggregate in excess of $10,000;
(j) any change in any accounting practice or procedure; or
(k) any other transaction, contract or commitment entered into by HPM
otherwise than in the ordinary course of business.
3.9 Taxes.
HPM has timely filed all federal, state, local and foreign tax returns
required to be filed, has timely paid all taxes required to be paid in respect
of all periods for which returns have been
-6-
<PAGE> 8
filed, has established an adequate accrual or reserve for the payment of all
taxes payable in respect of the periods subsequent to the periods covered by
the most recent applicable tax returns, has made all necessary estimated tax
payments, and has no material liability for taxes in excess of the amount so
paid or accruals or reserves so established. HPM is not delinquent in the
payment of any tax and is not delinquent in the filing of any tax returns, and
no deficiencies for any tax have been threatened, claimed, proposed or
assessed. HPM has not received any notification that any material issues have
been raised (and are currently pending) by the Internal Revenue Service or any
other taxing authority (including but not limited to any sales tax authority)
and no tax return of HPM has ever been audited by the Internal Revenue Service
or any other taxing agency or authority. No tax liens have been filed against
any assets of HPM. HPM is not a "personal holding company" within the meaning
of section 542 of the Code.
3.10 Litigation.
-----------
Except as set forth on Schedule 3.10 hereto, there are no actions,
suits or proceedings at law or in equity, or arbitration proceedings, or
claims, demands or investigations, pending or threatened against or involving
HPM, or state of facts existing which could give rise to any such action, suit,
proceeding, claim, demand or investigation; there are no proceedings pending or
threatened against or involving HPM by or before any governmental board,
department, commission, bureau, instrumentality or agency (including but not
limited to any federal, state, local or foreign governmental agency or body
concerned with control of foreign exchange, energy, environmental protection or
pollution control, franchising or other distribution arrangements, antitrust or
trade regulation, civil rights, labor or discrimination, wages and hours,
safety or health, zoning or land use), or state of facts existing which could
give rise to any such proceedings; and HPM is not in violation of any order,
ruling, decree or judgment of any court or arbitration tribunal or governmental
board, department, commission, bureau, instrumentality or agency.
3.11 Title to Assets.
----------------
Except as set forth on Schedule 3.11, hereto, HPM has good and
marketable title to all of its assets and properties as shown on the Balance
Sheet, free and clear of all liens, mortgages, security interests, claims,
charges, restrictions or encumbrances. All machinery, vehicles, equipment and
other tangible personal property included in such assets and properties are in
good condition and repair, normal wear and tear excepted, and all leases of
real or personal property to which HPM is a party are fully effective and
afford HPM peaceful and undisturbed possession of the property leased
thereunder in accordance with the terms of such leases. To its best knowledge,
HPM is not in violation of any zoning, building, safety or environmental
ordinance, regulation or requirement or other law or regulation applicable to
the operation of owned or leased properties (the violation of which would have
a material adverse effect on its business), and HPM has not received any notice
of violation with which it has not complied. HPM does not own any real property.
-7-
<PAGE> 9
3.12 Accounts Receivable.
--------------------
The accounts receivable reflected on the Interim Balance Sheet of HPM
are free and clear of any claim, security interest, pledge or lien or
encumbrance of any kind or nature whatsoever, and are good and fully
collectible in the normal course of business without setoff, third party
collection efforts or suit, and the subsequently created accounts receivable of
HPM from the date of the Interim Balance Sheet to the Closing Date will be free
and clear of any claim, pledge, security interest or lien or encumbrance of any
kind or nature whatsoever, and will be good and fully collectible in the normal
course of business without setoff, third party collection efforts or suit.
3.13 Contracts.
----------
Set forth on Schedule 3.13 attached hereto, is a list of all material
contracts, obligations and commitments relating to the business of HPM (either
written or oral), including without limitation employment contracts not
terminable upon notice of (15) calendar days or less, collective bargaining
agreements, bonus, pension, profit sharing, annuity, deferred compensation,
retirement, stock exchange, stock option, stock ownership, hospitalization,
insurance and all other employee benefit plans, leases, mortgages, pledges,
deeds of trust, loans or credit agreements, contracts and agreements not made
in the ordinary course of business which involve more than $2,500.00.
3.14 Compliance with Laws.
---------------------
HPM has complied in all material respects with all applicable laws,
statutes, rules and regulations, orders and engineering standards of federal,
state, local and foreign governments and governmental agencies applicable to it
and its business, assets, properties and operations and no claim of violation
(or basis therefor) of any such laws or regulations exists on the date hereof.
3.15 Disclosure.
-----------
HPM has disclosed all material facts relating to its assets, business,
condition (financial and otherwise) and operations in this Agreement (including
the Schedules hereto). Neither this Agreement nor any other document,
certificate, exhibit, statement or schedule furnished or to be furnished by or
on behalf of HPM to MAM in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the factual statements
contained therein, in light of the circumstances under which made, not
misleading.
4. Representations and Warranties of MAM
-------------------------------------
MAM represents and warrants to HPM and covenants and agrees with HPM
as follows:
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<PAGE> 10
4.1 Organization and Qualification.
-------------------------------
MAM is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. MAM has the corporate power
and authority to carry on its business as presently conducted. HPM Acquisition
Corporation was incorporated on the date hereof expressly for purposes of the
Merger and has not conducted any business.
4.2 Authorization; Valid and Binding Obligation.
--------------------------------------------
MAM and HPM Acquisition Corporation each has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder, and HPM Acquisition Corporation has full corporate power and
authority to execute and deliver the Plan of Merger and the Articles of Merger
and to perform its obligations thereunder. This Agreement has been duly
executed and delivered by MAM and HPM Acquisition Corporation and constitutes,
and the Plan of Merger and other documents to be executed and delivered
pursuant hereto when executed and delivered by MAM (to the extent a party
thereto) and HPM Acquisition Corporation will constitute, the legal, valid and
binding obligations of MAM and HPM Acquisition Corporation, enforceable against
each in accordance with its terms.
No filing, authorization or approval, governmental or otherwise, is
necessary to enable MAM to enter into and to perform its obligations under this
Agreement, except for the filing of the Agreement of Merger and the Articles of
Merger with the Pennsylvania Department of State.
4.3 Capital Structure.
------------------
The authorized capital stock of MAM consists of 50,000,000 shares of
MAM Common Stock, $.001 par value, and 10,000,000 shares of Preferred Stock,
$.001 par value (the "MAM Preferred Stock"). At the close of business on
September 30, 1995, approximately 9,800,000 shares of MAM Common Stock were
issued and outstanding, and no shares of MAM Common Stock were held by MAM in
its treasury. 3,000,000 shares of MAM Preferred Stock are issued or outstanding.
4.4 No Violation of Existing Agreements.
------------------------------------
Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby and thereby, shall
conflict with, or (with or without notice or lapse of time, or both) result in:
(a) a termination, breach, impairment or violation of (i) any provision of the
Certificate of Incorporation or Bylaws of MAM, as currently in effect or (ii)
any federal, state, local or foreign judgment, writ, decree, order, statute,
rule or regulation applicable to MAM or its assets or properties; or (b) a
termination, or a material breach, impairment or violation, of any material
instrument, agreement, contract or commitment to which MAM is a party or by
which MAM or its assets or properties are bound that would have a material
adverse effect on the business or financial condition of MAM and its
subsidiaries, taken as a whole.
-9-
<PAGE> 11
4.5 Validity of Shares.
-------------------
The shares of MAM Common Stock to be issued pursuant to the Merger
shall, when issued, be duly authorized, validly issued, fully paid and
nonassessable.
4.6 Absence of Litigation.
----------------------
There is no claim, action, proceeding or investigation pending or, to
the best knowledge of MAM, threatened against MAM or any property or asset of
MAM, before any court, arbitrator or administrative, governmental or regulatory
authority or body, domestic or foreign, which, individually or in the
aggregate, would have a material adverse effect on MAM. Neither MAM nor any
property or asset of MAM, is subject to any order, writ, judgment, injunction,
decree, determination or award which would have, individually or in the
aggregate, a material adverse effect on the business or financial condition of
MAM and its subsidiaries, taken as a whole.
4.7 Disclosure.
-----------
No representation or warranty of MAM or HPM Acquisition Corporation in
this Agreement contains any untrue statement of a material fact, or omits to
state a material fact necessary to make the factual statements contained
herein, in light of the circumstances under which such statements are made,
not misleading.
5. Covenants of HPM
----------------
Following the Closing Date, HPM shall not take any action if, prior to
taking such actin, HPM has been informed by MAM or its accountants that, in the
opinion of MAM's accountants, taking such action may preclude MAM from
accounting for the Merger as a "pooling of interests" for accounting purposes
and MAM or its accountants promptly give HPM a writing that states in
reasonable detail the action that MAM or its accountants request HPM not to
take. HPM shall cooperate with MAM to cause the business combination to be
effected by the Merger to be accounted for as a pooling of interests for
accounting purposes.
6. Board Matters
-------------
6.1 COMPOSITION OF BOARD OF DIRECTORS OF HPM. (a) MAM covenants and
agrees that for a period of four years or so long as any HPM Shareholder
remains in the employ of HPM, in any election of directors of HPM it shall
nominate and vote all shares of voting Common Stock of the Corporation owned or
controlled by them in favor of a Board of Directors comprised of an even number
of directors, one-half of whom shall be designated by the HPM Shareholders and
one-half of whom shall be designated by MAM.
In the event of any vacancy on the Board of Directors of HPM occurring
for any reason, the party who initially nominated such director shall have the
right to appoint a successor nominee and each of the HPM Shareholders and MAM
agree to cause its representative designee on the Board of Directors to vote
for the election of such nominee and MAM agrees to vote all
-10-
<PAGE> 12
shares of voting common stock of HPM owned or controlled by it and to otherwise
use its best efforts to ensure such nominee is elected.
(b) The HPM Shareholders and MAM hereby agree that within thirty days
following the Merger, the current members of the Board of Directors of HPM
shall resign and new directors shall be elected in accordance with the
provisions of Section 6.1(a) hereof.
6.2 CERTAIN PROCEDURES OF THE BOARD OF HPM. The HPM Shareholders
and MAM intend that the Board of Directors of HPM shall establish an Executive
Committee which shall be comprised of five members, consisting of each of the
HPM Shareholders and the Chief Executive Officer of MAM or such other person as
may be designated by the Board of Directors of MAM, which, under the direction
of the Board of Directors of MAM, shall be responsible for the supervision of
the day-to-day operations of HPM.
6.3 HPM REPRESENTATION ON MAM BOARD. MAM covenants and agrees that
for a period of ten years or so long as any HPM Shareholder remains in the
employ of HPM, in any election of directors of MAM it shall nominate for
election a nominee designated by HPM.
7. Conditions Precedent to the Obligations of MAM
----------------------------------------------
7.1 Deliveries by HPM.
------------------
HPM shall have delivered to MAM the following at the Closing:
(a) copies of the resolutions duly adopted by the Board of Directors
and shareholders of HPM, authorizing the execution, delivery and performance of
this Agreement, the Plan of Merger, the Articles of Merger and the other
agreements, instruments and documents contemplated hereby and to be delivered
hereunder, duly certified by the Secretary or Assistant Secretary of HPM, which
resolutions shall be in full force and effect at the time of delivery on the
Closing Date;
(b) a certificate of incumbency executed by the President or any
Executive Vice President of HPM, and by the Secretary or any Assistant
Secretary of HPM, listing the officers of HPM authorized to execute the
Agreement, the Plan of Merger, the Articles of Merger and the other
certificates, schedules and the instruments to be delivered on behalf of HPM,
and their respective officer positions, and containing the genuine signature of
each such person set forth opposite his name; and
(c) a certificate of its Secretary setting forth the number of shares
of HPM capital stock (i) entitled to vote at the shareholder meeting approving
the Merger, (ii) actually voted at any such meeting, (iii) voted in favor of,
and against, the Merger and (iv) setting forth the names of any HPM
Shareholders who took the initial steps under Pennsylvania law to dissent from
the Merger.
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<PAGE> 13
8. Conditions to the Obligations of HPM
------------------------------------
8.1 Deliveries by MAM at Closing.
-----------------------------
MAM shall have delivered to HPM the following:
(a) copies of the resolutions duly adopted by the Board of Directors
and shareholders (if required) of MAM and HPM Acquisition Corporation
authorizing the execution, delivery and performance of this Agreement, the
Plan of Merger and the other agreements, instruments and documents contemplated
hereby, duly certified by the Secretary or Assistant Secretary of MAM or HPM
Acquisition Corporation, as the case may be, which shall be in full force and
effect at the time of delivery on the Closing Date; and
(b) a certificate of incumbency for each of HPM Acquisition Corporation
and MAM executed by the President or any Executive Vice President of MAM or HPM
Acquisition Corporation, as the case may be, and by the Secretary or any
Assistant Secretary of MAM or HPM Acquisition Corporation, as the case may be,
listing the officers of MAM or HPM Acquisition Corporation, as the case may be,
authorized to execute (to the extent a party thereto) the Agreement, the Plan
of Merger, the Articles of Merger and other certificates, schedules and
instruments to be delivered on behalf of such corporation, and their respective
officer positions, and containing the genuine signature of each such person set
forth opposite his name.
9. Expenses
--------
The HPM Shareholders shall pay all fees and expenses incurred by them
or HPM in connection with the transactions provided for hereunder, including
the fees and expenses of HPM's counsel and MAM shall pay all expenses incurred
by it and HPM Acquisition Corporation in connection with the transactions
provided for hereunder, including the fees and expenses of its counsel and
accountants.
10. Absence of Broker or Finder
---------------------------
HPM represents and warrants to MAM that no person is acting or has
acted for it as broker or finder in connection with the transactions provided
for by this Agreement. MAM represents and warrants to HPM that no person is
acting or has acted for it as broker or finder in connection herewith.
11. News Releases
-------------
No notices to third parties or any publicity, including press releases,
concerning any of the transactions provided for herein shall be made unless
planned and coordinated jointly between MAM and HPM unless MAM is advised by
counsel that a news release or disclosure is
-12-
<PAGE> 14
required or appropriate and MAM is unable to comply with the terms of this
Article after making reasonable efforts to do so.
12. Notices
-------
Any notice, request, demand or other communication given by any party
under this Agreement (each a "notice") shall be in writing, may be given by a
party or its legal counsel, may and shall be deemed to be duly given (i) when
personally delivered, or (ii) upon delivery by United States Express Mail or
similar overnight courier service which provides evidence of delivery, or (iii)
when five (5) days have elapsed after its transmittal by registered or
certified mail, postage prepaid, return receipt requested, addressed to the
party to whom directed at that party's address as it appears below or another
address of which that party has given notice, or (iv) when transmitted by telex
(or equivalent service), the sender having received the answerback of the
addressee, or (v) when delivered by facsimile transmission if a copy thereof is
also delivered in person or by overnight courier. Notices of address change
shall be effective only upon receipt notwithstanding the provisions of the
foregoing sentence.
Notice to MAM shall be sufficient if given to:
4447 E. Broadway
Suite 102
Mesa, AZ 85206
Attn: John Regan
with copies to: Ray, Quinney & Nebeker
79 South Main Street
Salt Lake City, Utah 84111
Attention: Robert A. Alsop, Esquire
Notice to HPM or the Shareholders shall be sufficient if given to:
Healthcare Professional Management, Inc.
Four Station Square
Suite 250
Pittsburgh, Pennsylvania 15219
Attention: Anthony F. Aulicino
with copies to: Buchanan Ingersoll Professional Corporation
One Oxford Centre
301 Grant Street - 20th Floor
Pittsburgh, PA 15219
Attention: Robert G. Devlin, Esq. and
James J. Barnes, Esq.
