SECURITIES & EXCHANGE COMMISSION EDGAR FILING
Form: 10-K
Date Filed: 2014-05-08
Corporate Issuer CIK: 1083446
© Copyright 2014, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the
terms of use.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2014
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT
For the transition period from ___________ to ____________
Commission File No.
000-25809
Apollo Medical Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
State of Incorporation
20-8046599
IRS Employer Identification No.
700 North Brand Blvd., Suite 220
Glendale, California 91203
(Address of principal executive offices)
(818) 396-8050
(Issuer’s telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each Class
Name of each Exchange on which Registered
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ¨ Nox
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files).
Yes x No¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein and, will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ Nox
The aggregate market value of the shares of voting common stock held by non-affiliates of the Registrant computed by reference to the price at which the common stock was last sold
on OTCQB on July 31, 2013, the last business day of the Registrant’s most recently completed second fiscal quarter, was $8,073,400. Solely for purposes of the foregoing calculation,
all of the registrant’s directors and officers as of July 31, 2013 are deemed to be affiliates. This determination of affiliate status for this purpose does not reflect a determination that any
persons are affiliates for any other purpose.
As of April 30, 2014, there were 49,134,549 shares of common stock, $.001 par value per share, issued and outstanding.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
APOLLO MEDICAL HOLDINGS, INC.
FORM 10-K
FOR THE YEAR ENDED JANUARY 31, 2014
TABLE OF CONTENTS
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Description of Business
Risk Factors
Unresolved Staff Comments
Description of Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants and Financial Disclosures
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Signatures
1
3
13
25
25
25
25
26
27
27
37
37
37
37
39
40
42
48
48
49
50
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Introductory Comment
PART I
Unless the context dictates otherwise, references in this Annual Report on Form 10-K (the “Report”) to the “Company,” “we,” “us,” “our”, “Apollo” and similar words are to Apollo
Medical Holdings, Inc., and its wholly owned subsidiaries and affiliated medical groups:
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our results of operations and financial
operations. This discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere herein, and with our prior filings with the
Securities and Exchange Commission (the “SEC”).
Disclosure Regarding Forward-Looking Statements - Cautionary Statement
than
facts
rather
historical
We caution readers that this Report contains “forward-looking statements”. Forward-looking statements, written, oral or otherwise, are based on the Company’s current expectations or
beliefs
to
“anticipate,”“could,”“may,”“might,”“potential,”“predict,”“should,”“estimate,”“expect,”“project,”“believe,”“think,”“intend,”“plan,”“envision,”“continue,”“intend,”“target,”“contemplate,”“budgeted,”
or “will” and similar words or phrases or comparable terminology. Forward-looking statements involve risks and uncertainties. The Company cautions that these statements are further
qualified by important economic, competitive, governmental and technological factors that could cause the Company’s business, strategy, or actual results or events to differ materially,
or otherwise, from those in the forward-looking statements. We have based such forward-looking statements on our current expectations, assumptions, estimates and projections, and
therefore there can be no assurance that any forward-looking statement contained herein, or otherwise made by the Company, will prove to be accurate. The Company assumes no
obligation to update the forward-looking statements.
by words
concerning
indicated
phrases
events,
limited
future
such
they
and
are
but
not
as,
or
The Company has a relatively limited operating history compared to others in the same business and is operating in a rapidly changing industry environment; as a result its ability to
predict results or the actual effect of future plans or strategies, based on historical results or trends or otherwise, is inherently uncertain. While we believe that these forward-looking
statements are reasonable, they are merely predictions or illustrations of potential outcomes, and they involve known and unknown risks and uncertainties, many beyond our control,
that are likely to cause actual results, performance, or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors that could
have a material adverse effect on the operations and future prospects of the Company on a condensed basis include those factors discussed under Item 1A “Risk Factors” and Item 7,
“Management’s Discussion and Analysis or Plan of Operation” in this Report, and include, but are not limited to, the following:
¨ Our ability to raise capital when needed and on acceptable terms and conditions;
¨
¨
The effect of laws and regulations that apply to our operations and industry;
The intensity of competition; and
¨ General economic conditions.
All written and oral forward-looking statements made in connection with this Report that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by
these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.
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ITEM 1. DESCRIPTION OF BUSINESS
Business Overview
Apollo Medical Holdings, Inc. and its managed affiliated physician groups (“ApolloMed”, “we”, “our” or the “Company”) are a physician centric, integrated healthcare delivery system
serving Medicare, Commercial and Medi-Cal beneficiaries in California. ApolloMed’s businesses operate primarily under risk and value-based contracts with health plans, Independent
Physician Associations (“IPAs”), Hospitals and the Centers for Medicare and Medicaid Services’ (“CMS”) Medicare Shared Savings Program. We believe each major constituent of the
healthcare delivery system, including patients, families, primary care physicians, specialists, acute care hospitals, alternative sites of inpatient care, physician groups and health plans
can benefit from better coordinated care. We are positioned to assist and provide “Best in Class” care coordination services to each of these constituents and assist in finding solutions
to many of the challenges associated with patient care in the inpatient and outpatient settings.
The predecessor business to ApolloMed was incorporated in California on November 14, 2006 beginning operations at Glendale Memorial Hospital as a hospital based physician
group, and through a reverse merger became a publicly held company in 2008. The Company was organized around the admission and care of patients at inpatient facilities such as a
hospital. We have successfully grown our inpatient strategy in a competitive market by providing high quality care for our patients and innovative solutions for our hospital and
managed care clients by focusing on improving the inefficiencies associated with inpatient care and reducing readmissions and improving outcomes through better care coordination.
Currently, we provide inpatient services at over 28 hospitals and long-term acute care facilities in Los Angeles and Central California where we have contracted with over 50 Hospitals,
IPAs and health plans to provide a range of inpatient services including hospitalist, intensivist, physician advisor and consulting services.
In 2012, the Company formed an Accountable Care Organization (“ACO”), ApolloMed Accountable Care Organization, Inc. (“ApolloMed ACO”), to participate in CMS’ Medicare
Shared Savings Program. The ACO program is designed to work together with payors by aligning provider incentives. This alignment of provider incentives is intended to improve
quality and medical outcomes for patients across the ACO and achieve cost savings for Medicare. We believe ApolloMed ACO is unique in that it leverages our best in class inpatient
and outpatient capabilities. In 2013 ApolloMed formed Maverick Medical Group, Inc. a risk-bearing entity that participates in the Medicare Advantage, HMO-Medicaid and dual eligible
markets.
As of April 30, 2014, ApolloMed has developed a network of over 700 hospitalists, primary care physicians and specialist physicians through our owned and affiliated physician groups.
Our Strategic Objectives
·
·
·
Patient satisfaction
Quality care
Cost efficiency
Our Strategy
The principal components of our strategy are to:
· Engage the patients we serve to help them make better decisions about their healthcare, clinically and economically
· Employ our medical management and care coordination capabilities to improve the health and well-being of the patients we serve through improved outcomes and
reduced inefficiencies in the healthcare delivery chain
· Work in collaboration at the local level with physicians and other healthcare providers to help them participate in a changing healthcare landscape and provide them the
knowledge and IT tools to achieve measurably better quality and lower costs
· Grow our inpatient business through expansion of services and geographic expansion
· Expand our relationships with healthcare providers and facilities across the US to develop additional capabilities to participate in the growing Medicare, Medicaid and dual
eligible markets
· Acquire and develop additional capabilities to participate in the growing healthcare market, especially the Medicare and dual eligible segments, under both risk-bearing and
value-based contracts
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Opportunities in Healthcare
Inpatient Opportunity
We believe that attractive growth opportunities exist for our hospitalists’ inpatient business due to the increasing need for improved efficiencies in the hospital from both payors and
hospital management teams. Our physicians work closely with our partners to improve the care given to patients and their families and enhance how care is coordinated within the
hospital and upon discharge of the patient. We have designed programs for some of the largest health plans and hospital chains in California to improve outcomes, reduce
overutilization, reduce Medi-Cal denial rates, optimize lengths of stay (LOS), optimize senior and commercial bed-days, improve HCAHPS scores, improve hospital core measures,
improve documentation and reduce 30-day readmissions. In addition, our physicians consult with the hospital management teams to assist in Medi-Cal denial reviews, case
management and improving discharge management.
Accountable Care Organizations
In March 2010, President Barrack Obama signed into law The Patient Protection and Affordable Care Act and The Health Care and Education Reconciliation Act of 2010, which we
collectively refer to as the Affordable Care Act. The Affordable Care Act established Accountable Care Organizations as a tool to improve quality and lower costs through increased
care coordination in the Medicare Fee-for-Service program, which covers approximately 75% of Medicare recipients, approximately 36 million eligible Medicare beneficiaries. The
program allows certain providers and suppliers (including hospitals, physicians and other designated professionals) to voluntarily form ACOs and work together along with other ACO
participants to invest in infrastructure and redesign delivery processes to achieve high quality and efficient delivery of services. CMS established the Medicare Shared Savings
Program (MSSP) to facilitate coordination and cooperation among providers to improve the quality of care for Medicare Fee-For-Service (FFS) beneficiaries and reduce unnecessary
costs. Eligible providers, hospitals, and suppliers may participate in the Shared Savings Program by creating or participating in an ACO. ACOs receive payment from Medicare on a
fee-for-service basis and may receive additional "shared savings" payments or be at-risk for "shared losses" based on an increase or decrease in annual fee-for-service payments to
the ACO.
The Shared Savings Program will reward ACOs that lower their growth in health care costs while meeting performance standards on quality of care. Under the final Medicare Shared
Savings Program, or MSSP rules, Medicare will continue to pay individual providers and suppliers for specific items and services as it currently does under the FFS payment
methodologies. The Shared Savings Program rules require CMS to develop a benchmark for savings to be achieved by each ACO if the ACO is to receive shared savings or for ACOs
that have elected to accept responsibility for losses. An ACO that meets the program's quality performance standards will be eligible to receive a share of the savings to the extent its
assigned beneficiary medical expenditures are below its own medical expenditure benchmark provided by CMS.
We have partnered with primary care physicians and specialists to form ApolloMed ACO, a majority owned subsidiary of ApolloMed, which has been approved by CMS for participation
in the Medicare Shared Savings Program. We estimate that our ACO currently includes approximately 700 participating providers in California. We aim to provide enhanced care
coordination, population health management, data analytics and reporting, information technology and other administrative capabilities to enable participating providers to deliver
better care, improved health and lower healthcare costs for their Medicare fee-for-service beneficiaries.
Senior Market Opportunity—Medicare Advantage
Medicare Advantage is an alternative to the traditional FFS Medicare program, which permits Medicare beneficiaries to receive benefits from a managed care health plan. Medicare
Advantage plans contract with CMS to provide benefits at least comparable to those offered under the traditional FFS Medicare program in exchange for a fixed monthly premium
payment per member from CMS. The monthly premium varies based on the county in which the member resides, as adjusted to reflect the plan members’ demographics and the
members’ risk scores.
Individuals who elect to participate in the Medicare Advantage program typically receive greater benefits than traditional FFS Medicare Part B beneficiaries, including additional
preventive services, vision, dental and prescription drug benefits, and typically have lower deductibles and co-payments than traditional FFS Medicare.
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We believe that significant growth opportunities exist for patient-focused, physician-centric integrated groups in serving the growing senior market. At present, approximately 51 million
Americans are eligible for Medicare, the federal program that offers basic hospital and medical insurance to people over 65 years old and some disabled people under the age of 65.
According to the U.S. Census Bureau, more than 2 million Americans turn 65 in the United States each year, and this number is expected to grow as the so-called baby boomers
continue to turn 65. In addition, many large employers that traditionally provided medical and prescription drug coverage to their retirees have begun to curtail these benefits. Finally,
the passage of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, known as the MMA, increased the healthcare options available to Medicare beneficiaries
through the expansion of Medicare managed care plans through the Medicare Advantage program. In 2013 we formed Maverick Medical Group, Inc. an independent physician
association and risk-bearing entity that participates in the Medicare Advantage, HMO-Medicaid and dual -eligible markets.
Medicaid Program and Dual Eligibles
Established in 1965, Medicaid is the largest publicly funded program in the United States, and provides health insurance to low-income families and individuals with disabilities.
Authorized by Title XIX of the Social Security Act, Medicaid is an entitlement program funded jointly by the federal and state governments and administered by the states. The majority
of funding is provided at the federal level. Each state establishes its own eligibility standards, benefit packages, payment rates and program administration within federal standards.
Eligibility is based on a combination of household income and assets, often determined by an income level relative to the federal poverty level. Historically, children have represented
the largest eligibility group.
Due to the Medicaid expansion provisions under the Affordable Care Act, CMS projects that Medicaid expenditures will increase from approximately $450 billion in 2012 to
approximately $900 billion by 2020. In addition, as part of the Affordable Care Act, approximately 20 million additional people are expected to qualify for Medicaid beginning in 2014.
A portion of Medicaid beneficiaries are “dual- eligibles”, comprised of low-income seniors and people with disabilities who are enrolled in both Medicaid and Medicare. Based on CMS
and Kaiser Family Foundation data, we estimate there are approximately 9 million dual eligible enrollees with annual spending of approximately $320 billion. Only a small portion of the
total spending on dual- eligibles is administered by managed care organizations across the US. Dual- eligibles tend to consume more healthcare services due to their tendency to have
more chronic health issues. We believe this represents a significant opportunity for companies like ours that have the capabilities to effectively manage this sicker population.
Competition
The healthcare industry is highly competitive. We compete for customers with many other healthcare providers, including local physicians and practice groups as well as local, regional
and national networks of physicians and healthcare companies.
In-patient Business
The market for hospitalists within this industry is highly fragmented. The Company faces competition from numerous small inpatient practices as well as large physician groups. Some
of our competitors operate on a national level, such as Emcare, Team Health, IPC The Hospitalist Company, DaVita Health Care Partners and may have greater financial and other
resources available to them. In addition, because the market for hospitalist services is highly fragmented and the ability of individual physicians to provide services in any hospital
where they have certain credentials and privileges, competition for growth in existing and expanding markets is not limited to our largest competitors.
Accountable Care Organizations
We believe that competition for customers is generally based upon the reputation of the physician treating the customer, the physician’s expertise, the physician’s demeanor and
manner of engagement with the customer. We also compete with hospitals, sophisticated provider groups, payors, and management service organizations in the creation,
administration, and management of ACOs.
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Healthcare Reform
The Affordable Care Act enacted significant changes to various aspects of the U.S. health insurance industry. There are many important provisions of the legislation that will require
additional guidance and clarification in form of regulations and interpretations in order to fully understand the impact of the legislation on our overall business, which we expect to occur
over the next several years.
Certain significant provisions of the Affordable Care Act that will impact our business include, among others, establishment of ACO's, reduced Medicare Advantage reimbursement
rates, implementation of quality bonus for Star Ratings, stipulated minimum medical loss ratios, non-deductible federal premium taxes assessed to health insurers and coding intensity
adjustments with mandatory minimums. The health care reform legislation is discussed more fully in the "Risk Factors" section of this report.
In June 2012, the United States Supreme Court upheld the constitutionality of the Affordable Care Act, with one limited exception relating to its Medicaid expansion provision. The
Supreme Court held that States could not be required to expand Medicaid or risk the loss of federal funding for existing Medicaid programs. Beginning in January 2014, Medicaid
coverage was expanded to all individuals under age 65 with incomes up to 133% of the federal poverty level, subject to the States' elections. The federal government will pay the entire
costs for Medicaid coverage for newly eligible beneficiaries for three years, from 2014 through 2016. The federal share declines to 95% in 2017, 94% in 2018, 93% in 2019, and 90% in
2020 and subsequent years.
Geographic Coverage
As of January 31, 2014, through our managed physician practices, we provide hospitalist services at 28 acute-care hospitals and long-term acute care facilities in Los Angeles and the
Central Valley of California, and operate four primary care medical clinics in the Los Angeles area. Maverick Medical Group, Inc. (“MMG”) an independent physician association,
provides primary and specialist care through its physician members located in the greater Los Angeles area.
Professional Liability and Other Insurance Coverage
Our business has an inherent risk of claims of medical malpractice against our affiliated physicians and us. We and our independent physician contractors pay premiums for third-party
professional liability insurance that indemnifies us and our affiliated hospitalists on a claims-made basis for losses incurred related to medical malpractice litigation. Professional liability
coverage is required in order for our affiliated hospitalists to maintain hospital privileges. All of our physicians carry first dollar coverage with limits of coverage with limits of liability
equal to $1,000,000 for all claims based on occurrence up to an aggregate of $3,000,000 per year.
We believe that our insurance coverage is appropriate based upon our claims experience and the nature and risks of our business. In addition to the known incidents that have resulted
in the assertion of claims, we cannot be certain that our insurance coverage will be adequate to cover liabilities arising out of claims asserted against us, our affiliated professional
organizations or our affiliated hospitalists in the future where the outcomes of such claims are unfavorable. We believe that the ultimate resolution of all pending claims, including
liabilities in excess of our insurance coverage, will not have a material adverse effect on our financial position, results of operations or cash flows; however, there can be no assurance
that future claims will not have such a material adverse effect on our business.
We also maintain worker’s compensation, director and officer, and other third-party insurance coverage subject to deductibles and other restrictions in accordance with industry
standards. We believe that our insurance coverage is appropriate based upon our claims experience and the nature and risks of our business. However, we cannot assure that any
pending or future claim will not be successful or if successful will not exceed the limits of available insurance coverage.
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Regulatory Matters
Significant Federal and State Healthcare Laws Governing Our Business
As a healthcare company, our operations and relationships with healthcare providers such as hospitals, other healthcare facilities, and healthcare professionals are subject to
extensive and increasing regulation by numerous federal, state, and local government entities. These laws and regulations often are interpreted broadly and enforced aggressively by
multiple government agencies, including the U.S. Department of Health and Human Services Office of the Inspector General, or the ("OIG"), the U.S. Department of Justice, Centers
for Medicare and Medicaid (“CMS”), and various state authorities. We have included brief descriptions of some, but not all, of the laws and regulations that affect our business.
Imposition of sanctions associated with a violation of any of these healthcare laws and regulations could have a material adverse effect on our business, financial condition and results
of operations. The Company cannot guarantee that its arrangements or business practices will not be subject to government scrutiny or be found to violate certain healthcare laws.
Government investigations and prosecutions, even if we are ultimately found to be without fault, can be costly and disruptive to our business. Moreover, changes in healthcare
legislation or government regulation may restrict our existing operations, limit the expansion of our business or impose additional compliance requirements and costs, any of which
could have a material adverse effect on our business, financial condition and results of operations.
False Claims Acts
The federal False Claims Act imposes civil liability on individuals or entities that submit false or fraudulent claims for payment to the federal government. The False Claims Act
provides, in part, that the federal government may bring a lawsuit against any person whom it believes has knowingly or recklessly presented, or caused to be presented, a false or
fraudulent request for payment from the federal government, or who has made a false statement or used a false record to get a claim for payment approved. Private parties may initiate
qui tam whistleblower lawsuits against any person or entity under the False Claims Act in the name of the government and may share in the proceeds of a successful suit.
The federal government has used the False Claims Act to prosecute a wide variety of alleged false claims and fraud allegedly perpetrated against Medicare and state healthcare
programs. By way of illustration, these prosecutions may be based upon alleged coding errors, billing for services not rendered, billing services at a higher payment rate than
appropriate, and billing for care that is not considered medically necessary. The government and a number of courts also have taken the position that claims presented in violation of
certain other statutes, including the federal Anti-Kickback Statute or the Stark Law, can be considered a violation of the False Claims Act based on the theory that a provider impliedly
certifies compliance with all applicable laws, regulations, and other rules when submitting claims for reimbursement.
Penalties for False Claims Act violations include fines ranging from $5,500 to $11,000 for each false claim, plus up to three times the amount of damages sustained by the government.
A False Claims Act violation may provide the basis for the imposition of administrative penalties as well as exclusion from participation in governmental healthcare programs, including
Medicare and Medicaid. In addition to the provisions of the False Claims Act, which provide for civil enforcement, the federal government also can use several criminal statutes to
prosecute persons who are alleged to have submitted false or fraudulent claims for payment to the federal government.
A number of states have enacted false claims acts that are similar to the federal False Claims Act. Even more states are expected to do so in the future because Section 6031 of the
Deficit Reduction Act of 2005 ("DRA"), amended the federal law to encourage these types of changes, along with a corresponding increase in state initiated false claims enforcement
efforts. Under the DRA, if a state enacts a false claims act that is at least as stringent as the federal statute and that also meets certain other requirements, the state will be eligible to
receive a greater share of any monetary recovery obtained pursuant to certain actions brought under the state’s false claims act. The OIG, in consultation with the Attorney General of
the United States, is responsible for determining if a state’s false claims act complies with the statutory requirements. Currently, 19 states, including California have some form of state
false claims act.
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Anti-Kickback Statutes
The federal Anti-Kickback Statute is a provision of the Social Security Act that prohibits as a felony offense the knowing and willful offer, payment, solicitation or receipt of any form of
remuneration in return for, or to induce, (1) the referral of a patient for items or services for which payment may be made in whole or part under Medicare, Medicaid or other federal
healthcare programs, (2) the furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other federal healthcare programs or (3) the
purchase, lease, or order or arranging or recommending the purchasing, leasing or ordering of any item or service reimbursable under Medicare, Medicaid or other federal healthcare
programs. The Affordable Care Act amended section 1128B of the Social Security Act to make it clear that a person need not have actual knowledge of the statute, or specific intent to
violate the statute, as a predicate for a violation. The OIG, which has the authority to impose administrative sanctions for violation of the statute, has adopted as its standard for review
a judicial interpretation which concludes that the statute prohibits any arrangement where even one purpose of the remuneration is to induce or reward referrals. A violation of the Anti-
Kickback Statute is a felony punishable by imprisonment, criminal fines of up to $25,000, civil fines of up to $50,000 per violation and three times the amount of the unlawful
remuneration. A violation also can result in exclusion from Medicare, Medicaid or other federal healthcare programs. In addition, pursuant to the changes of The Affordable Care Act, a
claim that includes items or services resulting from a violation of the Anti-Kickback Statute is a false claim for purposes of the False Claims Act.
Due to the breadth of the Anti-Kickback Statute’s broad prohibitions, statutory exceptions exist that protect certain arrangements from prosecution. In addition, the OIG has published
safe harbor regulations that specify arrangements that also are deemed protected from prosecution under the Anti-Kickback Statute, provided all applicable criteria are met. The failure
of an activity to meet all of the applicable safe harbor criteria does not necessarily mean that the particular arrangement violates the Anti-Kickback Statute, but these arrangements may
be subject to scrutiny and prosecution by enforcement agencies. The conduct or business arrangement, however, does increase the risk of scrutiny by government enforcement
authorities. We may be less willing than some of our competitors to take actions or enter into business arrangements that do not clearly satisfy the safe harbors. As a result, this
unwillingness may put us at a competitive disadvantage.
Some states have enacted statutes and regulations similar to the Anti-Kickback Statute, but which may be applicable regardless of the payer source for the patient. These state laws
may contain exceptions and safe harbors that are different from and/or more limited than those of the federal law and that may vary from state to state. Although we have established
policies and procedures to ensure that our arrangements with physicians comply with current laws and applicable regulations, we cannot assure you that regulatory authorities that
enforce these laws will not determine that some of these arrangements violate the Anti-Kickback Statute or other applicable laws. An adverse determination could subject us to
liabilities under the Social Security Act, including criminal penalties, civil monetary penalties and exclusion from participation in Medicare, Medicaid or other federal health care
programs, any of which could have a material adverse effect on our business, financial condition or results of operations.
Federal Stark Law
The federal Stark Law, also known as the physician self-referral law, generally prohibits a physician from referring Medicare and Medicaid patients to an entity (including hospitals)
providing ‘‘designated health services,’’ if the physician or a member of the physician’s immediate family has a ‘‘financial relationship’’ with the entity, unless a specific exception
applies. Designated health services include, among other services, inpatient and outpatient hospital services, clinical laboratory services, certain imaging services, and other items or
services that our affiliated physicians may order. The prohibition applies regardless of the reasons for the financial relationship and the referral; and therefore, unlike the federal Anti-
Kickback Statute, intent to violate the law is not required. Like the Anti-Kickback Statute, the Stark Law contains a number of statutory and regulatory exceptions intended to protect
certain types of transactions and business arrangements from penalty. Unlike safe harbors under the Anti-Kickback Statute with which compliance is voluntary, an arrangement must
comply with every requirement of a Stark Law exception or the arrangement is in violation of the Stark Law.
The penalties for violating the Stark Law can include the denial of payment for services ordered in violation of the statute, mandatory refunds of any sums paid for such services and
civil penalties of up to $15,000 for each violation, double damages, and possible exclusion from future participation in the governmental healthcare programs. A person who engages in
a scheme to circumvent the Stark Law’s prohibitions may be fined up to $100,000 for each applicable arrangement or scheme.
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Some states have enacted statutes and regulations similar to the Stark Law, but which may be applicable to the referral of patients regardless of their payer source and which may
apply to different types of services. These state laws may contain statutory and regulatory exceptions that are different from those of the federal law and that may vary from state to
state.
Because the Stark Law and its implementing regulations continue to evolve, we do not always have the benefit of significant regulatory or judicial interpretation of this law and its
regulations. We attempt to structure our relationships to meet an exception to the Stark Law, but the regulations implementing the exceptions are detailed and complex, and we cannot
be certain that every relationship complies fully with the Stark Law. In addition, in the July 2008 final Stark rule, CMS indicated that it will continue to enact further regulations tightening
aspects of the Stark Law that it perceives allow for Medicare program abuse, especially those regulations that still permit physicians to profit from their referrals of ancillary services.
There can be no assurance that the arrangements entered into by us with physicians and facilities will be found to be in compliance with the Stark Law, as it ultimately may be
implemented or interpreted.
Health Information Privacy and Security Standards
Among other directives, the Administrative Simplification Provisions of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), required the Department of Health and
Human Services, or the HHS, to adopt standards to protect the privacy and security of certain health-related information. The HIPAA privacy regulations contain detailed requirements
concerning the use and disclosure of individually identifiable health information by “HIPAA covered entities,” which include entities like the Company, our affiliated hospitalists, and
practice groups.
In addition to the privacy requirements, HIPAA covered entities must implement certain administrative, physical, and technical security standards to protect the integrity, confidentiality
and availability of certain electronic health information received, maintained, or transmitted. HIPAA also implemented the use of standard transaction code sets and standard identifiers
that covered entities must use when submitting or receiving certain electronic healthcare transactions, including activities associated with the billing and collection of healthcare claims.
The American Recovery and Reinvestment Act enacted on February 18, 2009, included the Health Information Technology for Economic and Clinical Health Act (HITECH) which
modified the HIPAA legislation significantly. Pursuant to HITECH, certain provisions of the HIPAA privacy and security regulations become directly applicable to “HIPAA business
associates”.
Violations of the HIPAA privacy and security standards may result in civil and criminal penalties. Historically, these included: (1) civil money penalties of $100 per incident, to a
maximum of $25,000, per person, per year, per standard violated and (2) depending upon the nature of the violation, fines of up to $250,000 and imprisonment for up to ten years. The
passage of HITECH significantly modified the enforcement structure, creating a tiered system of civil money penalties that range from $100 to $50,000 per violation, with a cap of $1.5
million per year for identical violations. We must also comply with the “breach notification” regulations, which implement certain provisions of HITECH. Under these regulations, in
addition to reasonable remediation, covered entities must promptly notify affected individuals in the case of a breach of “unsecured PHI,” which is defined by HHS guidance, as well as
the HHS Secretary and the media in cases where a breach affects more than 500 individuals. Breaches affecting fewer than 500 individuals must be reported to the HHS Secretary on
an annual basis. The regulations also require business associates of covered entities to notify the covered entity of breaches at or by the business associate. Formal enforcement of
the new breach notification regulations began on February 22, 2010.
We expect increased federal and state HIPAA privacy and security enforcement efforts. Under HITECH, State Attorney Generals now have the right to prosecute HIPAA violations
committed against residents of their states. In addition, HITECH mandates that the Secretary of HHS conduct periodic compliance audits of HIPAA covered entities and business
associates. It also tasks HHS with establishing a methodology whereby harmed individuals who were the victims of breaches of unsecured PHI may receive a percentage of the Civil
Monetary Penalty fine or monetary settlement paid by the violator. This methodology for compensation to harmed individuals is required to be in place by February 17, 2012.
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Many states also have laws that protect the privacy and security of confidential, personal information. These laws may be similar to or even more stringent than the federal provisions.
Not only may some of these state laws impose fines and penalties upon violators, but some may afford private rights of action to individuals who believe their personal information has
been misused.
Financial Information and Privacy Standards
In addition to privacy and security laws focused on health care data, multiple other federal and state laws regulate the use and disclosure of consumer’s financial information ("Personal
Information"). Many of these laws also require administrative, technical, and physical safeguards to prevent unauthorized use or disclosure of Personal Information, including
mandated processes and timeframes for notification of possible or actual breaches of Personal Information to the affected individual. The Federal Trade Commission primarily
oversees compliance with the federal laws relevant to us, while state laws are addressed by the state attorney general or other respective state agencies. As with HIPAA, enforcement
of laws protecting financial information is increasing. Examples of relevant federal laws include the Fair Credit Reporting Act, the Electronic Communications Privacy Act, and the
Computer Fraud and Abuse Act.
Fee-Splitting and Corporate Practice of Medicine
Some states, including California, have laws that prohibit business entities, such as our Company and its subsidiaries, from practicing medicine, employing physicians to practice
medicine, exercising control over medical decisions by physicians, also known collectively as the corporate practice of medicine, or engaging in certain arrangements, such as fee-
splitting, with physicians. In these states, a violation of the corporate practice of medicine prohibition constitutes the unlawful practice of medicine, which is a public offense punishable
by fines and other criminal penalties. In addition, any physician who participates in a scheme that violates the state’s corporate practice of medicine prohibition may be punished for
aiding and abetting a lay entity in the unlawful practice of medicine. The Company operates by maintaining long-term management contracts with affiliated professional organizations,
which are each owned and operated by physicians and which employ or contract with additional physicians to provide hospitalist services. Under these arrangements, we perform only
non-medical administrative services, do not represent that we offer medical services, and do not exercise influence or control over the practice of medicine by the physicians or the
affiliated professional organizations. The California Medical Board, as well as other state regulatory bodies, have taken the position that certain physician practice management
agreements that confer too much control over a physician practice violate the prohibition against corporate practice of medicine.
The Company operates by maintaining long-term management contracts with affiliated professional organizations, which are each owned and operated by physicians and which
employ or contract with additional physicians to provide hospitalist services. Under these arrangements, we perform only non-medical administrative services, do not represent that we
offer medical services, and do not exercise influence or control over the practice of medicine by the physicians or the affiliated professional organizations.
For financial reporting purposes, however, we consolidate the revenues and expenses of all our practice groups that we own or manage because we have a controlling financial
interest in these practices based on applicable accounting rules and as described in our accompanying consolidated financial statements. In states where fee-splitting is prohibited
between physicians and non-physicians, the fees that we receive through our management contracts have been established on a basis that we believe complies with the applicable
state laws.
Some of the relevant laws, regulations, and agency interpretations in the State of California and other states that have corporate practice prohibitions have been subject to limited
judicial and regulatory interpretation. Moreover, state laws are subject to change and regulatory authorities and other parties, including our affiliated physicians, may assert that,
despite these arrangements, we are engaged in the prohibited corporate practice of medicine or that our arrangements constitute unlawful fee-splitting. If this occurred, we could be
subject to civil or criminal penalties, our contracts could be found legally invalid and unenforceable (in whole or in part), or we could be required to restructure our contractual
arrangements. If we were required to restructure our operating structures due to determination that a corporate practice of medicine violation existed, such a restructuring might
include revisions of our management services agreements, which might include a modification of the management fee, and/ or establishing an alternative structure.
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Deficit Reduction Act of 2005
Among other mandates, the Deficit Reduction Act of 2005, or the DRA, created a new Medicaid Integrity Program designed to enhance federal and state efforts to detect Medicaid
fraud, waste and abuse. Additionally, section 6032 of the DRA requires entities that make or receive annual Medicaid payments of $5.0 million or more from any one state to provide
their employees, contractors and agents with written policies and employee handbook materials on federal and state False Claims Acts and related statues. At this time, we are not
required to comply with section 6032 because we receive less than $5.0 million in Medicaid payments annually from any one state. However, we may likely be required to comply in
the future as our Medicaid billings increase.
Other Federal Healthcare Compliance Laws
We are also subject to other federal healthcare laws.
In 1995, Congress amended the federal criminal statutes set forth in Title 18 of the United States Code by defining additional federal crimes that could have an impact on our business,
including “Health Care Fraud” and “False Statements Relating to Health Care Matters.” The Health Care Fraud provision prohibits any person from knowingly and willfully executing, or
attempting to execute, a scheme to defraud any healthcare benefit program. As defined in this provision of Title 18, a “healthcare benefit program” can be either a government or
private payer plan. violation of this statute may be charged as a felony offense and may result in fines, imprisonment or both. The Affordable Care Act amended section 1347 of Title 18
to provide that a person may be convicted under the Health Care Fraud provision even in the absence of proof that the person had actual knowledge of, or specific intent to violate, the
statute.
The False Statements Relating to Health Care Matters provision prohibits, in any matter involving a federal health care program, anyone from knowingly and willfully falsifying,
concealing or covering up, by any trick, scheme or device, a material fact, or making any materially false, fictitious or fraudulent statement or representation, or making or using any
materially false writing or document knowing that it contains a materially false or fraudulent statement. A violation of this statute may be charged as a felony offense and may result in
fines, imprisonment or both.
Under the Civil Monetary Penalties law of the Social Security Act, a person, including any individual or organization, may be subject to civil monetary penalties, treble damages and
exclusion from participation in federal health care programs for certain specified conduct. One provision of the Civil Monetary Penalties law precludes any person (including an
organization) from knowingly presenting or causing to be presented to any United States officer, employee, agent, or department, or any state agency, a claim for payment for medical
or other items or services that the person knows or should know (a) were not provided as described in the coding of the claim, (b) is a false or fraudulent claim, (c) is for a service
furnished by an unlicensed physician, (d) is for medical or other items or service furnished by a person or an entity that is in a period of exclusion from the program or (e) are medically
unnecessary items or services. Violations of the law may result in penalties of up to $10,000 per claim, treble damages, and exclusion from federal healthcare programs. In addition,
the OIG may impose civil monetary penalties against any physician who knowingly accepts payment from a hospital (as well as against the hospital making the payment) as an
inducement to reduce or limit services provided to Medicare or Medicaid program beneficiaries.
Other State Healthcare Compliance Provisions
In addition to the state laws previously described, we also are subject to other state fraud and abuse statutes and regulations. Many of the states in which we operate or plan to expand
to have adopted a form of anti-kickback law, self-referral prohibition, and false claims and insurance fraud prohibition. The scope of these laws and the interpretations of them vary from
state to state and are enforced by state courts and regulatory authorities, each with broad discretion. Generally, state laws reach to all healthcare services and not just those covered
under a governmental healthcare program. A determination of liability under any of these laws could result in fines and penalties and restrictions on our ability to operate in these
states. We cannot assure that our arrangements or business practices will not be subject to government scrutiny or be found to violate applicable fraud and abuse laws.
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Knox-Keene Act and Other State Insurance Laws
Some of the medical groups and IPAs that have entered into management services agreements with us, have historically contracted with health plans and other payors to receive a per
member per month (“PMPM”) or percentage of premium (“POP”) capitation payment for professional (physician) services and assumed the financial responsibility for professional
services. In many of these cases, the health plans or other payors separately enter into contracts with hospitals that directly receive payment (either a capitation or fee-for-service
payment) and assume some type of contractual financial responsibility for their institutional (hospital) services. In some instances, the Company’s managed medical groups and IPAs
have been paid by their contracting payor for the financial outcome of managing the care dollars associated with both the professional and institutional services received by the
medical groups’ and IPAs’ members. In the case of institutional services, the medical groups and IPAs have recognized a percentage of the surplus of institutional revenues less
institutional expense as the medical groups’ and IPAs’ net revenues and has also been responsible for some percentage of any short-fall in the event that institutional expenses
exceed institutional revenues. Notwithstanding, neither the Company nor any of its managed medical groups or IPAs are contractually obligated to pay claims to any hospitals or other
institutions under these arrangements. The California Department of Managed Health Care (“DMHC”) licenses and regulates health care service plans pursuant to the Knox-Keene
Act. We do not hold a limited Knox-Keene license. If DMHC were to determine that we have been inappropriately taking risk for institutional and professional services as a result of our
various hospital and physician arrangements without having a limited Knox-Keene license, we may be required to obtain a limited Knox-Keene license to resolve such violations and
we could be subject to civil and criminal liability, any of which could have a material adverse effect on our business, financial condition or results of operations.
Fair Debt Collection Practices Act
Some of our operations may be subject to compliance with certain provisions of the Fair Debt Collection Practices Act and comparable state statutes. Under the Fair Debt Collection
Practices Act, a third-party collection company is restricted in the methods it uses to contact consumer debtors and elicit payments with respect to placed accounts. Requirements
under state collection agency statutes vary, with most requiring compliance similar to that required under the Fair Debt Collection Practices Act.
U.S. Sentencing Guidelines
The U.S. Sentencing Guidelines are used by federal judges in determining sentences in federal criminal cases. The guidelines are advisory, not mandatory. With respect to
corporations, the guidelines state that having an effective ethics and compliance program may be a relevant mitigating factor in determining sentencing. To comply with the guidelines,
the compliance program must be reasonably designed, implemented, and enforced such that it is generally effective in preventing and detecting criminal conduct. The guidelines also
state that a corporation should take certain steps such as periodic monitoring and appropriately responding to detected criminal conduct. We have yet to develop a formal ethics and
compliance program.
Licensing, Certification, Accreditation and Related Laws and Guidelines
Our clinical personnel are subject to numerous federal, state and local licensing laws and regulations, relating to, among other things, professional credentialing and professional
ethics. Since the Company performs services at hospitals and other types of healthcare facilities, it may indirectly be subject to laws applicable to those entities as well as ethical
guidelines and operating standards of professional trade associations and private accreditation commissions, such as the American Medical Association and The Joint Commission.
There are penalties for non-compliance with these laws and standards, including loss of professional license, civil or criminal fines and penalties, loss of hospital admitting privileges,
and exclusion from participation in various governmental and other third-party healthcare programs. Our ability to operate profitably will depend, in part, upon our ability and the ability
of our affiliated physician organizations to obtain and maintain all necessary licenses and other approvals and operate in compliance with applicable health care laws and regulations,
including any new laws and regulations or new interpretations of existing laws and regulations.
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Professional Licensing Requirements
The Company’s affiliated hospitalists must satisfy and maintain their professional licensing in the states where they practice medicine. Activities that qualify as professional misconduct
under state law may subject them to sanctions, or to even lose their license and could, possibly, subject us to sanctions as well. Some state boards of medicine impose reciprocal
discipline, that is, if a physician is disciplined for having committed professional misconduct in one state where he or she is licensed, another state where he or she is also licensed
may impose the same discipline even though the conduct occurred in another state. Professional licensing sanctions may also result in exclusion from participation in governmental
healthcare programs, such as Medicare and Medicaid, as well as other third-party programs. . Our ability to operate profitably will depend, in part, upon our ability and the ability of our
affiliated physician organizations to obtain and maintain all necessary licenses and other approvals and operate in compliance with applicable health care laws and regulations,
including any new laws and regulations or new interpretations of existing laws and regulations.
Employees
As of January 31, 2014, we had 30 full-time employees. None of our full-time employees is a member of a labor union, and we have never experienced a work stoppage.
ITEM 1A. RISK FACTORS
If any of the following risks occur, our business, financial condition or results of operations could be materially harmed. The risks and uncertainties described below are not the only
ones facing the Company. Additional risks and uncertainties may also impair its business operations or financial condition. You should consider carefully the following factors, in
addition to the other information concerning the Company and its business, before you decide to buy or hold shares of our common stock.
Risk Relating to Our Business
We might need to raise additional capital, which might not be available.
The Company has historically incurred significant losses, and we may require additional equity or debt financing for additional working capital or to meet our liabilities. In the event of
additional financing being unavailable to us, we may be unable to operate or continue in existence, and the price of our common stock may decline and we may be or be made
bankrupt.
The Company has a limited operating history that makes it difficult to reliably predict future growth and operating results.
The predecessor to ApolloMed was incorporated on October 18, 2006, and served initially as the management company for our affiliated medical group, ApolloMed Hospitalists. In
addition, ApolloMed was awarded its ACO license under CMS’ MSSP in June 2012. ApolloMed has limited experience operating an ACO or managed care organization. Accordingly,
we have a limited operating history upon which you can evaluate our business prospects, which makes it difficult to forecast ApolloMed’s future operating results. The evolving nature
of the current medical services industry increases these uncertainties. You must consider the Company’s business prospects in light of the risks, uncertainties and problems frequently
encountered by companies with limited operating histories. Our ability to predict growth at any time in the future may be limited.
The growth strategy of the Company may not prove viable and expected growth and value may not be realized.
Our business strategy is to rapidly grow by managing a network of medical groups providing certain hospital-based services and integrated inpatient and outpatient physician network.
Where permitted by local law, we may also acquire such medical groups. Identifying quality acquisition candidates is a time-consuming and costly process. There can be no assurance
that we will be successful in identifying and establishing relationships with these and other candidates. If the Company is successful in identifying and acquiring other businesses,
there is no assurance that it will be able to manage the growth of such businesses effectively.
The success of the Company’s growth strategy depends on the successful identification, completion and integration of acquisitions.
The Company’s future success will depend on the ability to identify, complete, and integrate the acquired businesses with its existing operations. The growth strategy will result in
additional demands on our infrastructure, and will place further strain on limited management, administrative, operational, financial and technical resources. Acquisitions involve
numerous risks, including, but not limited to:
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the possibility that we will not able to identify suitable acquisition candidates or consummate acquisitions on acceptable terms, if at all;
possible decreases in capital resources or dilution to existing stockholders;
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difficulties and expenses incurred in connection with an acquisition;
the diversion of management’s attention from other business concerns;
the difficulties of managing an acquired business;
the potential loss of key employees and customers of an acquired business; and
in the event that the operations of an acquired business do not meet expectations, we may be required to restructure the acquired entity or write-off the value of some or all of
the assets of the acquisition.
Our future growth could be harmed if we lose the services of certain key personnel.
Our success depends to a significant extent on the continued contributions of our key management personnel, including our Chief Executive Officer, Warren Hosseinion, M.D., for the
management of our business and implementation of our business strategy. We have entered into employment agreements with Dr. Hosseinion and we hold a $5 million key man life
insurance policy. The loss of Dr. Hosseinion or other key management personnel could have a material adverse effect on our business, financial condition and results of operations.
The healthcare industry is complex and intensely regulated at the federal, state, and local levels and government authorities may determine that we have failed to comply
with applicable laws or regulations.
As a company involved in the provision of healthcare services, we are subject to a myriad of federal, state, and local laws and regulations. There are significant costs involved in
complying with these laws and regulations. Moreover, if we are found to have violated any applicable laws or regulations, we could be subject to civil and/or criminal damages, fines,
sanctions, or penalties, including exclusion from participation in governmental healthcare programs, such as Medicare and Medicaid. We may also be required to change our method
of operations. These consequences could be the result of current conduct or even conduct that occurred a number of years ago. We also could incur significant costs merely if we
become the subject of an additional investigation or legal proceeding alleging a violation of these laws and regulations. We cannot predict whether a federal, state, or local government
will determine that we are not operating in accordance with law, or whether the laws will change in the future and impact our business. Any of these actions could have a material
adverse effect on our business, financial condition and results of operations.
The following is a non-exhaustive list of some of the more significant healthcare laws and regulations that affect us:
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federal laws, including the federal False Claims Act, that provide for penalties against entities and individuals which knowingly or recklessly make claims to Medicare, Medicaid,
and other governmental healthcare programs, as well as third-party payors, that contain or are based upon false or fraudulent information;
a provision of the Social Security Act, commonly referred to as the “Anti-Kickback Statute,” that prohibits the knowing and willful offering, payment, solicitation or receipt of any
bribe, kickback, rebate or other remuneration, in cash or in kind, in return for the referral or recommendation of patients for items and services covered, in or in part, by federal
healthcare programs such as Medicare and Medicaid;
a provision of the Social Security Act, commonly referred to as the Stark Law or physician self-referral law, that (subject to limited exceptions) prohibits physicians from referring
Medicare patients to an
entity for the provision of certain “designated health services” if the physician or a member of such physician’s immediate family has a direct or indirect financial relationship
with the entity, and prohibits the entity from billing for services arising out of such prohibited referrals;
a provision of the Social Security Act that provides for criminal penalties on healthcare providers who fail to disclose known overpayments;
a provision of the Social Security Act that provides for civil monetary penalties on healthcare providers who fail to repay known overpayments within 60 days of identification or
the date any corresponding cost report was due, if applicable, and also allows improper retention of known overpayments to serve as a basis for False Claims Act violations;
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state law provisions pertaining to anti-kickback, self-referral and false claims issues, which typically are not limited to relationships involving governmental payors;
provisions of, and regulations relating to, HIPAA that provide penalties for knowingly and willfully executing a scheme or artifice to defraud a health-care benefit program or
falsifying, concealing or covering up a material fact or making any material false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare
benefits, items or services;
provisions of HIPAA and HITECH limiting how covered entities, business associates and business associate sub-contractors may use and disclose PHI and the security
measures that must be taken in connection with protecting that information and related systems, as well as similar or more stringent state laws;
federal and state laws that provide penalties for providers for billing and receiving payment from a governmental healthcare program for services unless the services are
medically necessary and reasonable, adequately and accurately documented, and billed using codes that accurately reflect the type and level of services rendered;
federal laws that provide for administrative sanctions, including civil monetary penalties for, among other violations, inappropriate billing of services to federal healthcare
programs, payments by hospitals to physicians for reducing or limiting services to Medicare or Medicaid patients , or employing or contracting with individuals or entities
who/which are excluded from participation in federal healthcare programs;
federal and state laws and policies that require healthcare providers to enroll in the Medicare and Medicaid programs before submitting any claims for services, to promptly
report certain changes in their operations to the agencies that administer these programs, and to re-enroll in these programs when changes in direct or indirect ownership
occur or in response to revalidation requests from Medicare and Medicaid;
state laws that prohibit general business entities from practicing medicine, controlling physicians’ medical decisions or engaging in certain practices, such as splitting fees with
physicians;
laws in some states that prohibit non-domiciled entities from owning and operating medical practices in their states;
provisions of the Social Security Act (emanating from the DRA) that require entities that make or receive annual Medicaid payments of $5 million or more from a single
Medicaid program to provide their employees, contractors and agents with written policies and employee handbook materials on federal and state false claims acts and related
statutes , that establish a new Medicaid Integrity Program designed to enhance federal and state efforts to detect Medicaid fraud, waste, and abuse , and that increase financial
incentives for both states and individuals to bring fraud and abuse claims against healthcare companies; and
federal and state laws and regulations restricting the techniques that may be used to collect past due accounts from consumers, such as our patients, for services provided to
the consumer.
ApolloMed’s operations are dependent on a few payors and hospital contracts
For the year ended January 31, 2014 the Company had three payors, including hospital contracts, that represented approximately 48% of consolidated revenues, The Company
expects that, going forward, substantially all of its revenue will continue to be derived from these and other payors. Each payor may immediately terminate any of our contracts and/or
any individual credentialed physician upon the occurrence of certain events. They may also amend the material terms of the contracts under certain circumstances. Failure to maintain
the contracts on favorable terms, for any reason, would materially and adversely affect our results of operations and financial condition. A material decline in the number of members
could also have a material adverse effect on our results of operations.
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Risk-sharing arrangements that Maverick Medical Group, Inc. has with health plans and hospitals could result in their costs exceeding the corresponding revenues, which
could reduce or eliminate any shared risk profitability
MMG’s agreements with health plans contain risk-sharing arrangements under which MMG can earn additional compensation from the health plans by coordinating the provision of
quality, cost-effective healthcare to members. However, such arrangements may require the physician group to assume a portion of any loss sustained from these arrangements,
thereby worsening our consolidated results of operations. Under these risk-sharing arrangements, MMG is responsible for a portion of the cost of hospital services or other services
that are not capitated. The terms of the particular risk-sharing arrangement allocate responsibility to the respective parties when the cost of services exceeds the related revenue,
which results in a deficit, or permit the parties to share in any surplus amounts when actual costs are less than the related revenue. The amount of non-capitated medical and hospital
costs in any period could be affected by factors beyond the control of MMG, such as changes in treatment protocols, new technologies, longer lengths of stay by the patient, and
inflation. To the extent that such non-capitated medical and hospital costs are higher than anticipated, revenue may not be sufficient to cover the risk-sharing deficits the health plans
and MMG are responsible for, which could reduce our revenues and profitability.
Providers in the healthcare industry are the subject of federal and state investigations, as well as payor audits.
Due to our participation in government and private healthcare programs, we are sometimes involved in inquiries, reviews, audits and investigations by governmental agencies and
private payors of our business practices, including assessments of our compliance with coding, billing and documentation requirements. Federal and state government agencies have
active civil and criminal enforcement efforts that include investigations of healthcare companies, and their executives and managers. Under certain circumstances, these investigations
can also be initiated by private individuals under whistleblower provisions which may be incentivized by the possibility for private recoveries. The DRA revised federal law to further
encourage these federal, state and individually-initiated investigations against healthcare companies.
Responding to these audit and enforcement activities can be costly and disruptive to our business operations, even when the allegations are without merit. If we are subject to an audit
or investigation and a finding is made that we were incorrectly reimbursed, we may be required to repay these agencies or private payors, or we may be subjected to pre-payment
reviews, which can be time-consuming and result in non-payment or delayed payment for the services we provide. We also may be subject to other financial sanctions or be required to
modify our operations.
We do not have a limited Knox-Keene License.
We do not hold a limited Knox-Keene license. If DMHC were to determine that we have been inappropriately taking risk for institutional and professional services as a result of our
various hospital and physician arrangements without having a limited Knox-Keene license, we may be required to obtain a limited Knox-Keene license to resolve such violations and
we could be subject to civil and criminal liability, any of which could have a material adverse effect on our business, financial condition or results of operations.
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Our revenue may be negatively impacted by the failure of our affiliated hospitalists to appropriately document services they provide.
We rely upon our affiliated hospitalists to appropriately and accurately complete necessary medical record documentation and assign appropriate reimbursement codes for their
services. Reimbursement to us is conditioned on our affiliated hospitalists providing the correct procedure and diagnosis codes and properly documenting the services themselves,
including the level of service provided, and the medical necessity for the services. If our affiliated hospitalists have provided incorrect or incomplete documentation or selected
inaccurate reimbursement codes, this could result in nonpayment for services rendered or lead to allegations of billing fraud. This could subsequently lead to civil and criminal
penalties, including exclusion from government healthcare programs, such as Medicare and Medicaid. In addition, third-party payors may disallow, in whole or in part, requests for
reimbursement based on determinations that certain amounts are not covered, services provided were not medically necessary, or supporting documentation was not adequate.
Retroactive adjustments may change amounts realized from third-party payors and result in recoupments or refund demands, affecting revenue already received.
Economic conditions or changing consumer preferences could adversely impact our business.
A downturn in economic conditions in one or more of the Company’s markets could have a material adverse effect on its results of operations, financial condition, business and
prospects. Although we attempt to stay informed of customer preferences, any sustained failure to identify and respond to trends could have a material adverse effect on our results of
operations, financial condition, business and prospects.
We may be unable to scale our operations successfully.
Our growth strategy will place significant demands on our management and financial, administrative and other resources. Operating results will depend substantially on the ability of
our officers and key employees to manage changing business conditions and to implement and improve our financial, administrative and other resources. If the Company is unable to
respond to and manage changing business conditions, or the scale of its operations, then the quality of its services, its ability to retain key personnel, and its business could be harmed.
The Company’s success depends upon the ability to adapt to a changing market and continued development of additional services.
Although we expect to provide a broad and competitive range of services, there can be no assurance of acceptance by the marketplace. The procurement of new contracts by the
Company may be dependent upon the continuing results achieved at the current facilities, upon pricing and operational considerations, as well as the potential need for continuing
improvement to existing services. Moreover, the markets for such services may not develop as expected nor can there be any assurance that we will be successful in its marketing of
any such services.
Changes associated with reimbursement by third-party payers for the Company’s services may adversely affect operating results and financial condition.
The medical services industry is undergoing significant changes with third-party payers that are taking measures to reduce reimbursement rates or in some cases, denying
reimbursement altogether. There is no assurance that third-party payers will continue to pay for the services provided by our affiliated medical groups. Failure of third party payers to
adequately cover the medical services so provided by the Company will have a material adverse effect on our results of operations, financial condition, business and prospects.
Compliance with federal and state privacy and information security laws is expensive, and we may be subject to government or private actions due to privacy and security
breaches.
We must comply with numerous federal and state laws and regulations governing the collection, dissemination, access, use, security and confidentiality of patient health information
(“PHI”), including HIPAA and HITECH. As part of our medical record keeping, third-party billing, and other services, we collect and maintain PHI in paper and electronic format.
Therefore, new privacy or security laws, whether implemented pursuant to federal or state action, could have a significant effect on the manner in which we handle healthcare-related
data and communicate with payors. In addition, compliance with these standards could impose significant costs on us or limit our ability to offer services, thereby negatively impacting
the business opportunities available to us. Despite our efforts to prevent security and privacy breaches, they may still occur. If any non-compliance with existing or new laws and
regulations related to PHI results in privacy or security breaches, we could be subject to monetary fines, civil suits, civil penalties or even criminal sanctions.
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As a result of the expanded scope of HIPAA through HITECH, we may incur significant costs in order to minimize the amount of “unsecured PHI” we handle and retain or to implement
improved administrative, technical or physical safeguards to protect PHI. We may incur significant costs in order to demonstrate and document whether there is a low probability that
the PHI has been compromised in order to overcome the presumption that an impermissible use or disclosure of PHI results in a reportable breach. We may incur significant costs to
notify the relevant individuals, government entities, and, in some cases, the media in the event of a breach and to provide appropriate remediation and monitoring to mitigate the
possible damage done by any such breach.
Providers must be properly enrolled in governmental healthcare programs, such as Medicare and Medicaid, before they can receive reimbursement for providing services,
and there may be delays in the enrollment process.
Each time a new affiliated hospitalist joins us, we must enroll the affiliated hospitalist under our applicable group identification number for Medicare and Medicaid programs and for
certain managed care and private insurance programs before we can receive reimbursement for services the hospitalist renders to beneficiaries of those programs. The estimated time
to receive approval for the enrollment is sometimes difficult to predict and, in recent years, the Medicare program carriers often have not issued these numbers to our affiliated
hospitalists in a timely manner. These practices result in delayed reimbursement that may adversely affect our cash flow and revenues.
We may face malpractice and other lawsuits that may not be covered by insurance.
Malpractice lawsuits are common in the healthcare industry. The medical malpractice legal environment varies greatly by state. The status of tort reform, availability of non-economic
damages or the presence or absence of other statutes, such as elder abuse or vulnerable adult statutes, influence the incidence and severity of malpractice litigation. We may also be
subject to other types of lawsuits which may involve large claims and significant defense costs. Many states have joint and several liability for all healthcare providers who deliver care
to a patient and are at least partially liable. As a result, if one healthcare provider is found liable for medical malpractice for the provision of care to a particular patient, all other
healthcare providers who furnished care to that same patient, including possibly our affiliated hospitalists, may also share in the full liability which may be substantial.
We currently maintain liability insurance coverage to cover professional liability and other claims. We cannot be certain that our insurance coverage will be adequate to cover liabilities
arising out of claims asserted against us, our affiliated professional organizations or our affiliated hospitalists, and we cannot provide assurance that any future liabilities will not have a
material adverse impact on our results of operations, cash flows or financial position. Liabilities in excess of our insurance coverage, including coverage for professional liability and
other claims, could have a material adverse effect on our business, financial condition, and results of operations. In addition, our professional liability insurance coverage generally
must be renewed annually and may not continue to be available to us in future years at acceptable costs and on favorable terms.
We have established reserves for potential medical malpractice liability losses which are subject to inherent uncertainties and a deficiency in the established reserves
may lead to a reduction in our net income.
Our professional liability insurance policy is written on a claims-made basis providing first dollar coverage up to our policy limits on new claims reported in the policy period. We record
estimates for our liabilities, on an undiscounted basis, for claims incurred and reported and claims incurred but not reported during the policy period, based on actuarial loss projections
using historical loss patterns. These insurance reserves are inherently subject to uncertainty as they could be significantly affected if current and future occurrences differ from
historical claim trends and expectations. While claims are monitored closely when estimating reserves, the complexity of the claims and wide range of potential outcomes often
hampers timely adjustments to the assumptions used in these estimates. The unpredictable nature of the reporting of claims could result in significant fluctuations in the loss estimate
from period to period. It is possible that actual losses and related expenses may differ, perhaps substantially, from the reserve estimates reflected in our financial statements. If
subsequent actual paid claims exceed our estimated reserves, we may be required to increase reserves, which would lead to a reduction in our future net income.
Competition for hospitalists is intense, and we may not be able to hire and retain hospitalists to provide services.
We are dependent on our affiliated hospitalists to provide services and generate revenue. We compete with many types of healthcare providers, including teaching, research and
government institutions, hospitals and other practice groups, for the services of clinicians. The limited number of residents entering the job market each year and the limited number of
other licensed providers seeking to change employers makes it challenging to meet our hiring needs and may require us to contract locum tenens physicians or to increase hospitalist
compensation in a manner that decreases our profit margins. The limited number of residents and other licensed providers also impacts our ability to recruit new hospitalists with the
expertise necessary to provide services within our business and our ability to renew contracts with existing hospitalists on acceptable terms. If we do not do so, our ability to provide
services could be adversely affected. Our hospitalist turnover rate has remained stable over the last three years. If the turnover rate were to increase significantly, our growth could be
impeded.
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We may not make appropriate acquisitions, may fail to integrate them into our business, and/or these acquisitions may alter our current payor mix.
Our business is partially dependent on locating and acquiring or partnering with medical practices or individual physicians to provide hospitalist services. As part of our acquisition
strategy, we regularly review potential acquisition opportunities. We believe that there continue to be a number of acquisition opportunities that would be complementary to our
business. We cannot predict whether we will be successful in pursuing such acquisition opportunities or what the consequences of any such acquisitions would be. If we are not
successful in finding attractive acquisition candidates that we can acquire on satisfactory terms, or if we cannot successfully complete and efficiently integrate those acquisitions that
we identify, we will not be able to realize the benefit of this part of our growth strategy. Furthermore, our acquisition strategy involves a number of risks and uncertainties, including:
· We may not be able to identify suitable acquisition candidates or strategic opportunities or successfully implement or realize the expected benefits of any suitable opportunities.
In addition, we compete for acquisitions with other potential acquirers, some of which may have greater financial or operational resources than we do. This competition may
intensify due to the ongoing consolidation in the healthcare industry, which may increase our acquisition costs.
· We may be unable to successfully and efficiently integrate completed acquisitions, including our recently completed acquisitions and such acquisitions may fail to achieve the
financial results we expected. Integrating completed acquisitions into our existing operations involves numerous short-term and long-term risks, including diversion of our
management’s attention, failure to retain key personnel, failure to retain payor contracts and failure of the acquired practice to be financially successful.
· We cannot be certain of the extent of any unknown or contingent liabilities of any acquired business, including liabilities for failure to comply with applicable laws. We may incur
material liabilities for past activities of acquired businesses. Also, depending on the location of the acquisition, we may be required to comply with laws and regulations that may
differ from those of the states in which our operations are currently conducted.
· We may acquire individual or group medical practices that operate with lower profit margins as compared with our current or expected profit margins or which have a different
payor mix than our other practice groups, which would reduce our profit margins. Depending upon the nature of the local healthcare market, we may not be able to implement
our business model, which may negatively impact our revenues and profitability.
·
If we finance acquisitions by issuing equity securities or securities convertible into equity securities, our existing stockholders could be diluted, which, in turn, could adversely
affect the market price of our stock. If we finance an acquisition with debt, it could result in higher leverage and interest costs. As a result, if we fail to evaluate and execute
acquisitions properly, we might not achieve the anticipated benefits of these acquisitions, and we may increase our acquisition costs.
Changes in the rates or methods of third-party reimbursements may adversely affect our operations.
We derive the majority of our revenue from direct billings to governmental healthcare programs, such as Medicare and Medicaid, and private health insurance companies. As a result,
any negative changes in the rates or methods of reimbursement for the services we provide would have a significant adverse impact on our revenue and financial results. Government
funding for healthcare programs, in particular, is subject to unpredictable statutory and regulatory changes, administrative rulings, interpretations of policy and determinations by
intermediaries, and governmental funding restrictions, all of which could materially impact program coverage and reimbursements for our services.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Medicare program reimburses for our services based upon the rates set forth in the annually updated Medicare Physician Fee Schedule, which relies, in part, on the SGR. Many
private payors use the Medicare Physician Fee Schedule to determine their own reimbursement rates. Based on the SGR, the annual Medicare Physician Fee Schedule update is
adjusted to reflect the comparison of actual expenditures to target expenditures. Because one of the factors for calculating the SGR is linked to the growth in the U.S. GDP, the SGR
formula may result in a negative payment update if growth in Medicare beneficiaries’ use of services exceeds GDP growth, a situation which has occurred every year since 2002 and
the reoccurrence of which we cannot predict. Congress has repeatedly intervened to delay the implementation of the negative SGR payment update. With the enactment of the
Bipartisan Budget Act of 2013 on December 26, 2013, the 20.1 percent cut that was to occur was replaced with a 0.5 percent increase for services provided through March 31, 2014.
