<PAGE>
As filed with the Securities and Exchange Commission on January 20, 1999
Registration No. 333-67981
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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IDX SYSTEMS CORPORATION
(Exact Name of Registrant As Specified in Its Charter)
Vermont 7373 03-0222230
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation or Classification Code No.)
Organization)
1400 Shelburne Road, P.O. Box 1070, South Burlington, Vermont 05403,
(802) 862-1022
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
------------
Richard E. Tarrant
President and Chief Executive Officer
IDX Systems Corporation
1400 Shelburne Road, P.O. Box 1070
South Burlington, Vermont 05403
(802) 862-1022
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)
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Copies to:
Robert W. Baker, Jr., Esq. Peter B. Tarr, Esq. Thomas E. Sparks, Jr. Esq.
IDX Systems Corporation Virginia K. Kapner, Esq. Pillsbury Madison & Sutro
1400 Shelburne Road Hale and Dorr LLP LLP
P.O. Box 1070 60 State Street 235 Montgomery Street
South Burlington, Vermont Boston, Massachusetts San Francisco, California
05403 02109 94104
(802) 862-1022 (617) 526-6000 (415) 983-1000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective and certain
other conditions under the Merger Agreement are met or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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[EDiX Corporation logo]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of IDX Systems Corporation and EDiX Corporation have
approved the acquisition of EDiX by IDX, a healthcare information solutions
company. After the merger, EDiX stockholders will own less than 2% of IDX. The
merger is intended to be tax free to EDiX stockholders.
The stockholders and optionholders of EDiX will receive a total of
approximately 402,000 to 483,000 shares of Common Stock of IDX. This means each
outstanding share of EDiX you own will be exchanged for between .34 and .41
shares of IDX. The exact number will depend on the average closing sale price
of the IDX Common Stock on the Nasdaq National Market on the five consecutive
trading days ending three business days prior to the closing.
If the average IDX share price is between $40 and $48 during the relevant
measurement period, the IDX shares to be issued in the acquisition will be
worth $19,302,000. This values each EDiX share at approximately $1.62. The
price of IDX Common Stock will change before and after the five trading day
measurement period and thus the value of the IDX shares to be issued for each
EDiX share may be more or less than $1.62 when issued.
Ten percent of the IDX shares that you would otherwise receive will be held in
escrow to back the indemnification obligation of the stockholders and
optionholders of EDiX. You may never receive any of these escrowed shares. As a
result of these escrow provisions EDiX stockholders and optionholders will
receive a total of 361,800 to 434,700 shares of IDX stock at the time of the
merger.
At the time you vote on the merger, you will not know the number of IDX shares
that you will receive.
The number of shares of IDX Common Stock that you will receive in the merger
will be determined by your pro rata share of the outstanding stock of EDiX.
Shares of EDiX's Common Stock and Series A-1 Preferred Stock will be treated
identically for this purpose. If you are an optionholder in EDiX, the number of
shares of IDX that you will receive in the merger will be reduced to take into
account the fair market value of your option.
We have scheduled a special meeting for the EDiX stockholders to vote on the
merger. Approval of the merger is assured since stockholders of EDiX who hold
91% of the shares of Common Stock and 79% of the shares of Series A-1 Preferred
Stock, have agreed to vote in favor of the merger. Under Delaware law, EDiX
stockholders, who vote against the merger and comply with notice requirements
and other procedures, have the right to receive the "fair value" of their EDiX
shares, as determined by a Delaware court, in cash.
Whether or not you plan to attend the meeting, please take the time to vote by
completing and mailing the enclosed proxy card to us. If you sign, date and
mail your proxy card but do not indicate how you want to vote, your proxy card
will be counted as a vote in favor of the merger. If you fail to return your
proxy card, it will have the same effect as a vote against the merger.
Only stockholders of record of EDiX stock as of , 1999 are entitled to
attend and vote at the meeting. The date, time and place of the meeting are as
follows:
Meeting of EDiX Stockholders:
February , 1999
10:00 a.m., local time
Oracle Strategic Partners L.P.
712 Fifth Avenue
45th Floor
New York, New York 10019
This Proxy Statement/Prospectus provides you with detailed information about
the proposed merger. We encourage you to read this entire document carefully.
Please pay particular attention to the matters referred to under "Risk Factors"
beginning at page 13.
In addition, you may obtain information about IDX from documents that it has
filed with the Securities and Exchange Commission. See "Where You Can Find More
Information."
/s/ Gene H. Barduson
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Gene H. Barduson
President and Chief Executive Officer
EDiX Corporation
Neither the SEC Nor Any Securities Regulator Has Approved The Common Stock To
Be Issued Under This Proxy Statement/Prospectus Or Determined If This Proxy
Statement/Prospectus Is Accurate Or Adequate. Any Representation To The
Contrary Is A Criminal Offense.
Proxy Statement/Prospectus dated , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY................................................................... 1
The Merger.............................................................. 1
The Companies........................................................... 1
What You Will Receive in the Merger..................................... 1
How Stock Options Will be Treated in the Merger......................... 2
How Warrants Will be Treated in the Merger.............................. 2
The EDiX Board Recommends the Merger for These Reasons.................. 3
EDiX Stockholder Approval of the Special Meeting........................ 3
How Interests of Certain Persons in the Merger Differ from Those of
Stockholders........................................................... 3
Expected Date of the Merger............................................. 3
Conditions to the Merger................................................ 3
Who Can Terminate the Merger Agreement; Fees and Expenses............... 4
Solicitation of Competing Transactions Prohibited....................... 4
Dissenting Stockholders' Rights of Appraisal............................ 4
Federal Income Tax Consequences......................................... 4
Accounting Treatment.................................................... 5
When to Exchange Stock Certificates..................................... 5
Certain Effects of the Merger on the Rights of Investors................ 5
Forward-Looking Statements May Prove Inaccurate......................... 5
SELECTED HISTORICAL CONSOLIDATED AND UNAUDITED
PRO FORMA COMBINED FINANCIAL INFORMATION.................................. 6
RISK FACTORS.............................................................. 11
Risks Relating to the Merger............................................ 11
Risks Relating to IDX................................................... 11
Risks Relating to EDiX.................................................. 16
MARKET PRICE INFORMATION.................................................. 20
WHERE YOU CAN FIND MORE INFORMATION....................................... 21
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 21
THE EDiX SPECIAL MEETING.................................................. 23
General................................................................. 23
Matters to be Considered................................................ 23
Board of Directors' Recommendations..................................... 23
Record Date and Voting.................................................. 23
Proxies................................................................. 23
THE MERGER................................................................ 25
Background of the Merger................................................ 25
Reasons for the Merger; Recommendation of the EDiX Board of Directors... 26
Opinion of Financial Advisor............................................ 26
Interests of Certain Persons in the Merger.............................. 31
Accounting Treatment.................................................... 32
Certain Federal Income Tax Consequences................................. 33
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Regulatory Approvals.................................................... 34
Federal Securities Law Consequences..................................... 34
Nasdaq National Market Quotation........................................ 34
THE MERGER AGREEMENT...................................................... 35
General................................................................. 35
Conversion of Shares.................................................... 35
Creation of Escrow...................................................... 35
Representations and Warranties.......................................... 35
Certain Covenants....................................................... 36
No Solicitation......................................................... 36
Related Matters After the Merger........................................ 36
Treatment of Stock Options in the Merger................................ 37
Treatment of Warrants in the Merger..................................... 37
Director and Officer Indemnification.................................... 37
Indemnification of IDX by Stockholders and Optionholders................ 37
Conditions.............................................................. 38
Limitations on Transferability of IDX Common Stock...................... 39
Termination; Termination Fees and Expenses.............................. 39
Amendment and Waiver.................................................... 40
OTHER RELATED MATTERS..................................................... 40
Escrow Agreement........................................................ 40
Voting Agreements....................................................... 41
Loan Agreement.......................................................... 41
ADDITIONAL INFORMATION CONCERNING IDX SYSTEMS CORPORATION................. 42
ADDITIONAL INFORMATION CONCERNING EDiX CORPORATION........................ 42
Introduction............................................................ 42
Development of EDiX..................................................... 43
EDiX Operations......................................................... 43
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 44
Security Ownership of Directors, Executive Officers and Principal
Stockholders of EDiX................................................... 47
Stock Options........................................................... 48
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............... 49
DESCRIPTION OF IDX CAPITAL STOCK.......................................... 57
Common Stock............................................................ 57
Preferred Stock......................................................... 57
Vermont Law and Certain Charter Provisions.............................. 58
Transfer Agent.......................................................... 58
APPRAISAL RIGHTS.......................................................... 58
Rights of Dissenting Stockholders....................................... 58
COMPARISON OF SHAREHOLDER RIGHTS.......................................... 61
General................................................................. 61
Number of Directors..................................................... 61
Classification of Board of Directors.................................... 61
Removal of Directors.................................................... 61
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Filling Vacancies on the Board of Directors............................ 62
Action by Written Consent.............................................. 62
Right to Call Special Meetings of Shareholders......................... 62
Shareholder Proposals and Shareholder Nominations of Directors......... 63
Business Combination Statute........................................... 63
Required Vote for Authorization of Mergers, Share Exchange, and Sale of
Assets................................................................ 63
Amendment of Articles of Incorporation................................. 64
Amendment of Bylaws.................................................... 65
Appraisal and Dissenters' Rights....................................... 66
Limitation on Directors' Liability..................................... 66
Indemnification of Officers, Directors and Employees................... 67
Cumulative Voting...................................................... 67
Conflict of Interest Transactions...................................... 68
Dividends and Other Distributions...................................... 68
Shareholder Inspection Rights.......................................... 68
LEGAL MATTERS............................................................ 69
EXPERTS.................................................................. 69
CONSOLIDATED FINANCIAL STATEMENTS OF EDiX................................ F-1
ANNEX A--Agreement and Plan of Merger and Amendments No. 1 and No. 2 to
the Agreement and Plan of Merger
ANNEX B--Fairness Opinion of Piper Jaffray Inc.
ANNEX C--Section 262 of Delaware General Corporation Law
ANNEX D--Form of Proxy Card of EDiX
</TABLE>
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<PAGE>
SUMMARY
This summary highlights selected information from this document. It may not
contain all of the information that is important to you in order to understand
the merger fully. For a more complete description of the merger, you should
read carefully this entire document and the documents to which we have referred
you. See "Incorporation of Certain Documents by Reference." We have sometimes
included page references or section references to direct you to more complete
descriptions of the topics presented in this summary.
The Merger (Page 25)
Through the merger, EDiX will become a wholly owned subsidiary of IDX. You will
receive IDX Common Stock in exchange for your shares of EDiX stock.
The Companies (Page 42)
IDX Systems Corporation
1400 Shelburne Road, P.O. Box 1070
South Burlington, Vermont 05403
(802) 862-1022
IDX is a leading provider of healthcare information solutions in the United
States. IDX offers healthcare information solutions that include software,
hardware, and related services required by physician groups, management
services organizations, health plans, hospitals and integrated delivery
networks. IDX solutions enable healthcare organizations to redesign patient
care and other workflow processes in order to improve efficiency and quality.
As of June 30, 1998, IDX systems were used by, or were under contract to be
used by, more than 96,000 physicians, and were installed at over 1,600 client
sites, including approximately 230 large physician group practices (generally
with more than 75 physicians), more than 550 physician practices having 75 or
fewer physicians, over 260 hospitals and a growing number of integrated
delivery networks.
EDiX Corporation
4250 Executive Square, Suite 850
La Jolla, California 92037
(619) 646-7066
EDiX provides electronic medical transcription services to the healthcare
services industry. EDiX converts dictation by medical professionals into
electronically formatted patient records used for decision support, compliance,
referral, reimbursement and other documentation purposes. EDiX does so through
its centralized processing model, the enabling technology of its proprietary
Transcription Work Station system and a national pool of medical
transcriptionists. EDiX has a pool of approximately 750 medical
transcriptionists (as of September 30, 1998) with a cumulative expertise
covering nearly every specialization in medicine.
What You Will Receive in the Merger (Page 35)
If the merger occurs, you will be entitled to receive your proportionate number
of shares of IDX Common Stock for each share of EDiX stock you own just prior
to the merger. The actual number of shares of IDX Common Stock that you will
receive will be determined by a formula which is described in further detail
under the heading "The Merger Agreement--Conversion of Shares." In essence, the
number of shares of IDX Common Stock you will receive will be determined by
dividing $19,302,000 by the average of the last sale price per share of IDX
Common Stock on the Nasdaq National Market for the five consecutive trading
days ending on the trading day three business days prior to the date of
closing, provided that the price used in the
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formula will never exceed $48, even if the average sale price exceeds $48, and
will not be less than $40 as long as the average sale price is between $35 and
$40. The effects of this formula can be illustrated as follows:
<TABLE>
<CAPTION>
Total Number of Total Dollar Value
Number of IDX Shares of IDX Shares
Average Price of IDX Shares Dollar Value Issued to EDiX Issued to EDiX
IDX Common Stock Per EDiX Share Per EDiX Share Stockholders Stockholders
----------------- -------------- -------------- --------------- -------------------
<S> <C> <C> <C> <C>
Above $48............. .034 Above $1.62 402,000 Above $19.3 million
$48................... .034 $1.62 402,000 $19.3 million
$44................... .037 $1.62 439,000 $19.3 million
$40................... .041 $1.62 483,000 $19.3 million
Below $40............. .041 Below $1.62 483,000 Below $19.3 million
Below $35............. Varies $1.62 Varies $19.3 million
</TABLE>
Since trading prices fluctuate, trading prices of IDX Common Stock at the time
of completion of the merger or afterwards may be higher or lower than the
average share price just prior to the merger. As a result, the value of the
shares of IDX Common Stock you receive may be more or less than the amount per
EDiX share set forth above. Furthermore, such amounts are based on the current
capitalization of EDiX and options outstanding. You will receive
correspondingly more or less if the numbers of outstanding shares and options
change. You will not know, at the time you vote on the merger, the average
price of IDX Common Stock during the five-day measurement period or the final
exchange ratio.
You will receive 90% of your IDX stock when you tender your stock certificates
following the closing. This represents between approximately 362,000 and
435,000 shares for all EDiX stockholders. The remaining 10% (a total of
approximately 40,000 to 48,000 shares) will be held in escrow to back your
indemnification obligations to IDX. You may not receive any of this escrowed
stock, since IDX will be entitled to keep all or some of it if it is determined
that IDX has been damaged by undisclosed liabilities of EDiX or other breaches
of the Merger Agreement.
How Stock Options Will be Treated in the Merger (Page 37)
Each outstanding option to purchase EDiX Common Stock, whether vested or
unvested, will be converted upon consummation of the merger into the right to
receive the number of shares of IDX Common Stock that the holder of such option
would have received in the merger had such holder exercised such option in full
just prior to the merger (as adjusted to reflect the fair market value of such
option taking into consideration the unpaid exercise price, vesting schedule
and other appropriate factors).
How Warrants Will be Treated in the Merger (Page 37)
Upon the closing of the merger, each outstanding warrant to purchase shares of
EDiX stock will be assumed by IDX. Each warrant will then entitle the holder to
purchase the number of shares of IDX Common Stock that the holder of the
warrant would have received if the warrant had been exercised prior to the
merger. The exercise price per share will be the exercise price of the warrant
divided by the conversion ratio. The term, exercisability, vesting schedule,
repurchase provisions and all other terms of the warrants will remain the same
after the merger.
The EDiX Board Recommends the Merger for These Reasons (Page 26)
The EDiX Board has unanimously approved the merger and recommends that you vote
to approve the merger Agreement. The EDiX Board believes that the merger is in
the best interests of EDiX and its stockholders. In reaching its decision, the
EDiX Board considered a number of factors, including the following:
. The need for access to additional capital;
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. The EDiX Board's view that EDiX's business will have enhanced prospects
for success in the rapidly changing and increasingly competitive healthcare
industry by merging with IDX;
. The opportunity the merger will afford to accelerate the growth in sales
of EDiX;
. IDX's financial ability to complete the merger, including the associated
financing of EDiX's operations in the interim period; and
. The terms and conditions of the merger, including the escrow of 10% of the
stock to be received.
EDiX Stockholder Approval of the Merger at the Special Meeting (Page 23)
At the Special Meeting, you and the other holders of shares of the EDiX stock
will be asked to approve the Merger Agreement. This will also involve the
appointment of Joel D. Liffmann as your representative with respect to
indemnification matters. Approval of the Merger Agreement requires the vote of
a majority of the outstanding shares of EDiX stock, voting together on an as
converted basis, and at least 67% of the outstanding shares of Series A-1
Preferred Stock, voting separately as a class.
To induce IDX to enter into the Merger Agreement, directors, or entities
affiliated with directors, and executive officers of EDiX entered into a Voting
Agreement with IDX and agreed, without any additional consideration being paid
to them, to vote all of their shares in favor of the Merger Agreement. As of
the record date, these persons and entities owned and had the right to vote
approximately 91.1% of the total shares of Common Stock outstanding on the
record date and approximately 79.1% of the total shares of Series A-1 Preferred
Stock outstanding on the record date. Accordingly, the Merger Agreement will be
approved at the Special Meeting regardless of how other stockholders vote.
How Interests of Certain Persons in the Merger Differ from Those of
Stockholders (Page 31)
In considering the recommendation of the EDiX Board about the merger, you
should be aware of the interests which executive officers and directors of EDiX
have in the merger that are different from your and their interests as
stockholders. These involve (1) severance arrangements and employment retention
bonuses, (2) stock options, (3) indemnification and directors' and officers'
liability insurance and (4) EDiX debt held by affiliates of EDiX directors. The
EDiX Board recognized all the interests described above and concluded that
these interests did not detract from the fairness of the merger to the holders
of shares of EDiX stock who are not executive officers or directors of EDiX.
Expected Date of the Merger (Page 35)
The merger will occur as promptly as practicable after stockholder approval has
been obtained and all other conditions to the merger have been satisfied or
waived. IDX and EDiX currently anticipate that the merger will be completed on
or about , 1999.
Conditions to the Merger (Page 38)
IDX and EDiX will not complete the merger unless a number of conditions are
satisfied or waived by them. These include the following:
. approval of the Merger Agreement by EDiX's stockholders;
. authorization of the shares of IDX Common Stock to be issued in the merger
for listing on the Nasdaq National Market;
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<PAGE>
. consent by other third parties (such as EDiX's lenders);
. receipt of a letter from Ernst & Young LLP to the effect that Ernst &
Young LLP concurs with IDX as to the appropriateness of accounting for the
merger as a pooling of interests under Accounting Principles Board Opinion No.
16; and
. absence of material adverse changes and other customary conditions.
The party entitled to the benefit of some of these conditions may waive these
conditions.
Who Can Terminate the Merger Agreement; Fees and Expenses (Page 39)
EDiX and IDX can agree at any time to terminate the Merger Agreement without
completing the merger. The Merger Agreement may be terminated by one party if
either party materially breaches the Merger Agreement (subject to notice and
cure provisions), the EDiX stockholders do not approve the merger, or the
merger is not completed by March 31, 1999 due to the failure of any condition
to Closing.
Furthermore, IDX (but not EDiX) may terminate if its share price is below $35
on the five consecutive trading days ending three days before the closing. If
IDX does so, or if IDX breaches the Merger Agreement and EDiX terminates, then
IDX must pay EDiX $1,500,000 in exchange for 750,000 shares of EDiX Series A-1
Preferred Stock and warrants to purchase 508,500 shares of EDiX Common Stock.
This purchase price on a per share basis, including the value of the warrants,
is consistent with EDiX's most recent sale of securities to third parties.
In most circumstances, whether or not the merger is consummated, all fees,
costs and expenses that any party incurs in connection with the Merger
Agreement will be paid by the party that incurs them.
Solicitation of Competing Transactions Prohibited (Page 36)
The Merger Agreement restricts EDiX's ability to entertain or encourage any
alternative acquisition transactions with third parties. EDiX must promptly
notify IDX if it receives offers or proposals for any such alternative
transactions.
Dissenting Stockholders' Rights of Appraisal (Page 58 and Annex C)
Under Delaware law, EDiX stockholders who vote against the merger and comply
with notice requirements and other procedures will have the right to receive
the "fair value" of their shares in cash rather than the IDX Common Stock
specified in the Merger Agreement. "Fair value" will be determined by a
Delaware court and may be more than, the same as, or less than the value of the
consideration to be paid to other EDiX stockholders. In addition to reading
"Appraisal Rights," see Annex C which sets forth Section 262 of the Delaware
General Corporate Law ("DGCL").
Federal Income Tax Consequences (Pages 33 and 38)
The merger is intended to qualify as a reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended, and EDiX has received an opinion
of Pillsbury Madison & Sutro LLP to the effect that the merger will so qualify
if the merger takes place as described in the Merger Agreement. The opinion is
also based upon the assumption that factual representations made by EDiX and
IDX which are ordinarily given in transactions of this sort will be correct
when the merger closes. If the merger so qualifies, no gain or loss will be
recognized by EDiX stockholders, except in respect of cash received instead of
fractional shares or cash paid to dissenting stockholders solely as a result of
the merger of EDiX. For a further discussion of the federal income tax
consequences of the merger to the EDiX stockholders, see "The Merger--Certain
Federal Income Tax Consequences." See also "The Merger Agreement--Conditions."
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Accounting Treatment (Pages 32 and 38)
The merger is intended to qualify as a pooling of interests for financial
reporting purposes. Under this method of accounting, the recorded assets and
liabilities of EDiX will be carried forward to IDX at their recorded amounts.
The operating results of IDX after the merger will include the operating
results of EDiX for the entire year in which the combination occurs. The
reported operating results of the separate companies for periods prior to the
year in which the combination occurs will be combined and restated as the
operating results of IDX. A condition to the merger is that IDX must receive a
letter at the time of closing from Ernst & Young LLP, IDX's independent
auditors, regarding its concurrence with the conclusions of IDX's management as
to the appropriateness of pooling of interests accounting, under Accounting
Principles Board Opinion No. 16 and related interpretations, for the merger.
See "The Merger--Accounting Treatment" and "The Merger Agreement--Conditions."
When to Exchange Stock Certificates (Page 35)
After the merger occurs, IDX or its agent will mail a notice and a transmittal
form to all holders of record of EDiX stock containing instructions for
surrendering their stock certificates in exchange for stock certificates
representing shares of IDX Common Stock and a cash payment instead of
fractional shares, if any. You should not surrender your certificates until you
receive the letter of transmittal. See "The Merger Agreement--Conversion of
Shares."