-13-
<PAGE> 15
13. Survival of Representations and Warranties; Indemnification
-----------------------------------------------------------
13.1 Survival of Representations and Warranties.
-------------------------------------------
All representations, warranties, covenants, stipulations,
certifications, indemnities and agreements contained herein or in any document
delivered pursuant hereto shall survive the consummation of the transactions
provided for in this Agreement for a period of two years.
13.2 Indemnification.
----------------
(a) The HPM Shareholders shall, jointly and severally, defend,
indemnify and hold MAM harmless from and against any and all claims,
liabilities, damages, losses, deficiencies and expenses (including reasonable
attorneys' fees and expenses and costs of suit (including, but not limited to,
travel expenses and discovery costs for such matters as transcripts,
photocopying, subpoenas and telecopies)) (individually a "Loss" and
collectively "Losses") arising out of any and all inaccurate representations
and warranties and out of any and all breaches of covenants, agreements and
certifications made by or on behalf of HPM in this Agreement or in any document
delivered hereunder, or arising out of or resulting from any occurrence prior
to the Closing Date and not disclosed herein.
(b) Notwithstanding the provisions of this Section 13.2(a), the HPM
Shareholders shall not be required to indemnify MAM with respect to Losses
until the aggregate amount of such Losses shall exceed $65,000 (the "Seller's
Floor"); provided, however, if such Losses in the aggregate exceed the amount
of the Seller's Floor, HPM shall indemnify MAM for all Losses and provided,
further, that the HPM Shareholders shall not be obligated to indemnify MAM with
respect to Losses once the total amount of Losses for which the HPM
Shareholders have provided indemnification hereunder equals $1,300,000, (the
"Seller's Cap").
(c) MAM shall defend, indemnify and hold HPM and the HPM Shareholders
harmless from and against any and all Losses arising out of any and all
inaccurate representations and out of any and all breaches of covenants and
warranties and stipulations and agreements and certifications made by or on
behalf of MAM in this Agreement or in any document delivered by MAM hereunder.
(d) Notwithstanding the provisions of this Section 13.2(a), MAM shall
not be required to indemnify the HPM Shareholders with respect to Losses until
the aggregate amount of such Losses shall exceed $65,000 (the "Buyer's Floor");
provided, however, if such Losses in the aggregate exceed the amount of the
Buyer's Floor, MAM shall indemnify the HPM Shareholders for all Losses and
provided, further, that MAM shall not be obligated to indemnify the HPM
Shareholders with respect to Losses once the total amount of Losses for which
MAM has provided indemnification hereunder equals $1,300,000, (the "Buyer's
Cap").
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<PAGE> 16
13.3 Indemnification with Respect to Third Party Claims.
---------------------------------------------------
(a) Definition.
-----------
As used herein, "Third Party Claim" means a Loss or potential Loss for
which indemnification is claimed by MAM under the provisions of this Article 13
and which is consequent to a claim against MAM by a person, corporation,
association, partnership, or other business organization or an individual or a
government, any political subdivision thereof or a governmental agency by
commencement against MAM of a legal action or proceeding or receipt by MAM of
an assertion of a claim for which indemnification is provided pursuant to this
Article 13.
(b) Notice of Claim.
----------------
MAM will give notice of a Third Party Claim to the HPM Shareholders in
the manner provided for herein together with, if such Third Party Claim is
subject to arbitration pursuant to Section 14.2(b) hereof, demand for
arbitration, stating the nature thereof and enclosing copies of any complaint,
summons, written assertion of such Third Party Claim or similar document. No
claim for indemnification on account of a Third Party Claim shall be made and
no indemnification therefor shall be available under this Article 13 until MAM
shall have given initial written notice of its claim to the HPM Shareholders.
(c) Retention of Counsel by HPM Shareholders.
-----------------------------------------
Except as hereinafter provided, the HPM Shareholders shall engage
counsel to defend a Third Party Claim, and shall provide notice to MAM not
later than fifteen (15) business days following delivery by the MAM to the HPM
Shareholders of a notice of a Third Party Claim and such notice shall include
an acknowledgment by the HPM Shareholders that they will be liable in full to
MAM for any Losses in connection with such Third Party Claim. MAM will fully
cooperate with such counsel. The HPM Shareholders will cause such counsel to
consult with MAM as appropriate, as to the defense of such claim, and MAM may,
at its own expense, participate in such defense, assistance or enforcement but
the HPM Shareholders shall control such defense, assistance or enforcement.
The HPM Shareholders will cause such counsel engaged by the HPM Shareholders to
keep MAM, as appropriate, informed at all times of the status of such defense,
assistance or enforcement.
(d) Employment of Counsel by MAM.
-----------------------------
(i) Notwithstanding the provisions of Section 13.3(c), MAM
shall have the right to engage counsel and to control the defense of a
Third Party Claim if the HPM Shareholders shall not have notified MAM of
their appointment of counsel and control of the defense of a Third Party
Claim pursuant to Section 13.3(c) within the time period therein
provided. MAM shall, in such case, cause counsel to consult with the HPM
Shareholders as to the conduct of such defense.
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<PAGE> 17
(ii) Notwithstanding the engagement of counsel by the HPM
Shareholders, MAM shall have the right, at its own expense, to engage
counsel to participate jointly with the HPM Shareholders in, and to
control jointly with the HPM Shareholders, the defense of a Third Party
Claim if (x) the Third Party Claim involves remedies other than monetary
damages and such remedies, in MAM's reasonable judgment, could have an
effect on the conduct of HPM's or MAM's business or (y) the Third Party
Claim relates to acts, omissions, conditions, events or other matters
occurring after the Closing Date as well as to acts, omissions,
conditions, events or other matters occurring prior to the Closing Date
or (z) the Third Party Claim involves a claim for monetary damages and
the amount claimed is either subject to the Seller's Floor or in excess
of the Seller's Cap.
(iii) If MAM chooses to exercise its right to appoint counsel
under this Section 13.3(d), MAM shall deliver notice thereof to the HPM
Shareholders setting forth in reasonable detail why it believes that it
has such right and the name of the counsel if proposes to employ. MAM
may deliver such notice at any time that the conditions to the exercise
of such right appear to be fulfilled, it being recognized that in the
course of litigation, the scope of litigation and the amount at stake
may change. MAM shall thereupon have the right to appoint such counsel.
(iv) The reasonable fees and expenses of counsel and any
accountants, experts or consultants engaged by MAM in accordance with
the provisions of Section 13.3(d)(i) and 13.3(d)(ii)(x) in connection
with defending a Third Party Claim shall be paid by the HPM Shareholders
in accordance with the provisions of this Article 13. If MAM's
employment of counsel is for a Third Party Claim of the type described
in subdivision (ii)(y) or (ii)(z) of this Section 13.3(d), then subject
to the provisions of Section 13.3(e), the amount of fees and expenses so
payable by the HPM Shareholders shall be that fraction of the aggregate
of such fees and expenses, the numerator of which is the portion of the
amount of any judgement on, or settlement of, such Third Party Claim for
which the MAM is indemnified pursuant to this Article 13 and the
denominator of which is the total amount of such judgment or settlement,
but provided further, if such defense of a Third Party Claim is
successful (in the sense that as a consequence thereof, there is no Loss
(other than such fees and expenses) for which MAM is indemnified
pursuant to this Article 13), MAM and the HPM Shareholders will attempt
in good faith to reach an agreement on the amount of such fees and
expenses so payable by the HPM Shareholders.
(e) Settlement of Third Party Claims.
---------------------------------
(i) The HPM Shareholders may settle any Third Party Claim
solely involving monetary damages only if the amount of such settlement is to
be paid entirely by the HPM Shareholders pursuant to this Article 13.
(ii) The HPM Shareholders will not enter into a settlement of a
Third Party Claim which involves a non-monetary remedy or which will not be
paid entirely by the HPM
-16-
<PAGE> 18
Shareholders pursuant to this Article 13 without the written consent of MAM
which consent shall not be unreasonably withheld.
(iii) MAM will not enter into a settlement of a Third Party
Claim without the written consent of the HPM Shareholders under the
circumstances described in subdivision (i) of Section 13.3(d) in the event that
the HPM Shareholders have accepted full liability for such Third Party Claim.
Otherwise, MAM shall be free to compromise, defend and settle Third Party
Claims without prejudice to any of its rights hereunder or under applicable law.
(iv) In determining whether to accept or reject any settlement
proposal, each party shall act in good faith and with due regard for the
reasonable commercial and financial interests of the other.
(f) Claims as to Which Indemnification is Partially Payable.
--------------------------------------------------------
Notwithstanding the foregoing, in the event of any settlement of, or
final judgment with respect to, a Third Party Claim which relates to acts,
omissions, conditions, events or other matters occurring both before and after
the Closing Date, the MAM and the HPM Shareholders shall negotiate in good
faith as to the portion of such Third Party Claim as to which such
indemnification is payable.
(g) Cooperation, etc.
-----------------
MAM and HPM Shareholders shall cooperate with one another in good faith
in connection with the defense, compromise or settlement of any claim or
action. Without limiting the generality of the foregoing, the party controlling
the defense or settlement of any matter shall take steps reasonably designed to
ensure that the other party and its counsel are informed at all times of the
status of such matter. Neither party shall dispose of, compromise or settle any
claim or actin in a manner that is not reasonable under the circumstances and
in good faith. The HPM Shareholders shall enter into such confidentiality and
other non-disclosure agreements as MAM shall reasonably request in order to
protect trade secrets and other confidential or proprietary information of HPM
and MAM and shall use their best efforts to cause the party making such Third
Party Claim to enter into any such agreement.
14. Cooperation; Further Assurances
-------------------------------
Each party to this Agreement agrees to cooperate fully with the other
parties hereto and their counsel and accountants and other representatives,
will use best efforts to cause satisfaction of the conditions to consummation
of the Merger as promptly as possible, and will refrain from a course of action
inconsistent with this Agreement or the Plan of Merger. Each party shall, upon
request of any of the other parties hereto, at any time and from time to time
execute, acknowledge, deliver and perform all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and instruments of
further assurances as may be necessary or appropriate to carry out the
provisions and intent of this Agreement or the Plan of Merger.
-17-
<PAGE> 19
15. Miscellaneous
-------------
15.1 SHAREHOLDERS' REPRESENTATIONS AND WARRANTIES. Each of the HPM
Shareholders represents and warrants that:
(i) Such HPM Shareholder is acquiring the MAM Common Stock
purchased hereunder or acquired pursuant hereto for his or her own account with
the present intention of holding such securities for purposes of investment,
and that such Shareholders has no intention of selling such securities in a
public distribution in violation of the federal securities laws or any
applicable state securities laws. The HPM Shareholder understands that the MAM
Common Stock has not been registered under the Securities Act of 1933 or any
state securities laws by reason of its issuance by the MAM in a transaction
exempt from such registration requirements. Each certificate for MAM Common
Stock shall be imprinted with a legend in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES ACT AND MAY NOT BE TRANSFERRED
UNLESS REGISTERED UNDER SUCH ACTS OR UNLESS AN
OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY IS DELIVERED TO THE COMPANY TO THE
EFFECT THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
(ii) Such HPM Shareholder recognizes that investing in the MAM
Common Stock involves a high degree of risk.
(iii) Such HPM Shareholder is capable of evaluating the merits
and risks of investing in the Company given its stage of development.
(iv) Such HPM Shareholder has had an opportunity to discuss
MAM's business, management and financial affairs with MAM's management, has
been given full and complete access to information concerning the MAM, and has
utilized such access to its satisfaction for the purpose of obtaining
information or verifying information and has had the opportunity to inspect
MAM's facilities.
(v) Such HPM Shareholder has had the opportunity to ask
questions of, and receive answers from, the management of MAM (and any person
acting on its behalf) concerning the MAM Common Stock and the terms and
conditions of this Agreement and the agreements and transactions contemplated
hereby, and to obtain any additional information as the Shareholder may have
requested in making its investment decision.
-18-
<PAGE> 20
15.2 Dispute Resolution
------------------
(a) This Agreement shall be governed by the laws of the State of New
York without regard to any jurisdiction's conflicts of laws provisions.
(b) Any controversy, dispute or claim arising out of or relating to
this Agreement, or any modification, amendment or extension to this Agreement
or to any collateral document, or any modification, amendment or extension
thereto, or the breach thereof, including any claim to rescind or set aside any
of the same (individually a "Claim" and collectively "Claims"), shall be
settled by arbitration conducted in Pittsburgh, Pennsylvania, in accordance
with the provisions of this Section 15.1 and in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"). To the
extent that any of the Commercial Arbitration Rules of the AAA conflict with
the provisions of this Agreement, the provisions of this Agreement shall take
precedence. The parties retain the right to seek and obtain interim relief
pending receipt of an award in accordance with the terms of this Section for
the purpose of maintaining and preserving the status quo. The award rendered by
the Arbitration Panel (as hereafter defined) shall be final and binding as
between the parties hereto and their heirs, executors, administrators,
successors and assigns, and judgment on the award may be entered by any court
having jurisdiction thereof.
(c) The parties hereto agree that notwithstanding, and in addition to,
the rights and remedies available hereunder, each of MAM and HPM reserves the
right to seek and obtain temporary restraining orders or other emergency
temporary or preliminary equitable injunctive relief from the courts of the
Commonwealth of Pennsylvania situate in Allegheny County or the federal courts
situate in the Western District of Pennsylvania, to preserve the status quo by
enjoining or retaining a party hereto pending final and binding arbitration
hereunder and the parties hereto acknowledge and agree to the right to seek
such relief. The parties hereto expressly agree and acknowledge that no
judicial proceeding relating to the subject matter of the arbitration shall be
deemed a waiver of any party's right to arbitrate nor shall the existence or
exercise of such right be deemed to be an adequate remedy at law in connection
therewith.
(d) Claims shall be heard and decided, and awards rendered on such
Claims by a panel of three (3) arbitrators (the "Arbitration Panel") appointed
in accordance with the provisions hereof. the decision of a majority of the
arbitrators comprising the Arbitration Panel shall govern on any matter and be
the decision of the Arbitration Panel. In case of any question arising as to
the interpretation of these arbitration provisions or the AAA Commercial Rules
of Arbitration applicable to any arbitration effected hereunder, the decision
of a majority of the members of the Arbitration Panel shall be accepted by the
parties as final and conclusive, except that no decision or input of or notice
to the Arbitration Panel shall be required in order for MAM to request and
obtain the interim relief set forth in Section 15.1(b)(ii) hereof. In the event
of the death or disability of any arbitrator pending final resolution of the
Claim, a replacement arbitrator shall be chosen by the party who originally
designated such arbitrator, within seven (7) days following notice of such
death or disability.
-19-
<PAGE> 21
(e) If any party hereto has a Claim and desires to arbitrate such
Claim, such party (the "Claimant") shall give written notice (the "Notice") of
the Claim and of its intention to arbitrate to the other party (the
"Respondent") and simultaneously with the giving of the Notice to the
Respondent, the Claimant shall file, at the regional office of the AAA located
in Pittsburgh, Pennsylvania (or, should such regional office no longer exist,
at the regional office of the AAA located closest to Pittsburgh, Pennsylvania),
(i) three (3) copies of the Notice or demand for arbitration, (ii) three (3)
copies of this Section 15.1(b) of this Agreement, and (iii) the appropriate
administrative fee as provided in the Administrative Fee Schedule of the AAA.
The Notice shall contain a brief statement setting forth the nature of the
dispute, the amounts involved, if any, and the remedy sought and shall
designate one arbitrator chosen by the Claimant who shall be an active member
in good standing of the bar of the Commonwealth of Pennsylvania.