However, there is no guarantee that Congress will continue to postpone implementation of the negative SGR payment in the future.
Moreover, the existing methodology may result in significant yearly fluctuations in the Medicare Physician Fee Schedule amounts, which may be unrelated to changes in the actual
costs of providing physician services. Unless Congress enacts a permanent change in the SGR methodology, the uncertainty regarding reimbursement rates and fluctuation will
continue to exist.
Another provision that affects physician payments is an adjustment under the Medicare statute to reflect the geographic variation in the cost of delivering physician services, by
comparing those costs to the national average. This concerns the “work” component of the GPCI. If Congress does not block this adjustment, payments would be decreased to any
geographic area with an index of less than 1.0. President Obama signed the “Protecting Access to Medicare Act of 2014” (Public Law No. 113.93) into law on April 1, 2014. Notable
provisions included the Medicare Work Geographic Practice Cost Index (GPCI) Floor (§102). This provision provides a one-year extension of the Medicare GPCI floor through March
31, 2015, increasing physician reimbursement rates in primarily rural areas. However, there is no guarantee that Congress will block the adjustment in the future, which could result in
a decrease in payments we receive for physician services.
Congress has a strong interest in reducing the federal debt, which may lead to new proposals designed to achieve savings by altering payment policies. The BCA established a Joint
Select Committee on Deficit Reduction, which was tasked with achieving a reduction in the federal debt level of at least $1.2 trillion. That Committee did not draft a proposal by the
BCA’s deadline. As a result, automatic cuts (sequestration) in various federal programs were scheduled to take place, beginning in January 2013, although the American Taxpayer
Relief Act of 2012 delayed the BCA’s automatic cuts until March 1, 2013. While the Medicare program’s eligibility and scope of benefits are generally exempt from these cuts, Medicare
payments to providers are not exempt. The BCA did, however, provide that the Medicare cuts to providers would not exceed two percent. President Obama issued the sequestration
order on March 1, 2013, with cuts going into effect on April 1, 2013. Additionally, the Bipartisan Budget Act of 2013 extended the two percent sequestration for Medicare for another
two years, through 2023.
In fact, the situation with the federal budget remains in flux. From October 1, 2013 through October 16, 2013, the U.S. federal government ceased the majority of its operations after
Congress failed to enact legislation appropriating funds for fiscal year 2014. On October 17, 2013, President Obama signed into law the Continuing Appropriations Act of 2014, which
included a continuing resolution to fund the government until January 15, 2014 and suspended the statutory debt ceiling until February 7, 2014. After extending the government funding
expiration date to January 18, 2014, Congress passed a $1.1 trillion spending bill that was signed into law on January 17, 2014 and funds the government through September 30,
2014. However, this new law is a temporary measure that does not resolve the debt-limit issue. Many Members of Congress have made public statements indicating that some or all of
these budget-related deadlines should be used as leverage to negotiate additional cuts in federal spending. The Medicare program is frequently mentioned as a target for spending
cuts.
The magnitude of Medicare cuts that may be made through budget agreements is unclear, including with respect to physician reimbursement. However, under our provider
compensation plan, any decrease in reimbursement rates would reduce our physician incentive payments. For example, the BCA’s automatic two percent net reduction in Medicare
reimbursement rates for the codes applicable to the services performed by our affiliated hospitalists could reduce our net income.
Because governmental healthcare programs generally reimburse on a fee schedule basis rather than on a charge-related basis, we generally cannot increase our revenues from
these programs by increasing the amount we charge for our services. If our costs increase, we may not be able to recover our increased costs from these programs. Government and
private payors have taken and may continue to take steps to control the cost, eligibility for, use and delivery of healthcare services as a result of budgetary constraints, cost
containment pressures and other reasons. We believe that these trends in cost containment will continue. These cost containment measures and other market changes in non-
governmental insurance plans have generally restricted our ability to recover, or shift to non-governmental payors, any increased costs that we experience. Our business and financial
operations may be materially affected by these developments.
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If we inadvertently employ or contract with an excluded person, we may face government sanctions.
Individuals and entities can be excluded from participating in the Medicare and Medicaid programs for violating certain laws and regulations, or for other reasons such as the loss of a
license in any state, even if the individual retains other licensure. This means that they (and all others) are prohibited from receiving payment for their services rendered to Medicare or
Medicaid beneficiaries, and if the excluded individual is a physician, all services ordered (not just provided) by such physician are also non-covered and non-payable. Entities which
employ or contract with excluded individuals are prohibited from billing the Medicare or Medicaid programs for the excluded individual’s services, and are subject to civil monetary
penalties if they do. The OIG maintains a list of excluded individuals and entities. Although we have instituted policies and procedures through our compliance program to minimize the
risks, there can be no assurance that we will not inadvertently hire or contract with an excluded person, or that any of our current employees or contracts will not become excluded in
the future without our knowledge. If this occurs, we may be subject to substantial repayments and civil penalties and the hospitals at which we furnish services also may be subject to
repayments and sanctions, for which they may seek recovery from us.
The hospitalist industry is competitive.
There are other companies and individuals currently providing hospitalist services. We compete directly with national, regional and local providers of inpatient healthcare, and other
companies could enter the market in the future and divert some or all of our business. On a national basis our competitors include Team Health and Envision, each of which may have
greater financial and other resources available to them. We also compete with hospitalist groups and privately-owned hospitalist companies in each of our local markets. Existing or
future competitors also may seek to compete with us for acquisitions, which could have the effect of increasing the price and reducing the number of suitable acquisitions, which would
have an adverse impact on our growth strategy. Since there are virtually no capital expenditures required to enter the industry, there are few financial barriers to entry. Individual
physicians, physician groups and companies in other healthcare industry segments, including hospitals with which we have contracts, some of which have greater financial, marketing
and staffing resources, may become competitors in providing hospitalist services and this competition may have a material adverse effect on our business operations and financial
position.
Because patients do not typically select their hospitalists, we are completely reliant on referrals from third parties.
Our business is based on referrals for our services. We receive referrals from community medical providers, emergency departments, payors, and hospitals in the same manner as
other medical professionals receive patient referrals. We do not provide compensation or other remuneration to our referral sources for referring patients to us. A decrease in these
referrals due to competition, concerns about the quality of our services, and other factors could result in a significant decrease in our revenues and adversely impact our financial
condition. Similarly, we cannot assure that we will be able to obtain or maintain preferred provider status with significant third-party payors in the communities where we operate. If we
are unable to maintain our referral base or our preferred provider status with significant third-party payors, it may negatively impact our revenues and our financial performance.
Hospitals and other inpatient and post-acute care facilities (collectively “facilities”) may terminate their agreements with us or reduce the fees they pay us.
We currently derive approximately 81% of our net revenue for hospitalist services from contracts directly with facilities. Our current partner facilities may decide not to renew our
contracts, introduce unfavorable terms, or reduce fees paid to us. Any of these events may impact the ability of our practice groups to operate at such facilities, which would negatively
impact our revenue and profitability.
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Some of the hospitals where our affiliated hospitalists provide services may have their medical staff closed to non-contracted hospitalists.
In general, our affiliated hospitalists may only provide services in a hospital where they have certain credentials, called privileges, which are granted by the medical staff and controlled
by legally binding medical staff bylaws of the hospital. The medical staff decides who will receive privileges, and the medical staff of the hospitals where we currently provide services
or wish to provide services could decide that non-contracted hospitalists can no longer receive privileges to practice there. Such a decision would limit our ability to furnish services in a
hospital, decrease the number of our affiliated hospitalists who could provide services, or preclude us from entering new hospitals. In addition, hospitals may attempt to enter into
exclusive contracts for hospitalist services, which would reduce access to certain populations of patients within the hospital.
We may be impacted by eligibility changes to government and private insurance programs.
Due to potential decreased availability of healthcare through private employers, the number of patients who are uninsured or participate in governmental programs may increase. A
shift in payor mix from managed care and other private payors to government payors or the uninsured may result in a reduction in our rates of reimbursement or an increase in our
uncollectible receivables or uncompensated care, with a corresponding decrease in our net revenue. Changes in the eligibility requirements for governmental programs also could
increase the number of patients who participate in such programs or the number of uninsured patients. Even for those patients who remain with private insurance, changes in those
programs could increase patient responsibility amounts, resulting in a greater risk for us of uncollectible receivables. These factors and events could have a material adverse effect on
our business, financial condition and results of operations.
We may have difficulty collecting payments from third-party payors in a timely manner.
We derive significant revenue from third-party payors, and delays in payment or audits leading to refunds to payors may impact our net revenue. We assume the financial risks relating
to uncollectible and delayed payments. In the current healthcare environment, payors are continuing their efforts to control expenditures for healthcare, including proposals to revise
coverage and reimbursement policies. We may experience difficulties in collecting our revenue because third-party payors may seek to reduce or delay payment to which we believe
we are entitled. If we are not paid fully and in a timely manner for such services or there is a finding that we were incorrectly paid, our revenues, cash flows, and financial condition
could be materially adversely affected.
Certain federal and state laws may limit our effectiveness at collecting monies owed to us from patients.
We utilize third parties to collect from patients any co-payments and other payments for services that our hospitalists provide to patients. The federal Fair Debt Collection Practices Act
restricts the methods that third-party collection companies may use to contact and seek payment from consumer debtors regarding past due accounts. State laws vary with respect to
debt collection practices, although most state requirements are similar to those under the Fair Debt Collection Practices Act. If our collection practices or those of our collection
agencies are inconsistent with these standards, we may be subject to actual damages and penalties. These factors and events could have a material adverse effect on our business,
financial condition and results of operations.
If we are unable to effectively adapt to changes in the healthcare industry, our business may be harmed.
Due to the importance of the healthcare industry in the lives of all Americans, federal, state, and local legislative bodies frequently pass legislation and promulgate regulations relating
to healthcare reform. It is reasonable to believe that there may be increased federal oversight and regulation of the healthcare industry in the future. We cannot assure you as to the
ultimate content, timing or effect of any healthcare reform legislation, nor is it possible at this time to estimate the impact of potential legislation on our business. It is possible that future
legislation enacted by Congress or state legislatures could adversely affect our business or could change the operating environment of the hospitals and other facilities where our
hospitalists provide services. It is possible that the changes to the Medicare or other governmental healthcare program reimbursements may serve as precedent to possible changes in
other payors’ reimbursement policies in a manner adverse to us. Similarly, changes in private payor reimbursements could lead to adverse changes in Medicare and other
governmental healthcare programs which could have a material adverse effect on our business, financial condition and results of operations.
Our business model depends on numerous complex management information systems, and any failure to successfully maintain these systems or implement new
systems could materially harm our operations and result in potential violations of healthcare laws and regulations.
We depend on a complex, specialized, integrated management information system and standardized procedures for operational and financial information, as well as for our billing
operations. We may be unable to enhance our existing management information systems or implement new management information systems where necessary. Additionally, we may
experience unanticipated delays, complications, or expenses in implementing, integrating, and operating our systems. Our management information systems may require
modifications, improvements, or replacements that may require both substantial expenditures as well as interruptions in operations. Our ability to implement these systems is subject to
the availability of information technology and skilled personnel to assist us in creating and implementing these systems. Our failure to successfully implement and maintain all of our
systems could have a material adverse effect on our business, financial condition and results of operations. Further, our failure to successfully operate our billing systems could lead to
potential violations of healthcare laws and regulations.
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We may incur significant costs if we are required to adopt certain provisions under the Health Information Technology for Economic and Clinical Health Act.
HITECH was enacted into law on February 17, 2009 as part of the American Recovery and Reinvestment Act of 2009. Among the many provisions of HITECH are those relating to the
implementation and use of certified Electronic Health Records (EHRs). Our patient medical records are maintained and under the custodianship of the healthcare facilities in which we
operate. However, if we are required to adopt the use of EHRs utilized by these healthcare facilities, determine to adopt certain EHRs, or comply with any related provisions of
HITECH, we may incur significant costs which could have a material adverse effect on our business operations and financial position.
The terms of our debt agreement could restrict our operations, particularly our ability to respond to changes in our business or to take specified actions.
Our existing secured debt agreement contains, and any future indebtedness would likely contain, a number of restrictive covenants that impose significant operating and financial
restrictions on us, including restrictions on our ability to take actions that may be in our best interests. Our existing debt agreement includes covenants that generally:
•
•
•
•
do not allow us to borrow additional amounts without the approval of our lender;
require us to obtain the consent of our lender for acquisitions of $500,000 or more and grant security interests in newly-acquired companies;
do not allow us to dispose of assets ; and
require us to not impair our lender’s security interests in our assets.
If we fail to remain current in our SEC reporting obligations, we could be removed from the OTCQB, which would adversely affect the market liquidity for our securities.
Companies trading on the OTCQB, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports
under Section 13, in order to maintain price quotation privileges on the OTCQB. If we fail to remain current in our reporting requirements, we could be removed from the OTCQB. As a
result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their
securities in the secondary market.
Our common stock is subject to the “penny stock” rules of the SEC, and trading in our securities is very limited, which makes transactions in our common stock
cumbersome and may reduce the value of an investment in our securities.
The SEC has adopted Rule 3a51-1 of the Securities and Exchange Act of 1934, as amended, which establishes the definition of a "penny stock," for the purposes relevant to us, as
any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, Rule 15g-9 requires:
·
·
a broker or dealer to approve a person's account for transactions in penny stocks; and
a broker or dealer receives a written agreement for the transaction from the investor , setting forth the identity and quantity of the penny stock to be purchased.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
·
·
obtain financial information and investment experience objectives of the person; and
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in
financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, among other
things:
·
·
sets forth the basis on which the broker or dealer made the suitability determination; and
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-
dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally,
monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and
cause a decline in the market value of our stock.
Trading on the OTCQB may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their
shares.
Our common stock is quoted on the OTCQB. Trading in stock quoted on the OTCQB is often thin and characterized by wide fluctuations in trading prices due to many factors that may
have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance.
Moreover, the OTCQB is not a stock exchange, and trading of securities on the OTCQB is often more sporadic than the trading of securities listed on a stock exchange like NASDAQ
or a New York Stock Exchange. Accordingly, our shareholders may have difficulty reselling any of their shares
We may write off intangible assets, such as goodwill.
Our intangible assets, which consist primarily of goodwill related to our acquisitions, are subject to annual impairment testing. Under current accounting standards, goodwill is tested for
impairment on an annual basis and we may be subject to impairment losses as circumstances change after an acquisition. If we record an impairment loss related to our goodwill, it
could have a material adverse effect on our results of operations for the year in which the impairment is recorded.
ACOs are new and unproven and CMS may discontinue, alter or radically change the MSSP program.
Company has invested resources in both acquiring the ACO license and in establishing initial infrastructure. Any material change to the MSSP program and ACO license
requirements, governance and operating rules, could provide a significant financial risk for Company and alter the strategic direction of the Company thereby producing shareholder
risk and uncertainty.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Company operates in only one geographic state, California.
The Company’s business and operations are currently limited to one state, California. Any material changes by California with respect to strategy, taxation and economics of healthcare
delivery and reimbursements could produce an adverse effect on the continued business operations of Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company’s corporate headquarters is located at 700 North Brand Boulevard, Suite 220, Glendale, California 91203. The lease on our present corporate headquarters expires on
January 14, 2017. We believe our present facilities are not adequate to meet our needs as we grow and we may need to lease additional space to accommodate growth, if it occurs.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of our business, we become involved in pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice related to
medical services provided by our affiliated hospitalists. We may also become subject to other lawsuits which could involve significant claims and/or significant defense costs.
We believe, based upon our review of pending actions and proceedings, that the outcome of such legal actions and proceedings will not have a material adverse effect on our
business, financial condition, results of operations, or cash flows. The outcome of such actions and proceedings, however, cannot be predicted with certainty and an unfavorable
resolution of one or more of them could have a material adverse effect on our business, financial condition, results of operations, or cash flows in a future period.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
PART II
Our common stock is traded on the OTCQB under the symbol "AMEH". Following is a table presenting the closing sale prices for a share of our common stock by fiscal quarter for the
fiscal years 2014 and 2013
Fiscal Year ended January 31, 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year ended January 31, 2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Stockholders
$
$
High
Low
0.65 $
0.75
0.60
10.01
High
Low
0.19 $
0.63
0.63
1.38
0.65
0.75
0.60
0.50
0.09
0.10
0.20
0.47
As of April 30, 2014, as reported by the Company’s stock transfer agent, there were approximately 350 holders of record of our common stock. Within the holders of record of the
Company's Common Stock are depositories such as Cede & Co., a nominee for The Depository Trust Company (or DTC), that hold shares of stock for brokerage firms which, in turn,
hold shares of stock for one or more beneficial owners. Accordingly, the Company believes there are many more beneficial owners of its Common Stock whose shares are held in
"street name", not in the name of the individual shareholder.
Dividends
To date we have not paid any cash dividends on our common stock and we do not contemplate the payment of cash dividends in the foreseeable future. Our future dividend policy will
depend on our earnings, capital requirements, financial condition, and other factors considered relevant to our ability to pay dividends.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation
plans and agreements as of January 31, 2014, including our 2010 Equity Incentive Plan (as amended) and our 2013 Equity Incentive Plan. The material terms of each of these plans
and agreements are described in the notes to our January 31, 2014 consolidated financial statements, which are part of our Annual Report on Form 10-K for the year ended January
31, 2014. Each of these plans was approved by our stockholders.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Number of
shares of
common stock
to be issued
upon exercise of
outstanding
options,
warrants, and
rights
Weighted-
average
exercise price
of outstanding
options,
warrants, and
rights
Number of
shares of
common stock
remaining
available for
future
issuance under
equity
compensation
plans
(excluding
securities
reflected)
7,358,000 $
-
7,358,000 $
0.17
-
0.17
1,818,000
-
1,818,000
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Total
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods
described. This discussion should be read in conjunction with our consolidated financial statements and the related notes included in this Report. This discussion contains forward-
looking statements that are subject to known and unknown risks. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking
statements due to a number of factors, including those set forth in the section entitled “Risk Factors” and elsewhere in this Report.
Overview
Apollo Medical Holdings, Inc. and its affiliated physician groups are a physician centric, integrated healthcare delivery system serving Medicare, Commercial and Medi-Cal beneficiaries
in California. As of April 30, 2014, ApolloMed’s physician network consisted of over 700 hospitalist, primary care and specialist physicians primarily through our owned and affiliated
physician groups.
Recent Developments
On January 31, 2013, the Company raised in a private placement offering of $880,000 in par value 9% Senior Subordinated Callable Convertible Promissory Notes maturing February
15, 2016 (the “9% Notes”). The 9% Notes bear interest at a rate of 9% per annum, payable semi-annually on August 15 and February 15. The principal of the 9% Notes plus any
accrued yet unpaid interest is convertible at any time by the holder at a conversion price of $0.40 per share of Common Stock, subject to adjustment for stock splits, stock dividends
and reverse stock splits, and is callable in full or in part by the Company at any time after January 31, 2015. The holders of the 9% Notes received warrants to purchase 660,000
shares of the Company’s common stock at an exercise price of $0.45 per share, subject to adjustment for stock splits, reverse stock splits and stock dividends which are exercisable at
any date prior to January 31, 2018. The Company used the net proceeds (after issuance costs) of approximately $776,000 for general corporate purposes. During the year ended
January 31, 2014, the Company issued additional units of the 9 % Notes for aggregate proceeds of $220,000 and warrants to purchase the Company’s common stock aggregating
165,000 shares. In addition, the Company issued 44,000 warrants to the placement agent associated with these additional proceeds.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In March 2013, the Company initiated a private placement of up to 7,500,000 shares of its common stock at a price per share of $ 0.40 (the “Equity Offering”), and during the year
ended January 31, 2014, the Company issued 1,825,000 shares of common stock for proceeds of $730,000.
On December 20, 2013, the Company entered into a Settlement Agreement and Release (collectively, the “Settlement Agreements”) with each of the holders of 10% Notes to the First
Amendment (each, a “Holder” and, collectively, the “Holders”), some or all of whom also hold other securities of the Company. Under the Settlement Agreements, the Company
agreed to redeem for cash and or convert into shares of the Company’s Common Stock the Holders’ 10% Notes. Under the Settlement Agreements, in the aggregate, the Company
redeemed and converted $1,250,000 in original principal amount of the 10% Notes, plus accrued interest thereon, for total cash payments of approximately $729,000 (including related
accrued interest), and total issuances of 8,812,362 shares of the Company’s common stock (the “Conversion Shares”).
On October 15, 2013, the Company entered into a $ 2.0 million secured revolving credit facility (the “Credit Agreement”) with NNA of Nevada, Inc.(the “Lender” or “NNA”). The
Company and its subsidiaries are guarantors of the Company’s obligations under the Credit Agreement. Loans drawn under the Credit Agreement are secured by all of the assets of
the Company and its subsidiaries, including a security interest in the deposit accounts of the Company and its subsidiaries and a pledge of the shares in the Company’s subsidiaries.
Amounts outstanding under the Credit Agreement accrue interest at a rate equal to the sum of (i) three month LIBOR and (ii) six percent (6.24% at January 31, 2014). Interest is
payable on the last business day of each successive month, in arrears, commencing October 31, 2013, and at each month-end thereafter. The Credit Agreement requires the
Company to pay the Lender a facility fee, on the last business day of each month, at a per annum rate of 1.0 % of the average daily unused portion of the revolving credit commitment
under the Credit Agreement. The Credit Agreement matures June 30, 2014. The Company incurred direct costs related to the Credit Agreement aggregating $ 119,500 which were
accounted for as deferred financing costs and are amortized using the straight line method to interest expense over the term thereof. On December 20, 2013, the Company entered
into the First Amendment to the Credit Agreement (the “Amended Credit Agreement”), which increased the revolving credit facility from $2.0 million to $4.0 million. The proceeds of the
Amended Credit Agreement were used by the Company to repay the $ 500,000 senior secured note (the “Senior Secured Note”) to SpaGus Apollo,LLC, and were used to pay or repay
certain of the Company’s 10 % Notes, to refinance certain other indebtedness of the Company, and for working capital and for general corporate purposes. The Company entered into
a new arrangement with NNA on March 28, 2014.
Factors Affecting Operating Results
Rate Changes by Government Sponsored Programs
The Medicare program reimburses for our services based upon the rates set forth in the annually updated Medicare Physician Fee Schedule, which relies, in part, on a target-setting
formula system called the Sustainable Growth Rate (SGR). Many private payors use the Medicare Physician Fee Schedule to determine their own reimbursement rates. On
December 10, 2013, the Centers for Medicare and Medicaid Services (CMS) published its final Medicare Physician Fee Schedule for calendar year 2014. We are currently evaluating
the impact of this proposed Medicare Physician Fee Schedule on our financial position, results of operations and cash flows.
The annual Medicare Physician Fee Schedule update, based on the SGR, is adjusted to reflect the comparison of actual expenditures to target expenditures. Because one of the
factors for calculating the SGR is linked to the growth in the U.S gross domestic product (GDP), the SGR formula may result in a negative payment update if growth in Medicare
beneficiaries’ use of services exceeds GDP growth, a situation which has occurred every year since 2002 and the reoccurrence of which we cannot predict.
Congress has repeatedly intervened to delay the implementation of the negative SGR payment update. With the enactment of the Bipartisan Budget Act of 2013 on December 26,
2013, the 20.1 percent cut that was to occur was replaced with a 0.5 percent increase for services provided through March 31, 2014. However, there is no guarantee that Congress will
continue to postpone implementation of the negative SGR payment in the future. Moreover, the existing methodology may result in significant yearly fluctuations in the Medicare
Physician Fee Schedule amounts, which may be unrelated to changes in the actual costs of providing physician services. Unless Congress enacts a permanent change in the SGR
methodology, the uncertainty regarding reimbursement rates and fluctuation will continue to exist.
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Another provision that affects physician payments is an adjustment under the Medicare statute to reflect the geographic variation in the cost of delivering physician services, by
comparing those costs to the national average. This concerns the “work” component of the Geographic Practice Cost Indices (GPCI). If Congress does not block this adjustment,
payments would be decreased to any geographic area with an index of less than 1.0. President Obama signed the “Protecting Access to Medicare Act of 2014” (Public Law No.
113.93) into law on April 1, 2014. Notable provisions included the Medicare Work Geographic Practice Cost Index (GPCI) Floor (§102). This provision provides a one-year extension of
the Medicare GPCI floor through March 31, 2015, increasing physician reimbursement rates in primarily rural areas. However, there is no guarantee that Congress will block the
adjustment in the future, which could result in a decrease in payments we receive for physician services.
The Budget Control Act of 2011 (BCA) established a Joint Select Committee on Deficit Reduction, which was tasked with achieving a reduction in the federal debt level of at least $1.2
trillion. That Committee did not draft a proposal by the BCA’s deadline. As a result, automatic cuts in various federal programs were scheduled to take place, beginning in January
2013. The American Taxpayer Relief Act of 2012 again delayed implementation of the BCA’s automatic cuts until March 1, 2013, and on March 1, 2013, President Obama signed a
sequestration order that triggered the BCA’s automatic cuts, including a two percent cut in Medicare payments to providers that was implemented effective April 1, 2013 through 2021.
Additionally, the Bipartisan Budget Act of 2013 extended sequestration for Medicare for another two years, through 2023. This two percent net reduction in Medicare reimbursement
rates for the codes applicable to the services performed by our affiliated hospitalists may reduce our net revenue.
Several rules recently released by CMS are likely to also have implications on provider reimbursement. For example, on August 19, 2013, CMS published a final rule establishing that
Medicare Part A payment for hospital inpatient services provided is generally inappropriate when a patient enters a hospital for a surgical procedure that is not specified by Medicare as
inpatient only and the physician expects the patient to stay in the hospital for less than two midnights. In addition, on December 10, 2013, in its final Medicare Physician Fee Schedule
for calendar year 2014, CMS finalized its proposal to, among other things, increase the number of quality measures that eligible professionals must report for claims- and registry-
based reporting to receive the incentive payments and adjustments available under the Physician Quality Reporting System (PQRS). The impact of such modified measures on
PQRS-based payment adjustments for hospitalists cannot be determined at this time.
In addition to these regulatory changes affecting government reimbursement for health care services, the current instability of the federal budget may lead to legislation that could
result in further cuts in Medicare and Medicaid payments to providers. On January 17, 2014, President Obama signed into law a $1.1 trillion spending bill that funds the government
through September 30, 2014. However, this new law is a temporary measure that does not resolve the debt-limit issue, and the Medicare program is frequently mentioned as a target
for spending cuts.
Healthcare Reform
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, ACA) was enacted. The ACA
includes a number of provisions that may affect our Company, although the impact of many of the changes will be unknown until they are finally implemented, which in some cases will
not occur for a couple of years. The impact of some of these provisions have already proven to be positive, such as the Primary Care Incentive Payment Program (PCIP), which
makes a ten percent Medicare bonus payment for primary care services (including outpatient and nursing home visits) furnished on or after January 1, 2011 and before January 1,
2016 to primary care practitioners for whom primary care services represented a minimum of 60 percent of Medicare allowed charges in a prior period, and the increase in Medicaid
rates up to the level of Medicare rates (Medicaid parity) in 2013 and 2014 for primary care services. Another positive provision is the expected expansion in the number of individuals
with health insurance starting in January 2014.
The impact of other provisions is unknown at this time, such as the establishment of an Independent Payment Advisory Board—designed to make proposals as early as 2014 to reduce
the per capita rate of growth in Medicare spending in years when that growth exceeds established targets—which the U.S. Department of Health and Human Services generally would
be required to implement unless Congress enacts superseding legislation. Fraud and abuse penalty increases and the expansion in the scope of the reach of the federal False Claims
Act, and other government enforcement tools, may adversely impact entities in the healthcare industry, including our Company.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The impact of certain provisions will depend upon the ultimate method of implementation. For example, the ACA requires HHS to develop a budget neutral, value-based payment
modifier that provides for differential payment under the Medicare Physician Fee Schedule for physicians or groups of physicians that is linked to quality of care furnished compared to
cost. CMS has continued to implement the modifier through the Medicare Physician Fee Schedule rulemaking for 2014, by, among other things, finalizing its proposal to apply the
value-based payment modifier to groups of physicians with 10 or more eligible professionals in calendar year 2016 and to expand the modifier to all physicians in calendar year 2017.
The impact of this payment modifier cannot be determined at this time.
In addition, certain provisions of the ACA authorize voluntary demonstration projects, which include the development of bundling payments for acute, inpatient hospital services,
physician services, and post-acute services for episodes of hospital care. The Bundled Payments for Care Improvement Initiative is currently underway and assesses four models of
care linking payments for multiple services provided to beneficiaries during an episode of care. The impact of these projects on our Company cannot be determined at this time.
Professional Liability Rates
Medical malpractice insurance premium rates are affected by a variety of factors both internal, including our own loss experience and the associated defense costs, and external such
as medical malpractice loss experience for internal medicine physicians, which varies greatly across different regions. Other factors include varying state laws covering tort reform, the
local climate for large jury awards, the rate of investment income and reinsurance costs, all of which can result in wide variations in premium rates not only from region to region, but
also from year to year. Although our malpractice premium rates have remained relatively stable over the last three years, the factors discussed above could lead to variations in future
costs.
Critical Accounting Policies
A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex
judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: (i) we are
required to make assumptions about matters that are uncertain at the time of the estimate; and (ii) different estimates we could reasonably have used, or changes in the estimate that
are reasonably likely to occur, would have a material effect on our financial condition or results of operations.
Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other
assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our
operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. Based
on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our
consolidated financial statements are fairly stated in accordance with accounting principles generally accepted in the United States (U.S. GAAP), and meaningfully present our
financial condition and results of operations.
We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements:
Principles of Consolidation
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note 2 of Notes to
Consolidated Financial Statements describes the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting
policies are considered to be critical accounting policies, as defined below.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Our consolidated financial statements include the accounts of Apollo Medical Holdings, Inc. and its subsidiaries AMM, ApolloMedACO, PCCM, VMM, Aligned Healthcare, Inc. (“AHI”)
and PPCs managed under long-term management service agreements including AMH, MMG, ACC, LALC and Hendel. Some states have laws that prohibit business entities, such as
Apollo, from practicing medicine, employing physicians to practice medicine, exercising control over medical decisions by physicians (collectively known as the corporate practice of
medicine), or engaging in certain arrangements with physicians, such as fee-splitting. In California, we operate by maintaining long-term management service agreements with the
PPCs, which are each owned and operated by physicians, and which employ or contract with additional physicians to provide hospitalist services. Under the management agreements,
we provide and perform all non-medical management and administrative services, including financial management, information systems, marketing, risk management and
administrative support. The management agreements typically have an initial term of 20 years unless terminated by either party for cause. The management agreements are not
terminable by the PCCs, except in the case of gross negligence, fraud, or other illegal acts by Apollo, or bankruptcy of Apollo.
Through the management agreements and our relationship with the stockholders of the PPCs, we have exclusive authority over all non-medical decision making related to the ongoing
business operations of the PPCs. Consequently, we consolidate the revenue and expenses of the PPCs from the date of execution of the management agreements.
All intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition
Revenue consists of contracted and fee-for-service revenue. Revenue is recorded in the period in which services are rendered. Our revenue is principally derived from the provision of
healthcare staffing services to patients within healthcare facilities. The form of billing and related risk of collection for such services may vary by customer. The following is a summary
of the principal forms of our billing arrangements and how net revenue is recognized for each.
Contracted revenue represents revenue generated under contracts in which we provide physician and other healthcare staffing and administrative services in return for a contractually
negotiated fee. Contracted revenue represented approximately84% of our revenues in the year ended January 31, 2014. Contracted revenue consists primarily of billings based on
hours of healthcare staffing provided at agreed-to hourly rates. Revenue in such cases is recognized as the hours are worked by our staff and contractors. Additionally, contracted
revenue also includes supplemental revenue from hospitals where we may have a fee-for-service contract arrangement or provide physician advisory services to the medical staff at a
specific facility. Contracted revenue for the supplemental billing in such cases is recognized based on the terms of each individual contract. Such contract terms generally either
provides for a fixed monthly dollar amount or a variable amount based upon measurable monthly activity, such as hours staffed, patient visits or collections per visit compared to a
minimum activity threshold. Such supplemental revenues based on variable arrangements are usually contractually fixed on a monthly, quarterly or annual calculation basis
considering the variable factors negotiated in each such arrangement. Such supplemental revenues are recognized as revenue in the period when such amounts are determined to be
fixed and therefore contractually obligated as payable by the customer under the terms of the respective arrangement. Additionally, we derive a portion of our revenue as a contractual
bonus from collections received by our partners and such revenue is contingent upon the collection of third-party billings. These revenues are not considered earned and therefore not
recognized as revenue until actual cash collections are achieved in accordance with the contractual arrangements for such services.
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Fee-for-service revenue represents revenue earned under contracts in which we bill and collect the professional component of charges for medical services rendered by our
contracted and employed physicians. Under the fee-for-service arrangements, we bill patients for services provided and receive payment from patients or their third-party payers. Fee-
for-service revenue is reported net of contractual allowances and policy discounts. All services provided are expected to result in cash flows and are therefore reflected as net revenue
in the financial statements. Fee-for-service revenue is recognized in the period in which the services are rendered to specific patients and reduced immediately for the estimated impact
of contractual allowances in the case of those patients having third-party payer coverage. The recognition of net revenue (gross charges less contractual allowances) from such visits
is dependent on such factors as proper completion of medical charts following a patient visit, the forwarding of such charts to our billing center for medical coding and entering into our
billing system and the verification of each patient’s submission or representation at the time services are rendered as to the payer(s) responsible for payment of such services. Net
revenue is recorded based on the information known at the time of entering of such information into our billing systems as well as an estimate of the revenue associated with medical
services provided.
The Company through its subsidiary, ApolloMed ACO, participates in the Medicare Shared Savings Program (“MSSP”) sponsored by the Centers for Medicare & Medicaid Services
(“CMS”). The MSSP allows ACO participants to share in cost savings it generates in connection with rendering medical services to Medicare patients. Payments to ACO participants, if
any, will be calculated by CMS on cost savings generated by the ACO participant based on a trailing 24 month medical service history. The MSSP is a newly formed program with no
history of payments to ACO participants. The Company considers revenue, if any, under the MSSP, as contingent upon the realization of program savings as determined by CMS, and
are not considered earned and therefore are not recognized as revenue until cash payments from CMS are received. For the years ended January 31, 2014 and 2013, the Company
recorded no revenue related to the MSSP.
Medical Liability Costs
The Company is responsible for integrated care that the associated physicians and contracted hospitals provide to its enrollees. The Company provides integrated care to health plan
enrollees through a network of contracted providers under sub-capitation and direct patient service arrangements, company-operated clinics and staff physicians. Medical costs for
professional and institutional services rendered by contracted providers are recorded as cost of services in the consolidated statements of income. Costs for operating medical clinics,
including the salaries of medical and non-medical personnel and support costs, are also recorded in cost of services.
An estimate of amounts due to contracted physicians, hospitals, and other professional providers is included in medical payables in the accompanying consolidated balance sheets.
Medical payables include claims reported as of the balance sheet date and estimates of incurred but not reported claims (“IBNR”) . Such estimates are developed using actuarial
methods and are based on many variables, including the utilization of health care services, historical payment patterns, cost trends, product mix, seasonality, changes in membership,
and other factors. The estimation methods and the resulting reserves are continually reviewed and updated. Many of the medical contracts are complex in nature and may be subject
to differing interpretations regarding amounts due for the provision of various services. Such differing interpretations may not come to light until a substantial period of time has passed
following the contract implementation. Any adjustments to reserves are reflected in current operations.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable primarily consists of amounts due from third-party payors, including government sponsored Medicare and Medicaid programs, insurance companies, and amounts
due from hospitals and patients. Accounts receivable are recorded and stated at the amount expected to be collected.
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts,
customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. We also
regularly analyze the ultimate collectability of accounts receivable after certain stages of the collection cycle using a look-back analysis to determine the amount of receivables
subsequently collected and adjustments are recorded when necessary. Reserves are recorded primarily on a specific identification basis.
Stock-Based Compensation
The Company maintains a stock-based compensation program for employees, directors and consultants. The value of stock-based awards so measured is recognized as
compensation expense on a cumulative straight-line basis over the vesting terms of the awards, adjusted for expected forfeitures. The Company sells certain of its restricted common
stock to its employees, directors and consultants with a right (but not obligation) of repurchase feature that lapses based on performance of services in the future. The Company
accounts for the unvested portion of the related stock-based purchases expense as prepaid consulting. Prepaid consulting is amortized to stock-based compensation expense over the
vesting period.
Goodwill and Other Intangible Assets
Under FASB ASC 350, Intangibles – Goodwill and Other (“ASC 350”), goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment. Acquired intangible
assets with definite lives are amortized over their individual useful lives.
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At least annually, management assesses whether there has been any impairment in the value of goodwill by first comparing the fair value to the net carrying value. If the carrying value
exceeds its estimated fair value, a second step is performed to compute the amount of the impairment. An impairment loss is recognized if the implied fair value of the asset being
tested is less than its carrying value. In this event, the asset is written down accordingly. The fair values of goodwill are determined using valuation techniques based on estimates,
judgments and assumptions management believes are appropriate in the circumstances. The fair value is evaluated based on market capitalization determined using average share
prices within a reasonable period of time near the selected testing date (i.e., fiscal year-end).
At least annually, indefinite-lived intangible assets are tested for impairment. Impairment for intangible assets with indefinite lives exists if the carrying value of the intangible asset
exceeds its fair value. The fair values of indefinite-lived intangible assets are determined using valuation techniques based on estimates, judgments and assumptions management
believes are appropriate in the circumstances.
Recently Adopted Accounting Principles
See Note 2 to the Consolidated Financial Statements for information regarding recently adopted accounting principles.
Results of Operations and Operating Data
Year Ended January 31, 2014 vs. Year Ended January 31, 2013
Net revenues
Cost of services
Gross profit
Operating expenses:
General and administrative
Depreciation
Total operating expenses
Loss from operations
Net revenues
Cost of services
Gross profit
Operating expenses:
General and administrative
Depreciation
Total operating expenses
Loss from operations
2014
2013
Change
$
$
10,484,305
9,076,213
1,408,092
7,776,131 $
6,316,164
1,459,967
2,708,174
2,760,049
(51,875)
5,286,610
31,361
5,317,971
3,517,536
20,918
3,538,454
1,769,074
10,443
1,779,517
$
(3,909,879) $
(2,078,487) $
(1,831,392)
Percentage
change
34.8%
43.7%
-3.6%
50.3%
49.9%
50.3%
88.1%
% of Net revenues
2014
2013
100.0%
86.6%
13.4%
50.4%
0.3%
50.7%
100.0%
81.2%
18.8%
45.2%
0.3%
45.5%
-37.3%
-26.7%
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Net revenues comprise net billings under the various fee structures from health plans, medical groups/IPAs and hospitals, and income from service fee agreements. The increase was
attributable to:
$
$
$
$
1,935,681 New hospital contracts, increased same-market area growth and expansion of services with existing medical group clients at new hospitals.
145,505 Increase in MMG services due to increase in patient lives.
284,353 Acquisition of medical clinics in fiscal 2014.
342,635 Acquisition of VMM in August 2012.
Cost of services primarily comprise physician compensation and related expenses. The increase was attributable to:
$
$
$
$
$
(1,954,087) Increase in physician costs attributable to new physicians hired to support new contracts.
(66,192) Increase in physician stock-based compensation.
(114,575) Acquisition of VMM in August 2012.
(279,652) Increase in MMG and ACC services.
(345,543) Acquisition of medical clinics in fiscal 2014
Cost of services as a percentage of net revenues increased principally due to a mix of newly acquired primary care clinic service lines and the launch of Maverick Medical Group IPA in
fiscal 2014.
General and administrative expenses comprise all salaries, benefits, supplies and operating expenses, including billing and collections functions, and the Company’s corporate
management and overhead not specifically related to the day-to-day operations of our physician group practices. The increase was attributable to:
$
$
$
$
$
$
$
(323,804) Increase in board, legal and professional fees to support the continuing growth of our operations.
(333,877) Increase in personnel, services and related expenses related to the ACO initiative.
(464,885) Increase in administrative personnel and facilities costs to support growth in the business
(97,393) Increase in operating expenses due to the acquisition of VMM in August 2012.
(420,554) Increase in personnel and practice management fees to support growth in the MMG IPA.
(70,999) Increase in stock-based compensation to employees, directors and consultants
(57,561) Increase in other expenses due to business growth.
Loss from operations increased primarily due to spending on the MMG and ACO initiatives.
The decrease in loss on change in fair value of derivative liabilities reflects the change in the fair value of the Company’s derivative liabilities as follows:
Loss on change in fair value of derivative liabilities
2014
$
- $
2013
5,853,855 $
Change
(5,853,855)
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Interest expense decreased compared to 2013 due to higher discount amortization as a result of the bifurcation of the derivative liabilities that resulted in additional debt discount and
additional discount amortization for the year ended January 31, 2013, partially offset by higher interest expense as a result of higher borrowings under Notes and Lines of Credit
Payable and the 9% Convertible Notes.
2014
2013
Change
Interest expense
$
679,184 $
930,176 $
(250,992)
Net loss decreased primarily due to a lower loss on change in fair value of derivative liabilities and lower interest expense, partially offset by increase in spending associated with the
ACO, MMG and ACC medical clinics.
Net loss
Liquidity and Capital Resources
2014
2013
Change
$
4,558,874 $
8,904,564 $
(4,345,690)
The Company had $1,451,407 in cash and cash equivalents at January 31, 2014. To date the Company has funded its operations from internally generated cash flow and external
sources, including the proceeds from the issuance of debt and equity securities which have provided funds for near-term operations and growth. In October 2013, the Company
entered into a credit agreement (as amended on December 20, 2013) with NNA of Nevada, Inc. (“NNA”) that provided for the Company to borrow up to $4,000,000. On March 28,
2014, the Company subsequently entered into an equity and debt arrangement with NNA to provide $12,000,0000 that included a $2,000,000 investment in Company common stock,
$8,000,000 in term and revolving loans, and a $2,000,000 convertible note commitment. The Company intends to use the proceeds from NNA to refinance its existing indebtedness
under the prior NNA $4,000,000 credit agreement, and for working capital and acquisitions. Prior to that, the Company sold 1.8 million shares of its common stock in a private
placement at a price per share of $ 0.40 for aggregate proceeds of $730,000 during the fiscal year ended January 31, 2014. In addition, the Company raised through a private
placement offering gross proceeds of $1,100,000 in par value 9 % Senior Subordinated Callable Convertible Promissory Notes maturing February 15, 2016 (the “9% Notes”).
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Year ended January 31, 2014
For the year ended January 31, 2014, net cash used in operations was $1,478,205. This was substantially the result of net losses of $4,558,874, partially offset by cash provided by
non-cash expenses of $2,581,365 and change in working capital of $524,087. Non-cash expenses primarily include depreciation expense, bad debt expense, and stock-based
compensation expense, amortization of financing costs, and amortization of debt discount.
Cash provided by working capital was due to:
Decrease in Accounts receivable, net
Decrease in Due from affiliates
Decrease in Prepaid expenses and advances
Increase in Accounts payable and accrued liabilities
Cash used by working capital was due to:
$
$
$
$
72,916
4,049
19,084
455,738
Increase in Other assets
$
(27,700)
For the year ended January 31, 2014, cash used in investing activities was $272,931 related primarily to the acquisition of three primary care medical clinics.
For the year ended January 31, 2014, net cash provided by financing activities was $2,025,816 related to $2,811,878 in proceeds from the NNA Credit Agreement, $730,000 in
proceeds from the issuance of common stock, $220,000 in proceeds from the issuance of 9% convertible notes, partially offset by $707,911 in cash payments to note holders in
connection with 10% convertible note redemption, $530,000 repayment of the senior secured note, $240,000 in distributions to non-controlling interest (LALC), and $258,511 in debt
issuance costs related to the NNA Credit Agreement. Borrowings were used primarily to fund repayment of indebtedness, working capital requirements and technology investments.
Year ended January 31, 2013
For the year ended January 31, 2013, net cash provided by operations was $57,956. This was substantially the result of net losses of $8,904,564, offset by cash provided by non-cash
expenses of $8,770,753 and working capital of $191,767. Non-cash expenses primarily include depreciation expense, bad debt expense, issuance of shares of common stock for
services, stock option compensation expense, amortization of financing costs, amortization of debt discount, and loss on change in fair value of derivative liabilities.
Cash provided by working capital was due to:
Increase in Accounts payable and accrued liabilities
Decrease in Other assets
Decrease in Due from affiliates
Cash used by working capital was due to:
Increase in Prepaid expenses and advances
Increase in Accounts receivable
Decrease in Due to Officers
36
$
$
$
$
$
$
764,208
7,020
5,504
(23,666)
(548,899)
(12,400)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
For the year ended January 31, 2013, cash used in investing activities was $31,865 related to $45,799 in investments in a new billing system, investment in ACO-related office and
technology equipment, partially offset by the acquisition of VMM.
For the year ended January 31, 2013, net cash provided by financing activities was $986,095 related to $500,000 in proceeds from the Senior Secured Note, $775,581 in net proceeds
from the issuance of 9% Senior Subordinated Convertible Notes, and $94,765 from other borrowings, partially offset by $400,000 in distributions to non-controlling interest (LALC).
Borrowings were used primarily to fund working capital requirements and technology investments.
Debt Agreements
The following is an overview of the Company's total outstanding debt obligations as of January 31, 2014:
Description of Debt
Lender Name
Interest Rate
Line of credit
Non- interest bearing seller notes
8% Senior Subordinated Convertible Promissory Notes due
Various
February 1, 2015
9% Senior Subordinated Convertible Notes due February 15, 2016 Various
Line of Credit
Union Bank
NNA of Nevada, Inc.
Various
3 mo. LIBOR + 6.0% $
-
8.00%
9.00%
7.75%
$
January 31,
2014
2,811,878
272,050
150,000
950,522
94,765
4,279,215
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as of or for the year ended January 31, 2014.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company’s financial statements for the fiscal year ended January 31, 2014 are included in this annual report, beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company has carried out an evaluation under the supervision and with the participation of its management, including its Chief
Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, at January 31, 2014, the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were not effective, at a reasonable assurance level, in
ensuring that information required to be disclosed in the reports the Company files and submits under the Securities Exchange Act of 1934 are recorded, processed, summarized and
reported as and when required. For a discussion of the reasons on which this conclusion was based, see “Management’s Report on Internal Control over Financial Reporting” below.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange
Act. Management must evaluate its internal controls over financial reporting, as required by Sarbanes-Oxley Act. The Company's internal control over financial reporting is a process
designed under the supervision of the Company's management to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's
financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). Our management conducted an evaluation of the effectiveness
of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on this evaluation, our management
concluded that there were material weaknesses in our internal control over financial reporting as of January 31, 2014.
A material weakness is a significant control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of
significant control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
Management has identified the following three material weaknesses in our disclosure controls and procedures, and internal controls over financial reporting:
1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a
requirement of Section 404 of the Sarbanes-Oxley Act. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our
assessment of our disclosure controls and procedures, and concluded that the control deficiency that resulted represented a material weakness.
2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting
duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of
transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls
and procedures, and concluded that the control deficiency that resulted represented a material weakness.
3. We do not have review and supervision procedures for financial reporting functions. The review and supervision function of internal control relates to the accuracy of
financial information reported. The failure to review and supervise could allow the reporting of inaccurate or incomplete financial information. Due to our size and nature, review and
supervision may not always be possible or economically feasible.
Based on the foregoing material weaknesses, we have determined that, as of January 31, 2014, our internal controls over our financial reporting are not effective. The Company is
taking remediating steps to address each material weakness. We continue to add employees and consultants to address these issues and we will continue to broaden the scope of our
accounting and billing capabilities and realigning responsibilities in our financial and accounting review functions.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are
met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of
control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our independent registered public accounting firm.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Changes in Internal Controls over Financial Reporting
There has been no change in our internal controls over financial reporting during our most recently completed fiscal quarter (i.e., the three-month period ended January 31, 2014) that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Name
Warren Hosseinion, M.D.
Kyle Francis
Gary Augusta
Mark Meyers
Ted Schreck
Suresh Nihalani
Mitch Creem
David Schmidt
Age
41
40
47
63
68
61
54
66
Title
Chief Executive Officer, Director
Executive Vice President and Chief Financial Officer
Executive Chairman, Director
Chief Strategy Officer, Director
Chairman, Director
Director
Director
Director
Warren Hosseinion, M.D. Dr. Hosseinion has been a director and our Company’s Chief Executive Officer since July 2008. In 2001, Dr. Hosseinion founded ApolloMed Hospitalists in
Los Angeles with Dr. Adrian Vazquez. Dr. Hosseinion received his medical degree from Georgetown University. Dr. Hosseinion's qualifications to serve on our Board of Directors
include his position as our chief executive officer since the inception of the Company, his background as founder of the Company and leading physician within the medical community
in Los Angeles. In addition, Dr. Hosseinion is currently a practicing hospitalist physician and brings to our Board of Directors and our Company a depth of understanding of physician
culture and strong knowledge of the healthcare market.
Kyle Francis. Mr. Francis has been our Chief Financial Officer since December 31, 2010. From September 2008 to December 2010, Mr. Francis served as the Executive Vice
President of Business Development and Strategy. Mr. Francis will continue to serve in that function as well as Chief Financial Officer. From April 2000 to September 2008, he was a
member of the Healthcare Services Investment Banking Division of Oppenheimer & Co. and CIBC World Markets. From August 1999 to April 2000, Mr. Francis worked for Enron
Corporation in various capacities. Mr. Francis holds a Bachelor of Commerce with a major in finance and accounting degree from McGill University.
Mark Meyers. Mr. Meyers was been our Chief Strategy Officer and a member of our Board of Directors since October 2012. From March 2010 until September 2012, he served as
Senior Vice President of Operations for Dignity Health's Los Angeles Service Area while continuing to serve as President of Glendale Memorial Hospital and Health Centers, a position
he was appointed to in March 2009. From 2001 to 2009, Mr. Meyers was President of California Hospital Medical Center, a 316-bed Dignity facility in Downtown Los Angeles which
serves as a Level II trauma center. From 1987 to 2001 he worked for Tenet Healthcare Corporation or in hospital corporations that were acquired by Tenet, serving as CEO for several
hospitals, including Garden Grove Hospital in Garden Grove, California, Western Medical Center in Anaheim, California, Coastal Communities Hospital in Santa Ana, California,
Doctors Hospital of Santa Ana and Santa Ana Hospital Medical Center and Florida Medical Center, a 460-bed hospital in Broward County, Florida. Mr. Meyers received a Bachelor of
Science in Psychology from the University of Pittsburgh and a MPH from the University of Pittsburgh's Graduate School of Public Health. Mr. Meyer’s qualifications to serve on our
Board of Directors include over 36 years of experience working as a senior executive in the healthcare industry.
Ted Schreck. Mr. Schreck was appointed to the Board in February 2012. From 2009 to 2012 Mr. Schreck was retired. From 2006 to 2008 he served as a consultant for the Legacy
Health System, based in Portland, OR, which operates six hospitals, a research institute, and a network of clinics. From 1998 to 2006, he served as an executive with Tenet Healthcare
including as CEO of USC’s Private Practice Hospitals, Regional Vice President of Operations for Los Angeles-area hospitals, and finally as Senior Vice President. From 1973 to 1988
he served with St. Joseph Health System, as CEO of Santa Rosa General Hospital and Senior Vice President of Santa Rosa Memorial Hospital. Schreck also served as the CEO of
the Eden Township District Hospitals from 1992 to1998, and CEO of Delta Memorial Hospital from 1988-1992. He holds a BA degree from UCLA and Doctorate from USC. Mr.
Schreck’s qualifications to serve on our Board of Directors include over 30 years of corporate experience working as a senior executive in the healthcare industry.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Suresh Nihalani. Mr. Nihalani joined the Company’s Board of Directors in October 2008. Mr. Nihalani currently serves as a business consultant and advisor currently involved with
many early stage ventures in the area of cloud computing, data centers, next generation storage and 4G backhaul wireless radios, consulting them in technology direction, business
development and strategic business planning since 2008.. Mr. Nihalani was President and CEO of ClearMesh Network from 2005 to 2007. He also co-founded Nevis Networks, where
he served as CEO from 2002 through 2005. From 1996 to 2001, he co-founded and served as CEO of Accelerated Networks. Prior to that he co-founded ACT Networks where he held
various executive level positions. Mr. Nihalani holds a BS in Electrical Engineering from ITT Bombay and MSEE and MBA degrees from the Florida Institute of Technology. Mr.
Nihalani’s qualifications to serve on our Board of Directors include over 35 years of corporate experience working as a senior executive and director with both public and private
organizations.
Gary Augusta. Mr. Augusta joined the Company’s Board of Directors in March 2012 and has been our Executive Chairman since October 2013. In addition to Board responsibilities,
Mr. Augusta focuses on capital and corporate development for the company. Mr. Augusta also serves as President of SpaGus Ventures LLC and SpaGus Capital Partners, growth
funds that invest in healthcare and technology companies since January 2010. From March 2004 to December 2009, Mr. Augusta was President and CEO of OCTANe, an innovation
development company. From June 1994 to March 2000, he was a Consultant and Principal for, AT Kearney, a leading consulting firm. From March 2001 to January 2004 he served as
Corporate Development/ M&A Officer for Fluor Inc., a Fortune 500 company. He earned a BS in Mechanical Engineering from the University of Rhode Island and a Master of Science
and Management (MSM) from Georgia Tech. Mr. Augusta’s qualifications to serve on our Board of Directors includes his more than 20 years of experience as an executive focused on
private equity, growth strategy and operations, corporate development and M&A.
Mitch Creem. Mr. Creem joined the Company’s Board of Directors in October 2012. Mr. Creem has served as President of Bridgewater Healthcare Group, a hospital and health
network management services and performance consulting firm since February 2012. From June 2008 to January 2012, Mr. Creem was the CEO for the Keck Hospital of USC and
USC Norris Cancer Hospital where he led USC’s acquisition of the hospitals from Tenet Healthcare. From 2004 to 2008 he was the Associate Vice Chancellor and Chief Financial
Officer for the UCLA Medical Sciences. From 2000 to 2004, he served as CFO of Beth Israel Deaconess Medical Center and from 1996 to 2000 he served as CFO of Tufts Medical
Center. Previously, he served as Manager with PriceWaterhouseCoopers in their healthcare consulting practice. He earned a BS in Accounting and Business Management from
Boston University and an MHA in Hospital Administration from Duke University. Mr. Creem’s qualifications to serve as Audit Committee financial expert include his experience as CFO
of several major hospital systems and formal education in accounting. Mr. Creem’s qualifications to serve on our Board of Directors include over 30 years of corporate experience
working as a senior executive in the healthcare industry.
David Schmidt. Mr. Schmidt joined the Company’s Board of Directors in May 2013. He has served as Principal of Schmidt & Associates, a consultancy practice that focuses on
strategic planning and implementation in the healthcare industry, since January 2011. From August 2002 to December 2010, he served as the CEO and Member of the Board of SCAN
Health Plan, the tenth largest Medicare Advantage plan in the country. From 2000 to 2002 he served as CEO of Medicheck, a firm that provided Internet-based financial service
management to healthcare organizations, which was sold to Passport Health Communications. He served on Passport’s Board from 2002 to 2006. From 1992 to 1998 he was the
Senior Vice President of Sales and Customer Services for Care America/Blue Shield Health Plan and Regional Vice President for FHP Healthcare. He received a BA in Economics
from UCLA and an MBA from The Anderson School of Management at UCLA. Mr. Schmidt’s qualifications to serve as a member of the Company’s Board of Directors include his 20
years of experience as a senior executive with several major healthcare companies. Prior to his healthcare experience he held senior management roles in manufacturing companies
including Avery DenHe also serves on the board of Beacon Healthcare Systems. He, also, was a founding board member of the SCAN Foundation a 501(3)c corporation that is
focused on Long Term Care in the United States.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who beneficially own more than 10% of our outstanding
common stock, to file with the SEC, initial reports of ownership and reports of changes in ownership of our equity securities. Such persons are required by SEC regulations to furnish
us with copies of all such reports they file, and we are required to identify Covered Persons that we know have failed to file or filed late Section 16(a) reports. To our knowledge, we
believe that our Covered Persons complied with all Section 16(a) filing requirements applicable to them, except that: Messrs. Francis, Schreck, Augusta, Meyers, Creem, and Schmidt
failed to file Forms 3 timely when they became obligated to commence Section 16(a) reporting; Messrs. Hosseinion, Francis, Nihalani and Augusta failed to file Forms 4 timely with
respect to acquisitions of shares of our common stock; Messrs. Hosseinion, Meyers, and Vazquez failed to file Form 4s timely basis with respect to grants of stock options; Mr. Meyers
failed to file Form 4 timely with respect to acquisition of warrants to purchase our common stock and a promissory note that is convertible into our common stock; and Messrs.
Hosseinion, Francis, Schreck, Nihalani, Augusta, Meyers, Creem and Vazquez failed to file Forms 5 timely.
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Code of Ethics
The Company has not yet adopted a code of ethics, in part because we have a limited number of employees. As the Company grows its business, and hires additional employees, we
expect to adopt a code of ethics applicable to the conduct of our employees.
Committees of the Board of Directors
Our common stock is currently quoted on the OTCQB electronic trading platform, which does not maintain any standards requiring us to establish or maintain an Audit, Nominating or
Compensation committee. As of January 31, 2014, our Board of directors did not maintain an audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act,
a nominating committee nor a compensation committee. The entire Board of Directors is acting as the Company's audit committee as specified in section 3(a)(58)(B) of the Exchange
Act, and the Board of Directors has determined that Mr. Mitch Creem, a current independent director, is an “audit committee financial expert” as defined by item 407 of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
The following table discloses the compensation awarded to, earned by, or paid to our executive officers for the fiscal years ended January 31, 2014 and 2013, respectively:
Summary Compensation Table
Name and Principal Position
Year
Salary($)
Bonus ($)
Warren Hosseinion, M.D.
Chief Executive Officer
Kyle Francis
Chief Financial Officer (5)
Mark Meyers
Chief Strategy Officer (4)
2014
2013
2014
2013
2014
2013
467,500(7)
376,221(7)
140,625(5)
-
-
-
Stock Awards
($)(1)
Option
Awards ($)
(1)
-
-
-
-
-
-
-
420,000
135,000
269,500
-
-
-
-
-
168,000
174,353
55,617
Non-Equity
Incentive
Plan
Earnings ($)
Non-
Qualified
Deferred
Compensation
Earnings ($)
-
-
-
-
-
-
All Other
Compensation ($)
Total
-
-
-
-
-
-
126,451(2)
124,446(2)
593,951
920,667
64,662(3)
208,890(3)
340,279
478,390
126,000(6)
42,000(6)
300,353
265,617
(1) The amount shown in this column reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718.
(2) Reflects personal benefits payments to Dr. Hosseinion for health, life, disability insurance premiums aggregating $43,483 (2014), $24,972 (2013),); vehicle allowance of $31,726
(2014), $24,972 (2013); and travel, meals, cell phone and other business expense-related allowances.
(3) Reflects payments made to Kaneohe Advisors, LLC pursuant to the consulting agreement with Kaneohe Advisors LLC dated March 15, 2009, as amended, of $49,500 (2014),
$162,000 (2013); and personal benefits include payments to Mr. Francis of $15,162 (2014), $5,400 (2013) in health insurance premiums; and reimbursement of travel, meals, cell
phone and other business related expenses.
(4) Mr. Meyers was appointed as Chief Strategy Officer effective October 17, 2012.
(5) On March 1, 2013, the Company entered into a direct employment agreement with Mr. Francis, which provides for salary of $225,000 per annum and reimbursement of health
insurance premiums not to exceed $1,200 per month.
(6) On October 8, 2012 the Company entered into a consulting agreement with Mr. Mark Meyers to perform services as the Company’s Chief of Strategy and Business Development,
pursuant to which Mr. Meyers received $10,000 per month and 50,000 vested options per month. The consulting agreement was amended in October 2013, pursuant to which Mr.
Meyers received $10,000 per month and 60,000 vested options through December 31, 2013.
(7) Dr. Hosseinion's salary is for both patient care and non-clinical work in his role as the Company's Chief Executive Officer.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The following table summarizes the outstanding equity option awards held by each of our named executive officers as of January 31, 2014:
Outstanding Equity Awards at Fiscal Year End
Option Awards
Stock Awards
Name and Principal
Position
Warren Hosseinion, M.D.
Chief Executive Officer
Mark Meyers
Chief Strategy Officer
Kyle Francis
Chief Financial Officer
Number of
Securities
Underlying
Unexercised
Options-
Exercisable
300,000
Number of
Securities
Underlying
Unexercised
Options-
Unexercisable
-
Grant
Date
12/9/2010
Option
Exercise
Price (2)
$
0.15
Option
Expiration
Date
12/8/2020
Number
of Shares
That
Have Not
Vested
Market
Value of
Shares
That
Have Not
Vested
-
-
(1)
660,000
-
$
0.23
(1)
155,556(3) $
65,000
12/9/2010
150,000
-
$
0.15
12/8/2020
-
-
Equity
Incentive
Plan
Awards:
Unearned
or
Unvested
Shares
-
-
-
Equity
Incentive
Plan
Awards:
Market
value of
Unearned
or
Unvested
Shares
-
-
-
(1) Mr. Meyers was granted 50,000 options per month from November 1, 2012 to October 1, 2013; and 60,000 options on October 22, 2013. Mr. Meyer's options expire 10 years from
grant date.
(2) All options have been issued with an exercise price equal to the closing price of our common stock on the date of grant except 600,000 options granted to Mr. Meyers at an
exercise price of $0.21 per share. The weighted average closing stock price for the 600,000 shares on the dates of grant was $0.62 per share.
(3) Reflects shares acquired by Mr. Meyers for $0.001 per share in which the Company’s right to repurchase has not lapsed. From date of purchase the shares lapses evenly on a
monthly basis over 36 months.