Certain Effects of the Merger on the Rights of Investors (Pages 57 and 61)
The rights of investors as stockholders of IDX after the merger will be
governed by Vermont law and IDX's charter and bylaws, and will differ from
their rights as EDiX stockholders, prior to the merger, under Delaware law and
EDiX's charter and by-laws.
Forward-Looking Statements May Prove Inaccurate (Page 26)
IDX and EDiX have made forward-looking statements in this document and in
documents to which we have referred you. These statements are subject to risks
and uncertainties, and there can be no assurance that such statements will
prove to be correct. Forward-looking statements include assumptions as to how
IDX and EDiX may perform in the future. You will find many of these statements
in the following sections:
. "The Merger--Reasons for the Merger; Recommendation of the EDiX Board of
Directors."
. "The Merger--Opinion of Financial Advisor."
Also, when we use words like "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. For those statements,
IDX claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. You should
understand that the following important factors, in addition to those discussed
elsewhere in this document and in the documents which we incorporate by
reference, could affect the future results of IDX and EDiX and could cause
those results to differ materially from those expressed in our forward-looking
statements. These factors include: materially adverse changes in economic
conditions and in the markets served by IDX and EDiX; regulatory, legal,
economic and other changes in the health care industry environment generally;
changes in the law or in the policies and practices related to governmental and
third party reimbursements; and any significant delay in the expected
completion of the merger.
All information in this document concerning IDX and its subsidiaries has been
furnished by IDX. All information in this document concerning EDiX and its
subsidiaries has been furnished by EDiX.
5
<PAGE>
SELECTED HISTORICAL CONSOLIDATED AND UNAUDITED
PRO FORMA COMBINED FINANCIAL INFORMATION
"IDX" refers to IDX Systems Corporation and its subsidiaries, unless it is
clear from the context that we mean only the parent company. "EDiX" refers to
EDiX Corporation and its subsidiaries, unless it is clear from the context that
we mean only the parent company. The following selected historical consolidated
financial information of IDX and EDiX has been derived from their respective
historical consolidated financial statements, including the notes thereto, and
should be read in conjunction with such consolidated financial statements and
the notes thereto. The historical consolidated financial statements of EDiX for
the years ended December 31, 1995, 1996 and 1997, including their notes, begin
on page F-1. The historical consolidated financial statements of IDX are
incorporated by reference. See "Where You Can Find More Information"
and "Incorporation of Certain Documents by Reference." The IDX and EDiX
historical financial information as of and for the interim periods presented
below has been prepared on the same basis as that derived from historical
financial statements prepared on an annual basis and, in the opinion of
management of the respective companies, includes all adjustments, consisting of
normally recurring accruals, necessary for a fair presentation of the financial
position and results of operations of the respective companies as of such dates
and for such periods.
The selected unaudited pro forma combined financial information is derived from
the selected historical consolidated financial statements, appearing elsewhere
in this Prospectus, which give effect to the merger as a pooling of interests,
and should be read in conjunction with such pro forma statements and their
notes. For the purpose of the pro forma combined statement of income (loss)
data, IDX results of operations for fiscal years ended December 31, 1995, 1996
and 1997 and the nine months ended September 30, 1997 and 1998 have been
combined with EDiX's results of operations for the same fiscal periods. For the
purpose of the pro forma balance sheet, IDX's consolidated balance sheet as of
September 30, 1998 has been combined with EDiX's consolidated balance sheet as
of September 30, 1998, giving effect to the merger as if it had occurred on
September 30, 1998.
IDX expects to incur merger-related pre-tax charges covering the costs of the
merger, the costs of restructuring the combined operations, and for other
related costs principally in the quarter in which the merger is consummated.
Such pre-tax charges, which are currently estimated to be in the range of $3.8
and $4.3 million, will include: (1) the direct costs of the merger, including
fees to financial advisors, legal counsel and independent auditors; (2) the
costs of integrating the operations of IDX and EDiX; (3) the elimination of
overlapping operations; and (4) other related items. The estimated charge is
subject to change as IDX's plan of integration is developed and more accurate
estimates become available. Moreover, additional unanticipated expenses may be
incurred in connection with the integration of the business of IDX and EDiX.
From July 1, 1987 to November 1, 1995 IDX was treated for federal and certain
state tax purposes as an S corporation under the Code. As a result, IDX's
shareholders, rather than IDX, were required to pay federal and certain state
income taxes based on IDX's earnings, whether or not such earnings were
distributed to such shareholders. On November 1, 1995 IDX terminated its S
corporation status and, accordingly, has become subject to federal and state
income taxes. The pro forma historical consolidated financial information for
the years ended December 31, 1994 and 1995 have been restated to include pro
forma federal and certain state income taxes as if IDX had been taxed as a C
corporation under the Code during such years. The provision for income taxes
set forth in the pro forma historical consolidated financial information for
the years ended December 31, 1994 and 1995 represents income taxes in states in
which IDX operated that imposed an income tax on IDX, even though it elected S
corporation status during such fiscal years.
The pro forma and the historical tax provision for the financial statements
provided in this Prospectus are based on the effective rates for IDX and are
exclusive of any tax benefit that may have arisen from the combined operations
of IDX and EDiX.
6
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
-------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
IDX--Income Statement
Data
Net revenues............ $117,710 $143,807 $175,285 $206,879 $251,417 $181,589 $235,459
Operating income........ 4,745 9,348 19,038 22,626 10,614 429 32,963
Net income.............. 4,379 7,229 20,673 16,660 7,962 1,017 20,973
Net income per share:
Basic................. -- -- -- $ 0.66 $ 0.31 $ 0.04 $ 0.80
Diluted............... -- -- -- $ 0.64 $ 0.30 $ 0.04 $ 0.77
Pro forma net income.... -- $ 4,854 $ 13,915 -- -- -- --
Pro forma net income per
share:
Basic................. -- $ 0.27 $ 0.73 -- -- -- --
Diluted............... -- $ 0.24 $ 0.63 -- -- -- --
IDX--Balance Sheet Data
Working capital......... $ 30,924 $ 33,662 $110,966 $131,900 $140,906 $137,060 $169,600
Total assets............ 81,052 96,013 169,517 202,322 237,318 215,677 268,372
Long-term debt,
excluding current
portion................ 9,077 7,070 3,059 2,651 2,508 2,500 --
Shareholders' equity.... 51,762 60,899 130,512 158,550 176,604 163,706 207,502
</TABLE>
7
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Ended September
Years Ended December 31, 30,
----------------------------------- ----------------
1994(1) 1995 1996 1997 1997 1998
------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
EDiX--Income Statement
Data
Net revenues............ $ 2,911 $ 5,857 $ 8,237 $ 20,590 $15,011 $20,449
Operating (loss)........ (1,469) (3,746) (8,378) (15,503) (7,384) (6,662)
Net (loss).............. (1,498) (3,734) (8,450) (15,944) (7,730) (7,409)
Basic and diluted net
(loss) per share....... $ (0.74) $ (1.73) $ (3.94) $ (7.00) $ (3.34) $ (0.97)
EDiX--Balance Sheet Data
Working capital
(deficit).............. $ 927 $ 1,125 $(1,784) $ (892) $ 2,643 $(4,494)
Total assets............ 4,274 5,799 5,823 8,141 16,042 8,420
Long-term debt and
capital lease
obligations, excluding
current portion........ 1,524 667 1,615 2,368 2,163 2,274
Shareholders' equity
(deficit).............. 1,683 3,227 621 1,251 9,402 (4,309)
</TABLE>
Note:
1) Reflects EDiX results of operations from February 4, 1994 (inception)
8
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
-------------------------------------------- ------------------
1993 1994(1) 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Pro Forma Combined
Income Statement Data
Net revenues............ $117,710 $146,718 $181,142 $215,116 $272,007 $196,600 $255,908
Operating income
(loss)................. 4,745 7,679 15,292 14,248 (4,889) (6,955) 26,301
Net income (loss)....... 4,379 5,731 16,939 8,210 (7,982) (6,713) 13,564
Net income (loss) per
share:
Basic................. -- -- -- $ 0.32 $ (0.30) $ (0.26) $ 0.51
Diluted............... -- -- -- $ 0.31 $ (0.30) $ (0.26) $ 0.49
Pro forma net income.... -- $ 3,356 $ 10,181 -- -- -- --
Pro forma net income per
share:
Basic................. -- $ 0.18 $ 0.52 -- -- -- --
Diluted............... -- $ 0.16 $ 0.45 -- -- -- --
Pro Forma Combined
Balance Sheet Data
Working capital......... $ 30,924 $ 34,589 $112,091 $130,116 $140,015 $139,703 $163,006
Total assets............ 81,052 100,267 175,316 208,145 245,459 220,703 274,776
Long-term debt, exclud-
ing current portion.... 9,077 8,594 3,726 4,266 4,676 4,663 2,274
Shareholders' equity.... 51,762 62,582 133,799 159,171 177,655 171,008 201,092
</TABLE>
- --------
Note:
1) Includes the results of operations for EDiX from February 4, 1994
(inception)
9
<PAGE>
COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
At or for the At or for the
Year Ended December Nine Months Ended
31, September 30,
---------------------- ------------------
1995 1996 1997 1997 1998
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Historical--IDX:
Net income per share--basic....... -- $ 0.66 $ 0.31 $ 0.04 $ 0.80
Net income per share--diluted..... -- $ 0.64 $ 0.30 $ 0.04 $ 0.77
Pro forma net income per share--
basic(1)......................... $ 0.73 -- -- -- --
Pro forma net income per share--
diluted(1)....................... $ 0.63 -- -- -- --
Book value per share.............. -- -- $ 6.78 -- $ 7.84
Historical--EDiX:
Net loss per share(2)............. $(1.73) $(3.94) $(7.00) $ (3.34) $ (0.97)
Book value per share.............. -- -- $ 0.52 -- $ (0.49)
Pro Forma Combined--Per IDX Share
at .034 conversion(3):
Net income (loss) per share--
basic............................ $ 0.52 $ 0.32 $(0.30) $ (0.26) $ 0.51
Net income (loss) per share--
diluted.......................... $ 0.45 $ 0.31 $(0.30) $ (0.26) $ 0.49
Book value per share(4)........... -- -- $ 6.71 -- $ 7.45
Equivalent Pro Forma Combined--Per
EDiX Share at .034 conversion(5):
Net income (loss) per share--
basic............................ $ 0.02 $ 0.01 $(0.01) $ (0.01) $ 0.02
Net income (loss) per share--
diluted.......................... $ 0.02 $ 0.01 $(0.01) $ (0.01) $ 0.02
Book value per share.............. -- -- $ 0.23 -- $ 0.25
Pro Forma Combined--Per IDX Share
at .041 conversion(3):
Net income (loss) per share--
basic............................ $ 0.52 $ 0.32 $(0.30) $ (0.26) $ 0.51
Net income (loss) per share--
diluted.......................... $ 0.45 $ 0.31 $(0.30) $ (0.25) $ 0.49
Book value per share(4)........... -- -- $ 6.71 -- $ 7.45
Equivalent Pro Forma Combined--Per
EDiX Share at .041 conversion(5):
Net income (loss) per share--
basic............................ $ 0.02 $ 0.01 $(0.01) $ (0.01) $ 0.02
Net income (loss) per share--
diluted.......................... $ 0.02 $ 0.01 $(0.01) $ (0.01) $ 0.02
Book value per share.............. -- -- $ 0.28 -- $ 0.31
</TABLE>
- --------
(1) From July 1, 1987 to November 1, 1995 IDX was treated as an S corporation
for federal and certain state income tax purposes. The pro forma net income
per share information of IDX for the year ended December 31, 1995 assumes
IDX had been taxed as a C corporation for that period.
(2) Basic and diluted loss per share are the same for all periods.
(3) The per share amounts used for IDX for 1995 are the pro forma amounts.
(4) The pro forma combined book value per share is derived from the pro forma
combined balance sheet as of September 30, 1998 which includes an
adjustment for direct merger related costs, for which a tax benefit is not
available. See "Notes to Unaudited Pro Forma Combined Condensed Financial
Statements."
(5) The equivalent pro forma combined per share amounts are calculated by
multiplying the pro forma combined per IDX share amounts by the conversion
ratio shown, .034 and .041 respectively.
10
<PAGE>
RISK FACTORS
Risks Relating to the Merger
EDiX Stockholders May Never Receive 10% of IDX Shares. Ten percent of the IDX
shares that would otherwise be received by EDiX stockholders in the merger will
be placed in escrow. The escrow will terminate one year after the date of the
merger if IDX makes no claims for indemnification, except that a portion of the
IDX stock having a fair market value of $200,000 will remain in escrow until
the later of three years or the resolution of any claims relating to any
failure by EDiX to pay employment related claims. IDX may recover damages out
of this escrow resulting from breaches by EDiX or EDiX stockholders of
representations, warranties and covenants contained in the Merger Agreement and
upon other contingencies and events described in the Merger Agreement.
Therefore, EDiX stockholders may never receive the 10% of the IDX shares placed
into escrow.
Merger Expected to be Dilutive to Combined Company's Earnings. Among the
several analyses presented to the EDiX Board when it rendered its fairness
opinion concerning the proposed merger consideration, Piper Jaffray calculated
that the merger may be dilutive to projected earnings per share of IDX in each
of 1998 and 1999 based on estimates by management and research analysts of
projected financial results of IDX, estimates by management of the projected
financial results of EDiX, and alternative assumptions as to whether or not
certain synergies will be realized. See "The Merger--Opinion of Financial
Adviser to EDiX--Accretion/Dilution Analysis." If these forward looking
estimates and assumptions prove to be incorrect, there could be an even larger
dilutive effect.
Piper Jaffray in its Fairness Opinion Assumed All Escrowed Shares will be
Received by EDiX Stockholders. Piper Jaffray Inc. assumed, with the consent of
EDiX, in its fairness opinion that all the escrowed shares will be distributed
to EDiX stockholders. However, under the terms of the transaction EDiX
stockholders may never receive any of the escrowed shares, which constitute 10%
of the amount to be paid by IDX for EDiX.
Merger May Not be Tax-Free. IDX and EDiX will not close the merger unless they
receive an opinion of tax counsel that the merger constitutes a tax-free
reorganization. However, they have not sought or obtained a ruling from the
Internal Revenue Service. Therefore, there is a risk that the merger may not
constitute a tax-free reorganization, in which case any gain realized as a
result of the merger may be subject to tax.
Limitations in Piper Jaffray's Fairness Opinion Analysis. While Piper Jaffray's
opinion to EDiX's Board states that the value to be received by EDiX
stockholders under the Merger Agreement was fair from a financial point of
view, the opinion does not comment on the value of IDX stock as an investment,
does not constitute a recommendation to EDiX stockholders as to how to vote at
the special meeting and does not address the business decision EDiX made to
effect the merger.
In addition, Piper Jaffray in rendering its opinion, relied upon and assumed a
number of things including the accuracy of the financial statements and
information presented to it and did not independently verify them. Piper
Jaffray did not physically inspect or perform valuations of assets or
liabilities of IDX or EDiX, and events could have occurred after the opinion
date which materially affect the assumptions used in preparing the opinion.
Risks Relating to IDX
IDX Stock Prices May be Volatile. The stock market, particularly in the
technology and healthcare information technology sectors, has experienced
extreme price and volume fluctuations which have often been unrelated to the
operating performance of particular companies. IDX also experiences
fluctuations in its stock price due to a variety of factors including:
. market prices of our competitors such as HBO & Co.;
11
<PAGE>
. announcements of technological innovations, including Internet delivery of
information and use of relational database technology;
. new product introductions by IDX or its competitors;
. market conditions in the computer software or hardware industries; and
. healthcare reform measures.
These fluctuations could have a significant impact on future market prices of
IDX's Common Stock.
Certain Adverse Financial Trends May Reappear. Year over year net income and
cash provided by operations have declined since 1995. Net income of $20.6
million in 1995 fell to $16.7 million and $8.0 million in 1996 and 1997
respectively. Cash provided by operations diminished from $21.7 million in 1995
to $10.4 million and $9.8 million in 1996 and 1997 respectively. The
continuation of these negative trends, though recently reversed, could have a
detrimental impact on IDX's ability to finance future growth and fund operating
initiatives including future acquisitions. The historical performance discussed
above includes a change in tax status and effective tax rate in 1995 from a
subchapter "S" corporation with a nominal tax accrual to "C" status with an
effective tax rate of 40%. Additionally, IDX has incurred substantial expenses
related to IDX's acquisitions, including the restatement of historical results
as a result of these acquisitions. The combination of these two factors have
influenced the above noted trends for both earnings and cash flows.
Quarterly Operating Results May Fluctuate; Customer Sales and Installation
Requirements May Change. IDX's revenues and operating results may fluctuate
from quarter to quarter. Factors that could cause these fluctuations include:
. the volume and timing of systems sales and installations;
. recognizing revenue at various points during the installation process;
. the sales and implementation cycles of IDX's customers;
. the timing of new product and service introductions and product upgrade
releases; and
. general economic conditions.
Because a significant percentage of IDX's expenses are relatively fixed, a
variation in the timing of systems sales and installation can cause significant
variations in operating results from quarter to quarter. IDX believes that its
quarterly results of operations will continue to fluctuate and that its results
of operations for any particular quarter or fiscal year are, therefore, not
necessarily meaningful or reliable indicators of future performance. Future
period-to-period fluctuations may have a material adverse effect on IDX's
results of operations, financial condition or business.
Integration of Operations of PHAMIS and EDiX May Involve Challenges. IDX
acquired Phamis Inc. ("PHAMIS") in July 1997. Integrating the operations and
management of IDX and PHAMIS has been and will continue to be a time-consuming
process, particularly in regard to coordinating product development and
organizing customer support operations. It will require continued dedication of
management resources, which has and may continue to temporarily distract
attention from the day-to-day business of the combined entity. IDX has already
incurred significant merger and related costs in connection with the PHAMIS
acquisition. However, additional unanticipated expenses may be further incurred
in this integration process. There can be no assurance that IDX will complete
this integration smoothly or successfully.
In addition, management's inability to successfully integrate the operations or
management of the two companies could have a material adverse effect on the
combined entity's results of operations, financial
12
<PAGE>
condition or business. EDiX is expected to present operational challenges in
the area of sales coordination. In addition, IDX expects to incur significant
pre-tax charges in association with the merger.
Growth through Acquisitions May not be Possible. IDX intends to continue to
grow in part through either acquisitions of complementary products,
technologies and businesses or alliances with complementary businesses. There
can be no assurance that IDX will succeed in these acquisitions or alliances,
or in integrating any such acquired or aligned products, technologies or
businesses into its current business and operations. Factors which may affect
IDX's ability to expand successfully through acquisitions or alliances include:
. the successful identification and acquisition of products, technologies or
businesses;
. adverse impact on management's ability to effectively integrate and
operate the acquired or aligned products, technologies or businesses may be
impacted by technical difficulties, geographic limitations and personnel
issues; and
. significant competition for acquisition and alliance opportunities in the
consolidating healthcare information systems industry with other companies that
have significantly greater financial and management resources, such as HBO &
Co. and Shared Medical Systems Corporation.
The failure to successfully integrate any significant products, technologies or
businesses could have a material adverse effect on IDX's results of operations,
financial condition or business.
Technology Changes Rapidly and Success Depends on New Product
Development. IDX's success is dependent on its ability to enhance its existing
products, to respond effectively to technology changes, to migrate its clients
to new technologies, to sell additional products to its existing client base
and to introduce new products and technologies to meet the evolving needs of
its clients in the healthcare information systems market. Trends which could
have a critical impact on IDX include:
. evolving industry standards, such as Health Level Seven;
. new technological developments such as the Internet.
IDX is currently devoting significant resources toward the development of
enhancements to its existing products, particularly in the announced area of
Internet functionality and the migration of existing products to new hardware
and software platforms including relational database technology and object-
oriented programming. There can be no assurance that IDX will successfully
complete these product developments or the adaptation in a timely fashion, or
that IDX's current or future products will satisfy the needs of the healthcare
information systems market. Any such developments may adversely affect IDX's
competitive position or render its products or technologies noncompetitive or
obsolete.
Year 2000 Risks. Software applications that use only two digits to identify a
year in the date field may fail or create errors in the year 2000. IDX uses
computer equipment, software and devices with embedded technology, including
both information systems and non-information systems, that may not be year 2000
compliant despite IDX's continuing efforts to assess, remediate, and test such
equipment, software and devices. This could result in a system failure or
miscalculations causing disruption of IDX's operations, including among other
things, a temporary inability to:
. process transactions;
. send invoices;
. conduct communications, or
. engage in similar normal business activities.
13
<PAGE>
In addition, IDX sells computer software products and distributes the products
of third parties that may not be year 2000 compliant despite IDX's continuing
efforts to assess and test such products. This could result in system failures
or miscalculations causing disruption of customers' operations, including, in
addition to the types of disruptions described above, a temporary disruption in
their ability to treat patients. Further, products and services used by IDX's
customers, but not supplied by IDX, may not be year 2000 compliant. Customers
may defer current installations of and plans to purchase IDX products until
they have completed their own year 2000 assessment. Any of these problems could
have a material adverse effect on IDX's results of operations, financial
condition or business.
IDX is pursuing various initiatives to address year 2000 issues. These
initiatives are ongoing and have not been completed. A task force at IDX is
reviewing IDX's products and the products and systems provided by outside
vendors to determine whether they are year 2000 compliant. In addition, IDX has
developed year 2000 versions of many of its products and has begun deploying
them at customer sites. The task force is also reviewing customer preparations,
monitoring testing and remediation efforts with respect to IDX products and
monitoring and coordinating contingency plans with respect to products and
systems provided by outside vendors. As of September 30, 1998 IDX estimated the
cost of identifying, assessing and remediating year 2000 issues to be
approximately $19.6 million, $7.0 million of which had already been incurred.
If the actual costs are higher than the estimated costs, it could materially
adversely affect IDX's results of operations, financial condition or business.
IDX has begun a comprehensive analysis of the operational, business and
financial problems (including possible loss of revenue), if any, that may
result from unresolved year 2000 issues. IDX has not yet completed its analysis
and contingency plans relating to year 2000 scenarios.