(f) Within ten (10) days following delivery of the Notice to the
Respondent, the Respondent may file an answering statement (the "Answering
Statement"), in duplicate, with the AAA. In the event the Respondent elects to
file an Answering Statement with the AAA, the Respondent shall, at the same
time, deliver a copy of the Answering Statement to the Claimant. If a
counterclaim is asserted, the Answering Statement shall contain a statement
setting forth the nature of the counterclaim, the amount involved, if any, and
the remedy sought, and the appropriate fee as provided in the Administrative
Fee Schedule of the AAA shall be delivered to the AAA when the Answering
Statement is filed. If no Answering Statement is filed within the ten- (10-)
day period following receipt of the Notice by the Respondent, it shall be
deemed as a denial by Respondent of the Claim and further shall be deemed a
complete waiver of any counterclaim, including the right to set-off. Failure to
file an Answering Statement shall not operate to delay the arbitration.
(g) Within ten (10) days following delivery of the Notice to the
Respondent, the Respondent shall choose one (1) arbitrator. If the Respondent
shall fail to choose an arbitrator within such ten- (10-) day period, then the
AAA shall, within ten (10) days following receipt of notice of such fact by the
Claimant, select one (1) arbitrator on behalf of Respondent from its National
Panel of Commercial Arbitrators to serve on the Arbitration Panel and further
shall choose the third arbitrator to serve on the Arbitration Panel from its
National Panel of Commercial Arbitrators. If the Respondent names an arbitrator
in compliance with this Subsection (vi) within such ten- (10-) day period, then
the AAA shall, within ten (10) days following receipt of notice of such
appointment from either Claimant or Respondent, select one arbitrator from its
National Panel of Commercial Arbitrators to serve as the third arbitrator on
the Arbitration Panel.
(h) The Arbitration Panel, when duly appointed, shall investigate the
facts and shall hold a hearing within ten (10) days following such appointment,
and, at such hearing, shall permit the parties to this Agreement to present
evidence and arguments. In connection therewith, the parties agree that each
may conduct discovery to the extent and in the manner allowed by the Federal
Rules of Civil Procedure within the confines of the expedited procedures
provided for herein and further that any discovery conducted during the
emergency or temporary equitable relief or injunctive proceedings permitted
hereby may be utilized by the parties in the arbitration proceeding. The
arbitrators selected shall, as a condition of appointment, agree to hear the
case
-20-
<PAGE> 22
within ten (10) days of appointment and on consecutive days until concluded.
The award shall be rendered by the Arbitration Panel not later than fifteen
(15) days from the date of the closing of the hearing.
(i) Except as otherwise provided herein, the fees and expenses of the
AAA and the Arbitration Panel shall be borne equally by the parties in
accordance with the applicable provisions of the Commercial Arbitration Rules
of the AAA. Each party shall bear its own attorneys' fees and expenses and the
fees and expenses of other experts or professionals utilized by such party in
connection with the arbitration provided for herein.
15.3 Counterparts/Use of Facsimiles.
-------------------------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute a
single agreement. The reproduction of signatures by means of a telecopying
device shall be treated as though such reproductions are executed originals and
each party hereto covenants and agrees to provide the other parties with a copy
of this Agreement bearing original signatures within five (5) days following
transmittal by facsimile.
15.4 Entire Agreement.
-----------------
This Agreement constitutes the entire agreement of the parties hereto
respecting its subject matter and supersedes all negotiations, preliminary
agreements and prior or contemporaneous discussions and understandings of the
parties hereto in connection with the subject matter hereof. This Agreement may
be amended, modified, or supplemented only by a writing signed by all parties
by their duly authorized representatives. Any party may waive the benefit of a
term or condition of this Agreement and such waiver will not be deemed to
constitute the waiver of another breach of the same, or any other, term or
condition. The headings in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of any provision of this
Agreement.
15.5 No Presumption Against Draftsman.
---------------------------------
There shall be no presumption against any party on the ground that such
party or its counsel was responsible for preparing this Agreement or any part
hereof.
16. Successors and Assigns
----------------------
This Agreement shall be binding upon and inure to the benefit of the
heirs, executors, administrators, successors and assigns of the parties hereto.
-21-
<PAGE> 23
IN WITNESS WHEREOF, each of the parties has executed or caused this
Agreement to be executed by its duly authorized officer as of the date first
above written.
ATTEST: MEDICAL ASSET MANAGEMENT, INC.
- ------------------------ By: ----------------------------
Secretary
ATTEST: HEALTHCARE PROFESSIONAL
MANAGEMENT, INC.
- ------------------------ By: ----------------------------
Secretary
WITNESS:
- ------------------------ --------------------------------
ROSEMARY B. HAGER
WITNESS:
- ------------------------ --------------------------------
GREGG S. SOERGEL
WITNESS:
- ------------------------ --------------------------------
ANTHONY F. AULICINO
-22-
<PAGE> 24
WITNESS:
- -------------------------- -------------------------------
EDWARD P. HESTIN
-23-
<PAGE> 1
EXHIBIT 8.3
ASSET PURCHASE
AND MEDICAL PRACTICE
MANAGEMENT AGREEMENT
BETWEEN
The OB-GYN Associates, P.C.
A Professional Corporation,
J. Joshua Kopelman, M.D. An Individual,
Asela C. Russell, M.D., An Individual,
David L. Watson, M.D., An Individual,
Greta Brandstetter, M.D., An Individual,
Laura Lindholm, M.D., An Individual,
AND
MEDICAL ASSET MANAGEMENT, INC.
-----------------------------
December 31, 1995
<PAGE> 2
TABLE OF CONTENTS
1.0 PURCHASE AND SALE OF ASSETS.............................
2.0 PURCHASE PRICE..........................................
3.0 SHAREHOLDER'S, AND/OR (WHERE INDICATED) THE PRACTICE'S
REPRESENTATIONS, WARRANTIES AND COVENANTS...............
4.0 MAM'S REPRESENTATION, WARRANTIES AND COVENANTS..........
5.0 INDEMNIFICATION OF MAM..................................
6.0 INDEMNIFICATION OF THE PRACTICE.........................
7.0 MANAGEMENT SERVICES TO BE PROVIDED BY MAM...............
8.0 COMPENSATION TO MAM AND.................................
9.0 OWNERSHIP OF LICENSES...................................
10.0 TERM OF MANAGEMENT AGREEMENT............................
11.0 DEATH OR DISABILITY OF SHAREHOLDERS.....................
12.0 TERMINATION OF AGREEMENT DURING FIRST FOUR YEARS........
13.0 TERMINATION OF AGREEMENT AFTER FOURTH ANNIVERSARY.......
14.0 TERMINATION GENERALLY...................................
15.0 COVENANT NOT TO COMPETE.................................
16.0 GENERAL PROVISIONS......................................
<PAGE> 3
LIST OF EXHIBITS
EXHIBIT "A" BILL OF SALE
<PAGE> 4
LIST OF SCHEDULES
SCHEDULE "1" ASSETS TO BE PURCHASED BY MAM
SCHEDULE "2" ALL LIENS, ENCUMBRANCES AND CLAIMS AGAINST THE ASSETS
SCHEDULE "3" ALL PENDING OR THREATENED CLAIMS, CAUSES OF ACTIONS AND
PENDING LAWSUITS
SCHEDULE "4" MANAGEMENT SERVICES TO BE PROVIDED BY MAM
SCHEDULE "5" WORKSHEET TO DETERMINE PROFESSIONAL COMPENSATION AND MAM MINIMUM
CASH FEE
SCHEDULE "6" THE DOCUMENTATION OF DETERMINATION OF NET BOOK VALUE OF TANGIBLE
ASSETS PURCHASED BY MAM
SCHEDULE "7" SCHEDULE OF LIABILITIES NOT ASSUMED BY MAM BUT SERVICED ACCORDING
TO SECTION 8.
SCHEDULE "8" SCHEDULE OF ASSETS NOT PURCHASED BY MAM
<PAGE> 5
ASSET PURCHASE
AND MEDICAL PRACTICE MANAGEMENT AGREEMENT
This agreement (hereinafter "Agreement") is made as of December 31, 1995 at
Aurora, CO between:
The OB-GYN Associates, P.C. (hereinafter "The Practice") a Professional
Corporation,
J. Joshua Kopelman, M.D. An Individual,
Asela C. Russell, M.D., An Individual,
David L. Watson, M.D., An Individual,
Greta Brandstetter, M.D., An Individual,
Laura Lindholm, M.D., An Individual,
(hereinafter collectively referred to as "Shareholders" and individually
referred to as "Shareholder"), and Medical Asset Management, Inc. (hereinafter
"MAM") a Delaware corporation.
Shareholder physicians and other employee physicians carry on the practice of
medicine through The Practice at the following clinic locations: a.)8300 N.
Alcott, Suite 300, Westminster, CO 80030, b.) Highway 9 and School Road, Suite
250, Frisco, CO 80443, c.) 1550 South Potomac, Suite 330, Aurora, CO 80012, and
d.) 4500 E 9th suite 670S, Denver, CO 80220, with corporate offices at 11175 E.
Mississippi Ave. Suite 100, Aurora, Colorado 80012.
Whereas, The Practice desires to sell to MAM and MAM desires to purchase from
The Practice (on the terms and subject to conditions of this Agreement), all
assets owned by the Practice and used in The Practice wherever located, with
specific exclusions as listed on Schedule "8"; and
Whereas, the Shareholders desire to continue to practice medicine through The
Practice and they and The Practice desire to contract with MAM to manage and
administer all non-medical aspects of The Practice and MAM desires to manage
and administer all non-medical aspects of The Practice for a term and upon
terms and conditions hereinafter set forth,
then, in consideration of the covenants agreements, representations and
warranties contained in this Agreement, the parties agree as follows:
<PAGE> 6
1.0 PURCHASE AND SALE OF ASSETS
1.1 As of the earlier of April 1, 1996 or the date on which the cash purchase
price is delivered to The Practice pursuant to Section 2.1 below (the
"Transfer Date"), and subject to the exceptions noted below, The Practice
hereby sells, conveys, transfers and assigns all the assets and properties
which The Practice owns in connection with the conduct of The Practice
(the "Assets"), including each location at which the business of The
Practice may be conducted during the term of this Agreement, subject to
the exclusion of specific assets not purchased as listed on Schedule 8,
attached hereto.
The Assets shall be deemed to include without limitation (i) all of The
Practice's accounts receivable (whether or not deemed collectible) as
currently reflected on The Practice's books and records, on the Transfer
Date of this Agreement and at all times during the term of this Agreement,
(ii) all administrative (i.e., non-medical) aspects of every kind and
character pertaining to the running of The Practice (the "Medical Practice
Management Business"), and (iii) all of those assets, rights and properties
described in Schedule "1" attached hereto, the provisions of which are by
this reference incorporated herein.
Notwithstanding the foregoing, MAM is specifically not purchasing (i) the
portion of The Practice which involves the examination, diagnosis,
treatment, surgery or therapy of patients by any Shareholder or by any
other licensed medical practitioner or health care professional providing
services on behalf of The Practice, or any other aspect of The Practice
which by law requires a license to practice medicine or provide health care
services, (ii) all medical records relating solely to the provisions of
professional medical services, subject to MAM's right of limited access to
and to make copies of, those portions of patient records relating solely to
the amount of fees and charges due and owing for professional services
rendered, (iii) all assets listed on Schedule 8.
1.2 The Practice assigns to MAM effective December 31, 1995 (the "Effective
Date") the right to perform all administrative and non-medical aspects of
The Practice's business, "The Medical Practice Management Business" for a
period of years, and upon terms and conditions set forth herein which MAM
agrees to perform for a term of years and upon the terms and conditions set
forth. The specific services to be performed by MAM are listed on Schedule
4 attached hereto. MAM shall have the right to commence to include the
revenues of The Practice in MAM's financial statements immediately
following the Effective Date of this Agreement; provided, however, that (i)
MAM shall not be entitled to receive any management fees or other
compensation under this Agreement until after the Transfer Date, and (ii)
MAM shall not perform any administrative or other aspects of The Practice's
business until after the Transfer Date (although
<PAGE> 7
MAM shall have the right to begin to orient The Practice's employees to
MAM's operating procedures and to integrate The Practice's administrative
systems with MAM's systems). MAM and The Practice further acknowledge that
certain obligations under this Agreement (including, for example, MAM's
obligations to make the Cash Payment described below to The Practice, to
issue shares of MAM's common stock to The Practice, etc.) have not been
completed and will not be completed until the Transfer Date, and MAM will
not represent to the contrary in any public offering documents.
1.3 A bill of sale (in substantially the form of EXHIBIT "A") shall be executed
and delivered to MAM to effect the within purchase and sale of the Assets
on the Transfer Date. On the Transfer Date, the Shareholder, on behalf of
The Practice, as appropriate, shall forthwith upon MAM's written request
execute and deliver to MAM such further instruments of sale, transfer,
assignment, delivery, consent, assurance, powers of attorney and other
instruments, including without limitation bills of sale, in form and
content provided by MAM's legal counsel, all for the purpose of further
evidencing that MAM is vested with all right, title and interest in and to
the Assets and the Medical Practice Management Business as conducted by The
Practice.
2.0 PURCHASE PRICE
In consideration of the transfer of Assets and the execution of this
Management Agreement, the parties hereby agree that the total purchase
price to be paid The Practice shall be payable as follows:
2.1 Terms of Payment - Cash, Assumption of Certain Liabilities and Stock
2.1.1 On the Transfer Date, MAM shall pay to The Practice, in cash,
certified funds, or cashier's check, a sum of money (the "Cash
Payment") equal to $1,606,202.00. From the Cash Payment, The Practice
will pay off all of its liabilities except for (i) those liabilities
identified on Schedule "2" which are being assumed by MAM, and
(ii) the two liabilities identified in Schedule 7 (also identified
in the first sentence of this Section 2.1.1) which will be serviced
as provided in Section 8.9.
2.1.2 MAM shall assume the specific liabilities of The Practice as
described in Schedule 2 (which is limited to future lease and
contract obligations). The two liabilities of The Practice which are
specifically described on Schedule 7 are not being assumed by MAM but
will be serviced by MAM according to Section 8.9 below. Except for
the liabilities specifically set forth on Schedule 2 hereof, MAM is
not assuming any liabilities, debts or other obligations of any kind
of The Practice.
3
<PAGE> 8
2.1.3 (i) MAM will issue to The Practice over the first four years of the
Agreement a number of restricted shares (investment stock) of MAM
common stock equal to 730,000, subject to minimum financial
performance by The Practice. In the event The Practice fails to
achieve minimum financial performance targets over the first four
years of the Agreement, MAM will adjust the amount of shares issued
to The Practice on a pro rata basis as described below.
(ii) The parties agree that the average historical collections of The
Practice are equal to $5,200,000 per year. The parties agree to a
minimum financial performance target of $5,200,000 of Net Revenue
per calendar year for each of the first four years of the Agreement.
(iii) All stock issued in conjunction with this Agreement will bear the
legend "Restricted Stock" in compliance with the Securities Act of
1933 ("The Act") and will be subject to such holding periods as are
in effect from time to time under The Act.
The terms of payment will be made in accordance with the terms and
conditions described below.
(a) 146,000 shares of MAM common stock will be issued and
transferred to The Practice on the Transfer Date. The
Shareholders of The Practice shall determine, in their sole
discretion, whether and the manner in which said shares will be
distributed among the Shareholders of The Practice. Said shares
shall be restricted in accordance with applicable federal and
state securities laws. Said shares shall be delivered to The
Practice after the execution of this Agreement in the names and
manner requested in writing by The Practice within 45 days of
The Practice's written request for delivery of said shares.