No options were exercised during the fiscal year ended January 31, 2014.
Employment and Hospitalist Participation Service Agreements
Warren Hosseinion, M.D. In February 2009, the Company entered into a Second Amended and Restated Hospitalist Participation Agreement with Dr. Hosseinion, pursuant to which he
provided physician services for ApolloMed Hospitalists. Effective February 2009, Dr. Hosseinion’s annual base salary was set at $360,000 payable in bimonthly installments. Dr.
Hosseinion's salary was for physician services only and he did not receive any compensation to serve as Chief Executive Officer or for his services as a Director. He was eligible to
receive equity awards, in each case as determined by the Board of Directors in accordance with the 2010 Equity Incentive Plan. The Company maintained Dr. Hosseinion’s
professional liability insurance.
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On March 28, 2014, Apollo Medical Holdings, Inc. (the “Company”) entered into an equity and debt investment for up to $12.0 million with NNA of Nevada, Inc. (“NNA”). As part of the
Investment, Apollo Medical Management, Inc. (“Apollo Management”), a subsidiary of the Company, entered into Employment Agreements with each of Warren Hosseinion, M.D., the
Company’s Chief Executive Officer (the “Hosseinion Employment Agreement”) and Adrian Vazquez, M.D. (the “Vazquez Employment Agreement” and, together with the Hosseinion
Employment Agreement, the “Employment Agreements”), pursuant to which Dr. Hosseinion and Dr. Vazquez have agreed to serve as senior executives of Apollo Management. The
Employment Agreements provide for (i) base salary of $200,000 per year, (ii) participation in any incentive compensation plans and stock plans of Apollo Management that are
available to other similarly positioned employees of Apollo Management, and (iii) reimbursement of expenses incurred on behalf of Apollo Management.
Apollo Management has the right under the Hosseinion Employment Agreement to terminate Dr. Hosseinion for cause if, among other things, there is a material and uncured
breach by Dr. Hosseinion of any of the following: (i) the Hosseinion Hospitalist Participation Agreement (as defined below) or other employment agreement with ApolloMed
Hospitalists, a California professional corporation (“AH”), (ii) that certain Shareholder Agreement dated as of March 28, 2014, by and among Dr. Hosseinion, the Company,
Apollo Management, Adrian Vazquez, M.D. and Lender (the “Shareholder Agreement”), and (iii) various Physician Shareholder Agreements. Apollo Management has the right
under the Vazquez Employment Agreement to terminate Dr. Vazquez for cause if, among other things, there is a material and uncured breach by Dr. Vazquez of either (i) the
Vazquez Hospitalist Participation Agreement (as defined below) or other employment agreement with AH or (ii) the Shareholder Agreement. The Employment Agreements
replaced, and thereby terminated, prior employment agreements with each of Dr. Hosseinion and Dr. Vazquez.
Also on March 28, 2014, AH entered into Hospitalist Participation Service Agreements with each of Dr. Hosseinion (the “Hosseinion Hospitalist Participation Agreement”) and
Dr. Vazquez (the “Vazquez Hospitalist Participation Agreement” and, together with the Hosseinion Hospitalist Participation Agreement, the “Hospitalist Participation
Agreements”), pursuant to which Dr. Hosseinion and Dr. Vazquez provide physician services for AH. The Hospitalist Participation Agreements provide for (i) base salary of
$195,000 per year, (ii) a $55,000 annual car and communications allowance, and (iii) reimbursement of reasonable business expenses. The Hospitalist Participation
Agreements replaced, and thereby terminated, prior hospitalist participation service agreements between AH and each of Dr. Hosseinion and Dr. Vazquez.
As a condition of the Company causing its affiliates to enter into the Hospitalist Participation Agreements and the Employment Agreements, on March 28, 2014, the Company
entered into Stock Option Agreements with each of Dr. Hosseinion (the “Hosseinion Stock Option Agreement”) and Dr. Vazquez (the “Vazquez Stock Option Agreement” and,
together with the Hosseinion Stock Option Agreement, the “Stock Option Agreements”). The Stock Option Agreements provide that each of Dr. Hosseinion and Dr. Vazquez
grant the Company the option to purchase (at fair market value) all equity interests in the Company held by Dr. Hosseinion or Dr. Vazquez, as applicable, in the event that (i)
either the applicable Hospitalist Participation Agreement or the applicable Employment Agreement is terminated by the Company for cause due to a willful or intentional breach
by Dr. Hosseinion or Dr. Vazquez, as applicable, (ii) Dr. Hosseinion or Dr. Vazquez, as applicable, commits fraud or any felony against the Company or any of its affiliates, (iii)
Dr. Hosseinion or Dr. Vazquez, as applicable, directly or indirectly solicits any patients, customers, clients, employees, agents or independent contractors of the Company or
any of its affiliates for competitive purposes or (iv) Dr. Hosseinion or Dr. Vazquez, as applicable, directly or indirectly Competes (as such term is defined in the Stock Option
Agreements) with the Company or any of its affiliates.
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On March 15, 2009, the Company entered into a Consulting Agreement with Kaneohe Advisors LLC (Kyle Francis) under which Mr. Francis became the Company’s Executive Vice
President, Business Development and Strategy. Under the terms of the Agreement, Mr. Francis was compensated at a rate of $8,000 per month. In addition, Mr. Francis received
350,000 shares of restricted stock at the date of the Agreement and was entitled to 350,000 additional restricted shares on the first and second anniversaries of the Agreement,
provided the Agreement was not terminated. The initial 350,000 shares, along with 50,000 shares granted to Mr. Francis in the fiscal year ended January 31, 2009, were issued in the
third quarter ended October 31, 2009. On March 15, 2011, the second anniversary of the Consulting Agreement, Mr. Francis was granted an additional 350,000 shares. Mr. Francis
was named Chief Financial Officer on December 31, 2010. Mr. Francis' compensation was increased to $11,000 per month. On August 16, 2012, the Company entered into an
amended consulting agreement with Kaneohe Advisors LLC, to serve as the Company’s Executive Vice President, Business Development and Chief Financial Officer. The term of the
agreement was on a month-to-month basis, and provided for Mr. Francis to receive $11,900 per month and the right to purchase 700,000 shares of the Company’s common stock at
$0.001 per share. The agreement could be terminated by either party at any time.
On March 1, 2013 the Company entered into an employment agreement with Mr. Francis whereby Mr. Francis receives a salary of $225,000 per annum, reimbursement of up to
$1,200 per month in health insurance premiums, additional performance-based cash and stock compensation as determined by the Company’s board of directors, and other standard
benefits afforded to the Company’s employees. If Mr. Francis’ employment is terminated prior to the first anniversary for any reason other than gross negligence or misconduct, Mr.
Francis is entitled to the remaining unpaid first year salary and health insurance reimbursement. The agreement was effective commencing June 1, 2013. Effective February 1, 2014,
the Company’s Board of Directors increased Mr. Francis’ annual salary to $272,000.
On October 8, 2012 the Company entered into a consulting agreement with Mr. Mark Meyers to perform services as the Company’s Chief of Strategy and Business Development,
pursuant to which Mr. Meyers received $10,000 per month, the right to receive options to acquire 50,000 shares per month of the Company’s common stock with an exercise price of
$0.21 per share, and is eligible for performance-based compensation as determined by the Company’s Board of Directors. Mr. Meyers has the option to convert all or a portion of the
cash compensation to equity at a conversion price equal to a discount of 30% from the trailing 90 day average of the closing price of the Company’s common stock. The agreement is
terminable by either party without cause upon providing 90 days’ notice. Effective October 1, 2013, the Company extended Mr. Meyers consulting agreement until December 31, 2013
under which Mr. Meyers received $10,000 per month, and 60,000 options of the Company’s common stock with an exercise price equal to the fair value of the Company’s common
stock at the date of grant. Mr. Meyers’ options vested on various dates through December 31, 2013.
Outstanding Equity Awards at Fiscal Year-End
On March 4, 2010, the Board of Directors of Apollo Medical Holdings, Inc. and three members of our Board that owned, in the aggregate, approximately 65% of the outstanding shares
of our common stock, approved the adoption of the Apollo Medical Holdings, Inc., 2010 Equity Incentive Plan. Subject to the adjustment provisions of the Plan that are applicable in the
event of a stock dividend, stock split, reverse stock split or similar transaction, up to 5,000,000 shares of common stock may be issued under the Plan.
On August 31, 2012 the Company’s Board of Directors amended the 2010 Plan, which allowed the Board to grant an additional 7,000,000 shares up to 12,000,000 shares of the
Company’s common stock. The Plan awards include incentive stock option, non-qualified options, restricted common stock, and stock appreciation rights and was approved by
unanimous written consent of two stockholders that beneficially owned in the aggregate 57.0% of the outstanding shares of the Company’s common stock at the consent date.
45
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
On April 29, 2013 the Company’s Board of Directors approved the Company’s 2013 Equity Incentive Plan (the “2013 Plan”), pursuant to which 5,000,000 shares of the Company’s
common stock will be reserved for issuance there under. The Plan awards include incentive stock option, non-qualified options, restricted common stock, and stock appreciation rights
and was approved by unanimous written consent of two stockholders that beneficially owned in the aggregate 54.0% of the outstanding shares of the Company’s common stock at the
consent date.
During the fiscal year ended January 31, 2013, 4,225,000 options were granted to management, directors and independent contractors of which 1,583,336 were exercisable as of
January 31, 2013 at a weighted-average exercise price of $0.18 per share.
During the fiscal year ended January 31, 2014, 2,935,000 options were granted, including 1,020,250 options that were cancelled and reissued, to management, directors and
independent contractors of which collectively 5,916,890 were exercisable as of January 31, 2014 at a weighted-average exercise price of $0.16 per share.
Director Compensation
Gary Augusta
Effective as of March 7, 2012, Gary Augusta was appointed to the Company’s Board of Directors. In connection with his service to the Company as a director, Mr. Augusta entered into
the Company’s Director Agreement, which provided for Mr. Augusta to be a director and entitles Mr. Augusta to acquire 400,000 shares of the Company's Common Stock at a price of
$.001 per share. The Company’s right, but not obligation, to repurchase the shares lapses monthly at a rate of 1/36 per month over a three year time period. In connection with Mr.
Augusta’s service as a consultant to the Company, Mr. Augusta, through his entity, Augusta Advisors Inc., entered into a Consulting Agreement with the Company which became
effective December 1, 2011. Pursuant to that agreement, various consulting services were provided to the Company in return for $10,000 per month in cash compensation and to
acquire 100,000 shares of common stock for a price of $0.001 per share each month issued in the name of Gary Augusta monthly over the initial term of the agreement (totaling
700,000 shares of common stock) expiring June 20, 2012. Thereafter, the Company extended Mr. Augusta on month-to-month basis in return for $10,000 per month in cash
compensation and eligibility for incentive stock awards as determined by the Board of Directors.
On November 18, 2013, the Company entered into a Consulting and Representation Agreement (the “Consulting Agreement”) with Augusta Advisors, Inc. under which Mr. Augusta
agreed to serve as Executive Chairman, and which is effective from October 1, 2013, supersedes the prior agreement with Mr. Augusta dated December 1, 2011, and terminates on
December 31, 2014.
Pursuant to the Senior Secured Note agreement on February 1, 2012, as amended October 15, 2012, with SpaGus Capital Partners, LLC and SpaGus Apollo, LLC, of which Mr.
Augusta is a member (“SpaGus”), SpaGus received 366,000 shares and interest and fees aggregating $60,695 from inception of the arrangement.
Edward “Ted” Schreck
Effective as of February 15, 2012, Edward “Ted” Schreck was appointed to the Company’s Board of Directors was also appointed as the Chairman of the Board of Directors. In
connection with his service to the Company as a director and Chairman, Mr. Schreck entered into the Company’s Director Agreement which entitles such director to receive a
combined $30,000 annual cash retainer for his board service as well as an initial option grant of 1,000,000 options. These options vest evenly over a 3-year period. Effective October
1, 2013 relinquished his position as Chairman upon appointment of Mr. Augusta as Executive Chairman. Mr. Schreck will receive a fee of $1,000 per board meeting attended, and will
be reimbursed for reasonable and customary expenses incurred therewith.
Suresh Nihalani
In connection with his service to the Company as a director, Mr. Nihalani entered into the Company’s Director Agreement on October 27, 2008 (as amended on July 16, 2010), which
provided for Mr. Nihalani to be a director and entitled Mr. Nihalani to receive a restricted stock grant of 400,000 shares of the Company's common stock. On January 1, 2012 the
Company amended the 2010 Director Agreement with Mr. Nihalani pursuant to which Mr. Nihalani received the right to purchase an additional 400,000 shares of the Company’s
restricted common stock for $0.001 per share which will vest monthly over 36 months. The Company has the right but not the obligation to repurchase the unvested portion of these
shares at $0.001 per share. Mr. Nihalani receives a fee of $1,000 per board meeting attended, and will be reimbursed for reasonable and customary expenses incurred therewith.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Mitch Creem
On October 22, 2012 Mitchell R. Creem was elected to the Company’s Board of Directors. In connection with his service to the Company as a director, Mr. Creem entered into the
Company’s Director Agreement which entitled Mr. Creem to receive 500,000 restricted shares of the Company’s common stock for his board service which will vest monthly over 36
months. Mr. Creem receives a fee of $1,000 per board meeting attended, and will be reimbursed for reasonable and customary expenses incurred therewith.
David Schmidt
On May 22, 2013, the Board of Directors of the Company elected David G. Schmidt, 65, as a member of the Board. Mr. Schmidt entered into the Company’s form of Director
Agreement, which entitled him to receive a fee of $1,000 per Board meeting attended, as well as a grant of 400,000 restricted shares of the Company’s common stock for his Board
service. These restricted shares vest evenly on a monthly basis over a 36 month period.
The following Summary Compensation Table reflects the compensation awarded to, earned by, or paid to our outside directors for the year ended January 31, 2014.
Name
Fees Earned
or Paid in
Cash ($)
Stock
Awards ($)
(1)
Option
Awards ($) (1)
Non-Equity
Incentive
Plan
Earnings ($)
Non-
Qualified
Deferred
Compensation
Earnings ($)
Gary Augusta
David Schmidt
Ted Schreck
Suresh Nihalani
Mitch Creem
-
6,000
23,000
10,000
10,000
180,000(2)
-
-
-
-
-
69,464
-
-
-
-
-
-
-
-
All Other
Compensation
($)
-
-
-
-
-
179,307(3)
-
2,721
1,211
-
Total ($)
359,307
75,464
25,721
11,211
10,000
(1) The amount shown in this column reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718.
(2) Pursuant to a consulting agreement with Augusta Advisors Corporation dated December 1, 2011, Mr. Augusta received 300,000 shares of common with a grant date fair value of
$135,000; and pursuant to the Senior Secured Note agreement on February 1, 2012, as amended October 15, 2012, with SpaGus Apollo, LLC, of which Mr. Augusta is a member
(“SpaGus”), SpaGus directly received 100,000 shares with a grant date fair value of $45,000. Mr. Augusta disclaims beneficial ownership of the shares held by SpaGus except to the
extent of his pecuniary interest therein, and the filing of this report and inclusion of these shares in this table is not an admission that Mr. Augusta is the beneficial owner of these
shares for purposes of Section 16 or for any other purpose.
(3) Pursuant to a consulting agreement with Augusta Advisors Corporation dated December 1, 2011, Mr. Augusta received cash compensation of $90,500; on November 18, 2013, the
Company entered into a Consulting and Representation Agreement (the “Consulting Agreement”) with Augusta Advisors, Inc. (“Mr. Augusta”), in which Mr. Augusta agreed to provide
business and strategic services and makes Mr. Augusta available as the Company’s Executive Chairman of the Board, which is effective from October 1, 2013, supersedes the
December 1, 2011 agreement with Mr. Augusta, and terminates on December 31, 2014. Mr. Augusta is paid $15,000 per month and $2,000 per month for expenses $51,000 in 2014;
and pursuant to the Senior Secured Note agreement on February 1, 2012, as amended October 15, 2012, with SpaGus Apollo, LLC, of which Mr. Augusta is a member (“SpaGus”),
SpaGus directly received interest and fees aggregating $31,307. Mr. Augusta disclaims beneficial ownership of the shares held by SpaGus except to the extent of his pecuniary
interest therein, and the filing of this report and inclusion of these shares in this table is not an admission that Mr. Augusta is the beneficial owner of these shares for purposes of
Section 16 or for any other purpose.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information as of April 30, 2014, with respect to (i) those persons known to us to beneficially own more than 5% of our voting securities, (ii) each of
our directors, (iii) each of our executive officers, and (iv) all directors and executive officers as a group. The information is determined in accordance with Rule 13d-3 promulgated under
the Exchange Act. Except as indicated below, the beneficial owners have sole voting and dispositive power with respect to the shares beneficially owned.
Name and Address of Beneficial Owner (1)
Shares Beneficially
Owned (2)
Percent of
Class (3)
Certain Beneficial Owners:
Adrian Vazquez, M.D.
NNA of Nevada, Inc. (5)
Tommy Maartensson (4)
Directors/Named Executive Officers:
Warren Hosseinion, M.D.
Kyle Francis
Gary Augusta
Mark Meyers
Suresh Nihalani
Ted Schreck
Mitch Creem
David Schmidt
All Named Executive Officers and Directors as a group
9,423,387
6,000,000
2,873,996
10,423,387
2,250,000
1,766,000
1,485,000
800,000
1,000,000
500,000
155,556
18,379,943
19.2%
12.2%
5.8%
21.2%
4.6%
3.6%
3.0%
1.6%
2.0%
1.0%
0.3%
37.4%
(1) Unless otherwise indicated, the business address of each person listed is c/o Apollo Medical Holdings, Inc., 700 N. Brand Blvd., Suite 220, Glendale, California 91203.
(2) For purposes of this table, shares are considered beneficially owned if the person directly or indirectly has the sole or shared power to vote or direct the voting of the securities or
the sole or shared power to dispose of or direct the disposition of the securities. Shares are also considered beneficially owned if a person has the right to acquire beneficial
ownership of the shares within 60 days of April 30, 2014.
(3) The percentages are calculated based on the actual number of shares issued and outstanding as of April 30, 2014 which is 49,134,549.
(4) c/o Syndicated Capital 1299 Ocean Avenue, Suite 210, Santa Monica, CA 90401
(5) 920 Winter Street, Waltham, Massachusetts 02451. Excludes securities issuable to NNA under Convertible Note that has not been funded as of April 30, 2014.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
On January 31, 2013 Mr. Mark Meyers, the Company’s Chief Strategy Officer and a director of the Company, purchased two units of $50,000 par value 9% Senior Subordinated
Callable Convertible Promissory Notes due February 15, 2016, or $100,000 in the aggregate, which are convertible at any time into 250,000 shares of the Company’s common stock at
an exercise price of $0.40 per share. Each unit received warrants to purchase 37,500 shares of the Company's common stock at an exercise price of $0.45 per share, and had a grant
date fair value aggregating $21,238 computed in accordance with ASC Topic 718.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Company entered into a Senior Secured Note (“Note”) agreement on February 1, 2012 with SpaGus Capital Partners, LLC (“SpaGus”) an entity in which Gary Augusta, a director
and shareholder of the Company, holds an ownership interest. The terms of the Note provided for interest at 8.929% per annum, payments of principal of $135,000 on each of
September 15, 2012 and October 15, 2012, and are secured by substantially all assets of the Company. The Company prepaid interest on the Note principal of $15,000 in accordance
with the Note, and paid financing costs of $5,000 in cash and the issuance of 216,000 shares of the Company’s common stock, which was valued at $25,661 at the date of issuance.
On September 15, 2012, SpaGus agreed to allow the Company to defer payment of the scheduled principal payments due on September 15 and October 15, 2012, and amended the
Note effective October 15, 2012 in which SpaGus Apollo, LLC agreed to provide additional principal to the Company in the amount of $230,000. The terms of the amended Note in the
amount of $500,000 provided for borrowings to bear interest at 8.0 % per annum with accrued interest payable in arrears on each of December 28, 2012, March 31, 2013, June 30,
2013, and October 15, 2013. The amended Note was to have matured October 15, 2013, and could be prepaid at any time prior to September 29, 2013. The Company paid SpaGus
Apollo, LLC financing costs of 100,000 restricted shares of the Company’s common stock on the amendment date, which had a fair value of $50,000. On April 15, 2013, the Company
issued an additional 100,000 restricted shares of the Company’s common stock to SpaGus required under the terms of the amended Note, which had a fair value of $45,000 at the
obligation date. The amended Note matured and was repaid, including accrued unpaid interest, on October 16, 2013.
Director Independence
Our common stock is quoted on the OTCQB electronic trading platform, which does not maintain any standards regarding the “independence” of the directors on our Company’s
Board, and we are not otherwise subject to the requirements of any national securities exchange or an inter-dealer quotation system with respect to the need to have a majority of our
directors be independent. In the absence of such requirements, we have elected to use the definition for director independence under the NASDAQ stock market’s listing standards,
which defines an independent director as “a person other than an officer or employee of the Company or its subsidiaries or any other individual having a relationship, which in the
opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.” The definition further provides that, among others,
employment of a director by us (or any parent or subsidiary of ours) at any time during the past three years is considered a bar to independence regardless of the determination of our
Board. Based on the foregoing standards, the Board has determined that Ted Schreck, Suresh Nihalani, Mitch Creem and David Schmidt are “independent” directors.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The aggregate fees for professional services rendered by Kabani and Company, Inc. to us for the fiscal years ended January 31, 2014 and January 31, 2013 were as follows:
Audit fees (1)
Audit-related fees (2)
Tax fees (3)
All other fees
Total
2014
2013
48,000 $
-
-
-
48,000 $
44,000
-
-
-
44,000
$
$
(1) Audit fees represent fees for professional services provided in connection with the audit of our annual financial statements and the review of our financial statements included in our
Forms 10-Q quarterly reports and services that are normally provided in connection with statutory or regulatory filings for the 2014 and 2013 fiscal years.
(2) Audit-related fees represent fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and not
reported above under “Audit Fees.”
(3) Tax fees represent fees for professional services related to tax compliance, tax advice and tax planning.
Audit Committee Pre-Approval Policies and Procedures
The policy of our board of directors, acting as the audit committee, is to pre-approve all audit and permissible non-audit services provided by our independent auditors. These services
may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the
particular service or category of services. All services and fees described above for the years ended January 31, 2014 and 2013 were approved by our Board.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a) Please see the Report of our Independent Registered Public Accounting Firm, and related financial statements for our fiscal year ended January 31, 2014, beginning on page
F-1 of this Form 10-K.
(b) Exhibits Index
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Certificate of Incorporation (filed as an exhibit to Registration Statement on Form 10-SB filed on April 19, 1999, and incorporated herein by reference).
Certificate of Ownership (filed as an exhibit to Current Report on Form 8-K filed on July 15, 2008, and incorporated herein by reference).
Second Amended and Restated Bylaws (filed as an exhibit to Form 10-Q filed on September 14, 2011, and incorporated herein by reference).
Form of Investor Warrant, dated October 16, 2009, for the purchase of 25,000 shares of common stock (filed as an exhibit on Annual Report on Form 10-K/A on March 28,
2012, and incorporated herein by reference).
Form Of Investor Warrant, dated October 29, 2012, for the purchase of common stock (filed as an exhibit on Form 10-Q on December 17, 2012 and incorporated herein
by reference)
Form of Amendment to October 16, 2009 Warrant to Purchase Shares of Common Stock, dated October 29, 2012 (filed as an exhibit on Form 10-Q on December 17,
2012 and incorporated herein by reference)
Form of 9% Senior Subordinated Callable Convertible Note, dated January 31, 2013 (filed as an exhibit on Annual Report on Form 10-K on May 1, 2013 and incorporated
herein by reference)
Form Of Investor Warrant for purchase of 37,500 shares of common stock, dated January 31, 2013 (filed as an exhibit on Annual Report on Form 10-K on May 1, 2013,
and incorporated herein by reference)
Convertible Note, issued by Apollo Medical Holdings, Inc. to NNA of Nevada, Inc., dated March 28, 2014 (filed as an exhibit on Form 8-K on March 31, 2014, and
incorporated herein by reference).
Common Stock Purchase Warrant to purchase 1,000,000 shares, issued by Apollo Medical Holdings, Inc. to NNA of Nevada, Inc., dated March 28, 2014 (filed as an
exhibit on Form 8-K on March 31, 2014, and incorporated herein by reference).
Common Stock Purchase Warrant to purchase 2,000,000 shares, issued by Apollo Medical Holdings, Inc. to NNA of Nevada, Inc., dated March 28, 2014 (filed as an
exhibit on Form 8-K on March 31, 2014, and incorporated herein by reference).
Common Stock Purchase Warrant to purchase 1,000,000 shares, issued by Apollo Medical Holdings, Inc. to NNA of Nevada, Inc., dated March 28, 2014 (filed as an
exhibit on Form 8-K on March 31, 2014, and incorporated herein by reference).
4.10
Common Stock Purchase Warrant to purchase 1,000,000 shares, issued by Apollo Medical Holdings, Inc. to NNA of Nevada, Inc., dated March 28, 2014 (filed as an
exhibit on Form 8-K on March 31, 2014, and incorporated herein by reference).
10.1
Agreement and Plan of Merger among Siclone Industries, Inc. and Apollo Acquisition Co., Inc. and Apollo Medical Management, Inc. (filed as an exhibit to Current Report
on Form 8-K filed on June 19, 2008 and incorporated herein by reference).
10.2
Management Services Agreement dated August 1, 2008, between Apollo Medical Management and ApolloMed Hospitalists (filed as an exhibit on Annual Report on Form
10-K/A on March 28, 2012, and incorporated herein by reference).
10.3
Board of Directors Agreement, dated October 27, 2008, between the Company and Suresh Nihalani (filed as an exhibit on Annual Report on Form 10-K/A on March 28,
2012, and incorporated herein by reference).
10.4
Management Services Agreement dated March 20, 2009, between Apollo Medical Management and ApolloMed Hospitalists (filed as an exhibit on Annual Report on Form
10-K/A on April 10, 2012, and incorporated herein by reference).
10.5
2010 Equity Compensation Plan (filed as an exhibit to Current Report on Form 8-K filed on March 9, 2010, and incorporated herein by reference).
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.6*
10.7
10.8
10.9
10.10
Employment Agreement dated March 1, 2013 between the Company and Kyle Francis.
Amendment to Suresh Nihalani's Director Agreement dated July 16, 2010 (filed as an exhibit on Annual Report on Form 10-K/A on April 10, 2012, and incorporated herein
by reference).
2010 Equity Incentive Plan (filed as Appendix A to Schedule 14C Information Statement filed on August 17, 2010 and incorporated herein by reference).
Stock Purchase Agreement, dated as of February 15, 2011, among the Company, Aligned Healthcare Group LLC, Aligned Healthcare Group - California, Inc., Raouf
Khalil, Jamie McReynolds, M.D., BJ Reese & Associates, LLC and BJ Reese (filed as an exhibit on Annual Report on Form 10-K/A on April 10, 2012, and incorporated
herein by reference).
First Amendment to Stock Purchase Agreement entered into by Apollo Medical Holdings, Inc. and Aligned Healthcare Group LLC, Aligned Healthcare Group - California,
Inc., Raouf Khalil, Jamie McReynolds, M.D., BJ Reese & Associates LLC and BJ Reese dated July 8, 2011 (filed as an exhibit on Annual Report on Form 10-K/A on April
10, 2012, and incorporated herein by reference).
10.11*
10.12
Board of Directors Agreement dated March 22, 2012 by and between Apollo Medical Holdings, Inc. and Suresh Nihalani
Employment Agreement with Jilbert Issai, M.D. dated September 4, 2008 (filed as an exhibit on Annual Report on Form 10-K/A on April 10, 2012, and incorporated herein
by reference).
10.13*
10.14*
10.15*
10.16
2013 Equity Incentive Plan of Apollo Medical Holdings, Inc. dated April 30, 2013
Board of Directors Agreement dated May 22, 2013 by and between Apollo Medical Holdings, Inc., and David G Schmidt
Board of Directors Agreement dated October 17, 2012 by and between Apollo Medical Holdings, Inc., and Mark A. Meyers
Management Services Agreement, dated February 1, 2013, by and between Apollo Medical Management, Inc. and Maverick Medical Group, Inc. (filed as an exhibit on
Quarterly Report on Form 10-Q on June 14, 2013, and incorporated herein by reference).
10.17
Intercompany Revolving Loan Agreement, dated February 1, 2013, by and between Apollo Medical Management, Inc. and Maverick Medical Group, Inc. (filed as an
exhibit on Quarterly Report on Form 10-Q on June 14, 2013, and incorporated herein by reference).
10.18
Management Services Agreement, dated July 31, 2013, by and between Apollo Medical Management, Inc. and Apollomed Care Clinic (filed as an exhibit on Quarterly
Report on Form 10-Q on September 16, 2013, and incorporated herein by reference).
10.19
Intercompany Revolving Loan Agreement, dated July 31, 2013 by and between Apollo Medical Management, Inc. and Apollomed Care Clinic (filed as an exhibit on
Quarterly Report on Form 10-Q on September 16, 2013, and incorporated herein by reference).
10.20
Credit Agreement, between Apollo Medical Holdings, Inc. and NNA of Nevada, Inc., dated October 15, 2013 (filed as an exhibit on Form 8-K on October 18, 2013, and
incorporated herein by reference).
10.21
Consulting and Representation Agreement between Augusta Advisors, Inc. and Apollo Medical Holdings, Inc., dated November 18, 2013 (filed as an exhibit on Form 8-K
on November 22, 2013, and incorporated herein by reference).
10.22
Intercompany Revolving Loan Agreement dated as of September 30, 2013, between Apollo Medical Management, Inc. and ApolloMed Hospitalists, a Medical Corporation
(filed as an exhibit on Quarterly Report on Form 10-Q on December 20, 2013, and incorporated herein by reference).
10.23
First Amendment to Credit Agreement, between Apollo Medical Holdings, Inc. and NNA of Nevada, Inc., dated December 20, 2013 (filed as an exhibit on Form 8-K on
December 24, 2013, and incorporated herein by reference).
10.24
Form of Settlement Agreement and Release, between Apollo Medical Holdings, Inc. and each of the Holders listed on Exhibit A to the First Amendment, effective
December 20, 2013 (filed as an exhibit on Form 8-K on December 24, 2013, and incorporated herein by reference).
10.25
Credit Agreement, between Apollo Medical Holdings, Inc. and NNA of Nevada, Inc., dated March 28, 2014 (filed as an exhibit on Form 8-K on March 31, 2014, and
incorporated herein by reference).
10.26
Investment Agreement, between Apollo Medical Holdings, Inc. and NNA of Nevada, Inc., dated March 28, 2014 (filed as an exhibit on Form 8-K on March 31, 2014, and
incorporated herein by reference).
10.27
Collateral Assignment of Physician Shareholder Agreement and Management Agreement, between Apollo Medical Holdings, Inc., Apollo Medical Management, Inc., and
NNA of Nevada, Inc., dated March 28, 2014 (acknowledged by ApolloMed Care Clinic, and Warren Hosseinion, M.D.) (filed as an exhibit on Form 8-K on March 31, 2014,
and incorporated herein by reference).
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.28
10.29
Collateral Assignment of Physician Shareholder Agreement and Management Agreement, between Apollo Medical Holdings, Inc., Apollo Medical Management, Inc., and
NNA of Nevada, Inc., dated March 28, 2014 (acknowledged by Maverick Medical Group Inc. and Warren Hosseinion, M.D.) (filed as an exhibit on Form 8-K on March 31,
2014, and incorporated herein by reference).
Collateral Assignment of Physician Shareholder Agreement and Management Agreement, between Apollo Medical Holdings, Inc., Apollo Medical Management, Inc., and
NNA of Nevada, Inc., dated March 28, 2014 (acknowledged by ApolloMed Hospitalists and Warren Hosseinion, M.D.) (filed as an exhibit on Form 8-K on March 31, 2014,
and incorporated herein by reference).
10.30
Shareholders Agreement, between Apollo Medical Holdings, Inc., Warren Hosseinion, M.D., Adrian Vazquez, M.D., and NNA of Nevada, Inc, dated March 28, 2014 (filed
as an exhibit on Form 8-K on March 31, 2014, and incorporated herein by reference).
10.31
Registration Rights Agreement, between Apollo Medical Holdings, Inc. and NNA of Nevada, Inc., dated March 28, 2014 (filed as an exhibit on Form 8-K on March 31,
2014, and incorporated herein by reference).
10.32
Employment Agreement, between Apollo Medical Management, Inc. and Warren Hosseinion, M.D., dated March 28, 2014 (filed as an exhibit on Form 8-K/A on April 3,
2014, and incorporated herein by reference).
10.33
Employment Agreement, between Apollo Medical Management, Inc. and Adrian Vazquez, M.D., dated March 28, 2014 (filed as an exhibit on Form 8-K/A on April 3, 2014,
and incorporated herein by reference).
10.34
Hospitalist Participation Service Agreement, between ApolloMed Hospitalists and Warren Hosseinion, M.D., dated March 28, 2014 (filed as an exhibit on Form 8-K/A on
April 3, 2014, and incorporated herein by reference).
10.35
Hospitalist Participation Service Agreement, between ApolloMed Hospitalists and Adrian Vazquez, M.D., dated March 28, 2014 (filed as an exhibit on Form 8-K/A on April
3, 2014, and incorporated herein by reference).
10.36
Stock Option Agreement, between Warren Hosseinion, M.D. and Apollo Medical Holdings, Inc., dated March 28, 2014 (filed as an exhibit on Form 8-K/A on April 3, 2014,
and incorporated herein by reference).
10.37
Stock Option Agreement, between Adrian Vazquez, M.D. and Apollo Medical Holdings, Inc., dated March 28, 2014 (filed as an exhibit on Form 8-K/A on April 3, 2014, and
incorporated herein by reference).
10.38
Amended and Restated Management Services Agreement, between Apollo Medical Management, Inc. and ApolloMed Care Clinic, dated March 28, 2014 (filed as an
exhibit on Form 8-K/A on April 3, 2014, and incorporated herein by reference).
10.39
Amended and Restated Management Services Agreement, between Apollo Medical Management, Inc. and Maverick Medical Group Inc., dated March 28, 2014 (filed as
an exhibit on Form 8-K/A on April 3, 2014, and incorporated herein by reference).
10.40
Amended and Restated Management Services Agreement, between Apollo Medical Management, Inc. and ApolloMed Hospitalists, dated March 28, 2014 (filed as an
exhibit on Form 8-K/A on April 3, 2014, and incorporated herein by reference).
10.41
Physician Shareholder Agreement, granted and delivered by Warren Hosseinion, M.D., in favor of Apollo Medical Management, Inc. and Apollo Medical Holdings, Inc., for
the account of ApolloMed Care Clinic, dated March 28, 2014 (filed as an exhibit on Form 8-K/A on April 3, 2014, and incorporated herein by reference).
10.42
Physician Shareholder Agreement, granted and delivered by Warren Hosseinion, M.D., in favor of Apollo Medical Management, Inc. and Apollo Medical Holdings, Inc., for
the account of Maverick Medical Group, Inc., dated March 28, 2014 (filed as an exhibit on Form 8-K/A on April 3, 2014, and incorporated herein by reference).
10.43
Physician Shareholder Agreement, granted and delivered by Warren Hosseinion, M.D., in favor of Apollo Medical Management, Inc. and Apollo Medical Holdings, Inc., for
the account of ApolloMed Hospitalists, dated March 28, 2014 (filed as an exhibit on Form 8-K/A on April 3, 2014, and incorporated herein by reference).
10.44
Amendment No. 1 to Intercompany Revolving Loan Agreement, between Apollo Medical Management, Inc. and ApolloMed Care Clinic, dated March 28, 2014 (filed as an
exhibit on Form 8-K/A on April 3, 2014, and incorporated herein by reference).
10.45
Amendment No. 1 to Intercompany Revolving Loan Agreement, between Apollo Medical Management, Inc. and Maverick Medical Group Inc., dated March 28, 2014 (filed
as an exhibit on Form 8-K/A on April 3, 2014, and incorporated herein by reference).
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.46
Amendment No. 1 to Intercompany Revolving Loan Agreement, between Apollo Medical Management, Inc. and ApolloMed Hospitalists, dated March 28, 2014 (filed as an
exhibit on Form 8-K/A on April 3, 2014, and incorporated herein by reference).
Board of Directors Agreement dated March 7, 2012 by and between Apollo Medical Holdings, Inc., and Gary Augusta
Board of Directors Agreement dated February 15, 2012 by and between Apollo Medical Holdings, Inc., and Ted Schreck.
10.47*
10.48*
10.49* Board of Directors Agreement dated October 22, 2012 by and between Apollo Medical Holdings, Inc., and Mitchell R. Creem
21.1*
31.1*
31.2*
32.1*
32.2*
Certification by Chief Executive Officer
Certification by Chief Financial Officer
Certification by Chief Executive Officer pursuant to 18 U.S.C. section 1350.
Certification by Chief Financial Officer pursuant to 18 U.S.C. section 1350
Subsidiaries of Apollo Medical Holdings, Inc.
101.INS*+
101.SCH*+
101.CAL*+
101.DEF*+
101.LAB*+
101.PRE*+
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith.
+ Pursuant to Rule 406T of Regulation S-T, XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration
statement or Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of
1934, and otherwise is not subject to liability under these sections.
53
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SIGNATURES
Date: May 8, 2014
APOLLO MEDICAL HOLDINGS, INC.
By:
/s/ WARREN HOSSEINION, M.D
Warren Hosseinion, M.D.,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities
indicated on May 8, 2014.
SIGNATURE
/S/ WARREN HOSSEINION, M.D.
Warren Hosseinion, M.D.,
/S/ KYLE FRANCIS
Kyle Francis
/S/ MARK MEYERS
Mark Meyers
/S/ GARY AUGUSTA
Gary Augusta
/S/ TED SCHRECK
Ted Schreck
/S/ MITCH CREEM
Mitch Creem
/S/ SURESH NIHALANI
Suresh Nihalani
/S/ DAVID SCHMIDT
David Schmidt
TITLE
Chief Executive Officer
Chief Financial Officer (Principal
Financial and Accounting Officer)
Chief Strategy Officer and
Director
Executive Chairman and Director
Director
Director
Director
Director
54
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
FINANCIAL STATEMENTS - TABLE OF CONTENTS:
Report of independent registered public accounting firm
Consolidated financial statements:
Consolidated balance sheets
Consolidated statements of operations
Consolidated statements of changes in stockholders’ deficit
Consolidated statements of cash flows
Notes to consolidated financial statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders of
Apollo Medical Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Apollo Medical Holdings, Inc. as of January 31, 2014 and 2013 and the related consolidated statements of
operations, stockholders' deficit, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Apollo Medical Holdings, Inc. as of January 31,
2014 and 2013, and the results of their operations and their cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ Kabani & Company, Inc.
Certified Public Accountants
Los Angeles, California
May 7, 2014
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT ASSETS
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Due from affiliates
Prepaid expenses
Deferred financing costs, net, current
Total current assets
Deferred financing costs, net, non-current
Property and equipment, net
Intangible assets, net
Goodwill
Other assets
TOTAL ASSETS
CURRENT LIABILITIES
Accounts payable and accrued liabilities
Notes and lines of credit payable
Stock issuable
Total current liabilities
Convertible notes payable, net
Total liabilities
STOCKHOLDERS' DEFICIT
Preferred stock, par value $0.001; 5,000,000 shares authorized; none issued
Common Stock, par value $0.001; 100,000,000 shares authorized, 46,952,469 and 34,843,441 shares issued and outstanding as of
January 31, 2014 and 2013, respectively
Prepaid consulting
Additional paid-in-capital
Accumulated deficit
Total
Non-controlling interest
Total stockholders' deficit
$
$
$
January 31,
2014
January 31,
2013
$
$
$
1,451,407
20,000
1,509,589
1,599
53,543
97,806
3,133,944
144,345
85,685
62,427
494,700
38,681
3,959,782
1,373,285
3,178,693
-
4,551,978
1,100,522
5,652,500
1,176,727
-
1,582,505
5,648
72,628
34,614
2,872,122
218,640
68,142
-
33,200
30,981
3,223,085
950,651
594,765
159,334
1,704,750
1,909,714
3,614,464
-
-
46,953
(282,176)
14,387,552
(15,581,146)
(1,428,817)
(263,901)
(1,692,718)
34,844
(616,014)
11,248,566
(11,022,272)
(354,876)
(36,503)
(391,379)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
$
3,959,782
$
3,223,085
The accompanying notes are an integral part of these consolidated financial statements
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 31, 2014 AND 2013
Year ended January 31,
2014
2013
$
$
10,484,305
9,076,213
1,408,092
5,286,610
31,361
5,317,971
7,776,131
6,316,164
1,459,967
3,517,536
20,918
3,538,454
(3,909,879)
(2,078,487)
-
(679,184)
49,702
(629,482)
(5,853,855)
(930,176)
(37,246)
(6,821,277)
(4,539,361)
(8,899,764)
19,513
4,800
$
(4,558,874) $
(8,904,564)
Net revenues
Cost of services
Gross profit
Operating expenses
General and administrative
Depreciation and amortization
Total operating expenses
Loss from operations
Other income (expense)
Loss on change in fair value of derivative liabilities
Interest expense
Other income (expense)
Total other expenses
Loss before income taxes
Provision for income tax
Net loss
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING - BASIC AND DILUTED
36,661,648
32,469,999
BASIC AND DILUTED NET LOSS PER SHARE
$
(0.12) $
(0.27)
The accompanying notes are an integral part of these consolidated financial statements
F-4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JANUARY 31, 2014 AND 2013
Common Stock
Amount
Prepaid
Consulting
Additional
paid-in capital
Accumulated
Deficit
Non-
controlling
Interest
Stockholders'
Deficit
Balance at February 1, 2012
Shares reconveyed in connection with termination of AHI
transaction
Acquisition related non-controlling interest
Distributions to non-controlling interest shareholder
Reclassification of warrant and derivative liabilities
Issuance of warrants
Issuance of stock for stock-based compensation
Unvested stock-based compensation classified as prepaid
Issuance of stock options for stock-based compensation
Exercise of stock options
Net loss
Balance at January 31, 2013
Issuance of warrants
Issuance of common stock for loan fees
Issuance of stock for stock-based compensation
Unvested stock-based compensation classified as prepaid
Issuance of stock options for stock-based compensation
Shares issued in connection with private placement offering
Shares issued in connection with convertible notes redemption
Fair value of embedded conversion feature reacquired in
connection with convertible notes redemption
Distributions to non-controlling interest shareholder
Net loss
Balance at January 31, 2014
Shares
29,335,774
$
(500,000)
-
-
-
-
5,932,667
-
-
75,000
-
34,843,441
-
100,000
1,371,666
-
-
1,825,000
8,812,362
-
-
-
46,952,469
$
$
29,336
$
-
$
1,429,051
$
(2,117,708)
$
238,101
$
(421,220)
(500)
-
-
-
-
5,933
-
-
75
-
34,844
-
100
1,372
-
-
1,825
8,812
-
-
-
46,953
$
$
-
-
-
-
-
-
(616,014)
-
-
-
(616,014)
-
-
-
333,838
-
-
-
-
-
-
(282,176)
500
-
-
6,626,881
510,642
1,955,837
-
709,980
15,675
-
11,248,566
50,936
44,900
717,001
-
1,252,378
728,175
855,486
$
$
(509,890)
-
-
14,387,552
$
$
-
-
-
-
-
-
-
-
-
(8,904,564)
(11,022,272)
-
-
-
-
-
-
-
-
-
(4,558,874)
(15,581,146)
$
-
113,096
(400,000)
-
-
12,300
-
-
-
-
(36,503) $
-
-
12,602
-
-
-
-
-
(240,000)
-
$
(263,901) $
-
113,096
(400,000)
6,626,881
510,642
1,974,070
(616,014)
709,980
15,750
(8,904,564)
(391,379)
50,936
45,000
730,975
333,838
1,252,378
730,000
864,298
(509,890)
(240,000)
(4,558,874)
(1,692,718)
The accompanying notes are an integral part of these consolidated financial statements.
F-5
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
APOLLO MEDICAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 2014 AND 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Gain on extinguishment of debt
Bad debt expense
Depreciation and amortization expense
Stock-based compensation expense
Amortization of financing costs
Amortization of debt discount
Loss on change in fair value of warrant and derivative liabilities
Changes in assets and liabilities:
Accounts receivable
Due to officers
Due from affiliates
Prepaid expenses and advances
Other assets
Accounts payable and accrued liabilities
Net cash (used in) provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net
Property and equipment acquired
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes and line of credit payable
Proceeds from stock option exercise
Payment of note payable
Distributions to non-controlling interest shareholder
Proceeds from issuance of common stock
Proceeds from issuance of convertible notes payable
Cash payments in connection with convertible note redemption
Debt issuance costs
Net cash provided by financing activities
NET INCREASE IN CASH & CASH EQUIVALENTS
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD
Year ended January 31,
2014
2013
$
(4,558,874) $
(8,904,564)
(24,783)
-
31,361
2,157,857
255,396
136,751
-
72,916
-
4,049
19,084
(27,700)
455,738
(1,478,205)
(250,000)
(22,931)
(272,931)
2,811,878
-
(530,000)
(240,000)
730,000
220,000
(707,911)
(258,151)
2,025,816
-
74,393
20,918
2,061,728
89,162
670,697
5,853,855
(548,899)
(12,400)
5,504
(23,666)
7,020
764,208
57,956
14,114
(45,799)
(31,685)
594,765
15,750
-
(400,000)
-
880,000
-
(104,420)
986,095
274,680
1,012,366
1,176,727
164,361
CASH & CASH EQUIVALENTS, END OF PERIOD
$
1,451,407
$
1,176,727
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Interest paid
Income taxes paid
Non-Cash Financing Activities:
Shares issuable and issued for deferred financing costs
Warrants issued in connection with convertible note issuance
Warrants and derivative reclassified from liabilities to stockholders' deficit
Shares issued for services
Notes payable issued in connection with medical clinic acquisitions
Settlement of stock issuable liability with issuance of shares
Shares issued in connection with convertible notes redemption
Fair value of embedded conversion feature reacquired in connection with convertible notes redemption
$
$
$
$
$
$
$
$
$
$
247,465
19,513
$
$
160,792
9,763
45,000
50,936
-
-
299,900
159,334
864,298
509,890
$
$
$
$
$
$
$
$
198,935
387,349
6,626,881
159,334
-
-
-
-
The accompanying notes are an integral part of these consolidated financial statements.
F-6
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
1. Description of Business
APOLLO MEDICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Apollo Medical Holdings, Inc. and its affiliated physician groups are a physician- centric, integrated healthcare delivery system serving Medicare, Commercial and Medi-Cal
beneficiaries in California. As of April 30, 2014, ApolloMed’s physician network consisted of over 700 hospitalists, primary care physicians and specialist physicians primarily through
our owned and affiliated physician groups. ApolloMed operates as a medical management holding company through the following subsidiary management companies: Apollo Medical
Management, Inc. (“AMM”), Pulmonary Critical Care Management, Inc. (“PCCM”), Verdugo Medical Management, Inc. (“VMM”) and ApolloMed ACO, Inc. (“ApolloMed ACO”).
Through AMM, PCCM, and VMM, the Company manages affiliated medical groups, which have been consolidated and include ApolloMed Hospitalists (“AMH"), Los Angeles Lung
Center (“LALC”) and Eli Hendel, M.D., Inc. (“Hendel”). AMM, PCCM and VMM each operate as a physician practice management company (“PPM”) and are in the business of
providing management services to physician practice corporations (“PPC”) under long-term management service agreements. ApolloMedACO participates in the Medicare Shared
Savings Program (“MSSP”), the goal of which is to improve the quality of patient care and outcomes through a more efficient and coordinated approach among providers.
F-7
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2. Summary of Significant Accounting Policies
Principles of Consolidation
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.
Our consolidated financial statements include the accounts of Apollo Medical Holdings, Inc. and its subsidiaries AMM, ApolloMed ACO, PCCM, and VMM, its controlling interest in
Aligned Healthcare, Inc. (“AHI”), and PPCs managed under long-term management service agreements including AMH, MMG, ACC, LALC and Hendel. Some states have laws that
prohibit business entities, such as Apollo, from practicing medicine, employing physicians to practice medicine, exercising control over medical decisions by physicians (collectively
known as the corporate practice of medicine), or engaging in certain arrangements with physicians, such as fee-splitting. In California, we operate by maintaining long-term
management service agreements with the PPCs, which are each owned and operated by physicians, and which employ or contract with additional physicians to provide hospitalist
services. Under the management agreements, we provide and perform all non-medical management and administrative services, including financial management, information
systems, marketing, risk management and administrative support. The management agreements typically have an initial term of 20 years unless terminated by either party for cause.
The management agreements are not terminable by the PPCs except in the case of gross negligence, fraud, or other illegal acts by Apollo, or bankruptcy of Apollo.
Through the management agreements and our relationship with the stockholders of the PPCs, we have exclusive authority over all non-medical decision making related to the ongoing
business operations of the PPCs. Consequently, we consolidate the revenue and expenses of the PPCs from the date of execution of the management agreements.
All intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition
Revenue consists of contracted and fee-for-service revenue. Revenue is recorded in the period in which services are rendered. Our revenue is principally derived from the provision of
healthcare staffing services to patients within healthcare facilities. The form of billing and related risk of collection for such services may vary by customer. The following is a summary
of the principal forms of our billing arrangements and how net revenue is recognized for each.
F-8
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Contracted revenue represents revenue generated under contracts for which we provide physician and other healthcare staffing and administrative services in return for a contractually
negotiated fee. Contracted revenue represented approximately 84% of our revenues in the year ended January 31, 2014. Contracted revenue consists primarily of billings based on
hours of healthcare staffing provided at agreed-to hourly rates. Revenue in such cases is recognized as the hours are worked by our staff and contractors. Additionally, contracted
revenue also includes supplemental revenue from hospitals where we may have a fee-for-service contract arrangement or provide physician advisory services to the medical staff at a
specific facility. Contracted revenue for the supplemental billing in such cases is recognized based on the terms of each individual contract. Such contract terms generally either
provides for a fixed monthly dollar amount or a variable amount based upon measurable monthly activity, such as hours staffed, patient visits or collections per visit compared to a
minimum activity threshold. Such supplemental revenues based on variable arrangements are usually contractually fixed on a monthly, quarterly or annual calculation basis
considering the variable factors negotiated in each such arrangement. Such supplemental revenues are recognized as revenue in the period when such amounts are determined to be
fixed and therefore contractually obligated as payable by the customer under the terms of the respective arrangement. Additionally, we derive a portion of our revenue as a contractual
bonus from collections received by our partners and such revenue is contingent upon the collection of third-party billings. These revenues are not considered earned and therefore not
recognized as revenue until actual cash collections are achieved in accordance with the contractual arrangements for such services.
Fee-for-service revenue represents revenue earned under contracts in which we bill and collect the professional component of charges for medical services rendered by our
contracted and employed physicians. Under the fee-for-service arrangements, we bill patients for services provided and receive payment from patients or their third-party payers. Fee-
for-service revenue is reported net of contractual allowances and policy discounts. All services provided are expected to result in cash flows and are therefore reflected as net revenue
in the financial statements. Fee-for-service revenue is recognized in the period in which the services are rendered to specific patients and reduced immediately for the estimated impact
of contractual allowances in the case of those patients having third-party payer coverage. The recognition of net revenue (gross charges less contractual allowances) from such visits
is dependent on such factors as proper completion of medical charts following a patient visit, the forwarding of such charts to our billing center for medical coding and entering into our
billing system and the verification of each patient’s submission or representation at the time services are rendered as to the payer(s) responsible for payment of such services. Net
revenue is recorded based on the information known at the time of entering of such information into our billing systems as well as an estimate of the revenue associated with medical
services.
The Company through its subsidiary, ApolloMed ACO, participates in the Medicare Shared Savings Program (“MSSP”) sponsored by the Centers for Medicare & Medicaid Services
(“CMS”). The MSSP allows ACO participants to share in cost savings it generates in connection with rendering medical services to Medicare patients. Payments to ACO participants, if
any, will be calculated by CMS on cost savings generated by the ACO participant based on a trailing 24 month medical service history. The MSSP is a newly formed program with no
history of payments to ACO participants. The Company considers revenue, if any, under the MSSP, as contingent upon the realization of program savings as determined by CMS, and
are not considered earned and therefore are not recognized as revenue until cash payments from CMS are received. For the years ended January 31, 2014 and 2013, the Company
recorded no revenue related to the MSSP.
Concentrations
The Company had major payors that contributed the following percentage of net revenue during the years ended January 31:
Payor A
Payor B
Payor C
2014
2013
15.9%
15.9%
15.5%
22.0%
-
-
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Receivables from these payors amounted to the following percentage of total accounts receivable, net at January 31:
Payor A
Payor B
Payor C
Medical Liability Costs
2014
2013
9.9%
31.5%
4.5%
11.0%
36.0%
8.5%
The Company is responsible for integrated care that the associated physicians and contracted hospitals provide to its enrollees. The Company provides integrated care to health plan
enrollees through a network of contracted providers under sub-capitation and direct patient service arrangements, company-operated clinics and staff physicians. Medical costs for
professional and institutional services rendered by contracted providers are recorded as cost of services in the consolidated statements of income. Costs for operating medical clinics,
including the salaries of medical and non-medical personnel and support costs, are also recorded in cost of services.
An estimate of amounts due to contracted physicians, hospitals, and other professional providers is included in medical payables in the accompanying consolidated balance sheets.
Medical payables include claims reported as of the balance sheet date and estimates of IBNR. Such estimates are developed using actuarial methods and are based on many
variables, including the utilization of health care services, historical payment patterns, cost trends, product mix, seasonality, changes in membership, and other factors. The estimation
methods and the resulting reserves are continually reviewed and updated. Many of the medical contracts are complex in nature and may be subject to differing interpretations
regarding amounts due for the provision of various services. Such differing interpretations may not come to light until a substantial period of time has passed following the contract
implementation. Any adjustments to reserves are reflected in current operations. Medical payables consisted of the following at January 31:
Balance, beginning of the year
Incurred health care costs:
Current year
Prior years
Total incurred health care costs
Claims paid:
Current year
Prior years
Total claims paid
Balance, end of year
Fair Value of Financial Instruments
2014
2013
- $
288,601
-
288,601
(2,976)
-
(2,976)
$
285,625 $
-
-
-
-
-
-
-
-
The Company’s accounting for Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also
establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes
between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
F-10
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Level one — Quoted market prices in active markets for identical assets or liabilities;
Level two — Inputs other than level one inputs that are either directly or indirectly observable; and
Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant
would use.
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The Company
currently records warrants using level three in the hierarchy.
The carrying values of cash and cash equivalents, trade and other receivables, trade and other payables approximate their fair values due to the short maturities of these instruments.
Cash and Cash Equivalents and Concentration of Cash
The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable primarily consists of amounts due from third-party payors, including government sponsored Medicare and Medicaid programs, insurance companies, and amounts
due from hospitals and patients. Accounts receivable are recorded and stated at the amount expected to be collected.
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts,
customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. We also
regularly analyze the ultimate collectability of accounts receivable after certain stages of the collection cycle using a look-back analysis to determine the amount of receivables
subsequently collected and adjustments are recorded when necessary. Reserves are recorded primarily on a specific identification basis. The following amounts which are excluded
from our accounts receivable, represent an estimate of uncollectible accounts at January 31:
Allowance for doubtful accounts
Property and Equipment
2014
2013
$
50,474 $
78,822
Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets. Cost and related accumulated
depreciation on assets retired or disposed of are removed from the accounts and any resulting gains or losses are credited or charged to income. Computers and software are
depreciated over 3 years. Furniture and fixtures are depreciated over 8 years. Machinery and equipment are depreciated over 5 years. Property and equipment consisted of the
following at January 31:
Website
Computers
Software
Machinery and equipment
Furniture and fixtures
Leasehold improvements
Less accumulated depreciation and amortization
2014
2013
4,568
24,645
165,439
123,214
25,054
46,259
389,179
(321,037)
68,142
$
$
4,568 $
31,010
165,439
143,920
43,366
49,780
438,084
(352,399)
85,685 $
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Depreciation and amortization expense was as follows for the years ended January 31,:
Depreciation and amortization expense
$
25,388 $
20,918
Deferred Financing Costs
2014
2013
Costs incurred to issue debt are deferred and amortized as interest expense using the effective interest method over the term of the related debt. Unamortized debt issue costs are
written-off at the time of prepayment.
Deferred financing costs are related to the placement of the Company’s Credit Agreement, Senior Secured and Convertible Notes Payable (see Notes 5 and 6) and consisted of the
following at January 31:
Deferred financing costs
Accumulated amortization
Net deferred financing costs
Goodwill and Other Intangible Assets
2014
2013
$
$
586,924 $
(344,773)
242,151 $
342,631
(89,377)
253,254
Under FASB ASC 350, Intangibles – Goodwill and Other (“ASC 350”), goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment. Acquired intangible
assets with definite lives are amortized over their individual useful lives.
At least annually, management assesses whether there has been any impairment in the value of goodwill by first comparing the fair value to the net carrying value. If the carrying value
exceeds its estimated fair value, a second step is performed to compute the amount of the impairment. An impairment loss is recognized if the implied fair value of the asset being
tested is less than its carrying value. In this event, the asset is written down accordingly. The fair values of goodwill are determined using valuation techniques based on estimates,
judgments and assumptions management believes are appropriate in the circumstances. The fair value is evaluated based on market capitalization determined using average share
prices within a reasonable period of time near the selected testing date (i.e., fiscal year-end).
At least annually, indefinite-lived intangible assets are tested for impairment. Impairment for intangible assets with indefinite lives exists if the carrying value of the intangible asset
exceeds its fair value. The fair values of indefinite-lived intangible assets are determined using valuation techniques based on estimates, judgments and assumptions management
believes are appropriate in the circumstances.
F-12
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Intangible assets consist of the following for the years ended January 31:
Whittier- exclusivity
Whittier- non compete
Fletcher- non compete
Eagle Rock- non compete
Historical
Cost
Accumulated
Amortization
2014
Net
Amount
$
$
40,000
20,000
6,000
2,400
68,400
$
(4,082)
(1,633)
(137)
(121)
(5,973) $
35,918
18,367
5,863
2,279
62,427
Useful Life (Years)
Original
Remaining
Historical
Cost
4.0
5.0
3.0
3.0
3.6
4.6
2.9
2.8
$
$
-
-
-
-
-
$
$
2013
Accumulated
Amortization
Net
Amount
-
-
-
-
-
$
$
-
-
-
-
-
Intangible asset amortization expense recognized in the years ended January 31 was:
Amortization expense
2014
2013
$
5,973 $
-
Estimated intangible asset amortization expense for the five succeeding years and thereafter is as follows:
Years ending January 31
2015
2016
2017
2018
2019
Thereafter
$
$
16,800
16,800
16,542
9,918
2,367
-
62,427
The changes in the carrying amount of goodwill for the years ended January 31 are as follows:
Goodwill - beginning of year
Acquisitions
Goodwill - end of year
Medical Malpractice Liability Insurance
2014
2013
$
$
33,200 $
461,500
494,700 $
32,000
1,200
33,200
Our business has an inherent risk of claims of medical malpractice against our affiliated physicians and us. We or our independent physician contractors pay premiums for third-party
professional liability insurance that indemnifies us and our affiliated hospitalists on a claims-made basis for losses incurred related to medical malpractice litigation. Professional liability
coverage is required in order for our affiliated hospitalists to maintain hospital privileges. All of our physicians carry first dollar coverage with limits of coverage with limits of liability
equal to $1,000,000 for all claims based on occurrence up to an aggregate of $3,000,000 per year.
We believe that our insurance coverage is appropriate based upon our claims experience and the nature and risks of our business. In addition to the known incidents that have resulted
in the assertion of claims, we cannot be certain that our insurance coverage will be adequate to cover liabilities arising out of claims asserted against us, our affiliated professional
organizations or our affiliated hospitalists in the future where the outcomes of such claims are unfavorable. We believe that the ultimate resolution of all pending claims, including
liabilities in excess of our insurance coverage, will not have a material adverse effect on our financial position, results of operations or cash flows; however, there can be no assurance
that future claims will not have such a material adverse effect on our business.
F-13
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Income Taxes
Federal and state income taxes are computed at currently enacted tax rates less tax credits using the asset and liability method. Deferred taxes are adjusted both for items that do not
have tax consequences and for the cumulative effect of any changes in tax rates from those previously used to determine deferred tax assets or liabilities. Tax provisions include
amounts that are currently payable, changes in deferred tax assets and liabilities that arise because of temporary differences between the timing of when items of income and expense
are recognized for financial reporting and income tax purposes, changes in the recognition of tax positions and any changes in the valuation allowance caused by a change in
judgment about the realizability of the related deferred tax assets. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be
realized.
The Company uses a recognition threshold of more-likely-than-not and a measurement attribute on all tax positions taken or expected to be taken in a tax return in order to be
recognized in the financial statements. Once the recognition threshold is met, the tax position is then measured to determine the actual amount of benefit to recognize in the financial
statements.
Stock-Based Compensation
The Company maintains a stock-based compensation program for employees, directors and consultants, which is more fully described in Note 10. The value of stock-based awards so
measured is recognized as compensation expense on a cumulative straight-line basis over the vesting terms of the awards, adjusted for expected forfeitures. The Company sells
certain of its restricted common stock to its employees, directors and consultants with a right (but not obligation) of repurchase feature that lapses based on performance of services in
the future. The Company accounts for the unvested portion of the related stock-based purchases expense as prepaid consulting. Prepaid consulting is amortized to stock-based
compensation expense over the vesting period.