IDX expects its planning process to be completed in mid-1999. IDX does not
believe that the year 2000 issues will pose significant operational problems
for IDX. However, if year 2000 issues are not properly identified, assessed and
resolved, it could have a material adverse effect on the results of operations,
financial condition or business of IDX.
The nature of IDX's business and its relationships with its customers make it
difficult to assess the magnitude of IDX's potential exposure as a result of
year 2000 issues. IDX is engaged in the business of developing, marketing and
supporting computer software. IDX's software is often used by its customers in
conjunction with other vendors' products and services. The ability of IDX to
assist its customers in the development and installation of year 2000 compliant
versions of IDX software products will depend in part on the readiness, ability
and cooperation of its customers and their suppliers. In addition, the
purchasing patterns of IDX customers and potential customers may be affected by
year 2000 issues. The cost, timing and scheduling by customers of work related
to year 2000 issues involving IDX's products and services may cause some
customers to defer or forego projects or purchase decisions. IDX sells a number
of different combinations of products and services under varying contractual
terms. There is no widely accepted definition of year 2000 compliance. Certain
of IDX's customers may assert breach of warranty or other claims against IDX
relating to year 2000 compliance. Any of these factors may adversely affect the
results of operations, financial condition or business of IDX.
Our Financial Results Depend on our Principal Products. IDX currently derives
substantially all of its revenues from sales of financial, administrative and
clinical healthcare information systems and related services. As a result, any
factor adversely affecting these sales could have a material adverse effect on
IDX's entire results of operations, financial condition or business. Although
IDX has experienced increasing annual sales, revenues associated with existing
products may decline as a result of several factors including price
competition. There can be no assurance that IDX will continue to be successful
either in marketing its current, new and/or enhanced products, or in
maintaining the current pricing for its existing products.
Product-Related Claims May Exceed Insurance Coverage. Certain of IDX's products
provide applications that relate to patient medical histories and treatment
plans. Any failure by these products to provide accurate,
14
<PAGE>
secure and timely information could result in product liability claims against
IDX by its clients or their affiliates or patients. IDX maintains insurance
that it believes is adequate to protect against product liability claims. Our
current insurance coverage may not be adequate to cover future claims. A
successful claim brought against IDX in excess of its insurance coverage could
have a material adverse effect on IDX's results of operations, financial
condition or business. Even unsuccessful claims could result in the expenditure
of funds in litigation, as well as diversion of management time and resources.
There can be no assurance that IDX will not be subject to product liability
claims, that such claims will not result in liability in excess or beyond the
scope of its insurance coverage, or that IDX will continue to have appropriate
insurance available to it in the future at commercially reasonable rates.
We Depend on Key Personnel. The success of IDX is dependent to a significant
degree on its key management, sales, marketing, and technical personnel. IDX
believes that its continued success will also depend on its ability to attract,
motivate and retain highly skilled managerial, sales, marketing, consulting and
technical personnel, including programmers, consultants, systems architects
skilled in the technical environments in which IDX's products operate.
Competition for such personnel in the software and information services
industries is intense. The loss of key personnel, or the inability to hire or
retain qualified personnel, could have a material adverse effect on IDX's
results of operations, financial condition or business. Although IDX has been
successful in attracting and retaining skilled personnel, there can be no
assurance that it will continue to be successful in attracting and retaining
the personnel it requires to develop new and enhanced products and to continue
to grow and operate profitably. IDX does not maintain "Key Man" life insurance
policies on any of its executives. Not all IDX personnel have executed
noncompetition agreements and certain personnel currently employed by EDiX will
be asked to execute retention agreements.
Healthcare Industry May Change; Government Healthcare Reform Proposals. The
healthcare industry in the United States is subject to changing political,
economic and regulatory influences that may affect the procurement practices
and operations of healthcare organizations. IDX's products are designed to
function within the structure of the healthcare financing and reimbursement
system currently being used in the United States. During the past several
years, the healthcare industry has been subject to increasing levels of
governmental regulation of, among other things, reimbursement rates and certain
capital expenditures. From time to time, Congress has considered certain
proposals to reform the healthcare system. If enacted, these proposals may
increase government involvement in healthcare, lower reimbursement rates and
otherwise change the operating environment for IDX's clients. Healthcare
organizations may react to these proposals and the uncertainty surrounding such
proposals by curtailing or deferring investments, including those for IDX's
products and services. IDX cannot predict with any certainty what impact, if
any, such proposals or healthcare reforms might have on its results of
operations, financial condition or business.
Governmental Regulation May Impose New Burdens. The United States Food and Drug
Administration (the "FDA") has promulgated a draft policy for the regulation of
certain computer software products as medical devices under the 1976 Medical
Device Amendments to the Federal Food, Drug and Cosmetic Act (the "FDC Act"),
and has recently indicated that it may modify such draft policy or create a new
policy. To the extent that computer software is a medical device under the
policy, the manufacturers of such products could be required, depending on the
product, to:
. register and list their products with the FDA;
. notify the FDA and demonstrate substantial equivalence to other products
on the market before marketing such products; or
. obtain FDA approval by demonstrating safety and effectiveness before
marketing a product.
Depending on the intended use of a device, the FDA could require IDX to obtain
extensive data from clinical studies to demonstrate safety or effectiveness, or
substantial equivalence. If the FDA requires such data, IDX would be required
to obtain approval of an investigational device exemption before undertaking
clinical trials.
15
<PAGE>
Clinical trials can take extended periods of time to complete, and there can be
no assurance that the FDA will approve or clear a device after the completion
of such trials. In addition, such products would be subject to the FDC Act's
general controls, including those relating to good manufacturing practices and
adverse experience reporting. Although it is not possible to anticipate the
final form of the FDA's policy with regard to computer software, IDX expects
that the FDA is likely to become increasingly active in regulating computer
software intended for use in healthcare settings regardless of whether the
draft is finalized or changed. The FDA can impose extensive requirements
governing pre-and post-market conditions such as service investigation,
approval, labeling and manufacturing. In addition, the FDA can impose extensive
requirements governing development controls and quality assurance processes. It
is possible that the FDA's actions to regulate computer software products will
have a material adverse effect on IDX's results of operations, financial
condition or business.
In order to ensure continued compliance with changing government standards and
regulations, IDX monitors regulations affecting its business such as those
mandated by the Health Insurance Portability and Accountability Act of 1996.
Conflict of Interest Position of Certain Executives
Certain IDX executives and directors, including Richard E. Tarrant, President,
Chief Executive Officer and Director, and Robert H. Hoehl, Chairman of the
Board of Directors, indirectly own, through various entities, real estate which
IDX leases in connection with its operations. During 1998, IDX paid an
aggregate of approximately $4.24 million in connection with these leases. In
addition, IDX guarantees approximately $2.5 million of indebtedness and other
obligations of one of these entities. In connection with such arrangements, the
economic interests of such executives and directors and IDX may diverge. In
response, IDX has created the Committee on Independent Director Transactions to
review and approve transactions of this nature. IDX believes that these
arrangements were entered into on an arm's length basis on terms that were no
less favorable to IDX than could have been obtained from unaffiliated third
parties.
In November 1998, IDX announced tentative plans to expand one of its facilities
located on land owned by such executives. Such expansion would result in
additional payments to such IDX executives and directors.
Risks Relating to EDiX
EDiX notes the following risk factors in its business:
Our History of Operating Losses and Need for Additional Funds. We currently
lose money from our operations. We have incurred cumulative losses totaling
approximately $37 million through September 30, 1998. Our independent auditors,
Ernst & Young LLP, have modified their opinion in their most recent audit by
recognizing that substantial doubt exists about our ability to continue as a
going concern. See page F-2. We may never earn a profit. At September 30, 1998,
we had negative working capital. To continue operations we need more capital
(at least $8 to $10 million within the next 12 months). We may not be able to
obtain more capital.
We Must Keep Data Confidential. The medical information that our medical
transcriptionists transcribe is of an extremely confidential nature. In
providing our services, we are subject to contractual, statutory, regulatory
and common law requirements regarding the confidentiality of medical
information. We could suffer substantial harm if we or any of our employees
fail to comply with such confidentiality requirements.
We Depend Heavily on Medical Transcriptionists. Our success depends in part
upon our ability to attract and retain qualified medical transcriptionists.
Competition for medical transcriptionists is strong and we may be unable to
attract and retain the personnel we need to conduct our business successfully.
If we are unable to attract, hire and retain a sufficient number of qualified
medical transcriptionists our business, financial condition and results of
operations would suffer.
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We Depend on Key Managerial Personnel. Our success depends in part upon our
ability to attract and retain key managerial personnel. If we were to lose the
services of executive officers or if we were unable to attract additional
management personnel, our business, financial condition and results of
operations could suffer. We do not maintain "key-man" life insurance policies
on any of our executive officers.
We Rely on Key Customers. We rely on several key customers for the majority of
our revenue. In 1997, our ten largest customers accounted for 41% of our
revenues. Moreover, our largest customer (Columbia/HCA) accounted for 13% of
our total revenue and we expect that Columbia/HCA will account for more than
10% of our revenue in 1998. Accordingly, our success will depend in part upon
our ability to:
. keep existing customers;
. maintain or increase the level of revenue and/or profit that our existing
customers generate;
. avoid the loss of customers due to factors beyond our control, such as
consolidation in the health care industry; and
. attract new customers.
Our business would suffer substantial harm from the loss of one or more large
customers or a significant reduction in business from any of such customers.
We Depend on a Single Line of Business. We derive revenue solely from the
business of providing electronic transcription services to hospitals and other
health care organizations on an outsourced basis. Our success will depend on
the continued market acceptance of our transcription services and the continued
trend toward outsourcing of transcription services to third-party providers
such as us. Our business, financial condition and results of operations would
suffer substantial harm if there were a reduction in demand or an increase in
competition in the market for transcription services.
Risks Associated With an At-Home Workforce. Approximately 95% of our medical
transcriptionists work from their homes. We have policies and procedures
covering our at-home employees. However, we are unable to supervise and monitor
at-home employees to the same extent that we are able to supervise and monitor
employees working in our offices. If we were to fail to manage successfully our
at-home workforce or to enforce our policies and procedures with respect to
health and safety, wage and hour, and other governmental regulations, our
business, financial condition and results of operations could suffer.
We Do Not Have Back-up For Our Central Computer System. We do not have a back-
up system for our central computer system in Clearwater, Florida. If this
computer were to fail because of mechanical failure, natural disaster, computer
virus or otherwise, our work flow could stop or be delayed. The local servers
at each of our customers' offices would continue to function, sorting voice
messages until the central computer could be repaired. We would be unable to
access our central work-flow management tools and would have to establish
direct telephone connections between the local servers and the medical
transcriptionists.
In the future, we intend to install a redundant central computer system with
duplicated storage records and identical process capabilities. Such a system
would begin functioning automatically in the event of a central hub failure. We
estimate that it will cost approximately $250,000 to purchase and install the
hardware required for a secured redundant hub and to obtain the necessary
telephonic capabilities.
Our Industry is Very Competitive. The medical transcription services industry
is highly fragmented, consisting primarily of small, local or regional
companies. As a result, we compete with a large number of third party
transcription companies who offer services similar to our services and who
target the same customers and qualified transcriptionists as we do. Our ability
to compete depends upon many factors within and outside of our control,
including:
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<PAGE>
. price, specifically our ability to acquire and perform new contracts
profitably at a price established by the competitive market forces;
. reliability of our network and of contracted services, such as
telecommunication vendors;
. quality of our services as perceived by our customers relative to that of
our competitors; and
. the ability to attract qualified medical transcriptionists at a
competitive market rate in a very low unemployment environment; and
. the timing and market acceptance of new services and service enhancements
developed by us and our competitors.
In addition, large companies that do not currently provide medical
transcription services, but which currently provide other services to the
healthcare industry, may enter the medical transcription services field. Such
potential competitors could have substantially greater financial, technical and
marketing resources than we do. As a result, if such potential competitors were
to enter the medical transcriptions services business, they may be able to:
. devote greater resources to the development, promotion or sale of their
services, or
. respond more quickly than we can to:
. evolving technological developments, such as voice recognition and the
Internet;
. changing customer needs, such as those being driven by managed care and
integrated delivery networks; or
. emerging technical standards.
We also compete with the in-house transcription staffs of potential customers.
While we believe that our growth and earnings have benefited significantly from
the outsourcing by healthcare providers of non-patient care functions,
including transcription services, the current trend could change direction and
cause such healthcare providers to bring all or some of those services in-
house. Competition also may increase due to the consolidation of transcription
companies. In addition, current and potential competitors may establish
cooperative relationships among themselves or with third parties to increase
their ability to address the needs of our current and prospective customers. If
competition does increase, the following results could occur, damaging our
business, financial condition and results of operations:
. we may be forced to reduce the prices for our services;
. operating margins may narrow; or
. we may be unable to increase our market share.
We do not know whether we will be able to compete successfully against current
or future competitors or whether competitive pressures will harm our business,
financial condition and results of operations.
Our Industry is Witnessing Rapid Technological Changes. The healthcare
information services industry is characterized by rapid technological change,
evolving customer needs and emerging technical standards. The emergence of new
technical standards or the introduction of competing services or products
incorporating new technologies could render some or all of our services
unmarketable. These potential products and services could include:
. voice recognition capabilities;
. voice transport;
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<PAGE>
. object components; and
. sophisticated work stations with voice or keyed prompting.
Our success depends in part on our ability to enhance our current services and
to develop new services that keep pace with technological developments and
emerging technical standards, and that address the increasingly sophisticated
needs of our customers. We may fail to develop and market enhancements to our
existing services or new services that respond to technological developments,
emerging technical standards, or evolving customer needs. Even if we do develop
and introduce such enhancements or new services, the market may not accept
them. Our failure to develop and introduce service enhancements and new
services in a timely and cost-effective manner in response to changing
technologies or customer requirements, would damage our business, financial
condition and results of operations.
Our Industry May Change Substantially. The healthcare industry is subject to
changing political, economic and regulatory influences that may affect the
outsourcing arrangements of healthcare providers. Federal and state legislators
from time to time have proposed programs to reform the United States healthcare
system and other proposals may be made in the future. These programs may
contain proposals to increase governmental involvement in healthcare, lower
reimbursement rates and otherwise change the environment in which providers
operate. Healthcare providers may react to such proposals, and the uncertainty
surrounding such proposals, by curtailing outsourcing arrangements or deferring
decisions to use outsourcing services. In response to this environment, many
healthcare providers are consolidating to create larger healthcare delivery
organizations. This consolidation reduces the number of potential customers for
our services, and the increased bargaining power of these organizations could
lead to a reduction in the amount customers are willing to pay for our
services. It is difficult to predict the impact of these developments in the
healthcare industry, but they potentially could harm our business, operating
results and financial condition.
Year 2000 Issues. There are numerous issues associated with the programming
code in existing computer systems as the year 2000 approaches. The year 2000
problem is pervasive and complex as the required modifications in embedded code
will affect virtually every computer operation in some way. The significant
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or could simply fail.
We rely on our computer systems in operating and monitoring all aspects of our
business. We also rely on the external systems of our customers, suppliers and
other organizations with which we do business. We are in the process of
assessing our internal and external systems to assure that we are prepared for
the year 2000. We do not expect to incur significant expenses or be required to
invest heavily in computer systems improvements to be year 2000 compliant.
However, significant uncertainty exists concerning the potential costs and
effects associated with any year 2000 compliance. To date, we have not
identified any material year 2000 issues with our computer systems. However, we
have not prepared a contingency plan for year 2000 problems and we have not yet
identified a reasonably likely worst case scenario with respect to the year
2000 problem. Further, we cannot guarantee that all of our internal or external
systems will be year 2000 compliant. A failure to be year 2000 compliant could
have a material adverse effect on us.
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<PAGE>
MARKET PRICE INFORMATION
IDX Common Stock has traded on the Nasdaq National Market under the symbol
"IDXC" since November 17, 1995.
The table below sets forth, for the periods indicated, the reported high and
low sale prices of IDX Common Stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
IDX
Common Stock
---------------
High Low
------- -------
<S> <C> <C>
Calendar 1997
Quarter ended March 31, 1997................................ $36.50 $26.875
Quarter ended June 30, 1997................................. 37.50 23.00
Quarter ended September 30, 1997............................ 40.00 31.50
Quarter ending December 31, 1997............................ 38.00 28.375
Calendar 1998
Quarter ended March 31, 1998................................ 47.50 33.25
Quarter ended June 30, 1998................................. 49.563 39.50
Quarter ended September 30, 1998............................ 55.75 41.75
Quarter ended December 31, 1998............................. 52.25 36.375
Calendar 1999
Quarter ending March 31, 1999............................... 44.875 38.375
(through January 15, 1999)
</TABLE>
On , 1999, the most recent practicable date prior to the printing of this
Proxy Statement/Prospectus, the last reported sale price of IDX Common Stock on
the Nasdaq National Market was $ per share.
Because the market price of IDX Common Stock may fluctuate, the market price
per share of the shares of IDX Common Stock that holders of EDiX Stock will
receive in the merger may increase or decrease prior to the merger.
We urge EDiX stockholders to obtain a current market quotation for IDX Common
Stock.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
IDX files reports, proxy statements and other information with the Securities
and Exchange Commission (the "SEC") as required by the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). You can find, copy and inspect
information filed by IDX with the SEC at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the SEC's Regional offices at 7 World Trade Center, Suite 1300,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You can obtain copies of information filed by IDX with the SEC
at prescribed rates by writing to the SEC's Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549. You can call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. You can review IDX's
electronically filed reports, proxy and information statements on the SEC's
world wide web site at http://www.sec.gov. IDX Common Stock trades on the
Nasdaq National Market under the symbol "IDXC," therefore, you can inspect
reports, proxy statements and other information concerning IDX at the offices
of the National Association of Securities Dealers, Inc., Market Listing
Section, 1735 K Street, N.W., Washington, D.C. 20006. EDiX does not file
information with the SEC under the Exchange Act.
IDX filed with the SEC a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act")
to register with the SEC the IDX Common Stock issuable pursuant to the Merger
Agreement. This Proxy Statement/Prospectus does not contain all the information
you can find in the Registration Statement or the exhibits and schedules to the
Registration Statement. For further information with respect to IDX, EDiX and
the IDX Common Stock, please refer to the Registration Statement (including the
exhibits and schedules thereto). You may inspect and copy the Registration
Statement, including exhibits and schedules, as described above. Statements
contained in this Proxy Statement/Prospectus about the contents of any contract
or other document are not necessarily complete, and we refer you, in each case,
to the copy of such contract or other document filed as an exhibit to the
Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Some of the information that you may want to consider in deciding how to vote
with respect to the merger is not physically included in this Proxy
Statement/Prospectus, but rather is "incorporated by reference" to documents
IDX previously filed with the SEC. The information incorporated by reference is
an important part of this Proxy Statement/Prospectus, and information that we
file later with the SEC will automatically update and supersede this
information. The following IDX documents filed with the SEC are incorporated by
reference in this Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1997;
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998;
3. Current Report on Form 8-K filed September 16, 1998; and
4. The description of IDX's Capital Stock contained in IDX's Registration
Statement on Form 8-A dated September 19, 1995.
All documents and reports subsequently filed by IDX pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the date of the EDiX Special Meeting are also
incorporated by reference in this Proxy Statement/Prospectus and will be deemed
a part of this Proxy Statement/Prospectus from the dates of filing of such
documents or reports.
Statements contained in documents incorporated or deemed to be incorporated by
reference will modify statements in any other subsequently filed documents to
the extent the new information differs from the old
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<PAGE>
information. Any statements modified or superseded will no longer constitute a
part of this Proxy Statement/Prospectus in their original form.
You can obtain a copy of documents incorporated by reference which are not
delivered with this Proxy Statement/Prospectus by a written or oral request,
without charge, directed to IDX Systems Corporation, 1400 Shelburne Road, P.O.
Box 1070, South Burlington, Vermont 05403 (telephone number (802) 862-1022,
internet address http://www.idx.com), Attention: Secretary. In order to ensure
timely delivery of any of such documents, you should make any request by
January , 1999. We will not provide exhibits to such documents unless such
documents are specifically incorporated by reference.
In voting on the merger, you should rely only on the information contained or
incorporated by reference in this Proxy Statement/Prospectus. We have not
authorized anyone to provide you with information that is different from what
we included or incorporated in this Proxy Statement/Prospectus. All information
in this document concerning IDX has been furnished by IDX. All information in
this document concerning EDiX has been furnished by EDiX. The date of the Proxy
Statement/Prospectus is , 1999. You should not assume that the
information contained in the Proxy Statement/Prospectus is accurate as of any
other date. Neither the delivery of this Proxy Statement/Prospectus nor any
distribution of IDX Common Stock made hereunder shall under any circumstances
create an implication that there has been no change in the affairs of IDX or
EDiX since the date hereof or that the information is correct as of any time
subsequent to its date. This Proxy Statement/Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, any securities, or the
solicitation of a proxy, in any jurisdiction where the offer or solicitation is
not permitted.
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<PAGE>
THE EDiX SPECIAL MEETING
General
This Proxy Statement/Prospectus is being furnished to holders of EDiX stock in
connection with the solicitation of proxies by the EDiX Board for use at the
EDiX Special Meeting to be held on February , 1999, at the offices of Oracle
Strategic Partners L.P., 712 Fifth Avenue, 45th Floor, New York, New York 10019
commencing at 10:00 a.m., local time, and at any adjournment or postponement
thereof.
This Proxy Statement/Prospectus and the accompanying forms of proxy are first
being mailed to stockholders of EDiX on or about , 1999.
Matters to be Considered
At the EDiX Special Meeting, holders of EDiX stock will be asked to consider
and vote upon a proposal to approve and adopt the Merger Agreement and such
other matters as may properly be brought before the EDiX Special Meeting, or
any adjournment or postponement of the meeting.
Board of Directors' Recommendations
The EDiX Board has unanimously approved the Merger Agreement and recommends a
vote FOR approval and adoption of the Merger Agreement.
Record Date and Voting
, 1999 is fixed as the Record Date for determining the holders of EDiX
stock who are entitled to notice of and to vote at the Special Meeting. As of
the close of business on the Record Date, there were 957,855 shares of Series
A-1 Preferred Stock and 8,817,318 shares of Common Stock outstanding and
entitled to vote. The holders of Common Stock are entitled to one vote per
share of Common Stock on each matter submitted to a vote at the Special
Meeting. The holders of Series A-1 Preferred Stock are entitled to one vote for
each share of Common Stock into which such Series A-1 Preferred Stock could
then be converted on each matter submitted to a vote at the Special Meeting.