(b) On the first anniversary of the Effective Date, if The Practice
achieves minimum financial performance in net revenue equal to
$5,200,000 or greater, 146,000 shares of MAM common stock
will be issued to The Practice. Should net revenues fall
below the minimum financial performance target amount, the
number of shares will be adjusted downward on a pro rata basis.
These shares will be issued and transferred to The Practice.
The Shareholders of The Practice shall determine, in their sole
discretion, the manner in which said shares are to be
distributed among the shareholders of The Practice.
4
<PAGE> 9
"Net revenue" is defined as gross billings less contractual allowances,
discounts, and uncollectible charges.
(c) On the second anniversary of the Effective Date, if The Practice achieves
minimum financial performance in net revenue equal to $5,200,000 or greater,
146,000 shares of MAM common stock will be issued to The Practice. Should
net revenues fall below the minimum financial performance target amount, the
number of shares will be adjusted downward on a pro rata basis. These shares
will be issued and transferred to The Practice. The Shareholders of The
Practice shall determine, in their sole discretion, the manner in which said
shares are to be distributed among the shareholders of The Practice.
(d) On the third anniversary of the Effective Date, if The Practice achieves
minimum financial performance in net revenue equal to $5,200,000 or greater,
146,000 shares of MAM common stock will be issued to The Practice. Should
net revenues fall below the minimum financial performance target amount, the
number of shares will be adjusted downward on a pro rata basis. These shares
will be issued and transferred to the Practice. The Shareholders of The
Practice shall determine, in their sole discretion, the manner in which said
shares are to be distributed among the shareholders of The Practice.
(e) On the fourth anniversary of the Effective Date, if The Practice achieves
minimum financial performance in net revenue equal to $5,200,000 or greater,
146,000 shares of MAM common stock will be issued to The Practice. Should
net revenues fall below the minimum financial performance target amount, the
number of shares will be adjusted downward on a pro rata basis. These shares
will be issued and transferred to The Practice. The Shareholders of The
Practice shall determine, in their sole discretion, the manner in which said
shares are to be distributed among the shareholders of The Practice.
(f) If The Practice generates net revenues during the first four years after the
Effective Date equal to four times the annual revenue Performance Target as
described in section 2.1.3 (ii), which equals $20,800,000.00, then MAM will
issue an amount of shares at the end of the fourth year equal to: 730,000
less the sum of any amounts issued sections 2.1.3
5
<PAGE> 10
(a), 2.1.3(b), 2.1.3(c), 2.1.3(d), 2.1.3(e). The Shareholders of The
Practice shall determine, in their sole discretion, the manner in
which said shares are to be distributed among the shareholders of The
Practice.
2.1.4 In the event (i) MAM is sold (as defined below), (ii) the majority of
the Shareholders continue full time employment with The Practice
thereafter, and (iii) the Practice retains its affiliation under this
Agreement with MAM (or MAM's successor), then The Practice shall
receive on an accelerated basis, effective immediately before the
closing of any such sale of MAM, any shares of MAM common stock then
remaining unissued under subsections 2.1.3 (b), (c), (d) and (e)
above, reduced pro rata to account for any prior years in which The
Practice has failed to achieve the annual minimum financial
performance targets. If it is later determined that The Practice
generates net revenues during the first four years of the Agreement
equal to four times the annual revenue Performance Target as described
in section 2.1.3 (ii), which equals $20,800,000.00, then MAM (or its
successor) will issue an amount of shares at the end of the fourth
year equal to: 730,000 less the sum of any amounts issued subsections
2.1.3 (a), (b), (c), (d), and (e). For purposes of this Section 2.1.4,
a sale of MAM shall mean the sale of all or substantially all the
assets of MAM to an unaffiliated third party, or a sale of more than
51% of the common stock of MAM to an unaffiliated third party or
group.
2.1.5 The Practice agrees to give written notice to MAM of any transfers by
The Practice of the shares of MAM stock to be issued to The Practice
under this Agreement as well as the amount of total consideration
received by The Practice for such shares and the value attributed to
any shares distributed to Shareholders. The Practice agrees to
establish agreements with the Shareholders to the effect that in the
event a Shareholder leaves The Practice with the intent not to comply
with the noncompete restrictions contained in Section 15 below (or in
the event a departed Shareholder breaches the noncompete
restrictions), then the Shareholder must return any MAM shares
acquired by him or her to MAM as part of the liquidated damages for
breach of the noncompete restrictions.
3.0 SHAREHOLDER'S, AND/OR (WHERE INDICATED) THE PRACTICE'S REPRESENTATIONS,
WARRANTIES AND COVENANTS
Shareholder(s) and/or (where indicated) The Practice hereby represents,
warrants and covenants to MAM as follows:
6
<PAGE> 11
(i) The Practice is a professional corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado and
has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This
Agreement and all other agreements referred to herein have been (or upon
execution will have been)duly executed and delivered by The Practice and
the Shareholders, have been effectively authorized by all necessary
action, corporate or otherwise, and constitute (or upon execution will
have been) duly executed and delivered by The Practice and the
Shareholders, have been effectively authorized by all necessary action,
corporate or otherwise, and constitute (or upon execution will constitute)
legal, valid and binding obligations of The Practice and the Shareholders,
enforceable against The Practice and the Shareholders in accordance with
their respective terms subject to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium and general principles of equity
(regardless of whether such enforceability is considered a law or equity).
(ii) The Practice owns good and marketable title to all of the Assets, and the
Assets will be transferred to MAM, free and clear of any and all liens,
encumbrances, claims, adverse interests, security interests, title
retention Agreements and the like whatsoever, except as set forth in
Schedule "2" attached hereto, the provisions of which are by this
reference incorporated herein. Without limiting the generality of the
foregoing, none of the Assets are subject to any contract, agreement or
understanding (other than in this Agreement), whether oral or written,
except as set forth in Schedule "2" attached hereto.
(iii) The execution and delivery of this Agreement by the Shareholders and the
Practice and the consummation of the transactions contemplated hereby will
not result in a breach of any of the terms and provisions of, or
constitute a default under or be in conflict with any contract, judgment,
decree, order or award of any court, governmental body or arbitrator or
any federal, state, municipal, local or foreign law, statute ordinance or
otherwise ("Laws") which are applicable to any Shareholder, The Practice
or to the provision of medical care as conducted by The Practice. Neither
any Shareholder nor the Practice nor any Agents have violated any laws,
nor received any notice of any such violations. For purposes of this
Agreement, the term "Agents" shall include any and all Shareholder
physicians, other employee physicians and other healthcare providing
employees of The Practice.
(iv) Except for pending actions and claims listed in Schedule "3" attached
hereto, the provisions of which are by this reference
7
<PAGE> 12
incorporated herein, there are no claims, disputes, actions, proceedings
or investigations of any nature pending or, to the Shareholders best
knowledge and belief, threatened against or involving any Shareholder or
The Practice or any Agents that relate in any way to any of the Assets, to
The Medical Practice Management Business or to the medical or health care
services rendered at The Practice.
(v) All consents, approvals, authorizations and other requirements prescribed
by an law which must be obtained or satisfied by The Practice or any
Agents, whether or not necessary for the execution and delivery by The
Practice of this Agreement and the documents to be executed and delivered
in connection herewith, have been obtained and satisfied.
(vi) The information provided and to be provided by The Practice to MAM in this
Agreement or in any exhibit or schedule hereto or in any other writing
pursuant hereto does not and will not contain any untrue statement of
material fact or omit to state a material fact required to be stated
herein or therein which is necessary to make the statements and facts
contained herein or therein, in light of the circumstances in which they
are made, not false or misleading. Copies of all documents previously or
hereafter delivered or made available to MAM pursuant hereto were or will
be complete and accurate copies of such documents.
(vii) As to each account receivable existing as of the Transfer Date of this
Agreement and as generated at all times during the term of this Agreement:
(a) each such account is or will be based on actual and bona fide
rendition of professional medical or other health care services to a
third party by The Practice or Agents in the ordinary course and
none of such accounts is fraudulent;
(b) each such account is and will not be subjected to any prior sale,
lien, security interest or financing statement whatsoever except
as described in Schedule 2;
(c) all medical services represented by each such account were
determined as medically necessary in the reasonable opinion of
the physician providing said services, for the patient who
received such services;
8
<PAGE> 13
(d) the fees charged for such services were in compliance with
applicable governmental regulations, if any;
(e) each account is payable solely in lawful currency of the United
States of America.
(viii) The balance sheet as of November 30, 1995 (the "Balance Sheet") and the
related statement of income (loss) (the "Income Statement") of The
Practice for the period then ended (the Balance Sheet and Income
Statement are collectively referred to as the "Reviewed Financial
Statements") supplied to MAM by The Practice are true, correct and
complete, and have been prepared from The Practice's books and records in
accordance with generally accepted accounting principles consistently
applied. The Practice's books of account have been kept in ordinary
course of business, the transactions entered therein represent bona fide
transactions, and such books of account fairly reflect all of The
Practice's income, expenses, assets and liabilities with respect to or
emanating from The Practice. Except for the liabilities reflected,
reserved or otherwise disclosed in the Reviewed Financial Statements or
in this Agreement or the Exhibits and Schedules attached hereto, The
Practice, as of the date of such Reviewed Financial Statements, had no
liabilities, whether absolute or contingent, known or unknown, which were
not set forth as liabilities reflected, reserved against or clearly
disclosed therein. No materially adverse changes have occurred in The
Practice or in the Medical Practice Management Business since the date of
such Reviewed Financial Statements through the Transfer Date of the
Agreement.
(ix) Schedule "2" attached hereto consists of a complete and correct list of
all material contracts, obligations and commitments relating to The
Practice and/or to the Assets and/or to the Medical Practice Management
Business (whether written or oral), including without limitation
employment contracts not terminable upon notice of (15) calendar days or
less, collective bargaining agreements, bonus, pension, profit sharing,
annuity, deferred compensation, retirement, stock purchase, stock option,
stock ownership, hospitalization, insurance and all other employee
benefit plans, leases, mortgages, pledges, deeds of trust, loans or
credit agreements, and contracts and agreements not made in the ordinary
course of business which involve more than $2,500.00.
(x) The Practice, and each Shareholder, as appropriate, is acquiring MAM's
Common Stock for its personal account with no intention
9
<PAGE> 14
of selling, transferring or otherwise disposing of the Stock or any
interest therein to others, other than to a trust for benefit to The
Practice or a Shareholder's family members, until the expiration of
the any applicable holding period arising under applicable federal
and state securities laws, and that by reason of Shareholder's
business or financial experience Shareholder can protect
Shareholder's own interests in connection with the transactions
contemplated herein, including without limitation the acquisition of
MAM's Common Stock.
The Practice and each Shareholder, as appropriate is an "accredited
investor" as such term is defined in rule 501(a) of the rules and
regulations promulgated under the Securities Act of 1933. The
Practice and each Shareholder, as appropriate will provide MAM with
an investment representation letter relating to the acquisition of
MAM's Common Stock in form and substance satisfactory to MAM's legal
counsel.
Notwithstanding the foregoing, The Practice enters into this
Agreement with the understanding and acknowledgment that risk to The
Practice in accepting MAM's stock as consideration for execution of
This Agreement is limited in scope and amounts because, in addition
to other factors, The Practice maintains the right during the first
four years of The Agreement to terminate MAM and all ongoing
obligations to MAM pursuant to termination provisions stated herein
in Section 12, which among other provisions allow The Practice to
terminate this Agreement with MAM and repossess the tangible assets
purchased by MAM.
(xi) Between the date hereof and the Transfer Date of this Agreement, MAM
and its authorized agents will have reasonable access during normal
business hours to all Assets and The Practice's business records
relating thereto, including without limitation, patient records and
information, subject to patient Confidentiality Rules, The Practice
shall supply or cause to be supplied promptly to MAM all information
with respect thereto which MAM may reasonably request. From and
after the Transfer Date and for the balance of the term of this
Agreement, The Practice will continue to cooperate with MAM in any
and all information regarding collection of the future accounts
receivable of The Practice. The Shareholders and the Practice as
appropriate, shall cooperate fully with MAM in communicating with
and seeking the assistance of patients and relatives or guardians
thereof for the purpose of better enabling MAM to collect upon such
present and future accounts receivable.
10
<PAGE> 15
(xii) From and after the Transfer Date, The Practice will not, at any
time, for any reason or under any circumstances, cause or permit any
of the Assets to become subject to any liens, mortgages,
encumbrances, rights or security interests imposed or suffered by
The Practice. The Practice will not, at any time or for any reason
or under any circumstances, bill any person or entity, including
without limitation any governmental agency in connection with the
collection of accounts generated by The Practice, in whole or in
part except pursuant to MAM's written request.
(xiii) Except with respect to Medicare and Medicaid accounts receivable,
The Practice shall from and after the Transfer Date of this
Agreement advise every third party account debtor regarding medical
and/or other health care services provided by The Practice that such
accounts receivable have been sold to MAM and are payable directly
to MAM or to its assignee. with respect to all present and future
accounts receivable sold and transferred to MAM herein, MAM shall
have the unilateral right to direct receipt of payment and all right
to demand or otherwise make any claim under Medicare or Medicaid
programs. From and after the Transfer Date of this Agreement, should
The Practice come into possession or control of any payment(s) in
trust for MAM, The Practice will forthwith deliver the check or
other form of payment to MAM, or to MAM's order, and will not
commingle such check or other form of payment with The Practice's
own funds or other assets. Accordingly, all checks, cash, notes or
other instruments or property received by or on behalf of The
Practice from each third party account debtor shall be deemed to
have been received by The Practice on behalf of MAM, as assignee and
owner of all such accounts receivable, and shall be turned over by
The Practice forthwith, without deduction or offset. MAM may use a
deposit stamp (to be provided by The Practice on or forthwith
following the Transfer Date of this Agreement) on any checks or any
other instruments which come into MAM's possession with respect to
such accounts receivable and may negotiate, transfer, deposit, and
otherwise deal with such checks or other instruments as the sole
owner thereof.
(xiv) Each Shareholder and The Practice, as appropriate, represents
(He/His is gender neutral):
(a) He had made available to him the opportunity to obtain such
information as he deemed necessary or appropriate to evaluate
the merits and risks of this investment. He has had
11
<PAGE> 16
the opportunity to ask questions of and has received
satisfactory answers from MAM concerning the terms and
conditions of the transaction and the information provided by
MAM, and has relied on no other information. No oral
representations have been made or representations made to The
Practice's or any Shareholder's advisors in connection with the
transaction relative to the securities inconsistent with the
information provided by MAM.
(b) He understands and acknowledges since such matters have been
brought to his attention that no federal or state agency has
recommended or endorsed purchase of the securities or passed on
the adequacy or accuracy of the information provided by MAM.
(c) He is capable of evaluating an investment in the securities of
MAM by reason of his own investment acumen or business
experience.
(d) He understands and acknowledges that it has been brought to his
attention that there may be no public market for the securities
of MAM, that there will be restrictions on the transferability
of the stock and that it is likely that he will not be able to
readily liquidate his investment.
(e) The Practice, if a partnership, joint venture, corporation,
trust or other entity, represents and warrants that it, or each
of its equity owners, was not formed or organized for the
specific purpose of acquiring the securities of MAM. If seller
is an individual, he represents and warrants that he is not
acquiring the stock as nominee, trustee, agent or
representative for any other person.
(f) In relation to his income and net worth, he is able to bear the
economic risks of an investment in the securities in MAM,
including, without limitations, the risk of the loss of part or
all his investment and the probable inability to sell or
transfer his securities for an indefinite period of time. He
does not have an overall commitment to investments that are not
readily marketable that is disproportionate to his net worth,
and his investment in the securities will not cause such
overall commitment to become excessive.