Non-controlling Interest
The non-controlling interest recorded in our consolidated financial statements represents the pre-acquisition equity of those PPCs in which we have determined that we have a
controlling financial interest and for which consolidation is required as a result of management contracts entered into with these entities. These contracts generate a monthly
management fee for providing the services described above, and as such, the only adjustments to non-controlling interest in any period subsequent to initial consolidation would relate
to either capital contributions or withdrawals by the non-controlling parties.
Activity within the non-controlling interest for the year ended January 31, 2014 consisted of the following:
Balance as of January 31, 2013
Stock-based compensation
Distributions to non-controlling interest shareholder
Balance as of January 31, 2014
Basic and Diluted Net Losses per Share
$
$
(36,503)
12,602
(240,000)
(263,901)
Basic net loss per share is calculated using the weighted average number of shares of the Company’s common stock issued and outstanding during a certain period, and is calculated
by dividing net loss by the weighted average number of shares of the Company’s common stock issued and outstanding during such period. Diluted net loss per share is calculated
using the weighted average number of common and potentially dilutive common shares outstanding during the period, using the as-if converted method for secured convertible notes,
and the treasury stock method for options and warrants.
F-14
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The following table sets forth the number of shares excluded from the computation of diluted losses per share, as their inclusion would be anti-dilutive, for the years ended January 31:
Incremental shares assumed issued on exercise of in the money options
Incremental shares assumed issued on exercise of in the money warrants
Use of Estimates
2014
2013
5,146,510
1,562,021
6,708,531
2,639,466
827,976
3,467,441
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period.
Reclassifications
Certain reclassifications have been made to the accompanying 2013 consolidated financial statements to conform them to the 2014 presentation.
Recently Adopted Accounting
In July 2012, the FASB issued Accounting Standards Update 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. In
accordance with the amendments in this Update, an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates
that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely
than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to
determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with
Subtopic 350-30. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted,
including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have
not yet been issued or, for nonpublic entities, have not yet been made available for issuance. We do not expect the adoption of this revised GAAP to have a material effect on our
financial position, results of operations or cash flows.
In October 2012 the FASB clarified the codification to correct the unintended application of guidance and includes amendments identifying when the use of fair value should be linked
to the definition of fair value in Topic 820, Fair Value Measurement. Amendments to the Codification without transition guidance are effective upon issuance for both public and
nonpublic entities. For public entities, amendments subject to transition guidance will be effective for fiscal periods beginning after December 15, 2012. We do not expect the adoption
of this revised GAAP to have a material effect on our financial position, results of operations or cash flows.
In February 2013 the FASB amended Topic 220 Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments do not change the current
requirements for reporting net income or other comprehensive income in financial statements. These amendments require an entity to provide information about the amounts
reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is
presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified
is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in
their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional details about those amounts. For public
entities, the amendments are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2012. Early adoption is permitted. We do not
expect the adoption of this revised GAAP to have a material effect on our financial position, results of operations or cash flows.
F-15
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
3. Acquisitions
Aligned Healthcare Group
On February 15, 2011, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Aligned Healthcare Group – California, Inc., Raouf Khalil, Jamie
McReynolds, M.D., BJ Reese and BJ Reese & Associates, LLC, under which the Company acquired all of the issued and outstanding shares of capital stock and associated Intellectual
property and related intangibles (the “Acquisition”) of AHI. Upon the signing of the Purchase Agreement, 1,000,000 shares of the Company’s common stock were issued (the “Initial
Shares”).
On October 11, 2012, the Company entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) with Aligned Healthcare, Inc. (“AHI”), Aligned Healthcare
Group, LLC (“Aligned LLC”), Aligned Healthcare Group – California, Inc. (“Aligned Corp.”), Jamie McReynolds, M.D., BJ Reese, BJ Reese & Associates, LLC, Marcelle Khalil and Hany
Khalil (collectively, the “Aligned Affiliates”). The Settlement Agreement terminates (a) the Company’s obligations with respect to the Aligned Affiliates under that certain Stock Purchase
Agreement, dated as of February 15, 2011 (the “Purchase Agreement”), among the Company, Aligned LLC, Aligned Corp., Raouf Khalil, Jamie McReynolds, M.D., BJ Reese and BJ
Reese & Associates, LLC, as amended by that certain First Amendment to Stock Purchase Agreement, dated as of July 8, 2011, among the Company, Aligned LLC, Aligned Corp.,
Raouf Khalil, Jamie McReynolds, M.D., BJ Reese and BJ Reese & Associates, LLC, and (b) AHI’s obligations to Aligned LLC and Aligned Corp. under that certain Services Agreement,
dated as of July 8, 2011, among AHI, Aligned LLC and Aligned Corp.
Under the Settlement Agreement, the Company has reconveyed to Jamie McReynolds, M.D., BJ Reese & Associates, LLC and Aligned Corp. all of the shares of AHI common stock
that the Company acquired from those parties under the Purchase Agreement. In addition, Jamie McReynolds, M.D., BJ Reese & Associates, LLC and Aligned Corp. have reconveyed
to the Company 500,000 shares of the Company’s common stock, constituting all of the shares that were issued to them under the Purchase Agreement. Following these
reconveyances, the Company owns 50% of the outstanding shares of AHI’s capital stock. The conveyances under the Settlement Agreement were in each case made for no additional
consideration. The Settlement Agreement provides for a mutual general release of all claims between the Company and the Aligned Affiliates.
Verdugo Medical Management, Inc.
On August 1, 2012, Apollo entered into a stock purchase agreement (the “VMM Purchase Agreement”) with Dr. Eli Hendel, the sole shareholder of Verdugo Medical Management, Inc.
("VMM"), a provider of management services pursuant to a management services agreement (the “VMM MSA”) with Eli Hendel M.D., Inc. (“Hendel”), a medical group specializing in
pulmonary and critical care patient services, under which the Company acquired all of the issued and outstanding shares of capital stock of VMM for $1,200. In addition, the Company’s
subsidiary, ApolloMed ACO, entered into a consulting agreement with Dr. Hendel as chairman of its ACO advisory board in which Dr. Hendel received the right to acquire 1,200,000
shares of the Company’s restricted common stock for $0.001 per share. In the event the consulting agreement is terminated for “any or no reason”, the Company will have the right,
but not the obligation, to repurchase at $0.001 per share 800,000 shares if the agreement is terminated within twelve months of the date of the VMM Purchase Agreement, and
repurchase 400,000 shares if the agreement is terminated within 24 months. The fair value of the shares was estimated to be $480,000 (see Note 10).
As of August 1, 2012, VMM’s assets consisted solely of the VMM MSA with Hendel. The VMM MSA provides VMM with exclusive authority over all substantial non-medical decision-
making related to the ongoing business operations of VMM. Based on the provisions of the VMM Purchase Agreement and MSA, we have determined that Hendel is a variable interest
entity (VIE), and that we are the primary beneficiary because we have control over the operations of the VIE. Consequently, the Company consolidated the accounts of Hendel
beginning August 1, 2012.
The following table summarizes the fair value of Hendel’s assets acquired and liabilities assumed at the date of acquisition of VMM and consolidation of Hendel:
Purchase Price
Fair value of net assets acquired and consolidation of Hendel:
Cash
Accounts receivable
Prepaid expenses
Accounts payable and accrued liabilities
Non-controlling interest
Goodwill
F-16
$
1,200
15,314
113,881
6,869
(22,968)
(113,096)
1,200
$
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Medical Clinic Acquisitions
During the year ended January 31, 2014, ACC entered into three medical clinic acquisitions from third parties not affiliated with one another, as follows:
Whittier
On September 1, 2013, ACC acquired certain assets, excluding working capital, of a medical clinic in the Los Angeles, California area (“Whittier”). The Company accounted for the
acquisition as a business combination using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at
their fair values as of the purchase date and be recorded on the balance sheet. The process for estimating the fair values of identifiable intangible assets involves the use of significant
estimates and assumptions, including estimating future cash flows and developing appropriate discount rates.
Under the acquisition method of accounting, the total purchase price is allocated to Whittier’s net tangible and intangible assets based on their estimated fair values as of the closing
date. The allocation of the total purchase price to the net assets acquired is included in our consolidated balance sheet. The acquisition-date fair value of the consideration transferred
and the total purchase consideration allocated to the acquisition of the net tangible and intangible assets based on their estimated fair values were as of the closing date as follows:
Cash consideration
Fair value of promissory note due to seller
Total purchase consideration
Property and equipment
Exclusivity Agreement
Noncompete Agreement
Goodwill
Total fair value of assets acquired
Provisional
Estimated
Fair Value
Subsequent
Change in
Valuation
Estimate
Revised
Fair Value
$
$
$
$
100,000 $
125,000
225,000 $
-
-
-
225,000
225,000 $
- $
20,000
20,000 $
10,000 $
40,000
20,000
(50,000)
20,000 $
100,000
145,000
245,000
10,000
40,000
20,000
175,000
245,000
The acquired intangible assets consists of an exclusivity agreement principally relating to an independent practice association and a non-compete agreement with the selling
physician. The weighted-average amortization period for such intangible assets acquired is outlined in the table below:
Exclusivity Agreement
Noncompete Agreement
Total identifiable intangible assets
Assets
Acquired
Weighted-average
Amortization
Period (years)
$
$
40,000
20,000
60,000
4
5
Included in amortization of purchased intangible assets in the accompanying consolidated statement of operations for the year ended January 31, 2014 is $5,715 related to the
amortization of these intangibles.
Property and equipment fair value was determined using historical cost adjusted for usage and management estimates.
F-17
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The fair value of the exclusivity and non-compete agreements was estimated using the income approach. The income approach uses valuation techniques to convert future amounts to
a discounted single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The fair value considered
our estimates of future incremental earnings that may be achieved by the intangible assets.
The promissory note issued will be paid in installments of $15,000 per month for ten months commencing 90 days from the closing date under a non-interest bearing promissory note
to be secured by the assets of the clinic. The Company determined the fair value of the note using an interest rate of 5.45 % per annum to discount future cash flows, which is based
on Moody’s Baa-rated corporate bonds at the valuation date.
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired
that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the acquisition includes benefits that the Company believes will result
from gaining additional expertise and intellectual property in the clinical care area and expand the reach of the Company’s Maverick Medical Group IPA. Goodwill is not amortized and
is not deductible for tax purposes.
Transaction costs are not included as a component of consideration transferred and were expensed as incurred. The related transaction costs expensed for the year ended January
31, 2014 were approximately $7,500.
We do not consider this acquisition to be a material business combination and, therefore, have not disclosed separately the pro forma results of operations as required for material
business combinations.
Fletcher
On January 6, 2014, ACC acquired certain assets, excluding working capital, of a medical clinic in the Los Angeles, California area (“Fletcher”). The Company accounted for the
acquisition as a business combination using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at
their fair values as of the purchase date and be recorded on the balance sheet. The process for estimating the fair values of identifiable intangible assets involves the use of significant
estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The acquisition-date fair value of the consideration transferred was as
follows:
Cash consideration
Fair value of promissory note due to seller
Total purchase consideration
$
$
75,000
73,400
148,400
Under the acquisition method of accounting, the total purchase price is allocated to Fletcher’s net tangible and intangible assets based on their estimated fair values as of the closing
date. The allocation of the total purchase price to the net assets acquired and included in our consolidated balance sheet is as follows:
Property and equipment
Noncompete Agreement
Goodwill
Total fair value of assets acquired
Estimated
Fair Value
$
$
10,000
6,000
132,400
148,400
The acquired intangible assets consisted of an exclusivity agreement principally relating to an independent practice association and a non-compete agreement with the selling
physician. The weighted-average amortization period for such intangible assets acquired is outlined in the table below:
F-18
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Noncompete Agreement
Total identifiable intangible assets
$
6,000
6,000
3
Assets
Acquired
Weighted-average
Amortization
Period (years)
Amortization expense related to the purchased intangible assets in the accompanying consolidated statement of operations for the year ended January 31, 2014 was not material.
Property and equipment fair value was determined using their historical cost adjusted for usage and management estimates.
The fair value of the non-compete agreement was estimated using the income approach. The income approach uses valuation techniques to convert future amounts to a single
discounted present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The fair value considered our
estimates of future incremental earnings that may be achieved by the intangible assets.
The promissory note issued will be paid in installments of $15,000 per month for five months commencing April 1, 2014 under a non-interest bearing promissory note to be secured by
the assets of the clinic. The Company determined the fair value of the note using an interest rate of 5.30% per annum to discount future cash flows, which is based on Moody’s Baa-
rated corporate bonds at the valuation date.
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired
that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the acquisition includes benefits that the Company believes will result
from gaining additional expertise and intellectual property in the clinical care area and expand the reach of the Company’s Maverick Medical Group IPA. Goodwill is not amortized and
is not deductible for tax purposes.
Transaction costs are not included as a component of consideration transferred and were expensed as incurred. The related transaction costs expensed for the year ended January
31, 2014 were approximately $5,300.
We do not consider this acquisition to be a material business combination and, therefore, have not disclosed separately the pro forma results of operations as required for material
business combinations.
Eagle Rock
On December 7, 2013 ACC, acquired certain assets, excluding working capital, of a medical clinic in the Los Angeles, California area (“Eagle Rock”). The Company accounted for the
acquisition as a business combination using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at
their fair values as of the purchase date and be recorded on the balance sheet. The process for estimating the fair values of identifiable intangible assets involves the use of significant
estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The acquisition-date fair value of the consideration transferred as of the
closing date is as follows:
Cash consideration
Fair value of promissory note due to seller
Total purchase consideration
$
$
75,000
81,500
156,500
Under the acquisition method of accounting, the total purchase price is allocated to Eagle Rock’s net tangible and intangible assets based on their estimated fair values as of the
closing date. The allocation of the total purchase price to the net assets acquired and included in our consolidated balance sheet is as follows:
F-19
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Noncompete Agreement
Goodwill
Total fair value of assets acquired
Estimated
Fair Value
2,400
$
154,100
156,500
$
The acquired intangible assets consists of an exclusivity agreement principally relating to an independent practice association and a non-compete agreement with the selling
physician. The weighted-average amortization period for such intangible assets acquired is outlined in the table below:
Assets
Acquired
Weighted-average
Amortization
Period (years)
Noncompete Agreement
Total identifiable intangible assets
$
2,400
2,400
3
Amortization expense related to the purchased intangible assets in the accompanying consolidated statement of operations for the year ended January 31, 2014 was not material.
Property and equipment fair value was determined using their historical cost adjusted for usage and management estimates.
The fair value of the non-compete agreement was estimated using the income approach. The income approach uses valuation techniques to convert future amounts to a single
discounted present value amount. Our measurement is based on the value indicated by current market expectations about those future amounts. The fair value considered our
estimates of future incremental earnings that may be achieved by the intangible assets.
The promissory note issued will be paid in installments of $10,000 per month for eight months commencing March 1, 2014 under a non-interest bearing promissory note to be secured
by the assets of the clinic. The Company determined the fair value of the note using an interest rate of 5.46 % per annum to discount future cash flows, which is based on based on
index of Moody's Baa-rated corporate bonds as of the valuation date.
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired
that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the acquisition includes benefits that the Company believes will result
from gaining additional expertise and intellectual property in the clinical care area and expand the reach of the Company’s Maverick Medical Group IPA. Goodwill is not amortized and
is not deductible for tax purposes.
Transaction costs are not included as a component of consideration transferred and were expensed as incurred. The related transaction costs expensed for the year ended January
31, 2014 were approximately $5,900.
We do not consider this acquisition to be a material business combination and, therefore, have not disclosed separately the pro forma results of operations as required for material
business combinations.
The results of operations in the aggregate for the Medical Clinic Acquisitions discussed above are included in the consolidated statements of operations from their acquisition dates.
The pro forma results of continuing operations are prepared for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisition
occurred at the beginning of the years presented or the results which may occur in the future. The following unaudited pro forma results of operations for year ended January 31, 2014
assume the Medical Clinic Acquisitions in the aggregate had occurred on February 1, 2013, and for the year ended January 31, 2013 assume the Medical Clinic Acquisitions in the
aggregate had occurred on February 1, 2012:
2014
(Unaudited)
2013
(Unaudited)
$
$
$
11,570,305
$
(4,526,075) $
(0.12) $
9,162,131
(8,801,564)
(0.27)
Net revenue
Net loss
Basic and diluted net loss per share
4. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following at January 31:
Accounts payable
Accrued compensation
Medical payables
Income taxes payable
Accrued interest
Accrued professional fees
2014
2013
$
$
467,636 $
452,562
285,625
287
47,722
119,453
1,373,285 $
394,915
500,023
-
1,087
9,310
45,316
950,651
F-20
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
5. Notes and Lines of Credit Payable
Notes and lines of credit payable consist of the following at January 31:
Senior Secured Note
Medical Clinic Acquisition Promissory Notes
Secured Revolving Credit Facility
Unsecured Revolving Line of Credit
Total Notes and Lines of Credit Payable
Senior Secured Note
2014
2013
$
$
-
272,050
2,811,878
94,765
3,178,693
$
$
500,000
-
-
94,765
594,765
The Company entered into a Senior Secured Note (“Note”) agreement on February 1, 2012 with SpaGus Capital Partners, LLC (“SpaGus”) an entity in which Gary Augusta, a director
and shareholder of the Company, holds an ownership interest. The terms of the Note provided for interest at 8.929% per annum, payments of principal of $135,000 on each of
September 15, 2012 and October 15, 2012, and is secured by substantially all assets of the Company. The Company prepaid interest on the Note principal of $15,000 in accordance
with the Note, and paid financing costs of $5,000 in cash and the issuance of 216,000 shares of the Company’s common stock, which was valued at $25,661 at the date of issuance.
On September 15, 2012, SpaGus agreed to allow the Company to defer payment of the scheduled principal payments due on September 15 and October 15, 2012, and amended the
Note effective October 15, 2012 in which SpaGus agreed to provide additional principal to the Company in the amount of $230,000. The terms of the amended Note in the amount of
$500,000 provided for borrowings to bear interest at 8.0 % per annum with accrued interest payable in arrears on each of December 28, 2012, March 31, 2013, June 30, 2013, and
October 15, 2013. The amended Note was to have matured October 15, 2013, and could be prepaid at any time prior to September 29, 2013. The Company paid SpaGus financing
costs of 100,000 restricted shares of the Company’s common stock on the amendment date, which had a fair value of $50,000. On April 15, 2013, the Company issued an additional
100,000 restricted shares of the Company’s common stock to SpaGus required under the terms of the amended Note, which had a fair value of $45,000 at the obligation date. The
Company accounted for this additional payment as a modification, which was amortized to interest expense over the remaining term of the amended Note using the effective interest
method. The amended Note matured and was repaid, including accrued unpaid interest, on October 16, 2013.
Medical Clinic Acquisition Promissory Notes
In connection with the September 1, 2013 acquisition of Whittier medical clinic (Note 3), ACC issued a non-interest bearing promissory note to the seller, which is due in installments of
$15,000 per month for ten months commencing 90 days from the closing date under a non-interest bearing promissory note to be secured by the assets of the clinic. The Company
determined the fair value of the note using an interest rate of 5.45% per annum to discount future cash flows, which is based on Moody’s Baa-rated corporate bonds at the valuation
date. The note is secured by substantially all assets of the clinic.
In connection with the January 6, 2014 acquisition of Fletcher medical clinic (Note 3), ACC issued a non-interest bearing promissory note to the seller, which is due in installments of
$15,000 per month for five months commencing April 1, 2014 under a non-interest bearing promissory note secured by the assets of the clinic. The Company determined the fair value
of the note using an interest rate of 5.30% per annum to discount future cash flows, which is based on Moody’s Baa-rated corporate bonds at the valuation date. The note is secured
by substantially all assets of the clinic.
F-21
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In connection with the December 7, 2013 acquisition of Eagle Rock medical clinic (Note 3), ACC issued a non-interest bearing promissory note to the seller, which is due in
installments of $10,000 per month for eight months commencing March 1, 2014 under a non-interest bearing promissory note secured by the assets of the clinic. The Company
determined the fair value of the note using an interest rate of 5.46 % per annum to discount future cash flows, which is based on based on index of Moody's Baa-rated corporate
bonds at of the valuation date. The note is secured by substantially all assets of the clinic.
The Medical Clinic Acquisition Promissory Notes were repaid in connection with the equity and debt financing with NNA of Nevada, Inc. (see Note 10.)
Lines of credit payable
Secured revolving credit facility
On October 15, 2013, the Company entered into a $ 2.0 million secured revolving credit facility (the “Credit Agreement”) with NNA of Nevada, Inc., and (“the Lender” or “NNA”). The
Company and its subsidiaries are guarantors of the Company’s obligations under the Credit Agreement. Loans drawn under the Credit Agreement are secured by all of the assets of
the Company and its subsidiaries, including a security interest in the deposit accounts of the Company and its subsidiaries and a pledge of the shares in the Company’s subsidiaries.
Amounts outstanding under the Credit Agreement accrue interest at a rate equal to the sum of (i) three month LIBOR and (ii) six percent (6.24% at January 31, 2014). Interest is
payable on the last business day of each successive month, in arrears, commencing October 31, 2013, and at each month-end thereafter. The Credit Agreement requires the
Company to pay the Lender a facility fee, on the last business day of each month, at a per annum rate of 1.0 % of the average daily unused portion of the revolving credit commitment
under the Credit Agreement. The Credit Agreement matures June 30, 2014. The Company incurred direct costs related to the Credit Agreement aggregating $ 119,500, which were
accounted for as deferred financing costs and are amortized using the straight line method to interest expense over the term thereof.
On December 20, 2013, the Company entered into the First Amendment to the Credit Agreement (the “Amended Credit Agreement”), which increased the revolving credit facility from
$ 2.0 million to $ 4.0 million. The proceeds of the Amended Credit Agreement were used by the Company to repay the $ 500,000 senior secured note (the “Senior Secured Note”) to
SpaGus Apollo,LLC, and will be used to pay or repay certain of the Company’s 10 % Notes, to refinance certain other indebtedness of the Company, and for working capital and for
general corporate purposes.
The Amended Credit Agreement contains the following financial covenants:
·
Consolidated EBIT: The Company will not permit Consolidated EBIT as of the last day of each fiscal quarter shown below, for the fiscal quarter then ended, to be a greater
negative amount than the amount set forth below:
3rd fiscal quarter ended October 2013
4 th fiscal quarter ended January 2014
1 st fiscal quarter ended April 2014
Period
Minimum Consolidated
EBIT(loss)
$
$
$
(900,000)
(1,227,111)
(1,696,958)
Consolidated EBIT is defined, for any period, as the aggregate of (i) Consolidated Net Income (Loss) of the Company plus (ii) the sum of interest expense and income tax expense,
and minus (iii) interest income, all to the extent taken into account in the calculation of Consolidated Net Income. Consolidated Net Income is defined, for any period, as the net
income (or loss) of the Company and its Subsidiaries, as determined on a consolidated basis in accordance with U.S. GAAP, but excluding extraordinary gains and losses and any
other non-operating gains and losses.
· Working Capital Ratio: Permit the Working Capital Ratio to be less than 0.80:1.00 at any
time.
Working Capital Ratio is defined, as of the measurement date, as the ratio of (i) the sum of (A) the current assets of the Company and its subsidiaries as determined on a consolidated
basis in accordance with U.S. GAAP, and (B) the unused portion of the revolving credit commitment to (ii) the current liabilities of the Company and its subsidiaries including without
the aggregate amount of the Credit Agreement borrowings.
F-22
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In addition, the Credit Agreement includes certain negative covenants that, subject to exceptions, limit our ability to, among other things incur additional indebtedness, engage in future
mergers, consolidations, liquidations and dissolutions, sell assets, pay dividends and distributions on or repurchase capital stock, and enter into or amend other material agreements.
The Credit Agreement also includes certain customary representations and warranties, affirmative covenants and events of default, which are set forth in more detail in the Credit
Agreement.
The Company is in compliance with its financial covenants as of January 31, 2014 under the Amended Credit Agreement.
Unsecured revolving line of credit
Hendel has a $100,000 revolving line of credit with a financial institution of which $94,765 was outstanding at January 31, 2014. Borrowings under the line of credit bear interest at the
prime rate (as defined) plus 4.50% ( 7.75% per annum at January 31, 2014 ), interest only is payable monthly, and matures June 5, 2014 . The line of credit is unsecured.
Interest expense associated with the notes and lines of credit payable consisted of the following for the year ending January 31:
Interest expense
Amortization of loan fees and discount
6. Convertible Notes Payable
The Company’s long-term debt consisted of the following at January 31:
2014
2013
68,634 $
161,091
229,725 $
27,959
83,331
111,290
$
$
January 31,
2014
January 31,
2013
10% Senior Subordinated Convertible Notes redeemed in fiscal year 2014
9% Senior Subordinated Convertible Notes due February 15, 2016, net of debt discount of $149,478 (January 31, 2014) and
$186,897 (January 31, 2013)
8% Senior Subordinated Convertible Notes due February 1, 2015
Total Convertible Notes
Less: Current Portion
Long Term Portion
$
-
$
1,066,611
950,522
150,000
1,100,522
-
1,100,522
$
693,103
150,000
1,909,714
-
1,909,714
$
10% Senior Subordinated Callable Convertible Notes due January 31, 2016
On October 16, 2009, the Company issued $1,250,000 of its 10% Senior Subordinated Callable Convertible Notes (the “10% Notes”). The net proceeds of $1,100,000 were used for
the repayment of existing debt, acquisitions, physician recruitment and other general corporate purposes. The notes bear interest at a rate of 10% per annum, payable semi- annually
on January 31 and July 31. The Notes mature and become due and payable on January 31, 2013 and ranked senior to all other unsecured debt of the Company.
The 10% Notes were sold through a placement agent in the form of a Unit. Each Unit comprised one 10% Senior Subordinated Callable Convertible Note with a par value $25,000,
and one five-year warrant to purchase 25,000 shares of the Company’s common stock. The purchase price of each Unit was $25,000, resulting in gross proceeds of $1,250,000.
F-23
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In connection with the placement of the subordinated notes, the Company paid a commission of $125,000 and $25,000 of other direct expenses to the placement agent. The
placement agent also received five-year warrants to purchase up to 250,000 shares of the common stock at an initial exercise price of $0.25 per share adjustable pursuant to changes
in public value of our shares and cash flow of the Company from July 31, 2011 until the 10% Note was paid in full. The agent also received 100,000 shares of restricted common stock
for pre-transaction advisory and due diligence services. A commission of $125,000 paid at closing is accounted for as prepai expense and will be amortized over a forty-month period
through January 31, 2013, the maturity date of the 10% Notes. The $25,000 of other direct expenses were paid at closing and accounted for as financing costs in the accompanying
consolidated financial statements. In addition, financing costs included $4,000 related to the value of the 100,000 restricted shares granted to the placement agent.
The 10% Notes were convertible any time prior to January 31, 2013. The initial conversion rate was 200,000 shares of the Company’s common stock per $25,000 principal amount of
the 10% Notes adjustable pursuant to changes in public value of our shares and cash flow of the Company. This represented an initial conversion price of $0.125 per share of the
Company’s common stock. The 10% -Notes were fixed from August 1, 2009 through July 31, 2011. After July 31, 2011, the conversion price was equal to the lesser of $0.125 per
share or the average of the monthly high stock price and low stock price as reported by Bloomberg multiplied by 110%. The minimum conversion price was the greater of $0.05 per
share or 8 times cash earnings per share. On or after January 31, 2012, the Company was able to, upon 60 days’ notice to both the 10% Note holder’s and the placement agent,
redeem all or a portion of the notes at a redemption price in cash equal to 102% of the principal amount of the notes to be redeemed plus accrued and unpaid interest to, but excluding,
the redemption date.
The Company recorded a derivative liability and an off-setting debt discount in the amount of $653,026 as of January 31, 2012, as the result of the change in the conversion price in
connection with the conversion price reset to $0.11485. The Company’s calculation of the derivative liability was made using the Black-Scholes option-pricing model with the following
assumptions: expected life of 1 year; 80.0% stock price volatility; risk-free interest rate of 0.30% and no dividends during the expected term.
The Warrants attached to the Units are exercisable into shares of common stock at an initial exercise price of $0.125. The Warrants have a five-year term and expire on October 31,
2014. The Company’s calculations were made using the Black-Scholes option-pricing model with the following assumptions: expected life of 5 years; 80.0% stock price volatility; risk-
free interest rate of 2.16% and no dividends during the expected term. These warrants were estimated to have a fair value of $2,653 using the Black-Scholes pricing model which was
recorded as unamortized warrant discount on the grant date and $2,418 as of January 31, 2010.
In connection with this offering, the Company also issued warrants to purchase 250,000 shares of our common stock to the placement agent at an exercise price of $0.25 per share,
and are exercisable immediately upon issuance and expire five years after the date of issuance. The Company’s calculations were made using the Black-Scholes option-pricing model
with the following assumptions: expected life of 5 years; 48.0% stock price volatility; risk-free interest rate of 2.16% and no dividends during the expected term. These warrants were
estimated to have a fair value of $2,200, which was recorded as unamortized warrant discount on the grant date. The exercise price of the warrants is adjustable according to the same
terms as the 10% Notes.
At January 31, 2012, the warrant exercise price reset to $0.11485. In connection with this, the Company recorded a warrant liability of $120,000 and recognized additional financing
costs of $120,000 for the year ended January 31, 2012. The fair value of the warrant liability was determined using the Black-Scholes model option pricing model with the following
assumptions: expected life of 2.75 years; 30% stock price volatility; risk-free interest rate of 0.30% and no dividends during the expected term.
F-24
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
On October 29, 2012, the Company amended the terms of the 10% Notes to extend the maturity to January 31, 2016, and to fix the conversion price of the 10% Notes at $0.11485 per
share. The Company accounted for this amendment as a modification. As a result of fixing the conversion price, the Company determined that the conversion feature was indexed to
the Company’s common stock, and should be equity classified. The fair value of the derivative liability immediately prior to the amendment was $5,605,703 determined using the Black-
Scholes option pricing model with the following inputs: expected life 0.25 years; 80% stock price volatility; risk-free rate of 0.18% and no dividends. The fair value of the conversion
right giving effect to the amendment was $5,818,149 using the Black-Scholes option pricing model with the following inputs: expected life 3.25 years; 80% stock price volatility; risk
free rate of 0.37% and no dividends, and was reclassified from derivative liability to additional paid-in capital in the accompanying condensed consolidated balance sheet. The
difference in the pre-amendment and post-amendment derivative fair values of $212,446 was recorded as a loss on modification and included in the accompanying condensed
consolidated statement of operations. The Company paid placement fees to an agent in the form of warrants to purchase 100,000 shares of the Company’s common stock with an
exercise price of $0.50 per share and contractual life of 60 months; and 20,000 restricted shares of the Company’s common stock. The fair value of the warrants was $56,225 using the
Black-Scholes option pricing model with the following model assumptions: expected life 60 months; 80% stock price volatility; risk-free interest rate of 0.37%, and no dividends during
the expected term. The fair value of the restricted shares was $12,600. The total fair value of the warrants and restricted shares was $68,825 and was recorded as deferred financing
costs and an increase to additional paid in capital. The deferred financing costs will be amortized to interest expense using the effective interest method through January 31, 2016.
The Company also amended the Warrants on October 29, 2012 to extend the expiration date to July 31, 2016 and to fix the Warrant’s exercise price at $0.11485 per share. At January
31, 2012, the Warrants were reclassified as warrant liabilities in accordance with ASC 815-40 as the Warrants did not meet the criteria to be indexed to the Company’s common stock
and classified as equity. At the Warrant amendment date, the Company reassessed the classification of the Warrants as a result of fixing the conversion price, and determined that the
amended Warrants met the criteria to be indexed to the Company’s common stock, and should be equity-classified. The Company determined that the fair of the Warrants immediately
prior to the Warrant amendment was $785,135 using the Black-Scholes option pricing model inputs of: expected life 2.0 years; 80% stock price volatility; risk-free interest rate of
0.28%, and no dividends during the expected term. The fair value of the Warrants giving effect to the amendment was $808,732 was reclassified from warrant liability to additional
paid-in capital in the accompanying consolidated balance sheet, and was determined using the Black-Scholes option pricing model inputs of: expected life 3.8 years; 80% stock price
volatility; risk-free interest rate of 0.37%, and no dividends during the expected term. The difference between the pre-amendment and post-amendment Warrant fair values of $24,437
was recorded as a loss on modification and included in the accompanying consolidated statement of operations.
In addition, each $2.50 of 10% Note principal received one warrant to purchase one share of the Company’s common stock, or a total of 500,000 shares, for $0.45 per share (the
“Amendment Warrants”). The fair value of the Amendment Warrants was $200,452 determined using the Black-Scholes option pricing model with the following inputs: expected life 3.8
years; 80% stock price volatility; risk-free interest rate of 0.37%, and no dividends during the expected term. The Company recorded this amount as additional debt discount and an
increase to additional paid-in capital in the accompanying consolidated balance sheet, and will amortize the debt discount to interest expense using the effective interest method over
the term of the amended 10% Notes.
On December 20, 2013, the Company entered into a Settlement Agreement and Release (collectively, the “Settlement Agreements”) with each of the holders of 10% Notes to the First
Amendment (each, a “Holder” and, collectively, the “Holders”), some or all of whom also hold other securities of the Company. Under the Settlement Agreements, the Company
agreed to redeem the 10% Notes of the Holders for cash and/or convert into shares of the Company’s Common Stock. Under the Settlement Agreements, in the aggregate, the
Company redeemed and converted $1,250,000 in original principal amount of the 10% Notes, plus accrued interest thereon, for total cash payments of approximately $729,000
(including related accrued interest), and total issuances of 8,812,362 shares of the Company’s common stock (the “Conversion Shares”).The $729,000 included cash payments by the
Company to certain Holders that elected to redeem their as-if converted shares of common stock for $0.30 per share. In accordance with ASC 470-20, the Company determined that as
all securities subject to conversion privileges had not been issued, the transaction did not qualify for inducement accounting, and that the as-if conversion portion of the cash payments
would be accounted for as extinguishments. The Company allocated the cash consideration paid between the estimated fair value of the applicable debt extinguished and the equity
component. Immediately prior to the transaction date, the Company estimated the fair value of the net carrying value of the debt based on the expected term which approximated the
contractual life and used a discount rate based on an estimated yield of 18.6% based on Company debt issued earlier in the year (without a call option feature), which approximated
$950,000 compared to net carrying value of approximately $1,100,000 at the transaction date. The as-if converted cash option holder principal represented 22% of the total principal
(88% was related to holders that elected to convert into shares); the total cash consideration paid of $729,000 was allocated $218,000 to the extinguished debt, which resulted in a
gain on extinguishment of approximately $25,000 included in Other Income in the accompany consolidated statement of operations for the year ended January 31, 2014. The
remaining cash consideration of $511,000 was allocated to the reacquisition of the embedded conversion feature and classified in additional paid-in capital.
F-25
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
8% Senior Subordinated Convertible Promissory Notes due February 1, 2015
On September 1, 2011, the Company issued $150,000 of its 8% Senior Subordinated Convertible Promissory Notes (8% Notes). The net proceeds were used for working capital to
support organic growth including the expansion to new hospitals and hiring of new physicians, acquisitions of physician practices and or care management businesses and for general
corporate purposes. The notes bear interest at a rate of 8% per annum, payable semi -annually on December 31 and June 30. The Notes mature and become due and payable on
February 1, 2015 and rank senior to all other subordinated debt of the Company.
The 8% Notes are convertible any time prior to February 1, 2015. The initial conversion rate is 100,000 shares of the Company’s common stock per $25,000 principal amount of the
8% Notes, which represents an initial conversion price of $0.25 per share of the Company’s common stock. The conversion price of the 8% Notes will be adjusted on a weighted
average basis if the Company issues certain additional shares of common stock (or warrants or rights to purchase share of common stock or securities convertible into common stock)
for a consideration per share which is less than the then applicable conversion price.
The Company may require the holders of the 8% Notes to convert to common stock at the then applicable conversion rate at any time after June 30, 2013 if: i) our 10% Notes have
been fully repaid or converted and ii) the closing price of our common stock has exceeded 150% of the then applicable Conversion Price for no less than 30 consecutive trading days
prior to giving notice.
At any time on or after June 30, 2014, the Company may, at its sole option, redeem all of the Notes at a redemption price in cash equal to 108% of the principal amount of the Notes to
be redeemed plus any accrued and unpaid interest to, but excluding the redemption rate. The Company can prepay the Notes at any time.
9% Senior Subordinated Callable Convertible Promissory Notes due February 15, 2016
On January 31, 2013, the Company raised $880,000 through a private placement offering of par value 9% Senior Subordinated Callable Convertible Promissory Notes maturing
February 15, 2016 (the “9% Notes”). The 9% Notes bear interest at a rate of 9% per annum, payable semi-annually on August 15 and February 15 and are subordinated. The principal
of the 9% Notes plus any accrued yet unpaid interest is convertible at any time by the holder at a conversion price of $0.40 per share of common stock, subject to adjustment for stock
splits, stock dividends and reverse stock splits. After 60 days prior notice, the 9% Note is callable in full or in part by the Company at any time after January 31, 2015. If the Average
Daily Value of Trades (“ADVT”) during the prior 90 days as reported by Bloomberg is greater than $100,000, the 9% Note is callable at a price of 105% of its par value, and if the ADVT
is less than $100,000, it is callable at a price of 110% of tits par value.
The holders of the 9% Notes received warrants to purchase 660,000 shares of the Company’s common stock at an exercise price of $0.45 per share, subject to adjustment for stock
splits, reverse stock splits and stock dividends, and which are exercisable at any date prior to January 31, 2018. The fair value of the 9% Notes warrants was based on the Company’s
closing stock price at the transaction date and inputs to the Black-Scholes option pricing model as follows:
Fair value of 9% Notes warrants
Exercise price
Expected life (years)
Volatility
Risk-free interest rate
Dividends
$
$
186,897
0.45
5.00
36.70%
0.70%
0.00%
The Company incurred financing costs with a placement agent equal to 9% of the of the subscription price of the 9% Notes sold, out- of- pocket expenses, legal fees, and warrants to
purchase 176,000 shares of the Company’s common stock at a conversion price of $0.40 per share, subject to adjustment for stock splits, stock dividends and reverse stock splits as
follows:
F-26
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Fees and expenses
Fair value of placement agent warrants
$
$
101,179
54,468
The fair value of the placement agent warrants was based on the Company’s closing stock price at the transaction date and inputs to the Black-Scholes option pricing model as
follows:
Exercise price
Expected life (years)
Volatility
Risk-free interest rate
Dividends
$
0.40
5.00
36.70%
0.70%
0.00%
These amounts were recorded as deferred financing costs which will be amortized to interest expense using the effective interest method over the term of the 9% Notes.
During the year ended January 31, 2014, the Company issued additional units of the 9 % Notes for aggregate proceeds of $220,000, respectively, and warrants to purchase the
Company’s common stock aggregating 165,000 shares. In addition, the Company issued 44,000 warrants to the placement agent associated with these additional proceeds.
The fair value of the warrants issued during the year ended January 31, 2014 was $50,937 based on the Company’s closing stock price at the transaction dates and weighted-average
inputs to the Black-Scholes option pricing model as follows:
Exercise Price
Expected Term (in years)
Volatility
Dividend rate
Interest rate
$
0.42
5.00
48.0%
0.0%
0.7%
This amount was recorded as deferred financing costs which will be amortized to interest expense using the effective interest method over the term of the 9% Notes.
Interest expense associated with the convertible notes payable consisted of the following for the year ended January 31:
Interest expense
Amortization of loan fees
Amortization of debt discount
Convertible notes maturing after one year consists of the following:
Year ending January 31,
2016
2017
$
$
2014
2013
218,403 $
96,454
134,601
449,458 $
137,000
5,831
676,055
818,886
$
$
150,000
950,522
F-27
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
7. Income Taxes
The Company uses the liability method of accounting for income taxes as set forth in ASC 740 (formerly Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes” (“SFAS 109”)). Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using
enacted tax rates. As of January 31, 2014, the Company had federal and California tax net operating loss carryforwards of approximately $10.5 million and $10.5 million, respectively.
The federal and California net operating loss carryforwards will expire at various dates from 2029 through 2033. Pursuant to Internal Revenue Code Sections 382 and 383, use of the
Company’s net operating loss and credit carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within any three-year period since the last
ownership change. The Company may have had a change in control under these Sections. However, the Company does not anticipate performing a complete analysis of the limitation
on the annual use of the net operating loss and tax credit carryforwards until the time that it projects it will be able to utilize these tax attributes.
Significant components of the Company’s deferred tax assets as of January 31, 2014 and January 31, 2013 are shown below. A valuation allowance of $4,163,638 and $4,164,591 as
of January 31, 2014 and 2013, respectively, has been established against the Company’s deferred tax assets as realization of such assets is uncertain. The Company’s effective tax
rate is different from the federal statutory rate of 34% due primarily to operating losses that receive no tax benefit as a result of a valuation allowance recorded for such losses.
Deferred tax assets (liabilities) consist of the following at January 31:
NOL carry forward
Stock options – exercisable
Contribution carryforward
Warrant liability
State income taxes
Accrual to cash
State income taxes, deferred
Net deferred tax asset
Valuation allowance
2014
2013
$
$
$
3,575,748
1,164,135
6,018
272
(179,000)
(403,535)
4,163,638
(4,163,638)
-
$
3,967,114
741,971
8,740
-
544
(243,300)
(310,478)
4,164,591
(4,164,591)
-
The provision for income taxes differs from the amount computed by applying the federal income tax rate as follows for the year ended January 31:
Tax computed at the statutory rate (34%)
Stock options
Accrual to cash
Warrant liability
Impairment Loss
Non-cash stock compensation
Change in valuation
2014
2013
0.34%
(0.18)%
-%
-%
-%
-%
(0.16)%
-%
0.34%
(0.06)%
-%
-%
-%
-%
(0.28)%
-%
As of January 31, 2014, the Company does not have any unrecognized tax benefits related to various federal and state income tax matters. The Company will recognize accrued
interest and penalties related to unrecognized tax benefits in income tax expense.
The Company is subject to U.S. federal income tax as well as income tax of multiple state tax jurisdictions. The Company and its subsidiaries’ state income tax returns are open to
audit under the statute of limitations for the years ended January 31, 2011 through 2014. The Company does not anticipate material unrecognized tax benefits within the next 12
months.
F-28
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
8. Stockholders’ Deficit
Common Stock Placement
In March 2013, the Company initiated a private placement of up to 7,500,000 shares of its common stock at a price per share of $ 0.40 (the “Equity Offering”), and during the year
ended January 31, 2014 the Company issued 1,825,000 shares of common stock for proceeds of $730,000.
Equity Incentive Plans
On March 4, 2010, the Company’s Board of Directors approved the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan provides for the granting of the following types of
awards to persons who are employees, officers, consultants, advisors, or directors of the Company or any of its affiliates:
Under the 2010 Plan, the Company may issue a variety of equity vehicles to provide flexibility in implementing equity awards, including incentive stock options, nonqualified stock
options, restricted stock grants and stock appreciation rights.
Subject to the adjustment provisions of the 2010 Plan that are applicable in the event of a stock dividend, stock split, reverse stock split or similar transaction, up to 5,000,000 shares of
common stock may be issued under the 2010 Plan. Options granted under the 2010 Plan generally vest over a three-year period and generally expire ten years from the date of grant.
Stock options and warrants issued under the 2010 Plan to non-employees as compensation for services to be provided to the Company are accounted for based upon the fair value of
the services provided or the estimated fair value of the option or warrant, whichever can be more clearly determined. The Company recognizes this expense over the period in which
the services are provided.
On August 31, 2012, the Company’s Board of Directors amended the 2010 Plan, which allowed the Board to grant an additional 7,000,000 to 12,000,000 shares of the Company’s
common stock. The 2010 Plan awards include incentive stock option, non-qualified options, restricted common stock, and stock appreciation rights. As of January 31, 2013,
approximately 267,000 shares are available for future grants under the 2010 Plan. The Company issues new shares to satisfy stock option and warrant exercises. As of January 31,
2014, there are no shares available for future grants under the 2010 Plan, and no further shares will be issued under the 2010 Plan.
On April 29, 2013, the Company’s Board of Directors approved the Company’s 2013 Equity Incentive Plan (the “2013 Plan”), pursuant to which 5,000,000 shares of the Company’s
common stock will be reserved for issuance there under. The Company received approval of the 2013 Plan from the Company’s stockholders on May 19, 2013. The Company issues
new shares to satisfy stock option and warrant exercises under the 2013 Plan. As of January 31, 2014 there are 1,968,000 shares available for future grants under the 2013 Plan.
Stock options and restricted common stock issued under the 2013 Plan to non-employees as compensation for services to be provided to the Company are accounted for based upon
the fair value of the services provided or the estimated fair value of the option or share, whichever can be more clearly determined. The Company recognizes this expense over the
period in which the services are provided.
Share Issuances
The Company’s Board of Directors authorized the issuance of 600,000 shares of common stock for compensation related to consulting and directors’ fees during the twelve months
ended January 31, 2012. The shares were valued at $90,000 based on the fair values of the shares at the issuance dates. These shares were not issued as January 31, 2012 and
were recorded as a liability at January 31, 2012. Included in the issuance of 600,000 shares were 400,000 restricted shares of common stock acquired by Mr. Suresh Nihalani for
$0.001 per share in connection with Mr. Nihalani’s re-election to the Company’s Board of Directors. The fair value of the grant to Mr. Nihalani was $60,000 and was recorded as
compensation expense during the year ended January 31, 2012.
F-29
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
During the first quarter ended April 30, 2012, the Company’s Board of Directors authorized: (i) the purchase of 400,000 restricted shares of the Company’s common stock by Mr. Gary
Augusta at $0.001 per share in connection with Mr. Augusta’s election to the Company’s Board of Directors. The fair value of the shares at grant date was $47,520 and is accounted
for as prepaid consulting and amortized to expense over the related service period, with the unamortized portion presented as a contra equity account on the balance sheet ; (ii) the
issuance of 216,000 common shares to SpaGus Capital, LLC with a fair value of $25,661 related to the cost of placing the Senior Secured Note (see Note 5); and (iii) the issuance of
300,000 common shares with a fair value of $41,560 related to consulting services provided by Mr. Augusta during the three months ended April 30, 2012. The Company has the right,
but not the obligation, to redeem the unearned service portion of the 400,000 restricted shares purchased by Mr. Nihalani and 400,000 restricted shares purchased by Mr. Augusta at
par value.
The Company’s Board of Directors authorized the issuance of 200,000 shares to Mr. Augusta with a fair value of $26,000 during the three months ended July 31, 2012 related to
consulting services provided by Mr. Augusta.
On September 15, 2012, the Company’s Board of Directors authorized the issuance of 3,350,000 shares of the Company’s common stock to certain employees and consultants as
follows: (i)1,200,000 common shares purchased by Dr. Eli Hendel for $0.001 per share, pursuant to a consulting agreement dated August 1, 2012 in which if Dr. Hendel is terminated
for “any or no reason”, the Company will have the right, but not the obligation, to repurchase at $0.001 per share 800,000 shares if the agreement is terminated within twelve months of
the date of the VMM Purchase Agreement (see Note 3), and repurchase 400,000 shares if the agreement is terminated within 24 months. The fair value of the shares was estimated to
be $480,000, and the share purchase was accounted for as prepaid consulting and amortized over the life of the agreement; (ii) 1,000,000 common shares purchased by Dr. Warren
Hosseinion, the Company’s Chief Executive Officer, for $0.001 per share with a fair value of $420,000 and expensed at grant date; (iii) 700,000 common shares purchased by Mr. Kyle
Francis, the Company’s Chief Financial Officer, for $0.001 per share with a fair value of $269,500 and expensed at grant date;, and (iv) 316,667 common shares purchased by certain
employees and consultants for $0.001 per share with a fair value of $133,317 and expensed at grant date.
On October 15, 2012, the Company’s Board of Directors authorized the issuance of 100,000 shares of the Company’s common stock to SpaGus Capital Partners, LLC in connection
with the amendment of the Company’s Senior Secured Promissory Note with a fair value of $50,000 (see Note 5).
On October 18, 2012, the Company’s Board of Directors authorized the issuance of 400,000 restricted shares of the Company’s common stock with a fair value of $168,000 to Mr.
Mark Meyers, pursuant to Mr. Meyers’ appointment to the Company’s Board of Directors. On October 22, 2012, the Company’s Board of Directors authorized the issuance of 500,000
restricted shares of the Company’s common stock with a fair value of $210,000 to Mr. Creem pursuant to Mr. Creem’s appointment to the Company’s Board of Directors. Mr. Meyers
and Mr. Creem’s restricted share grants each vest on a monthly basis over 36 months and are accounted for as prepaid consulting and are amortized over the life of their respective
agreements.
On October 29, 2012, the Board of Directors authorized the issuance of 20,000 shares of the Company’s common stock with a fair value of $12,600 to the 10% Notes placement agent
(see Note 6).
On April 30, 2013, the Company’s Board of Directors authorized the issuance of 300,000 shares of common stock to Kaneohe Advisors, LLC for consulting services, 300,000 shares of
common stock to Gary Augusta for consulting services, and 100,000 shares of common stock for other professional services during the quarter ended April 30, 2013. The 700,000
shares authorized had an aggregate cost of $ 315,000 and were recorded as stock-based compensation expense based on the fair values of the shares at the commitment dates. The
Company issued these shares during the quarter ended October 31, 2013.
During the quarter ended July 31, 2013, the Company accrued 180,000 shares of common stock for professional services with an aggregate cost of $ 97,200 based on the fair value of
the shares at their respective commitment dates. The Company issued these shares during the quarter ended October 31, 2013.
During the quarter ended October 31, 2013, the Company accrued 162,500 shares of common stock for professional services with an aggregate cost of $ 87,750 based on the fair
value of the shares at their respective commitment dates. These shares were issued during the quarter ended January 31, 2014.
A summary of the Company’s restricted stock sold to employees, directors and consultants with a right of repurchase of unlapsed or unvested shares is as follows for the year ended
January 31:
Unvested or unlapsed shares - February 1, 2012
Granted
Vested / lapsed
Forfeited
Unvested or unlapsed shares - January 31, 2013
Granted
Vested / lapsed
Forfeited
Unvested or unlapsed shares - January 31, 2014
Weighted-average
Grant Date
Fair Value
Shares
- $
5,750,000 $
(3,914,815) $
- $
1,835,185 $
- $
(822,222) $
- $
1,012,963 $
-
0.30
0.30
-
0.30
-
0.21
-
0.41
As of January 31, 2014, there was $282,176 of total unrecognized compensation cost related to unlapsed or unvested stock-based compensation arrangements under the 2010 and
2013 Equity Incentive Plans, which is recorded as prepaid consulting expense in the accompanying consolidated balance sheets. That cost is expected to be recognized over a
remaining weighted-average period of 1.5 years. Related compensation expense recognized during the years ended January 31, 2014 and 2013, was $360,619 and $1,175,428,
respectively.
F-30
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Option Issuances
During the year ended January 31, 2011, the Company’s Board of Directors granted 1,150,000 options to employees and directors. The fair value of the options was $0.11 per share,
or $126,500 aggregate fair value. The fair value of each option award was estimated using the Black-Scholes option pricing model. The calculation was based on the exercise price of
$0.15, an expected term of 10.0 years using the simplified method, an interest rate of 1.98%, volatility of 80% and no dividends.
On February 1, 2012, the Board of Directors approved the grant of 1,000,000 stock options to Mr. Ted Schreck pursuant to Mr. Schreck’s agreement to join the Company’s Board as a
director. The options vest in three equal installments on each of February 1, 2012, 2013, and 2014 subject to Mr. Schreck’s continued role as a director. The options expire on the tenth
anniversary of issuance. The fair value of the stock options of $120,000 was determined under the Black-Scholes option pricing model. The calculation was based on the exercise
price of $0.15, an expected term of 10.0 years using the simplified method, interest rate of 1.97%, volatility of 80.0% and no dividends.
On September 15, 2012, the Company’s Board of Directors authorized the issuance of stock options to acquire 3,075,000 shares of the Company’s common stock to certain of the
Company’s physicians and medical professionals. The options substantially vest in three equal installments on each of September 15, 2012, July 31, 2013, and July 31, 2014, subject
to the recipients continued role with the Company, and expire on the tenth anniversary of issuance. The fair value of the options was estimated to be $907,796 determined using the
Black-Scholes option pricing model. The calculation was based on the following inputs: exercise price of $0.21, expected term of 3.7 years using the simplified method, interest rate of
0.42%, volatility of 80.0% and no dividends.
During the quarter ended January 31, 2013, the Company’s Board of Directors authorized the issuance of 150,000 stock options to Mr. Mark Meyers pursuant to Mr. Meyers’ consulting
agreement (Note 11). The options vest immediately and expire on the tenth anniversary of issuance.
The fair value of the stock options of $55,617 was determined under the Black-Scholes option pricing model. The calculation was based on the Company’s closing stock price on the
date of grant and the following weighted-average inputs: exercise price of $0.21, an expected term of 6.0 years using the simplified method, interest rate of 0.70%, volatility of 36.7%
and no dividends.
During the quarter ended April 30, 2013, the Company’s Board of Directors authorized the issuance of options for 150,000 shares of common stock with an exercise price of $ 0.21 per
share to Mark Meyers pursuant to Mr. Meyers’ consulting agreement. The options vested immediately and expire on the tenth anniversary of issuance. The fair value of the 150,000
stock options of $55,774 was determined under the Black-Scholes option pricing model. The calculation was based on the Company’s closing stock price on the date of grant and the
following weighted-average inputs:
Expected term (in years)
Volatility
Dividends
Interest rate
3.0
17.4%
0.0%
0.82%
During the quarter ended April 30, 2013, the Company issued option awards for 382,000 shares of the Company’s common stock. The options generally vest on a monthly basis over a
36 month period, and expire on the tenth anniversary of issuance. The aggregate fair value of the stock options of $88,170 was determined using the Black-Scholes option pricing
model. The calculation was based on the Company’s closing stock price on the date of grant and the following weighted-average inputs:
Exercise Price
Expected Term (in years)
Volatility
Dividend rate
Interest rate
$
0.41
4.59
26.0%
0.0%
0.5%
F-31
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
During the quarter ended July 31, 2013, the Company’s Board of Directors authorized the issuance of options for 150,000 shares of common stock with an exercise price of $ 0.21 per
share to Mark Meyers pursuant to Mr. Meyers’ consulting agreement. The options vest immediately and expire on the tenth anniversary of issuance. The fair value of the 150,000 stock
options of $ 65,678 was determined under the Black-Scholes option pricing model. The calculation was based on the Company’s closing stock price on the date of grant and the
following weighted-average inputs:
Expected term (in years)
Volatility
Dividends
Interest rate
3.0
29.7%
0.0%
0.5%
On May 21, 2013, the Company’s Board of Directors authorized the issuance of 400,000 common stock options to David Schmidt pursuant to the Director’s Agreement between Mr.
Schmidt and the Company in connection with his appointment to the Company’s Board of Directors. The options vest evenly over 36 months. The fair value of the 400,000 stock
options of $ 69,464 was determined under the Black-Scholes option pricing model using the Company’s closing stock price on the date of grant and the following weighted-average
inputs:
Exercise Price
Expected Term (in years)
Volatility
Dividend rate
Interest rate
$
0.50
3.0
29.7%
0.0%
0.64%
During the quarter ended July 31, 2013, the Company’s Board of Directors authorized the issuance or modification of common stock option awards for 1,733,000 shares to certain
employees. The options generally vested upon grant. The aggregate fair value of the options was $1,045,984, determined using the Black-Scholes option pricing model. The
calculation was based on the Company’s closing stock price on the date of grant and the following weighted-average inputs:
Exercise Price
Expected Term (in years)
Volatility
Dividend rate
Interest rate
$
0.004
3.00
29.7%
0.0%
0.6%
During the quarter ended October 31, 2013, the Company’s Board of Directors authorized the issuance of common stock option awards for 270,000 shares to an employee and a
consultant. The options vest on various dates through July 31, 2014. The aggregate fair value of the options was $74,311 determined using the Black-Scholes option pricing model.
The calculation was based on the estimated fair value of the Company’s stock price on the date of grant and the following weighted-average inputs:
Exercise Price
Expected Term (in years)
Volatility
Dividend rate
Interest rate
0.47
6.00
67.2%
0.0%
1.4%
$
F-32
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Stock option activity for the years ended January 31, 2014 and 2013 is summarized below:
Balance, February 1, 2012
Granted
Exercised
Expired
Forfeited
Balance, January 31, 2013
Granted
Cancelled
Exercised
Expired
Forfeited
Balance, January 31, 2014
Vested and exercisable - January 31, 2014
Weighted
Average
Per Share
Exercise
Price
Weighted
Average
Remaining
Life
(Years)
Aggregate
Intrinsic
Value
0.15
0.19
0.21
-
-
0.18
0.18
0.22
-
-
0.79
0.17
0.16
8.9 $
9.2
-
-
-
9.1 $
9.4
8.6
-
-
9.0
9.0 $
9.1 $
-
-
-
-
-
-
-
-
-
-
-
-
-
Shares
1,150,000 $
4,225,000
(75,000)
-
-
5,300,000
3,085,000
(1,020,250)
-
-
(6,750)
7,358,000 $
6,066,890 $
The stock options exercised during the year ended January 31, 2014 had no intrinsic value. The total intrinsic value of stock options exercised during the year ended January 31, 2013
was $15,750.
ApolloMed ACO 2012 Equity Incentive Plan
On October 18, 2012 ApolloMed ACO’s Board of Directors adopted the ApolloMed Accountable Care Organization, Inc. 2012 Equity Incentive Plan (the “ACO Plan”) and reserved
9,000,000 shares of ApolloMed ACO’s common stock for issuance there under. The purpose of the ACO Plan is to encourage select employees, directors, consultants and advisers to
improve operations and increase the profitability of ApolloMed ACO and encourage select employees, directors, consultants and advisers to accept or continue employment or
association with ApolloMed ACO.
During the year ended January 31, 2013, ApolloMed ACO issued restricted common stock under the ACO Plan totaling 3,690,000 shares to participating physicians. One-third of the
total share grant, or 1,230,000 shares, vested upon grant and the remainder is subject to the ACO Plan vesting schedule. ApolloMed ACO’s Board of Directors determined the fair
value of the shares at grant date was $0.01 per share.
The following table summarizes the restricted stock award in the ACO Plan during the years ended January 31, 2014 and 2013:
Balance, February 1, 2012
Granted
Released
Balance, January 31, 2013
Granted
Released
Balance, January 31, 2014
Vested and exercisable - January 31, 2014
Weighted
Average
Remaining
Life
(Years)
Aggregate
Intrinsic
Value
Weighted
Average
Fair Value
- $
1.9
1.9
1.7
1.0 $
-
36,900
36,900
620
37,520 $
-
0.01
0.01
0.01
0.01
Shares
-
3,690,000
3,690,000
62,000
-
3,752,000
2,480,042
Awards of restricted stock under the ACO Plan vest (i) one-third on the date of grant; (ii) one-third on the first anniversary of the date of grant, if the grantee has remained in service
continuously until that date; and (iii) one-third on the second anniversary of the date of grant if the grantee has remained in service continuously until that date.
F-33
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
As of January 31, 2014, total unrecognized compensation costs related to non-vested common stock options granted under our 2010 and 2013 Equity Plans, and the ACO Plan and the
weighted-average period of years expected to recognize those costs are as follows:
Common stock options
ACO Plan restricted stock
Weighted
Average
Remaining
Life
(Years)
$
$
118,194
15,736
0.8
1.0
Stock-based compensation expense related to common stock and common stock option awards is recognized over their respective vesting periods and was included in the
accompanying consolidated statement of operations for the years ended January 31:
Stock-based compensation expense:
Cost of services
General and administrative
Warrants
Warrants consisted of the following:
Outstanding at February 1, 2012
Granted
Exercised
Cancelled
Outstanding at January 31, 2013
Granted
Exercised
Cancelled
Outstanding at January 31, 2014
Exercise Price
$
$
$
$
$
$
0.11485
0.11485
0.45000
0.50000
0.45000
0.40000
2014
2013
$
$
616,902 $
1,540.955
2,157,857 $
550,710
1,511,018
2,061,728
Aggregate
Intrinsic
Value
$
$
$
Number of
warrants
1,500,000
2,936,000
(1,500,000)
2,936,000
209,000
-
-
3,145,000
-
-
-
-
-
-
-
-
-
Warrants
outstanding
Weighted
average
remaining
contractual life
Warrants
exercisable
Weighted
average
exercise price
1,250,000
250,000
500,000
100,000
825,000
220,000
3,145,000
2.50
2.50
2.50
3.74
4.00
4.00
3.04
F-34
1,250,000 $
250,000 $
500,000 $
100,000 $
825,000 $
220,000 $
3,145,000 $
0.1149
0.1149
0.4500
0.5000
0.4500
0.4000
0.2882
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In conjunction with the completion of the private placement on October 16, 2009, the Company issued a total of 1,500,000 warrants (“Warrants”). Of this amount, 1,250,000 warrants
were issued to the holders of the Convertible Notes and 250,000 warrants were granted to the placement agent. The warrants are exercisable into shares of Common Stock at an
exercise price of $0.11485. The warrants had a five-year term and expire on October 31, 2014. On October 29, 2012, the Company, in conjunction with amendment of its 10% Senior
Subordinated Convertible Notes (10% Notes) amended the Warrants in which the exercise price was fixed at $0.11485 per share and in which the term was extended to July 31, 2016.
In addition, the Company issued to the 10% Note holders warrants to acquire 500,000 shares of the Company’s common stock at $0.45 per share, which have a term that extends to
July 31, 2016. The Company issued warrants to acquire 100,000 shares of the Company’s common stock at $0.50 per share, which have a term that extends to October 28, 2017 to
the placement agent of the 10% Note amendment. (see Note 6).