The presence in person or by proxy of the holders of a majority of shares of
EDiX stock entitled to vote is necessary to constitute a quorum for the
transaction of business at the Special Meeting. Under the DGCL, the affirmative
vote of at least a majority of the outstanding shares of EDiX stock is required
for adoption of the Merger Agreement. In addition, the affirmative vote of at
least 67% of the outstanding shares of Series A-1 Preferred Stock, voting
separately as a class, is required for adoption of the Merger Agreement
pursuant to the EDiX Certificate of Incorporation. Abstention from voting will
have the practical effect of voting against the adoption of the Merger
Agreement.
As of the Record Date, 8,029,500 (approximately 91.1%) of the outstanding
shares of Common Stock and 757,500 (approximately 79.1%) of the outstanding
shares of Series A-1 Preferred Stock were beneficially owned by directors and
executive officers of EDiX and their affiliates. All such directors and
executive officers have indicated to EDiX that they intend to vote all such
shares in favor of the adoption of the Merger Agreement.
Proxies
This Proxy Statement/Prospectus is being furnished to EDiX stockholders in
connection with the solicitation of proxies by and on behalf of the EDiX Board
for use at the EDiX Special Meeting, and is accompanied by a form of proxy.
All shares of EDiX stock which are entitled to vote and are represented at the
EDiX Special Meeting by properly executed proxies received prior to or at such
meeting, and not revoked, will be voted at such meeting
23
<PAGE>
in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such proxies will be voted for approval and
adoption of the Merger Agreement, except for proxies submitted by record
holders who indicate they have not received voting instructions from the
beneficial holder.
If any other matters are properly presented at the EDiX Special Meeting for
consideration, the persons named in the enclosed forms of proxy and acting
thereunder will have discretion to vote on such matters in accordance with
their best judgment. This will include, among other things, consideration of a
motion to adjourn such meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies).
Any person who gives a proxy may revoke it at any time before it is voted. To
revoke a proxy, you must (1) submit a later dated proxy with respect to the
same shares at any time prior to the vote on the adoption of the Merger
Agreement, (2) deliver written notice of revocation to the Secretary of EDiX at
any time prior to such vote or (3) attend the Special Meeting and vote in
person. Mere attendance at the Special Meeting will not in and of itself revoke
a proxy.
EDiX will bear all expenses of its solicitation of proxies, including the cost
of mailing this Proxy Statement/Prospectus. In addition to solicitation by
mail, directors, officers and employees of EDiX may solicit proxies in person
or by telephone, fax or other means of communication. Such directors, officers
and employees will not receive additional compensation. However, they may be
reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation.
EDiX Stockholders Should Not Send Any Stock Certificates with Their Proxy
Cards.
24
<PAGE>
THE MERGER
Background of the Merger
IDX and EDiX had no relationship prior to March 1998. In March 1998, EDiX
engaged Piper Jaffray Inc. as its financial advisor, and Piper Jaffray Inc.
contacted senior management of IDX to determine whether IDX was interested in
purchasing Convertible Preferred Stock of EDiX in a private placement
transaction.
Piper Jaffray contacted a number of financial and strategic investors regarding
such a private placement. EDiX did receive an offer from a potential investor
to purchase equity in a private placement. This offer was reviewed and
considered by the EDiX Board.
In April 1998, EDiX sent a private placement memorandum describing the proposed
investment to IDX management. On April 6, 1998, the Board of Directors of IDX,
at a regularly scheduled board meeting, discussed a potential investment in
EDiX. On April 29, 1998, John A. Kane, Chief Financial Officer of IDX, and
other executives of IDX met to discuss financial and operating information
concerning EDiX.
From April 29, 1998 throughout May 1998, representatives of EDiX had several
meetings and telephone conferences with representatives of IDX regarding a
potential business combination. In May 1998, IDX retained SG Cowen Securities
Corporation as its financial advisor.
On June 8, 1998, Mr. Kane, Vincent Estrada, Chief Financial Officer of EDiX,
and representatives of Piper Jaffray and SG Cowen met at the Boston office of
IDX to discuss the possible acquisition by IDX of all of the outstanding shares
of EDiX stock. On June 17, 1998, IDX submitted to EDiX a letter of interest
along with a preliminary term sheet proposing a business combination in which
IDX would acquire all of the outstanding shares of EDiX stock.
On July 6, 1998, IDX and EDiX executed a confidentiality agreement for purposes
of IDX conducting due diligence review. From July 6, 1998 through July 8, 1998,
an IDX due diligence team conducted a due diligence review at EDiX's offices in
La Jolla, California. On July 21, 1998, Mr. Kane, Mr. Estrada, Gene Barduson,
Chief Executive Officer of EDiX, counsel to IDX and representatives of Piper
Jaffray and SG Cowen met in Burlington, Vermont to further discuss the terms of
the transaction and the possibility of IDX providing interim financing to EDiX.
On July 22, 1998, IDX and EDiX entered into a cooperative marketing
relationship whereby IDX was granted the right to market EDiX's transcription
services for a period of one year.
On September 3, 1998, the EDiX Board, after review of a presentation by Piper
Jaffray of its opinion as to the fairness of the proposed merger consideration,
unanimously approved the merger and reiterated its view that the terms of the
merger were fair to, and in the best interests of, EDiX stockholders. On
September 3, 1998, the Underwood Acquisition Corp. Board of Directors approved
the merger.
On September 11, 1998, EDiX, IDX and a subsidiary of IDX executed the Merger
Agreement and IDX entered a Voting Agreement with each of Gerald E. Forth,
Trustee, Fourth Declaration of Trust DTD October 14, 1992, Thomas E. Testman,
Kingsbury Capital Partners, L.P., Kingsbury Capital Partners, L.P., II, Timothy
J. Wollager, Oracle Strategic Partners L.P. Robert J. Erra, Galen Partners II,
L.P., Galen Partners International II, L.P., Galen Associates and Galen
Employee Fund, L.P.
On September 11, 1998, EDiX and IDX also entered into a Loan Agreement which
provides that IDX will lend up to $5,000,000 to EDiX bearing interest at 14%
per annum. See "Loan Agreement."
The proposed merger was announced on September 11, 1998.
25
<PAGE>
Reasons for the Merger; Recommendation of the EDiX Board of Directors
In the course of reaching its decision to approve the Merger Agreement and each
of the transactions contemplated by it, the Board of Directors of EDiX
consulted with EDiX's legal, accounting and financial advisors as well as with
EDiX's management, and considered a number of factors. These included:
(1) The need for access to additional capital;
(2) The EDiX Board's view that EDiX's business will have enhanced prospects
for success in the rapidly changing and increasingly competitive healthcare
industry by merging with IDX;
(3) The opportunity the merger will afford to accelerate the growth in sales
of EDiX;
(4) IDX's financial ability to complete the merger, including the associated
financing of EDiX's operations in the interim period;
(5) The terms and conditions of the merger, including the escrow of 10% of
the stock to be received;
(6) Information regarding historical market prices and other information
with respect to the Common Stock of IDX;
(7) The prospects for the long-term performance of IDX Common Stock;
(8) The presentation of EDiX's financial advisor, Piper Jaffray, and the
opinion of such firm to the effect that as of the date of its opinion the
merger consideration was fair, from a financial point of view, to the EDiX
stockholders;
(9) The investment of EDiX stockholders in EDiX stock; and
(10) The EDiX Board's assessment of EDiX's alternatives to enhance
stockholder value and conclusion that the proposed merger presents the most
favorable opportunity to do so.
This discussion of the factors considered by the EDiX Board is not intended to
be exhaustive. In view of the wide variety of factors considered in connection
with its evaluation of the merger, the EDiX Board did not find it practicable
to quantify or otherwise attempt to assign relative weights to the specific
factors considered in reaching its determinations.
For the reasons discussed above, the EDiX Board has determined that the terms
of the Merger Agreement and the transactions contemplated thereby are fair to,
and in the best interests of, EDiX and the EDiX stockholders. Accordingly, the
EDiX Board recommends that EDiX stockholders vote for the approval and adoption
of the Merger Agreement.
Opinion of Financial Advisor to EDiX
EDiX retained Piper Jaffray on March 12, 1998, to act as EDiX's advisor in
connection with a proposed private placement of EDiX's securities. Under the
terms of the engagement, if EDiX were to be sold, Piper Jaffray would also, at
EDiX's request, act as EDiX's financial advisor and perform customary advisory
services in connection with the sale. On June 30, 1998, EDiX requested that
Piper Jaffray render an opinion to EDiX's board concerning the fairness, from a
financial point of view, of the consideration EDiX's stockholders would receive
in the merger.
On September 3, 1998, Piper Jaffray delivered its written opinion to the EDiX
Board. The opinion stated that, as of the date of the opinion, based on and
subject to the assumptions, factors and limitations contained in the opinion
and as described below, the consideration proposed to be received by the
holders of EDiX stock at the time of consummation of the merger under the terms
of the Merger Agreement, was fair, from a financial point
26
<PAGE>
of view, to the holders. A copy of the opinion is attached as Annex B to this
Proxy Statement/Prospectus and is incorporated into this Proxy
Statement/Prospectus by reference. We urge holders of EDiX shares to read the
attached opinion in its entirety.
Piper Jaffray was not requested to make, and did not make, any recommendation
to the EDiX Board as to the form of the consideration to be received by the
EDiX stockholders in the merger. The opinion was rendered to the EDiX Board and
is not a recommendation to any EDiX stockholder as to how the stockholder
should vote at the special meeting. Piper Jaffray was not requested to opine as
to, and the opinion does not address, EDiX's underlying business decision to
proceed with or effect the merger.
In arriving at the opinion, Piper Jaffray reviewed, among other things:
. a draft of the Agreement and Plan of merger dated August 21, 1998;
. certain financial, operating and business information related to EDiX;
. certain internal financial information of EDiX on a stand-alone basis
prepared for financial planning purposes and furnished by EDiX management;
. to the extent publicly available, financial terms of certain acquisition
transactions involving companies operating in industries deemed similar to
EDiX's and selected public companies deemed comparable to EDiX;
. certain publicly available information relative to IDX;
. certain publicly available IDX financial and securities data; and
. information related to EDiX and IDX on a combined basis.
In addition, Piper Jaffray had discussions with members of IDX management
regarding the financial condition, current operating results and business
outlook for both IDX and EDiX on a stand-alone basis and combined, IDX's plans
relating to the proposed combined company, as well as the amount and timing of
the cost savings and related expenses expected to result from the merger. Piper
Jaffray also had discussions with members of EDiX management regarding the
financial condition, current operating results and business outlook for EDiX
and the proposed combined company.
In delivering the opinion, Piper Jaffray prepared and delivered to the EDiX
Board certain written materials containing analyses and other information
material to the opinion. Here is a summary of the analyses contained in the
materials.
Implied Equity Value
Based on the five-day average closing price of the IDX Common Stock of $49.575
for the period ended September 2, 1998, and the implied exchange ratio of
0.0342 calculated according to the terms of the draft Merger Agreement, Piper
Jaffray calculated that holders of EDiX stock would receive 415,208 shares of
IDX Common Stock in the merger. The 415,208 shares would represent 1.49% of the
equity ownership in the combined company and represent an implied EDiX stock
price of $1.69 per share.
Piper Jaffray also calculated the number of shares of IDX Common Stock the EDiX
stockholders would receive, and the value of those shares, based upon a range
of prices for the IDX Common Stock.
<TABLE>
<CAPTION>
Implied
Number of IDX Shares Equity Implied EDiX
Average Price of Issued to EDiX Value of Stock Price
IDX Common Stock Stockholders EDiX per Share
----------------- -------------------- ----------- ------------
<S> <C> <C> <C>
$49.575...................... 415,208 $20,584,000 $1.69
$48.......................... 415,208 $19,930,000 $1.64
$40.......................... 498,250 $19,930,000 $1.64
$35.......................... 498,250 $17,439,000 $1.43
</TABLE>
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<PAGE>
Accretion/Dilution Analysis
Piper Jaffray examined the hypothetical effect of the merger as if it had
occurred on IDX's earnings per share for the fiscal years ending December 31,
1998 and 1999 and each quarter of fiscal year 1999, by combining estimates by
management and research analysts of the projected financial results of IDX and
estimates by management of the projected financial results of EDiX. Piper
Jaffray performed two analyses, one assuming that certain synergies, such as
estimated cost savings and revenue enhancements, would not be realized
following the merger and one assuming that such synergies would be realized.
Both analyses indicated that the merger is anticipated, without regard to costs
or synergies of the merger, to be dilutive to IDX's projected earnings per
share in each of fiscal years 1998 and 1999. With no assumed realization of
synergies, Piper Jaffray calculated that the merger would be dilutive by 6.6%
in fiscal year 1999. With assumed synergies, Piper Jaffray calculated that the
merger would be dilutive by 17.6% in fiscal year 1998 and dilutive by 0.7% in
fiscal year 1999. The actual operating and financial results achieved by IDX
may vary from projected results and variations may be material as a result of
business and market risks, the timing and amount of synergies, the costs
associated with achieving the synergies and other factors.
Contribution Analysis
Piper Jaffray analyzed the expected contributions of each of IDX and EDiX to
revenue, gross profit, operating income and pre-tax income of the proposed
merged company for the years ending December 31, 1998 and 1999 and each quarter
of fiscal year 1999. The analysis was based on EDiX's financial planning data
and analyst estimates of IDX's financial results for 1998 and 1999. For
purposes of its analysis, Piper Jaffray assumed that no synergies would result
from the merger.
<TABLE>
<CAPTION>
EDiX contribution to Fiscal Fiscal
the proposed merged company 1998 1999
--------------------------- ------ ------
<S> <C> <C>
Revenue..................................................... 8.5% 9.6%
Gross profit................................................ 1.8 5.4
Operating income/(loss)..................................... (20.1) (5.5)
Pre-tax income/(loss)....................................... (19.6) (5.3)
</TABLE>
EDiX will account for approximately 1.49% of the equity ownership of the
combined company following the merger based on market prices for IDX Common
Stock in September 1998 and Piper Jaffray's analysis as described above under
"Implied Equity Value."
Discounted Cash Flow Analysis
Piper Jaffray estimated a range of theoretical values for EDiX based on the net
present value of its implied annual cash flows and a terminal value of EDiX in
2001 calculated based upon a multiple of operating income. Piper Jaffray
applied a range of terminal value multiples of forecasted 2001 operating income
of 12.0x to 16.0x and a range of discount rates of 30% to 40%. The projected
financial data for EDiX for 1998 through 2001 was prepared by EDiX management
and reviewed by IDX management. To account for EDiX as a going concern, EDiX
projections assume, based on a contemporaneous proposal to EDiX from a third
party investor, a private placement of equity capital of $17 million on a $15
million pre-deal valuation. The values presented in this analysis represent
amounts attributable to the current EDiX stockholders. This analysis yielded
the following results:
<TABLE>
<CAPTION>
Per share equity value of EDiX (as of September 30, 1998)
---------------------------------------------------------
<S> <C>
Low................................................................ $1.16
Mid................................................................ 1.50
High............................................................... 1.92
</TABLE>
28
<PAGE>
The mid-point of $1.50 was based on a terminal value of 14x and a discount rate
of 35%. Piper Jaffray compared these estimated values to the implied EDiX stock
price of $1.69, as described above under "Implied Equity Value."
Comparable Company Analysis
Piper Jaffray compared certain financial information and valuation ratios
relating to EDiX to corresponding data and ratios from six publicly traded
companies deemed comparable to EDiX (Health Management Services, Inc.,
Healthcare Recoveries, Inc., Medaphis Corp., MedQuist, Inc., National Research
Corp., and Transcend Services, Inc.). This group was selected from companies
that:
. are assigned the Standard Industrial Classification code for health care
services companies;
. focus on providing medical transcription services;
. focus on providing medical office outsourcing services;
. are publicly traded companies with a market capitalization between $50
million and $600 million; and
. have latest twelve month revenue greater than $15 million.
For purposes of its analysis, Piper Jaffray used an implied "company value"
(implied equity value payable in the merger plus debt less cash) of EDiX of
$28.2 million and used in its calculations estimates of future financial
results of EDiX provided by EDiX management and estimates of future financial
results of IDX and the comparable companies provided by research analysts
covering IDX and the comparable companies.
This analysis produced multiples of selected valuation data as follows:
<TABLE>
<CAPTION>
Mean Median High Low EDiX
----- ------ ----- ----- ----
<S> <C> <C> <C> <C> <C>
Company value/revenue...................... 1.9x 1.3x 5.0x 0.7x 1.2x
Company value/operating income............. 15.2x 7.8x 31.5x 6.3x *
Price to latest twelve months earnings..... 27.5x 23.0x 52.0x 11.8x *
Estimated price to earnings for fiscal year
1998...................................... 27.1x 18.6x 44.9x 13.6x *
Estimated price to earnings for fiscal year
1999...................................... 18.5x 11.1x 35.7x 8.7x *
</TABLE>
- --------
*Not meaningful.
Merger and Acquisition Multiple Analysis
Piper Jaffray reviewed certain merger and acquisition transactions which it
deemed comparable to the merger. It selected these transactions by searching
SEC filings, public company disclosures, press releases, industry and popular
press reports, databases and other sources and applying the following criteria:
. deals that were announced or completed between January 1, 1995 and August
22, 1998;
. deals in which the acquiring company purchased at least 50% of the target
with cash, stock or a combination;
. target companies with SIC codes similar to EDiX; and
. transaction values of greater than $15 million.
Specifically, Piper Jaffray analyzed four transactions that satisfied the
criteria.
29
<PAGE>
This analysis produce multiples of selected valuation data as follows:
<TABLE>
<CAPTION>
Mean Median High Low EDiX
----- ------ ----- ----- ----
<S> <C> <C> <C> <C> <C>
Company value/Net sales........................... 5.0x 4.1x 11.2x 0.9x 1.2x
Company value/Operating income.................... 17.9x 17.9x 19.7x 16.1x *
Company value/Net income.......................... 62.4x 62.4x 93.7x 31.2x *
</TABLE>
- --------
*Not meaningful
In reaching its conclusion as to the fairness of the merger consideration and
in its presentation to the EDiX Board, Piper Jaffray did not rely on any single
analysis or factor described above, assign relative weights to the analyses or
factors considered by it, or make any conclusion as to how the results of any
given analysis, taken alone, supported its opinion. The preparation of a
fairness opinion is a complex process and not necessarily susceptible to
partial analyses or summary description. Piper Jaffray believes that its
analyses must be considered as a whole and that selection portions of its
analyses and of the factors considered by it, without considering all factors
and analyses, would create a misleading view of the processes underlying the
opinion.
The analyses of Piper Jaffray are not necessarily indicative of actual values
or future results, which may be significantly more or less favorable than
suggested by the analyses. Analyses relating to the value of companies do not
purport to be appraisals or valuations or necessarily reflect the price at
which companies may actually be sold. No company or transaction used in any
analysis for purposes of comparison is identical to IDX, EDiX or the merger.
Accordingly, an analysis of the results of the comparisons is not mathematical;
rather, it involves complex considerations and judgments about differences in
the companies to which IDX and EDiX were compared and other factors that could
affect the public trading value of the companies.
For purposes of the opinion, Piper Jaffray relied upon and assumed the
accuracy, completeness and fairness of the financial statements and other
information made available to it and did not assume responsibility to
independently verify the information. Piper Jaffray relied upon the assurances
of the companies' management that (1) the information provided was prepared on
a reasonable basis in accordance with industry practice, (2) the financial
planning data reflects the best currently available estimates and good faith
judgments of the companies' management as to the expected future financial
performance of the companies, and (3) each management team was not aware of any
information or facts that would make the information provided to Piper Jaffray
incomplete or misleading.
For purposes of the opinion, Piper Jaffray, with EDiX's consent, assumed that:
. the merger would be free of federal tax to EDiX, IDX and the holders of
EDiX stock
. the merger would be accounted for as a pooling of interests under GAAP and
that certain steps, including the rescission of warrants to purchase 1.25
million shares of EDiX stock prior to the signing of the Merger Agreement,
would be taken to comply with the requirements
. all the necessary regulatory approvals and consents required for the
merger would be obtained in a way that would not change the purchase price for
EDiX
. all shares of IDX Common Stock held in escrow under the terms of the
Merger Agreement would be issued and delivered to the holders of EDiX stock
. the "Buyer Stock Price" (as defined in the Merger Agreement) would be $35
or more
. the EDiX Series A-1 Preferred Stock would be exchanged for EDiX Common
Stock
In arriving at its opinion, Piper Jaffray was not engaged to perform any
appraisals or valuations of specific assets or liabilities (contingent or
otherwise) of IDX or EDiX and was not furnished with any such appraisals or
evaluations, made no physical inspection of the properties or assets of EDiX
and expressed no opinion regarding the liquidation value of any entity. Piper
Jaffray expressed no opinion regarding the price at which shares of IDX Common
Stock have traded or at which the shares may trade at any future time. In
particular,
30
<PAGE>
Piper Jaffray expressed no opinion about the fairness of the consideration the
EDiX stockholders would receive if the per share price of IDX Common Stock is
below $35. The opinion is based on information available to Piper Jaffray and
the facts and circumstances as they existed and were subject to evaluation on
the date of the opinion. Events occurring after that date could materially
affect the assumptions used in preparing the opinion.
Piper Jaffray, as a customary part of its investment banking business,
evaluates businesses and their securities in connection with mergers and
acquisitions, underwritings and secondary distributions of securities, private
placements and valuations for estate, corporate and other purposes. The EDiX
Board selected Piper Jaffray because of its expertise, reputation and
familiarity with the healthcare services industry in general and EDiX in
particular. In the ordinary course of its business, Piper Jaffray and its
affiliates may actively trade securities of IDX for their own accounts or the
accounts of their customers and, accordingly, may at any time hold a long or
short position in these securities.