12
<PAGE> 17
(g) The purchase of the securities by the Practice, if an entity
investor, is a permissible investment in accordance with the
Practice's Articles of Incorporation, By-Laws, Declaration of
Trust or other similar charter documents and the purchase of
the securities has been duly approved by all requisite action
by the entity's owners, directors, officers or other authorized
persons or fiduciaries.
(h) The person (s) signing this document and all documents
necessary to consummate the purchase of the securities has
all requisite authority to sign such documents on behalf of
each Shareholder or The Practice as appropriate.
(i) He (they) understand (s) and acknowledges that investment in
the securities involves significant risks.
(xiv) The leases between The Practice and the owners of the leased
premises wherein the clinics and business office of The Practice are
located are current and in good standing, without any changes in the
terms and conditions thereof, except as are set forth in any written
amendments which have been delivered to MAM.
(xv) The Practice has provided MAM a true and complete copy of the
current shareholders' agreements among the Shareholders and The
Practice and the current form of employment agreement in use between
The Practice and the Shareholders, and the Shareholders and The
Practice agree that they will not amend or rescind the provisions in
such agreements concerning either (a) vesting or distribution of
shares of stock in The Practice (or MAM common stock, if applicable)
or (b) any covenant not to compete, without the prior written
consent of MAM (which will not be unreasonably withheld).
All representations and warranties herein are made as of the date hereof and as
of the Transfer Date of this Agreement and shall survive the Transfer Date of
this Agreement.
4.0 MAM'S REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------------
MAM hereby represents, warrants and covenants to Shareholders and The
Practice as follows:
(i) MAM is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all
requisite corporate power and authority to enter into the Agreement
13
<PAGE> 18
and to consummate the transactions contemplated hereby. This
Agreement and all other agreements referred to herein have been (or
upon execution will have been) duly executed and delivered by MAM,
have been effectively authorized by all necessary action, corporate
or otherwise, and constitute (or upon execution will constitute)
legal, valid and binding obligations of MAM, enforceable against MAM
in accordance with their respective terms subject to the effect of
applicable bankruptcy, insolvency, reorganization, moratorium and
general principles of equity (regardless of whether such
enforceability is considered at law or equity).
(ii) The execution and delivery of the Agreement and this consummation of
the transactions contemplated hereby and the fulfillment of the
terms hereof will not result in a breach of any of the terms or
provisions of or constitute a default under the conflict with, any
material agreements, indenture or other instrument to which MAM is a
party or by which it is bound, or any Law applicable to MAM.
(iii) If and to the extent required by Section x(v)1 of title 42 of the
United States Code, until the expiration of (4) years after the
termination of this Agreement, MAM will make available, upon written
request to the Secretary of the United States General Department of
Health and Human Services or upon request of the Comptroller General
of duly authorized representatives, a copy of this Agreement and
such books, documents and records as are necessary to certify the
nature and extent of the costs and services provided for under this
Agreement. MAM further agrees that in the event it carries out any
of its duties under this Agreement through a subcontract, with a
value or cost of TEN THOUSAND DOLLARS ($10,000.00) or more over a
twelve (12) month period, with a related organization, such a
contract will contain a clause to the effect that until expiration
of four (4) years after the furnishing of such services pursuant of
such subcontract, the related organization will make available, upon
written request of the Secretary of the United States Department of
Health and Human Services, or upon request of the Comptroller
General of the United States General Accounting Office, a true and
correct copy of such books, documents and records of such
organizations as are necessary to verify the nature and extent of
such costs.
(iv) MAM covenants that none of the materials concerning MAM or its
business operations which were delivered to The Practice in
connection with the sale of MAM's shares to The Practice
14
<PAGE> 19
contained an untrue statement of a material fact or omitted to state
a material fact necessary in order to make the statements made by
MAM in light of the circumstances under which they were made, not
misleading. In the event that MAM's disclosures are inaccurate or
misleading or incomplete, in material manner, The Practice shall
have the right to seek remedy in Court of Law of appropriate
jurisdiction to recover damages, if incurred by The Practice, by any
amount of such damages, which may be more valuable than a claim
based solely on applicable securities law.
(v) All consents, approvals, authorizations and other requirements
prescribed by any law which must be obtained or satisfied by MAM,
whether or not necessary for the execution and delivery by MAM of
this Agreement and the documents to be executed and delivered in
connection herewith, have been obtained and satisfied.
(vi) MAM has had access to the books, assets and records of The Practice,
has examined the same and, based upon such access and examination,
is acquiring the Assets; provided that this representation and
acknowledgement by MAM shall not reduce, limit or waive in any
manner MAM's right to rely upon the representations and warranties
of The Practice and the Shareholders contained in this Agreement.
(vii) Prior to the Transfer Date, MAM will have reviewed the leases and
contracts to be assumed by MAM under this Agreement.
(viii) MAM further represents as follows:
(a) MAM had made available to it the opportunity to obtain such
information as it deemed necessary or appropriate to evaluate
the merits and risks of this investment. It has had the
opportunity to ask questions of and has received satisfactory
answers from The Practice and the Shareholders concerning the
terms and conditions of the transaction and the information
provided by The Practice and the Shareholders, and has relied
on no other information. No oral representations have been made
or representations made to MAM's advisors in connection with
the transaction inconsistent with the information provided by
The Practice and the Shareholders.
(b) The purchase of the Assets by MAM is a permissible investment
in accordance with MAM's Articles of
15
<PAGE> 20
Incorporation and By-Laws, and the purchase of the Assets has
been duly approved by all requisite action by MAM's board of
directors.
(c) The person(s) signing this document and all documents necessary
to consummate the purchase of the Assets has all requisite
authority to sign such documents on behalf of MAM.
(ix) MAM is not aware of any actual, pending or threatened litigation,
arbitration, tax investigation, tax lien, proceeding or other
investigation by any person or by any governmental authority against
MAM which would adversely affect in any manner MAM's performance
hereunder or other related documents involving the parties.
(x) Prior to the Transfer Date, MAM will not disclose the terms and
conditions of this Agreement to any third party or parties in a
public or private placement memorandum or otherwise without the
prior written consent of The Practice, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, The Practice
hereby consents to MAM disclosing the terms and conditions of this
Agreement to entities with whom MAM is and will be negotiating to
obtain financing for this transaction and for MAM generally, and The
Practice consents to MAM making any disclosure required by
applicable securities and other laws.
All representations and warranties herein are made as of the date hereof and as
of the Transfer Date of this Agreement and shall survive the Transfer Date of
this Agreement.
5.0 INDEMNIFICATION OF MAM
----------------------
MAM shall not be deemed by anything set forth in this Agreement to have
assumed the liability for payment of, and The Practice and the Shareholders
agree to indemnify, hold harmless and defend MAM and its officers,
directors, employees, agents, and shareholders from any and all
liabilities, costs and expenses, including reasonable attorneys' fees in
addition to other costs incurred, arising from any and all of the
following:
(i) Any liability or undertaking of The Practice of any Shareholder to
any person or entity whomsoever as of the Effective Date of this
Agreement or at anytime hereafter created, except only to the
limited extent, if at all, herein expressly assumed by MAM;
<PAGE> 21
(ii) Any liability of The Practice or any Shareholder for any federal,
state or local tax, interest, penalties, deficiencies, duties, fees
or governmental charges or impositions of each and every kind or
description, whether measured by properties, assets, wages, payroll,
purchases, value added, payment, sales, use, business, capital stock
surplus or income with respect to ownership of the Assets;
(iii) Any liabilities or obligation (contingent or otherwise) of The
Practice or any Shareholder arising out of any litigation or
administrative proceeding threatened or pending;
(iv) Any and all acts or omissions of The Practice or any Agents,
including without limitation claims of professional malpractice;
(v) Any liabilities or obligations (contingent or otherwise) of The
Practice arising out of defects or errors in packaging, labeling or
dispensing any prescription or other drugs, chemicals or diagnostic
or therapeutic devices or any other products (including without
limitation prescription medications) manufactured, sold prescribed
or otherwise distributed by The Practice or any Agents;
(vi) Any liability or obligation (contingent or otherwise) of The
Practice to compensate any person or entity, including without
limitation any Agent, licenser, supplier, distributor, landlord,
patient, or customer of The Practice in respect to any services
rendered or products manufactured, sold, prescribed or otherwise
distributed in connection with the Assets or The Practice; provided,
however, that MAM will assume, and hereby agrees to pay, perform and
discharge, in accordance with the terms hereof, the contractual
obligations, and liabilities of The Practice at and as of the
Transfer Date of this Agreement relating only to the contracts or
Agreements set forth in Schedule "2" attached hereto, provided
further that The Practice hereby agrees also to remain liable under
all such obligations;
(vii) Any breach of any representation, warranty or undertaking by The
Practice of any Shareholder set forth in this Agreement or in any
Exhibit or Schedule attached hereto;
(viii) Any retained liabilities or other claims against, or liabilities or
obligations of The Practice or any Shareholder which are not
specifically assumed by MAM pursuant to this Agreement;
17
<PAGE> 22
(ix) Any real estate lease associated with the properties at 8300 N.
Alcott, Suite 300, Westminster, CO 80030, and Highway 9 and School
Road, Suite 250, Frisco, CO 80443, 1550 South Potomac, Suite 330,
Aurora, CO 80012 and 4500 E 9th Suite 670S, Denver, CO 80220, and
corporate offices at 11175 E. Mississippi Ave. Suite 100, or
future leases associated with practice expansion or practice
relocation efforts. Notwithstanding the foregoing, MAM shall
specifically assume responsibility for payment of said leases
throughout the term of this Agreement. In the event of termination
of this Agreement, The Practice shall indemnify MAM for payments
under said leases after the date of termination.
5.1 In consideration for the above indemnities, MAM agrees to reimburse The
Practice on a pro rata basis from and after the Transfer Date of this
Agreement for rent, telephone, and other normal business expenses related
to the operation of the Medical Practice Management Business paid by The
Practice for any period of time after the Transfer Date of this Agreement.
MAM shall be responsible for paying all sales and transfer taxes, together
with all other transfer or filing fees and expenses arising out of the
transfer of the Assets to MAM pursuant to the provisions of this Agreement.
All other fees, costs and expenses incurred by either party hereto shall be
borne by the party incurring the same.
6.0 INDEMNIFICATION OF THE PRACTICE
-------------------------------
MAM hereby agrees to indemnify, hold harmless and defend The Practice
against, including without limitation payment of The Practice's reasonable
attorney's fees in addition to other costs as may be incurred, any and all
of the following;
(i) Any breach of any representation, warranty or covenant made by MAM
in this Agreement;
(ii) All federal, state withholding or other taxes as may be due from
MAM;
(iii) Any claim resulting from any misstatement or omission of a
material fact in any public or private offering statement or any
statements to MAM's lenders or other credit sources, except to
the extent the misstatement or omission is based upon information
provided to MAM by The Practice or the Shareholders; and
(iv) Any liability or undertaking of MAM unrelated to MAM's actions and
services under this Agreement, to any person or entity
18
<PAGE> 23
whomsoever as of the Effective Date of this Agreement or at
anytime hereafter created.
7.0 MANAGEMENT SERVICES TO BE PROVIDED BY MAM
-----------------------------------------
7.1 From and after the Effective Date of this Agreement and for a term of
twenty five (25) years (unless terminated sooner in accordance with the
terms hereof), The Practice hereby engages MAM to perform, and MAM hereby
agrees to perform in a competent, efficient and satisfactory manner, as the
Practice's exclusive manager and administrator of all non-medical functions
and all non-professional services relating to the operation of The
Practice. MAM will, at MAM's expense and as part of the Medical Practice
Management Business, provide all necessary advisory, consulting, management
and administrative services to The Practice for the operation of The
Practice (other than that related to the actual dispensation of medical and
other health care services to be provided by duly licensed professionals
practicing at The Practice). Notwithstanding the foregoing, the parties
hereby agree that (i) MAM shall not be entitled to receive any management
fees or other compensation under this Agreement until after the Transfer
Date, and (ii) MAM shall not perform any administrative or other aspects of
The Practice's business until after the Transfer Date (although MAM shall
have the right to begin to orient The Practice's employees to MAM's
operating procedures and to integrate The Practice's administrative systems
with MAM's systems).
7.2 Subject to the limitations set forth in Section 7.1, MAM will from and
after the Effective Date of this Agreement and for the balance of the term
of this Agreement provide to The Practice at MAM's sole expense all the
management and administrative services as set forth in Schedule "4"
attached hereto, the provisions of which are by this reference incorporated
herein.
7.3 Anything set forth above to the contrary notwithstanding, The Practice and
the Shareholders, will be solely and exclusively in control of all aspects
of the practice of medicine with The Practice and the provision of medical
services, including but not limited to all patient diagnosis, treatment,
surgery, therapy and prescription of drugs. In addition, The Practice shall
be solely responsible for the rendition of all medical reports and for the
maintenance of medical (as opposed to financial) records. The Practice
shall have the sole right and authority to hire, employ, train, supervise
and terminate and agrees to compensate all physician-contractors and
physician-employees ("Professionals"), excluding only physician assistants
and nurse practitioners not required by Colorado Law to be licensed for
the provision of health care services in their role within The Practice.
7.4 It is The Practice's sole responsibility to provide all medical care and
treatment provided to patients of The Practice, and The Practice will
assure that all such
19
<PAGE> 24
professional medical services are provided under the supervision of a
licensed physician, and MAM shall not interfere in any way therewith.
7.5 MAM will not provide or otherwise engage in any services or activities that
constitute the practice of medicine as defined by the laws of the State of
Colorado or under Federal, local or other applicable Laws. Under no
circumstances will medical services be made available to or for The
Practice by MAM. MAM will not assign or refer patients to The Practice in
expectation of any fee for such referral and any such fee for referral of
patient is expressly prohibited and shall constitute a material breach by
MAM of its obligations and undertakings under this Agreement. MAM shall not
interfere with, control, direct or supervise any Professional or any
individual whom any Professional may employ or contract with in connection
with the care and treatment of the Professional's patients. MAM will have
no authority whatsoever with respect to the establishment of fees for the
rendition of such services, provided, however, that MAM will provide The
Practice with periodic assessments of services provided by The Practice
other than professional medical services.
7.6 The Practice and the Shareholders agree to provide medical services on
behalf of The Practice as a result of MAM's marketing efforts described
above at The Practice's usual and customary rates for such services. Each
Shareholder agrees to devote his or her entire professional time and
attention to the practice of medicine and/or medical management of other
physicians of The Practice, consistent with present practice excluding
periods of disability, illness, vacations and continuing education.
Notwithstanding the foregoing, the following activities shall not be deemed
to be in violation of this Section: (i) a Shareholder's participation as a
passive investor in health care related investments that require no
professional or management services of the Shareholder, and (ii) a
Shareholder performing medical services of the kind described in Section
8.11 below.
In no event will Shareholder's activity relating to any medical group
development or any marketing or development activity concerning his
relationship with MAM be deemed to violate this clause of the Agreement.
7.7 In addition to Shareholder's personal professional medical services, The
Practice agrees to maintain at all times an adequate staff with such
medical personnel as may be necessary to efficiently carry out the practice
of medicine on behalf of The Practice. All such medical personnel will be
duly licensed by the State of Colorado or under Federal, local or other
applicable Laws. The Practice will at all times operate The Practice in
conformity with the custom and practice of the community in which The
Practice is located. The cost of locating and retaining the services of
additional Professionals reasonably necessary for the proper operation of
The Practice shall be borne by the Practice out of Professional
Compensation, and The Practice shall maintain a minimum financial
performance
20
<PAGE> 25
target of $5,200,000 per calendar year of Net Revenues. MAM will negotiate
in good faith with the Practice to pay for the recruitment of professionals
necessary to achieve financial performance levels that are in excess of
minimum financial performance targets as defined in section 2.1.3 (ii).