In conjunction with the placement of the 9% Notes during the year ended January 31, 2013, the holders of the 9% Notes received warrants to purchase 660,000 shares of the
Company’s common stock at an exercise price of $0.45 per share, subject to adjustment for stock splits, reverse stock splits and stock dividends, and the placement agent received
warrants to purchase 176,000 shares of the Company’s common at a conversion price of $0.40 per share, subject to adjustment for stock splits, stock dividends and reverse stock
splits, and which are exercisable at any date prior to January 31, 2018. During the year ended January 31, 2014, the Company issued additional units of the 9 % Notes for aggregate
proceeds of $220,000, and warrants to purchase the Company’s common stock aggregating 165,000 shares. In addition, the Company issued 44,000 warrants to the placement agent
associated with these additional proceeds. (see Note 6).
Authorized stock
At January 31, 2014, the Company was authorized to issue up to 100,000,000 shares of common stock. The Company is required to reserve and keep available out of the authorized
but unissued shares of common stock such number of shares sufficient to effect the conversion of all outstanding shares of the 8% Senior Subordinated Convertible Promissory Notes,
the 9% Senior Subordinated Callable Notes, the exercise of all outstanding warrants exercisable into shares of common stock, and shares granted and available for grant under the
Company’s 2013 Plan. The amount of shares of common stock reserved for these purposes is as follows at January 31, 2014:
Common stock issued and outstanding
Conversion of 8% Notes (1)
Conversion of 9% Notes
Warrants outstanding
Stock options outstanding
Remaining shares issuable under 2013 Equity Incentive Plan
Shares and warrants issued in March 2014 (2)
46,952,469
182,080
2,750,000
3,145,000
7,358,000
1,820,000
6,000,000
68,207,549
(1) Reflects shares issued in February 2014 in connection with the conversion of the 8% notes. See Note 10.
(2) Reflects 2,000,000 shares and 4,000,000 warrants issued in March 2014 in connection with an equity investment. See Note 10.
9. Commitments and Contingencies
Lease commitments
The Company leases its office facilities under non-cancelable operating leases, certain of which contain renewal options. Future minimum rental payments required under the operating
leases are as follows:
Year ending January 31,
2015
2016
2017
2018
2019
$
$
144,416
121,546
124,294
30,000
-
420,256
F-35
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Rent expense recorded for years ended January 31 was as follows:
2014
2013
Rent expense
$
210,302
$
97,402
Consulting and employment agreements
On August 16, 2012, the Company entered into a consulting agreement with Kaneohe Advisors LLC, an entity wholly-owned and controlled by Mr. Kyle Francis, to serve as the
Company’s Executive Vice President, Business Development and Chief Financial Officer. The term of the agreement is a month-to-month basis, and provided for Mr. Francis to receive
$11,900 per month and the right to purchase 700,000 shares of the Company’s common stock at $0.001, and can be terminated by either party at any time.
On March 1, 2013, the Company entered into a direct employment agreement with Mr. Francis, which provides for salary of $225,000 per annum, reimbursement of up to $1,200 per
month in health insurance expenses, additional performance-based stock and cash compensation to be determined by the Company’s Board of Directors, and participation in
employee benefits offered to other employees of the Company. If Mr. Francis is terminated for any reason other than gross negligence or misconduct prior to the first anniversary date
of employment, Mr. Francis will be entitled to the remaining unpaid portion of his annual salary and health insurance expense reimbursement.
On October 8, 2012, the Company entered into a consulting agreement with Mr. Mark Meyers to perform services as the Company’s Chief of Strategy and Business Development, in
which Mr. Meyers will receive $10,000 per month, the right to receive options to acquire 50,000 shares per month of the Company’s common stock with an exercise price of $0.21 per
share, and be eligible for performance-based compensation as determined by the Company’s Board of Directors. Mr. Meyers has the option to convert all or a portion of the cash
compensation to equity at a conversion price equal to a discount of 30% from the trailing 90 day average of the closing price of the Company’s common stock. The agreement is
terminable by either party without cause upon providing 90 days’ notice.
On November 18, 2013, the Company entered into a Consulting and Representation Agreement (the “Consulting Agreement”) with Augusta Advisors, Inc. (the “Consultant”), which is
effective from October 1, 2013, supersedes the prior agreement with the Consultant, and terminates on December 31, 2014. Under the Consulting Agreement, the Consultant is paid
$15,000 per month and $2,000 per month for expenses. The Consultant provides business and strategic services and makes Gary Augusta available as the Company’s Executive
Chairman of the Board. Mr. Augusta is an existing director of the Company and subject to a Board of Directors Agreement with the Company dated March 7, 2012.
Regulatory Matters
Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future
government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicare and Medicaid programs. We believe that we
are in compliance with all applicable laws and regulations.
Legal
In the ordinary course of our business, we become involved in pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice related to
medical services provided by our affiliated hospitalists. We may also become subject to other lawsuits which could involve significant claims and/or significant defense costs. We
believe, based upon our review of pending actions and proceedings, that the outcome of such legal actions and proceedings will not have a material adverse effect on our business,
financial condition, results of operations, or cash flows. The outcome of such actions and proceedings, however, cannot be predicted with certainty and an unfavorable resolution of
one or more of them could have a material adverse effect on our business, financial condition, results of operations, or cash flows in a future period.
F-36
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Liability Insurance
We believe that our insurance coverage is appropriate based upon our claims experience and the nature and risks of our business. In addition to the known incidents that have resulted
in the assertion of claims, we cannot be certain that our insurance coverage will be adequate to cover liabilities arising out of claims asserted against us, our affiliated professional
organizations or our affiliated hospitalists in the future where the outcomes of such claims are unfavorable. We believe that the ultimate resolution of all pending claims, including
liabilities in excess of our insurance coverage, will not have a material adverse effect on our financial position, results of operations or cash flows; however, there can be no assurance
that future claims will not have such a material adverse effect on our business.
Although we currently maintain liability insurance policies on a claims-made basis, which are intended to cover malpractice liability and certain other claims, the coverage must be
renewed annually, and may not continue to be available to us in future years at acceptable costs, and on favorable terms.
10. Subsequent Events
8% Senior Subordinated Convertible Promissory Notes Redemption
On or about February 21, 2013, the Company entered into a Settlement Agreement and Release (collectively, the “Settlement Agreements”) with each of the holders of 8% Notes
(each, a “Holder” and, collectively, the “Holders”). Under the Settlement Agreements, the Company agreed to redeem for cash and/or convert into shares of the Company’s common
stock the 8% Notes of the Holders. In the aggregate, the Company redeemed and converted $150,000 in original principal amount plus accrued interest thereon, for total cash
payments of approximately $106,000 and total issuances of approximately182,000 shares of the Company’s common stock.
Equity and Debt Financing
On March 28, 2014, the Company entered into an equity and debt investment for up to $12.0 million with NNA of Nevada, Inc. (“NNA”). As part of the investment, the Company
entered into an Investment Agreement with NNA, dated March 28, 2014 (the “Investment Agreement”), pursuant to which the Company sold NNA 2,000,000 shares of the Company’s
common stock (the “Purchased Shares”) at a purchase price of $1.00 per share. Under the Investment Agreement, for so long as NNA holds any combination of Company common
stock, Convertible Note (as defined below) or Warrants (as defined below) that in the aggregate either represent or entitle Purchaser to acquire at least 2,000,000 shares of Company
common stock (the “Requisite Condition”), (i) NNA shall have the right to appoint one representative to attend all meetings of the Company’s Board of Directors (and each Board of
Directors of the Company’s subsidiaries) and any committee thereof in a nonvoting observer capacity, and (ii) NNA shall have the right to have one representative (the “NNA Director”)
nominated as a member of the Company’s Board of Directors (and each Board of Directors of the Company’s subsidiaries) and each committee thereof, including without limitation, the
Company’s compensation committee. The Investment Agreement also provides that, within 180 days of closing, the Company’s certificate of incorporation will be amended to provide
for indemnification of the members of the Company’s Board of Directors (and each Board of Directors of the Company’s subsidiaries) to the broadest extent permitted by applicable law.
In addition, for so long as the Requisite Condition is satisfied, if the Company makes any public or non-public offering of any equity, or any other securities, warrants, options or debt
that are convertible or exchangeable into equity or that include an equity component (any such security a “New Security”), NNA shall be afforded the opportunity, subject to certain
exceptions, to subscribe for a pro rata share of any New Security so offered for the same price and on the same terms as such New Security is proposed to be offered to others. The
Investment Agreement provides that, by the earlier of (i) 180 days of closing and (ii) 20 business days prior to the offer, sale and purchase of New Securities, the Company will amend
its certificate of incorporation in order to permit NNA to exercise this right. In connection with NNA’s purchase of the Purchased Shares, the Company issued NNA a Common Stock
Purchase Warrant, pursuant to which NNA has the right to purchase up to 1,000,000 shares of Company common stock at an initial exercise price of $1.00 per share, subject to
adjustment as provided therein (the “Investment Agreement Warrants”).
F-37
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
As a condition to the closing of the Investment Agreement, the Company, NNA, and the Management Shareholders (as defined therein) entered into a Shareholders Agreement, dated
March 28, 2014 (the “Shareholders Agreement”), which grants NNA a tag along right with respect to sales by Management Shareholders of Company common stock. In addition, each
Management Shareholder agreed to cooperate with making effective various amendments to provisions of the Company’s certificate of incorporation required by the Investment
Agreement. In addition, each Management Shareholder agreed to use commercially reasonable efforts to take any and all actions (including without limitation, any indirect actions,
such as increasing the size of the Company’s Board of Directors to accommodate the addition of the NNA Director) to support and effect the appointment or election, and
reappointment or reelection, of such NNA Director and the full exercise and realization of all rights with respect to the Company’s Board of Directors to which Investor is entitled
pursuant to the Investment Agreement.
In connection with the Credit Agreement (as discussed below) and the Investment Agreement, the Company issued NNA a Convertible Note, dated March 28, 2014 (the “Convertible
Note”), which provides that the Company may, but will not be required to, borrow the amount of $2,000,000 evidenced by the Convertible Note at any time before December 15, 2014.
The outstanding principal on and accrued interest under the Convertible Note, if any, is convertible at NNA’s option into shares of the Company’s common stock at an initial conversion
price of $1.00 per share, subject to adjustment as provided in the Convertible Note. The Convertible Note contains anti-dilution protection provisions in favor of NNA, including, if there
is a dilutive issuance, the conversion ratio is adjusted to reflect the difference in price below $1.00, if any such issuance is below $0.90 per share. This right to anti-dilution protection
in connection with issuances below $0.90 per share lasts until the Company’s next financing that yields gross cash proceeds in an aggregate amount of at least $2.0 million or 2 years
from closing, whichever is earlier. The amounts outstanding under the Convertible Note can, in some circumstances, be required to be prepaid, and can be accelerated in connection
with various events of default, as set forth in the Convertible Note. The Company has agreed to pay NNA a funding fee of $20,000 if the Company borrows under the Convertible Note.
In connection with NNA’s purchase of the Convertible Note, the Company issued NNA a Common Stock Purchase Warrant, pursuant to which NNA has the right to purchase up to
1,000,000 shares of Company common stock at an initial exercise price of $1.00 per share, subject to adjustment as provided therein (the “Convertible Note Warrants”). NNA may
exercise the Convertible Note Warrants only upon NNA making the $2,000,000 term loan to the Company pursuant to the Convertible Note.
As part of this investment, the Company entered into a Credit Agreement with NNA (the “Credit Agreement”) which provides for a $1.0 million secured revolving credit facility (the
“Revolving Loan”) and a $7.0 million secured term loan (the “Term Loan” and together with the Revolving Loan, the “Loans”). The Company, its subsidiaries, and certain affiliates that
are consolidated in the financial statements of the Company (such subsidiaries and such affiliates, the “Guarantors”), are guarantors of the Company’s obligations under the Credit
Agreement. Loans drawn under the Credit Agreement are secured by all of the assets of the Company and the Guarantors, including a security interest in the deposit accounts of the
Company and the Guarantors and a pledge of the shares in the Company’s subsidiaries. The Term Loan accrues interest at a rate of eight percent, per annum, and the amounts drawn
under the Revolving Loan accrue interest at a rate equal to the sum of (i) LIBOR and (ii) six percent, per annum. Interest on the Loans is payable on the last business day of each
successive month, in arrears, commencing April 30, 2014, and at each month-end thereafter. Loans under the Credit Agreement are repayable on or before March 28, 2019. The
principal amount of the Term Loan is repaid on the last business day of each calendar quarter, commencing on the first such day to occur after the closing of the transactions
contemplated by the Credit Agreement, in accordance with the amortization schedule contained in the Credit Agreement which provides for quarterly payments of $87,500 in the first
year, $122,500 in the second year, $122,500 in the third year, $175,000 in the fourth year, and $210,000 in the fifth year. The Loans can, in some circumstances, be required to be
prepaid, and can be accelerated in connection with various events of default, as set forth in the Credit Agreement. The Company agreed to pay NNA a facility fee, on the last business
day of each month, at a per annum rate of 1.0% of the average daily unused portion of the revolving commitments under the Credit Agreement. In addition, on March 28, 2014, the
Company paid NNA $80,000 as an upfront fee. In connection with NNA’s extension of the Loans, the Company issued NNA (i) a Common Stock Purchase Warrant, pursuant to which
NNA has the right to purchase up to 1,000,000 shares of Company common stock at an initial exercise price of $1.00 per share, subject to adjustment as provided therein (the
“1,000,000 Credit Agreement Warrants”) and (ii) a Common Stock Purchase Warrant, pursuant to which NNA has the right to purchase up to 2,000,000 shares of Company common
stock at an initial exercise price of $2.00 per share, subject to adjustment as provided therein (the “2,000,000 Credit Agreement Warrants,” and together with the 1,000,000 Credit
Agreement Warrants, the Convertible Note Warrants and the Investment Agreement Warrants, the “Warrants”).
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
At the closing of the transactions contemplated by the Credit Agreement, existing loans of a principal amount of approximately $3.3 million under that certain Credit Agreement, dated
as of October 15, 2013, as amended (the “Existing Credit Agreement”), were refinanced and approximately $3.7 million was advanced under the Term Loan. No amounts were drawn
under the Revolving Loan at closing.
In connection with the Credit Agreement, the Company and Apollo Medical Management, Inc. (“Apollo Management”) entered into Collateral Assignments of Physician Shareholder
Agreements and Management Agreements in favor of NNA (which were acknowledged by various affiliates that are Guarantors and Warren Hosseinion, M.D.), dated March 28, 2014
(the “Collateral Assignment Agreements”), whereby NNA acquired a security interest in the Company’s and Apollo Management’s rights, as applicable, under such agreements.
The Company and NNA also entered into a Registration Rights Agreement, dated March 28, 2014 (the “Registration Rights Agreement”) whereby the Company is obligated to, on or
prior to one year after the closing of the sale of the Purchased Shares, prepare and file with the Securities and Exchange Commission a registration statement covering the resale of
the Purchased Shares or any shares issued in connection with exercise of the Warrants or the conversion of the Convertible Note, subject to certain adjustments described therein, that
are not already covered by an effective registration statement.
Each of the Warrants contains antidilution protection provisions in favor of NNA, including, if there is a dilutive issuance, the Warrants are adjusted to reflect the difference in price
below $1.00, if any such issuance is below $0.90 per share. This right to antidilution protection in connection with issuances below $0.90 per share lasts until the Company’s next
financing that yields gross cash proceeds in an aggregate amount of at least $2.0 million or 2 years from closing, whichever is earlier. Each of the Warrants is exercisable on or after
March 28, 2017 and expires on March 28, 2021. The Convertible Note Warrants, the 1,000,000 Credit Agreement Warrants, and the Investment Agreement Warrants were each issued
in exchange for consideration of $10,000 while the 2,000,000 Credit Agreement Warrants were issued in exchange for consideration of $100.
Upon acquisition of the Purchased Shares and, assuming the Convertible Note is funded and fully converted and each of the Warrants is exercised, NNA will hold approximately 13%
of the Company’s fully diluted capital stock.
As part of the Investment, Apollo Management a subsidiary of the Company, entered into Employment Agreements with each of Warren Hosseinion, M.D., the Company’s Chief
Executive Officer (the “Hosseinion Employment Agreement”) and Adrian Vazquez, M.D. (the “Vazquez Employment Agreement” and, together with the Hosseinion Employment
Agreement, the “Employment Agreements”), pursuant to which Dr. Hosseinion and Dr. Vazquez have agreed to serve as senior executives of Apollo Management. The Employment
Agreements provide for (i) base salary of $200,000 per year, (ii) participation in any incentive compensation plans and stock plans of Apollo Management that are available to other
similarly positioned employees of Apollo Management, and (iii) reimbursement of expenses incurred on behalf of Apollo Management.
Apollo Management has the right under the Hosseinion Employment Agreement to terminate Dr. Hosseinion for cause if, among other things, there is a material and uncured breach
by Dr. Hosseinion of any of the following agreements: (i) the Hosseinion Hospitalist Participation Agreement (as defined below) or other employment agreement with ApolloMed
Hospitalists, a California professional corporation (“AH”), (ii) that certain Shareholder Agreement dated as of March 28, 2014, by and among Dr. Hosseinion, the Company, Apollo
Management, Adrian Vazquez, M.D. and Lender (the “Shareholder Agreement”), a copy of which was filed as Exhibit 10.11 with the Original Filing, (iii) the Maverick Physician
Shareholder Agreement (as defined below), (iv) the ACC Physician Shareholder Agreement (as defined below), or (v) the AH Physician Shareholder Agreement (as defined below).
Apollo Management has the right under the Vazquez Employment Agreement to terminate Dr. Vazquez for cause if, among other things, there is a material and uncured breach by Dr.
Vazquez of either (i) the Vazquez Hospitalist Participation Agreement (as defined below) or other employment agreement with AH or (ii) the Shareholder Agreement. The Employment
Agreements replaced, and thereby terminated, prior employment agreements between Apollo Management and each of Dr. Hosseinion and Dr. Vazquez.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Also on March 28, 2014, AH entered into Hospitalist Participation Service Agreements with each of Dr. Hosseinion (the “Hosseinion Hospitalist Participation Agreement”) and Dr.
Vazquez (the “Vazquez Hospitalist Participation Agreement” and, together with the Hosseinion Hospitalist Participation Agreement, the “Hospitalist Participation Agreements”),
pursuant to which Dr. Hosseinion and Dr. Vazquez provide physician services for AH. The Hospitalist Participation Agreements provide for (i) base salary of $195,000 per year, (ii) a
$55,000 annual car and communications allowance, and (iii) reimbursement of reasonable business expenses. The Hospitalist Participation Agreements replaced, and thereby
terminated, prior hospitalist participation service agreements between AH and each of Dr. Hosseinion and Dr. Vazquez.
As a condition of the Company causing its affiliates to enter into the Hospitalist Participation Agreements and the Employment Agreements, on March 28, 2014, the Company entered
into Stock Option Agreements with each of Dr. Hosseinion (the “Hosseinion Stock Option Agreement”) and Dr. Vazquez (the “Vazquez Stock Option Agreement” and, together with the
Hosseinion Stock Option Agreement, the “Stock Option Agreements”). The Stock Option Agreements provide that each of Dr. Hosseinion and Dr. Vazquez grant the Company the
option to purchase (at fair market value) all equity interests in the Company held by Dr. Hosseinion or Dr. Vazquez, as applicable, in the event that (i) either the applicable Hospitalist
Participation Agreement or the applicable Employment Agreement is terminated by the Company for cause due to a willful or intentional breach by Dr. Hosseinion or Dr. Vazquez, as
applicable, (ii) Dr. Hosseinion or Dr. Vazquez, as applicable, commits fraud or any felony against the Company or any of its affiliates, (iii) Dr. Hosseinion or Dr. Vazquez, as applicable,
directly or indirectly solicits any patients, customers, clients, employees, agents or independent contractors of the Company or any of its affiliates for competitive purposes or (iv) Dr.
Hosseinion or Dr. Vazquez, as applicable, directly or indirectly Competes (as such term is defined in the Stock Option Agreements) with the Company or any of its affiliates.
On March 28, 2014, Apollo Management amended and restated its Management Services Agreement with each of ApolloMed Care Clinic, a California professional corporation
(“ACC”), Maverick Medical Group Inc., a California professional corporation (“Maverick”), and AH. Dr. Hosseinion currently holds all the issued and outstanding shares of each of ACC,
Maverick and AH (collectively, the “Practices”). The agreement with ACC (the “ACC Management Agreement”) amended and restated the prior Management Agreement between the
parties, dated July 31, 2013. The agreement with Maverick (the “Maverick Management Agreement”) amended and restated the prior Management Agreement between the parties,
dated February 1, 2013. The agreement with AH (the “AH Management Agreement” and together with the ACC Management Agreement and the Maverick Management Agreement,
the “Management Agreements”) amended and restated the prior Management Agreement between the parties, dated March 20, 2009. The Management Agreements provide that
Apollo Management has exclusive authority to manage each of the Practices and is obligated to provide all non-physician personnel. Apollo Management is entitled to management
fees as set forth in the respective agreements. The Management Agreements replaced, and thereby terminated, prior management agreements between Apollo Management and each
Practice (Has Practice been defined somewhere?).
As a condition to entry into the Managements Agreements, on March 28, 2014, Dr. Hosseinion entered into Physician Shareholder Agreements in favor of Apollo Management and the
Company, for the account of each of ACC (the “ACC Physician Shareholder Agreement”), Maverick (the “Maverick Physician Shareholder Agreement”) and AH (the “AH Physician
Shareholder Agreement” and, together with the ACC Physician Shareholder Agreement and the Maverick Physician Shareholder Agreement, the “Physician Shareholder
Agreements”). The purpose of the Physician Shareholder Agreements is to memorialize the agreement of Dr. Hosseinion to act in accordance with the Management Agreements, and
to the extent of Dr. Hosseinion’s personal authority, to refrain from any action or inaction that would result in a breach by any Practice of its obligations under its respective
Management Agreement. To that end, each Physician Shareholder Agreement contains covenants which obligate Dr. Hosseinion to comply with the applicable Management
Agreement and restricts Dr. Hosseinion’s ability to transfer equity held by Dr. Hosseinion in the applicable Practice or to issue new equity in the applicable Practice. Each Management
Agreement also provides the Company with the right to designate a third party to acquire all (or such amount such that the transferee would acquire a 51% interest) of Dr. Hosseinion’s
equity in the applicable Practice for $100, subject to a fair market value adjustment, if applicable. The Lender has certain rights to require the Company to exercise its acquisition right
upon notice pursuant to the terms of the Credit Agreement and that certain Convertible Secured Note, made by the Company in favor of the Lender, dated March 28, 2014. To the
extent that Dr. Hosseinion transfers all of his equity in any Practice in connection with such acquisition right, Dr. Hosseinion is subject to certain non-solicitation and non-competition
provisions, as set forth in each Physician Shareholder Agreement.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In addition, as a condition to the closing of the Credit Agreement, on March 28, 2014, Apollo Management entered into Amendment No.1 to the Intercompany Revolving Loan
Agreement with each of ACC (the “ACC Amended Loan Agreement”), Maverick (the “Maverick Amended Loan Agreement”) and AH (the “AH Amended Loan Agreement” and together
with the ACC Amended Loan Agreement and the Maverick Amended Loan Agreement, the “Amended Loan Agreements”). The ACC Amended Loan Agreement amended the
Intercompany Revolving Loan Agreement between the parties, dated July 31, 2013, pursuant to which Apollo Management agreed to provide ACC with a revolving loan commitment of
up to $1.0 million. The Maverick Amended Loan Agreement amended the Intercompany Revolving Loan Agreement between the parties, dated February 1, 2013, pursuant to which
Apollo Management agreed to provide Maverick with a revolving loan commitment of up to $5.0 million. The AH Amended Loan Agreement amended the Intercompany Revolving
Loan Agreement between the parties, dated September 30, 2013, pursuant to which Apollo Management agreed to provide AH with a revolving loan commitment of up to $10.0 million.
Each Amended Loan Agreement provides that Apollo Management’s obligation to make any advances shall automatically terminate concurrently with the termination of the applicable
Management Agreement. In addition, each Amended Loan Agreement provides that (i) any material breach by Dr. Hosseinion of the applicable Physician Shareholder Agreement or
(ii) the termination of the applicable Management Agreement, shall constitute an event of default under the Amended Loan Agreement.
11. Quarterly Results of Operations (UNAUDITED)
Following is a summary of our quarterly results of operations for the years ended January 31, 2014 and 2013.
January 31, 2014
October 31,
2013
July 31, 2013
April 30, 2013
January 31, 2013
October 31,
2012
July 31, 2012
April 30, 2012
Net Revenues
Loss from operations
$
2,839,462 $ 2,605,231
$
2,593,046
$
2,446,566
$
2,529,683
$ 1,965,153
$
1,649,451
$
1,631,844
(1,024,033)
(813,487)
(1,360,387)
(711,972)
(525,083)
(1,437,225)
(63,026)
(53,153)
Loss on change in fair value of derivative liabilities
-
-
-
-
-
(3,063,144)
(2,914,549)
123,838
Interest expense
Other (expense) income
Loss before income taxes
Provision for income taxes
Net loss
Per share data:
(202,206)
(178,679)
(170,806)
(127,493)
(259,995)
(221,239)
(224,906)
(224,036)
41,396
9,476
(924)
(246)
(37,903)
207
455
(5)
(1,184,843)
(982,690)
(1,532,117)
(839,711)
(822,981)
(4,721,401)
(3,202,026)
(153,356)
(21,847)
31,956
-
9,404
-
-
800
4,000
$
(1,162,996) $ (1,014,646) $ (1,532,117) $
(849,115) $
(822,981) $ (4,721,401) $ (3,202,826) $
(157,356)
Weighted Average Shares - Basic and Diluted
42,084,686 37,977,607
37,977,607
34,843,441
34,808,001
33,440,542
31,015,904
29,965,878
Basic and Diluted Loss per share (1)
$
(0.03) $
(0.03) $
(0.04) $
(0.02) $
(0.02) $
(0.15) $
(0.10) $
(0.01)
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(1) Earnings per share are computed independently for each of the quarters presented and therefore may not sum to the total for the year
12. Valuation and Qualifying Accounts
Allowance for doubtful accounts:
Balance - beginning of year
Charged to operations
Write-off of accounts receivable
Balance - end of year
2014
2013
$
78,822 $
42,576
-
(28,348)
74,393
(38,147)
$
50,474 $
78,822
F-42
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
THIS EMPLOYMENT AGREEMENT is entered into this March 1st, 2013, and is to be effective as early of June 1st, 2013 and no later than August 1st, 2013 as agreed upon by
and between APOLLO MEDICAL HOLDINGS, INC., a Delaware corporation, having its principal place of business at 700 North Brand Blvd., Suite 220 Glendale CA 91203 (the
“Company”) and between Kyle Francis, an individual residing at 326 Ewing Terrace, SF CA 94118 (“Employee”).
EMPLOYMENT LETTER AGREEMENT
RECITALS
WHEREAS, the Company desires to engage Employee to assist Company as its Chief Financial Officer on an at-will basis, and Employee is willing to perform such services
subject to the terms and conditions set forth below (“Position”). This Letter Agreement represents agreed upon terms for future employment and both parties agree to execute a formal
employment agreement and both parties agree to negotiate in good faith
NOW, THEREFORE, in consideration of the above Recital, which the parties agree to be accurate and complete, and of the mutual promises and undertakings hereinafter set
forth, and for other good and valuable consideration, it is agreed as follows:
1. Employee will be paid a monthly salary equal to $18,750 per month
2. Employee will receive a maximum $1,200 of healthcare benefits per month
3. Employee may be eligible for additional cash and stock compensation in accordance with board compensation committee approval
4. Employee will receive standard benefits in accordance with company policy including vacation, sick days and company benefits such as parking and out-of pocket expenses.
Both parties agree and acknowledge that any used vacation and sick days will not accrue if unused within the calendar year. Vacation and sick days will be prorated for first
year of employment, but effective as of the Effective Date of this contract
5.
If employee is terminated for any reason other than gross negligence or misconduct the company agrees to meet the employment obligations for a period of one year less any
portion paid under above terms.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SIGNATURE PAGE OF EMPLOYMENT AGREEMENT AMONG APOLLO MEDICAL HOLDINGS, INC. AND Kyle Francis DATED March 1, 2013
IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement in the State of California as of the date first above written.
SELECTION OF SEPARATE COUNSEL
COMPANY AND EMPLOYEE ACKNOWLEDGE THAT THEY HAVE HAD AMPLE OPPORTUNITY TO CONSULT WITH AN ATTORNEY AND/OR A CERTIFIED PUBLIC
ACCOUNTANT OF THEIR CHOICE REGARDING THE CONTENTS OF THIS EMPLOYMENT AGREEMENT, ITS SUBJECT MATTER AND ANY AND ALL COLLATERAL
DOCUMENTS WHICH MAY BE NECESSARY TO CARRY OUT THE TRUE INTENT OF THIS EMPLOYMENT AGREEMENT, AND EACH HAS EITHER RECEIVED OR WAIVED
SUCH ADVICE.
APOLLO MEDICAL HOLDINGS, INC.:
/By:/ WARREN HOSSEINION, M.D.
Name: Warren Hosseinion, M.D.
Title: Chief Executive Officer
KYLE FRANCIS.:
/By:/ KYLE FRANCIS
Name: Kyle Francis
Title: Chief Financial Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
This Board of Directors Agreement (“Agreement”) made as of March 22, 2012 and effective as of January 1, 2012 by and between Apollo Medical Holdings, Inc., with its principal place
of business at 700 N. Brand Blvd, Suite 450, Glendale, California, 91203 (“ApolloMed”) and Suresh Nihalani, with an address of 7352 Zaharias Court, Moorpark, CA 93021, (the
“Director”) provides for director services, according to the following terms and conditions:
BOARD OF DIRECTORS AGREEMENT
I. Services Provided
ApolloMed agrees to engage the Director to serve as a member of the Board of Directors of ApolloMed and to provide those services required of a director under ApolloMed’s
Certificate of Incorporation and Bylaws, as both may be amended from time, to time (“Articles and Bylaws”) and under the General Corporation Law of Delaware, the federal securities
laws and other state and federal laws and regulations, as applicable.
II. Nature of Relationship
The Director is an independent contractor and will not be deemed an employee of ApolloMed for purposes of employee benefits, income tax withholding, F.I.C.A. taxes, unemployment
benefits or otherwise. The Director shall not enter into any agreement or incur any obligations on ApolloMed’s behalf.
ApolloMed will supply, at no cost to the Director: periodic briefings on the business, director packages for each board and committee meeting, copies of minutes of meetings and any
other materials that are required under ApolloMed’s Articles and Bylaws or the charter of any committee of the board on which the Director serves and any other materials which may,
by mutual agreement, be necessary for performing the services requested under this Agreement.
III. Director’s Warranties
The Director warrants that no other party has exclusive rights to his services in the specific areas in which ApolloMed is conducting business and that the Director is in no way
compromising any rights or trust between any other party and the Director or creating a conflict of interest as a result of his participation on the Board of Directors of ApolloMed. The
Director also warrants that so long as the Director serves on the board of the directors of ApolloMed, the Director will not enter into another agreement that will create a conflict of
interest with this Agreement. The Director further warrants that he will comply with all applicable state and federal laws and regulations, as applicable, including Sections 10 and 16 of
the Securities and Exchange Act of 1934.
Throughout the term of this Agreement, the Director agrees he will not, without obtaining ApolloMed’s prior written consent, directly or indirectly engage or prepare to engage in any
activity in competition with any ApolloMed business or product, including products in the development stage, accept employment or provide services to (including service as a member
of a board of directors), or establish a business in competition with ApolloMed.
IV. Compensation
A. Cash Fee
During the term of this Agreement, ApolloMed shall pay the Director a nonrefundable fee of $1,000 per board of director meeting in consideration for the Director providing the services
described in Section I which shall compensate him for all time spent preparing for, travelling to (if applicable) and attending board of director meetings; provided, however, that if any
board meetings or duties require out-of-town travel time, such additional travel time may be billed at the rate set forth in subparagraph C of Section IV below. This cash fee may be
revised by action of ApolloMed’s Board of Directors from time to time. Such revision shall be effective as of the date specified in the resolution for payments not yet earned and need
not be documented by an amendment to this Agreement.
1
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
B. Equity Compensation
Purchase of Shares. Mr. Nihalani hereby purchases, and the Corporation hereby sells to Mr. Nihalani, 400,000 shares of Common Stock (the “Purchased Shares”) at a purchase price
of $0.001 per share (the “Purchase Price”). Concurrently with the execution of this Agreement, Mr. Nihalani shall pay the Purchase Price for the Purchased Shares in cash. Pursuant
to the request of the Director, all of the Shares shall be issued in the name of “The Shining Star Family Trust”
Restricted Securities. Mr. Nihalani hereby confirms that he has been informed that the Purchased Shares are restricted securities under the Securities Act of 1933 (the “1933 Act”)
and may not be resold or transferred unless the Purchased Shares are first registered under the federal securities laws or unless an exemption from such registration is
available. Accordingly, Mr. Nihalani hereby acknowledges that he is prepared to hold the Purchased Shares for an indefinite period and that Mr. Nihalani is aware that Rule 144 of the
Securities and Exchange Commission issued under the 1933 Act is not presently available to exempt the sale of the Purchased Shares from the registration requirements of the 1933
Act. Prior to his acquisition of the Purchased Shares, Mr. Nihalani acquired sufficient information about the Corporation to reach an informed knowledgeable decision to acquire the
Purchased Shares. Mr. Nihalani has such knowledge and experience in financial and business matters as to make Mr. Nihalani capable of utilizing said information to evaluate the
risks of the prospective investment and to make an informed investment decision. Mr. Nihalani is able to bear the economic risk of Mr. Nihalani’s investment in the Purchased Stock.
Disposition of Shares. Mr. Nihalani hereby agrees that he shall make no disposition of the Purchased Shares (other than a permitted transfer as described below) unless and until he
shall have notified the Corporation of the proposed disposition and, if requested by the Corporation, Mr. Nihalani shall have provided the Corporation an opinion of counsel in form and
substance satisfactory to the Corporation, that (i) the proposed disposition does not require registration of the Purchased 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 (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its books any Purchased Shares that have been sold or transferred in violation of the provisions of this section or (ii) to treat as
the owner of the Purchased Shares, or otherwise to accord voting or dividend rights to, any transferee to whom the Purchased Shares have been transferred in contravention of the
Directors Agreement, including this Amendment.
Restrictive Legends. In order to reflect the restrictions on disposition of the Purchased Shares, the stock certificates for the Purchased Shares will be endorsed with restrictive
legends, including one or both of the following legends:
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SHARES
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER SUCH ACT, OR (II) AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT REGISTRATION UNDER SUCH ACT IS NOT REQUIRED WITH RESPECT TO SUCH SALE OR OFFER.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN BOARD OF DIRECTORS AGREEMENT, AS
AMENDED, INCLUDING A REPURCHASE RIGHT, AND SUCH AGREEMENT IS ON FILE AT THE CORPORTATION’S PRINCIPAL OFFICE AND MAY BE INSPECTED DURING
NORMAL BUSINESS HOURS.”
2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
If required by the authorities of any state in connection with the issuance of the Purchased Shares, the legend or legends required by such state authorities shall also be endorsed on
all such certificates.
Mr. Nihalani Rights. Until such time as the Corporation actually exercises its Repurchase Rights under this Amendment, Mr. Nihalani (or any successor in interest) shall have all the
rights of a shareholder (including voting and dividend rights) with respect to the Purchased Shares, subject, however, to the transfer restrictions set forth below.
Section 83(b) Election. Mr. Nihalani understands that under Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”), the difference between the Purchase Price
paid for the Purchased Shares and their fair market value on the date any forfeiture restrictions applicable to such shares lapse will be reportable as ordinary income at that time. For
this purpose, the term “forfeiture restrictions” includes the right of the Corporation to repurchase the Purchased Shares pursuant to its Repurchase Right under this Amendment. Mr.
Nihalani understands that he may elect to be taxed at the time the Purchased Shares are acquired hereunder to the extent the fair market value of the Purchased Shares exceeds the
Purchase Price rather than when and as such Purchased Shares cease to be subject to such forfeiture restrictions, by filing an election under Section 83(b) of the Code with the I.R.S.
within thirty (30) days after the date of purchase hereunder. If the fair market value of the Purchased Shares at the date of purchase equals (or is less than) the Purchase Price paid
(and thus no tax is payable), the election must be made to avoid adverse tax consequences in the future. The form for making this election is attached as Exhibit C hereto. Mr.
Nihalani understands that failure to make this filing within the thirty (30) day period will result in the recognition of ordinary income by Mr. Nihalani (in the event the fair market value of
the Purchased Shares increases after the date of purchase) as the forfeiture restrictions lapse. MR. NIHALANI IS URGED TO SEEK ADVICE FROM HIS TAX ADVISOR AS TO
WHETHER OR NOT TO MAKE A SECTION 83(b) ELECTION AND THE RAMIFICATIONS OF MAKING SUCH AN ELECTION. IN PROVIDING THE FORM ATTACHED AS EXHIBIT
A, THE COMPANY MAKES NO REPRESENTATIONS AS TO WHETHER THE SECTION 83(b) ELECTION SHOULD BE MADE BY EMPLOYEE. MR. NIHALANI ACKNOWLEDGES
THAT IT IS HIS SOLE RESPONSIBILITY, AND NOT THE CORPORATION’S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b), EVEN IF HE REQUESTS THE
CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS BEHALF.
Transfer Restrictions. Mr. Nihalani shall not transfer, assign, encumber, or otherwise dispose of any of the Purchased Shares that are subject to the Corporation’s Repurchase
Right. Such restrictions on transfer, however, shall not be applicable to a transfer of title to the Purchased Shares effected pursuant to Mr. Nihalani’s will or the laws of intestate
succession provided that the transferee, as a condition precedent to the validity of such transfer, acknowledges in writing to the Corporation that such transferee is bound by the
provisions of this Amendment and that the transferred shares are subject to the Corporation’s Repurchase Right granted hereunder, to the same extent such shares would be so
subject if retained by Mr. Nihalani.
Grant of Repurchase Right. The Corporation is hereby granted the right (the “Repurchase Right”), at any time during the sixty (60) day period following the first date that Mr. Nihalani
is no longer a director of the Corporation (the “Repurchase Date”), to elect to repurchase all or (at the discretion of the Corporation) any portion of the Purchased Shares in which Mr.
Nihalani has not acquired a vested interest in accordance with the vesting provisions set forth below (such shares to be hereinafter called the “Unvested Shares”) at a purchase price
of $.001 per share.
Exercise of the Repurchase Right. The Repurchase Right shall be exercisable by written notice delivered to Mr. Nihalani prior to the expiration of the sixty (60) day period following the
Repurchase Date. The notice shall indicate the number of Unvested Shares to be repurchased and the date on which the repurchase is to be effected, such date to be not more than
thirty (30) days after the date of notice. The Corporation shall, concurrently with the receipt of such stock certificates from Mr. Nihalani, pay to Mr. Nihalani in cash or cash equivalents,
an amount equal to the Purchase Price with respect to the Unvested Shares that are to be repurchased.
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Vesting of Purchased Shares; Termination of the Repurchase Right. Notwithstanding any other provision in this Agreement to the contrary, the Corporation’s Repurchase Right shall
terminate, and the Purchased Shares shall become fully vested, with respect to 400,000/36 of the Purchased Shares on the last day of each month (each, a “Vesting Date”), starting
on January 1, 2012 and ending on December 31, 2014, provided that Mr. Nihalani continuously serves as director through that Vesting Date. If any installment includes a fraction of a
share, the fraction shall be carried forward and added to subsequent installments. The Repurchase Right shall terminate with respect to any Unvested Shares for which it is not
exercised within 60 days of the Repurchase Date.
Additional Shares or Substituted Securities. In the event of any stock dividend, stock split, recapitalization or other change affecting the Corporation’s outstanding common stock as a
class effected without receipt of consideration, then any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Purchased Shares shall be immediately subject to the Repurchase Right, but only to the extent the Purchased Shares
are at the time covered by such right. Appropriate adjustments to reflect the distribution of such securities or property shall be made to the number of Purchased Shares subject to the
Repurchase Right hereunder and to the price per share to be paid upon the exercise of the Repurchase Right in order to reflect the effect of any such transaction upon the
Corporation’s capital structure; provided, however, that the aggregate purchase price to be paid by the Corporation pursuant to the Repurchase Right shall remain the same.
Cancellation of Shares. If the Corporation (or its assignees) shall make available, at the time and place and in the amount and form provided in this Amendment, the consideration for
the Purchased Shares to be repurchased in accordance with the provisions of this Agreement, then from and after such time, the person from whom such shares are to be
repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Amendment), and such
shares shall be deemed purchased in accordance with the applicable provisions hereof and the Corporation (or its assignees) shall be deemed the owner and holder of such shares,
whether or not the certificates therefor have been delivered as required by this Amendment.
Repurchase Obligation . Upon the termination of this Agreement, for any reason or for no reason, and regardless of the party who initiated the termination, any Shares which
ApolloMed is not yet obligated to release from Escrow (“Repurchased Shares”) shall be repurchased by the Company at a price of $0.0001 per Repurchased Share (the “Repurchase
Per Share Price”). ApolloMed shall remit its check to the Director within 10 business days following such termination in the full amount of the Repurchase Per Share Price multiplied
by the number of Repurchased Shares. For example, if there were 100,000 Shares remaining in Escrow upon the termination of this Agreement, ApolloMed would repurchase the
100,000 Shares by remitting its check to the Director in the amount of 100,000 x $0.001 = $100.00.
C. Additional Payments
To the extent services described in Section I require out-of-town trips, such additional travel time may be charged at the rate of $1,200 per day or prorated portion thereof. This rate
may be revised by action of ApolloMed’s Board of Directors from time to time for payments not yet earned. Such revision shall be effective as of the date specified in the resolution and
need not be documented by an amendment to this Agreement.
D. Payment
Cash fees shall be made quarterly in cash in advance on the first day of each accounting quarter. Additional payments shall be made in arrears. No invoices need be submitted by
the Director for payment of the cash fee. Invoices for additional payments under subparagraph C of Section IV, above, shall be submitted by the Director. Such invoices must be
approved by ApolloMed’s Chief Executive Officer as to form and completeness.
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E. Expenses
ApolloMed will reimburse the Director for reasonable expenses approved in advance, such approval not to be unreasonably withheld. Invoices for expenses, with receipts attached,
shall be submitted. Such invoices must be approved by ApolloMed’s Chief Executive Officer as to form and completeness.
V. Indemnification and Insurance
ApolloMed will execute an indemnification agreement in favor of the Director substantially in the form of the agreement attached hereto as Exhibit B (the “Indemnification Agreement”).
In addition, so long as ApolloMed’s indemnification obligations exist under the Indemnification Agreement, ApolloMed shall provide the Director with directors and officers liability
insurance coverage in the amounts specified in the Indemnification Agreement.
VI. Term of Agreement
This Agreement shall be in effect from the date hereof through the last date of the Director’s current term as a member of ApolloMed’s Board of Directors. This Agreement shall be
automatically renewed on the date of the Director’s reelection as a member of ApolloMed’s Board of Director’s for the period of such new term unless the Board of Directors determines
not to renew this Agreement. Any amendment to this Agreement must be approved by a written action of ApolloMed’s Board of Directors. Amendments to Section IV Compensation
hereof do not require the Director’s consent to be effective.
VII. Termination
This Agreement shall automatically terminate upon the death of the Director or upon his resignation or removal from, or failure to win election or reelection to, the ApolloMed Board of
Directors.
In the event of any termination of this Agreement, the Director agrees to return or destroy any materials transferred to the Director under this Agreement except as may be necessary
to fulfill any outstanding obligations hereunder. The Director agrees that ApolloMed has the right of injunctive relief to enforce this provision.
ApolloMed’s and the Director’s continuing obligations hereunder in the event of such termination shall be subject to the terms of Section XIV hereof.
VIII. Limitation of Liability
Under no circumstances shall ApolloMed be liable to the Director for any consequential damages claimed by any other party as a result of representations made by the Director with
respect to ApolloMed which are materially different from any to those made in writing by ApolloMed.
Furthermore, except for the maintenance of confidentiality, neither party shall be liable to the other for delay in any performance, or for failure to render any performance under this
Agreement when such delay or failure is caused by Government regulations (whether or not valid), fire, strike, differences with workmen, illness of employees, flood, accident, or any
other cause or causes beyond reasonable control of such delinquent party.
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IX. Confidentiality
The Director agrees to sign and abide by ApolloMed’s Director Proprietary Information and Inventions Agreement, a copy of which is attached hereto as Exhibit A.
X. Resolution of Dispute
Any dispute regarding the agreement (including without limitation its validity, interpretation, performance, enforcement, termination and damages) shall be determined in accordance
with the laws of the State of California, the United States of America. Any action under this paragraph shall not preclude any party hereto from seeking injunctive or other legal relief to
which each party may be entitled.
XI. Sole Agreement
This Agreement (including agreements executed in substantially in the form of the exhibits attached hereto) supersedes all prior or contemporaneous written or oral understandings or
agreements, and may not be added to, modified, or waived, in whole or in part, except by a writing signed by the party against whom such addition, modification or waiver is sought to
be asserted.
XII. Assignment
This Agreement and all of the provisions hereof shall be binding upon and insure to the benefit of the parties hereto and their respective successors and permitted assigns and, except
as otherwise expressly provided herein, neither this Agreement, nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto without the
prior written consent of the other party.
XIII. Notices
Any and all notices, requests and other communications required or permitted hereunder shall be in writing, registered mail or by facsimile, to each of the parties at the addresses set
forth above or the numbers set forth below:
The Director:
ApolloMed:
Suresh Nihalani
700 N. Brand Blvd, Suite 450
Glendale, CA 91203
Tel: 818-396-8050
Fax: 818-844-3888
Any such notice shall be deemed given when received and notice given by registered mail shall be considered to have been given on the tenth (10th) day after having been sent in the
manner provided for above.
XIV. Survival of Obligations
Notwithstanding the expiration of termination of this Agreement, neither party hereto shall be released hereunder from any liability or obligation to the other which has already accrued
as of the time of such expiration or termination (including, without limitation, ApolloMed’s obligation to make any fees and expense payments required pursuant to Section IV and/or
ApolloMed’s indemnification and insurance obligations set forth in Section V hereof) or which thereafter might accrue in respect of any act or omission of such party prior to such
expiration or termination.
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XV. Attorneys’ Fees
If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of a dispute, breach or default in connection with any of the provisions hereof, the
successful or prevailing party (including a party successful or prevailing in defense) shall be entitled to recover its actual attorneys’ fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
XV. Severability
Any provision of this Agreement which is determined to be invalid or unenforceable shall not affect the remainder of this Agreement, which shall remain in effect as though the invalid or
unenforceable provision had not been included herein, unless the removal of the invalid or unenforceable provision would substantially defeat the intent, purpose or spirit of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above.
Director:
Apollo Medical Holdings, Inc.
Signature:
/s/ SURESH NIHALANI
Signature: /s/ WARREN HOSSEINION, M.D.
Print Name:
Suresh Nihalani
Print Name: Warren Hosseinion, M.D. _
Title: CEO
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
THIS BOARD OF DIRECTORS PROPRIETARY INFORMATION AGREEMENT (“Agreement”) is made and entered into this 22nd day of March, 2012 by and between APOLLO
MEDICAL HOLDINGS, INC., a Delaware corporation (“ApolloMed”), and Suresh Nihalani (the “Director”).
EXHIBIT PROPRIETARY INFORMATION AGREEMENT
WHEREAS, the Director has been elected to serve on the Board of Directors of ApolloMed;
RECITALS
WHEREAS, the parties desire to assure the confidential status of the information which may be disclosed by ApolloMed to the Director in connection with the Director serving on
ApolloMed’s Board of Directors;
NOW THEREFORE, in reliance upon and in consideration of the following undertaking, the parties agree as follows:
AGREEMENT
1. Subject to the limitations set forth in Paragraph 2, all information disclosed by ApolloMed to the Director shall be deemed to be "Proprietary Information". In particular,
Proprietary Information shall be deemed to include any information, process, technique, algorithm, program, design, drawing, formula or test data relating to any research project, work
in process, future development, engineering, manufacturing, marketing, servicing, financing or personnel matter relating to ApolloMed, its present or future products, sales, suppliers,
customers, employees, investors, or business, whether or oral, written, graphic or electronic form.
2. The term "Proprietary Information" shall not be deemed to include the following information: (i) information which is now, or hereafter becomes, through no breach of this
Agreement on the part of the Director, generally known or available to the public; (ii) is known by the Director at the time of receiving such information; (iii) is hereafter furnished to the
Director by a third party, as a matter of right and without restriction on disclosure; or (iv) is the subject of a written permission to disclose provided by ApolloMed.
3. The Director shall maintain in trust and confidence and not disclose to any third party or use for any unauthorized purpose any Proprietary Information received from
ApolloMed. The Director may use such Proprietary Information only to the extent required to accomplish the purposes of his position as a Director of ApolloMed. The Director shall not
use Proprietary Information for any purpose or in any manner which would constitute a violation of any laws or regulations, including without limitation the export control laws of the
United States. No other rights of licenses to trademarks, inventions, copyrights, or patents are implied or granted under this Agreement.
4. Proprietary Information supplied shall not be reproduced in any form except as required to accomplish the intent of this Agreement.
5. The Director represents and warrants that he shall protect the Proprietary Information received with at least the same degree of care used to protect his own Proprietary
Information from unauthorized use or disclosure.
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6. All Proprietary Information (including all copies thereof) shall remain in the property of ApolloMed, and shall be returned to ApolloMed (or destroyed) after the Director's
need for it has expired, or upon request of ApolloMed, and in any event, upon the termination of that certain Board of Directors Agreement, of even date herewith, between ApolloMed
and the Director (the “Director Agreement”).
7. Notwithstanding any other provision of this Agreement, disclosure of Proprietary Information shall not be precluded if such disclosure:
(a) is in response to a valid order of a court or other governmental body of the United States or any political subdivision thereof; provided, however, that the Director shall first have
given ApolloMed notice of the Director’s receipt of such order and ApolloMed shall have had an opportunity to obtain a protective order requiring that the Proprietary Information so
disclosed be used only for the purpose for which the order was issued;
(b) is otherwise required by law; or
(c) is otherwise necessary to establish rights or enforce obligations under this Agreement, but only to the extent that any such disclosure is necessary.
8. Subject to the terms of this Paragraph, this Agreement shall continue in full force and effect during the term of the Director Agreement. This Agreement may be terminated
at any time upon thirty (30) days written notice to the other party. The termination of this Agreement shall not relieve the Director of the obligations imposed by Paragraphs 3, 4, 5 and
11 of this Agreement with respect to Proprietary information disclosed prior to the effective date of such termination and the provisions of these Paragraphs shall survive the
termination of this Agreement for a period of eighteen (18) months from the date of such termination.
9. This Agreement shall be governed by the laws of the State of California as those laws are applied to contracts entered into and to be performed entirely in California by
California residents.
10. This Agreement contains the final, complete and exclusive agreement of the parties relative to the subject matter hereof and may not be changed, modified, amended or
supplemented except by a written instrument signed by both parties.
11. Each party hereby acknowledges and agrees that in the event of any breach of this Agreement by the Director, including, without limitation, an actual or threatened
disclosure of Proprietary Information without the prior express written consent of ApolloMed, ApolloMed will suffer an irreparable injury, such that no remedy at law will afford it
adequate protection against, or appropriate compensation for, such injury. Accordingly, each party hereby agrees that ApolloMed shall be entitled to specific performance of the
Director's obligations under this Agreement, as well as such further injunctive relief as may be granted by a court of competent jurisdiction.
Director:
Apollo Medical Holdings, Inc.
Signature:
/s/ SURESH NIHALANI
Signature: /s/ WARREN HOSSEINION, M.D.
Print Name:
Suresh Nihalani
Print Name: Warren Hosseinion, M.D. _
Title: CEO
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT B
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (this “Agreement”) dated as of March 22, 2012, by and among APOLLO MEDICAL HOLDINGS, INC., a Delaware corporation (the
“Company”) and the indemnitees listed on the signature pages hereto (individually, as “Indemnitee” and, collectively, the “Indemnitees”).
RECITALS
A. The Company and Indemnitees recognize the continued difficulty in obtaining liability insurance for its directors, officers, employees, stockholders, controlling
persons, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance.
B. The Company and Indemnitees further recognize the substantial increase in corporate litigation in general, which subjects directors, officers, employees,
controlling persons, stockholders, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited.
C. The Indemnitees do not regard the current protection available as adequate under the present circumstances, and Indemnitees and other directors, officers,
employees, stockholders, controlling persons, agents and fiduciaries of the Company may not be willing to serve in such capacities without additional protection.
D. The Company (i) desires to attract and retain highly qualified individuals and entities, such as Indemnitees, to serve the Company and, in part, in order to
induce each Indemnitee to be involved with the Company and (ii) wishes to provide for the indemnification and advancing of expenses to each Indemnitee to the maximum extent
permitted by law.
E. In view of the considerations set forth above, the Company desires that each Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and each Indemnitee hereby agree as follows:
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1. Indemnification
a. Indemnification of Expenses. The Company shall indemnify and hold harmless each Indemnitee (including its respective directors, officers, partners,
former partners, members, former members, employees, agents and spouse, as applicable) and each person who controls any of them or who may be liable within the meaning of
Section 15 of the Securities Act of 1933, as amended (the “Securities Act”), or Section 20 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to the fullest
extent permitted by law if such Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in,
any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that such Indemnitee believes might
lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (hereinafter a
“Claim”) by reason of (or arising in part or in whole out of) any event or occurrence related to the fact that Indemnitee is or was or may be deemed a director, officer, stockholder,
employee, controlling person, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was or may be deemed to be serving at the request of the Company as a
director, officer, stockholder, employee, controlling person, agent or fiduciary of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, or by
reason of any action or inaction on the part of such Indemnitee while serving in such capacity including, without limitation, any and all losses, claims, damages, expenses and
liabilities, joint or several (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit, proceeding or any
claim asserted) under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise or which relate directly or indirectly to the
registration, purchase, sale or ownership of any securities of the Company or to any fiduciary obligation owed with respect thereto or as a direct or indirect result of any Claim made by
any stockholder of the Company against an Indemnitee and arising out of or related to any round of financing of the Company (including but not limited to Claims regarding non-
participation, or non-pro rata participation, in such round by such stockholder), or made by a third party against an Indemnitee based on any misstatement or omission of a material
fact by the Company in violation of any duty of disclosure imposed on the Company by federal or state securities or common laws (hereinafter an “Indemnification Event”) against any
and all expenses (including attorneys’ fees and all other costs, expenses and obligations incurred in connection with investigating, defending a witness in or participating in (including
on appeal), or preparing to defend, be a witness in or participate in, any such action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation),
judgments, fines, penalties and amounts paid in settlement (if, and only if, such settlement is approved in advance by the Company, which approval shall not be unreasonably
withheld) of such Claim and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter “Expenses”), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. Such payment of
Expenses shall be made by the Company as soon as practicable but in any event no later than ten (10) days after written demand by the Indemnitee therefor is presented to the
Company.
b. Reviewing Party. Notwithstanding the foregoing, (i) the obligations of the Company under Section 1(a) shall be subject to the condition that the Reviewing
Party (as described in Section 10(e) hereof) shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 1(e) hereof is
involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) each Indemnitee acknowledges and agrees that the obligation of the Company to
make an advance payment of Expenses to Indemnitee pursuant to Section 2(a) (an “Expense Advance”) shall be subject to the condition that, if, when and to the extent that the
Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who
hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in
a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee’s obligation to
reimburse the Company for any Expense Advance shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control (as defined in Section 10(c)
hereof), the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by
a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred
to in Section 1(e) hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any
such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.
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c. Contribution. If the indemnification provided for in Section 1(a) above for any reason is held by a court of competent jurisdiction to be unavailable to an
Indemnitee in respect of any losses, claims, damages, expenses or liabilities referred to therein, then the Company, in lieu of indemnifying such Indemnitee thereunder, shall
contribute to the amount paid or payable by such Indemnitee as a result of such losses, claims, damages, expenses or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Indemnitee, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Indemnitee in connection with the action or inaction
which resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. In connection with the registration of the Company’s
securities, the relative benefits received by the Company and the Indemnitee shall be deemed to be in the same respective proportions that the net proceeds from the offering (before
deducting expenses) received by the Company and the Indemnitee, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public
offering price of the securities so offered. The relative fault of the Company and the Indemnitee shall be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Indemnitee and the parties’
relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
The Company and the Indemnitee agree that it would not be just and equitable if contribution pursuant to this Section 1(c) were determined by pro rata or per capita
allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. In connection with the
registration of the Company’s securities, in no event shall Indemnitee be required to contribute any amount under this Section 1(c) in excess of the lesser of (i) that proportion of the
total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total securities sold under such registration statement which is being sold by such
Indemnitee or (ii) the proceeds received by such Indemnitee from its sale of securities under such registration statement. No person found guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.
any investigation made by or on behalf of the Indemnitee or any officer, director, employee, agent or controlling person of the Indemnitee.
d. Survival Regardless of Investigation. The indemnification and contribution provided for in this Section 1 will remain in full force and effect regardless of
e. Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved
by a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control) then, with respect to all matters thereafter arising concerning the
rights of Indemnitee to payments of Expenses under this Agreement or any other agreement or under the Company’s Certificate of Incorporation, as amended (the “Certificate”), or
Bylaws as now or hereafter in effect, Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected by the Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to abide by such opinion and to pay the reasonable fees of the Independent Legal
Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
f. Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the
merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in the defense of any action, suit, proceeding, inquiry or investigation referred to in Section
1(a) hereof or in the defense of any claim, issue or matter therein, each Indemnitee shall be indemnified against all Expenses incurred by such Indemnitee in connection herewith.
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2. Expenses; Indemnification Procedure.
Company to Indemnitee as soon as practicable but in any event no later than fifteen (15) days after written demand by such Indemnitee therefor to the Company.
a. Advancement of Expenses. The Company shall advance all Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid by the
b. Notice/Cooperation by Indemnitee. Indemnitee shall give the Company notice as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the
signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee).
c. No Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without
court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or
have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee
has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under applicable law, shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not
have any particular belief. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of
proof shall be on the Company to establish that Indemnitee is not so entitled.
d. Notice to Insurers. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has liability insurance
in effect which may cover such Claim, the Company shall give prompt written notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in
each of the policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of
such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies.
e. Selection of Counsel. In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company shall be entitled to
assume the defense of such Claim, with counsel reasonably approved by the applicable Indemnitee, upon the delivery to such Indemnitee of written notice of its election to do so. After
delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to such Indemnitee under this
Agreement for any fees of counsel subsequently incurred by such Indemnitee with respect to the same Claim; provided that, (i) the Indemnitee shall have the right to employ such
Indemnitee’s counsel in any such Claim at the Indemnitee’s expense; (ii) the Indemnitee shall have the right to employ its own counsel in connection with any such proceeding, at the
expense of the Company, if such counsel serves in a review, observer, advice and counseling capacity and does not otherwise materially control or participate in the defense of such
proceeding; and (iii) if (A) the employment of counsel by the Indemnitee has been previously authorized by the Company, (B) such Indemnitee shall have reasonably concluded that
there is a conflict of interest between the Company and such Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend
such Claim, then the fees and expenses of the Indemnitee’s counsel shall be at the expense of the Company.
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3. Additional Indemnification Rights; Nonexclusivity.
a. Scope. The Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, even if such indemnification is not specifically
authorized by the other provisions of this Agreement or any other agreement, the Certificate, the Company’s Bylaws or by statute. In the event of any change after the date of this
Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, stockholder,
employee, controlling person, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the
event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, employee,
agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’
rights and obligations hereunder except as set forth in Section 8(a) hereof.
b. Nonexclusivity. Notwithstanding anything in this Agreement, the indemnification provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Certificate, the Company’s Bylaws, any agreement, any vote of stockholders or disinterested directors, the laws of the State of Delaware, or
otherwise. Notwithstanding anything in this Agreement, the indemnification provided under this Agreement shall continue as to each Indemnitee for any action such Indemnitee took or
did not take while serving in an indemnified capacity even though the Indemnitee may have ceased to serve in such capacity and such indemnification shall inure to the benefit of each
Indemnitee from and after Indemnitee’s first day of service as a director with the Company or affiliation with a director from and after the date such director commences services as a
director with the Company.
4. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against any
Indemnitee to the extent such Indemnitee has otherwise actually received payment (under any insurance policy, Certificate, Bylaws or otherwise) of the amounts otherwise
indemnifiable hereunder.
5. Partial Indemnification. If any Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for any portion of Expenses
incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to
which such Indemnitee is entitled.
6. Mutual Acknowledgement. The Company and each Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, controlling persons, agents or fiduciaries under this Agreement or otherwise.
7. Liability Insurance. During any period of time any Indemnitee is entitled to indemnification rights under this Agreement, the Company shall maintain liability
insurance applicable to directors, officers, employees, control persons, agents or fiduciaries, each Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if such Indemnitee is a director, or of the Company’s officers, if
such Indemnitee is not a director of the Company but is an officer; or of the Company’s key employees, controlling persons, agents or fiduciaries, if such Indemnitee is not an officer or
director but is a key employee, agent, control person, or fiduciary. Said liability insurance shall provide coverage amounts of no less than those specified in Schedule A attached hereto
and be held with an insurance carrier which is the Board of Directors of the Company believes is of financial sound condition.
8. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:
Indemnitee of securities in violation of Section 16(b) of the Exchange Act or any similar successor statute;
a. Claims Under Section 16(b). To indemnify any Indemnitee for expenses and the payment of profits arising from the purchase and sale by such
indemnification is not lawful;
b. Unlawful Indemnification. To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that such
on the Company; or
c. Fraud. To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that the Indemnitee has committed fraud
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d. Insurance. To indemnify any Indemnitee for which payment is actually and fully made to Indemnitee under a valid and collectible insurance policy.
9. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against any Indemnitee, any
Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of such cause of action, and any claim or
cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such five (5) year period; provided, however,
that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.
10. Construction of Certain Phrases.
a. For purposes of this Agreement, references to the “Company” shall include, in addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors,
officers, employees, agents or fiduciaries, so that if Indemnitee is or was or may be deemed a director, officer, employee, agent, control person, or fiduciary of such constituent
corporation, or is or was or may be deemed to be serving at the request of such constituent corporation as a director, officer, employee, control person, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, each Indemnitee shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as each Indemnitee would have with respect to such constituent corporation if its separate existence had continued.
b. For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise
taxes assessed on any Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit
plan, its participants or its beneficiaries; and if any Indemnitee acted in good faith and in a manner such Indemnitee reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan, such Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this
Agreement.
c. For purposes of this Agreement a “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d)(3) and
14(d)(2) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, (A) who is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding Voting Securities, increases his beneficial ownership of such
securities by 5% or more over the percentage so owned by such person, or (B) becomes the “beneficial owner” (as defined in Rule 13d-3 under said Exchange Act), directly or
indirectly, of securities of the Company representing more than 30% of the total voting power represented by the Company’s then outstanding Voting Securities, (ii) during any period
of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least
two-thirds (2/3) of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series
of transactions) all or substantially all of the Company’s assets.
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d. For purposes of this Agreement, “Independent Legal Counsel” shall mean an attorney or firm of attorneys, selected in accordance with the provisions of
Section 1(e) hereof, who shall not have otherwise performed services for the Company or any Indemnitee within the last three (3) years (other than with respect to matters concerning
the right of any Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).
e. For purposes of this Agreement, a “Reviewing Party” shall mean any appropriate person or body consisting of a member or members of the Company’s
Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or
Independent Legal Counsel.
f. For purposes of this Agreement, “Voting Securities” shall mean any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the
Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation
or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to each Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had
taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnifiable Events regardless of whether any Indemnitee continues to serve as a director,
officer, employee, agent, controlling person, or fiduciary of the Company or of any other enterprise, including subsidiaries of the Company, at the Company’s request.
13. Attorneys’ Fees. In the event that any action is instituted by an Indemnitee under this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, any Indemnitee shall be entitled to be paid all Expenses incurred by such Indemnitee with respect to such action if
such Indemnitee is ultimately successful in such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, the Indemnitee shall be entitled to be paid Expenses incurred by such Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, in each case only to the
extent that such Indemnitee is ultimately successful in such action.
14. Notice. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be
deemed to be given (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if
delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of
delivery by facsimile transmission, if deliverable by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at each Indemnitee’s
address as set forth beneath the Indemnitee’s signature to this Agreement and if to the Company at the address of its principal corporate offices (attention: Secretary) or at such other
address as such party may designate by ten (10) days’ advance written notice to the other party hereto.
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15. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section,
paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest
extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
16. Choice of Law. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Delaware, as applied
to contracts between Delaware residents, entered into and to be performed entirely within the State of Delaware, without regard to the conflict of laws principles thereof.
17. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce
such rights.
18. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by the
parties to be bound thereby. Notice of same shall be provided to all parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
19. Corporate Authority. The Board of Directors of the Company and its stockholders in accordance with Delaware law have approved the terms of this Agreement.
(Remainder of page intentionally left blank)
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IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on and as of the day and year first above written.
APOLLO MEDICAL HOLDINGS, INC.,
a Delaware corporation
By: /s/ WARREN HOSSEINION M.D.
“Indemnitees”
/s/ SURESH NIHALANI
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Exhibit C
ELECTION UNDER SECTION 83(b) OF
THE INTERNAL REVENUE CODE
The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the
following information in accordance with the regulations promulgated thereunder:
1. The name, address and social security number of the undersigned:
Name: Suresh Nihalani
Address:_____________________________________
__________________________________________________
Social Security No.__________________________________
2. Description of property with respect to which the election is being made:
400,000 shares of common stock of Apollo Medical Holdings, Inc. (the “Company”).
3. The date on which the property was transferred is ___________.
4. The taxable year to which this election relates is calendar year __________.
5. Nature of restrictions to which the property is subject:
The shares of stock are subject to the provisions of a Restricted Stock Agreement between the undersigned and the Company. The shares of stock are subject to
forfeiture under the terms of the Agreement.
6. The fair market value of the property at the time of transfer (determined without regard to any lapse restriction) was $__________ per share, for a total of $ __________.
7. The amount paid by taxpayer for the property was nothing.
8. A copy of this statement has been furnished to the Company.
Dated:
Taxpayer’s Signature
Taxpayer’s Spouse’s Signature
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PROCEDURES FOR MAKING ELECTION
UNDER INTERNAL REVENUE CODE SECTION 83(b)
The following procedures must be followed with respect to the attached form for making an election under Internal Revenue Code section 83(b) in order for the election
to be effective:
A. You must file one copy of the completed election form with the IRS Service Center where you file your federal income tax returns within 30 days after the
Date of Award of your Restricted Stock.
B. At the same time you file the election form with the IRS, you must also give a copy of the election form to the Secretary of the Company.
C . You must file another copy of the election form with your federal income tax return (generally, Form 1040) when it is filed for the taxable year in
which the stock is transferred to you. It is suggested that a copy also be attached to your state income tax return.
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APOLLO MEDICAL HOLDINGS, INC.
2013 EQUITY INCENTIVE PLAN
Date of Adoption by the Board of Directors: April 30, 2013
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1.
PURPOSES OF THE PLAN
2013 EQUITY INCENTIVE PLAN
The purposes of the 2013 Equity Incentive Plan (the “Plan”) of Apollo Medical Holdings, Inc., a Delaware corporation (the “Company”), are to:
1.1 Encourage selected employees, directors, consultants and advisers to improve operations and increase the profitability of the Company;
1.2 Encourage selected employees, directors, consultants and advisers to accept or continue employment or association with the Company or its Affiliates (as defined
below); and
1.3 Increase the interest of selected employees, directors, consultants and advisers in the Company’s welfare through participation in the growth in value of the common
stock of the Company (the “Common Stock”). All references herein to stock or shares, unless otherwise specified, shall mean the Common Stock.
2.
TYPES OF AWARDS; ELIGIBLE PERSONS
2.1 The Administrator (as defined below) may, from time to time, take the following action, separately or in combination, under the Plan: (a) grant “incentive stock
options” (“ISOs”) intended to satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”); (b) grant “non-
qualified options” (“NQOs,” and together with ISOs, “Options”); (c) issue or sell shares of Common Stock (“Restricted Stock”) and (d) grant stock appreciation rights (any such right
would permit the holder to receive the excess of the fair market value of Common Stock on the exercise date over its fair market value (or a greater base value) on the grant date
(“SARs”)), either in tandem with Options or as separate and independent grants. Any such awards may be made to employees, including employees who are officers or directors, and
to individuals described in Section 1 of the Plan who the Administrator believes have made or will make a contribution to the Company or any Affiliate; provided, however, that only a
person who is an employee of the Company or any Affiliate at the date of the grant of an Option is eligible to receive ISOs under the Plan.
2.2 For purposes of the Plan: (a) the term “Affiliate” means a parent or subsidiary corporation as defined in the applicable provisions (currently Section 424(e) and 424(f),
respectively) of the Code; (b) the term “employee” includes an officer or director who is an employee of the Company; (c) the term “consultant” includes persons employed by, or
otherwise affiliated with, a consultant; and (d) the term “adviser” includes persons employed by, or otherwise affiliated with, an adviser.
2.3 Except as otherwise expressly set forth in the Plan, no right or benefit under the Plan shall be subject in any manner to anticipation, alienation, hypothecation, or
charge, and any such attempted action shall be void. No right or benefit under the Plan shall in any manner be liable for or subject to debts, contracts, liabilities, or torts of any optionee
or any other person except as otherwise may be expressly required by applicable law.
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3.
STOCK SUBJECT TO THE PLAN; MAXIMUM NUMBER OF GRANTS
3.1 Subject to the provisions of Section 3.2, the total number of shares of Common Stock that may be issued as Restricted Stock or on the exercise of Options or SARs
under the Plan shall not exceed Five Million (5,000,000) shares. The shares subject to an Option or SAR granted under the Plan that expire, terminate or are cancelled unexercised
shall become available again for grants under the Plan. If shares of Restricted Stock awarded under the Plan are forfeited to the Company or repurchased by the Company, the
number of shares forfeited or repurchased shall again be available under the Plan. Where the exercise price of an Option is paid by means of the optionee’s surrender of previously
owned shares of Common Stock or the Company’s withholding of shares otherwise issuable upon exercise of the Option as may be permitted in the Plan, only the net number of
shares issued and which remain outstanding in connection with such exercise shall be deemed “issued” and no longer available for issuance under the Plan. No eligible person shall
be granted Options or other awards during any twelve-month period covering more than One Million Two Hundred Thousand (1,200,000) shares.
3.2 If the Common Stock is changed by reason of a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification, then the number and
class of shares of stock subject to the Plan that may be issued under the Plan shall be proportionately adjusted (provided that any fractional share resulting from such adjustment shall
be disregarded).
4.
ADMINISTRATION
4.1 The Plan shall be administered by the Board of Directors of the Company (the “Board”) or by a committee (the “Committee”) to which the Board has delegated
administration of the Plan (or of part thereof) (in either case, the “Administrator”). The Board shall appoint and remove members of the Committee in its discretion in accordance with
applicable laws. At the Board’s discretion, or if necessary in order to comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or Section
162(m) of the Code, the Committee shall, in the Board’s discretion, be comprised solely of “non-employee directors” within the meaning of said Rule 16b-3 or “outside directors” within
the meaning of Section 162(m) of the Code. The foregoing notwithstanding, the Administrator may delegate non-discretionary administrative duties to such employees of the Company
as it deems proper and the Board, in its absolute discretion, may at any time and from time to time exercise any and all rights and duties of the Administrator under this Plan.
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4.2 Subject to the other provisions of the Plan, the Administrator shall have the authority, in its discretion: (a) to grant Options and SARs and grant or sell Restricted
Stock; (b) to determine the fair market value of the shares of Common Stock subject to Options or other awards; (c) to determine the exercise price of Options granted, which shall be
no less than the fair market value of the Common Stock on the date of grant, the economic terms of SARs granted, which shall provide for a benefit of the appreciation on Common
Stock over not less than the value of the Common Stock on the date of grant, or the offering price of Restricted Stock; (d) to determine the persons to whom, and the time or times at
which, Options or SARs shall be granted or Restricted Stock granted or sold, and the number of shares subject to each Option or SAR or the number of shares of Restricted Stock
granted or sold; (e) to construe and interpret the terms and provisions of the Plan, of any applicable agreement and all Options and SARs granted under the Plan, and of any Restricted
Stock award under the Plan; (f) to prescribe, amend, and rescind rules and regulations relating to the Plan; (g) to determine the terms and provisions of each Option and SAR granted
and award of Restricted Stock (which need not be identical), including but not limited to, the time or times at which Options and SARs shall be exercisable or the time at which the
restrictions on Restricted Stock shall lapse; (h) with the consent of the Grantee, to rescind any award or exercise of an Option or SAR; (i) to modify or amend the terms of any Option,
SAR or Restricted Stock (with the consent of the Grantee or holder of the Restricted Stock if the modification or amendment is adverse to the Grantee or holder); (j) to reduce the
purchase price of Restricted Stock or exercise price of any Option or base price of any SAR; (k) to accelerate or defer (with the consent of the Grantee) the exercise date of any Option
or SAR or the date on which the restrictions on Restricted Stock lapse; (l) to issue shares of Restricted Stock to an optionee in connection with the accelerated exercise of an Option by
such optionee; (m) to authorize any person to execute on behalf of the Company any instrument evidencing the grant of an Option, SAR or award of Restricted Stock; (n) to determine
the duration and purposes of leaves of absence which may be granted to participants without constituting a termination of their employment for the purposes of the Plan; and (o) to
make all other determinations deemed necessary or advisable for the administration of the Plan, any applicable agreement, Option, SAR or award of Restricted Stock.
4.3 All questions of interpretation, implementation, and application of the Plan or any agreement or Option, SAR or award of Restricted Stock shall be determined by the
Administrator, which determination shall be final and binding on all persons.
5.
GRANTING OF OPTIONS AND SARS; AGREEMENTS
5.1 No Options or SARs shall be granted under the Plan after 10 years from the date of adoption of the Plan by the Board.
5.2 Each Option and SAR shall be evidenced by a written agreement, in form satisfactory to the Administrator, executed by the Company and the person to whom such
grant is made (“Grantee,” which term shall include the permitted successors and assigns of the Grantee with respect to the Option or SAR). In the event of a conflict between the terms
or conditions of an agreement and the terms and conditions of the Plan, the terms and conditions of the Plan shall govern.
5.3 Each Option agreement shall specify whether the Option it evidences is an NQO or an ISO, provided, however, all Options granted under the Plan to non-employee
directors, consultants and advisers of the Company are intended to be NQOs.
5.4 Subject to Section 6.3.3 with respect to ISOs, the Administrator may approve the grant of Options or SARs under the Plan to persons who are expected to become
employees, directors, consultants or advisers of the Company, but are not employees, directors, consultants or advisers at the date of approval, and the date of approval shall be
deemed to be the date of grant unless otherwise specified by the Administrator.
5.5 For purposes of the Plan, the term “employment” shall be deemed to include service as an employee, director, consultant or adviser. For avoidance of any doubt, a
person who is in the employment of the Company is not necessarily an “employee” for purposes of ISOs.
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6.
TERMS AND CONDITIONS OF OPTIONS AND
SARS
Each Option and SAR granted under the Plan shall be subject to the terms and conditions set forth in Section 6.1. NQOs and SARs shall also be subject to the terms and
conditions set forth in Section 6.2, but not those set forth in Section 6.3. ISOs shall also be subject to the terms and conditions set forth in Section 6.3, but not those set forth in Section
6.2. SARs shall be subject to the terms and conditions of Section 6.4.
6.1 Terms and Conditions to Which All Options and SARs Are Subject. All Options and SARs granted under the Plan shall be subject to the following terms and
conditions:
6.1.1 Changes in Capital Structure. Subject to Section 6.1.2, if the Common Stock is changed by reason of a stock split, reverse stock split, stock dividend,
recapitalization, combination or reclassification, then the number and class of shares of stock subject to each Option and SAR outstanding under the Plan, and the exercise price of
each outstanding Option and the base value of SAR, shall be automatically and proportionately adjusted; provided, that the Company shall not be required to issue fractional shares as
a result of any such adjustments. Such adjustment, however, in any outstanding Option or SAR shall be made without change in the total price applicable to the unexercised portion of
the Option or SAR but with a corresponding adjustment in the price for each share covered by the unexercised portion of the Option or SAR. Any determination by the Administrator in
connection with these adjustments shall be final, binding, and conclusive. If an adjustment under this Section 6.1.1 would result in a fractional share interest under an option or any
installment, the Administrator’s decision as to inclusion or exclusion of that fractional share interest shall be final, but no fractional shares of stock shall be issued under the Plan on
account of any such adjustment.
6.1.2 Corporate Transactions. The provisions of this Section 6.1.2 shall apply to all Options and SARs granted under this Plan unless otherwise provided for in
the stock option agreement or in a separate employment or other agreement between the Grantee and the Company. To the extent not previously exercised, all Options and SARs
shall terminate immediately prior to the consummation of a Corporate Transaction (as defined below) unless the Administrator determines otherwise in its sole discretion, provided,
however, that the Administrator, in its sole discretion, may (i) permit exercise of any Options and/or SARs prior to their termination, even if such Options and/or SARs would not
otherwise have been exercisable (provided that the Option or SAR has not expired by its terms and that the Grantee takes all steps necessary to exercise the Option or SAR prior to
the Corporate Transaction as required by the agreement evidencing the Option or SAR), and/or (ii) provide that all or certain of the outstanding Options or SARs shall be assumed or
an equivalent option substituted by an applicable successor corporation or any Affiliate of the successor corporation in the event of a Corporate Transaction. A “Corporate Transaction”
means (i) a liquidation or dissolution of the Company; (ii) a merger or consolidation of the Company with or into another corporation or entity (other than a merger with a wholly-owned
subsidiary); or (iii) a sale of all or substantially all of the assets of the Company in a single transaction or a series of related transactions.
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6.1.3 Time of Option or SAR Exercise. Subject to Section 5 and 6.3.4, an Option or SAR granted under the Plan shall be exercisable (a) immediately as of the
effective date of the applicable agreement granting the Option or SAR or (b) in accordance with a schedule or performance criteria as may be set by the Administrator and specified in
the applicable agreement. However, in no case may an Option or SAR be exercisable until the Company and the Grantee execute a written agreement in form and substance
satisfactory to the Company.
6.1.4 Grant Date. The date of grant of an Option or SAR under the Plan shall, for all purposes, be no earlier than the date on which the Board or Administrator
makes the determination granting such option, or any date thereafter specified by the Board or Administrator in such approval and reflected as the effective date of the applicable
agreement.
6.1.5 Non-Transferability of Rights. Except with the express written approval of the Administrator, which approval the Administrator is authorized to give only with
respect to NQOs and SARs, no Option or SAR granted under the Plan shall be assignable or otherwise transferable by the Grantee except by will or by the laws of descent and
distribution. During the life of the Grantee, an Option or SAR shall be exercisable only by the Grantee or permitted transferee.
6.1.6 Payment. Except as provided below, payment in full, in cash, shall be made for all Common Stock purchased at the time written notice of exercise of an
Option is given to the Company and the proceeds of any payment shall be considered general funds of the Company. The Administrator in its sole discretion may include in any Option
agreement, or separately approve in connection with the exercise of any Option, any one or more of the following additional methods of payment (provided such payment does not
violate applicable law or regulations or the rules of any securities exchange on which the Company’s securities may be listed):
(a) Acceptance of the Grantee’s full recourse promissory note for all or part of the Option price, payable on such terms and bearing such interest rate as
determined by the Administrator (but in no event less than the minimum interest rate specified under the Code at which no additional interest or original issue discount would be
imputed), which promissory note may be either secured or unsecured in such manner as the Administrator shall approve (including, without limitation, by a security interest in the
shares of the Company);
(b) Delivery by the optionee of shares of Common Stock already owned by the optionee for all or part of the Option price, provided the fair market value
(determined as set forth in Section 6.1.10) of such shares of Common Stock is equal on the date of exercise to the Option price, or such portion thereof as the optionee is authorized to
pay by delivery of such stock;
(c) Through the surrender of shares of Common Stock then issuable upon exercise of the Option, provided the fair market value (determined as set forth
in Section 6.1.10) of such shares of Common Stock is equal on the date of exercise to the Option price, or such portion thereof as the optionee is authorized to pay by surrender of
such stock; and
Exchange Commission and the Federal Reserve Board.
(d) By means of so-called cashless exercises through a securities broker as permitted under applicable rules and regulations of the Securities and
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6.1.7 Termination of Employment. Unless otherwise provided in the applicable agreement, if for any reason a Grantee ceases to be employed by at least the
Company or one of its Affiliates, each Option and SAR held by the Grantee at the date of termination of employment (to the extent then exercisable) may be exercised in whole or in
part at any time (but in no event after the Expiration Date and or the termination of the Option or SAR pursuant to Section 6.1.2) within one year of the date of termination in the case
of termination by reason of death or disability; at the commencement of business on the date of a termination for “cause” (as defined in the applicable agreement or in any agreement
with the Company pertaining to employment); and, in all other cases, within 90 days of the date of termination. For purposes of this Section 6.1.7, a Grantee’s employment shall not be
deemed to terminate by reason of the Grantee’s transfer from the Company to an Affiliate, or vice versa, or sick leave, military leave or other leave of absence approved by the
Administrator, if the period of any such leave does not exceed 90 days or, if longer, if the Grantee’s right to reemployment by the Company or any Affiliate is guaranteed either
contractually or by statute.
6.1.8 Withholding and Employment Taxes. At the time of exercise and as a condition thereto, or at such other time as the amount of such obligation becomes
determinable, the Grantee of an Option or SAR shall remit to the Company in cash all applicable federal and state withholding and employment taxes. Such obligation to remit may be
satisfied, if authorized by the Administrator in its sole discretion, after considering any tax, accounting and financial consequences, by the Grantee’s (a) delivery of a promissory note in
the required amount on such terms as the Administrator deems appropriate, (b) tendering to the Company previously owned shares of Common Stock or other securities of the
Company with a fair market value equal to the required amount, or (c) agreeing to have shares of Common Stock (with a fair market value equal to the required amount), which are
acquired upon exercise of the Option or SAR, withheld by the Company.
6.1.9 Other Provisions. Each Option and SAR granted under the Plan may contain such other terms, provisions, and conditions not inconsistent with the Plan as
may be determined by the Administrator, and each ISO granted under the Plan shall include such provisions and conditions as are necessary to qualify the Option as an “incentive
stock option” within the meaning of Section 422 of the Code.
6.1.10 Determination of Fair Market Value. For purposes of the Plan, Board of Directors shall determine the fair market value of Common Stock of the Company on
the date of grant as follows:
(a) “Fair Market Value” on any given date means the value of one share of Common Stock, determined by the Board of Directors under Treasury
Regulation Section 1.409A, using the volume weighted-average closing stock price of the Company’s Common Stock for the trailing 30-day period. If there is no trading volume on a
given day, the mean of the high bid and low ask price will be used as the day’s closing stock price, and the mean of the high bid and low ask volumes will be used as the day’s volume.
(b) In the absence of an established market for the stock, the fair market value thereof shall be determined in good faith by the Board of Directors, with
reference to the Company’s net worth, prospective earning power, dividend-paying capacity, and other relevant factors, including the goodwill of the Company, the economic outlook in
the Company’s industry, the Company’s position in the industry, the Company’s management, and the values of stock of other corporations in the same or a similar line of business.
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6.1.11 Option and SAR Term. Subject to Section 6.3.4, no Option or SAR shall be exercisable more than 10 years after the date of grant, or such lesser period of
time as is set forth in the applicable agreement (the end of the maximum exercise period stated in the agreement is referred to in the Plan as the “Expiration Date”).
6.2 Terms and Conditions to Which Only NQOs and SARs Are Subject. Options granted under the Plan which are designated as NQOs and SARs shall be subject to the
following terms and conditions:
6.2.1 Exercise Price. The exercise price of an NQO and the base value of an SAR shall be the amount determined by the Administrator as specified in the option
or SAR agreement, but shall not be less than the fair market value of the Common Stock on the date of grant (determined under Section 6.1.10).
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options granted under the Plan which are designated as ISOs shall be subject to the following terms and
conditions:
6.3.1 Exercise Price. The exercise price of an ISO shall not be less than the fair market value (determined in accordance with Section 6.1.10) of the stock covered
by the Option at the time the Option is granted. The exercise price of an ISO granted to any person who owns, directly or by attribution under the Code (currently Section 424(d)), stock
possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any Affiliate (a “10% Stockholder”) shall in no event be less than 110% of
the fair market value (determined in accordance with Section 6.1.10) of the stock covered by the Option at the time the Option is granted.
6.3.2 Disqualifying Dispositions. If stock acquired by exercise of an ISO granted pursuant to the Plan is disposed of in a “disqualifying disposition” within the
meaning of Section 422 of the Code (a disposition within two years from the date of grant of the Option or within one year after the issuance of such stock on exercise of the Option),
the holder of the stock immediately before the disposition shall promptly notify the Company in writing of the date and terms of the disposition and shall provide such other information
regarding the Option as the Company may reasonably require.
6.3.3 Grant Date. If an ISO is granted in anticipation of employment as provided in Section 5.4, the Option shall be deemed granted, without further approval, on
the date the Grantee assumes the employment relationship forming the basis for such grant, and, in addition, satisfies all requirements of the Plan for Options granted on that date.
6.3.4 Term. Notwithstanding Section 6.1.11, no ISO granted to any 10% Stockholder shall be exercisable more than five years after the date of grant.
6.4 Terms and Conditions Applicable Solely to SARs. In addition to the other terms and conditions applicable to SARs in this Section 6, the holder shall be entitled to
receive on exercise of an SAR only Common Stock at a fair market value equal to the benefit to be received by the exercise.
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6.5 Manner of Exercise. A Grantee wishing to exercise an Option or SAR shall give written notice to the Company at its principal executive office, to the attention of the
officer of the Company designated by the Administrator, accompanied by payment of the exercise price and/or withholding taxes as provided in Sections 6.1.6 and 6.1.8. The date the
Company receives written notice of an exercise hereunder accompanied by the applicable payment will be considered as the date such Option or SAR was exercised. Promptly after
receipt of written notice of exercise and the applicable payments called for by this Section 6.5, the Company shall, without stock issue or transfer taxes to the holder or other person
entitled to exercise the Option or SAR, deliver to the holder or such other person a certificate or certificates for the requisite number of shares of Common Stock. A holder or permitted
transferee of an Option or SAR shall not have any privileges as a stockholder with respect to any shares of Common Stock to be issued until the date of issuance (as evidenced by the
appropriate entry on the books of the Company or a duly authorized transfer agent) of such shares.
7.
RESTRICTED STOCK
7.1 Grant or Sale of Restricted Stock.
7.1.1 No grants or sales of Restricted Stock shall be made under the Plan after 10 years from the date of adoption of the Plan by the Board.
7.1.2 The Administrator may issue Restricted Stock under the Plan for such consideration (including past or future services, any benefit to the Company, and,
subject to applicable law, recourse promissory notes) and such other terms, conditions and restrictions as determined by the Administrator. The restrictions may include restrictions
concerning transferability, repurchase by the Company and forfeiture of the shares issued, together with such other restrictions as may be determined by the Administrator. If shares
are subject to forfeiture or repurchase by the Company, all dividends or other distributions paid by the Company with respect to the shares may be retained by the Company until the
shares are no longer subject to forfeiture or repurchase, at which time all accumulated amounts shall be paid to the recipient.
7.1.3 All Common Stock issued pursuant to this Section 7.1 shall be subject to an agreement, which shall be executed by the Company and the prospective
recipient of the Common Stock prior to the delivery of certificates representing such stock to the recipient. The agreement may contain any terms, conditions, restrictions,
representations and warranties required by the Administrator. The certificates representing the shares shall bear any legends required by the Administrator.
7.1.4 The Administrator may require any purchaser or grantee of Restricted Stock to pay to the Company in cash, upon demand, amounts necessary to satisfy
any applicable federal, state or local tax withholding requirements. If the purchaser or grantee fails to pay the amount demanded, the Administrator may withhold that amount from
other amounts payable by the Company to the purchaser or grantee, including salary, subject to applicable law. With the consent of the Administrator in its sole discretion, a purchaser
may deliver Common Stock to the Company to satisfy this withholding obligation.
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7.2 Corporate Transactions. All restricted stock subject to forfeiture as of the occurrence of any Corporate Transaction shall be forfeited immediately prior to the
consummation of such Corporate Transaction unless the Administrator determines otherwise in its sole discretion. The Administrator, in its sole discretion, may remove any restrictions
as to any outstanding restricted stock. The Administrator may, in its sole discretion, provide that all outstanding restricted stock participate in the Corporate Transaction with an
equivalent stock substituted by an applicable successor corporation subject to the restriction.
8.
EMPLOYMENT
RELATIONSHIP
OR
CONSULTING
Nothing in the Plan, any Option or SAR granted under the Plan, or any Restricted Stock granted or sold under the Plan, shall interfere with or limit in any way the right of the
Company or of any of its Affiliates to terminate the employment of any Grantee or holder of Restricted Stock or an SAR at any time, nor confer upon any Grantee or holder of
Restricted Stock or an SAR any right to continue in the employ of, or consult with, or advise, the Company or any of its Affiliates.
9.
CONDITIONS UPON ISSUANCE OF SHARES
Notwithstanding the provisions of any Option, SAR or offer of Restricted Stock, the Company shall have no obligation to issue shares under the Plan unless such issuance
shall be either registered or qualified under applicable securities laws, including, without limitation, the Securities Act, or exempt from such registration or qualification. The Company
shall have no obligation to register or qualify such issuance under the Securities Act or other securities laws.
10.
NON-EXCLUSIVITY OF THE PLAN
The adoption of the Plan shall not be construed as creating any limitations on the power of the Company to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options other than under the Plan.
11.
MARKET STAND-OFF
Each Grantee and recipient of Restricted Stock, if so requested by the Company or any representative of the underwriters in connection with any registration of any securities
of the Company under the Securities Act, shall not sell or otherwise transfer any shares of Common Stock acquired upon exercise of Options or SARs, or such Restricted Stock or
receipt of Restricted Stock during a period of up to 180 days following the effective date of a registration statement of the Company filed under the Securities Act; provided, however,
that such restriction is applicable to all directors and officers of the Company.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
12.
AMENDMENTS TO PLAN
The Board may at any time amend, alter, suspend or discontinue the Plan. Without the consent of a Grantee or holder of Restricted Stock, no amendment, alteration,
suspension or discontinuance may adversely affect such person’s outstanding Option(s), SAR(s) or the terms applicable to Restricted Stock except to conform the Plan and ISOs
granted under the Plan to the requirements of federal or other tax laws relating to ISOs. No amendment, alteration, suspension or discontinuance to the Plan shall require stockholder
approval unless (a) stockholder approval is required to preserve incentive stock option treatment for federal income tax purposes; (b) the Board otherwise concludes that stockholder
approval is advisable; or (c) such approval is required under the rules of any securities exchange on which securities of the Company are registered.
13.
COMPLIANCE WITH CALIFORNIA CODE OF REGULATIONS.
13.1 Except during any period in which the grant of Options and grant or sale of Restricted Stock under this Plan is exempt from qualification under the California
Corporate Securities Law of 1968 pursuant to any exemption other than Section 25102(o) of such Law, the Plan, all Options granted and all Restricted Stock granted or sold under the
Plan shall comply with Sections 260.140.41, 260.140.42, 260.140.45 and 260.140.46 of Title 10 of the California Code of Regulations, as in effect and as from time to time amended
(“Title 10”), including the following (which shall be deemed modified or amended by any corresponding change in the applicable regulations):
13.1.1 At no time shall the total number of securities issuable upon exercise of all outstanding options (excluding options, warrants and rights excluded by
Section 260.140.45) and the total number of shares provided for under any stock bonus or similar plan or agreement of the Company exceed the 30% limitation set forth in Section
260.140.45 of Title 10 based on the securities of the Company which are outstanding at the time the calculation is made.
13.1.2 The exercise price of the Option, and the purchase price of Restricted Stock, shall not be less than 85% (100% in the case of any person who owns
securities possessing more than 10% of the total combined voting power of all classes of securities of the Company) of the fair market value of the stock covered by the Option at the
time the Option is granted (with fair value and total combined voting power determined in accordance with Section 260.140.41(b) and 260.140.42(b), as applicable, of Title 10).
13.1.3 No Option shall be transferable except by will, the laws of descent and distribution, or as permitted by Rule 701 under the Securities Act of 1933, as
amended.
over five years.
13.1.4 If the Option is granted to an employee other than an officer, director, manager or consultant, it shall be exercisable at the rate of at least 20% per year
13.1.5 If the Restricted Stock is sold to an employee other than an officer, director, manager or consultant, any right to repurchase at the original purchase price
must lapse at the rate of at least 20% per year over five years and the right to repurchase must be exercised for cash or cancellation of purchase money indebtedness for the stock
within 90 days of termination of employment.
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13.1.6 If the Option gives the Company the right to repurchase shares acquired upon exercise of the Option upon termination of employment, it must comply with
Section 260.140.41 of Title 10.
13.1.7 The Option shall remain exercisable (to the extent the optionee is entitled to exercise on the date of termination of employment) for at least: (i) six months
after the date of termination of employment where termination occurs by reason of an optionee’s death or disability; or (ii) 30 days after the date of termination of employment if
termination was for any reason other than death, disability or termination by the Company for cause (as defined in the applicable agreement or in any agreement with the Company
pertaining to employment) (provided that in each case that the Option shall not be exercisable after the Expiration Date).
13.2 Annual Financial Statements. The Company shall provide to each Grantee financial statements of the Company at least annually.
14.
EFFECTIVE DATE OF PLAN; DISCONTINUANCE OR TERMINATION OF PLAN
The Plan became effective on April 30, 2013, the date of adoption by the Board; provided, however, that no shares of Common Stock shall be issued, and no Option or SAR
shall be exercisable, unless and until the Plan is approved by the holders of a majority of the stockholders of the Company entitled to vote within 12 months after adoption by the
Board. If any Options or SARs are so granted and stockholder approval shall not have been obtained within 12 months of the date of adoption of the Plan by the Board, such Options
and SARs shall terminate retroactively as of the date they were granted. The Board may at any time adopt a resolution stating the no more awards will be granted under the Plan. The
Plan shall terminate upon the first date at which there shall not be any outstanding Options or SARS or any outstanding Restricted Stock subject to vesting and/or repurchase
conditions following the first to occur of: (a) ten years after the Effective Date, or (b) the date the Board adopts a resolution discontinuing the grant of awards under the Plan.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
This Board of Directors Agreement (“Agreement”) made as of May 22, 2013 by and between Apollo Medical Holdings, Inc., with its principal place of business at 700 N. Brand Blvd,
Suite 220, Glendale, California, 91203 (“ApolloMed”) and David G Schmidt, with an address of ________________________ ___________, (the “Director”) provides for director
services, according to the following terms and conditions:
BOARD OF DIRECTORS AGREEMENT
I. Services Provided
ApolloMed agrees to engage the Director to serve on the Board of Directors of ApolloMed and to provide those services required of a director under ApolloMed’s Certificate of
Incorporation and Bylaws, as both may be amended from time, to time (“Articles and Bylaws”) and under the General Corporation Law of Delaware, the federal securities laws and
other state and federal laws and regulations, as applicable. Director will also serve as Chairman of the Audit Committee of ApolloMed.
II. Nature of Relationship
The Director is an independent contractor and will not be deemed an employee of ApolloMed for purposes of employee benefits, income tax withholding, F.I.C.A. taxes, unemployment
benefits or otherwise. The Director shall not enter into any agreement or incur any obligations on ApolloMed’s behalf.
ApolloMed will supply, at no cost to the Director: periodic briefings on the business, director packages for each board and committee meeting, copies of minutes of meetings and any
other materials that are required under ApolloMed’s Articles and Bylaws or the charter of any committee of the board on which the Director serves and any other materials which may,
by mutual agreement, be necessary for performing the services requested under this Agreement.
III. Director’s Warranties
The Director warrants that no other party has exclusive rights to his services in the specific areas in which ApolloMed is conducting business and that the Director is in no way
compromising any rights or trust between any other party and the Director or creating a conflict of interest as a result of his participation on the Board of Directors of ApolloMed. The
Director also warrants that so long as the Director serves on the board of the directors of ApolloMed, the Director will not enter into another agreement that will create a conflict of
interest with this Agreement. The Director further warrants that he will comply with all applicable state and federal laws and regulations, as applicable, including Sections 10 and 16 of
the Securities and Exchange Act of 1934.
Throughout the term of this Agreement, the Director agrees he will not, without obtaining ApolloMed’s prior written consent, directly or indirectly engage or prepare to engage in any
activity in competition with any ApolloMed business or product, including products in the development stage, accept employment or provide services to (including service as a member
of a board of directors), or establish a business in competition with ApolloMed.
IV. Compensation
A. Cash Fee
During the term of this Agreement, ApolloMed shall pay the Director a nonrefundable fee of $1,000 per board of director meeting in consideration for the Director providing the services
described in Section I which shall compensate him for all time spent preparing for, travelling to (if applicable) and attending board of director meetings; provided, however, that if any
board meetings or duties require out-of-town travel time, such additional travel time may be billed at the rate set forth in subparagraph C of Section IV below. This cash fee may be
revised by action of ApolloMed’s Board of Directors from time to time. Such revision shall be effective as of the date specified in the resolution for payments not yet earned and need
not be documented by an amendment to this Agreement.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
B. Equity Compensation
Issuance of Shares. Upon the execution and delivery of this Agreement, ApolloMed shall issue to the Director (or designee of the Director) a restricted stock award of 400,000 options
of ApolloMed’s common stock (collectively, the “Options”). Pursuant to the request of the Director, all of the securities shall be issued in the name of “____________” and the Options
that have not been released from Escrow (as defined herein below) may not be sold, pledged, hypothecated or otherwise transferred to any other person. All certificates representing
the Shares shall bear a legend regarding the fact that the Shares are not registered under the Securities Act of 1933, as amended (the “Securities Act”), and none of the Shares may
be sold, pledged, hypothecated or otherwise transferred without compliance with Federal and applicable state securities laws.
Exercise Schedule: The Option shall become exercisable (“vest”) as follows:
Date
[Immediately]
[First anniversary]
[Second anniversary]
C. Additional Payments
Number of Shares
133,334
133,333
133,333
To the extent services described in Section I require out-of-town trips, such additional travel time may be charged at the rate of $1,200 per day or pro rated portion thereof. This rate
may be revised by action of ApolloMed’s Board of Directors from time to time for payments not yet earned. Such revision shall be effective as of the date specified in the resolution and
need not be documented by an amendment to this Agreement.
D. Payment
Cash fees shall be made quarterly in cash in advance on the first day of each accounting quarter. Additional payments shall be made in arrears. No invoices need be submitted by
the Director for payment of the cash fee. Invoices for additional payments under subparagraph C of Section IV, above, shall be submitted by the Director. Such invoices must be
approved by ApolloMed’s Chief Executive Officer as to form and completeness.
E. Expenses
ApolloMed will reimburse the Director for reasonable expenses approved in advance, such approval not to be unreasonably withheld. Invoices for expenses, with receipts attached,
shall be submitted. Such invoices must be approved by ApolloMed’s Chief Executive Officer as to form and completeness.
V. Indemnification and Insurance
ApolloMed will execute an indemnification agreement in favor of the Director substantially in the form of the agreement attached hereto as Exhibit B (the “Indemnification Agreement”).
In addition, so long as ApolloMed’s indemnification obligations exist under the Indemnification Agreement, ApolloMed shall provide the Director with directors and officers liability
insurance coverage in the amounts specified in the Indemnification Agreement.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
VI. Term of Agreement
This Agreement shall be in effect from the date hereof through the last date of the Director’s current term as a member of ApolloMed’s Board of Directors. This Agreement shall be
automatically renewed on the date of the Director’s reelection as a member of ApolloMed’s Board of Director’s for the period of such new term unless the Board of Directors determines
not to renew this Agreement. Any amendment to this Agreement must be approved by a written action of ApolloMed’s Board of Directors. Amendments to Section IV Compensation
hereof do not require the Director’s consent to be effective.
VII. Termination
This Agreement shall automatically terminate upon the death of the Director or upon his resignation or removal from, or failure to win election or reelection to, the ApolloMed Board of
Directors.
In the event of any termination of this Agreement, the Director agrees to return or destroy any materials transferred to the Director under this Agreement except as may be necessary
to fulfill any outstanding obligations hereunder. The Director agrees that ApolloMed has the right of injunctive relief to enforce this provision.
ApolloMed’s and the Director’s continuing obligations hereunder in the event of such termination shall be subject to the terms of Section XIV hereof.
VIII. Limitation of Liability
Under no circumstances shall ApolloMed be liable to the Director for any consequential damages claimed by any other party as a result of representations made by the Director with
respect to ApolloMed which are materially different from any to those made in writing by ApolloMed.
Furthermore, except for the maintenance of confidentiality, neither party shall be liable to the other for delay in any performance, or for failure to render any performance under this
Agreement when such delay or failure is caused by Government regulations (whether or not valid), fire, strike, differences with workmen, illness of employees, flood, accident, or any
other cause or causes beyond reasonable control of such delinquent party.
IX. Confidentiality
The Director agrees to sign and abide by ApolloMed’s Director Proprietary Information and Inventions Agreement, a copy of which is attached hereto as Exhibit A.
X. Resolution of Dispute
Any dispute regarding the agreement (including without limitation its validity, interpretation, performance, enforcement, termination and damages) shall be determined in accordance
with the laws of the State of California, the United States of America. Any action under this paragraph shall not preclude any party hereto from seeking injunctive or other legal relief to
which each party may be entitled.
XI. Sole Agreement
This Agreement (including agreements executed in substantially in the form of the exhibits attached hereto) supersedes all prior or contemporaneous written or oral understandings or
agreements, and may not be added to, modified, or waived, in whole or in part, except by a writing signed by the party against whom such addition, modification or waiver is sought to
be asserted.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
XII. Assignment
This Agreement and all of the provisions hereof shall be binding upon and insure to the benefit of the parties hereto and their respective successors and permitted assigns and, except
as otherwise expressly provided herein, neither this Agreement, nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto without the
prior written consent of the other party.
XIII. Notices
Any and all notices, requests and other communications required or permitted hereunder shall be in writing, registered mail or by facsimile, to each of the parties at the addresses set
forth above or the numbers set forth below:
The Director:
ApolloMed:
David G. Schmidt
Apollo Medical Holdings, Inc.
700 N. Brand Blvd, Suite 220
Glendale, CA 91203
Any such notice shall be deemed given when received and notice given by registered mail shall be considered to have been given on the tenth (10th) day after having been sent in the
manner provided for above.
XIV. Survival of Obligations
Notwithstanding the expiration of termination of this Agreement, neither party hereto shall be released hereunder from any liability or obligation to the other which has already accrued
as of the time of such expiration or termination (including, without limitation, ApolloMed’s obligation to make any fees and expense payments required pursuant to Section IV and/or
ApolloMed’s indemnification and insurance obligations set forth in Section V hereof) or which thereafter might accrue in respect of any act or omission of such party prior to such
expiration or termination.
XV. Attorneys’ Fees
If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of a dispute, breach or default in connection with any of the provisions hereof, the
successful or prevailing party (including a party successful or prevailing in defense) shall be entitled to recover its actual attorneys’ fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
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XV. Severability
Any provision of this Agreement which is determined to be invalid or unenforceable shall not affect the remainder of this Agreement, which shall remain in effect as though the invalid or
unenforceable provision had not been included herein, unless the removal of the invalid or unenforceable provision would substantially defeat the intent, purpose or spirit of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above.
Director:
/s/ DAVID SCHMIDT
Signature
David Schmidt
Print Name
Apollo Medical Holdings, Inc.:
WARREN HOSSEINION, M.D.
Signature
Warren Hosseinion, M.D.
Warren Hosseinion, M.D. - CEO
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
THIS BOARD OF DIRECTORS PROPRIETARY INFORMATION AGREEMENT (“Agreement”) is made and entered into this ___ day of May, 2013 by and between APOLLO
MEDICAL HOLDINGS, INC., a Delaware corporation (“ApolloMed”), and David G. Schmidt (the “Director”).
EXHIBIT PROPRIETARY INFORMATION AGREEMENT
WHEREAS, the Director has been elected to serve on the Board of Directors of ApolloMed;
RECITALS
WHEREAS, the parties desire to assure the confidential status of the information which may be disclosed by ApolloMed to the Director in connection with the Director serving on
ApolloMed’s Board of Directors;
NOW THEREFORE, in reliance upon and in consideration of the following undertaking, the parties agree as follows:
AGREEMENT
1. Subject to the limitations set forth in Paragraph 2, all information disclosed by ApolloMed to the Director shall be deemed to be "Proprietary Information". In particular,
Proprietary Information shall be deemed to include any information, process, technique, algorithm, program, design, drawing, formula or test data relating to any research project, work
in process, future development, engineering, manufacturing, marketing, servicing, financing or personnel matter relating to ApolloMed, its present or future products, sales, suppliers,
customers, employees, investors, or business, whether or oral, written, graphic or electronic form.
2. The term "Proprietary Information" shall not be deemed to include the following information: (i) information which is now, or hereafter becomes, through no breach of this
Agreement on the part of the Director, generally known or available to the public; (ii) is known by the Director at the time of receiving such information; (iii) is hereafter furnished to the
Director by a third party, as a matter of right and without restriction on disclosure; or (iv) is the subject of a written permission to disclose provided by ApolloMed.
3. The Director shall maintain in trust and confidence and not disclose to any third party or use for any unauthorized purpose any Proprietary Information received from
ApolloMed. The Director may use such Proprietary Information only to the extent required to accomplish the purposes of his position as a Director of ApolloMed. The Director shall not
use Proprietary Information for any purpose or in any manner which would constitute a violation of any laws or regulations, including without limitation the export control laws of the
United States. No other rights of licenses to trademarks, inventions, copyrights, or patents are implied or granted under this Agreement.
4. Proprietary Information supplied shall not be reproduced in any form except as required to accomplish the intent of this Agreement.
5. The Director represents and warrants that he shall protect the Proprietary Information received with at least the same degree of care used to protect his own Proprietary
Information from unauthorized use or disclosure.
6. All Proprietary Information (including all copies thereof) shall remain in the property of ApolloMed, and shall be returned to ApolloMed (or destroyed) after the Director's need
for it has expired, or upon request of ApolloMed, and in any event, upon the termination of that certain Board of Directors Agreement, of even date herewith, between ApolloMed and
the Director (the “Director Agreement”).
7. Notwithstanding any other provision of this Agreement, disclosure of Proprietary Information shall not be precluded if such disclosure:
(a) is in response to a valid order of a court or other governmental body of the United States or any political subdivision thereof; provided, however, that the Director shall first have
given ApolloMed notice of the Director’s receipt of such order and ApolloMed shall have had an opportunity to obtain a protective order requiring that the Proprietary Information so
disclosed be used only for the purpose for which the order was issued;
(b) is otherwise required by law; or
(c) is otherwise necessary to establish rights or enforce obligations under this Agreement, but only to the extent that any such disclosure is necessary.
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8. Subject to the terms of this Paragraph, this Agreement shall continue in full force and effect during the term of the Director Agreement. This Agreement may be terminated at
any time upon thirty (30) days written notice to the other party. The termination of this Agreement shall not relieve the Director of the obligations imposed by Paragraphs 3, 4, 5 and 11
of this Agreement with respect to Proprietary information disclosed prior to the effective date of such termination and the provisions of these Paragraphs shall survive the termination of
this Agreement for a period of eighteen (18) months from the date of such termination.
9. This Agreement shall be governed by the laws of the State of California as those laws are applied to contracts entered into and to be performed entirely in California by
California residents.
10. This Agreement contains the final, complete and exclusive agreement of the parties relative to the subject matter hereof and may not be changed, modified, amended or
supplemented except by a written instrument signed by both parties.
11. Each party hereby acknowledges and agrees that in the event of any breach of this Agreement by the Director, including, without limitation, an actual or threatened
disclosure of Proprietary Information without the prior express written consent of ApolloMed, ApolloMed will suffer an irreparable injury, such that no remedy at law will afford it
adequate protection against, or appropriate compensation for, such injury. Accordingly, each party hereby agrees that ApolloMed shall be entitled to specific performance of the
Director's obligations under this Agreement, as well as such further injunctive relief as may be granted by a court of competent jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above.
Director:
Signature
Print Name
Apollo Medical Holdings, Inc.:
Signature
Warren Hosseinion, M.D. - CEO
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT B
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (this “Agreement”) dated as of October 15th, 2012, by and among APOLLO MEDICAL HOLDINGS, INC., a Delaware corporation
(the “Company”) and the indemnitees listed on the signature pages hereto (individually, as “Indemnitee” and, collectively, the “Indemnitees”).
RECITALS
A. The Company and Indemnitees recognize the continued difficulty in obtaining liability insurance for its directors, officers, employees, stockholders, controlling
persons, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance.
B. The Company and Indemnitees further recognize the substantial increase in corporate litigation in general, which subjects directors, officers, employees,
controlling persons, stockholders, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited.
C. The Indemnitees do not regard the current protection available as adequate under the present circumstances, and Indemnitees and other directors, officers,
employees, stockholders, controlling persons, agents and fiduciaries of the Company may not be willing to serve in such capacities without additional protection.
D. The Company (i) desires to attract and retain highly qualified individuals and entities, such as Indemnitees, to serve the Company and, in part, in order to
induce each Indemnitee to be involved with the Company and (ii) wishes to provide for the indemnification and advancing of expenses to each Indemnitee to the maximum extent
permitted by law.
E. In view of the considerations set forth above, the Company desires that each Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and each Indemnitee hereby agree as follows:
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1. Indemnification
a. Indemnification of Expenses. The Company shall indemnify and hold harmless each Indemnitee (including its respective directors, officers, partners,
former partners, members, former members, employees, agents and spouse, as applicable) and each person who controls any of them or who may be liable within the meaning of
Section 15 of the Securities Act of 1933, as amended (the “Securities Act”), or Section 20 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to the fullest
extent permitted by law if such Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in,
any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that such Indemnitee believes might
lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (hereinafter a
“Claim”) by reason of (or arising in part or in whole out of) any event or occurrence related to the fact that Indemnitee is or was or may be deemed a director, officer, stockholder,
employee, controlling person, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was or may be deemed to be serving at the request of the Company as a
director, officer, stockholder, employee, controlling person, agent or fiduciary of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, or by
reason of any action or inaction on the part of such Indemnitee while serving in such capacity including, without limitation, any and all losses, claims, damages, expenses and
liabilities, joint or several (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit, proceeding or any
claim asserted) under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise or which relate directly or indirectly to the
registration, purchase, sale or ownership of any securities of the Company or to any fiduciary obligation owed with respect thereto or as a direct or indirect result of any Claim made by
any stockholder of the Company against an Indemnitee and arising out of or related to any round of financing of the Company (including but not limited to Claims regarding non-
participation, or non-pro rata participation, in such round by such stockholder), or made by a third party against an Indemnitee based on any misstatement or omission of a material
fact by the Company in violation of any duty of disclosure imposed on the Company by federal or state securities or common laws (hereinafter an “Indemnification Event”) against any
and all expenses (including attorneys’ fees and all other costs, expenses and obligations incurred in connection with investigating, defending a witness in or participating in (including
on appeal), or preparing to defend, be a witness in or participate in, any such action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation),
judgments, fines, penalties and amounts paid in settlement (if, and only if, such settlement is approved in advance by the Company, which approval shall not be unreasonably
withheld) of such Claim and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter “Expenses”), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. Such payment of
Expenses shall be made by the Company as soon as practicable but in any event no later than ten (10) days after written demand by the Indemnitee therefor is presented to the
Company.
b. Reviewing Party. Notwithstanding the foregoing, (i) the obligations of the Company under Section 1(a) shall be subject to the condition that the
Reviewing Party (as described in Section 10(e) hereof) shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 1(e)
hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) each Indemnitee acknowledges and agrees that the obligation of the
Company to make an advance payment of Expenses to Indemnitee pursuant to Section 2(a) (an “Expense Advance”) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee
(who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal
proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee’s obligation to
reimburse the Company for any Expense Advance shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control (as defined in Section 10(c)
hereof), the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by
a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred
to in Section 1(e) hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any
such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.
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c. Contribution. If the indemnification provided for in Section 1(a) above for any reason is held by a court of competent jurisdiction to be unavailable to an
Indemnitee in respect of any losses, claims, damages, expenses or liabilities referred to therein, then the Company, in lieu of indemnifying such Indemnitee thereunder, shall
contribute to the amount paid or payable by such Indemnitee as a result of such losses, claims, damages, expenses or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Indemnitee, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Indemnitee in connection with the action or inaction
which resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. In connection with the registration of the Company’s
securities, the relative benefits received by the Company and the Indemnitee shall be deemed to be in the same respective proportions that the net proceeds from the offering (before
deducting expenses) received by the Company and the Indemnitee, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public
offering price of the securities so offered. The relative fault of the Company and the Indemnitee shall be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Indemnitee and the parties’
relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
The Company and the Indemnitee agree that it would not be just and equitable if contribution pursuant to this Section 1(c) were determined by pro rata or per capita
allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. In connection with the
registration of the Company’s securities, in no event shall Indemnitee be required to contribute any amount under this Section 1(c) in excess of the lesser of (i) that proportion of the
total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total securities sold under such registration statement which is being sold by such
Indemnitee or (ii) the proceeds received by such Indemnitee from its sale of securities under such registration statement. No person found guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.
any investigation made by or on behalf of the Indemnitee or any officer, director, employee, agent or controlling person of the Indemnitee.
d. Survival Regardless of Investigation. The indemnification and contribution provided for in this Section 1 will remain in full force and effect regardless of
e. Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control) then, with respect to all matters thereafter arising
concerning the rights of Indemnitee to payments of Expenses under this Agreement or any other agreement or under the Company’s Certificate of Incorporation, as amended (the
“Certificate”), or Bylaws as now or hereafter in effect, Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected by the Indemnitee and approved by the
Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to
what extent Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to abide by such opinion and to pay the reasonable fees of the Independent
Legal Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to
this Agreement or its engagement pursuant hereto.
f. Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the
merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in the defense of any action, suit, proceeding, inquiry or investigation referred to in Section
1(a) hereof or in the defense of any claim, issue or matter therein, each Indemnitee shall be indemnified against all Expenses incurred by such Indemnitee in connection herewith.
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2. Expenses; Indemnification Procedure.
the Company to Indemnitee as soon as practicable but in any event no later than fifteen (15) days after written demand by such Indemnitee therefor to the Company.
a. Advancement of Expenses. The Company shall advance all Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid by
b. Notice/Cooperation by Indemnitee. Indemnitee shall give the Company notice as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the
signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee).
c. No Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have
made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that
Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that
Indemnitee should be indemnified under applicable law, shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled.
d. Notice to Insurers. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has liability
insurance in effect which may cover such Claim, the Company shall give prompt written notice of the commencement of such Claim to the insurers in accordance with the procedures
set forth in each of the policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a
result of such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies.
e. Selection of Counsel. In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company shall be entitled to
assume the defense of such Claim, with counsel reasonably approved by the applicable Indemnitee, upon the delivery to such Indemnitee of written notice of its election to do so. After
delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to such Indemnitee under this
Agreement for any fees of counsel subsequently incurred by such Indemnitee with respect to the same Claim; provided that, (i) the Indemnitee shall have the right to employ such
Indemnitee’s counsel in any such Claim at the Indemnitee’s expense; (ii) the Indemnitee shall have the right to employ its own counsel in connection with any such proceeding, at the
expense of the Company, if such counsel serves in a review, observer, advice and counseling capacity and does not otherwise materially control or participate in the defense of such
proceeding; and (iii) if (A) the employment of counsel by the Indemnitee has been previously authorized by the Company, (B) such Indemnitee shall have reasonably concluded that
there is a conflict of interest between the Company and such Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend
such Claim, then the fees and expenses of the Indemnitee’s counsel shall be at the expense of the Company.
3. Additional Indemnification Rights; Nonexclusivity.
a. Scope. The Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, even if such indemnification is not specifically
authorized by the other provisions of this Agreement or any other agreement, the Certificate, the Company’s Bylaws or by statute. In the event of any change after the date of this
Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, stockholder,
employee, controlling person, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the
event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, employee,
agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’
rights and obligations hereunder except as set forth in Section 8(a) hereof.
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b. Nonexclusivity. Notwithstanding anything in this Agreement, the indemnification provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Certificate, the Company’s Bylaws, any agreement, any vote of stockholders or disinterested directors, the laws of the State of Delaware, or
otherwise. Notwithstanding anything in this Agreement, the indemnification provided under this Agreement shall continue as to each Indemnitee for any action such Indemnitee took or
did not take while serving in an indemnified capacity even though the Indemnitee may have ceased to serve in such capacity and such indemnification shall inure to the benefit of each
Indemnitee from and after Indemnitee’s first day of service as a director with the Company or affiliation with a director from and after the date such director commences services as a
director with the Company.
4. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against any
Indemnitee to the extent such Indemnitee has otherwise actually received payment (under any insurance policy, Certificate, Bylaws or otherwise) of the amounts otherwise
indemnifiable hereunder.
5. Partial Indemnification. If any Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for any portion of Expenses
incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to
which such Indemnitee is entitled.
6. Mutual Acknowledgement. The Company and each Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, controlling persons, agents or fiduciaries under this Agreement or otherwise.
7. Liability Insurance. During any period of time any Indemnitee is entitled to indemnification rights under this Agreement, the Company shall maintain liability
insurance applicable to directors, officers, employees, control persons, agents or fiduciaries, each Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if such Indemnitee is a director, or of the Company’s officers, if
such Indemnitee is not a director of the Company but is an officer; or of the Company’s key employees, controlling persons, agents or fiduciaries, if such Indemnitee is not an officer or
director but is a key employee, agent, control person, or fiduciary. Said liability insurance shall provide coverage amounts of no less than those specified in Schedule A attached hereto
and be held with an insurance carrier which is the Board of Directors of the Company believes is of financial sound condition.
8. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:
Indemnitee of securities in violation of Section 16(b) of the Exchange Act or any similar successor statute;
a. Claims Under Section 16(b). To indemnify any Indemnitee for expenses and the payment of profits arising from the purchase and sale by such
indemnification is not lawful;
b. Unlawful Indemnification. To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that such
fraud on the Company; or
c. Fraud. To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that the Indemnitee has committed
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d. Insurance. To indemnify any Indemnitee for which payment is actually and fully made to Indemnitee under a valid and collectible insurance policy.
9. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against any Indemnitee, any
Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of such cause of action, and any claim or
cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such five (5) year period; provided, however,
that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.
10. Construction of Certain Phrases.
a. For purposes of this Agreement, references to the “Company” shall include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was or may be deemed a director, officer, employee, agent, control person, or fiduciary of such
constituent corporation, or is or was or may be deemed to be serving at the request of such constituent corporation as a director, officer, employee, control person, agent or fiduciary of
another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, each Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as each Indemnitee would have with respect to such constituent corporation if its separate existence had continued.
b. For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise
taxes assessed on any Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit
plan, its participants or its beneficiaries; and if any Indemnitee acted in good faith and in a manner such Indemnitee reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan, such Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this
Agreement.
c. For purposes of this Agreement a “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding Voting Securities, increases his beneficial
ownership of such securities by 5% or more over the percentage so owned by such person, or (B) becomes the “beneficial owner” (as defined in Rule 13d-3 under said Exchange Act),
directly or indirectly, of securities of the Company representing more than 30% of the total voting power represented by the Company’s then outstanding Voting Securities, (ii) during
any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the
stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting
Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving
entity) at least two-thirds (2/3) of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all of the Company’s assets.
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d. For purposes of this Agreement, “Independent Legal Counsel” shall mean an attorney or firm of attorneys, selected in accordance with the provisions
of Section 1(e) hereof, who shall not have otherwise performed services for the Company or any Indemnitee within the last three (3) years (other than with respect to matters
concerning the right of any Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).
e. For purposes of this Agreement, a “Reviewing Party” shall mean any appropriate person or body consisting of a member or members of the
Company’s Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee is seeking
indemnification, or Independent Legal Counsel.
f. For purposes of this Agreement, “Voting Securities” shall mean any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the
Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation
or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to each Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had
taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnifiable Events regardless of whether any Indemnitee continues to serve as a director,
officer, employee, agent, controlling person, or fiduciary of the Company or of any other enterprise, including subsidiaries of the Company, at the Company’s request.
13. Attorneys’ Fees. In the event that any action is instituted by an Indemnitee under this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, any Indemnitee shall be entitled to be paid all Expenses incurred by such Indemnitee with respect to such action if
such Indemnitee is ultimately successful in such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, the Indemnitee shall be entitled to be paid Expenses incurred by such Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, in each case only to the
extent that such Indemnitee is ultimately successful in such action.
14. Notice. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be
deemed to be given (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if
delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of
delivery by facsimile transmission, if deliverable by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at each Indemnitee’s
address as set forth beneath the Indemnitee’s signature to this Agreement and if to the Company at the address of its principal corporate offices (attention: Secretary) or at such other
address as such party may designate by ten (10) days’ advance written notice to the other party hereto.
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15. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section,
paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest
extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
16. Choice of Law. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be performed entirely within the State of Delaware, without regard to the conflict of laws principles thereof.
17. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce
such rights.
18. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by the
parties to be bound thereby. Notice of same shall be provided to all parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
19. Corporate Authority. The Board of Directors of the Company and its stockholders in accordance with Delaware law have approved the terms of this
Agreement.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on and as of the day and year first above written.
APOLLO MEDICAL HOLDINGS, INC.,
a Delaware corporation
By:
“Indemnitees”
David G. Schmidt
By:
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
This Board of Directors Agreement (“Agreement”) made as of October 17, 2012 by and between Apollo Medical Holdings, Inc., with its principal place of business at 700 N. Brand Blvd,
Suite 450, Glendale, California, 91203 (“ApolloMed”) and Mark A. Meyers, with an address of 19202 Cerro Villa Dr, Villa Park, CA, 92861, (the “Director”) provides for director services,
according to the following terms and conditions:
BOARD OF DIRECTORS AGREEMENT
I. Services Provided
ApolloMed agrees to engage the Director to serve on the Board of Directors of ApolloMed and to provide those services required of a director under ApolloMed’s Certificate of
Incorporation and Bylaws, as both may be amended from time, to time (“Articles and Bylaws”) and under the General Corporation Law of Delaware, the federal securities laws and
other state and federal laws and regulations, as applicable.
II. Nature of Relationship
The Director is an independent contractor and will not be deemed an employee of ApolloMed for purposes of employee benefits, income tax withholding, F.I.C.A. taxes, unemployment
benefits or otherwise. The Director shall not enter into any agreement or incur any obligations on ApolloMed’s behalf.
ApolloMed will supply, at no cost to the Director: periodic briefings on the business, director packages for each board and committee meeting, copies of minutes of meetings and any
other materials that are required under ApolloMed’s Articles and Bylaws or the charter of any committee of the board on which the Director serves and any other materials which may,
by mutual agreement, be necessary for performing the services requested under this Agreement.