Under the terms of the engagement letter dated March 12, 1998, as subsequently
amended, EDiX has agreed to pay Piper Jaffray $50,000 plus an additional fee
upon consummation of the merger for financial advisory services rendered in
connection with the merger equal to the greater of: (1) 2% of the total sale
price, or (2) $500,000. In addition, EDiX has agreed to pay Piper Jaffray
$250,000 for rendering its opinion. The contingent nature of a portion of these
fees may have created a potential conflict of interest in that EDiX would be
unlikely to consummate the merger unless it had received the opinion. Whether
or not the merger is consummated, EDiX has agreed to pay the reasonable out-of-
pocket expenses of Piper Jaffray and to indemnify Piper Jaffray against certain
liabilities incurred (including liabilities under the federal securities laws)
in connection with the engagement of Piper Jaffray by EDiX.
The full text of the Piper Jaffray opinion is attached as Annex B to this Proxy
Statement/ Prospectus. Stockholders are urged to, and should, read the opinion
carefully in its entirety in conjunction with this Proxy Statement/Prospectus.
They should carefully consider the assumptions made, matters considered and
limits of the review by Piper Jaffray. The opinion addresses only the fairness
of the merger, from a financial point of view, to the stockholders of EDiX and
does not constitute a recommendation to any stockholder of EDiX as to how such
stockholder should vote on the merger. The summary of the opinion set forth in
this Proxy Statement/Prospectus is qualified in its entirety by reference to
the full text of such opinion.
Interests of Certain Persons in the Merger
EDiX Stock Options. All outstanding stock options for the purchase of EDiX
Common Stock will convert upon consummation of the merger into the right to
receive the number of shares of IDX Common Stock (as adjusted downward to
reflect the fair market value of such EDiX option taking into consideration the
unpaid exercise price, vesting schedule and other appropriate factors) that the
holder of such option would have received in the merger if such holder had
exercised such option in full immediately prior to the closing of the merger.
At September 30, 1998, executive officers and directors of EDiX and their
affiliates collectively had options to acquire an aggregate of 1,036,867 shares
of EDiX Common Stock.
Employment Agreements and Incentive Compensation from EDiX. Gene Barduson,
President and Executive Officer, Vincent Estrada, Chief Executive Officer, and
Armando Jackson, Vice President Sales and Marketing, are each a party to an
employment agreement with EDiX. The employment agreements of Messrs. Barduson
and Estrada provide that each of them will continue to receive their salary for
a period of one year in the event that they are terminated by EDiX or a
successor to EDiX without cause. The employment agreement with Mr. Jackson
provides that Mr. Jackson will be paid at least one year of salary starting on
the date of the agreement if the agreement is terminated by EDiX without cause.
The employment agreement with Mr. Barduson provides that 50% of any unvested
stock options granted to Mr. Barduson shall vest upon termination of Mr.
Barduson's employment by EDiX without cause. Mr. Estrada's employment agreement
provides that in the event that he is terminated without cause or there is a
change in control of EDiX any unvested stock options granted to Mr. Estrada
shall immediately vest.
31
<PAGE>
Retention Bonuses and Incentive Compensation Arrangements with IDX. IDX expects
to award retention bonuses to certain employees of EDiX (including members of
senior management) in an aggregate amount of approximately $800,000. The EDiX
employees who are awarded these bonuses will be eligible to receive them in
full if they are continuously employed by IDX or one of its subsidiaries from
the closing of the merger through December 31, 1999. A portion of these bonuses
may be paid to certain employees at an earlier date. Following the merger, IDX
expects to make available in the future stock options under its 1995 Stock
Option Plan to purchase an aggregate of approximately 80,000 shares of IDX
Common Stock to certain employees of EDiX (including members of senior
management). The terms and conditions of these options are expected to be
similar to those of options granted to IDX employees with similar
responsibilities.
Indemnity Arrangements. IDX has agreed to indemnify each present director and
officer of EDiX against liabilities or expenses incurred in connection with
claims relating to matters occurring prior to the date of the merger. IDX has
also agreed to maintain in effect directors' and officers' liability insurance
for the benefit of the directors and officers of EDiX. These covenants will
last for three years following the merger. See "The Merger Agreement--Director
and Officer Indemnification."
Notes Payable. EDiX owes a total of $1,000,000, plus interest which accrues at
12% per year, to entities affiliated with three EDiX directors. IDX agreed to
assume this debt at the time of the merger.
Ownership and Voting of Stock. As of September 30, 1998, directors and
executive officers of EDiX and their affiliates may be deemed to have
beneficial ownership (by themselves or with others) over approximately 91.1% of
the outstanding shares of EDiX Common Stock, and approximately 79.1% of the
outstanding shares of Series A-1 Preferred Stock. Each of the directors and
executive officers of EDiX has advised EDiX that he or she intends to cause all
the outstanding shares of EDiX stock over which he or she has or shares voting
control to be voted in favor of the Merger Agreement. See "Additional
Information Concerning EDiX Corporation--Security Ownership of Directors,
Executive Officers and Principal Stockholders of EDiX."
As of September 30, 1998, IDX did not beneficially own any shares of EDiX stock
and directors and executive officers of IDX and their affiliates may be deemed
to be beneficial owners of an aggregate of 7,500 shares of Series A-1 Preferred
Stock, or less than 1% of the Series A-1 Preferred Stock, and no shares of EDiX
Common Stock. As of September 30, 1998, neither EDiX nor its directors and
executive officers and their affiliates beneficially owned any shares of IDX
Common Stock.
In connection with the execution of the Merger Agreement, IDX entered into
Voting Agreements with Gerald E. Forth, Trustee, Fourth Declaration of Trust
DTD October 14, 1992, Thomas E. Testman, Kingsbury Capital Partners, L.P.,
Kingsbury Capital Partners, L.P. II, Timothy J. Wollager, Oracle Strategic
Partners L.P., Robert J. Erra, Galen Partners II, LP, Galen Partners
International II, LP, Galen Associates and Galen Employee Fund LP. These
stockholders beneficially own approximately 91.1% of all of the outstanding
shares of EDiX Common Stock and approximately 79.1% of all of the outstanding
Series A-1 Preferred Stock of EDiX as of September 30, 1998. Pursuant to the
Voting Agreements, each of these stockholders have agreed to vote in favor of
the merger. They have granted certain officers of IDX an irrevocable proxy to
vote their shares in favor of the merger.
Accounting Treatment
The merger is intended to qualify as a pooling of interests for financial
reporting purposes. Under this method of accounting, the recorded assets and
liabilities of EDiX will be carried forward to IDX at their recorded amounts.
The operating results of IDX will include the operating results of EDiX for the
entire year in which the combination occurs. The reported operating results of
the separate companies for periods prior to the year in which the combination
occurs will be combined and restated as the operating results of IDX. A
condition to the merger is that IDX must receive a letter from Ernst & Young
LLP regarding its concurrence with the conclusions of IDX's management as to
the appropriateness of pooling of interests accounting for the merger under
Accounting Principles Board Opinion No. 16 and related interpretations. See
"The Merger Agreement--Conditions" and "Unaudited Pro Forma Combined Condensed
Financial Statements."
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<PAGE>
Each of the affiliates of IDX has agreed that, and each of the affiliates of
EDiX has executed a written agreement to the effect that, such person will not
transfer shares of stock of either IDX or EDiX within 30 days prior to the date
of the merger or until IDX publishes financial statements which reflect 30 days
of combined operations of IDX and EDiX. These agreements relate to the ability
of IDX to account for the merger as a pooling of interests.
Certain Federal Income Tax Consequences
The following summary which was prepared by Pillsbury Madison & Sutro LLP
discusses the material federal income tax consequences of the merger to holders
of EDiX Stock and expresses the opinion of Pillsbury Madison & Sutro LLP as to
the federal tax consequences of the merger to the EDiX stockholders. The
summary is based upon the Code, Treasury Regulations, administrative rulings
and judicial authority as of the date hereof. All of the foregoing are subject
to change, possibly with retroactive effect. The discussion assumes that
holders of shares of EDiX stock hold such shares as capital assets within the
meaning of Section 1221 of the Code (in general, property held for investment).
The discussion does not address the tax consequences of the merger to
individual holders, nor the tax consequences to holders which are subject to
special treatment under the federal income tax laws. This discussion does not
address any consequences of the merger arising under the laws of any state,
locality or foreign jurisdiction or the consequences of any transactions
effectuated prior or subsequent to, or concurrently with, the merger (whether
or not any such transactions are undertaken in connection with the merger).
Neither EDiX nor IDX has requested a ruling from the Internal Revenue Service
("IRS") with regard to any of the federal income tax consequences of the
merger. The opinion of counsel as to such federal income tax consequences set
forth below will not be binding on the IRS, and the IRS is therefore not
precluded from successfully asserting a contrary opinion.
General. Pillsbury Madison & Sutro LLP has acted as counsel to EDiX in
connection with the merger. In the opinion of Pillsbury Madison & Sutro LLP, as
of the date hereof, the merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code. The foregoing opinion of Pillsbury
Madison & Sutro LLP assumes that the merger will take place as described in the
Merger Agreement. Such opinion also assumes the correctness, at the time the
merger closes, of certain factual representations which have been made by EDiX
and IDX and which are customarily given in transactions of this type.
Consequences to EDiX Stockholders. Provided that the merger qualifies as a
reorganization, no gain or loss will be recognized by holders of EDiX stock
solely as a result of the surrender of their shares of EDiX stock in exchange
for shares of IDX Common Stock pursuant to the merger or upon the distribution
of shares of IDX Common Stock pursuant to the merger or upon the distribution
of shares of IDX Common Stock from the escrow established pursuant to the
Escrow Agreement. The aggregate tax basis of the shares of IDX Common Stock
received in the merger (including the shares of IDX Common Stock which are
subject to the Escrow Agreement) will be the same as the aggregate tax basis of
the shares of EDiX stock surrendered in exchange therefor in the merger. The
holding period of the shares of IDX Common Stock received in the merger
(including the shares of IDX Common Stock which are subject to the Escrow
Agreement) will include the holding period of the shares of EDiX stock
surrendered in exchange therefor.
A successful IRS challenge to the reorganization status of the merger would
result in stockholders of EDiX recognizing taxable gain or loss with respect to
each share of EDiX stock surrendered equal to the difference between the
stockholder's basis in such share and the fair market value, as of the time of
the merger, of the IDX Common Stock received in exchange therefor. In such
event, a stockholder's aggregate basis in the IDX Common Stock so received
would equal its fair market value as of the time of the merger, and the
stockholder's holding period for such stock would begin the day after the
merger.
Consequences to Dissenting Stockholders. A holder of EDiX stock who exercises
dissenters' rights with respect to the merger and receives a cash payment for
his or her shares of EDiX stock will recognize capital gain or loss measured by
the difference between the stockholder's basis in such shares and the amount of
cash
33
<PAGE>
received, provided that such payment is not treated as a dividend pursuant to
Section 302 of the Code after giving effect to the constructive ownership rules
of the Code. A sale of shares pursuant to an exercise of dissenters' rights
generally will not be treated as a dividend if, as a result of such exercise,
the stockholder exercising dissenters' rights owns no shares of stock of IDX,
after giving effect to the constructive ownership rules of the Code,
immediately after the merger. Such capital gain will be long-term capital gain
if the holder's holding period in such shares is more than one year. Any
payment in respect of an exercise of dissenters' rights may be subject to
backup withholding.
Consequences to EDiX, IDX and Underwood Acquisition Corp. Provided that the
merger qualifies as a reorganization, neither EDiX, IDX nor Underwood
Acquisition Corp. will recognize gain or loss as a result of the merger.
The Preceding Discussion Is Not Purported to Be a Complete Analysis or
Discussion of All Potential Tax Effects of the Merger Which May Be Relevant to
a Particular EDiX Stockholder. Each EDiX Stockholder Is Urged to Consult its
Own Tax Advisor as to the Specific Tax Consequences to it of the Merger,
Including Tax Return Reporting Requirements, the Applicability and Effect of
Federal, State, Local, and Other Applicable Tax Laws and the Effect of Any
Proposed Changes in the Tax Laws.
EDiX has received an opinion of Pillsbury Madison & Sutro LLP, counsel to EDiX
in connection with the merger, to the effect that the foregoing discussion
under this section "--Certain Federal Income Tax Consequences," accurately
describes the material federal income tax considerations relevant to EDiX
stockholders receiving IDX Common Stock pursuant to the Merger Agreement.
Regulatory Approvals
Based on information available to them, IDX and EDiX believe that the merger
can be effected, without regard to regulatory matters, other than compliance
with applicable securities laws. In particular, IDX and EDiX believe that the
consummation of the merger will not violate state or federal antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
merger on antitrust grounds will not be made or that, if such a challenge were
made, IDX and EDiX would prevail or would not be required to accept certain
conditions in order to consummate the merger. Such conditions might include the
divestitures of product lines or other assets.
Federal Securities Law Consequences
All shares of IDX Common Stock received by EDiX stockholders in the merger will
be freely transferable, except that persons who are deemed to be affiliates of
EDiX prior to the merger may resell their IDX Common Stock only in transactions
permitted by the resale provisions of Rule 145 promulgated under the Securities
Act or otherwise in compliance with the registration requirements of the
Securities Act (or pursuant to an exemption from such requirements). Any such
persons who become affiliates of IDX must also comply with Rule 144. An
individual or entity is deemed to be an affiliate of EDiX or IDX if he or it
controls, is controlled by, or is under common control with, such company.
Executive officers, directors and certain principal shareholders of a company
are generally considered to be affiliates. The Merger Agreement required EDiX
to cause each of its affiliates to execute a written agreement to the effect
that such person will offer or sell or otherwise dispose of any of the shares
of IDX Common Stock issued to such person in or pursuant to the merger only in
compliance with the Securities Act and applicable rules and regulations. This
Proxy Statement/Prospectus does not cover any resales of IDX Common Stock
received by affiliates of EDiX in the merger.
Nasdaq National Market Quotation
It is a condition to the closing of the merger that the shares of IDX Common
Stock to be issued pursuant to the Merger Agreement be approved for quotation
on the Nasdaq National Market. IDX filed a listing application on , 1999.
34
<PAGE>
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger Agreement,
as amended by Amendment No. 1 and Amendment No. 2 to the Merger Agreement. This
summary is qualified in its entirety by reference to the Merger Agreement, as
amended. The entire Merger Agreement, together with Amendment No. 1 and
Amendment No. 2, is incorporated by reference into this summary and is attached
as Annex A to this Proxy Statement/Prospectus. Stockholders of EDiX are urged
to read the entire Merger Agreement and Amendment No. 1 and Amendment No. 2 to
the Merger Agreement for a more complete description of the merger.
General
Following the adoption of the Merger Agreement by the stockholders of EDiX, and
the satisfaction or waiver of the other conditions to the merger, a wholly-
owned subsidiary of IDX, named "Underwood Acquisition Corp." will be merged
into EDiX. EDiX will survive the merger as a wholly-owned subsidiary of IDX. If
all conditions to the merger are satisfied or waived, the merger will become
effective at the time of the filing by the Surviving Corporation of duly
executed Articles of merger with the Secretary of State of the State of
Delaware.
Conversion of Shares
Immediately before the merger, each outstanding share of Series A-1 Preferred
Stock of EDiX will be converted into one share of Common Stock of EDiX. At the
time of the merger, each outstanding share of Common Stock will be converted
into the right to receive approximately 0.034 shares (if the average closing
sale price is $48) to 0.041 shares (if the average closing sale price is $40)
(the "Conversion Ratio") of IDX Common Stock. However, (1) if the average IDX
share price is greater than $48 per share, the conversion ratio shall be
approximately 0.034; and (2) if the average IDX share price is between $35 and
$40 per share, the Conversion Ratio shall remain at approximately 0.041. The
exact Conversion Ratio will be calculated based on information that will not be
known until shortly before the closing including the number of shares or EDiX
Stock outstanding at the closing and the fair market value of the outstanding
options. The average IDX share price will be subject to equitable adjustment in
the event of any stock split or similar recapitalization. The average IDX share
price is the average closing sale price per share of the IDX Common Stock on
the Nasdaq National Market over the five consecutive trading days ending on the
trading day three trading days before the closing. Ten percent of all shares to
be received by an EDiX stockholder in the merger will be placed in escrow to
cover indemnification obligations.
Creation of Escrow
By approving the merger, the EDiX stockholders will authorize the creation of
the escrow and the appointment of Joel D. Liffmann as their representative with
respect to indemnification matters.
Representations and Warranties
The Merger Agreement contains various representations and warranties of IDX,
EDiX and Underwood Acquisition Corp. These relate, among other things, to (1)
their incorporation, existence, good standing, corporate power and similar
corporate matters; (2) their capitalization; (3) their authorization,
execution, delivery and performance and the enforceability of the Merger
Agreement and related matters; (4) the absence of conflicts, violations and
defaults under their corporate charters and by-laws and certain other
agreements and documents; and (5) brokers and finders.
EDiX has also represented and warranted as to (1) certain of its financial
statements; (2) the absence of undisclosed liabilities; (3) its pending or
threatened litigation; (4) ownership of its properties; (5) the condition of
its assets; (6) material contracts and no defaults thereunder; (7) its licenses
and permits; (8) its intellectual property rights; (9) tax matters; (10) its
employee benefit plans; (11) certain employee matters; (12) environmental
matters; (13) capitalization of subsidiaries; (14) the accuracy and
completeness of certain information provided to IDX; (15) accuracy and
completeness of information contained in this Proxy
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Statement/Prospectus; and (16) the absence of any occurrence or event that
could reasonably be expected to have a material adverse effect on the assets,
business, financial condition or operation of EDiX.
IDX has also represented and warranted as to the accuracy and completeness of
documents and reports filed by IDX with the SEC.
Certain Covenants
EDiX has agreed that, until the merger, it and each of its subsidiaries will
carry on its business in the ordinary course in substantially the same manner
as previously conducted, except as otherwise consented to in writing by IDX or
as contemplated by the Merger Agreement. Specifically, EDiX has agreed not to
(1) issue or sell any shares of capital stock or securities convertible into
shares of capital stock, except pursuant to the conversion or exercise of
convertible securities; (2) declare or make any dividends or other distribution
on its shares of capital stock or effect a stock split; (3) incur or assume any
new debt other than from IDX pursuant to the Loan Agreement between IDX and
EDiX or make any loans or capital investments in any other person or entity;
(4) adopt or amend any employee benefit plan or severance arrangement or
increase the compensation of its directors or officers or employees generally;
(5) sell, lease or otherwise dispose of any assets or property other than in
the ordinary course of business; (6) amend its charter or bylaws; (7) change
its accounting methods in any material respect; (8) discharge any security
interest or liability other than in the ordinary course of business; (9)
mortgage or pledge any of its property or assets; (10) sell, assign, transfer
or license any intellectual property other than in the ordinary course of
business; (11) enter into, amend, terminate, create or default under or waive
any rights under any material contract or agreement; (12) make or commit to any
capital expenditure in excess of $10,000 per expenditure or $50,000 in the
aggregate; (13) take any action with the knowledge that such action would
result in a breach of the representations and warranties of EDiX in the Merger
Agreement or result in the conditions of the merger set forth in the Merger
Agreement not being satisfied; (14) take any action that would jeopardize the
treatment of the merger as a pooling of interests transaction; or (15) make any
accrual or promise to pay any bonus or compensation outside the ordinary course
of business.
IDX and EDiX have each agreed to use its best efforts, to the extent
commercially reasonable, to take all actions and to do all things necessary,
proper or advisable to consummate the transactions contemplated by the Merger
Agreement. However, IDX will not be required to sell or dispose of any of its
assets or businesses or hold them separately (through a trust or otherwise).
No Solicitation
EDiX has agreed that it will not, directly or indirectly, (1) encourage,
solicit, initiate, engage or participate in discussions or negotiations with
any person or entity (other than IDX) concerning any merger, consolidation,
sale of material assets, tender offer, recapitalization, accumulation of shares
of EDiX stock, proxy solicitation or other business combination involving EDiX
or any of its subsidiaries or divisions or (2) provide any non-public
information concerning the business, properties or assets of EDiX or any of its
subsidiaries to any person or entity (other than IDX and other than providing
pricing information to customers and prospective customers in the ordinary
course of business). EDiX has further agreed to use its best efforts to cause
each of its officers, directors, employees, representatives, and agents not to
do any of the things described above. EDiX has agreed that it will immediately
notify IDX in detail about inquiries, discussions or negotiations of the nature
described above.
Related Matters After the Merger
At the time of the merger, Underwood Acquisition Corp. will be merged into
EDiX, and EDiX will become the Surviving Corporation and a wholly-owned
subsidiary of IDX. Each share of Underwood Acquisition Corp. Common Stock
issued and outstanding immediately prior to the merger will be converted into
and exchanged for one validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation. The Certificate of Incorporation of
Underwood Acquisition Corp., as in effect immediately prior to the time of the
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merger, will become the Certificate of Incorporation of the Surviving
Corporation, except that the name shall be changed to the name of EDiX. The
Bylaws of Underwood Acquisition Corp., as in effect immediately prior to the
time of the merger, will become the Bylaws of the Surviving Corporation, except
that the name shall be changed to the name of EDiX.
Within 30 days of the closing, the Indemnification Representative shall deliver
to IDX a balance sheet of EDiX as of the closing.
Treatment of Stock Options in the Merger
Upon consummation of the merger, pursuant to the Merger Agreement, each
unexpired and unexercised outstanding option to purchase EDiX Common Stock,
whether vested or unvested, will be converted into the right to receive the
number of shares of IDX Common Stock (as adjusted to reflect the fair market
value of such EDiX option taking into consideration the unpaid exercise price,
vesting schedule and other appropriate factors) that the holder of such option
would have received in the merger had such holder exercised such option in full
immediately prior to the time of the merger.
Treatment of Warrants in the Merger
Upon closing of the merger, each outstanding warrant to purchase shares of EDiX
stock will be assumed by IDX. After the consummation of the merger, each
warrant will entitle the holder to purchase the number of shares of IDX Common
Stock that the holder would have received if the warrant had been exercised
prior to the merger. The exercise price per share shall be the exercise price
in the warrant divided by the conversion ratio. The term, exercisability,
vesting schedule, repurchase provisions and all other terms of the warrants
shall remain the same after the merger.