7.8 All patient records, reports and information obtained, generated or
encountered relating to The Practice, after the Effective Date of this
Agreement, will at all times be and remain the property of the Practice,
provided that in the event this Agreement is terminated as provided for
below, copies of all billing records and supporting information (subject to
patient confidentiality rules) will be given to MAM.
8.0 COMPENSATION TO MAM AND THE PRACTICE
------------------------------------
8.1 MAM and the Practice have exercised care and diligence in determining their
respective best estimates of expenses, investment and reasonable rate of
return, of MAM in providing the non-medical management, administrative and
marketing services, personnel, office space, equipment and supplies
required by this Agreement, and based thereon, have determined that the
compensation to be paid MAM is commensurate with the reasonable value of
such services, personnel, office space, equipment, and supplies to be
provided by MAM to the Practice. As full and complete compensation for such
services, The Practice hereby agrees to pay MAM a management fee (the
"Management Fee") equal to amounts in no event less than five percent (5%)
of the cash collected by The Practice or more than thirty percent (30%) of
the Net Revenues of the Practice as conducted by The Practice.
MAM shall be entitled to receive a minimum of 5% of the cash collected per
month as payment toward MAM's minimum management fee.
8.2 On or before the fifth (5th) day of each month, with the first payment due
no sooner than 30 days after the Effective Date (provided that until the
Transfer Date the actual payments will be made by The Practice), MAM will
allocate funds as follows:
(i) First, repay to MAM any amounts loaned by MAM to the Practice
under the line of credit provided for under Section 8.3 below
(with interest accrued thereon).
(ii) Second, pay to The Practice an amount equal to 54% of the prior
month's collections; provided that this percentage shall be
reduced
21
<PAGE> 26
to 53% when the two liabilities identified in Schedule 7 have
been paid in full.
The determination of the amount of Professional Compensation is
attached to this Agreement in Schedule "5". The total compensation
due The Practice will equal the rate (percentage) of Professional
Compensation above, as applied against the collections of the
practice, subject to adjustment as provided below.
In the event The Practice is unable to maintain minimum production
levels of Net Revenues or cash flow as required by this Agreement,
then the rate of Professional Compensation shall be adjusted
downward by an amount sufficient to allow MAM to pay overhead
expenses of The Practice and MAM's minimum management fee of 5% of
the cash collected per month, all as provided in Section 8.3
below.
(iii) Third, reimburse MAM for operating expenses and any necessary
capital expenditures of The Practice for the preceding month;
(iv) Fourth, pay to MAM cash equal to 5% of cash collected (as
described in Schedule 5), as MAM's minimum management fee and any
cash for any deferred payment obligations; and
(v) Fifth, retain the balance, to be held on behalf of The Practice,
for future capital expenditures.
8.3 During the first calendar year of this Agreement, if the Practice has
maintained an average monthly level of production of Net Revenues equal to
1/12th of $5,200,000, and monthly cash flows fluctuate to such a level
that The Practice is unable to meet it's historical levels (1995 calendar
levels) of salary and benefit obligations to The Shareholders of the
Practice, professionally related expenditures, salaries of employed
physicians and related benefits, form the amount advanced by MAM pursuant
to Section 8.2, then, MAM shall be responsible for advancing cash to The
Practice in the form of a line of credit not to exceed $200,000 in
aggregate principal outstanding at any time. The money advanced shall bear
an interest rate of 2% per annum above the prime rate charged from time to
time by Aurora National Bank South, until fully reimbursed by The Practice.
MAM shall be repaid the principal and interest from the next available cash
flows of The Practice, as provided in section 8.2(i) above.
In the event either (i) the level of monthly cash collections decreases
below 1/12th of $5,200,000 for a period of more than six consecutive
months, or (ii) the level of The Practice's production of Net Revenues
decreases below ninety
22
<PAGE> 27
percent (90%) of $2,600,000 over any six month period, than the rate of
Professional Compensation shall be adjusted downward at a level to pay
overhead obligations of The Practice, MAM's minimum cash fee of 5% of
collections and payments to MAM to fully amortize the principal and
interest advanced by MAM, in the form of the line of credit, over 48 equal
monthly installment payments. Notwithstanding the foregoing, MAM shall not
be entitled to make any adjustment in the rate of Professional
Compensation as a result of occurrences under clause (i) above until the
first anniversary hereof.
8.4 The percentage of Net Revenue to be retained as Professional Compensation
by The Practice is to be determined in the following manner: The Practice
and MAM will jointly determine a percentage to be allocated to the
Professional Compensation components to insure MAM a five (5%) minimum cash
management fee is available for payment to MAM monthly on a cash basis,
from the practice after payment of the Professional Compensation component
and operating expenses. Determination of the rate of Professional
Compensation agreed upon by the Parties as of the Effective Date is
attached to this Agreement in Schedule "5". The Rate of Professional
Compensation shall only be adjusted in the event MAM is unable to receive
it's minimum cash payments equal to 5% of collections.
8.5 In the event The Practice experiences an increase in the total collections
of the practice as a result of any of the following: an increase in the
production of the Shareholders or physician/professional providers
employed by The Practice, as increase in the reimbursement per unit of
service obtained as a result of improved contracting efforts with managed
care providers, new physician recruitment and corresponding increases in
production, new satellite Medical Practice openings, practice mergers or
acquisitions on behalf of MAM and the Practice, or office relocation's,
then disbursements of excess cash flows generated from such efforts shall
be available for distribution to The Practice and to MAM as follows:
a.) All cash invested by MAM for expansion or other purposes agreed to by
The Practice and MAM (excluding amounts comprising the Cash Payment being
made by MAM to The Practice pursuant to Section 2.1.1 above) shall require
a financial return to MAM in an amount equal to the principal amount
invested plus interest calculated as a rate equal to 2% above prime rate
per annum interest as charged from time to time by Aurora National Bank
South (calculated on a variable rate, with adjustments made semi-annually)
on any outstanding principal balances, to be repaid to fully amortize
principal and interest over a ten year period from the date of said
investment. MAM shall be entitled to repayment of money invested per the
monthly payment calculation above prior to calculation of the money due The
Practice.
If termination is made by The Practice within the first four years of the
Agreement, The Practice shall be obligated to fully repay MAM 100% of the
money invested in The Practice, and not repaid to MAM through the excess
cash flows of the Practice, as of the date of termination by The Practice.
Should The
23
<PAGE> 28
Practice elect to repay any money invested by MAM on any term shorter than
the ten year term as described herein, The Practice shall have no
prepayment penalty.
b.) All stock invested by MAM on behalf of any proposed expansion
opportunity (excluding shares issued to The Practice) to the benefit of The
Practice or the Shareholders, shall require a cash payment of MAM equal to
50% of the market value of the stock, at the date of the issuance of the
stock. This amount shall be repaid over a 10 year period in equal monthly
installments. MAM shall be entitled to this payment prior to calculation of
the money due The Practice.
c.) All expenses associated with any expansion opportunity shall be
considered at a net cost basis for the purposes of determining distribution
of excess cash flow to be paid to The Practice.
d.) Fifth percent (50%) of all excess cash available, as a result of the
increase in cash flow generated by any expansion opportunity as listed
above, after repayment to MAM for expenses incurred as described above in
Section 8.5 a., b., c., shall be distributed to The Practice.
e). In the event any shareholder elects to leave the practice for any
reason, any excess cash flow created by this event shall be distributed in
accordance with the formula listed above.
For example only, in the event a shareholder elects to retire from
practicing medicine on behalf of The Practice and the Shareholder is
replaced with a physician who is able to practice at a lower rate of
compensation than the retiring Shareholder, then the excess cash, if any,
available to The Practice as a result of the lower compensation level of
the replacement physician shall be distributed to The Practice at a rate of
50% of the excess cash flow.
f.) Upon such time as MAM receives a 30% of total collections management
fee, then, all remaining excess cash flow shall be paid to The Practice.
8.6 In the event cash collections are inadequate to pay all of the Management
Fe due, over MAM's minimum management fee of 5%, such deficiency shall be
treated as a deferral of the portion of the Management Fee not paid. In
addition, MAM may elect to defer receipt of payment of the Management Fee
in its sole discretion. any such deferred payment will be accrued as an
obligation of the Practice to MAM and may be paid at any time funds for
such payment become available. MAM has made no representations or
warranties to the Practice that cash flows will improve over their present
levels. In no event will individual providers or shareholders of the
Practice group be held liable for MAM management fees earned but not paid.
8.7 If after payment of any monthly Management Fee it is determined, in
connection with preparation of a management report, annual report or
otherwise that any such payment was made in error, such error will be
corrected and all accounts of the parties settled by payment within five
(5) business days of such
24
<PAGE> 29
determination. For purpose of this Agreement, the annual report will be
conclusive and binding upon the parties, unless within sixty (60) calendar
days after receipt of such report a party notifies the other party that it
disputes one or more items included therein.
8.8 In no event shall MAM assume responsibility for negative cash flow
associated with the operation of The Practice at any time during the entire
term of this Agreement. In the event capital expenditures are required by
MAM, including but not limited to, practice expansion or capital equipment
purchases, MAM shall budget for and plan for such expenditures at least 60
days prior to such expenditures being incurred. Such expenditures shall be
documented in writing by the parties prior to incurring expenditures. MAM
shall be under no obligation to invest in the expansion of The Practice.
Notwithstanding the foregoing, The Management Committee as established in
Section 16.16, and MAM shall negotiate in good faith and a spirit of
cooperation to determine financial feasibility for said expansion efforts.
MAM acknowledges the inherent financial interests of The Practice of said
expansion opportunities and shall make a best efforts attempt to assist in
the expansion of The Practice to the mutual financial benefit of the
Parties.
8.9 MAM shall allocate needed funds to The Practice by way of a temporary
increase in the rate of Professional Compensation (from 53% to 54% as
provided in Section 8.2(ii) above) to allow the Practice to adequately
service certain specific liabilities not assumed by MAM as listed in
Schedule 7, until such time as the liabilities are paid in full. Further,
MAM shall process and make payments on behalf of The Practice for said
liabilities from the receipts of The Practice. Once the liabilities
identified in Schedule 7 have been paid in full, the rate of Professional
Compensation to be paid under Section 8.2(ii) above shall be reduced to
53%.
8.10 MAM shall accrue it's management fee from the Effective Date hereof, but no
payment of the management fee shall be made until after the Transfer Date,
assuming that MAM makes the Cash Payment required under Section 2.1.1
hereof, and then only in accordance with the provisions hereof. Between the
Effective Date and the Transfer Date, The Practice shall continue to employ
the management company with whom The Practice had contracted prior to the
Effective Date and upon the same terms and conditions as existed prior to
the Effective Date. To the extent that The Practice pays a management fee
to the existing management company, such payments shall be deducted from
the management fees accrued to MAM prior to the Transfer Date
(""Pre-Transfer Management Fees"). Notwithstanding the foregoing, MAM shall
only be paid such Pre-Transfer Management Fees to the extent that there are
excess funds available after the payment of: (i) obligations owed to MAM
for sums loaned by MAM pursuant to Section 8.3 hereof, (ii) Professional
Compensation. (iii)
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<PAGE> 30
operating expenses, (iv) MAM's accrued but unpaid Management Fee, other
than the Pre-Transfer Management Fees, and (v) 50% of the funds thereafter
paid to The Practice pursuant to Section 8.5. In the event that this
Agreement is terminated under the provisions of Sections 12 or 13, The
Practice shall not be required to pay any unpaid Pre-Transfer Management
Fees and the same shall be deemed forfeited by MAM.
8.11 Certain Shareholders of The Practice may from time to time generate
revenues from consulting services, teaching and other activities
(including, for example, serving as a paid in-house physician providing
emergency coverage on behalf of a hospital at a hospital at night, on
holidays and on weekends for which the physician is paid directly by the
hospital), other business ventures, or from the production of publications,
which are not harmful to, or in conflict with the success of MAM or The
Practice. The revenues received from these activities shall be separate
from the revenues included in this Agreement or from revenues of The
Practice.
8.12 In the event that MAM and The Practice shall desire to expand The Practice
(as defined below), then the Management Committee (including MAM and The
Practice representatives) shall determine the appropriate levels of
Professional Compensation to be allocated to such expansion efforts as well
as the amounts and terms of repayment to MAM of any expenses incurred in
connection with such expansion. For purposes of this Agreement, "expansion"
of The Practice shall include the happening of one or more of the following
events: (i) increasing the number of physicians from its full time
equivalent of 10 physicians, either as additional Shareholder physicians or
as employee physicians, (ii) adding other practice locations, and (iii)
physically expanding an existing practice site.
9.0 OWNERSHIP OF LICENSES
---------------------
It is understood and agreed by the parties that the Practice will be the
holder and owner of all licenses, accreditation certification and contracts
for the provision of medical services by the Practice, and the Practice
will be the "provider" within the meaning of all agreements with third
party payers.
10.0 TERM OF MANAGEMENT AGREEMENT
----------------------------
Unless sooner terminated as herein provided, this Management Agreement will
remain in effect for a period of twenty-five (25) years, commencing on the
Effective Date of this Agreement.
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<PAGE> 31
11.0 DEATH OR DISABILITY OF SHAREHOLDERS
-----------------------------------
In the event of the death of all Shareholders or the total and permanent
disability of all Shareholders (within the meaning of the largest
disability policy on the Shareholders then in effect) during the first (4)
years of this Agreement.
(i) All amounts due to the Practice as of the date of such death or
disability, shall be paid to the estates of Shareholders.
(ii) MAM shall exert its best efforts to transfer ownership of the
Practice or its assets to a new provider subject to the terms of
this Agreement, and Shareholder(s) and their heirs and successors
shall cooperate to effect such transfer. MAM shall have the
flexibility to negotiate an appropriate rate of compensation for
such new owner/provider, effective as of the date of the last
Shareholder's death or disability, and any payment received by MAM
from the new owner/provider for the practice shall belong to MAM
alone. If MAM is unable to effect such a transfer within twelve
months, this Agreement shall be deemed terminated.
(iii) If MAM is able to transfer ownership of The Practice to a new
provider as provided above, MAM shall remain obligated to pay the
Shareholders' estates the balance of the cash and stock provided
for pursuant to Section 2.1, adjusted to the extent provided
therein if the Practice and such successor provider fail to
achieve target performance levels during such four year period.
(iv) In the event that any Shareholder is unable to perform full
duties for a period of thirty (30) calendar days or longer, The
Practice shall take such actions as are necessary to maintain the
level of services to patients and the minimum production levels
required under this Agreement (without any increase in
Professional Compensation to cover the costs of taking such
actions).
12.0 TERMINATION OF AGREEMENT DURING FIRST FOUR YEARS
------------------------------------------------
This Agreement may be terminated by either MAM or The Practice at any time
up to and including the fourth anniversary date of the Effective Date for
any reason. In the event this Agreement is terminated by either MAM or
the Practice at any time during said initial four-year period, the
following actions shall be taken effective the date of such termination:
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<PAGE> 32
(i) MAM will retain the accounts receivable of the Practice existing
on the date of termination, whether billed or not, on account of
services rendered by the physicians of The Practice through the
date of termination.
(ii) MAM will pay normal operating expenses and transfer moneys due The
Practice under the Professional Compensation arrangement up to and
including the date of termination.