III. Director’s Warranties
The Director warrants that no other party has exclusive rights to his services in the specific areas in which ApolloMed is conducting business and that the Director is in no way
compromising any rights or trust between any other party and the Director or creating a conflict of interest as a result of his participation on the Board of Directors of ApolloMed. The
Director also warrants that so long as the Director serves on the board of the directors of ApolloMed, the Director will not enter into another agreement that will create a conflict of
interest with this Agreement. The Director further warrants that he will comply with all applicable state and federal laws and regulations, as applicable, including Sections 10 and 16 of
the Securities and Exchange Act of 1934.
Throughout the term of this Agreement, the Director agrees he will not, without obtaining ApolloMed’s prior written consent, directly or indirectly engage or prepare to engage in any
activity in competition with any ApolloMed business or product, including products in the development stage, accept employment or provide services to (including service as a member
of a board of directors), or establish a business in competition with ApolloMed.
IV. Compensation
A. Cash Fee
During the term of this Agreement, ApolloMed shall pay the Director a nonrefundable fee of $1,000 per board of director meeting in consideration for the Director providing the services
described in Section I which shall compensate him for all time spent preparing for, travelling to (if applicable) and attending board of director meetings; provided, however, that if any
board meetings or duties require out-of-town travel time, such additional travel time may be billed at the rate set forth in subparagraph C of Section IV below. This cash fee may be
revised by action of ApolloMed’s Board of Directors from time to time. Such revision shall be effective as of the date specified in the resolution for payments not yet earned and need
not be documented by an amendment to this Agreement.
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B. Equity Compensation
Issuance of Shares. Upon the execution and delivery of this Agreement, ApolloMed shall issue to the Director (or designee of the Director) a restricted stock award of 400,000 shares of
ApolloMed’s common stock (collectively, the “Shares”). Pursuant to the request of the Director, all of the Shares shall be issued in the name of “___Mark A. Meyers_________” and the
Shares that have not been released from Escrow (as defined herein below) may not be sold, pledged, hypothecated or otherwise transferred to any other person. All certificates
representing the Shares shall bear a legend regarding the fact that the Shares are not registered under the Securities Act of 1933, as amended (the “Securities Act”), and none of the
Shares may be sold, pledged, hypothecated or otherwise transferred without compliance with Federal and applicable state securities laws.
Escrow of Shares. Certificates evidencing all Shares shall be placed in escrow maintained at all times by the Company (“Escrow”). Provided this Agreement has not been previously
terminated, on the last day of each month during the term of this Agreement, 1/36th of the total number of Shares shall be promptly released from Escrow by ApolloMed to the Director.
If the Agreement is terminated prior to the end of any calendar month during the term of this Agreement, for any reason or for no reason, and regardless of the party who initiated the
termination, the Director shall receive a pro-rata number of Shares for that calendar month based upon the actual number of days elapsed prior to the date of termination. Except as set
forth in the immediately preceding sentence, upon the termination of this Agreement, for any reason or for no reason, and regardless of the party who initiated the termination, no
additional Shares shall be released from Escrow. Unless otherwise agreed to by ApolloMed and the Director in writing, if this Agreement remains in effect for more than 36 months, no
additional shares shall be issued to the Director hereunder. Notwithstanding anything contained herein to the contrary, the Shares shall be issued and released from Escrow only in full
compliance with Federal and all applicable state securities laws and the Director shall cooperate with all requests of ApolloMed in order to comply with all such laws as may be
reasonably requested by the Company or its counsel. The Shares do not carry registration rights and the Director has no right to compel the registration of any of the Shares, either
before or after they are released from Escrow. Additionally, the Director covenants and agrees to be bound by all standard policies and guidelines applicable to the other directors and
executive officers of ApolloMed with respect to transaction in the Shares, including without limitation the terms and conditions of any insider trading policy, code of ethics, corporate
governance guidelines, or similar policies, codes and guidelines adopted by the Board of Directors of ApolloMed from time to time.
Repurchase Obligation. Upon the termination of this Agreement, for any reason or for no reason, and regardless of the party who initiated the termination, any Shares which ApolloMed
is not yet obligated to released from Escrow (“Repurchased Shares”) shall be repurchased by the Company at a price of $0.0001 per Repurchased Share (the “Repurchase Per Share
Price”). ApolloMed shall remit its check to the Director within 10 business days following such termination in the full amount of the Repurchase Per Share Price multiplied by the
number of Repurchased Shares. For example, if there were 100,000 Shares remaining in Escrow upon the termination of this Agreement, ApolloMed would repurchase the 100,000
Shares by remitting its check to the Director in the amount of 100,000 x $0.0001 = $10.00.
C. Additional Payments
To the extent services described in Section I require out-of-town trips, such additional travel time may be charged at the rate of $1,200 per day or pro rated portion thereof. This rate
may be revised by action of ApolloMed’s Board of Directors from time to time for payments not yet earned. Such revision shall be effective as of the date specified in the resolution and
need not be documented by an amendment to this Agreement.
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D. Payment
Cash fees shall be made quarterly in cash in advance on the first day of each accounting quarter. Additional payments shall be made in arrears. No invoices need be submitted by
the Director for payment of the cash fee. Invoices for additional payments under subparagraph C of Section IV, above, shall be submitted by the Director. Such invoices must be
approved by ApolloMed’s Chief Executive Officer as to form and completeness.
E. Expenses
ApolloMed will reimburse the Director for reasonable expenses approved in advance, such approval not to be unreasonably withheld. Invoices for expenses, with receipts attached,
shall be submitted. Such invoices must be approved by ApolloMed’s Chief Executive Officer as to form and completeness.
V. Indemnification and Insurance
ApolloMed will execute an indemnification agreement in favor of the Director substantially in the form of the agreement attached hereto as Exhibit B (the “Indemnification Agreement”).
In addition, so long as ApolloMed’s indemnification obligations exist under the Indemnification Agreement, ApolloMed shall provide the Director with directors and officers liability
insurance coverage in the amounts specified in the Indemnification Agreement.
VI. Term of Agreement
This Agreement shall be in effect from the date hereof through the last date of the Director’s current term as a member of ApolloMed’s Board of Directors. This Agreement shall be
automatically renewed on the date of the Director’s reelection as a member of ApolloMed’s Board of Director’s for the period of such new term unless the Board of Directors determines
not to renew this Agreement. Any amendment to this Agreement must be approved by a written action of ApolloMed’s Board of Directors. Amendments to Section IV Compensation
hereof do not require the Director’s consent to be effective.
VII. Termination
This Agreement shall automatically terminate upon the death of the Director or upon his resignation or removal from, or failure to win election or reelection to, the ApolloMed Board of
Directors.
In the event of any termination of this Agreement, the Director agrees to return or destroy any materials transferred to the Director under this Agreement except as may be necessary
to fulfill any outstanding obligations hereunder. The Director agrees that ApolloMed has the right of injunctive relief to enforce this provision.
ApolloMed’s and the Director’s continuing obligations hereunder in the event of such termination shall be subject to the terms of Section XIV hereof.
VIII. Limitation of Liability
Under no circumstances shall ApolloMed be liable to the Director for any consequential damages claimed by any other party as a result of representations made by the Director with
respect to ApolloMed which are materially different from any to those made in writing by ApolloMed.
Furthermore, except for the maintenance of confidentiality, neither party shall be liable to the other for delay in any performance, or for failure to render any performance under this
Agreement when such delay or failure is caused by Government regulations (whether or not valid), fire, strike, differences with workmen, illness of employees, flood, accident, or any
other cause or causes beyond reasonable control of such delinquent party.
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IX. Confidentiality
The Director agrees to sign and abide by ApolloMed’s Director Proprietary Information and Inventions Agreement, a copy of which is attached hereto as Exhibit A.
X. Resolution of Dispute
Any dispute regarding the agreement (including without limitation its validity, interpretation, performance, enforcement, termination and damages) shall be determined in accordance
with the laws of the State of California, the United States of America. Any action under this paragraph shall not preclude any party hereto from seeking injunctive or other legal relief to
which each party may be entitled.
XI. Sole Agreement
This Agreement (including agreements executed in substantially in the form of the exhibits attached hereto) supersedes all prior or contemporaneous written or oral understandings or
agreements, and may not be added to, modified, or waived, in whole or in part, except by a writing signed by the party against whom such addition, modification or waiver is sought to
be asserted.
XII. Assignment
This Agreement and all of the provisions hereof shall be binding upon and insure to the benefit of the parties hereto and their respective successors and permitted assigns and, except
as otherwise expressly provided herein, neither this Agreement, nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto without the
prior written consent of the other party.
XIII. Notices
Any and all notices, requests and other communications required or permitted hereunder shall be in writing, registered mail or by facsimile, to each of the parties at the addresses set
forth above or the numbers set forth below:
The Director:
ApolloMed:
Mark A. Meyers
19202 Cerro Villa Dr.
Villa Park, CA 92861
Apollo Medical Holdings, Inc.
700 N. Brand Blvd, Suite 450
Glendale, CA 91203
Any such notice shall be deemed given when received and notice given by registered mail shall be considered to have been given on the tenth (10th) day after having been sent in the
manner provided for above.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
XIV. Survival of Obligations
Notwithstanding the expiration of termination of this Agreement, neither party hereto shall be released hereunder from any liability or obligation to the other which has already accrued
as of the time of such expiration or termination (including, without limitation, ApolloMed’s obligation to make any fees and expense payments required pursuant to Section IV and/or
ApolloMed’s indemnification and insurance obligations set forth in Section V hereof) or which thereafter might accrue in respect of any act or omission of such party prior to such
expiration or termination.
XV. Attorneys’ Fees
If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of a dispute, breach or default in connection with any of the provisions hereof, the
successful or prevailing party (including a party successful or prevailing in defense) shall be entitled to recover its actual attorneys’ fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
XV. Severability
Any provision of this Agreement which is determined to be invalid or unenforceable shall not affect the remainder of this Agreement, which shall remain in effect as though the invalid or
unenforceable provision had not been included herein, unless the removal of the invalid or unenforceable provision would substantially defeat the intent, purpose or spirit of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above.
Director:
Apollo Medical Holdings, Inc.
Signature:
/s/ Mark A. Meyers
Signature:
/s/ Warren Hosseinion, M.D.
Print Name:
Mark A. Meyers
Print Name:
Warren Hosseinion, M.D.
Title:
CEO
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
THIS BOARD OF DIRECTORS PROPRIETARY INFORMATION AGREEMENT (“Agreement”) is made and entered into this 15th day of October, 2012 by and between APOLLO
MEDICAL HOLDINGS, INC., a Delaware corporation (“ApolloMed”), and Mark A. Meyers (the “Director”).
EXHIBIT PROPRIETARY INFORMATION AGREEMENT
WHEREAS, the Director has been elected to serve on the Board of Directors of ApolloMed;
RECITALS
WHEREAS, the parties desire to assure the confidential status of the information which may be disclosed by ApolloMed to the Director in connection with the Director serving on
ApolloMed’s Board of Directors;
NOW THEREFORE, in reliance upon and in consideration of the following undertaking, the parties agree as follows:
AGREEMENT
1. Subject to the limitations set forth in Paragraph 2, all information disclosed by ApolloMed to the Director shall be deemed to be "Proprietary Information". In particular,
Proprietary Information shall be deemed to include any information, process, technique, algorithm, program, design, drawing, formula or test data relating to any research project, work
in process, future development, engineering, manufacturing, marketing, servicing, financing or personnel matter relating to ApolloMed, its present or future products, sales, suppliers,
customers, employees, investors, or business, whether or oral, written, graphic or electronic form.
2. The term "Proprietary Information" shall not be deemed to include the following information: (i) information which is now, or hereafter becomes, through no breach of this
Agreement on the part of the Director, generally known or available to the public; (ii) is known by the Director at the time of receiving such information; (iii) is hereafter furnished to the
Director by a third party, as a matter of right and without restriction on disclosure; or (iv) is the subject of a written permission to disclose provided by ApolloMed.
3. The Director shall maintain in trust and confidence and not disclose to any third party or use for any unauthorized purpose any Proprietary Information received from
ApolloMed. The Director may use such Proprietary Information only to the extent required to accomplish the purposes of his position as a Director of ApolloMed. The Director shall not
use Proprietary Information for any purpose or in any manner which would constitute a violation of any laws or regulations, including without limitation the export control laws of the
United States. No other rights of licenses to trademarks, inventions, copyrights, or patents are implied or granted under this Agreement.
4. Proprietary Information supplied shall not be reproduced in any form except as required to accomplish the intent of this Agreement.
5. The Director represents and warrants that he shall protect the Proprietary Information received with at least the same degree of care used to protect his own Proprietary
Information from unauthorized use or disclosure.
6. All Proprietary Information (including all copies thereof) shall remain in the property of ApolloMed, and shall be returned to ApolloMed (or destroyed) after the Director's need
for it has expired, or upon request of ApolloMed, and in any event, upon the termination of that certain Board of Directors Agreement, of even date herewith, between ApolloMed and
the Director (the “Director Agreement”).
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7. Notwithstanding any other provision of this Agreement, disclosure of Proprietary Information shall not be precluded if such disclosure:
(a) is in response to a valid order of a court or other governmental body of the United States or any political subdivision thereof; provided, however, that the Director shall first have
given ApolloMed notice of the Director’s receipt of such order and ApolloMed shall have had an opportunity to obtain a protective order requiring that the Proprietary Information so
disclosed be used only for the purpose for which the order was issued;
(b) is otherwise required by law; or
(c) is otherwise necessary to establish rights or enforce obligations under this Agreement, but only to the extent that any such disclosure is necessary.
8. Subject to the terms of this Paragraph, this Agreement shall continue in full force and effect during the term of the Director Agreement. This Agreement may be terminated at
any time upon thirty (30) days written notice to the other party. The termination of this Agreement shall not relieve the Director of the obligations imposed by Paragraphs 3, 4, 5 and 11
of this Agreement with respect to Proprietary information disclosed prior to the effective date of such termination and the provisions of these Paragraphs shall survive the termination of
this Agreement for a period of eighteen (18) months from the date of such termination.
9. This Agreement shall be governed by the laws of the State of California as those laws are applied to contracts entered into and to be performed entirely in California by
California residents.
10. This Agreement contains the final, complete and exclusive agreement of the parties relative to the subject matter hereof and may not be changed, modified, amended or
supplemented except by a written instrument signed by both parties.
11. Each party hereby acknowledges and agrees that in the event of any breach of this Agreement by the Director, including, without limitation, an actual or threatened
disclosure of Proprietary Information without the prior express written consent of ApolloMed, ApolloMed will suffer an irreparable injury, such that no remedy at law will afford it
adequate protection against, or appropriate compensation for, such injury. Accordingly, each party hereby agrees that ApolloMed shall be entitled to specific performance of the
Director's obligations under this Agreement, as well as such further injunctive relief as may be granted by a court of competent jurisdiction.
Director:
Apollo Medical Holdings, Inc.
Signature:
/s/ Mark A. Meyers
Signature:
/s/ Warren Hosseinion, M.D.
Print Name:
Mark A. Meyers
Print Name:
Warren Hosseinion, M.D.
Title:
CEO
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EXHIBIT B
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (this “Agreement”) dated as of October 15th, 2012, by and among APOLLO MEDICAL HOLDINGS, INC., a Delaware corporation
(the “Company”) and the indemnitees listed on the signature pages hereto (individually, as “Indemnitee” and, collectively, the “Indemnitees”).
RECITALS
A. The Company and Indemnitees recognize the continued difficulty in obtaining liability insurance for its directors, officers, employees, stockholders, controlling
persons, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance.
B. The Company and Indemnitees further recognize the substantial increase in corporate litigation in general, which subjects directors, officers, employees,
controlling persons, stockholders, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited.
C. The Indemnitees do not regard the current protection available as adequate under the present circumstances, and Indemnitees and other directors, officers,
employees, stockholders, controlling persons, agents and fiduciaries of the Company may not be willing to serve in such capacities without additional protection.
D. The Company (i) desires to attract and retain highly qualified individuals and entities, such as Indemnitees, to serve the Company and, in part, in order to
induce each Indemnitee to be involved with the Company and (ii) wishes to provide for the indemnification and advancing of expenses to each Indemnitee to the maximum extent
permitted by law.
E. In view of the considerations set forth above, the Company desires that each Indemnitee be indemnified by the Company as set forth herein.
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NOW, THEREFORE, the Company and each Indemnitee hereby agree as follows:
1. Indemnification
a. Indemnification of Expenses. The Company shall indemnify and hold harmless each Indemnitee (including its respective directors, officers, partners,
former partners, members, former members, employees, agents and spouse, as applicable) and each person who controls any of them or who may be liable within the meaning of
Section 15 of the Securities Act of 1933, as amended (the “Securities Act”), or Section 20 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to the fullest
extent permitted by law if such Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in,
any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that such Indemnitee believes might
lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (hereinafter a
“Claim”) by reason of (or arising in part or in whole out of) any event or occurrence related to the fact that Indemnitee is or was or may be deemed a director, officer, stockholder,
employee, controlling person, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was or may be deemed to be serving at the request of the Company as a
director, officer, stockholder, employee, controlling person, agent or fiduciary of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, or by
reason of any action or inaction on the part of such Indemnitee while serving in such capacity including, without limitation, any and all losses, claims, damages, expenses and
liabilities, joint or several (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit, proceeding or any
claim asserted) under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise or which relate directly or indirectly to the
registration, purchase, sale or ownership of any securities of the Company or to any fiduciary obligation owed with respect thereto or as a direct or indirect result of any Claim made by
any stockholder of the Company against an Indemnitee and arising out of or related to any round of financing of the Company (including but not limited to Claims regarding non-
participation, or non-pro rata participation, in such round by such stockholder), or made by a third party against an Indemnitee based on any misstatement or omission of a material
fact by the Company in violation of any duty of disclosure imposed on the Company by federal or state securities or common laws (hereinafter an “Indemnification Event”) against any
and all expenses (including attorneys’ fees and all other costs, expenses and obligations incurred in connection with investigating, defending a witness in or participating in (including
on appeal), or preparing to defend, be a witness in or participate in, any such action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation),
judgments, fines, penalties and amounts paid in settlement (if, and only if, such settlement is approved in advance by the Company, which approval shall not be unreasonably
withheld) of such Claim and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter “Expenses”), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. Such payment of
Expenses shall be made by the Company as soon as practicable but in any event no later than ten (10) days after written demand by the Indemnitee therefor is presented to the
Company.
b. Reviewing Party. Notwithstanding the foregoing, (i) the obligations of the Company under Section 1(a) shall be subject to the condition that the
Reviewing Party (as described in Section 10(e) hereof) shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 1(e)
hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) each Indemnitee acknowledges and agrees that the obligation of the
Company to make an advance payment of Expenses to Indemnitee pursuant to Section 2(a) (an “Expense Advance”) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee
(who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal
proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee’s obligation to
reimburse the Company for any Expense Advance shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control (as defined in Section 10(c)
hereof), the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by
a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred
to in Section 1(e) hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any
such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.
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c. Contribution. If the indemnification provided for in Section 1(a) above for any reason is held by a court of competent jurisdiction to be unavailable to an
Indemnitee in respect of any losses, claims, damages, expenses or liabilities referred to therein, then the Company, in lieu of indemnifying such Indemnitee thereunder, shall
contribute to the amount paid or payable by such Indemnitee as a result of such losses, claims, damages, expenses or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Indemnitee, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Indemnitee in connection with the action or inaction
which resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. In connection with the registration of the Company’s
securities, the relative benefits received by the Company and the Indemnitee shall be deemed to be in the same respective proportions that the net proceeds from the offering (before
deducting expenses) received by the Company and the Indemnitee, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public
offering price of the securities so offered. The relative fault of the Company and the Indemnitee shall be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Indemnitee and the parties’
relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
The Company and the Indemnitee agree that it would not be just and equitable if contribution pursuant to this Section 1(c) were determined by pro rata or per capita
allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. In connection with the
registration of the Company’s securities, in no event shall Indemnitee be required to contribute any amount under this Section 1(c) in excess of the lesser of (i) that proportion of the
total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total securities sold under such registration statement which is being sold by such
Indemnitee or (ii) the proceeds received by such Indemnitee from its sale of securities under such registration statement. No person found guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.
any investigation made by or on behalf of the Indemnitee or any officer, director, employee, agent or controlling person of the Indemnitee.
d. Survival Regardless of Investigation. The indemnification and contribution provided for in this Section 1 will remain in full force and effect regardless of
e. Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved
by a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control) then, with respect to all matters thereafter arising concerning the
rights of Indemnitee to payments of Expenses under this Agreement or any other agreement or under the Company’s Certificate of Incorporation, as amended (the “Certificate”), or
Bylaws as now or hereafter in effect, Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected by the Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to abide by such opinion and to pay the reasonable fees of the Independent Legal
Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
f. Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the
merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in the defense of any action, suit, proceeding, inquiry or investigation referred to in Section
1(a) hereof or in the defense of any claim, issue or matter therein, each Indemnitee shall be indemnified against all Expenses incurred by such Indemnitee in connection herewith.
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2. Expenses; Indemnification Procedure.
the Company to Indemnitee as soon as practicable but in any event no later than fifteen (15) days after written demand by such Indemnitee therefor to the Company.
a. Advancement of Expenses. The Company shall advance all Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid by
b. Notice/Cooperation by Indemnitee. Indemnitee shall give the Company notice as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the
signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee).
c. No Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have
made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that
Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that
Indemnitee should be indemnified under applicable law, shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled.
d. Notice to Insurers. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has liability
insurance in effect which may cover such Claim, the Company shall give prompt written notice of the commencement of such Claim to the insurers in accordance with the procedures
set forth in each of the policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a
result of such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies.
e. Selection of Counsel. In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company shall be entitled to
assume the defense of such Claim, with counsel reasonably approved by the applicable Indemnitee, upon the delivery to such Indemnitee of written notice of its election to do so. After
delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to such Indemnitee under this
Agreement for any fees of counsel subsequently incurred by such Indemnitee with respect to the same Claim; provided that, (i) the Indemnitee shall have the right to employ such
Indemnitee’s counsel in any such Claim at the Indemnitee’s expense; (ii) the Indemnitee shall have the right to employ its own counsel in connection with any such proceeding, at the
expense of the Company, if such counsel serves in a review, observer, advice and counseling capacity and does not otherwise materially control or participate in the defense of such
proceeding; and (iii) if (A) the employment of counsel by the Indemnitee has been previously authorized by the Company, (B) such Indemnitee shall have reasonably concluded that
there is a conflict of interest between the Company and such Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend
such Claim, then the fees and expenses of the Indemnitee’s counsel shall be at the expense of the Company.
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3. Additional Indemnification Rights; Nonexclusivity.
a. Scope. The Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, even if such indemnification is not specifically
authorized by the other provisions of this Agreement or any other agreement, the Certificate, the Company’s Bylaws or by statute. In the event of any change after the date of this
Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, stockholder,
employee, controlling person, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the
event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, employee,
agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’
rights and obligations hereunder except as set forth in Section 8(a) hereof.
b. Nonexclusivity. Notwithstanding anything in this Agreement, the indemnification provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Certificate, the Company’s Bylaws, any agreement, any vote of stockholders or disinterested directors, the laws of the State of Delaware, or
otherwise. Notwithstanding anything in this Agreement, the indemnification provided under this Agreement shall continue as to each Indemnitee for any action such Indemnitee took or
did not take while serving in an indemnified capacity even though the Indemnitee may have ceased to serve in such capacity and such indemnification shall inure to the benefit of each
Indemnitee from and after Indemnitee’s first day of service as a director with the Company or affiliation with a director from and after the date such director commences services as a
director with the Company.
4. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against any
Indemnitee to the extent such Indemnitee has otherwise actually received payment (under any insurance policy, Certificate, Bylaws or otherwise) of the amounts otherwise
indemnifiable hereunder.
5. Partial Indemnification. If any Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for any portion of Expenses
incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to
which such Indemnitee is entitled.
6. Mutual Acknowledgement. The Company and each Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, controlling persons, agents or fiduciaries under this Agreement or otherwise.
7. Liability Insurance. During any period of time any Indemnitee is entitled to indemnification rights under this Agreement, the Company shall maintain liability
insurance applicable to directors, officers, employees, control persons, agents or fiduciaries, each Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if such Indemnitee is a director, or of the Company’s officers, if
such Indemnitee is not a director of the Company but is an officer; or of the Company’s key employees, controlling persons, agents or fiduciaries, if such Indemnitee is not an officer or
director but is a key employee, agent, control person, or fiduciary. Said liability insurance shall provide coverage amounts of no less than those specified in Schedule A attached hereto
and be held with an insurance carrier which is the Board of Directors of the Company believes is of financial sound condition.
8. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:
Indemnitee of securities in violation of Section 16(b) of the Exchange Act or any similar successor statute;
a. Claims Under Section 16(b). To indemnify any Indemnitee for expenses and the payment of profits arising from the purchase and sale by such
indemnification is not lawful;
b. Unlawful Indemnification. To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that such
fraud on the Company; or
c. Fraud. To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that the Indemnitee has committed
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d. Insurance. To indemnify any Indemnitee for which payment is actually and fully made to Indemnitee under a valid and collectible insurance policy.
9. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against any Indemnitee, any
Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of such cause of action, and any claim or
cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such five (5) year period; provided, however,
that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.
10. Construction of Certain Phrases.
a. For purposes of this Agreement, references to the “Company” shall include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was or may be deemed a director, officer, employee, agent, control person, or fiduciary of such
constituent corporation, or is or was or may be deemed to be serving at the request of such constituent corporation as a director, officer, employee, control person, agent or fiduciary of
another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, each Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as each Indemnitee would have with respect to such constituent corporation if its separate existence had continued.
b. For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise
taxes assessed on any Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit
plan, its participants or its beneficiaries; and if any Indemnitee acted in good faith and in a manner such Indemnitee reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan, such Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this
Agreement.
c. For purposes of this Agreement a “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding Voting Securities, increases his beneficial
ownership of such securities by 5% or more over the percentage so owned by such person, or (B) becomes the “beneficial owner” (as defined in Rule 13d-3 under said Exchange Act),
directly or indirectly, of securities of the Company representing more than 30% of the total voting power represented by the Company’s then outstanding Voting Securities, (ii) during
any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the
stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting
Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving
entity) at least two-thirds (2/3) of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all of the Company’s assets.
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d. For purposes of this Agreement, “Independent Legal Counsel” shall mean an attorney or firm of attorneys, selected in accordance with the provisions of
Section 1(e) hereof, who shall not have otherwise performed services for the Company or any Indemnitee within the last three (3) years (other than with respect to matters concerning
the right of any Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).
e. For purposes of this Agreement, a “Reviewing Party” shall mean any appropriate person or body consisting of a member or members of the Company’s
Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or
Independent Legal Counsel.
f. For purposes of this Agreement, “Voting Securities” shall mean any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the
Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation
or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to each Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had
taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnifiable Events regardless of whether any Indemnitee continues to serve as a director,
officer, employee, agent, controlling person, or fiduciary of the Company or of any other enterprise, including subsidiaries of the Company, at the Company’s request.
13. Attorneys’ Fees. In the event that any action is instituted by an Indemnitee under this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, any Indemnitee shall be entitled to be paid all Expenses incurred by such Indemnitee with respect to such action if
such Indemnitee is ultimately successful in such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, the Indemnitee shall be entitled to be paid Expenses incurred by such Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, in each case only to the
extent that such Indemnitee is ultimately successful in such action.
14. Notice. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be
deemed to be given (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if
delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of
delivery by facsimile transmission, if deliverable by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at each Indemnitee’s
address as set forth beneath the Indemnitee’s signature to this Agreement and if to the Company at the address of its principal corporate offices (attention: Secretary) or at such other
address as such party may designate by ten (10) days’ advance written notice to the other party hereto.
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15. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section,
paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest
extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
16. Choice of Law. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be performed entirely within the State of Delaware, without regard to the conflict of laws principles thereof.
17. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce
such rights.
18. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by the
parties to be bound thereby. Notice of same shall be provided to all parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
19. Corporate Authority. The Board of Directors of the Company and its stockholders in accordance with Delaware law have approved the terms of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on and as of the day and year first above written.
APOLLO MEDICAL HOLDINGS, INC.,
a Delaware corporation
By: /s/ WARREN HOSSEINION, M.D.,
Warren Hosseinion, M.D.
“Indemnitees”
By: /s/ Mark A. Meyers
Mark A. Meyers
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This Board of Directors Agreement (“Agreement”) made as of March 7, 2012 by and between Apollo Medical Holdings, Inc., with its principal place of business at 700 N. Brand Blvd,
Suite 450, Glendale, California, 91203 (“ApolloMed”) and Gary Augusta, with an address of 25682 Rolling Hills Rd., Laguna Hills, CA 92653, (the “Director”) provides for director
services, according to the following terms and conditions:
BOARD OF DIRECTORS AGREEMENT
I. Services Provided
ApolloMed agrees to engage the Director to serve as a member of the Board of Directors of ApolloMed and to provide those services required of a director under ApolloMed’s
Certificate of Incorporation and Bylaws, as both may be amended from time, to time (“Articles and Bylaws”) and under the General Corporation Law of Delaware, the federal securities
laws and other state and federal laws and regulations, as applicable.
II. Nature of Relationship
The Director is an independent contractor and will not be deemed an employee of ApolloMed for purposes of employee benefits, income tax withholding, F.I.C.A. taxes, unemployment
benefits or otherwise. The Director shall not enter into any agreement or incur any obligations on ApolloMed’s behalf.
ApolloMed will supply, at no cost to the Director: periodic briefings on the business, director packages for each board and committee meeting, copies of minutes of meetings and any
other materials that are required under ApolloMed’s Articles and Bylaws or the charter of any committee of the board on which the Director serves and any other materials which may,
by mutual agreement, be necessary for performing the services requested under this Agreement.
III. Director’s Warranties
The Director warrants that no other party has exclusive rights to his services in the specific areas in which ApolloMed is conducting business and that the Director is in no way
compromising any rights or trust between any other party and the Director or creating a conflict of interest as a result of his participation on the Board of Directors of ApolloMed. The
Director also warrants that so long as the Director serves on the board of the directors of ApolloMed, the Director will not enter into another agreement that will create a conflict of
interest with this Agreement. The Director further warrants that he will comply with all applicable state and federal laws and regulations, as applicable, including Sections 10 and 16 of
the Securities and Exchange Act of 1934.
Throughout the term of this Agreement, the Director agrees he will not, without obtaining ApolloMed’s prior written consent, directly or indirectly engage or prepare to engage in any
activity in competition with any ApolloMed business or product, including products in the development stage, accept employment or provide services to (including service as a member
of a board of directors), or establish a business in competition with ApolloMed.
IV. Compensation
A. Cash Fee
During the term of this Agreement, ApolloMed shall pay the Director a nonrefundable fee of $1,000 per board of director meeting in consideration for the Director providing the services
described in Section I which shall compensate him for all time spent preparing for, travelling to (if applicable) and attending board of director meetings; provided, however, that if any
board meetings or duties require out-of-town travel time, such additional travel time may be billed at the rate set forth in subparagraph C of Section IV below. This cash fee may be
revised by action of ApolloMed’s Board of Directors from time to time. Such revision shall be effective as of the date specified in the resolution for payments not yet earned and need
not be documented by an amendment to this Agreement.
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B. Equity Compensation
Purchase of Shares. Mr. Augusta hereby purchases, and the Corporation hereby sells to Mr. Augusta, 400,000 shares of Common Stock (the “Purchased Shares”) at a purchase price
of $0.001 per share (the “Purchase Price”). Concurrently with the execution of this Agreement, Mr. Augusta shall pay the Purchase Price for the Purchased Shares in cash.
Restricted Securities. Mr. Augusta hereby confirms that he has been informed that the Purchased Shares are restricted securities under the Securities Act of 1933 (the “1933 Act”)
and may not be resold or transferred unless the Purchased Shares are first registered under the federal securities laws or unless an exemption from such registration is
available. Accordingly, Mr. Augusta hereby acknowledges that he is prepared to hold the Purchased Shares for an indefinite period and that Mr. Augusta is aware that Rule 144 of the
Securities and Exchange Commission issued under the 1933 Act is not presently available to exempt the sale of the Purchased Shares from the registration requirements of the 1933
Act. Prior to his acquisition of the Purchased Shares, Mr. Augusta acquired sufficient information about the Corporation to reach an informed knowledgeable decision to acquire the
Purchased Shares. Mr. Augusta has such knowledge and experience in financial and business matters as to make Mr. Augusta capable of utilizing said information to evaluate the
risks of the prospective investment and to make an informed investment decision. Mr. Augusta is able to bear the economic risk of Mr. Augusta’s investment in the Purchased Stock.
Disposition of Shares. Mr. Augusta hereby agrees that he shall make no disposition of the Purchased Shares (other than a permitted transfer as described below) unless and until he
shall have notified the Corporation of the proposed disposition and, if requested by the Corporation, Mr. Augusta shall have provided the Corporation an opinion of counsel in form and
substance satisfactory to the Corporation, that (i) the proposed disposition does not require registration of the Purchased 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 (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its books any Purchased Shares that have been sold or transferred in violation of the provisions of this section or (ii) to treat as
the owner of the Purchased Shares, or otherwise to accord voting or dividend rights to, any transferee to whom the Purchased Shares have been transferred in contravention of the
Directors Agreement, including this Amendment.
Restrictive Legends. In order to reflect the restrictions on disposition of the Purchased Shares, the stock certificates for the Purchased Shares will be endorsed with restrictive
legends, including one or both of the following legends:
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SHARES
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER SUCH ACT, OR (II) AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT REGISTRATION UNDER SUCH ACT IS NOT REQUIRED WITH RESPECT TO SUCH SALE OR OFFER.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN BOARD OF DIRECTORS AGREEMENT, AS
AMENDED, INCLUDING A REPURCHASE RIGHT, AND SUCH AGREEMENT IS ON FILE AT THE CORPORTATION’S PRINCIPAL OFFICE AND MAY BE INSPECTED DURING
NORMAL BUSINESS HOURS.”
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If required by the authorities of any state in connection with the issuance of the Purchased Shares, the legend or legends required by such state authorities shall also be endorsed on
all such certificates.
Mr. Augusta Rights. Until such time as the Corporation actually exercises its Repurchase Rights under this Amendment, Mr. Augusta (or any successor in interest) shall have all the
rights of a shareholder (including voting and dividend rights) with respect to the Purchased Shares, subject, however, to the transfer restrictions set forth below.
Section 83(b) Election. Mr. Augusta understands that under Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”), the difference between the Purchase Price
paid for the Purchased Shares and their fair market value on the date any forfeiture restrictions applicable to such shares lapse will be reportable as ordinary income at that time. For
this purpose, the term “forfeiture restrictions” includes the right of the Corporation to repurchase the Purchased Shares pursuant to its Repurchase Right under this Amendment. Mr.
Augusta understands that he may elect to be taxed at the time the Purchased Shares are acquired hereunder to the extent the fair market value of the Purchased Shares exceeds the
Purchase Price rather than when and as such Purchased Shares cease to be subject to such forfeiture restrictions, by filing an election under Section 83(b) of the Code with the I.R.S.
within thirty (30) days after the date of purchase hereunder. If the fair market value of the Purchased Shares at the date of purchase equals (or is less than) the Purchase Price paid
(and thus no tax is payable), the election must be made to avoid adverse tax consequences in the future. The form for making this election is attached as Exhibit C hereto. Mr.
Augusta understands that failure to make this filing within the thirty (30) day period will result in the recognition of ordinary income by Mr. Augusta (in the event the fair market value of
the Purchased Shares increases after the date of purchase) as the forfeiture restrictions lapse. MR. AUGUSTA IS URGED TO SEEK ADVICE FROM HIS TAX ADVISOR AS TO
WHETHER OR NOT TO MAKE A SECTION 83(b) ELECTION AND THE RAMIFICATIONS OF MAKING SUCH AN ELECTION. IN PROVIDING THE FORM ATTACHED AS EXHIBIT
A, THE COMPANY MAKES NO REPRESENTATIONS AS TO WHETHER THE SECTION 83(b) ELECTION SHOULD BE MADE BY EMPLOYEE. MR. AUGUSTA ACKNOWLEDGES
THAT IT IS HIS SOLE RESPONSIBILITY, AND NOT THE CORPORATION’S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b), EVEN IF HE REQUESTS THE
CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS BEHALF.
Transfer Restrictions. Mr. Augusta shall not transfer, assign, encumber, or otherwise dispose of any of the Purchased Shares that are subject to the Corporation’s Repurchase
Right. Such restrictions on transfer, however, shall not be applicable to a transfer of title to the Purchased Shares effected pursuant to Mr. Augusta’s will or the laws of intestate
succession provided that the transferee, as a condition precedent to the validity of such transfer, acknowledges in writing to the Corporation that such transferee is bound by the
provisions of this Amendment and that the transferred shares are subject to the Corporation’s Repurchase Right granted hereunder, to the same extent such shares would be so
subject if retained by Mr. Augusta.
Grant of Repurchase Right. The Corporation is hereby granted the right (the “Repurchase Right”), at any time during the sixty (60) day period following the first date that Mr. Augusta
is no longer a director of the Corporation (the “Repurchase Date”), to elect to repurchase all or (at the discretion of the Corporation) any portion of the Purchased Shares in which Mr.
Augusta has not acquired a vested interest in accordance with the vesting provisions set forth below (such shares to be hereinafter called the “Unvested Shares”) at a purchase price
of $.001 per share.
Exercise of the Repurchase Right. The Repurchase Right shall be exercisable by written notice delivered to Mr. Augusta prior to the expiration of the sixty (60) day period following the
Repurchase Date. The notice shall indicate the number of Unvested Shares to be repurchased and the date on which the repurchase is to be effected, such date to be not more than
thirty (30) days after the date of notice. The Corporation shall, concurrently with the receipt of such stock certificates from Mr. Augusta, pay to Mr. Augusta in cash or cash
equivalents, an amount equal to the Purchase Price with respect to the Unvested Shares that are to be repurchased.
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Vesting of Purchased Shares; Termination of the Repurchase Right. Notwithstanding any other provision in this Agreement to the contrary, the Corporation’s Repurchase Right shall
terminate, and the Purchased Shares shall become fully vested, with respect to 400,000/36 of the Purchased Shares on the last day of each month (each, a “Vesting Date”), starting
on January 1, 2012 and ending on December 31, 2014, provided that Mr. Augusta continuously serves as director through that Vesting Date. If any installment includes a fraction of a
share, the fraction shall be carried forward and added to subsequent installments. The Repurchase Right shall terminate with respect to any Unvested Shares for which it is not
exercised within 60 days of the Repurchase Date.
Additional Shares or Substituted Securities. In the event of any stock dividend, stock split, recapitalization or other change affecting the Corporation’s outstanding common stock as a
class effected without receipt of consideration, then any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Purchased Shares shall be immediately subject to the Repurchase Right, but only to the extent the Purchased Shares
are at the time covered by such right. Appropriate adjustments to reflect the distribution of such securities or property shall be made to the number of Purchased Shares subject to the
Repurchase Right hereunder and to the price per share to be paid upon the exercise of the Repurchase Right in order to reflect the effect of any such transaction upon the
Corporation’s capital structure; provided, however, that the aggregate purchase price to be paid by the Corporation pursuant to the Repurchase Right shall remain the same.
Cancellation of Shares. If the Corporation (or its assignees) shall make available, at the time and place and in the amount and form provided in this Amendment, the consideration for
the Purchased Shares to be repurchased in accordance with the provisions of this Agreement, then from and after such time, the person from whom such shares are to be
repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Amendment), and such
shares shall be deemed purchased in accordance with the applicable provisions hereof and the Corporation (or its assignees) shall be deemed the owner and holder of such shares,
whether or not the certificates therefor have been delivered as required by this Amendment.
Repurchase Obligation . Upon the termination of this Agreement, for any reason or for no reason, and regardless of the party who initiated the termination, any Shares which
ApolloMed is not yet obligated to release from Escrow (“Repurchased Shares”) shall be repurchased by the Company at a price of $0.0001 per Repurchased Share (the “Repurchase
Per Share Price”). ApolloMed shall remit its check to the Director within 10 business days following such termination in the full amount of the Repurchase Per Share Price multiplied
by the number of Repurchased Shares. For example, if there were 100,000 Shares remaining in Escrow upon the termination of this Agreement, ApolloMed would repurchase the
100,000 Shares by remitting its check to the Director in the amount of 100,000 x $0.001 = $100.00.
C. Additional Payments
To the extent services described in Section I require out-of-town trips, such additional travel time may be charged at the rate of $1,200 per day or prorated portion thereof. This rate
may be revised by action of ApolloMed’s Board of Directors from time to time for payments not yet earned. Such revision shall be effective as of the date specified in the resolution and
need not be documented by an amendment to this Agreement.
D. Payment
Cash fees shall be made quarterly in cash in advance on the first day of each accounting quarter. Additional payments shall be made in arrears. No invoices need be submitted by
the Director for payment of the cash fee. Invoices for additional payments under subparagraph C of Section IV, above, shall be submitted by the Director. Such invoices must be
approved by ApolloMed’s Chief Executive Officer as to form and completeness.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
E. Expenses
ApolloMed will reimburse the Director for reasonable expenses approved in advance, such approval not to be unreasonably withheld. Invoices for expenses, with receipts attached,
shall be submitted. Such invoices must be approved by ApolloMed’s Chief Executive Officer as to form and completeness.
V. Indemnification and Insurance
ApolloMed will execute an indemnification agreement in favor of the Director substantially in the form of the agreement attached hereto as Exhibit B (the “Indemnification Agreement”).
In addition, so long as ApolloMed’s indemnification obligations exist under the Indemnification Agreement, ApolloMed shall provide the Director with directors and officers liability
insurance coverage in the amounts specified in the Indemnification Agreement.
VI. Term of Agreement
This Agreement shall be in effect from the date hereof through the last date of the Director’s current term as a member of ApolloMed’s Board of Directors. This Agreement shall be
automatically renewed on the date of the Director’s reelection as a member of ApolloMed’s Board of Director’s for the period of such new term unless the Board of Directors determines
not to renew this Agreement. Any amendment to this Agreement must be approved by a written action of ApolloMed’s Board of Directors. Amendments to Section IV Compensation
hereof do not require the Director’s consent to be effective.
VII. Termination
This Agreement shall automatically terminate upon the death of the Director or upon his resignation or removal from, or failure to win election or reelection to, the ApolloMed Board of
Directors.
In the event of any termination of this Agreement, the Director agrees to return or destroy any materials transferred to the Director under this Agreement except as may be necessary
to fulfill any outstanding obligations hereunder. The Director agrees that ApolloMed has the right of injunctive relief to enforce this provision.
ApolloMed’s and the Director’s continuing obligations hereunder in the event of such termination shall be subject to the terms of Section XIV hereof.
VIII. Limitation of Liability
Under no circumstances shall ApolloMed be liable to the Director for any consequential damages claimed by any other party as a result of representations made by the Director with
respect to ApolloMed which are materially different from any to those made in writing by ApolloMed.
Furthermore, except for the maintenance of confidentiality, neither party shall be liable to the other for delay in any performance, or for failure to render any performance under this
Agreement when such delay or failure is caused by Government regulations (whether or not valid), fire, strike, differences with workmen, illness of employees, flood, accident, or any
other cause or causes beyond reasonable control of such delinquent party.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
IX. Confidentiality
The Director agrees to sign and abide by ApolloMed’s Director Proprietary Information and Inventions Agreement, a copy of which is attached hereto as Exhibit A.
X. Resolution of Dispute
Any dispute regarding the agreement (including without limitation its validity, interpretation, performance, enforcement, termination and damages) shall be determined in accordance
with the laws of the State of California, the United States of America. Any action under this paragraph shall not preclude any party hereto from seeking injunctive or other legal relief to
which each party may be entitled.
XI. Sole Agreement
This Agreement (including agreements executed in substantially in the form of the exhibits attached hereto) supersedes all prior or contemporaneous written or oral understandings or
agreements, and may not be added to, modified, or waived, in whole or in part, except by a writing signed by the party against whom such addition, modification or waiver is sought to
be asserted.
XII. Assignment
This Agreement and all of the provisions hereof shall be binding upon and insure to the benefit of the parties hereto and their respective successors and permitted assigns and, except
as otherwise expressly provided herein, neither this Agreement, nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto without the
prior written consent of the other party.
XIII. Notices
Any and all notices, requests and other communications required or permitted hereunder shall be in writing, registered mail or by facsimile, to each of the parties at the addresses set
forth above or the numbers set forth below:
The Director:
ApolloMed:
Gary Augusta
700 N. Brand Blvd, Suite 450
Glendale, CA 91203
Tel: 818-396-8050
Fax: 818-844-3888
Any such notice shall be deemed given when received and notice given by registered mail shall be considered to have been given on the tenth (10th) day after having been sent in the
manner provided for above.
XIV. Survival of Obligations
Notwithstanding the expiration of termination of this Agreement, neither party hereto shall be released hereunder from any liability or obligation to the other which has already accrued
as of the time of such expiration or termination (including, without limitation, ApolloMed’s obligation to make any fees and expense payments required pursuant to Section IV and/or
ApolloMed’s indemnification and insurance obligations set forth in Section V hereof) or which thereafter might accrue in respect of any act or omission of such party prior to such
expiration or termination.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
XV. Attorneys’ Fees
If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of a dispute, breach or default in connection with any of the provisions hereof, the
successful or prevailing party (including a party successful or prevailing in defense) shall be entitled to recover its actual attorneys’ fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
XV. Severability
Any provision of this Agreement which is determined to be invalid or unenforceable shall not affect the remainder of this Agreement, which shall remain in effect as though the invalid or
unenforceable provision had not been included herein, unless the removal of the invalid or unenforceable provision would substantially defeat the intent, purpose or spirit of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above.
Director:
Apollo Medical Holdings, Inc.
Signature: /s/ GARY AUGUSTA
Signature: /s/ WARREN HOSSEINION
Print Name:
Gary Augusta
Print Name: Warren Hosseinion,M.D.
Title: CEO
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
THIS BOARD OF DIRECTORS PROPRIETARY INFORMATION AGREEMENT (“Agreement”) is made and entered into this 22nd day of March, 2012 by and between APOLLO
MEDICAL HOLDINGS, INC., a Delaware corporation (“ApolloMed”), and Gary Augusta (the “Director”).
EXHIBIT PROPRIETARY INFORMATION AGREEMENT
WHEREAS, the Director has been elected to serve on the Board of Directors of ApolloMed;
RECITALS
WHEREAS, the parties desire to assure the confidential status of the information which may be disclosed by ApolloMed to the Director in connection with the Director serving on
ApolloMed’s Board of Directors;
NOW THEREFORE, in reliance upon and in consideration of the following undertaking, the parties agree as follows:
AGREEMENT
1. Subject to the limitations set forth in Paragraph 2, all information disclosed by ApolloMed to the Director shall be deemed to be "Proprietary Information". In particular,
Proprietary Information shall be deemed to include any information, process, technique, algorithm, program, design, drawing, formula or test data relating to any research project, work
in process, future development, engineering, manufacturing, marketing, servicing, financing or personnel matter relating to ApolloMed, its present or future products, sales, suppliers,
customers, employees, investors, or business, whether or oral, written, graphic or electronic form.
2. The term "Proprietary Information" shall not be deemed to include the following information: (i) information which is now, or hereafter becomes, through no breach of this
Agreement on the part of the Director, generally known or available to the public; (ii) is known by the Director at the time of receiving such information; (iii) is hereafter furnished to the
Director by a third party, as a matter of right and without restriction on disclosure; or (iv) is the subject of a written permission to disclose provided by ApolloMed.
3. The Director shall maintain in trust and confidence and not disclose to any third party or use for any unauthorized purpose any Proprietary Information received from
ApolloMed. The Director may use such Proprietary Information only to the extent required to accomplish the purposes of his position as a Director of ApolloMed. The Director shall not
use Proprietary Information for any purpose or in any manner which would constitute a violation of any laws or regulations, including without limitation the export control laws of the
United States. No other rights of licenses to trademarks, inventions, copyrights, or patents are implied or granted under this Agreement.
4. Proprietary Information supplied shall not be reproduced in any form except as required to accomplish the intent of this Agreement.
5. The Director represents and warrants that he shall protect the Proprietary Information received with at least the same degree of care used to protect his own Proprietary
Information from unauthorized use or disclosure.
6. All Proprietary Information (including all copies thereof) shall remain in the property of ApolloMed, and shall be returned to ApolloMed (or destroyed) after the Director's need
for it has expired, or upon request of ApolloMed, and in any event, upon the termination of that certain Board of Directors Agreement, of even date herewith, between ApolloMed and
the Director (the “Director Agreement”).
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
7. Notwithstanding any other provision of this Agreement, disclosure of Proprietary Information shall not be precluded if such disclosure:
(a) is in response to a valid order of a court or other governmental body of the United States or any political subdivision thereof; provided, however, that the Director shall first have
given ApolloMed notice of the Director’s receipt of such order and ApolloMed shall have had an opportunity to obtain a protective order requiring that the Proprietary Information so
disclosed be used only for the purpose for which the order was issued;
(b) is otherwise required by law; or
(c) is otherwise necessary to establish rights or enforce obligations under this Agreement, but only to the extent that any such disclosure is necessary.
8. Subject to the terms of this Paragraph, this Agreement shall continue in full force and effect during the term of the Director Agreement. This Agreement may be terminated at
any time upon thirty (30) days written notice to the other party. The termination of this Agreement shall not relieve the Director of the obligations imposed by Paragraphs 3, 4, 5 and 11
of this Agreement with respect to Proprietary information disclosed prior to the effective date of such termination and the provisions of these Paragraphs shall survive the termination of
this Agreement for a period of eighteen (18) months from the date of such termination.
9. This Agreement shall be governed by the laws of the State of California as those laws are applied to contracts entered into and to be performed entirely in California by
California residents.
10. This Agreement contains the final, complete and exclusive agreement of the parties relative to the subject matter hereof and may not be changed, modified, amended or
supplemented except by a written instrument signed by both parties.
11. Each party hereby acknowledges and agrees that in the event of any breach of this Agreement by the Director, including, without limitation, an actual or threatened
disclosure of Proprietary Information without the prior express written consent of ApolloMed, ApolloMed will suffer an irreparable injury, such that no remedy at law will afford it
adequate protection against, or appropriate compensation for, such injury. Accordingly, each party hereby agrees that ApolloMed shall be entitled to specific performance of the
Director's obligations under this Agreement, as well as such further injunctive relief as may be granted by a court of competent jurisdiction.
Director:
Apollo Medical Holdings, Inc.
Signature: /s/ GARY AUGUSTA
Signature: /s/ WARREN HOSSEINION
Print Name:
Gary Augusta
Print Name:Warren Hosseinion,M.D.
Title: CEO
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT B
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (this “Agreement”) dated as of March 22, 2012, by and among APOLLO MEDICAL HOLDINGS, INC., a Delaware corporation (the
“Company”) and the indemnitees listed on the signature pages hereto (individually, as “Indemnitee” and, collectively, the “Indemnitees”).
RECITALS
A. The Company and Indemnitees recognize the continued difficulty in obtaining liability insurance for its directors, officers, employees, stockholders, controlling
persons, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance.
B. The Company and Indemnitees further recognize the substantial increase in corporate litigation in general, which subjects directors, officers, employees,
controlling persons, stockholders, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited.
C. The Indemnitees do not regard the current protection available as adequate under the present circumstances, and Indemnitees and other directors, officers,
employees, stockholders, controlling persons, agents and fiduciaries of the Company may not be willing to serve in such capacities without additional protection.
D. The Company (i) desires to attract and retain highly qualified individuals and entities, such as Indemnitees, to serve the Company and, in part, in order to
induce each Indemnitee to be involved with the Company and (ii) wishes to provide for the indemnification and advancing of expenses to each Indemnitee to the maximum extent
permitted by law.
E. In view of the considerations set forth above, the Company desires that each Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and each Indemnitee hereby agree as follows:
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
1. Indemnification
a. Indemnification of Expenses. The Company shall indemnify and hold harmless each Indemnitee (including its respective directors, officers, partners,
former partners, members, former members, employees, agents and spouse, as applicable) and each person who controls any of them or who may be liable within the meaning of
Section 15 of the Securities Act of 1933, as amended (the “Securities Act”), or Section 20 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to the fullest
extent permitted by law if such Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in,
any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that such Indemnitee believes might
lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (hereinafter a
“Claim”) by reason of (or arising in part or in whole out of) any event or occurrence related to the fact that Indemnitee is or was or may be deemed a director, officer, stockholder,
employee, controlling person, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was or may be deemed to be serving at the request of the Company as a
director, officer, stockholder, employee, controlling person, agent or fiduciary of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, or by
reason of any action or inaction on the part of such Indemnitee while serving in such capacity including, without limitation, any and all losses, claims, damages, expenses and
liabilities, joint or several (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit, proceeding or any
claim asserted) under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise or which relate directly or indirectly to the
registration, purchase, sale or ownership of any securities of the Company or to any fiduciary obligation owed with respect thereto or as a direct or indirect result of any Claim made by
any stockholder of the Company against an Indemnitee and arising out of or related to any round of financing of the Company (including but not limited to Claims regarding non-
participation, or non-pro rata participation, in such round by such stockholder), or made by a third party against an Indemnitee based on any misstatement or omission of a material
fact by the Company in violation of any duty of disclosure imposed on the Company by federal or state securities or common laws (hereinafter an “Indemnification Event”) against any
and all expenses (including attorneys’ fees and all other costs, expenses and obligations incurred in connection with investigating, defending a witness in or participating in (including
on appeal), or preparing to defend, be a witness in or participate in, any such action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation),
judgments, fines, penalties and amounts paid in settlement (if, and only if, such settlement is approved in advance by the Company, which approval shall not be unreasonably
withheld) of such Claim and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter “Expenses”), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. Such payment of
Expenses shall be made by the Company as soon as practicable but in any event no later than ten (10) days after written demand by the Indemnitee therefor is presented to the
Company.
b. Reviewing Party. Notwithstanding the foregoing, (i) the obligations of the Company under Section 1(a) shall be subject to the condition that the Reviewing
Party (as described in Section 10(e) hereof) shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 1(e) hereof is
involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) each Indemnitee acknowledges and agrees that the obligation of the Company to
make an advance payment of Expenses to Indemnitee pursuant to Section 2(a) (an “Expense Advance”) shall be subject to the condition that, if, when and to the extent that the
Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who
hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in
a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee’s obligation to
reimburse the Company for any Expense Advance shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control (as defined in Section 10(c)
hereof), the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by
a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred
to in Section 1(e) hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any
such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.
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c. Contribution. If the indemnification provided for in Section 1(a) above for any reason is held by a court of competent jurisdiction to be unavailable to an
Indemnitee in respect of any losses, claims, damages, expenses or liabilities referred to therein, then the Company, in lieu of indemnifying such Indemnitee thereunder, shall
contribute to the amount paid or payable by such Indemnitee as a result of such losses, claims, damages, expenses or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Indemnitee, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Indemnitee in connection with the action or inaction
which resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. In connection with the registration of the Company’s
securities, the relative benefits received by the Company and the Indemnitee shall be deemed to be in the same respective proportions that the net proceeds from the offering (before
deducting expenses) received by the Company and the Indemnitee, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public
offering price of the securities so offered. The relative fault of the Company and the Indemnitee shall be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Indemnitee and the parties’
relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
The Company and the Indemnitee agree that it would not be just and equitable if contribution pursuant to this Section 1(c) were determined by pro rata or per capita
allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. In connection with the
registration of the Company’s securities, in no event shall Indemnitee be required to contribute any amount under this Section 1(c) in excess of the lesser of (i) that proportion of the
total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total securities sold under such registration statement which is being sold by such
Indemnitee or (ii) the proceeds received by such Indemnitee from its sale of securities under such registration statement. No person found guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.
any investigation made by or on behalf of the Indemnitee or any officer, director, employee, agent or controlling person of the Indemnitee.
d. Survival Regardless of Investigation. The indemnification and contribution provided for in this Section 1 will remain in full force and effect regardless of
e. Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved
by a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control) then, with respect to all matters thereafter arising concerning the
rights of Indemnitee to payments of Expenses under this Agreement or any other agreement or under the Company’s Certificate of Incorporation, as amended (the “Certificate”), or
Bylaws as now or hereafter in effect, Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected by the Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to abide by such opinion and to pay the reasonable fees of the Independent Legal
Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
f. Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the
merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in the defense of any action, suit, proceeding, inquiry or investigation referred to in Section
1(a) hereof or in the defense of any claim, issue or matter therein, each Indemnitee shall be indemnified against all Expenses incurred by such Indemnitee in connection herewith.
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2. Expenses; Indemnification Procedure.
Company to Indemnitee as soon as practicable but in any event no later than fifteen (15) days after written demand by such Indemnitee therefor to the Company.
a. Advancement of Expenses. The Company shall advance all Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid by the
b. Notice/Cooperation by Indemnitee. Indemnitee shall give the Company notice as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the
signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee).
c. No Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without
court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or
have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee
has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under applicable law, shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not
have any particular belief. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of
proof shall be on the Company to establish that Indemnitee is not so entitled.
d. Notice to Insurers. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has liability insurance
in effect which may cover such Claim, the Company shall give prompt written notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in
each of the policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of
such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies.
e. Selection of Counsel. In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company shall be entitled to
assume the defense of such Claim, with counsel reasonably approved by the applicable Indemnitee, upon the delivery to such Indemnitee of written notice of its election to do so. After
delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to such Indemnitee under this
Agreement for any fees of counsel subsequently incurred by such Indemnitee with respect to the same Claim; provided that, (i) the Indemnitee shall have the right to employ such
Indemnitee’s counsel in any such Claim at the Indemnitee’s expense; (ii) the Indemnitee shall have the right to employ its own counsel in connection with any such proceeding, at the
expense of the Company, if such counsel serves in a review, observer, advice and counseling capacity and does not otherwise materially control or participate in the defense of such
proceeding; and (iii) if (A) the employment of counsel by the Indemnitee has been previously authorized by the Company, (B) such Indemnitee shall have reasonably concluded that
there is a conflict of interest between the Company and such Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend
such Claim, then the fees and expenses of the Indemnitee’s counsel shall be at the expense of the Company.
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3. Additional Indemnification Rights; Nonexclusivity.
a. Scope. The Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, even if such indemnification is not specifically
authorized by the other provisions of this Agreement or any other agreement, the Certificate, the Company’s Bylaws or by statute. In the event of any change after the date of this
Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, stockholder,
employee, controlling person, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the
event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, employee,
agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’
rights and obligations hereunder except as set forth in Section 8(a) hereof.
b. Nonexclusivity. Notwithstanding anything in this Agreement, the indemnification provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Certificate, the Company’s Bylaws, any agreement, any vote of stockholders or disinterested directors, the laws of the State of Delaware, or
otherwise. Notwithstanding anything in this Agreement, the indemnification provided under this Agreement shall continue as to each Indemnitee for any action such Indemnitee took or
did not take while serving in an indemnified capacity even though the Indemnitee may have ceased to serve in such capacity and such indemnification shall inure to the benefit of each
Indemnitee from and after Indemnitee’s first day of service as a director with the Company or affiliation with a director from and after the date such director commences services as a
director with the Company.
4. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against any
Indemnitee to the extent such Indemnitee has otherwise actually received payment (under any insurance policy, Certificate, Bylaws or otherwise) of the amounts otherwise
indemnifiable hereunder.
5. Partial Indemnification. If any Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for any portion of Expenses
incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to
which such Indemnitee is entitled.
6. Mutual Acknowledgement. The Company and each Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, controlling persons, agents or fiduciaries under this Agreement or otherwise.
7. Liability Insurance. During any period of time any Indemnitee is entitled to indemnification rights under this Agreement, the Company shall maintain liability
insurance applicable to directors, officers, employees, control persons, agents or fiduciaries, each Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if such Indemnitee is a director, or of the Company’s officers, if
such Indemnitee is not a director of the Company but is an officer; or of the Company’s key employees, controlling persons, agents or fiduciaries, if such Indemnitee is not an officer or
director but is a key employee, agent, control person, or fiduciary. Said liability insurance shall provide coverage amounts of no less than those specified in Schedule A attached hereto
and be held with an insurance carrier which is the Board of Directors of the Company believes is of financial sound condition.
8. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:
Indemnitee of securities in violation of Section 16(b) of the Exchange Act or any similar successor statute;
a. Claims Under Section 16(b). To indemnify any Indemnitee for expenses and the payment of profits arising from the purchase and sale by such
indemnification is not lawful;
b. Unlawful Indemnification. To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that such
on the Company; or
c. Fraud. To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that the Indemnitee has committed fraud
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d. Insurance. To indemnify any Indemnitee for which payment is actually and fully made to Indemnitee under a valid and collectible insurance policy.
9. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against any Indemnitee, any
Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of such cause of action, and any claim or
cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such five (5) year period; provided, however,
that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.
10. Construction of Certain Phrases.
a. For purposes of this Agreement, references to the “Company” shall include, in addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors,
officers, employees, agents or fiduciaries, so that if Indemnitee is or was or may be deemed a director, officer, employee, agent, control person, or fiduciary of such constituent
corporation, or is or was or may be deemed to be serving at the request of such constituent corporation as a director, officer, employee, control person, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, each Indemnitee shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as each Indemnitee would have with respect to such constituent corporation if its separate existence had continued.
b. For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise
taxes assessed on any Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit
plan, its participants or its beneficiaries; and if any Indemnitee acted in good faith and in a manner such Indemnitee reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan, such Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this
Agreement.
c. For purposes of this Agreement a “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d)(3) and
14(d)(2) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, (A) who is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding Voting Securities, increases his beneficial ownership of such
securities by 5% or more over the percentage so owned by such person, or (B) becomes the “beneficial owner” (as defined in Rule 13d-3 under said Exchange Act), directly or
indirectly, of securities of the Company representing more than 30% of the total voting power represented by the Company’s then outstanding Voting Securities, (ii) during any period
of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least
two-thirds (2/3) of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series
of transactions) all or substantially all of the Company’s assets.