Director and Officer Indemnification
The Merger Agreement provides that for a period of three years after the
merger, IDX will cause the Surviving Corporation to maintain in effect a
directors' and officers' liability insurance policy covering those persons who
are currently covered by EDiX's directors' and officers' liability insurance
policies with respect to actions taken in their capacities as directors and
officers of EDiX. The new policies will be substantially identical in scope and
coverage to EDiX's existing coverage. EDiX has agreed to obtain a "tail" policy
on its existing directors' and officers' liability insurance policy to cover
claims made within three years after the merger.
IDX has agreed that, to the extent allowed by applicable law, all rights to
indemnification existing on the date of the Merger Agreement in favor of the
present officers and directors of EDiX prior to the merger as provided in
EDiX's Certificate of Incorporation or Bylaws, and any outstanding
indemnification agreements shall continue in full force and effect for a period
of three years following the merger.
Indemnification of IDX by Stockholders and Optionholders
The Merger Agreement provides that the EDiX stockholders and optionholders will
indemnify IDX and the Surviving Corporation for any and all damages IDX and the
Surviving Corporation may suffer as a result of any of the following:
. a breach of any representation, warranty or covenant contained in the Merger
Agreement;
. failure of any EDiX stockholder to have valid and marketable title to their
shares of EDiX stock;
. any claim made by a EDiX stockholder or former EDiX stockholder based upon
ownership or other stockholder rights; or
. any claim made against EDiX or any subsidiary relating to the failure to pay
employment-related taxes for any employee or independent contractor.
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The representations, warranties and obligations contained in the Merger
Agreement continue in effect for one year following the closing with the
following exception:
. the indemnification obligations relating to any potential claim relating to
the failure to pay employment related taxes shall continue until expiration
of the applicable statute of limitations for such claims.
To secure the indemnification obligations of the EDiX stockholders and
optionholders, ten percent of the IDX stock that would otherwise be payable to
the EDiX stockholders and optionholders at the closing will be held in escrow.
Pursuant to the Merger Agreement, Joel D. Liffmann has been designated as the
representative of the EDiX stockholders and optionholders with respect to
indemnification matters.
For purposes of any claim which could be made against EDiX or its subsidiaries
relating to any failure to pay employment related taxes, an additional number
of shares of IDX Common Stock with a fair market value of $200,000 shall remain
in escrow until the later of three years from the date of the closing or the
final resolution of such claims.
The total liability of the EDiX stockholders and optionholders for their
indemnification obligations shall not exceed the fair market value of amounts
held in escrow, and the EDiX stockholders and optionholders shall not be liable
until the aggregate claim for damages exceeds $100,000, at which time the EDiX
stockholders and optionholders shall be liable for all damages in excess of
$20,000. The foregoing limitations shall not apply to the following types of
indemnification claims:
. claims based upon the failure of EDiX or its subsidiaries to pay any and all
taxes which may be due and to prepare and properly file all tax returns;
. claims based upon the failure of any EDiX stockholder to have good and
marketable title to their shares;
. claims made by EDiX stockholders on former EDiX stockholders based upon
ownership or other stockholder rights; or
. claims made against EDiX or any subsidiary related to the failure to pay
employment related taxes for any employee or independent contractor.
No EDiX stockholder or optionholder shall have a right of contribution against
EDiX with respect to any breach by EDiX of any representation, warranty,
covenant or agreement.
Conditions
The respective obligations of IDX and EDiX to effect the merger are subject to
the satisfaction (or waiver) of the following conditions: (1) the Merger
Agreement must have been approved and adopted by the stockholders of EDiX; and
(2) no order, injunction or judgment, or statute, rule or regulation, may be in
effect that makes the merger illegal or otherwise prohibits the consummation of
the merger or adversely affects the right of IDX to own, operate or control the
assets and operations of the Surviving Corporation after the merger.
In addition, the obligations of IDX and Underwood Acquisition Corp. to effect
the merger are subject to the satisfaction (or waiver) of the following
conditions: (1) EDiX must have obtained all necessary waivers, permits and
approvals; (2) the representations and warranties of EDiX in the Merger
Agreement must be materially true and complete as of the date of the Merger
Agreement and those which are not specifically tied to an earlier date must
also be materially true as of the closing as though made on and as of the
closing; (3) EDiX shall have performed in all material respects all obligations
required to be performed by it under the Merger Agreement; (4) IDX must have
received a letter at the closing of the merger from Ernst & Young LLP to the
effect that Ernst & Young LLP concurs with IDX as to the appropriateness of
accounting for the merger as a pooling of interests under Accounting Principles
Board Opinion No. 16 (see "The Merger--Accounting Treatment"); (5) IDX shall
have received an opinion from counsel to EDiX in a form satisfactory to IDX;
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(6) IDX, the Indemnification Representative and the Escrow Agent must have
entered into the Escrow Agreement; (7) IDX must have received the resignations
of the officers and directors of EDiX effective as of the time of the merger;
(8) less than 5% of EDiX's stockholders must have voted against the approval of
the Merger Agreement and dissented; (9) IDX must have received copies of all of
the invoices from all of the advisors, accountants and other professionals to
be paid by EDiX in connection with the merger; and (10) holders of at least 94%
of the outstanding options of EDiX must have agreed to exchange their options
for the right to receive shares of IDX Common Stock in the merger and agreed to
be bound by the provisions of the Merger Agreement and the Escrow Agreement. A
breach or noncompliance is not considered to be material if it is not material
to EDiX and its subsidiaries, taken as a whole, or to that segment of the
business of EDiX serviced on EDiX's proprietary network.
In addition, the obligation of EDiX to effect the merger is subject to the
satisfaction of the following conditions: (1) IDX must have obtained all
necessary waivers, permits and approvals; (2) the representations and
warranties of IDX in the Merger Agreement must be true and correct as of the
date of the Merger Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the closing as though made on and
as of the closing, except for breaches or noncompliance (other than those that
have been publicly disclosed by IDX pursuant to filings with the Commission)
which are not material to IDX; (3) IDX must have performed in all material
respects all obligations required to be performed by it under the Merger
Agreement at or prior to the closing; (4) EDiX must have received an opinion
from the general counsel of IDX in a form satisfactory to EDiX; (5) no material
adverse change in the business, financial condition or results of operations of
IDX must have occurred since September 11, 1998; (6) IDX, the Indemnification
Representative and the Escrow Agent must have entered into the Escrow
Agreement; and (7) IDX must have delivered to EDiX a certificate relating to
certain tax matters.
Limitations on Transferability of IDX Common Stock
Rule 145 under the Securities Act will restrict resales of shares of IDX Common
Stock received by persons deemed to be "affiliates" of EDiX. In accordance with
Rule 145, an affiliate of EDiX receiving IDX Common Stock issued in the merger
may sell such shares only pursuant to the volume limitations, manner of sale
limitations and other requirements specified in Rule 145 unless the affiliate
sells such shares pursuant to an effective registration statement under the
Securities Act. In general, directors, officers and substantial beneficial
owners of a corporation's securities may be deemed to be "affiliates" of a
corporation. In addition, EDiX affiliates are subject to certain restrictions
on transfer of both EDiX stock and IDX Common Stock during certain periods
prior to and following the time of the merger to allow pooling of interests
accounting treatment of the transaction.
Termination; Termination Fees and Expenses
The Merger Agreement may be terminated in the following ways at any time prior
to the time of the merger.
(1) IDX and EDiX may terminate the Merger Agreement by mutual written
consent;
(2) IDX and EDiX may terminate the Merger Agreement if the other party is in
breach of (a) any representation or warranty contained in the Merger Agreement
which would cause the breaching party to fail to satisfy a closing condition if
the time of the merger were the date of notice of breach, or (b) any material
covenant contained in the Merger Agreement (that cannot be or is not remedied
within 30 days of notice thereof);
(3) IDX or EDiX may terminate the Merger Agreement, if the requisite vote of
the shareholders of EDiX is not obtained at the EDiX Special Meeting (including
any adjournment or postponement thereof);
(4) IDX may terminate the Merger Agreement by giving written notice to EDiX
if the closing has not occurred on or before March 31, 1999 by reason of the
failure of any condition precedent to IDX's
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closing of the merger (unless the failure results primarily from a breach by
IDX or the Underwood Acquisition Corp. of any representation, warranty or
covenant contained in the Merger Agreement);
(5) EDiX may terminate the Merger Agreement if the closing has not have
occurred on or before March 31, 1999 by reason of the failure of any condition
precedent to its consummation of the merger (unless the failure results
primarily from a breach by EDiX of any representation, warranty or covenant
contained in the Merger Agreement); or
(6) IDX (but not EDiX) may terminate the Merger Agreement if the average of
the closing price per share of IDX Common Stock on the five consecutive trading
days ending three business days before the Closing is less than $35.
If either IDX or EDiX terminates the Merger Agreement, the Merger Agreement
will become void and there will be no liability or obligation (with limited
exceptions) on the part of IDX, EDiX, Underwood Acquisition Corp. or their
respective officers, directors, shareholders or affiliates, except for expense
reimbursements and termination fees described below.
Except as described below, whether or not the merger is consummated, all fees,
costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
expenses. IDX and EDiX shall share equally all fees and expenses, other than
attorneys' fees, incurred in relation to the printing and filing of this Proxy
Statement/Prospectus.
In the event that EDiX breaches the agreement and IDX terminates, or if EDiX
has failed to receive the required EDiX stockholder approval of the merger,
then EDiX shall pay to IDX up to $75,000 as reimbursement for transaction
expenses relating to the merger.
If IDX breaches the agreement and EDiX terminates, or if IDX terminates because
the share price is below $35 on the five consecutive trading days ending three
days before the Closing, then IDX shall pay EDiX $1,500,000 in exchange for
750,000 shares of EDiX Series A-1 Preferred Stock and warrants to purchase
508,500 of EDiX Common Stock and shall pay to EDiX up to $75,000 as
reimbursement for transaction expenses relating to the merger.
Amendment and Waiver
Generally, the Boards of Directors of IDX and EDiX may amend the Merger
Agreement at any time. However, after the shareholders of EDiX approve the
merger, any amendment will be restricted by the Delaware General Corporation
Law. The Board of Directors of IDX and EDiX, may extend the time for
performance of the obligations or other acts of the other parties to the Merger
Agreement, may waive inaccuracies in the representations or warranties
contained in the Merger Agreement and may waive compliance with any agreements
or conditions contained in the Merger Agreement.
OTHER RELATED MATTERS
Escrow Agreement
Pursuant to the Merger Agreement, IDX will deposit in escrow with the Escrow
Agent a certificate representing the shares of IDX Common Stock for the purpose
of securing the indemnification obligations of the EDiX stockholders ("Escrow
Shares") pursuant to the Merger Agreement. The Escrow Shares will be issued in
the name of the Escrow Agent or its nominee.
During the term of the Escrow Agreement, the Escrow Shares will be voted by the
Escrow Agent on behalf of the EDiX stockholders in accordance with instructions
received by the Escrow Agent from a representative appointed by the
stockholders (the "Stockholder Representative"). Joel D. Liffmann is the
initial Stockholder Representative. In the absence of such instructions, the
Escrow Agent need not vote such shares.
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The escrow will terminate one year after the closing if IDX makes no claims for
indemnification except that IDX stock having a fair market value of $200,000
shall remain in escrow until the later of three years or the resolution of any
claims relating to any failure by EDiX to pay employment related claims.
Otherwise, the escrow will terminate when a decision is rendered by an
arbitrator about the disposition of the Escrow Shares.
Promptly following the termination of the escrow, the Escrow Agent will deliver
to IDX's stock transfer agent the number of shares remaining in escrow after
satisfying all obligations to deliver any shares to IDX pursuant to the Merger
Agreement. The transfer agent will then deliver the shares to the EDiX
stockholders entitled to receive them.
The Escrow Agent will hold any dividends paid on the shares and any other
property distributed with respect to the shares, for subsequent delivery to the
EDiX stockholders, on a pro rata basis, with their respective portions of the
Escrow Shares.
IDX and the EDiX stockholders shall each be liable for one-half of the fees and
expenses of the Escrow Agent.
Voting Agreements
In connection with the execution of the Merger Agreement, IDX entered into
Voting Agreements with Gerald E. Forth, Trustee, Fourth Declaration of Trust
DTD October 14, 1992, Thomas E. Testman, Kingsbury Capital Partners, L.P.,
Kingsbury Capital Partners, L.P. II, Timothy J. Wollager, Oracle Strategic
Partners L.P., Robert J. Erra, Galen Partners II, L.P., Galen Partners
International II, L.P., Galen Associates and Galen Employee Fund L.P. These
stockholders beneficially own approximately 91.1% of all of the issued and
outstanding shares of EDiX Common Stock and beneficially own of 79.1% all of
the issued and outstanding Series A-1 Preferred Stock of EDiX as of September
30, 1998. Pursuant to the Voting Agreements, each of these stockholders have
agreed to vote in favor of approval of the Merger Agreement and the merger and
have granted certain officers of IDX an irrevocable proxy to vote their shares
in favor of approval of the Merger Agreement and the merger.
Loan Agreement
IDX and EDiX entered into a Loan Agreement dated as of September 11, 1998 (the
"EDiX Loan Agreement") that provides that IDX will make a term loan to EDiX in
an amount up to $5,000,000 (the "EDiX Facility"). The initial advance from IDX
to EDiX under the EDiX Facility was $2,000,000. EDiX may request additional
advances no more often than every 30 days for a minimum of $700,000 and a
maximum of $1,200,000 per advance. IDX's obligation to make advances shall
terminate upon the occurrence of events that are specified in the EDiX Loan
Agreement including but not limited to liquidation, bankruptcy filings, the
termination or cessation of the employment of any officer of EDiX or the loss
of revenue from certain customers. At December 31, 1998, the outstanding
balance of loans under the EDiX Facility was $ .
Interest accrues on the outstanding principal balance of outstanding loans at
the rate of 14% per year. The total amount of principal, accrued interest and
any charges is due and payable in full on September 11, 2003 unless due earlier
upon acceleration or otherwise. EDiX's obligations under the EDiX Facility are
secured by a perfected security interest in all of EDiX's assets other than
real estate and other specified assets. The EDiX Facility is subordinated to
EDiX's prior payment and performance of its obligations to its senior secured
lender, Transamerica Business Credit Corporation. EDiX is generally prohibited
from repaying any borrowings from its shareholders while the loan is
outstanding except for scheduled payments pursuant to certain enumerated
subordinated promissory notes in the total principal amount of $1,000,000.
EDiX will be in default of the EDiX Loan Agreement upon the occurrence of the
specified events which include: (1) the making of false or misleading
statements in the EDiX Loan Agreement or financial statements; (2) default by
EDiX in its payment obligations; (3) default by EDiX in its non-payment
obligations that remain unremedied for a period of 30 days; (4) the
dissolution, termination of existence, merger or consolidation of EDiX or a
sale of EDiX's business or the collateral not in the ordinary course of
business; (5) filing by or
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against EDiX of a bankruptcy petition, or other enumerated insolvency
proceedings or events, subject to certain limitations; (6) the rendering of a
judgment for the payment of money against EDiX if the judgment remains
undischarged for a period of 30 days, or execution is not effectively stayed;
or (7) default by EDiX in its obligations in or under any material agreement
between EDiX and any other party, including but not limited to the Loan and
Security Agreement between EDiX and Transamerica Business Credit Corporation.
IDX and EDiX believe that the terms of the EDiX Loan Agreement are commercially
reasonable and were negotiated at arms' length. All monies borrowed by EDiX
under the Loan Agreement will remain a liability of EDiX after the merger, when
it will be a subsidiary of IDX.
ADDITIONAL INFORMATION CONCERNING IDX SYSTEMS CORPORATION
IDX is a leading provider of healthcare information solutions in the United
States. IDX offers healthcare information solutions that include software,
hardware, and related services required by physician groups, management
services organizations, health plans, hospitals and integrated delivery
networks. IDX solutions enable healthcare organizations to redesign patient
care and other workflow processes in order to improve efficiency and quality.
In July 1997, IDX acquired PHAMIS, a Seattle-based provider of patient-centered
acute care clinical information systems, including the LastWord system ("PHAMIS
Merger"). The LastWord system provides the depth of functionality required to
manage the complex acute care setting with special emphasis on the clinical
process. The PHAMIS Merger enhanced IDX's competitive status by positioning it
to deliver a complete information solution to healthcare delivery systems. The
solution is packaged as the IDXtend(R) @ the Site Series, where the Site
corresponds to settings across the care continuum: IDXtend(R) @ the Group
Practice, IDXtend(R) @ the MSO, IDXtend(R) @ the Health Plan, IDXtend(R) @ the
Hospital, and IDXtend(R) @ the IDN. The IDXtend(R) product line, which employs
relational, scaleable, client/server architecture, combines the strengths of
the IDX and LastWord applications to provide both ambulatory and hospital
capabilities.
As of June 30, 1998, IDX systems were used by, or were under contract to be
used by, more than 96,000 physicians, and were installed at over 1600 client
sites, including approximately 230 large physician group practices (generally
with more than 75 physicians), more than 550 physician practices having 75 or
fewer physicians, over 260 hospitals and a growing number of integrated
delivery networks.
IDX was incorporated in Vermont on June 2, 1969. IDX's executive offices are
located at 1400 Shelburne Road, South Burlington, Vermont 05403, and its
telephone number is (802) 862-1022.
ADDITIONAL INFORMATION CONCERNING EDiX CORPORATION
Introduction
EDiX provides electronic medical transcription services to the healthcare
services industry. Through its centralized processing model, the enabling
technology of its proprietary Transcription Work Station System ("TWS System")
and a national pool of medical transcriptionists, EDiX converts dictation by
medical professionals into electronically formatted patient records used for
decision support, compliance, referral, reimbursement and other documentation
purposes. EDiX has a pool of approximately 750 medical transcriptionists (as of
September 30, 1998) with a cumulative expertise covering nearly every
specialization in medicine.
EDiX processed an estimated three million patient reports in 1997, representing
revenue of approximately $20.6 million, on behalf of approximately 130
customers with a total of approximately 30,000 associated physicians and other
healthcare providers. Approximately 35% of EDiX revenues in 1997 were generated
by customers using the TWS system. EDiX expects this percentage to increase to
approximately 65% of revenues by the end of 1998.
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EDiX uses automated electronic processing to reduce the overall turnaround time
for processing transcription assign ments. EDiX's system automatically assigns
transcription jobs to specific medical transcriptionists based upon their
expertise and availability. EDiX employs Quality Transcriptionists to perform
quality control functions and lower salaried clerks to track down and finalize
missing patient admission, discharge and transfer demographic data.
EDiX processes workflow through a central processing location to better control
the speed and quality of services. Advanced telephony applications enable EDiX
to store dictated voice messages on its network and to compress the messages
for voice message streaming transmission, reducing open telephone line time and
eliminating pause time.
Workflow processing management tools provided by the EDiX Management System
should enable EDiX's network operations staff to monitor activity continuously
and make real-time adjustments to work flows as needed.
EDiX's proprietary Electronic Tracking System enables customers to make
inquiries regarding the status of transcription jobs (much like tracking a
package sent via air courier) and track them through the process.
Development of EDiX
The founders of EDiX originally sought to create a business and achieve growth
through an acquisition roll-up strategy, which would then be followed by the
conversion of the acquired systems over to a common technology to be developed.
EDiX commenced operations in 1994 with the acquisition of RecordPlus, a medical
transcription outsource business located in San Diego which was then in the
early stages of developing a centralized, automated process model in keeping
with the operating philosophy of EDiX's founders. EDiX acquired Medical
Transcribers, Inc. ("MTI") in 1996 and Health Information Associates, L.L.C.
("HIA"), Rocky Mountain Transcription ("RMT") and Computerized Patient Record
Systems ("CPRS") in 1997. These acquisitions further added to the management
depth of the business and expanded EDiX's revenue base.
In September 1997, a new management team was brought in to effect the
strategic, operational and financial changes necessary to transition EDiX from
a technology-oriented firm to a marketing-driven company and to attain
profitability and growth of the business. EDiX has since been restructured to a
functional organization with a focus on customer service. Overhead expenses
have been reduced through selective lay-offs and other cost reduction measures.
EDiX Operations
Technology Architecture. EDiX's TWS System is based on an open architecture
platform which can be divided into three domains:
. the Customer Site, consisting of the Customer Interface System and
Dictation Collection Unit servers installed on the premises of the customers'
locations;
. the Hub Center in Clearwater, Florida, consisting of the main EDiX
collection units and servers;
. the Transcription Workplace, consisting of the network of units primarily
located in the private homes of medical transcriptionists, at EDiX's San Diego
and Clearwater offices and in some cases at the customers' sites.
Non-Network Operations. In addition to EDiX's system, EDiX is servicing certain
customers using the systems obtained by EDiX through acquisitions. These "non-
network operations" are independent, stand-alone systems that do not interface
with the TWS central hub network. At some of these accounts, EDiX is handling
only overflow work currently. As a group, non-network operations represent
approximately $12.0
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million in annualized revenue (as of September 30, 1998) and are currently
operating at or near breakeven before allocation of selling, general and
administrative expenses. Although revenue from non-network operations amounted
to approximately 65% of total revenue in 1997, EDiX expects such revenue to
constitute less than 35% of total revenue by the end of 1998.
Sales and Marketing. EDiX's sales force consists of direct sales
representatives. The sales representatives have responsibility for sales
activity on a regional basis, supported by corporate marketing, and are
compensated based on a commissions related to the revenue generated by each
account.
Selling Cycle and Implementation. The selling process generally requires a
three month period from initial contact to signing of contract and typically
involves different levels of decision influencers and decision makers,
including the customer's health information manager, chief information officer
and chief financial officer. Once a contract has been signed, an EDiX Project
Implementation team assesses the customer's transcription requirements and
resident computer capabilities, installs the necessary hardware and establishes
the necessary telephone system interfaces with EDiX's network. The installation
process typically requires less than a month to complete. The hardware is
provided as part of the service contract in order to relieve the customer of
having to make a decision about a capital expenditure which might interfere
with its decision about outsourcing the operation.
Contracts. The average contract is written for a three year period. Pricing of
a contract may be based on any one of a variety of pricing structures. An
increasingly prevalent structure is based on the number of lines of text
transcribed (as defined by the American Association for Medical Transcription,
which has been working on the development of an acceptable industry standard).
Customers. As of September 30, 1998, EDiX serviced approximately 130 clients
under approximately 100 contracts. EDiX's sales effort is focused almost
exclusively on full outsourcing opportunities for the TWS System for either a
hospital department, an entire facility, a physician group practice, a provider
system or an integrated delivery system. In certain cases, EDiX will agree to
take on an overflow contract if EDiX believes such an entry may develop into a
full outsourcing arrangement.