(iii) The Practice will reacquire from MAM all tangible assets purchased
by MAM from The Practice, with the specific exclusion of all
accounts receivable, at the net book value price of the assets as
agreed to by the parties as of the Effective Date of this
Agreement, and The Practice will pay MAM cash thereafter.
(iv) The Practice will repay MAM in cash any amounts paid by MAM for
goodwill attributable to The Practice (i.e., any amounts by which
the Cash Payment made on the Transfer Date exceeds the value of
net receivables and book value of tangible assets purchased by MAM
as of the Transfer Date) up to a maximum amount of $19,076.00.
(v) The Practice will repay MAM in cash any amounts owed to MAM on
account of: (a) advances made under the line of credit described
in Section 8.3 (including both principal and interest), (b) sums
advanced by MAM for expansion and any other capital invested by
MAM in The Practice (the payment of the same being accelerated by
any such termination), and (c) any of the minimum 5% Management
Fee earned but not yet received by MAM through the date of the
termination.
(vi) The Practice will reassume all of the obligations owed under The
Practice's leases and other contracts.
(vii) The Practice will transfer back to MAM all of the original stock
certificates issued by MAM to The Practice or, in the event any of
the shares of stock have been sold or otherwise transferred by The
Practice to others prior to the termination, The Practice shall
pay MAM an amount equal to the net amount of cash received by The
Practice from any such sale, provided said sale was made in a
market transaction through a broker-dealer, or, if any prior sale
was not made through a broker-dealer then the fair value of the
shares transferred in the prior private transaction or other
transfer, at the date of such prior transfer.
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<PAGE> 33
13.0 TERMINATION OF AGREEMENT AFTER FOURTH ANNIVERSARY
-------------------------------------------------
13.1 This Agreement may be terminated by either MAM or The Practice at any
time after the fourth anniversary of the Effective Date for cause (as
defined below). In the event this Agreement is terminated by either MAM or
The Practice for cause at any time after the fourth anniversary hereof,
the parties shall take all of the same actions required to be taken by
them respectively in connection with a termination under Section 12.0
above, except as is provided in Section 13.4, effective the date of such
termination.
In the event of termination under this Section 13.0 and the full payment
and performance by The Practice and the Shareholders of all of their
obligations to MAM under Sections 12(i) through (vii) above (as modified
by Section 13.4), the covenant not to compete contained in Section 15
below shall cease to be applicable.
The Practice will retain all payments from MAM to the Practice for the
purchase of any account receivable in existence as of the execution of
this Agreement and any moneys paid under Section 8.3 as advances for
Professional Compensation.
13.2 For purposes of this Section 13, The Practice may terminate this Agreement
"for cause" for any of the following reasons, provided The Practice shall
first provide written notice of the default to MAM and MAM shall have
failed to cure the default within 30 days after the giving of such notice
by The Practice (except in connection with subsections (vii) and (viii)
below for which no notice shall be required):
(i) MAM's failure to provide professional management services meeting
in all material respects the level of professional management
services provided by other medical practice management companies;
(ii) MAM's failure to provide adequate support to enable physicians
of The Practice to perform competent medical services;
(iii) MAM's repeated failure to timely make payments to The Practice
required thereunder;
(iv) MAM's violation of rules, statutes or regulations causing MAM to
lose any licenses necessary for it to operate or otherwise
causing MAM to lose the ability to operate;
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<PAGE> 34
(v) MAM's conduct which results in substantial damage to the
reputation of The Practice or the physicians employed by
The Practice;
(vi) MAM's engaging in activities in violation of any statutes, rules
or regulations or any governmental or quasi-governmental agency
having jurisdiction over the stock of MAM;
(vii) The institution of MAM of proceedings of any nature under any
laws of the United States or any state, whether now existing or
subsequently enacted or amended, for the relief of debtors
wherein MAM is seeking relief as a debtor, including without
limitation a general assignment made by MAM for the benefit of
creditors, the institution by or against MAM of a proceeding
under any section or chapter of the Federal Bankruptcy Code as
now existing or hereafter amended or becoming effective, the
appointment of a receiver, trustee or like officer to take
possession of assets having a value in excess of ONE HUNDRED
THOUSAND DOLLARS ($100,000.00) (unless such appointment has no
adverse effect upon the performance by MAM of its obligations
under this Agreement), which receivership remains undischarged
for a period of thirty (30) calendar days from the date of this
imposition; or
(viii) The issuance of a final order of any governmental agency or
court having competent jurisdiction over the parties, which order
requires such termination under this clause.
13.3 For purposes of this Section 13, MAM may terminate this Agreement "for
cause" for any of the following reasons, provided MAM shall first provide
written notice of the default to The Practice and The Practice shall have
failed to cure the default within 30 days after the giving of such
notice by MAM (except in connection with subsections (vii) or (viii)
below for which no notice shall be required);
(i) The Practice failure to provide adequate professional medical
staff or services;
(ii) The failure of the Shareholder physicians, or any one or more of
them, or the replacements, (approved by MAM) of any departing
Shareholder physician, to retain ownership of at least 51% of the
issued and outstanding stock of The Practice;
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<PAGE> 35
(iii) The Practice's repeated failure to meet the annual minimum
performance targets set forth in this Agreement (as adjusted
pursuant to this Agreement);
(iv) The Practice's or the Shareholder's violation of rules, statutes
or regulations causing The Practice to lose any licenses
necessary for it to operate or otherwise causing The Practice to
lose the ability to operate;
(v) The Practice's or the Shareholder's conduct which results in
substantial damage to the reputation of MAM;
(vi) The Practice's or the Shareholder's engaging in activities
in violation of any statutes, rules or regulations of any
governmental or quasi-governmental agency having jurisdiction
over the stock of MAM;
(vii) The institution by The Practice (or its controlling
Shareholders) of proceedings of any nature under any laws of the
United States or any state, whether now existing or subsequently
enacted or amended, for the relief of debtors wherein The
Practice (or its controlling Shareholders) is/are seeking relief
as debtor(s), including without limitation a general assignment
made by The Practice (or its controlling Shareholders) for the
benefit of creditors, the institution by or against The Practice
(or its controlling Shareholders) of a proceeding under any
section or chapter of the Federal Bankruptcy Code as now existing
or hereafter amended or becoming effective, the appointment of a
receiver, trustee or like officer to take possession of assets
having a value in excess of ONE HUNDRED THOUSAND DOLLARS
($100,000.00) (unless such appointment has no adverse effect upon
the performance by The Practice (or its controlling Shareholders)
of its/their obligations under this Agreement, which receivership
remains undischarged for a period of thirty (30) calendar days
from the date of this imposition;
(viii) The issuance of a final order of any governmental agency or
court having competent jurisdiction over the parties, which order
requires such termination under this clause;
(ix) The Practice's failure for any reason to maintain in effect
adequate medical errors and omissions insurance; or
(x) Expenses associated with the management of The Practice's
medical practice exceed the budget guidelines established by The
Practice and MAM by more than ten percent (10%) for two (2)
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<PAGE> 36
consecutive quarters, unless such excess expenses are due to
MAM's actions or lack of action, or MAM is unable to receive
payment of its minimum management fees under this Agreement in
cash for more than six consecutive months.
13.4 In the event of termination under this Section 13.0, the application of
Section 12.0(vii) shall be modified as follows:
(i) In the event of termination under this Section 13.0 after the
fifth anniversary of the Effective Date but on or before the
sixth anniversary of the Effective Date, The Practice shall be
obligated to transfer back to MAM eighty-seven and one-half
percent (87.5%) of the shares of stock issued by MAM to The
Practice during the first four years of this Agreement. To the
extent that The Practice has sold or otherwise transferred a
number of shares greater than 12.5% of the shares issued by MAM
to The Practice during the first four years, The Practice shall
pay MAM an amount equal to the per share price received by The
Practice from any such sale or transfer, provided said sale was
made through a broker-dealer, times the number of shares which
when added to the shares owned by The Practice at the time of
termination will equal 87.5% of the shares issued by MAM to The
Practice during the first four years. If any such sale or
transfer was not made through a broker-dealer, then the per share
fair value of the shares transferred in the private transaction
or other transfer (at the time of such transfer) shall be
applicable.
(ii) Each year thereafter, the percentage of MAM shares that The
Practice shall be obligated to return to MAM in the event of a
termination under this Section 13.0 shall be reduced by an
additional 12.5%. Thus by way of example, in the event of a
termination under this Section 13.0 after the sixth anniversary
of the Effective Date but on or before the seventh anniversary,
The Practice shall be obligate to transfer back to MAM
seventy-five percent (75%) of the shares of stock issued by MAM
to The Practice during the first four years of this Agreement;
and, in the event of a termination under this Section 13.0 after
the seventh anniversary of the Effective Date but on or before
the eighth anniversary, The Practice shall be obligated to
transfer back to MAM sixty-two and one-half percent (62.5%) of
the shares of stock issued by MAM to The Practice during the
first four years of this Agreement. In each case of a termination
under this Section 13.0 after the sixth anniversary of the
Effective Date through the twelfth anniversary of the Effective
Date, the other provisions of subsection
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<PAGE> 37
(i) above shall apply as adjusted to the percentage of shares of
MAM stock that are required during the given year to be returned
to MAM. Again, by way of example, in the event of a termination
under this Section 13.0 after the seventh anniversary but on or
before the eighth anniversary of the Effective Date, to the
extent that The Practice has sold or otherwise transferred a
number of shares greater than 37.5% of the shares issued by MAM
to The Practice during the first four years, The Practice shall
pay MAM an amount equal to the per share price received by The
Practice from any such sale or transfer, provided said sale was
made through a broker-dealer, times the number of share which
when added to the shares owned by The Practice at the time of
termination will equal 62.5% of the shares issued by MAM to The
Practice during the first four years.
(iii) In the event of termination under this Section 13.0 after the
twelfth anniversary of the Effective Date, The Practice shall
have no obligation to transfer any shares of MAM stock back
to MAM.
(iv) Because of his length of vesting and proximity to retirement, as
a single exception to the foregoing, in the event of J. Joshua
Kopelman, M.D. retires from The Practice at any time after the
fourth anniversary of the Effective Date and complies with the
Covenant Not to Compete set forth in Section 15.0, The Practice
shall be entitled to distribute to Dr. Kopelman up to 148,000 of
the shares of MAM common stock being delivered by MAM under this
Agreement, and (except as provided in subsection (v) below), in
the event of a subsequent termination under this Section 13.0,
The Practice shall not be required to transfer such shares or the
fair value of such shares back to MAM under the terms of
subsections (i) or (ii) above; provided, however, that the number
of shares distributed to Dr. Kopelman shall be counted first
against the number of shares that The Practice is entitled to
retain (and not return to MAM) in accordance with subsections (i)
and (ii) above. Thus, for example, if Dr. Kopelman retires six
months after the fourth anniversary of the Effective Date and
receives 148,000 shares of MAM common stock from The Practice
upon his retirement, and this Agreement is terminated by The
Practice for cause under this Section 13.0 six months after the
fifth anniversary of the Effective Date, then, although
subsection (i) would otherwise require The Practice to return to
MAM 87.5% of the MAM shares received by The Practice during the
first four years, this exception would permit The Practice to
return only that number of MAM shares that it had received in
the first four years less the 148,000 shares distributed to
Dr. Kopelman (regardless of the fact that the
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<PAGE> 38
percentage of total shares so returned to MAM might be less than
87.5%). On the other hand, if Dr. Kopelman retires six months
after the fourth anniversary of the Effective Date and receives
148,000 shares of MAM common stock from The Practice upon his
retirement, and this Agreement is terminated by The Practice for
cause under this Section 13.0 six months after the eighth
anniversary of the Effective Date, then, subsection (ii) would
require The Practice to return to MAM 50% of the MAM shares
received by The Practice during the first four years, and this
exception would not permit The Practice to return less than 50%
(assuming The Practice had received at least 296,000 shares of
MAM stock during the first four years).
(v) Notwithstanding the foregoing limitations contained in
subsections 13.4 (i) through (iv) above, in the event of a
termination by The Practice under this Section 13.0 which is
determined to have been wrongful (i.e., without cause, as defined
in Section 13.2), the foregoing limitations shall not be
applicable and MAM shall not be precluded from pursuing any or
all available remedies, whether at law, in equity or otherwise,
including without limitation, actions to recover all of the
shares of stock issued by MAM to The Practice during the first
four years of this Agreement (or the fair value thereof), other
actions for damages, and other rights and remedies, all of which
shall be cumulative and none of which shall be exclusive of any
other right or remedy.
14.0 TERMINATION GENERALLY
---------------------
14.1 Upon any termination of this Agreement, all obligations of each party
toward the other under the management and administrative provisions of
this Agreement will cease except that termination of this Agreement will
not relieve either party or any obligation to the other in accordance with
the terms of this Agreement with respect to services performed prior to
termination, The Practice will continue to assign to MAM all accounts
receivable for medical services rendered up to and including the
termination date of this Agreement and MAM will continue to collect upon
claims according to all of the provisions of this Agreement. The Practice
will remain obligated to pay MAM any earned but uncollected amounts of
MAM's minimum 5% Management Fees. The parties agree to the cessation of
MAM's involvement with the non-medical administrative aspects of The
Practice effective as of the date of termination. The various rights and
remedies herein provided for will be cumulative and in addition to any
other rights and remedies and will not impair the right of either party to
exercise any right or remedy at law or in equity.
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<PAGE> 39
14.2 After the fourth anniversary of this Agreement, any Shareholder(s) may,
in his/her sole discretion, with 180 days written notice to MAM,
discontinue providing professional services in The Practice, subject to
the covenant not to compete provisions in Section 15.0 below. In the event
of such a notice, The Practice will assist MAM in a reasonable fashion, to
transfer departing physician's practice, including any and all
professional obligations to the patients of The Practice, to a new
physician provider designated by MAM. Shareholders shall not withhold
approval of MAM's designated physician(s).
The Practice shall cooperate with MAM to facilitate the long term survival
of The Practice and at all times during the term of this Agreement work
diligently with MAM, to replace any departing Shareholder with a qualified
medical provider to maintain the financial performance of The Practice.
15.0 COVENANT NOT TO COMPETE
-----------------------
So long as this Agreement has not been terminated pursuant to a breach by
MAM, and subject to a court of competent jurisdiction determining that
such breach by MAM has occurred, each Shareholder and The Practice hereby
agrees, during the term of this Agreement and for a period of two (2)
years after any termination hereof (or after any individual Shareholder
ceases to be employed by The Practice, in the case of individual
Shareholder departures):
(i) not to solicit or employ any employees of MAM without the
express written advance permission of MAM;
(ii) not directly or indirectly to work for, own, manage, operate,
control, finance, organize or take preparatory steps for the
organization of, invest in, or in any manner whatsoever
participate in the ownership of or be affiliated with any
business or enterprise, or permit Shareholder's or The Practice's
name to be used or employed in connection with any business or
enterprise, engage in, or otherwise engage in, the practice of
medicine in the specialties of obstetrics, gynecology or any
other specialty or subspecialty area that would be in competition
with The Practice, within the primary service area of The
Practice, which area the parties agree is a ten (10) mile radius
around each of the offices of The Practice (the "Covenant Not To
Compete"); and
(iii) not to enter into any Agreement or understanding with any other
person or entity to retain such other person or entity to perform
any of the services to be rendered by MAM as described herein.
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<PAGE> 40
Notwithstanding the foregoing, the parties agree that the
performance by a Shareholder of the activities described in
Section 8.11 above shall not constitute a breach or violation of
this Covenant Not To Compete.
15.1 The parties hereby agree that the nature, duration and area for which the
Covenant Not To Compete is to apply is reasonable and fair to the parties.