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d. For purposes of this Agreement, “Independent Legal Counsel” shall mean an attorney or firm of attorneys, selected in accordance with the provisions of
Section 1(e) hereof, who shall not have otherwise performed services for the Company or any Indemnitee within the last three (3) years (other than with respect to matters concerning
the right of any Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).
e. For purposes of this Agreement, a “Reviewing Party” shall mean any appropriate person or body consisting of a member or members of the Company’s
Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or
Independent Legal Counsel.
f. For purposes of this Agreement, “Voting Securities” shall mean any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the
Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation
or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to each Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had
taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnifiable Events regardless of whether any Indemnitee continues to serve as a director,
officer, employee, agent, controlling person, or fiduciary of the Company or of any other enterprise, including subsidiaries of the Company, at the Company’s request.
13. Attorneys’ Fees. In the event that any action is instituted by an Indemnitee under this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, any Indemnitee shall be entitled to be paid all Expenses incurred by such Indemnitee with respect to such action if
such Indemnitee is ultimately successful in such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, the Indemnitee shall be entitled to be paid Expenses incurred by such Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, in each case only to the
extent that such Indemnitee is ultimately successful in such action.
14. Notice. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be
deemed to be given (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if
delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of
delivery by facsimile transmission, if deliverable by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at each Indemnitee’s
address as set forth beneath the Indemnitee’s signature to this Agreement and if to the Company at the address of its principal corporate offices (attention: Secretary) or at such other
address as such party may designate by ten (10) days’ advance written notice to the other party hereto.
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15. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section,
paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest
extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
16. Choice of Law. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be performed entirely within the State of Delaware, without regard to the conflict of laws principles thereof.
17. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce
such rights.
18. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by the
parties to be bound thereby. Notice of same shall be provided to all parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
19. Corporate Authority. The Board of Directors of the Company and its stockholders in accordance with Delaware law have approved the terms of this
Agreement.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on and as of the day and year first above written.
APOLLO MEDICAL HOLDINGS, INC.,
a Delaware corporation
By: /s/ WARREN HOSSEINION, M.D.
Warren Hosseinion, M.D. CEO
“Indemnitees”
/s/ GARY AUGUSTA
Gary Augusta
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit C
ELECTION UNDER SECTION 83(b) OF
THE INTERNAL REVENUE CODE
The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the
following information in accordance with the regulations promulgated thereunder:
1. The name, address and social security number of the undersigned:
Name: Gary Augusta
Address:
Social Security No.
2. Description of property with respect to which the election is being made:
400,000 shares of common stock of Apollo Medical Holdings, Inc. (the “Company”).
3. The date on which the property was transferred is .
4. The taxable year to which this election relates is calendar year .
5. Nature of restrictions to which the property is subject:
The shares of stock are subject to the provisions of a Restricted Stock Agreement between the undersigned and the Company. The shares of stock are subject to
forfeiture under the terms of the Agreement.
6. The fair market value of the property at the time of transfer (determined without regard to any lapse restriction) was $ per share, for a total of $ .
7. The amount paid by taxpayer for the property was nothing.
8. A copy of this statement has been furnished to the Company.
Dated:
Taxpayer’s Signature
Taxpayer’s Spouse’s Signature
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PROCEDURES FOR MAKING ELECTION
UNDER INTERNAL REVENUE CODE SECTION 83(b)
The following procedures must be followed with respect to the attached form for making an election under Internal Revenue Code section 83(b) in order for the election
to be effective:
A. You must file one copy of the completed election form with the IRS Service Center where you file your federal income tax returns within 30 days after the
Date of Award of your Restricted Stock.
B. At the same time you file the election form with the IRS, you must also give a copy of the election form to the Secretary of the Company.
C . You must file another copy of the election form with your federal income tax return (generally, Form 1040) when it is filed for the taxable year in
which the stock is transferred to you. It is suggested that a copy also be attached to your state income tax return.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
This Board of Directors Agreement (“Agreement”) made as of February 15, 2012 by and between Apollo Medical Holdings, Inc., with its principal place of business at 700 N. Brand
Blvd, Suite 450, Glendale, California 91203 (“ApolloMed”) and Ted Schreck, (the “Director”) provides for director services, according to the following terms and conditions:
BOARD OF DIRECTORS AGREEMENT
I. Services Provided
ApolloMed agrees to engage the Director to serve as Chairman of the Board of Directors of ApolloMed and to provide those services required of a director under ApolloMed’s
Certificate of Incorporation and Bylaws, as both may be amended from time, to time (“Articles and Bylaws”) and under the General Corporation Law of Delaware, the federal securities
laws and other state and federal laws and regulations, as applicable.
II. Nature of Relationship
The Director is an independent contractor and will not be deemed an employee of ApolloMed for purposes of employee benefits, income tax withholding, F.I.C.A. taxes, unemployment
benefits or otherwise. The Director shall not enter into any agreement or incur any obligations on ApolloMed’s behalf.
ApolloMed will supply, at no cost to the Director: periodic briefings on the business, director packages for each board and committee meeting, copies of minutes of meetings and any
other materials that are required under ApolloMed’s Articles and Bylaws or the charter of any committee of the board on which the Director serves and any other materials which may,
by mutual agreement, be necessary for performing the services requested under this Agreement.
III. Director’s Warranties
The Director warrants that no other party has exclusive rights to his services in the specific areas in which ApolloMed is conducting business and that the Director is in no way
compromising any rights or trust between any other party and the Director or creating a conflict of interest as a result of his participation on the Board of Directors of ApolloMed. The
Director also warrants that so long as the Director serves on the board of the directors of ApolloMed, the Director will not enter into another agreement that will create a conflict of
interest with this Agreement. The Director further warrants that he will comply with all applicable state and federal laws and regulations, as applicable, including Sections 10 and 16 of
the Securities and Exchange Act of 1934.
Throughout the term of this Agreement, the Director agrees he will not, without obtaining ApolloMed’s prior written consent, directly or indirectly engage or prepare to engage in any
activity in competition with any ApolloMed business or product, including products in the development stage, accept employment or provide services to (including service as a member
of a board of directors), or establish a business in competition with ApolloMed.
IV. Compensation
A. Cash Fee
During the term of this Agreement, ApolloMed shall pay the Director a nonrefundable fee of $2,500 per month in consideration for the Director providing the services described in
Section I which shall compensate him for all time spent preparing for, travelling to (if applicable) and attending board of director meetings; provided, however, that if any board
meetings or duties require out-of-town travel time, such additional travel time may be billed at the rate set forth in subparagraph C of Section IV below. This cash fee may be revised
by action of ApolloMed’s Board of Directors from time to time. Such revision shall be effective as of the date specified in the resolution for payments not yet earned and need not be
documented by an amendment to this Agreement.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
B. Equity Compensation
Issuance of Options. Upon the execution and delivery of this Agreement, ApolloMed shall issue to the Ted Schreck non-qualified stock options (the “Option”) to purchase 1,000,000
shares of the Company’s Common Stock (the “Shares”) under its 2009 Equity Incentive Plan (the “Plan”).
C. Payment
Cash fees shall be made quarterly in cash in advance on the first day of each accounting quarter. Additional payments shall be made in arrears. No invoices need be submitted by
the Director for payment of the cash fee. Invoices for additional payments under subparagraph C of Section IV, above, shall be submitted by the Director. Such invoices must be
approved by ApolloMed’s Chief Executive Officer as to form and completeness.
D. Expenses
ApolloMed will reimburse the Director for reasonable travel expenses for trips to Glendale approved in advance, such approval not to be unreasonably withheld. Invoices for expenses,
with receipts attached, shall be submitted. Such invoices must be approved by ApolloMed’s Chief Executive Officer as to form and completeness.
V. Indemnification and Insurance
ApolloMed will execute an indemnification agreement in favor of the Director substantially in the form of the agreement attached hereto as Exhibit B (the “Indemnification Agreement”).
In addition, so long as ApolloMed’s indemnification obligations exist under the Indemnification Agreement, ApolloMed shall provide the Director with directors and officers liability
insurance coverage in the amounts specified in the Indemnification Agreement.
VI. Term of Agreement
This Agreement shall be in effect from the date hereof through the last date of the Director’s current term as a member of ApolloMed’s Board of Directors. This Agreement shall be
automatically renewed on the date of the Director’s reelection as a member of ApolloMed’s Board of Director’s for the period of such new term unless the Board of Directors determines
not to renew this Agreement. Any amendment to this Agreement must be approved by a written action of ApolloMed’s Board of Directors. Amendments to Section IV Compensation
hereof do not require the Director’s consent to be effective.
VII. Termination
This Agreement shall automatically terminate upon the death of the Director or upon his resignation or removal from, or failure to win election or reelection to, the ApolloMed Board of
Directors.
In the event of any termination of this Agreement, the Director agrees to return or destroy any materials transferred to the Director under this Agreement except as may be necessary
to fulfill any outstanding obligations hereunder. The Director agrees that ApolloMed has the right of injunctive relief to enforce this provision.
ApolloMed’s and the Director’s continuing obligations hereunder in the event of such termination shall be subject to the terms of Section XIV hereof.
VIII. Limitation of Liability
Under no circumstances shall ApolloMed be liable to the Director for any consequential damages claimed by any other party as a result of representations made by the Director with
respect to ApolloMed which are materially different from any to those made in writing by ApolloMed.
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Furthermore, except for the maintenance of confidentiality, neither party shall be liable to the other for delay in any performance, or for failure to render any performance under this
Agreement when such delay or failure is caused by Government regulations (whether or not valid), fire, strike, differences with workmen, illness of employees, flood, accident, or any
other cause or causes beyond reasonable control of such delinquent party.
IX. Confidentiality
The Director agrees to sign and abide by ApolloMed’s Director Proprietary Information and Inventions Agreement, a copy of which is attached hereto as Exhibit A.
X. Resolution of Dispute
Any dispute regarding the agreement (including without limitation its validity, interpretation, performance, enforcement, termination and damages) shall be determined in accordance
with the laws of the State of California, the United States of America. Any action under this paragraph shall not preclude any party hereto from seeking injunctive or other legal relief to
which each party may be entitled.
XI. Sole Agreement
This Agreement (including agreements executed in substantially in the form of the exhibits attached hereto) supersedes all prior or contemporaneous written or oral understandings or
agreements, and may not be added to, modified, or waived, in whole or in part, except by a writing signed by the party against whom such addition, modification or waiver is sought to
be asserted.
XII. Assignment
This Agreement and all of the provisions hereof shall be binding upon and insure to the benefit of the parties hereto and their respective successors and permitted assigns and, except
as otherwise expressly provided herein, neither this Agreement, nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto without the
prior written consent of the other party.
XIII. Notices
Any and all notices, requests and other communications required or permitted hereunder shall be in writing, registered mail or by facsimile, to each of the parties at the addresses set
forth above or the numbers set forth below:
The Director:
ApolloMed:
700 N. Brand Blvd, Suite 450
Glendale, CA 91203
Any such notice shall be deemed given when received and notice given by registered mail shall be considered to have been given on the tenth (10th) day after having been sent in the
manner provided for above.
XIV. Survival of Obligations
Notwithstanding the expiration of termination of this Agreement, neither party hereto shall be released hereunder from any liability or obligation to the other which has already accrued
as of the time of such expiration or termination (including, without limitation, AppolloMed’s obligation to make any fees and expense payments required pursuant to Section IV and/or
AppolloMed’s indemnification and insurance obligations set forth in Section V hereof) or which thereafter might accrue in respect of any act or omission of such party prior to such
expiration or termination.
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XV. Attorneys’ Fees
If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of a dispute, breach or default in connection with any of the provisions hereof, the
successful or prevailing party (including a party successful or prevailing in defense) shall be entitled to recover its actual attorneys’ fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
XV. Severability
Any provision of this Agreement which is determined to be invalid or unenforceable shall not affect the remainder of this Agreement, which shall remain in effect as though the invalid or
unenforceable provision had not been included herein, unless the removal of the invalid or unenforceable provision would substantially defeat the intent, purpose or spirit of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above.
Director:
Apollo Medical Holding, Inc.
Signature:
/s/ Ted Schreck
Signature: /s/ Warren Hosseinion
Print Name:
Ted Schreck
Print Name: Warren Hosseinion, M.D.
Title: Chief Executive Officer
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EXHIBIT A
BOARD OF DIRECTORS PROPRIETARY INFORMATION AGREEMENT
THIS BOARD OF DIRECTORS PROPRIETARY INFORMATION AGREEMENT (“Agreement”) is made and entered into this 15th day of February, 2012 by and between APOLLO
MEDICAL HOLDINGS, INC., a Delaware corporation (“ApolloMed”), and Ted Schreck (the “Director”).
WHEREAS, the Director has been elected to serve on the Board of Directors of ApolloMed;
RECITALS
WHEREAS, the parties desire to assure the confidential status of the information which may be disclosed by ApolloMed to the Director in connection with the Director serving on
ApolloMed’s Board of Directors;
NOW THEREFORE, in reliance upon and in consideration of the following undertaking, the parties agree as follows:
AGREEMENT
1. Subject to the limitations set forth in Paragraph 2, all information disclosed by ApolloMed to the Director shall be deemed to be "Proprietary Information". In particular,
Proprietary Information shall be deemed to include any information, process, technique, algorithm, program, design, drawing, formula or test data relating to any research project, work
in process, future development, engineering, manufacturing, marketing, servicing, financing or personnel matter relating to ApolloMed, its present or future products, sales, suppliers,
customers, employees, investors, or business, whether or oral, written, graphic or electronic form.
2. The term "Proprietary Information" shall not be deemed to include the following information: (i) information which is now, or hereafter becomes, through no breach of this
Agreement on the part of the Director, generally known or available to the public; (ii) is known by the Director at the time of receiving such information; (iii) is hereafter furnished to the
Director by a third party, as a matter of right and without restriction on disclosure; or (iv) is the subject of a written permission to disclose provided by ApolloMed.
3. The Director shall maintain in trust and confidence and not disclose to any third party or use for any unauthorized purpose any Proprietary Information received from
ApolloMed. The Director may use such Proprietary Information only to the extent required to accomplish the purposes of his position as a Director of ApolloMed. The Director shall not
use Proprietary Information for any purpose or in any manner which would constitute a violation of any laws or regulations, including without limitation the export control laws of the
United States. No other rights of licenses to trademarks, inventions, copyrights, or patents are implied or granted under this Agreement.
4. Proprietary Information supplied shall not be reproduced in any form except as required to accomplish the intent of this Agreement.
5. The Director represents and warrants that he shall protect the Proprietary Information received with at least the same degree of care used to protect his own Proprietary
Information from unauthorized use or disclosure.
6. All Proprietary Information (including all copies thereof) shall remain in the property of ApolloMed, and shall be returned to ApolloMed (or destroyed) after the Director's
need for it has expired, or upon request of ApolloMed, and in any event, upon the termination of that certain Board of Directors Agreement, of even date herewith, between ApolloMed
and the Director (the “Director Agreement”).
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7. Notwithstanding any other provision of this Agreement, disclosure of Proprietary Information shall not be precluded if such disclosure:
(a) is in response to a valid order of a court or other governmental body of the United States or any political subdivision thereof; provided, however, that the Director shall first have
given ApolloMed notice of the Director’s receipt of such order and ApolloMed shall have had an opportunity to obtain a protective order requiring that the Proprietary Information so
disclosed be used only for the purpose for which the order was issued;
(b) is otherwise required by law; or
(c) is otherwise necessary to establish rights or enforce obligations under this Agreement, but only to the extent that any such disclosure is necessary.
8. Subject to the terms of this Paragraph, this Agreement shall continue in full force and effect during the term of the Director Agreement. This Agreement may be terminated
at any time upon thirty (30) days written notice to the other party. The termination of this Agreement shall not relieve the Director of the obligations imposed by Paragraphs 3, 4, 5 and
11 of this Agreement with respect to Proprietary information disclosed prior to the effective date of such termination and the provisions of these Paragraphs shall survive the
termination of this Agreement for a period of eighteen (18) months from the date of such termination.
9. This Agreement shall be governed by the laws of the State of California as those laws are applied to contracts entered into and to be performed entirely in California by
California residents.
10. This Agreement contains the final, complete and exclusive agreement of the parties relative to the subject matter hereof and may not be changed, modified, amended or
supplemented except by a written instrument signed by both parties.
11. Each party hereby acknowledges and agrees that in the event of any breach of this Agreement by the Director, including, without limitation, an actual or threatened
disclosure of Proprietary Information without the prior express written consent of ApolloMed, ApolloMed will suffer an irreparable injury, such that no remedy at law will afford it
adequate protection against, or appropriate compensation for, such injury. Accordingly, each party hereby agrees that ApolloMed shall be entitled to specific performance of the
Director's obligations under this Agreement, as well as such further injunctive relief as may be granted by a court of competent jurisdiction.
Director:
Apollo Medical Holding, Inc.
Signature:
/s/ Ted Schreck
Signature: /s/ Warren Hosseinion
Print Name:
Ted Schreck
Print Name: Warren Hosseinion, M.D.
Title: Chief Executive Officer
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EXHIBIT B
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (this “Agreement”) dated as of February 15, 2012, by and among APOLLO MEDICAL HOLDINGS, INC., a Delaware corporation
(the “Company”) and the indemnitees listed on the signature pages hereto (individually, as “Indemnitee” and, collectively, the “Indemnitees”).
RECITALS
A. The Company and Indemnitees recognize the continued difficulty in obtaining liability insurance for its directors, officers, employees, stockholders, controlling
persons, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance.
B. The Company and Indemnitees further recognize the substantial increase in corporate litigation in general, which subjects directors, officers, employees,
controlling persons, stockholders, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited.
C. The Indemnitees do not regard the current protection available as adequate under the present circumstances, and Indemnitees and other directors, officers,
employees, stockholders, controlling persons, agents and fiduciaries of the Company may not be willing to serve in such capacities without additional protection.
D. The Company (i) desires to attract and retain highly qualified individuals and entities, such as Indemnitees, to serve the Company and, in part, in order to
induce each Indemnitee to be involved with the Company and (ii) wishes to provide for the indemnification and advancing of expenses to each Indemnitee to the maximum extent
permitted by law.
E. In view of the considerations set forth above, the Company desires that each Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and each Indemnitee hereby agree as follows:
1. Indemnification
a. Indemnification of Expenses. The Company shall indemnify and hold harmless each Indemnitee (including its respective directors, officers, partners,
former partners, members, former members, employees, agents and spouse, as applicable) and each person who controls any of them or who may be liable within the meaning of
Section 15 of the Securities Act of 1933, as amended (the “Securities Act”), or Section 20 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to the fullest
extent permitted by law if such Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in,
any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that such Indemnitee believes might
lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (hereinafter a
“Claim”) by reason of (or arising in part or in whole out of) any event or occurrence related to the fact that Indemnitee is or was or may be deemed a director, officer, stockholder,
employee, controlling person, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was or may be deemed to be serving at the request of the Company as a
director, officer, stockholder, employee, controlling person, agent or fiduciary of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, or by
reason of any action or inaction on the part of such Indemnitee while serving in such capacity including, without limitation, any and all losses, claims, damages, expenses and
liabilities, joint or several (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit, proceeding or any
claim asserted) under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise or which relate directly or indirectly to the
registration, purchase, sale or ownership of any securities of the Company or to any fiduciary obligation owed with respect thereto or as a direct or indirect result of any Claim made by
any stockholder of the Company against an Indemnitee and arising out of or related to any round of financing of the Company (including but not limited to Claims regarding non-
participation, or non-pro rata participation, in such round by such stockholder), or made by a third party against an Indemnitee based on any misstatement or omission of a material
fact by the Company in violation of any duty of disclosure imposed on the Company by federal or state securities or common laws (hereinafter an “Indemnification Event”) against any
and all expenses (including attorneys’ fees and all other costs, expenses and obligations incurred in connection with investigating, defending a witness in or participating in (including
on appeal), or preparing to defend, be a witness in or participate in, any such action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation),
judgments, fines, penalties and amounts paid in settlement (if, and only if, such settlement is approved in advance by the Company, which approval shall not be unreasonably
withheld) of such Claim and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter “Expenses”), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. Such payment of
Expenses shall be made by the Company as soon as practicable but in any event no later than ten (10) days after written demand by the Indemnitee therefor is presented to the
Company.
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b. Reviewing Party. Notwithstanding the foregoing, (i) the obligations of the Company under Section 1(a) shall be subject to the condition that the Reviewing
Party (as described in Section 10(e) hereof) shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 1(e) hereof is
involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) each Indemnitee acknowledges and agrees that the obligation of the Company to
make an advance payment of Expenses to Indemnitee pursuant to Section 2(a) (an “Expense Advance”) shall be subject to the condition that, if, when and to the extent that the
Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who
hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in
a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee’s obligation to
reimburse the Company for any Expense Advance shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control (as defined in Section 10(c)
hereof), the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by
a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred
to in Section 1(e) hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any
such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.
c. Contribution. If the indemnification provided for in Section 1(a) above for any reason is held by a court of competent jurisdiction to be unavailable to an
Indemnitee in respect of any losses, claims, damages, expenses or liabilities referred to therein, then the Company, in lieu of indemnifying such Indemnitee thereunder, shall
contribute to the amount paid or payable by such Indemnitee as a result of such losses, claims, damages, expenses or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Indemnitee, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Indemnitee in connection with the action or inaction
which resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. In connection with the registration of the Company’s
securities, the relative benefits received by the Company and the Indemnitee shall be deemed to be in the same respective proportions that the net proceeds from the offering (before
deducting expenses) received by the Company and the Indemnitee, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public
offering price of the securities so offered. The relative fault of the Company and the Indemnitee shall be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Indemnitee and the parties’
relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
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The Company and the Indemnitee agree that it would not be just and equitable if contribution pursuant to this Section 1(c) were determined by pro rata or per capita
allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. In connection with the
registration of the Company’s securities, in no event shall Indemnitee be required to contribute any amount under this Section 1(c) in excess of the lesser of (i) that proportion of the
total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total securities sold under such registration statement which is being sold by such
Indemnitee or (ii) the proceeds received by such Indemnitee from its sale of securities under such registration statement. No person found guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.
investigation made by or on behalf of the Indemnitee or any officer, director, employee, agent or controlling person of the Indemnitee.
d. Survival Regardless of Investigation. The indemnification and contribution provided for in this Section 1 will remain in full force and effect regardless of any
e. Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved
by a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control) then, with respect to all matters thereafter arising concerning the
rights of Indemnitee to payments of Expenses under this Agreement or any other agreement or under the Company’s Certificate of Incorporation, as amended (the “Certificate”), or
Bylaws as now or hereafter in effect, Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected by the Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to abide by such opinion and to pay the reasonable fees of the Independent Legal
Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
f. Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits
or otherwise, including, without limitation, the dismissal of an action without prejudice, in the defense of any action, suit, proceeding, inquiry or investigation referred to in Section 1(a)
hereof or in the defense of any claim, issue or matter therein, each Indemnitee shall be indemnified against all Expenses incurred by such Indemnitee in connection herewith.
2. Expenses; Indemnification Procedure.
Company to Indemnitee as soon as practicable but in any event no later than fifteen (15) days after written demand by such Indemnitee therefor to the Company.
a. Advancement of Expenses. The Company shall advance all Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid by the
b. Notice/Cooperation by Indemnitee. Indemnitee shall give the Company notice as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the
signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee).
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c. No Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without
court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or
have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee
has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under applicable law, shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not
have any particular belief. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of
proof shall be on the Company to establish that Indemnitee is not so entitled.
d. Notice to Insurers. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has liability insurance
in effect which may cover such Claim, the Company shall give prompt written notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in
each of the policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of
such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies.
e. Selection of Counsel. In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company shall be entitled to assume
the defense of such Claim, with counsel reasonably approved by the applicable Indemnitee, upon the delivery to such Indemnitee of written notice of its election to do so. After delivery
of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to such Indemnitee under this
Agreement for any fees of counsel subsequently incurred by such Indemnitee with respect to the same Claim; provided that, (i) the Indemnitee shall have the right to employ such
Indemnitee’s counsel in any such Claim at the Indemnitee’s expense; (ii) the Indemnitee shall have the right to employ its own counsel in connection with any such proceeding, at the
expense of the Company, if such counsel serves in a review, observer, advice and counseling capacity and does not otherwise materially control or participate in the defense of such
proceeding; and (iii) if (A) the employment of counsel by the Indemnitee has been previously authorized by the Company, (B) such Indemnitee shall have reasonably concluded that
there is a conflict of interest between the Company and such Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend
such Claim, then the fees and expenses of the Indemnitee’s counsel shall be at the expense of the Company.
3. Additional Indemnification Rights; Nonexclusivity.
a. Scope. The Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, even if such indemnification is not specifically
authorized by the other provisions of this Agreement or any other agreement, the Certificate, the Company’s Bylaws or by statute. In the event of any change after the date of this
Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, stockholder,
employee, controlling person, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the
event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, employee,
agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’
rights and obligations hereunder except as set forth in Section 8(a) hereof.
b. Nonexclusivity. Notwithstanding anything in this Agreement, the indemnification provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Certificate, the Company’s Bylaws, any agreement, any vote of stockholders or disinterested directors, the laws of the State of Delaware, or
otherwise. Notwithstanding anything in this Agreement, the indemnification provided under this Agreement shall continue as to each Indemnitee for any action such Indemnitee took or
did not take while serving in an indemnified capacity even though the Indemnitee may have ceased to serve in such capacity and such indemnification shall inure to the benefit of each
Indemnitee from and after Indemnitee’s first day of service as a director with the Company or affiliation with a director from and after the date such director commences services as a
director with the Company.
4. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against any
Indemnitee to the extent such Indemnitee has otherwise actually received payment (under any insurance policy, Certificate, Bylaws or otherwise) of the amounts otherwise
indemnifiable hereunder.
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5. Partial Indemnification. If any Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for any portion of Expenses incurred
in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which such
Indemnitee is entitled.
6. Mutual Acknowledgement. The Company and each Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, controlling persons, agents or fiduciaries under this Agreement or otherwise.
7. Liability Insurance. During any period of time any Indemnitee is entitled to indemnification rights under this Agreement, the Company shall maintain liability
insurance applicable to directors, officers, employees, control persons, agents or fiduciaries, each Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if such Indemnitee is a director, or of the Company’s officers, if
such Indemnitee is not a director of the Company but is an officer; or of the Company’s key employees, controlling persons, agents or fiduciaries, if such Indemnitee is not an officer or
director but is a key employee, agent, control person, or fiduciary. Said liability insurance shall provide coverage amounts of no less than those specified in Schedule A attached hereto
and be held with an insurance carrier which is the Board of Directors of the Company believes is of financial sound condition.
8. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:
of securities in violation of Section 16(b) of the Exchange Act or any similar successor statute;
a. Claims Under Section 16(b). To indemnify any Indemnitee for expenses and the payment of profits arising from the purchase and sale by such Indemnitee
indemnification is not lawful;
b. Unlawful Indemnification. To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that such
on the Company; or
c. Fraud. To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that the Indemnitee has committed fraud
d. Insurance. To indemnify any Indemnitee for which payment is actually and fully made to Indemnitee under a valid and collectible insurance policy.
9. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against any Indemnitee, any
Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of such cause of action, and any claim or
cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such five (5) year period; provided, however,
that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.
10. Construction of Certain Phrases.
a. For purposes of this Agreement, references to the “Company” shall include, in addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors,
officers, employees, agents or fiduciaries, so that if Indemnitee is or was or may be deemed a director, officer, employee, agent, control person, or fiduciary of such constituent
corporation, or is or was or may be deemed to be serving at the request of such constituent corporation as a director, officer, employee, control person, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, each Indemnitee shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as each Indemnitee would have with respect to such constituent corporation if its separate existence had continued.
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b. For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes
assessed on any Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit
plan, its participants or its beneficiaries; and if any Indemnitee acted in good faith and in a manner such Indemnitee reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan, such Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this
Agreement.
c. For purposes of this Agreement a “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d)(3) and
14(d)(2) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, (A) who is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding Voting Securities, increases his beneficial ownership of such
securities by 5% or more over the percentage so owned by such person, or (B) becomes the “beneficial owner” (as defined in Rule 13d-3 under said Exchange Act), directly or
indirectly, of securities of the Company representing more than 30% of the total voting power represented by the Company’s then outstanding Voting Securities, (ii) during any period
of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least
two-thirds (2/3) of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series
of transactions) all or substantially all of the Company’s assets.
d. For purposes of this Agreement, “Independent Legal Counsel” shall mean an attorney or firm of attorneys, selected in accordance with the provisions of
Section 1(e) hereof, who shall not have otherwise performed services for the Company or any Indemnitee within the last three (3) years (other than with respect to matters concerning
the right of any Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).
e. For purposes of this Agreement, a “Reviewing Party” shall mean any appropriate person or body consisting of a member or members of the Company’s
Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or
Independent Legal Counsel.
f. For purposes of this Agreement, “Voting Securities” shall mean any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the
Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation
or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to each Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had
taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnifiable Events regardless of whether any Indemnitee continues to serve as a director,
officer, employee, agent, controlling person, or fiduciary of the Company or of any other enterprise, including subsidiaries of the Company, at the Company’s request.
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13. Attorneys’ Fees. In the event that any action is instituted by an Indemnitee under this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, any Indemnitee shall be entitled to be paid all Expenses incurred by such Indemnitee with respect to such action if
such Indemnitee is ultimately successful in such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, the Indemnitee shall be entitled to be paid Expenses incurred by such Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, in each case only to the
extent that such Indemnitee is ultimately successful in such action.
14. Notice. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be
deemed to be given (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if
delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of
delivery by facsimile transmission, if deliverable by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at each Indemnitee’s
address as set forth beneath the Indemnitee’s signature to this Agreement and if to the Company at the address of its principal corporate offices (attention: Secretary) or at such other
address as such party may designate by ten (10) days’ advance written notice to the other party hereto.
15. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section,
paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest
extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
16. Choice of Law. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be performed entirely within the State of Delaware, without regard to the conflict of laws principles thereof.
17. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce
such rights.
18. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by the
parties to be bound thereby. Notice of same shall be provided to all parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
19. Corporate Authority. The Board of Directors of the Company and its stockholders in accordance with Delaware law have approved the terms of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on and as of the day and year first above written.
APOLLO MEDICAL HOLDINGS, INC.,
a Delaware corporation
By:
/s/ Warren Hosseinion M.D.
“Indemnitees”
/s/ Ted Schreck
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This Board of Directors Agreement (“Agreement”) made as of October 22, 2012 by and between Apollo Medical Holdings, Inc., with its principal place of business at 700 N. Brand Blvd,
Suite 450, Glendale, California, 91203 (“ApolloMed”) and Mitchell R. Creem, with an address of__________________, (the “Director”) provides for director services, according to the
following terms and conditions:
BOARD OF DIRECTORS AGREEMENT
I. Services Provided
ApolloMed agrees to engage the Director to serve on the Board of Directors of ApolloMed and to provide those services required of a director under ApolloMed’s Certificate of
Incorporation and Bylaws, as both may be amended from time, to time (“Articles and Bylaws”) and under the General Corporation Law of Delaware, the federal securities laws and
other state and federal laws and regulations, as applicable. Director will also serve as Chairman of the Audit Committee of ApolloMed.
II. Nature of Relationship
The Director is an independent contractor and will not be deemed an employee of ApolloMed for purposes of employee benefits, income tax withholding, F.I.C.A. taxes, unemployment
benefits or otherwise. The Director shall not enter into any agreement or incur any obligations on ApolloMed’s behalf.
ApolloMed will supply, at no cost to the Director: periodic briefings on the business, director packages for each board and committee meeting, copies of minutes of meetings and any
other materials that are required under ApolloMed’s Articles and Bylaws or the charter of any committee of the board on which the Director serves and any other materials which may,
by mutual agreement, be necessary for performing the services requested under this Agreement.
III. Director’s Warranties
The Director warrants that no other party has exclusive rights to his services in the specific areas in which ApolloMed is conducting business and that the Director is in no way
compromising any rights or trust between any other party and the Director or creating a conflict of interest as a result of his participation on the Board of Directors of ApolloMed. The
Director also warrants that so long as the Director serves on the board of the directors of ApolloMed, the Director will not enter into another agreement that will create a conflict of
interest with this Agreement. The Director further warrants that he will comply with all applicable state and federal laws and regulations, as applicable, including Sections 10 and 16 of
the Securities and Exchange Act of 1934.
Throughout the term of this Agreement, the Director agrees he will not, without obtaining ApolloMed’s prior written consent, directly or indirectly engage or prepare to engage in any
activity in competition with any ApolloMed business or product, including products in the development stage, accept employment or provide services to (including service as a member
of a board of directors), or establish a business in competition with ApolloMed.
IV. Compensation
A. Cash Fee
During the term of this Agreement, ApolloMed shall pay the Director a nonrefundable fee of $1,000 per board of director meeting in consideration for the Director providing the services
described in Section I which shall compensate him for all time spent preparing for, travelling to (if applicable) and attending board of director meetings; provided, however, that if any
board meetings or duties require out-of-town travel time, such additional travel time may be billed at the rate set forth in subparagraph C of Section IV below. This cash fee may be
revised by action of ApolloMed’s Board of Directors from time to time. Such revision shall be effective as of the date specified in the resolution for payments not yet earned and need
not be documented by an amendment to this Agreement.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
B. Equity Compensation
Issuance of Shares. Upon the execution and delivery of this Agreement, ApolloMed shall issue to the Director (or designee of the Director) a restricted stock award of 500,000 shares of
ApolloMed’s common stock (collectively, the “Shares”). Pursuant to the request of the Director, all of the Shares shall be issued in the name of “___Mitch Creem_________” and the
Shares that have not been released from Escrow (as defined herein below) may not be sold, pledged, hypothecated or otherwise transferred to any other person. All certificates
representing the Shares shall bear a legend regarding the fact that the Shares are not registered under the Securities Act of 1933, as amended (the “Securities Act”), and none of the
Shares may be sold, pledged, hypothecated or otherwise transferred without compliance with Federal and applicable state securities laws.
Escrow of Shares. Certificates evidencing all Shares shall be placed in escrow maintained at all times by the Company (“Escrow”). Provided this Agreement has not been previously
terminated, on the last day of each month during the term of this Agreement, 1/36th of the total number of Shares shall be promptly released from Escrow by ApolloMed to the Director.
If the Agreement is terminated prior to the end of any calendar month during the term of this Agreement, for any reason or for no reason, and regardless of the party who initiated the
termination, the Director shall receive a pro-rata number of Shares for that calendar month based upon the actual number of days elapsed prior to the date of termination. Except as set
forth in the immediately preceding sentence, upon the termination of this Agreement, for any reason or for no reason, and regardless of the party who initiated the termination, no
additional Shares shall be released from Escrow. Unless otherwise agreed to by ApolloMed and the Director in writing, if this Agreement remains in effect for more than 36 months, no
additional shares shall be issued to the Director hereunder. Notwithstanding anything contained herein to the contrary, the Shares shall be issued and released from Escrow only in full
compliance with Federal and all applicable state securities laws and the Director shall cooperate with all requests of ApolloMed in order to comply with all such laws as may be
reasonably requested by the Company or its counsel. The Shares do not carry registration rights and the Director has no right to compel the registration of any of the Shares, either
before or after they are released from Escrow. Additionally, the Director covenants and agrees to be bound by all standard policies and guidelines applicable to the other directors and
executive officers of ApolloMed with respect to transaction in the Shares, including without limitation the terms and conditions of any insider trading policy, code of ethics, corporate
governance guidelines, or similar policies, codes and guidelines adopted by the Board of Directors of ApolloMed from time to time.
Repurchase Obligation. Upon the termination of this Agreement, for any reason or for no reason, and regardless of the party who initiated the termination, any Shares which ApolloMed
is not yet obligated to released from Escrow (“Repurchased Shares”) shall be repurchased by the Company at a price of $0.0001 per Repurchased Share (the “Repurchase Per Share
Price”). ApolloMed shall remit its check to the Director within 10 business days following such termination in the full amount of the Repurchase Per Share Price multiplied by the
number of Repurchased Shares. For example, if there were 100,000 Shares remaining in Escrow upon the termination of this Agreement, ApolloMed would repurchase the 100,000
Shares by remitting its check to the Director in the amount of 100,000 x $0.0001 = $10.00.
C. Additional Payments
To the extent services described in Section I require out-of-town trips, such additional travel time may be charged at the rate of $1,200 per day or pro rated portion thereof. This rate
may be revised by action of ApolloMed’s Board of Directors from time to time for payments not yet earned. Such revision shall be effective as of the date specified in the resolution and
need not be documented by an amendment to this Agreement.
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D. Payment
Cash fees shall be made quarterly in cash in advance on the first day of each accounting quarter. Additional payments shall be made in arrears. No invoices need be submitted by
the Director for payment of the cash fee. Invoices for additional payments under subparagraph C of Section IV, above, shall be submitted by the Director. Such invoices must be
approved by ApolloMed’s Chief Executive Officer as to form and completeness.
E. Expenses
ApolloMed will reimburse the Director for reasonable expenses approved in advance, such approval not to be unreasonably withheld. Invoices for expenses, with receipts attached,
shall be submitted. Such invoices must be approved by ApolloMed’s Chief Executive Officer as to form and completeness.
V. Indemnification and Insurance
ApolloMed will execute an indemnification agreement in favor of the Director substantially in the form of the agreement attached hereto as Exhibit B (the “Indemnification Agreement”).
In addition, so long as ApolloMed’s indemnification obligations exist under the Indemnification Agreement, ApolloMed shall provide the Director with directors and officers liability
insurance coverage in the amounts specified in the Indemnification Agreement.
VI. Term of Agreement
This Agreement shall be in effect from the date hereof through the last date of the Director’s current term as a member of ApolloMed’s Board of Directors. This Agreement shall be
automatically renewed on the date of the Director’s reelection as a member of ApolloMed’s Board of Director’s for the period of such new term unless the Board of Directors determines
not to renew this Agreement. Any amendment to this Agreement must be approved by a written action of ApolloMed’s Board of Directors. Amendments to Section IV Compensation
hereof do not require the Director’s consent to be effective.
VII. Termination
This Agreement shall automatically terminate upon the death of the Director or upon his resignation or removal from, or failure to win election or reelection to, the ApolloMed Board of
Directors.
In the event of any termination of this Agreement, the Director agrees to return or destroy any materials transferred to the Director under this Agreement except as may be necessary
to fulfill any outstanding obligations hereunder. The Director agrees that ApolloMed has the right of injunctive relief to enforce this provision.
ApolloMed’s and the Director’s continuing obligations hereunder in the event of such termination shall be subject to the terms of Section XIV hereof.
VIII. Limitation of Liability
Under no circumstances shall ApolloMed be liable to the Director for any consequential damages claimed by any other party as a result of representations made by the Director with
respect to ApolloMed which are materially different from any to those made in writing by ApolloMed.
Furthermore, except for the maintenance of confidentiality, neither party shall be liable to the other for delay in any performance, or for failure to render any performance under this
Agreement when such delay or failure is caused by Government regulations (whether or not valid), fire, strike, differences with workmen, illness of employees, flood, accident, or any
other cause or causes beyond reasonable control of such delinquent party.
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IX. Confidentiality
The Director agrees to sign and abide by ApolloMed’s Director Proprietary Information and Inventions Agreement, a copy of which is attached hereto as Exhibit A.
X. Resolution of Dispute
Any dispute regarding the agreement (including without limitation its validity, interpretation, performance, enforcement, termination and damages) shall be determined in accordance
with the laws of the State of California, the United States of America. Any action under this paragraph shall not preclude any party hereto from seeking injunctive or other legal relief to
which each party may be entitled.
XI. Sole Agreement
This Agreement (including agreements executed in substantially in the form of the exhibits attached hereto) supersedes all prior or contemporaneous written or oral understandings or
agreements, and may not be added to, modified, or waived, in whole or in part, except by a writing signed by the party against whom such addition, modification or waiver is sought to
be asserted.
XII. Assignment
This Agreement and all of the provisions hereof shall be binding upon and insure to the benefit of the parties hereto and their respective successors and permitted assigns and, except
as otherwise expressly provided herein, neither this Agreement, nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto without the
prior written consent of the other party.
XIII. Notices
Any and all notices, requests and other communications required or permitted hereunder shall be in writing, registered mail or by facsimile, to each of the parties at the addresses set
forth above or the numbers set forth below:
The Director:
ApolloMed:
Mitchell R. Creem
Apollo Medical Holdings, Inc.
700 N. Brand Blvd, Suite 450
Glendale, CA 91203
Any such notice shall be deemed given when received and notice given by registered mail shall be considered to have been given on the tenth (10th) day after having been sent in the
manner provided for above.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
XIV. Survival of Obligations
Notwithstanding the expiration of termination of this Agreement, neither party hereto shall be released hereunder from any liability or obligation to the other which has already accrued
as of the time of such expiration or termination (including, without limitation, ApolloMed’s obligation to make any fees and expense payments required pursuant to Section IV and/or
ApolloMed’s indemnification and insurance obligations set forth in Section V hereof) or which thereafter might accrue in respect of any act or omission of such party prior to such
expiration or termination.
XV. Attorneys’ Fees
If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of a dispute, breach or default in connection with any of the provisions hereof, the
successful or prevailing party (including a party successful or prevailing in defense) shall be entitled to recover its actual attorneys’ fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
XV. Severability
Any provision of this Agreement which is determined to be invalid or unenforceable shall not affect the remainder of this Agreement, which shall remain in effect as though the invalid or
unenforceable provision had not been included herein, unless the removal of the invalid or unenforceable provision would substantially defeat the intent, purpose or spirit of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above.
Director:
Apollo Medical Holdings, Inc.
Signature:
/s/ Mitch R. Creem
Signature:
/s/ Warren Hosseinion, M.D.
Print Name:
Mitch R. Creem
Print Name:
Warren Hosseinion, M.D.
Title:
CEO
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
THIS BOARD OF DIRECTORS PROPRIETARY INFORMATION AGREEMENT (“Agreement”) is made and entered into this 22nd day of October, 2012 by and between APOLLO
MEDICAL HOLDINGS, INC., a Delaware corporation (“ApolloMed”), and Mitchell R. Creem (the “Director”).
EXHIBIT PROPRIETARY INFORMATION AGREEMENT
WHEREAS, the Director has been elected to serve on the Board of Directors of ApolloMed;
RECITALS
WHEREAS, the parties desire to assure the confidential status of the information which may be disclosed by ApolloMed to the Director in connection with the Director serving on
ApolloMed’s Board of Directors;
NOW THEREFORE, in reliance upon and in consideration of the following undertaking, the parties agree as follows:
AGREEMENT
1. Subject to the limitations set forth in Paragraph 2, all information disclosed by ApolloMed to the Director shall be deemed to be "Proprietary Information". In particular,
Proprietary Information shall be deemed to include any information, process, technique, algorithm, program, design, drawing, formula or test data relating to any research project, work
in process, future development, engineering, manufacturing, marketing, servicing, financing or personnel matter relating to ApolloMed, its present or future products, sales, suppliers,
customers, employees, investors, or business, whether or oral, written, graphic or electronic form.
2. The term "Proprietary Information" shall not be deemed to include the following information: (i) information which is now, or hereafter becomes, through no breach of this
Agreement on the part of the Director, generally known or available to the public; (ii) is known by the Director at the time of receiving such information; (iii) is hereafter furnished to the
Director by a third party, as a matter of right and without restriction on disclosure; or (iv) is the subject of a written permission to disclose provided by ApolloMed.
3. The Director shall maintain in trust and confidence and not disclose to any third party or use for any unauthorized purpose any Proprietary Information received from
ApolloMed. The Director may use such Proprietary Information only to the extent required to accomplish the purposes of his position as a Director of ApolloMed. The Director shall not
use Proprietary Information for any purpose or in any manner which would constitute a violation of any laws or regulations, including without limitation the export control laws of the
United States. No other rights of licenses to trademarks, inventions, copyrights, or patents are implied or granted under this Agreement.
4. Proprietary Information supplied shall not be reproduced in any form except as required to accomplish the intent of this Agreement.
5. The Director represents and warrants that he shall protect the Proprietary Information received with at least the same degree of care used to protect his own Proprietary
Information from unauthorized use or disclosure.
6. All Proprietary Information (including all copies thereof) shall remain in the property of ApolloMed, and shall be returned to ApolloMed (or destroyed) after the Director's
need for it has expired, or upon request of ApolloMed, and in any event, upon the termination of that certain Board of Directors Agreement, of even date herewith, between ApolloMed
and the Director (the “Director Agreement”).
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
7. Notwithstanding any other provision of this Agreement, disclosure of Proprietary Information shall not be precluded if such disclosure:
(a) is in response to a valid order of a court or other governmental body of the United States or any political subdivision thereof; provided, however, that the Director shall first have
given ApolloMed notice of the Director’s receipt of such order and ApolloMed shall have had an opportunity to obtain a protective order requiring that the Proprietary Information so
disclosed be used only for the purpose for which the order was issued;
(b) is otherwise required by law; or
(c) is otherwise necessary to establish rights or enforce obligations under this Agreement, but only to the extent that any such disclosure is necessary.
8. Subject to the terms of this Paragraph, this Agreement shall continue in full force and effect during the term of the Director Agreement. This Agreement may be
terminated at any time upon thirty (30) days written notice to the other party. The termination of this Agreement shall not relieve the Director of the obligations imposed by Paragraphs
3, 4, 5 and 11 of this Agreement with respect to Proprietary information disclosed prior to the effective date of such termination and the provisions of these Paragraphs shall survive the
termination of this Agreement for a period of eighteen (18) months from the date of such termination.
9. This Agreement shall be governed by the laws of the State of California as those laws are applied to contracts entered into and to be performed entirely in California by
California residents.
10. This Agreement contains the final, complete and exclusive agreement of the parties relative to the subject matter hereof and may not be changed, modified, amended or
supplemented except by a written instrument signed by both parties.
11. Each party hereby acknowledges and agrees that in the event of any breach of this Agreement by the Director, including, without limitation, an actual or threatened
disclosure of Proprietary Information without the prior express written consent of ApolloMed, ApolloMed will suffer an irreparable injury, such that no remedy at law will afford it
adequate protection against, or appropriate compensation for, such injury. Accordingly, each party hereby agrees that ApolloMed shall be entitled to specific performance of the
Director's obligations under this Agreement, as well as such further injunctive relief as may be granted by a court of competent jurisdiction.
Director:
Apollo Medical Holdings, Inc.
Signature:
/s/ MITCHELL R. CREEM
Signature:
/s/ WARREN HOSSEINION, M.D.
Print Name:
Mitchell R. Creem
Print Name:
Warren Hosseinion, M.D.
Title:
CEO
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT B
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (this “Agreement”) dated as of October 22, 2012, by and among APOLLO MEDICAL HOLDINGS, INC., a Delaware corporation (the
“Company”) and the indemnitees listed on the signature pages hereto (individually, as “Indemnitee” and, collectively, the “Indemnitees”).
RECITALS
A. The Company and Indemnitees recognize the continued difficulty in obtaining liability insurance for its directors, officers, employees, stockholders, controlling
persons, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance.
B. The Company and Indemnitees further recognize the substantial increase in corporate litigation in general, which subjects directors, officers, employees,
controlling persons, stockholders, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited.
C. The Indemnitees do not regard the current protection available as adequate under the present circumstances, and Indemnitees and other directors, officers,
employees, stockholders, controlling persons, agents and fiduciaries of the Company may not be willing to serve in such capacities without additional protection.
D. The Company (i) desires to attract and retain highly qualified individuals and entities, such as Indemnitees, to serve the Company and, in part, in order to
induce each Indemnitee to be involved with the Company and (ii) wishes to provide for the indemnification and advancing of expenses to each Indemnitee to the maximum extent
permitted by law.
E. In view of the considerations set forth above, the Company desires that each Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and each Indemnitee hereby agree as follows:
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1. Indemnification
a. Indemnification of Expenses. The Company shall indemnify and hold harmless each Indemnitee (including its respective directors, officers, partners,
former partners, members, former members, employees, agents and spouse, as applicable) and each person who controls any of them or who may be liable within the meaning of
Section 15 of the Securities Act of 1933, as amended (the “Securities Act”), or Section 20 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to the fullest
extent permitted by law if such Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in,
any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that such Indemnitee believes might
lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (hereinafter a
“Claim”) by reason of (or arising in part or in whole out of) any event or occurrence related to the fact that Indemnitee is or was or may be deemed a director, officer, stockholder,
employee, controlling person, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was or may be deemed to be serving at the request of the Company as a
director, officer, stockholder, employee, controlling person, agent or fiduciary of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, or by
reason of any action or inaction on the part of such Indemnitee while serving in such capacity including, without limitation, any and all losses, claims, damages, expenses and
liabilities, joint or several (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit, proceeding or any
claim asserted) under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise or which relate directly or indirectly to the
registration, purchase, sale or ownership of any securities of the Company or to any fiduciary obligation owed with respect thereto or as a direct or indirect result of any Claim made by
any stockholder of the Company against an Indemnitee and arising out of or related to any round of financing of the Company (including but not limited to Claims regarding non-
participation, or non-pro rata participation, in such round by such stockholder), or made by a third party against an Indemnitee based on any misstatement or omission of a material
fact by the Company in violation of any duty of disclosure imposed on the Company by federal or state securities or common laws (hereinafter an “Indemnification Event”) against any
and all expenses (including attorneys’ fees and all other costs, expenses and obligations incurred in connection with investigating, defending a witness in or participating in (including
on appeal), or preparing to defend, be a witness in or participate in, any such action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation),
judgments, fines, penalties and amounts paid in settlement (if, and only if, such settlement is approved in advance by the Company, which approval shall not be unreasonably
withheld) of such Claim and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter “Expenses”), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. Such payment of
Expenses shall be made by the Company as soon as practicable but in any event no later than ten (10) days after written demand by the Indemnitee therefor is presented to the
Company.
b. Reviewing Party. Notwithstanding the foregoing, (i) the obligations of the Company under Section 1(a) shall be subject to the condition that the
Reviewing Party (as described in Section 10(e) hereof) shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 1(e)
hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) each Indemnitee acknowledges and agrees that the obligation of the
Company to make an advance payment of Expenses to Indemnitee pursuant to Section 2(a) (an “Expense Advance”) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee
(who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal
proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee’s obligation to
reimburse the Company for any Expense Advance shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control (as defined in Section 10(c)
hereof), the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by
a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred
to in Section 1(e) hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any
such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.
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c. Contribution. If the indemnification provided for in Section 1(a) above for any reason is held by a court of competent jurisdiction to be unavailable to an
Indemnitee in respect of any losses, claims, damages, expenses or liabilities referred to therein, then the Company, in lieu of indemnifying such Indemnitee thereunder, shall
contribute to the amount paid or payable by such Indemnitee as a result of such losses, claims, damages, expenses or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Indemnitee, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Indemnitee in connection with the action or inaction
which resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. In connection with the registration of the Company’s
securities, the relative benefits received by the Company and the Indemnitee shall be deemed to be in the same respective proportions that the net proceeds from the offering (before
deducting expenses) received by the Company and the Indemnitee, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public
offering price of the securities so offered. The relative fault of the Company and the Indemnitee shall be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Indemnitee and the parties’
relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
The Company and the Indemnitee agree that it would not be just and equitable if contribution pursuant to this Section 1(c) were determined by pro rata or per capita
allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. In connection with the
registration of the Company’s securities, in no event shall Indemnitee be required to contribute any amount under this Section 1(c) in excess of the lesser of (i) that proportion of the
total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total securities sold under such registration statement which is being sold by such
Indemnitee or (ii) the proceeds received by such Indemnitee from its sale of securities under such registration statement. No person found guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.
any investigation made by or on behalf of the Indemnitee or any officer, director, employee, agent or controlling person of the Indemnitee.
d. Survival Regardless of Investigation. The indemnification and contribution provided for in this Section 1 will remain in full force and effect regardless of
e. Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control) then, with respect to all matters thereafter arising
concerning the rights of Indemnitee to payments of Expenses under this Agreement or any other agreement or under the Company’s Certificate of Incorporation, as amended (the
“Certificate”), or Bylaws as now or hereafter in effect, Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected by the Indemnitee and approved by the
Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to
what extent Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to abide by such opinion and to pay the reasonable fees of the Independent
Legal Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to
this Agreement or its engagement pursuant hereto.
f. Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the
merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in the defense of any action, suit, proceeding, inquiry or investigation referred to in Section
1(a) hereof or in the defense of any claim, issue or matter therein, each Indemnitee shall be indemnified against all Expenses incurred by such Indemnitee in connection herewith.
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2. Expenses; Indemnification Procedure.
the Company to Indemnitee as soon as practicable but in any event no later than fifteen (15) days after written demand by such Indemnitee therefor to the Company.
a. Advancement of Expenses. The Company shall advance all Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid by
b. Notice/Cooperation by Indemnitee. Indemnitee shall give the Company notice as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the
signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee).
c. No Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have
made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that
Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that
Indemnitee should be indemnified under applicable law, shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled.
d. Notice to Insurers. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has liability
insurance in effect which may cover such Claim, the Company shall give prompt written notice of the commencement of such Claim to the insurers in accordance with the procedures
set forth in each of the policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a
result of such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies.
e. Selection of Counsel. In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company shall be entitled to
assume the defense of such Claim, with counsel reasonably approved by the applicable Indemnitee, upon the delivery to such Indemnitee of written notice of its election to do so. After
delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to such Indemnitee under this
Agreement for any fees of counsel subsequently incurred by such Indemnitee with respect to the same Claim; provided that, (i) the Indemnitee shall have the right to employ such
Indemnitee’s counsel in any such Claim at the Indemnitee’s expense; (ii) the Indemnitee shall have the right to employ its own counsel in connection with any such proceeding, at the
expense of the Company, if such counsel serves in a review, observer, advice and counseling capacity and does not otherwise materially control or participate in the defense of such
proceeding; and (iii) if (A) the employment of counsel by the Indemnitee has been previously authorized by the Company, (B) such Indemnitee shall have reasonably concluded that
there is a conflict of interest between the Company and such Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend
such Claim, then the fees and expenses of the Indemnitee’s counsel shall be at the expense of the Company.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
3. Additional Indemnification Rights; Nonexclusivity.
a. Scope. The Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, even if such indemnification is not specifically
authorized by the other provisions of this Agreement or any other agreement, the Certificate, the Company’s Bylaws or by statute. In the event of any change after the date of this
Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, stockholder,
employee, controlling person, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the
event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, employee,
agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’
rights and obligations hereunder except as set forth in Section 8(a) hereof.
b. Nonexclusivity. Notwithstanding anything in this Agreement, the indemnification provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Certificate, the Company’s Bylaws, any agreement, any vote of stockholders or disinterested directors, the laws of the State of Delaware, or
otherwise. Notwithstanding anything in this Agreement, the indemnification provided under this Agreement shall continue as to each Indemnitee for any action such Indemnitee took or
did not take while serving in an indemnified capacity even though the Indemnitee may have ceased to serve in such capacity and such indemnification shall inure to the benefit of each
Indemnitee from and after Indemnitee’s first day of service as a director with the Company or affiliation with a director from and after the date such director commences services as a
director with the Company.
4. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against any
Indemnitee to the extent such Indemnitee has otherwise actually received payment (under any insurance policy, Certificate, Bylaws or otherwise) of the amounts otherwise
indemnifiable hereunder.
5. Partial Indemnification. If any Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for any portion of Expenses
incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to
which such Indemnitee is entitled.
6. Mutual Acknowledgement. The Company and each Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, controlling persons, agents or fiduciaries under this Agreement or otherwise.
7. Liability Insurance. During any period of time any Indemnitee is entitled to indemnification rights under this Agreement, the Company shall maintain liability
insurance applicable to directors, officers, employees, control persons, agents or fiduciaries, each Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if such Indemnitee is a director, or of the Company’s officers, if
such Indemnitee is not a director of the Company but is an officer; or of the Company’s key employees, controlling persons, agents or fiduciaries, if such Indemnitee is not an officer or
director but is a key employee, agent, control person, or fiduciary. Said liability insurance shall provide coverage amounts of no less than those specified in Schedule A attached hereto
and be held with an insurance carrier which is the Board of Directors of the Company believes is of financial sound condition.
8. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:
Indemnitee of securities in violation of Section 16(b) of the Exchange Act or any similar successor statute;
a. Claims Under Section 16(b). To indemnify any Indemnitee for expenses and the payment of profits arising from the purchase and sale by such
indemnification is not lawful;
b. Unlawful Indemnification. To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that such
fraud on the Company; or
c. Fraud. To indemnify an Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that the Indemnitee has committed
12
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
d. Insurance. To indemnify any Indemnitee for which payment is actually and fully made to Indemnitee under a valid and collectible insurance policy.
9. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against any Indemnitee, any
Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of such cause of action, and any claim or
cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such five (5) year period; provided, however,
that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.
10. Construction of Certain Phrases.
a. For purposes of this Agreement, references to the “Company” shall include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was or may be deemed a director, officer, employee, agent, control person, or fiduciary of such
constituent corporation, or is or was or may be deemed to be serving at the request of such constituent corporation as a director, officer, employee, control person, agent or fiduciary of
another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, each Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as each Indemnitee would have with respect to such constituent corporation if its separate existence had continued.
b. For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise
taxes assessed on any Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit
plan, its participants or its beneficiaries; and if any Indemnitee acted in good faith and in a manner such Indemnitee reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan, such Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this
Agreement.
c. For purposes of this Agreement a “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding Voting Securities, increases his beneficial
ownership of such securities by 5% or more over the percentage so owned by such person, or (B) becomes the “beneficial owner” (as defined in Rule 13d-3 under said Exchange Act),
directly or indirectly, of securities of the Company representing more than 30% of the total voting power represented by the Company’s then outstanding Voting Securities, (ii) during
any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the
stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting
Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving
entity) at least two-thirds (2/3) of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all of the Company’s assets.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
d. For purposes of this Agreement, “Independent Legal Counsel” shall mean an attorney or firm of attorneys, selected in accordance with the provisions
of Section 1(e) hereof, who shall not have otherwise performed services for the Company or any Indemnitee within the last three (3) years (other than with respect to matters
concerning the right of any Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).
e. For purposes of this Agreement, a “Reviewing Party” shall mean any appropriate person or body consisting of a member or members of the
Company’s Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee is seeking
indemnification, or Independent Legal Counsel.
f. For purposes of this Agreement, “Voting Securities” shall mean any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the
Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation
or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to each Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had
taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnifiable Events regardless of whether any Indemnitee continues to serve as a director,
officer, employee, agent, controlling person, or fiduciary of the Company or of any other enterprise, including subsidiaries of the Company, at the Company’s request.
13. Attorneys’ Fees. In the event that any action is instituted by an Indemnitee under this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, any Indemnitee shall be entitled to be paid all Expenses incurred by such Indemnitee with respect to such action if
such Indemnitee is ultimately successful in such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, the Indemnitee shall be entitled to be paid Expenses incurred by such Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, in each case only to the
extent that such Indemnitee is ultimately successful in such action.
14. Notice. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be
deemed to be given (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if
delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of
delivery by facsimile transmission, if deliverable by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at each Indemnitee’s
address as set forth beneath the Indemnitee’s signature to this Agreement and if to the Company at the address of its principal corporate offices (attention: Secretary) or at such other
address as such party may designate by ten (10) days’ advance written notice to the other party hereto.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
15. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section,
paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest
extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
16. Choice of Law. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be performed entirely within the State of Delaware, without regard to the conflict of laws principles thereof.
17. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce
such rights.
18. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by the
parties to be bound thereby. Notice of same shall be provided to all parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
19. Corporate Authority. The Board of Directors of the Company and its stockholders in accordance with Delaware law have approved the terms of this
Agreement.
(Remainder of page intentionally left blank)
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on and as of the day and year first above written.
APOLLO MEDICAL HOLDINGS, INC.,
a Delaware corporation
By:/s/ WARREN HOSSEINION, M.D.
Warren Hosseinion, M.D. CEO
“Indemnitees”
Mitchell R. Creem
By: /s/ MITCHELL R. CREEM
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 21.1 Subsidiaries of Apollo Medical Holdings, Inc.
Name
Jurisdiction of Operations
Apollo Medical Management, Inc.
Pulmonary Critical Care Management, Inc.
ApolloMed Accountable Care Organization, Inc.
Verdugo Medical Management, Inc.
Delaware
California
California
California
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
FORM OF RULE 13A-14(A)
AS ADOPTED PURSUANT TO
SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002
I, Warren Hosseinion, M.D., Chief Executive Officer of Apollo Medical Holdings, Inc., certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Apollo Medical Holdings, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: May 8, 2014
/s/ WARREN HOSSEINION, M.D.
WARREN HOSSEINION, M.D.
Chief Executive Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
FORM OF RULE 13A-14(A)
AS ADOPTED PURSUANT TO
SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002
I, Kyle Francis, Chief Financial Officer of Apollo Medical Holdings, Inc., certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Apollo Medical Holdings, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or reasonably likely to materially affect, registrant’s internal control over
financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: May 8, 2014
/s/ KYLE FRANCIS
KYLE FRANCIS
Chief Financial Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Apollo Medical Holdings, Inc. (the “Company”)
hereby certifies, to such officer’s knowledge, that:
(i) The Annual Report on Form 10-K of the Company for the year ended January 31, 2014 (the “Report”), fully complies with the requirements of Section 13(a) or Section 15(d),
as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 8, 2014
/s/ WARREN HOSSEINION, M.D.
WARREN HOSSEINION, M.D.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Apollo Medical Holdings, Inc.(the “Company”) hereby
certifies, to such officer’s knowledge, that:
(i) The Annual Report on Form 10-K of the Company for the year ended January 31, 2014 (the “Report”), fully complies with the requirements of Section 13(a) or Section 15(d),
as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Dated: May 8, 2014
/s/ KYLE FRANCIS
KYLE FRANCIS
Chief Financial Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.