Employees. As of September 30, 1998, EDiX had 885 full-time and part-time
employees, including approximately 750 employees primarily involved in medical
transcription, 13 in marketing and sales, 18 in finance and administration, 13
in research and development and 100 in operations.
Facilities. The location of EDiX's corporate headquarters is 4250 Executive
Square, Suite 850, La Jolla, California, 92037. This facility is approximately
4,600 square feet in size and houses EDiX's executive offices. EDiX's Central
Hub is housed in a facility of approximately 10,000 square feet located in
Clearwater, Florida. In addition, EDiX leases small field offices for its
regional operations.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview. EDiX provides electronic medical transcription services to the
healthcare services industry. EDiX commenced operations in 1994 with the
acquisition of RecordPlus, a medical transcription outsource business in San
Diego. EDiX acquired Medical Transcriber, Inc. ("MTI") in 1996 and Health
Information Associates L.L.C. ("HIA"), Rocky Mountain Transcription ("RMT") and
Computerized Patient Record Systems ("CPRS") in 1997.
Nine Months Ended September 30, 1998 and 1997
Revenues. EDiX's total revenues increased to $20.4 million for the nine months
ended September 30, 1998 from $15.0 million for the same period in 1997, an
increase of $5.4 million or 36.0%. The increase was primarily due to additional
revenues from new transcription contracts of $4.9 million and additional
revenues of $30.5 million related to EDiX's acquisitions of three companies
(HIA, RMT and CPRS) during 1997.
44
<PAGE>
Cost of Sales. The cost of sales and services increased to $20.6 million for
the nine months ended September 30, 1998 from $15.7 million for the same period
in 1997, an increase of $4.9 million or 31.2%. The increase was primarily due
to higher payroll and benefits costs for medical transcriptionists and other
operations personnel due to higher revenue levels. The profit margin improved
to -1.0% for the nine months ended September 30, 1998 from -4.7% for the same
period in 1997. The improvement in the profit margin was primarily due to an
increase in the percentage of revenues from customers converted from acquired
systems to the higher margin TWS System platform.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $3.8 million for the nine months ended
September 30, 1998 from $4.3 million for the same period in 1997. As a
percentage of total revenues, selling, general and administrative expenses
decreased to 18.6% for the nine months ended September 30, 1998 from 28.7% for
the same period in 1997. The decrease in expense is primarily due to increased
efficiencies and reduced overhead resulting from the consolidation of general
and administrative functions.
Development and Technical Support Expenses. Development and technical support
expenses increased to $2.7 million for the nine months ended September 30, 1998
from $2.4 million for the same period in 1997, an increase of $.3 million or
12.5%. As a percentage of total revenues, development and technical support
expenses decreased to 13.2% for the nine months ended September 30, 1998 from
16.0% for the same period in 1997. The increase in expense was primarily due to
higher technical support staffing levels necessitated by an increase in
implementations of the TWS System platform.
Years Ended December 31, 1997 and 1996
Revenues. EDiX's total revenue increased to $20.6 million in 1997 from $8.2
million in 1996, an increase of $12.4 million or 151.2%. The increase was
primarily due to additional revenues resulting from the acquisition of MTI in
September 1996 and the acquisitions of three companies during 1997.
Cost of Sales. The cost of sales and services increased to $22.0 million in
1997 from $9.9 million in 1996, an increase of $12.1 million or 122.2%. The
increase was due to higher payroll and benefits costs for medical
transcriptionists and other operations personnel due to higher revenue levels
as well as higher overhead costs from additional facilities obtained in
acquisitions during 1997. The profit margin improved to -6.8% in 1997 from -
20.7% in 1996. The increase in profit margin was primarily due to the higher
gross profit on acquisition-related revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $6.0 million in 1997 from $4.1 million in
1996, an increase of $1.9 million or 46.3%. As a percentage of total revenues,
selling, general and administrative expenses decreased to 29.1% in 1997 from
50.0% in 1996. The increase in expense was primarily due to the acquisition of
three companies during 1997.
Development and Technical Support Expenses. Development and technical support
expenses increased to $3.3 million in 1997 from $2.7 million in 1996, an
increase of $0.6 million or 22.2%. As a percentage of total revenues,
development and technical support expenses decreased to 16.0% in 1997 from
32.9% in 1996. The increase in development and technical support expenses was
primarily due to higher technical support staffing levels necessitated by an
increase in TWS System implementations.
Write-off of Goodwill and Acquired Intangibles. EDiX wrote-off goodwill and
acquired intangibles of $4.8 million in 1997. The goodwill and acquired
intangibles were related to the acquisitions of the three companies and
primarily represented the value of the customer lists acquired. EDiX incurred
significant operating losses in 1996 and 1997 and the estimated future cash
flows were negative. At the time of the acquisition, it was management's
intention to convert the acquired customers to EDiX's proprietary technology.
During 1997 EDiX determined that the likelihood of converting these customers
was small and therefore, EDiX concluded that the carrying value of these
intangibles was significantly impaired.
45
<PAGE>
Years Ended December 31, 1996 and 1995
Revenues. EDiX's total revenue increased to $8.2 million in 1996 from $5.9
million in 1995, an increase of $2.3 million or 39.0%. The increase was
primarily due to additional revenues from new transcription contracts signed
during 1996 and additional revenues related to the acquisition of MTI in
September 1996.
Cost of Sales. The cost of sales and services increased to $9.9 million in 1996
from $4.9 million in 1995, an increase of $5.0 million or 102.0%. The gross
profit margin declined to -20.7% in 1996 from 16.9% in 1995. The decrease in
gross profit was primarily due to additional costs resulting from the
introduction and implementation of EDiX's TWS System platform and cost
inefficiencies related to the integration of MTI.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $4.1 million in 1996 from $3.6 million in
1995, an increase of $0.5 million or 13.9%. As a percentage of total revenues,
selling, general and administrative expenses decreased to 50.0% in 1996 from
61.0% in 1995. This percentage decrease was largely due to the consolidation of
general and administrative functions and the elimination of redundant overhead
costs following the acquisition of MTI.
Development and Technical Support Expenses. Development and technical support
expenses increased to $2.7 million in 1996 from $1.0 million in 1995, an
increase of $1.7 million or 170.0%. As a percentage of total revenues,
development and technical support expenses increased to 33.0% in 1996 from
16.9% in 1995. The increase in expense was due to the hiring of additional
staff to support the development of the TWS System platform.
Liquidity and Capital Resources
Since its inception in 1994, EDiX has funded its operations, working capital
needs and capital expenditures primarily through venture capital financing,
debt and equity private placements and asset-based lines of credit. Cash flows
related to operating activities are principally comprised of net loss and
depreciation and are also affected by the change in accounts receivable,
accounts payable and accrued expenses. In general, accounts receivable from
customers have been collected within 60 days.
Cash flows related to investing activities have principally been related to the
purchase of computers and office equipment. Investing activities also include
purchases of interests in and acquisitions of similar businesses. Computer and
equipment purchases have been principally financed through a $7.0 million
equipment line of credit with a bank. At September 30, 1998, the equipment line
of credit had an outstanding balance of $3.8 million.
Cash, cash equivalents and marketable securities at September 30, 1998 were
$22,000, a decrease of $658,000 from December 31, 1997. The decrease resulted
from the use of cash for operating activities and the timing of financing
activities. EDiX has a $2.5 million accounts receivable line of credit with a
bank. At September 30, 1998, the accounts receivable line of credit had a
balance of $2.5 million. EDiX believes that based on current account balances,
EDiX will need to obtain additional debt and equity financings by the second
quarter of 1999 to continue operations.
EDiX owes entities affiliated with three of its directors an aggregate of $1.0
million in principal amount under one year subordinated promissory notes
entered into on June 29, 1997. These notes bear interest at 12% per year. In
addition, EDiX entered into a Loan Agreement with IDX that provides for
borrowings of up to $5,000,000 at 14% interest per year. As of September 30,
1998, the outstanding principal balance under the Loan Agreement was
approximately $2.0 million. EDiX believes that its existing resources and
credit facilities and revenues from operations will enable it to continue
operations through , 1999.
46
<PAGE>
Security Ownership of Directors, Executive Officers and Principal Stockholders
of EDiX
The following table sets forth, as of November 1, 1998, the security ownership
of the directors, executive officers and principal stockholders of EDiX.
<TABLE>
<CAPTION>
Number of Shares Percentage
Name and Address Beneficially Ownership of
Beneficial Owner (1) Owned (2) Class (3)
- -------------------- ---------------- ------------
<S> <C> <C>
Common Stock
Timothy J. Wollaeger (4)........................ 859,552 9.7%
Robert Erra (5)................................. 3,055 *
Gerald E. Forth................................. 43,233 *
David Jahns (6)................................. 3,377,044 38.3%
Joel D. Liffmann (7)............................ 3,750,000 42.5%
Thomas Testman (8).............................. 3,075 *
All directors and executive officers (10
persons) (8)................................... 8,043,709 91.2%
Series A-1 Preferred Stock
Timothy J. Wollaeger (4)........................ 250,000 26.1%
Robert Erra..................................... -- *
Gerald E. Forth................................. 7,500 *
David Jahns (6)................................. 250,000 26.1%
Joel D. Liffmann (7)............................ 250,000 26.1%
Thomas Testman.................................. -- *
R & M Med-Tech Investors........................ 62,500 6.5%
All directors and executive officers (10
persons)....................................... 757,500 79.1%
</TABLE>
- --------
* Less than one percent.
(1) Each person's address is in care of EDiX Corporation, 4250 Executive
Square, Suite 850, La Jolla, California 92037.
(2) To the knowledge of EDiX, the persons named in the table have sole voting
and investment power with respect to all shares of EDiX stock shown as
beneficially owned by them, subject to community property laws where applicable
and the information contained in the footnotes to the table. Beneficial
ownership is determined in accordance with the rules of the SEC. Shares of
Common Stock subject to options and warrants currently exercisable or
exercisable within sixty days from the date of this table are deemed
outstanding when determining the number of shares and percentage ownership by
the person holding such options and warrants.
(3) Percentage ownership is based on 8,817,318 shares of EDiX Common Stock
outstanding and 957,853 shares of EDiX Series A-1 Preferred Stock outstanding.
(4) This amount includes 172,262 shares of Common Stock and 100,000 shares of
Series A-1 Preferred Stock held by Kingsbury Capital Partners, L.P., and
686,572 shares of Common Stock, 718 warrants for Common Stock, and 150,000
shares of Series A-1 Preferred Stock held by Kingsbury Capital Partners, L.P.
II. Mr. Wollaeger is the general partner of the general partner of these
partnerships with sole voting and sole investment power.
(5) This amount includes 1,523 shares of EDiX Common Stock issuable pursuant to
an option exercisable or expected to become exercisable within 60 days of the
date of this table.
(6) This amount includes 2,429,510 shares of Common Stock, 2,587 warrants for
Common Stock, and 180,035 shares of Series A-1 Preferred Stock held by Galen
Partners II, L.P., 929,415 shares of Common Stock, 989 warrants for Common
Stock, and 68,883 shares of Series A-1 Preferred Stock held by Galen Partners
International II, L.P., and 14,528 shares of Common Stock, 15 warrants for
Common Stock, and
47
<PAGE>
21,628 shares of Series A-1 Preferred Stock held by Galen Employee Fund, L.P.
Mr. Jahns is an associate of these firms with shared voting and shared
investment power.
(7) This amount includes 3,750,000 shares of Common Stock and 250,000 shares of
Series A-1 Preferred Stock held by Oracle Strategic Partners L.P. Mr. Liffmann
is a general partner of this firm with shared voting and shared investment
power.
(8) This amount includes 594 shares of EDiX Common Stock issuable pursuant to
an option exercisable or expected to become exercisable within 60 days of the
date of this table.
Stock Options
As of September 30, 1998 EDiX had outstanding options to purchase an aggregate
of 1,633,290 shares of its Common Stock at exercise prices ranging from $0.20
to $11.00 per share, or a weighted average exercise price per share of $0.58.
Of these outstanding options, as of September 30, 1998, 1,036,867 were held by
officers, directors or their affiliates.
48
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
assume a business combination between IDX and EDiX accounted for on a pooling
of interests basis and are based on the respective historical consolidated
financial statements and the notes thereto of IDX and EDiX. Historical
financial statements of IDX are incorporated by reference. The historical
financial statements of EDiX for the years ended December 31, 1995, 1996 and
1997 are included herein. The pro forma combined condensed balance sheet
combines IDX's September 30, 1998 unaudited consolidated balance sheet with
EDiXs' September 30, 1998 unaudited consolidated balance sheet. The pro forma
statements of income (loss) combine IDX's historical operating results for the
nine months ended September 30, 1998 and 1997 and the years ended December 31,
1997, 1996 and 1995 with the corresponding EDiX operating results.
IDX expects to incur merger-related pre-tax charges covering the costs of the
merger, the costs of restructuring the combined operations and for other
related costs principally in the quarter in which the merger is consummated.
Such pre-tax charges, which are currently estimated to be in the range of $3.8
and $4.3 million, will include: (1) the direct costs of the merger including
fees to financial advisors, legal counsel and independent auditors; (2) the
costs of integrating the operations of IDX and EDiX; (3) the elimination of
overlapping operations; and (4) other related items. The estimated charge is
subject to change as IDX's plan of integration is developed and more accurate
estimates become available. Moreover, additional unanticipated expenses may be
incurred in connection with the integration of the business of IDX and EDiX.
The unaudited pro forma combined condensed financial statements are presented
for illustrative purposes only and are not necessarily indicative of the
operating results or financial position that would have been achieved if the
merger had been consummated as of the beginning of the periods presented, nor
are they necessarily indicative of future operating results or financial
position of IDX. No material pro forma adjustments are required to conform the
financial reporting policies of IDX and EDiX for the periods presented.
However, on a prospective basis IDX will review the accounting practices of
EDiX to ensure consistency with those of IDX. The pro forma combined condensed
financial information does not give effect to any cost savings which may result
from the integration of IDX and EDiX operations, nor are any tax benefits that
may result from the operating losses of EDiX reflected. The tax provision is
based on the effective tax rates historically recorded by IDX.
The pro forma combined condensed financial statements are based on, and should
be read in conjunction with, the historical financial statements and the
related notes thereto of IDX and EDiX incorporated by reference or presented in
this Proxy Statement/Prospectus. See "Where You Can Find More Information" and
"Incorporation of Certain Documents by Reference."
49
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
As of September 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
----------------------
IDX EDiX Adjustments Combined
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
- ------
Current assets
Cash and cash equivalents.......... $128,463 $ 22 -- $128,485
Accounts receivable, net........... 80,873 3,583 -- 84,456
Other current assets............... 12,414 341 -- 12,755
-------- ------- ------- --------
Total current assets............. 221,750 3,946 -- 225,696
Property and equipment, net.......... 30,559 4,445 -- 35,004
Capitalized software costs, net...... 738 -- -- 738
Other assets......................... 15,325 29 $(2,016)(1) 13,338
-------- ------- ------- --------
Total assets..................... $268,372 $ 8,420 $(2,016) $274,776
======== ======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Line of credit..................... -- $ 2,532 -- $ 2,532
Accounts payable and accrued
expenses.......................... $ 34,266 1,578 $ 2,100 (2) 37,944
Deferred revenue................... 17,884 1,779 -- 19,663
Current portion of long term debt
and capital lease obligations..... -- 2,551 -- 2,551
-------- ------- ------- --------
Total current liabilities........ 52,150 8,440 2,100 62,690
Long term debt and capital lease
obligations less current portion.... -- 4,290 (2,016)(1) 2,274
Minority interest.................... 8,720 -- -- 8,720
Shareholders' equity................. 207,502 (4,310) (2,100)(2) 201,092
-------- ------- ------- --------
Total liabilities and
shareholders' equity............ $268,372 $ 8,420 $(2,016) $274,776
======== ======= ======= ========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
50
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
IDX EDiX Combined(3)
-------- ------- -----------
<S> <C> <C> <C>
Systems sales.................................. $129,363 -- $129,363
Maintenance and service fees................... 106,096 $20,449 126,545
-------- ------- --------
Total revenues............................. 235,459 20,449 255,908
Cost of sales.................................. 120,060 20,578 140,638
Selling, general and administrative............ 44,737 3,821 48,558
Research and development....................... 34,498 2,712 37,210
Write-off of acquired research and development
costs......................................... 3,201 -- 3,201
-------- ------- --------
Total operating expenses................... 202,496 27,111 229,607
-------- ------- --------
Operating income (loss)........................ 32,963 (6,662) 26,301
Other (income) expense, net.................... (4,000) 747 (3,253)
-------- ------- --------
Income (loss) before income taxes.............. 36,963 (7,409) 29,554
Provision for income taxes..................... 15,990 -- 15,990
-------- ------- --------
Net income (loss).......................... $ 20,973 $(7,409) $ 13,564
======== ======= ========
Net income (loss) per share:
Basic........................................ $ 0.80 $ (0.97) $ 0.51
Diluted...................................... $ 0.77 $ (0.97) $ 0.49
Weighted average shares outstanding:
Basic........................................ 26,292 7,658 26,772
Diluted...................................... 27,155 7,658 27,635
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
51
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
IDX EDiX Combined(3)
-------- -------- -----------
<S> <C> <C> <C>
Systems sales................................. $134,499 -- $134,499
Maintenance and service fees.................. 116,918 $ 20,590 137,508
-------- -------- --------
Total revenues............................ 251,417 20,590 272,007
Cost of sales................................. 130,424 21,995 152,419
Selling, general and administrative........... 51,747 6,000 57,747
Research and development...................... 36,312 3,267 39,579
Write-off of goodwill and acquired
intangibles.................................. -- 4,831 4,831
Write-off of acquired research and development
costs........................................ 2,290 -- 2,290
Merger and related costs...................... 20,030 -- 20,030
-------- -------- --------
Total operating expenses.................. 240,803 36,093 276,896
-------- -------- --------
Operating income (loss)....................... 10,614 (15,503) (4,889)
Other (income) expense, net................... (5,586) 441 (5,145)
-------- -------- --------
Income (loss) before income taxes............. 16,200 (15,944) 256
Provision for income taxes.................... 8,238 -- 8,238
-------- -------- --------
Net income (loss)......................... $ 7,962 $(15,944) $ (7,982)
======== ======== ========
Net income (loss) per share:
Basic....................................... $ 0.31 $ (7.00) $ (0.30)
Diluted..................................... $ 0.30 $ (7.00) $ (0.30)
Weighted average shares outstanding:
Basic....................................... 25,672 2,279 26,909
Diluted..................................... 26,447 2,279 26,909
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
52
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
IDX EDiX Combined(3)
-------- ------- -----------
<S> <C> <C> <C>
Systems sales.................................... $110,495 -- $110,495
Maintenance and service fees..................... 96,384 $ 8,237 104,621
-------- ------- --------
Total revenues............................... 206,879 8,237 215,116
Cost of sales.................................... 108,264 9,911 118,175
Selling, general and administrative.............. 45,929 4,051 49,980
Research and development......................... 29,768 2,653 32,421
Merger and related costs......................... 292 -- 292
-------- ------- --------
Total operating expenses..................... 184,253 16,815 200,868
-------- ------- --------
Operating income (loss).......................... 22,626 (8,378) 14,248
Other (income) expense, net...................... (4,882) 72 (4,810)
-------- ------- --------
Income (loss) before income taxes................ 27,508 (8,450) 19,058
Provision for income taxes....................... 10,848 -- 10,848
-------- ------- --------
Net income (loss).............................. $ 16,660 $(8,450) $ 8,210
======== ======= ========
Net income (loss) per share:
Basic.......................................... $ 0.66 $ (3.94) $ 0.32
Diluted........................................ $ 0.64 $ (3.94) $ 0.31
Weighted average shares outstanding:
Basic.......................................... 25,146 2,143 25,599
Diluted........................................ 26,047 2,143 26,527
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
53
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
IDX(2) EDiX Combined(3)
-------- ------- -----------
<S> <C> <C> <C>
Systems sales.................................. $ 98,029 -- $ 98,029
Maintenance and service fees................... 83,560 $15,011 98,571
-------- ------- --------
Total revenues............................... 181,589 15,011 196,600
Cost of sales.................................. 94,637 15,726 110,363
Selling, general and administrative............ 37,847 4,268 42,115
Research and development....................... 26,356 2,401 28,757
Write-off of acquired research and development
costs......................................... 2,290 -- 2,290
Merger and related costs....................... 20,030 -- 20,030
-------- ------- --------
Total operating expenses..................... 181,160 22,395 203,555
-------- ------- --------
Operating income (loss)........................ 429 (7,384) (6,955)
Other (income) expense, net.................... (4,154) 346 (3,808)
-------- ------- --------
Income (loss) before income taxes.............. 4,583 (7,730) (3,147)
Provision for income taxes..................... 3,566 -- 3,566
-------- ------- --------
Net income (loss)............................ $ 1,017 $(7,730) $ (6,713)
======== ======= ========
Net income (loss) per share:
Basic........................................ $ 0.04 $ (3.34) $ (0.26)
Diluted...................................... $ 0.04 $ (3.34) $ (0.26)
Weighted average shares outstanding:
Basic........................................ 25,607 2,315 26,067
Diluted...................................... 26,407 2,315 26,067
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
54
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
IDX EDiX Combined(3)
-------- ------- -----------
<S> <C> <C> <C>
Systems sales.................................... $ 94,163 -- $ 94,163
Maintenance and service fees..................... 81,122 $ 5,857 86,979
-------- ------- --------
Total revenues................................. 175,285 5,857 181,142
Cost of sales.................................... 96,750 4,911 101,661
Selling, general and administrative.............. 36,072 3,646 39,718
Research and development......................... 23,425 1,046 24,471
-------- ------- --------
Total operating expenses....................... 156,247 9,603 165,850
-------- ------- --------
Operating income (loss).......................... 19,038 (3,746) 15,292
Other (income) expense, net...................... (2,865) (12) (2,877)
-------- ------- --------
Income (loss) before income taxes................ 21,903 (3,734) 18,169
Provision for income taxes 7,988 -- 7,988
-------- ------- --------
Net income (loss).............................. $ 13,915 $(3,734) $ 10,181
======== ======= ========
Net income per share:
Basic.......................................... $ 0.73 $ (1.73) $ 0.52
Diluted........................................ $ 0.63 $ (1.73) $ 0.45
Weighted average shares outstanding:
Basic.......................................... 19,135 2,153 19,615
Diluted........................................ 22,158 2,153 22,638
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
55
<PAGE>
Notes To Unaudited Pro Forma Combined Condensed Financial Statements
NOTE 1.