In the event that any court of competent jurisdiction should render a
final judgment to the effect that the industry covered, time period or
area, or any of them, are unreasonable and that such covenant is to the
extent unenforceable, the parties hereto agree that the Covenant Not To
Compete will remain in full force and effect for the broadest industry
description, the greatest time period and in the greatest areas that would
not be rendered unenforceable. The parties further agree that damages are
an inadequate remedy for any breach of this covenant, and that MAM will be
entitled to seek and obtain equitable relief in the form of preliminary
and permanent injunction without bonds or other security being posted upon
any actual or threatened breach of the Covenant Not To Compete and without
the necessity or proving actual damages.
15.2 In addition to the remedy provided for in Section 15.1, and recognizing
MAM's legitimate and material concerns, each Shareholder agrees that if he
or she violates the terms of this Covenant Not To Compete during the term
of this Agreement or within two (2) years after termination of that
Shareholder's employment with The Practice, MAM shall be entitled to the
following from the Shareholder (in addition to any amounts the Shareholder
may be obligated to pay to The Practice under separate agreements): (i)
liquidated damages in an amount equal to one year's salary calculated as
the average of the Shareholder's W-2 income from The Practice for the most
recent two full years (provided that in no event shall this liquidated
damages sum be less than $175,000), and (ii) a return to The Practice of
any and all shares of MAM common stock that might have been transferred by
MAM or The Practice to the Shareholder (without compensation or any kind
by The Practice or MAM to the Shareholder for such return to The
Practice). The parties mutually acknowledge and agree that the foregoing
reasonably reflects MAM's liquidated damages resulting from a
Shareholder's violation of this Covenant Not To Compete inasmuch as it
takes approximately twelve months to recruit a replacement for such
Shareholder and to replace such Shareholder's profitability and a
breaching Shareholder should not be permitted to enrich himself or herself
through the ownership of MAM common stock received in connection with his
or her relationship with MAM and/or The Practice. The Shareholder shall
pay such amount of liquidated damages to MAM in cash within thirty (30)
days after commencement of the violation. Nothing in this Agreement,
however, shall be construed as to prohibit MAM from also pursuing any
other remedy, the parties having agreed that all remedies shall be
cumulative.
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<PAGE> 41
A Shareholder may be released from this Covenant Not To Compete by paying
MAM the liquidated damages amount set forth in this Section 15.2 and by
returning the aforedescribed shares of MAM common stock to The Practice
within thirty (30) days after the commencement of a violation of this
Covenant Not To Compete.
In the event the Shareholder fails to return the aforedescribed shares of
MAM common stock to The Practice as provided herein, following a violation
of this Covenant Not To Compete, MAM shall have the right (but not the
obligation), without further notice to or demand on the Shareholder, to
rescind and cancel any such shares or MAM common stock then held by the
Shareholder and reissued replacement shares to The Practice.
15.3 The Practice and each Shareholder hereby consent to MAM's use of
Shareholder's, or The Practice's name, or such name as The Practice uses
as fictitious name(s), to manage and administer the non-medical aspects of
The Practice pursuant to this Agreement.
15.4 The Practice hereby acknowledges and agrees that MAM is free to enter into
service agreements, subject to the limitations as described below, with
other physicians and facilities to provide management and administrative
services similar to those contemplated herein, even where such entities
may be in direct or indirect competition with The Practice.
MAM agrees that MAM shall not enter into agreements with other physicians
in the practice of obstetrics and gynecology in the "competitive region"
defined as the immediate service area of Aurora Regional Medical Center,
Aurora Presbyterian Hospital, St. Anthony's North Hospital, North Suburban
Medical Center, Rose Medical Center and Summit Medical Center without the
express written approval of The Practice. Notwithstanding this
understanding, however, in the event The Practice is unable to assist MAM
in completing agreements with other obstetrics and gynecology practices in
these "competitive region" service areas, over the first six months of
execution of this Agreement, then The Practice must allow MAM to continue
to further the development of the MAM Network to include these
"competitive region" service areas. MAM will, however, work on a best
effort's basis with The Practice to enhance the business of The Practice
and allow for a combining of mutual interests concerning a network
development strategy.
Further, MAM has notified The Practice of certain other practices that
have negotiated with MAM and desire to continue to negotiate and may as a
result of negotiations, consummate a transaction with MAM. These
practices represent no material threat of competition to The Practice
based upon open discussion with the shareholders of The Practice, or
negative impact to MAM's goal to increase the profitability of The
Practice, or threat of injury to the goal of building
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<PAGE> 42
and promoting an OB-GYN network in the "competitive region" service area.
Further, these transactions will in no event impede or hinder relations
with The Practice and MAM.
16.0 GENERAL PROVISIONS
------------------
16.1 All notices, requests, demands and other communications relating to this
Agreement shall be in writing and shall be deemed given if delivered
personally or three (3) days after mailed by certified or registered mail,
postage prepaid, return receipt requested, to the party intended to
receive the same at such party's address as set forth herein or at such
other address as the parties may designate by written notice in said
manner. The initial addresses of the parties shall be as follows:
If to MAM; Medical Asset Management, Inc.
4447 East Broadway, Suite 102
Mesa, Arizona 85206
Attention: President
If to The Practice
or any Shareholder: The OB-GYN Associates, P.C.
11175 East Mississippi Avenue, Suite 100
Aurora, Colorado 80012
16.2 The rights, obligations and undertakings of the respective parties hereto
shall not be assigned, by operation of law or otherwise, without the prior
written consent or the other party hereto, except that MAM shall have the
ongoing right to assign any and all accounts receivable purchased herein,
after payment of money due on the Transfer Date.
16.3 This Agreement shall be governed by and construed and enforced in
accordance with the laws and procedures of the State of Colorado without
regard to choice or conflicts of law principles. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original, and all of which shall be construed together to constitute one
and the same Agreement.
16.4 This Agreement, the Exhibits and Schedules hereto and the documents
delivered or to be delivered pursuant to this Agreement contain or will
contain the entire Agreement between the parties hereto with respect to
all matters referred to herein and there are no Agreements, undertakings,
covenants or conditions concerning the subject matter hereof, whether oral
or written, express or implied, that are not merged herein and superseded
hereby. This Agreement supersedes in its entirety and is in lieu of all
prior negotiations among the parties hereto.
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16.5 Any provision of this Agreement which is determined by a court of
competent jurisdiction to be invalid, illegal or unenforceable for any
reason shall be ineffective only to the extent by such invalidity,
illegality or unenforceability, without affecting in any way the remaining
provisions hereof which shall remain in full force and effect.
16.6 Time is of the essence of this Agreement. No recourse of dealings between
the parties nor any failure, neglect or delay by either party in
exercising any of the rights described herein shall operate as a waiver,
forfeiture or abandonment of any such rights, except only to the extent
expressly waived in writing.
16.7 Each party hereto agrees to perform any and all further acts and to
execute and deliver any and all documents and instruments that reasonably
may be necessary to carry out the provisions of this Agreement.
16.8 Any controversy, dispute or claim arising out of, in connection with or in
relation to the interpretation, performance or breach of this Agreement
including any claim based on contract, tort or statute, shall be
conclusively resolved, at the request of either party, by arbitration
conducted in the Denver Metropolitan Area by and in accordance with the
then-existing Rules for Commercial Arbitration of the American Arbitration
Association, except there shall be only one (1) arbitrator and the rules
applicable to discovery in civil actions generally shall be available to
both parties up to but not exceeding that date which is one hundred twenty
(120) calendar days next following the filing of the petition for
arbitration by either party hereto. A judgment based upon the
determination made in such arbitration may be entered by any state or
federal court having jurisdiction thereof. As part of the award, the
arbitrator shall allocate in his or her discretion all costs of the
arbitration, including the fees of the arbitrator and reasonable
attorney's fees and costs incurred by the prevailing party. The arbitrator
shall be entitled, if appropriate, to award any remedy in such proceedings
permitted in a civil proceeding under the laws of the State of Colorado
including, if appropriate, monetary damages, specific performance and all
other forms of legal and equitable relief.
16.9 Each party hereby agrees to fully cooperate with the other in the defense
or prosecution or any action or proceeding already instituted or which may
hereafter be instituted by such party relating to or arising out of the
handling of the Assets and/or Medical Practice Management Business prior
to or after the Effective Date of this Agreement (other than litigation's
arising out of the transactions contemplated by this Agreement). The party
requesting such cooperation shall pay to or reimburse the other party for
such other party's out-of-pocket expenses incurred (including reasonable
attorney's fees and disbursements) in providing such cooperation but will
not be responsible for
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reimbursing a party providing such cooperation while assisting in such
party's defense against any action or proceeding brought against such
party.
16.10 MAM is an independent contractor with respect to the provision of
personnel, supplies, office space, as described herein, equipment,
non-medical management and administrative and marketing services described
in this Agreement. Nothing contained herein shall be construed as creating
any other type of relationship between The Practice and MAM other than the
relationship of independent contractors. As such The Practice and
Professionals will have no claim under the Agreement or otherwise against
MAM for Workers' Compensation, unemployment compensation, sick leave,
vacation pay, retirement benefits, Social Security benefits or any other
employee benefits, all of which shall be the sole responsibility of The
Practice. Because the Practice and Professionals are not employees of MAM,
MAM will not withhold on behalf of the Practice or Professionals any sums
of income tax, unemployment insurance, Social Security or otherwise, and
all such withholdings, if any are required, will be the sole
responsibility of the Practice. The Practice will indemnify and hold
harmless MAM from and defend MAM against any and all losses or
liabilities, costs and expenses (including without limitation MAM's
reasonable attorney's fees and costs) arising with respect to any of the
foregoing benefits or withholding requirements for the Practice and
Professionals. MAM is specifically not in the business of supervising
medical providers or the provision of care or monitoring, or consulting
with physicians as to the provision of medical services.
16.11 The Shareholders of The Practice may elect from time to time, to invite
new physicians to become shareholders of The Practice. The Management
Committee shall establish the amount of shares and the income distribution
available for new shareholders. In no event shall J. Joshua Kopelman, M.D.
an Individual, Asela C. Russell, M.D., an Individual, David L. Watson,
M.D., an Individual, Greta Brandstetter, M.D., an Individual, and Laura
Lindholm, M.D., an Individual, collectively being designated as
"Controlling Shareholders" dilute their collective interests in The
Practice to such a level as to lose legal control of The Practice. The
Controlling Shareholders of The Practice specifically agree to maintain
controlling interest in The Practice. Controlling interest in The Practice
shall mean that at all times in the future after the Effective Date of
this Agreement, the Controlling Shareholders or any combination of the
Individuals as listed above shall hold a majority interest in The
Practice. For example only, in the event all of the individuals listed
above, less one, had left the practice for any reason, the remaining
Controlling Shareholder shall own at least 51% of the stock of The
Practice. Upon such time as the last remaining Controlling Shareholder
departs the practice, MAM shall designate a new Controlling Shareholder
and the departing shareholder shall transfer the Controlling Shares of
Stock in The Practice to MAM's designated physician. This section may
require modification during the term of The Agreement in order to allow
for the
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retention of qualified medical providers by The Practice. In the event it
becomes necessary to modify this specific section of The Agreement,
written consent must be obtained by MAM and The Management Committee.
The Shareholders and The Practice hereby represent and warrant to MAM that
nothing in this section is contrary to the By-Laws or Article of
Incorporation of The Practice or any Shareholder or Employment agreement
executed by The Controlling Shareholders, and all the aforementioned
agreements have been modified to accurately reflect the terms of this
Section.
16.13 This Agreement may not be amended except by a writing signed by the
parties hereto. This Agreement shall, in all cases, be construed simply
according to its fair meaning, and not strictly for or against either
party by reason of draftsmanship or otherwise.
16.14 MAM will in good faith consider with The Practice any proposals by The
Practice that MAM finance the acquisition of additional medical practices
identified by The Practice as strategic acquisition targets that offer the
potential of furthering the growth and development of The Practice. The
definite financial arrangements between The Practice and MAM relative to
the acquired practices will be determined at the time of the acquisition.
16.15 Both Parties agree that by executing this Agreement, the records and
filings of The Practice and of MAM and the information contained therein
are confidential and constitute valuable trade secrets of both parties and
specifically, MAM's Asset Purchase and Management Agreement constitute
valuable trade secrets. Therefore, neither party shall disclose or divulge
any of said information it has acquired concerning the business of the
other party to any third parties and shall not utilize said information in
any respect, except as is set forth in this Agreement, without the express
written consent of the other party. The parties agree that the provisions
of this Paragraph shall be enforceable in damages and further agree that
in the event that damages cannot be readily determined, the provisions of
this Paragraph are specifically enforceable in a suit for equitable
relief, including injunctive relief. In any suit for equitable relief, the
prevailing party shall be entitled to an award of reasonable costs and
expenses incurred, including but not limited to court costs, expert
witness fees and reasonable attorney fees.
16.16 A Management Committee shall be established with equal representation of
The Practice and MAM. This committee shall be responsible for establishing
operating guidelines and budgets for:
Staffing Requirements of The Practice
Administrative and management personnel issues
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Employee related benefits and policies
Capital expenditures
Practice acquisitions
Practice expansion issues which shall include facilities improvements,
new office locations, office closures and physician recruitment
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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The Effective Date of this Agreement shall be December 31, 1995.
Medical Asset Management, Inc.,
a Delaware Corporation
By: /s/ JOHN W. REGAN
------------------------------
John W. Regan, President,
MAM, Inc.
Individual (s)
By: /s/ J. JOSHUA KOPELMAN, M.D.
---------------------------------
J. Joshua Kopelman, M.D.,
An Individual,
By: /s/ ASELA C. RUSSELL, M.D.
---------------------------------
Asela C. Russell, M.D.,
An Individual,
By: /s/ DAVID L. WATSON, M.D.
---------------------------------
David L. Watson, M.D.,
An Individual,
By: /s/ GRETA BRANDSTETTER, M.D.
---------------------------------
Greta Brandstetter, M.D.,
An Individual,
By: /s/ LAURA LINDHOLM, M.D.
---------------------------------
Laura Lindholm, M.D.,
An Individual.
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The OB-GYN Associates, P.C.
A Professional Corporation
President
By: /s/ DAVID L. WATSON
---------------------------
David L. Watson
THE OB-GYN ASSOCIATES, P.C.
A PROFESSIONAL CORPORATION
By: /s/ HERBERT L. JACOBS, M.D.
---------------------------------
Herbert L. Jacobs, M.D.,
a shareholder
By: /s/ J. JOSHUA KOPELMAN, M.D.
---------------------------------
J. Joshua Kopelman, M.D.,
a shareholder
By: /s/ ASELA C. RUSSELL, M.D.
---------------------------------
Asela C. Russell, M.D.,
a shareholder
By: /s/ DAVID L. WATSON, M.D.
---------------------------------
David L. Watson, M.D.,
a shareholder
By: /s/ GRETA BRANDSTETTER, M.D.
---------------------------------
Greta Brandstetter, M.D.,
a shareholder
By: /s/ LAURA LINDHOLM, M.D.
---------------------------------
Laura Lindholm, M.D.,
a shareholder
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EXHIBIT 10.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Form 10-SB
(Amendment No. 5) dated February 13, 1997 of our report dated May 1, 1996 on
our audits of the consolidated financial statements of Medical Asset
Management, Inc. for the years ended December 31, 1995 and 1994 and our report
dated September 23, 1996, on our audit of the financial statements of OB-GYN,
Associates, P.C. for the year ended December 31, 1995.
/s/ HARLAN & BOETTGER
Harlan & Boettger, CPAs
San Diego, California
February 12, 1997