IDX and EDiX entered a loan agreement on December 31, 1998 whereby IDX will
lend up to $5.0 million to EDiX on market terms. As of September 30, 1998 the
loan balance including accrued interest was approximately $ million and is
eliminated in the combined condensed balance sheet.
NOTE 2.
The pro forma adjustment to accrued expenses represents certain direct merger-
related charges, for which no tax benefit is available, that are expected to be
incurred by IDX. Included are the direct costs of the merger including fees to
financial advisors, legal counsel and independent auditors.
NOTE 3.
On September 11, 1998 IDX and EDiX jointly announced the signing of the Merger
Agreement. Under its terms, IDX will issue approximately $19.2 million worth of
its Common Stock for the outstanding Common Stock, warrants and market value
equivalent of stock options of EDiX outstanding immediately prior to the time
of the merger of the merger. The merger is subject to the approval of the
stockholders of EDiX. The merger is intended to be a tax-free stock-for-stock
transaction and is intended to be accounted for as a pooling of interests.
The terms of the Merger Agreement allow the number of shares of Common Stock to
be issued by IDX to be based upon the market value, as defined, of shares of
IDX Common Stock as of the time of the merger as more fully described in the
Merger Agreement. The number of shares to be issued, subject to certain
adjustments, is expected to be between 415,000 and 498,000. The per share
values in the pro forma combined condensed statement of income assumes 480,000
shares of Common Stock are issued by IDX.
NOTE 4.
The provision for income taxes and net income (loss) amounts for the year ended
December 31, 1995 represent the Pro Forma amounts assuming IDX was a C
corporation.
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DESCRIPTION OF IDX CAPITAL STOCK
IDX's authorized capital stock consists of 100,000,000 shares of IDX Common
Stock, $.01 par value per share, and 5,000,000 shares of Preferred Stock, $.01
par value per share.
Common Stock
As of September 30, 1998 there were approximately 26,489,767 shares of IDX
Common Stock outstanding, held of record by approximately 194 record
shareholders. Holders of IDX Common Stock are entitled to one vote for each
share held on all matters submitted to a vote of shareholders and do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
IDX Common Stock entitled to vote in any election of directors may elect all of
the directors standing for election. Holders of IDX Common Stock are entitled
to receive ratably such dividends, if any, as may be declared by the IDX Board
out of funds legally available. Upon the liquidation, dissolution or winding up
of IDX, the holders of IDX Common Stock are entitled to receive ratably the net
assets of IDX available after the payment of all debts and other liabilities.
Holders of IDX Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of IDX Common Stock are fully paid
and nonassessable. The rights, preferences and privileges of holders of IDX
Common Stock are subject to the rights of the holders of shares of any series
of Preferred Stock which IDX may issue in the future.
On November 1, 1995, IDX terminated its status as an S corporation under the
Code. On October 13, 1995, IDX declared a dividend (the "S Corporation
Distribution") to shareholders of record as of October 16, 1995 in an amount
equal to IDX's undistributed S corporation earnings from July 1, 1987 through
October 31, 1995. The S Corporation Distribution was calculated in two parts:
(1) $35.1 million, representing the approximate amount of undistributed S
corporation earnings from July 1, 1987 through September 30, 1995, and (2) $1.6
million, representing the approximate amount of undistributed S corporation
earnings from October 1, 1995 through October 31, 1995. These amounts were paid
on November 24, 1995 and December 20, 1995, respectively. See also "Selected
Historical and Unaudited Pro Forma Consolidated Financial Information." In
connection with a December 22, 1986 agreement among IDX and its existing
shareholders at that time (the "Shareholders Agreement"), IDX has made periodic
distributions to its shareholders in amounts approximately equal to the
shareholders' corresponding tax liabilities associated with IDX's S corporation
earnings. The Shareholders Agreement terminated in November 1995. In 1995, IDX
made distributions to existing shareholders of approximately $2.0 million, of
which approximately $0.3 million was distributed in connection with their 1995
income tax liabilities and approximately $1.7 million was distributed in
connection with Internal Revenue Service and state income tax audits through
the June 1993 tax period. IDX intends to retain earnings for use in the
operation and expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future. Restrictions or limitations on the payment
of dividends may be imposed in the future under the terms of credit agreements
or other contractual provisions. In the absence of such limitations, the
payment of any dividends will be at the discretion of the IDX Board.
Preferred Stock
Pursuant to the IDX Articles, the IDX Board has the authority to issue
5,000,000 shares of Preferred Stock, $.01 par value (the "IDX Preferred
Stock"). The Board has the power to determine, in whole or in part, the
designations, preferences, limitations and relative rights of any class of
shares, including the IDX Preferred Stock, before the issuance of any shares of
that class or one or more series within a class before the issuance of any
shares of that series. The issuance of IDX Preferred Stock in certain
circumstances may have the effect of delaying, deterring or preventing a change
in control of IDX, may discourage bids for IDX's Common Stock at a premium over
the market price of the IDX Common Stock and may adversely affect the market
price of, and the voting and other rights of the holders of, the IDX Common
Stock. As of September 30, 1998, there were no shares of IDX Preferred Stock
outstanding. IDX has no present plans to issue any shares of IDX Preferred
Stock.
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Vermont Law and Certain Charter Provisions
IDX Articles and Bylaws contain provisions to eliminate the personal liability
of its directors for monetary damages resulting from breaches of their
fiduciary duty to the extent permitted by the VBCA and to indemnify its
directors and officers to the fullest extent permitted by the VBCA, including
under circumstances in which indemnification is otherwise discretionary. IDX
believes that these provisions are necessary to attract and retain qualified
persons as directors and officers.
Transfer Agent
The transfer agent for the IDX Common Stock is State Street Bank and Trust
Company c/o Boston EquiServe Limited Partnership.
APPRAISAL RIGHTS
Rights of Dissenting Stockholders
Certain Holders of EDiX Stock Are Entitled to Appraisal Rights with Respect to
the Merger. If the merger is consummated, a holder of record of EDiX stock on
the date of making a demand for appraisal, as described below, will be entitled
to have those shares appraised by the Delaware Court of Chancery under Section
262 and to receive payment for the "fair value" of these shares in lieu of the
consideration provided for in the Merger Agreement. If such stockholder (1)
continues to hold those shares through the time of the merger; (2) strictly
complies with the procedures set forth under Section 262 of the DGCL; and (3)
has not voted in favor of the merger. This Proxy Statement/Prospectus is being
sent to all holders of record of EDiX stock on the record date for the EDiX
Special Meeting and constitutes notice of the appraisal rights available to
those holders under Section 262. The statutory right of appraisal granted by
Section 262 requires strict compliance with the procedures set forth in Section
262. Failure to follow any of such procedures may result in a termination or
waiver of dissenters' rights under Section 262. The following is a summary of
the principal provisions of Section 262. The following summary does not purport
to be a complete statement of Section 262 of the DGCL, and is qualified in its
entirety by reference to Section 262 which is incorporated herein by reference,
together with any amendments to the laws that may be adopted after the date of
this Proxy Statement/Prospectus. A copy of Section 262 is attached as Annex C
to this Proxy Statement/Prospectus.
A holder of EDiX stock electing to exercise appraisal rights under Section 262
must deliver a written demand for appraisal of such stockholder's shares of
EDiX prior to the vote on the merger. The written demand must identify the
stockholder of record and state the stockholder's intention to demand appraisal
of his or her shares. All demands should be delivered to EDiX, Attention:
Secretary, 4230 Executive Square, Suite 850, La Jolla, California 92037,
telephone: (619) 646-7066.
Only a holder of shares of EDiX stock on the date of making a written demand
for appraisal who continuously holds those shares through the time of the
merger is entitled to seek appraisal. Demand for appraisal must be executed by
or for the holder of record, fully and correctly, as that holder's name appears
on the holder's stock certificates representing shares of EDiX stock. If EDiX
stock is owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, the demand should be made in that capacity, and if EDiX
Stock is owned of record or more than one person, as in a joint tenancy or
tenancy in common, the demand should be made by or for all owners of record. An
authorized agent, including one or more joint owners, may execute the demand
for appraisal for a holder of record; that agent, however, must identify the
record owner or owners and expressly disclose in the demand that the agent is
acting as agent for the record owner or owners of the shares.
A record holder such as a broker who holds shares of EDiX stock as a nominee
for beneficial owners, some of whom desire to demand appraisal, must exercise
appraisal rights on behalf of those beneficial owners with respect to the
shares of EDiX stock, held for those beneficial owners. In that case, the
written demand for appraisal should set forth the number of shares of EDiX
stock covered by it. Unless a demand for appraisal
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specifies a number of shares, the demand will be presumed to cover all shares
of EDiX stock held in the name of the record owner.
Beneficial Owners Who Are Not Record Owners and Who Intend to Exercise
Appraisal Rights Should Instruct the Record Owner to Comply with the Statutory
Requirements with Respect to the Exercise of Appraisal Rights Before the Date
of the EDiX Special Meeting.
Within 10 days after the time of the merger, the Surviving Corporation is
required to send notice of the effectiveness of the merger to each stockholder
who prior to the time of the merger complies with the requirements of Section
262.
Within 120 days after the time of the merger, the Surviving Corporation or any
stockholder who has complied with the requirements of Section 262 may file a
petition in the Delaware Court of Chancery demanding a determination of the
fair value of the shares of EDiX stock held by all stockholders seeking
appraisal. A dissenting stockholder must serve a copy of the petition on the
Surviving Corporation. If no petition is filed by either the Surviving
Corporation or any dissenting shareholder within the 120-day period, the rights
of all dissenting stockholders to appraisal will cease. Stockholders seeking to
exercise appraisal rights should not assume that the Surviving Corporation will
file a petition with respect to the appraisal of the fair value of their shares
or that the Surviving Corporation will initiate any negotiations with respect
to the fair value of those shares. The Surviving Corporation is under no
obligation to and has no present intention to take any action in this regard.
Accordingly, stockholders who wish to seek appraisal of their shares should
initiate all necessary action with respect to the perfection of their appraisal
rights within the time periods and in the manner prescribed in Section 262.
Failure to file the petition on a timely basis will cause the stockholder's
right to an appraisal to cease.
Within 120 days after the time of the merger, any stockholder who has complied
with subsections (a) and (d) of Section 262 is entitled, upon written request,
to receive from the Surviving Corporation a statement setting forth the
aggregate number of shares of EDiX stock not voted in favor of the merger with
respect to which demands for appraisal have been received by EDiX and the
number of holders of those shares. The statement must be mailed within 10 days
after the written request has been received by EDiX or within 10 days after
expiration of the time for delivery of demands for appraisal under subsection
(d) of Section 262, whichever is later.
If a petition for an appraisal is filed in a timely manner, at the hearing on
the petition, the Delaware Court of Chancery will determine which shareholders
are entitled to appraisal rights and will appraise the shares of EDiX stock
owned by those stockholders, determining the fair value of those shares,
exclusive of any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest, to be paid,
if any, upon the amount determined to be the fair value.
Stockholders considering seeking appraisal should consider that the fair value
of their shares determined under Section 262 could be more than, the same as,
or less than, the value of the consideration provided for in the Merger
Agreement without the exercise of appraisal rights. The cost of the appraisal
proceeding may be determined by the Court of Chancery and assessed against the
parties as the Court deems equitable in the circumstances. Upon application of
a dissenting stockholder, the Court may order that all or a portion of the
expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding (including, without limitation, reasonable attorney's fees
and the fees and expenses of experts) to be charged pro rata against the value
of all shares of EDiX stock entitled to appraisal. In the absence of such a
determination or assessment, each party bears its own expenses.
Any stockholder who has demanded appraisal in compliance with Section 262 will
not, after the time of the merger, be entitled to vote such stock for any
purpose or receive payment of dividends or other distributions, if any, on the
EDiX stock, except for dividends or distributions, if any, payable to
stockholders of record at a date prior to the merger.
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A stockholder may withdraw a demand for appraisal and accept the IDX Common
Stock at any time within 60 days after the time of the merger, or thereafter
may withdraw such a demand with the written approval of the Surviving
Corporation. If an appraisal proceeding is properly instituted, such proceeding
may not be dismissed as to any stockholder without the approval of the Delaware
Court of Chancery, and any such approval may be conditioned on the Court of
Chancery's deeming the terms to be just. If, after the merger, a holder of EDiX
stock who had demanded appraisal for the holder's shares fails to perfect or
loses his right to appraisal, those shares will be treated under the Merger
Agreement as if they had been converted as of the time of the merger into IDX
Common Stock.
In view of the complexity of these provisions of Delaware law, any EDiX
stockholder who is considering exercising appraisal rights should consult a
legal advisor.
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COMPARISON OF SHAREHOLDER RIGHTS
General
The IDX Articles, the IDX Bylaws, the Vermont Business Corporation Act (the
"VBCA") and other Vermont laws related to corporations currently govern the
rights of the holders of IDX Common Stock. The EDiX Certificate of
Incorporation, the EDiX Bylaws, the DGCL and other Delaware corporation-related
laws currently govern the rights of the EDiX stockholders. As a result of the
merger, EDiX stockholders will become holders of IDX Common Stock and the
rights to all such former EDiX stockholders will thereafter be governed by the
IDX Articles, the IDX Bylaws, the VBCA and other Vermont corporation-related
laws. The following summary sets forth certain differences between the VBCA and
the DGCL, between the IDX Articles and the EDiX Certificate of Incorporation
and between the IDX Bylaws and the EDiX Bylaws. This summary does not purport
to be a complete statement of the general differences among the rights of the
shareholders of IDX and the shareholders of EDiX. This summary is qualified in
its entirety by reference to the full text of each of the IDX Articles, the IDX
Bylaws, the EDiX Certificate of Incorporation, the EDiX Bylaws, the VBCA, the
DGCL and other corporation-related laws of Vermont and Delaware insofar as they
relate to corporations organized in such states. The IDX Articles and the IDX
Bylaws have been filed as exhibits to the material filed by IDX with the SEC.
For information as to how documents may be obtained, see "Where You Can Find
More Information."
Number of Directors
IDX. Vermont law provides that a board of directors of a corporation which is
not a closed corporation must consist of three or more individuals, with the
number specified in the articles of incorporation or bylaws or fixed in
accordance with these documents. The articles of incorporation or bylaws may
establish a variable range for the size of the board by fixing a minimum and
maximum number of directors. After the issuance of shares, only shareholders
may adopt or change such a provision. If a variable range is established, the
shareholders or the board may fix the number of directors from time to time,
within the minimum and maximum. The IDX Articles provide that the IDX Board
shall be composed of seven directors, which number may be increased or
decreased pursuant to the IDX Bylaws. The IDX Bylaws provide that the number of
directors shall not be more than 15. Currently, the IDX Board of Directors is
composed of seven members.
EDiX. Delaware law provides that a board of directors may change the authorized
number of directors by an amendment to the Bylaws unless the certificate of
incorporation specifies the number of directors. If the certificate of
incorporation specifies the number of directors, then that number can be
changed only by amending the certificate of incorporation.
The EDiX Certificate of Incorporation does not specify the number of directors
that EDiX is required to have. The EDiX Bylaws provide that the authorized
number of directors may be set by resolution of the Board of Directors. By
resolution adopted September 8, 1994, the Board of Directors resolved that the
number of EDiX directors shall be not less than six nor more than eight. EDiX
has seven directors.
Classification of Board of Directors
IDX. The IDX Articles of Incorporation provide for a board of directors divided
into three classes, with a three-year term of office so that a single class of
directors will stand for re-election in each year.
EDiX. The EDiX Bylaws provide only for a single class of directors. Directors
are elected at the annual meeting of stockholders and hold office until a
successor is elected and qualified.
Removal of Directors
IDX. Vermont law provides that the shareholders may remove a director with or
without cause, unless the articles of incorporation provide that directors may
be removed only for cause. The VBCA further provides that
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a director may be removed by the shareholders only at a meeting specifically
called for the purpose of removing the director. If a director was elected by a
voting group of shareholders, only shareholders of that voting group may
participate in the vote to remove the director, and the director may be removed
only if the votes in favor of such director's removal exceed the votes against
such removal at a meeting at which a quorum is present. The articles of
incorporation may require a greater number of votes to remove a director. If,
however, the corporation's articles of incorporation authorize cumulative
voting, the director cannot be removed if the number of votes sufficient to
elect the director under cumulative voting is voted against the director's
removal. The IDX Articles of Incorporation provide that directors may be
removed with cause, only upon the affirmative vote of the holders of at least
two-thirds of the shares of stock entitled to vote thereon.
EDiX. Delaware law provides that any director or the entire board may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors. If, however, the corporation's
Certificate of Incorporation authorized cumulative voting, if less than the
entire board is to be removed, no director may be removed without cause if the
votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire board of directors or, if there
be classes of directors, at an election of the class of directors of which he
is a part.
EDiX does not have a classified board. The EDiX Bylaws provide that, unless
otherwise restricted by the Certificate of Incorporation or by law, any
director or the entire Board of Directors may be removed, with or without
cause, by the holders of a majority of shares entitled to vote at an election
of directors.
Filling Vacancies on the Board of Directors
IDX. Vermont law provides that a vacancy on the board of directors may be
filled by either the shareholders or the board of directors, unless the
articles of incorporation authorize only the shareholders or the board of
directors to do so. The same rule applies to a vacancy resulting from an
increase of the number of directors. The IDX Articles of Incorporation provide
that if a vacancy occurs on the IDX Board, including a vacancy resulting from
an increase in the number of directors, the IDX Board may fill the vacancy, or
if the directors remaining in office constitute fewer that a quorum of the
board, they may fill the vacancy only by the affirmative vote of a majority of
all the directors remaining in office. If there are no IDX directors remaining
in office, the IDX shareholders may fill the vacancy.
EDiX. The EDiX Bylaws provide that vacancies and newly created directorships
resulting from an increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. If at the
time of filling any vacancy of any newly created directorship the directors
then in office constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Delaware Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the outstanding shares having the right to vote for such
directors, summarily order an election to be held to fill such vacancies or
newly created directorships, or to replace the directors chosen by the
directors then in office.
Action by Written Consent
IDX. Under the VBCA, any action required or permitted to be taken at any
meeting of the shareholders may be taken without a meeting if all shareholders
entitled to vote consent in writing. Since IDX is a publicly traded
corporation, the unanimity requirement essentially precludes use of this
provision. However, if the articles of incorporation contain specific authority
to do so, action required or permitted to be taken at a shareholders' meeting
may be taken without a meeting if the action is taken by the holders of at
least a majority of all of the shares entitled to vote on the action, and if
each shareholder is given prior notice of the action proposed to be taken. The
IDX Articles of Incorporation do not contain any such specific authority.
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EDiX. Under the DGCL, unless the Certificate of Incorporation provides
otherwise, any action by shareholders must be taken at a meeting of
stockholders. Alternatively, a consent in writing setting forth the action so
taken may be signed by stockholders having not less than the minimum number of
votes necessary to take such action at a meeting at which all shares entitled
to vote were present and voted.
The EDiX Certificate of Incorporation does not prohibit stockholders from
taking action by written consent in lieu of meeting. The EDiX Bylaws provide
for action to be taken by written consent.
Right to Call Special Meetings of Shareholders
IDX. The VBCA provides that a special meeting of shareholders may be called by
the board of directors or any other persons authorized to do so by the articles
of incorporation or bylaws. A meeting must also be called if the holders of at
least 10% of all the votes entitled to be cast on any issue proposed to be
considered at a proposed special meeting sign, date and deliver to the
corporation's secretary written demand for the meeting describing the purposes
for which it is to be held. The IDX Articles of Incorporation provide that
special meetings of the shareholders may be called only by the IDX Board, the
Chairman of the Board of directors, the Chief Executive Officer (or, if none,
the President) or any other person authorized to do so by the IDX Bylaws, or if
the holders of at least 10% of all the votes entitled to be cast on any issue
proposed to be considered at a proposed special meeting sign, date and deliver
to the corporation's secretary a written demand for the meeting describing the
purpose or purposes for which it is to be held. The IDX Bylaws provide that
special meetings of the shareholders may be called by the Secretary upon
request by the IDX Board, the Chairman of the Board, President or if the
holders of at least 10% of all the votes entitled to be cast on any issue
proposed to be considered at a proposed special meeting sign, date and deliver
to the Secretary in one or more written demands for the meeting describing the
purpose of purposes for which it is to be held.
EDiX. Under the DGCL, special stockholder meetings may be called by the board
of directors and by any person(s) authorized by the Certificate of
Incorporation or the Bylaws.
The EDiX Bylaws provide that special meetings of the stockholders may be called
by the president of the corporation for any purpose, unless otherwise
prescribed by statute or by the certificate of incorporation, and shall be
called by the president or secretary upon the written request of a majority of
the Board of Directors, or upon the written request of stockholders owning 10%
or more of the outstanding shares entitled to vote at such a meeting. Any such
request must state the purpose of the proposed meeting.
Shareholder Proposals and Shareholder Nominations of Directors
IDX. The VBCA, the IDX Articles and the IDX Bylaws do not contain any
provisions about shareholder proposals or shareholders' nominations of
directors.
EDiX. The EDiX Certificate of Incorporation and the EDiX Bylaws do not contain
any provision concerning stockholder proposals or stockholder nominations of
directors.
Business Combination Statute
IDX. The VBCA, IDX Articles of Incorporation and IDX Bylaws do not contain any
provisions about business combination transactions with interested persons.
EDiX. In general, Section 203 of the DGCL prohibits an "interested stockholder"
(defined generally as a person holding 15% or more of a corporation's
outstanding voting stock) from engaging in a "business combination" (as defined
in the DGCL) with a Delaware corporation for three years following the date
such person became an interested stockholder.
The provision is not applicable when (1) prior to the date the stockholder
became an interested stockholder, the board of directors of the corporation
approved either the business combination or the transaction that resulted in
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the stockholder becoming an interested stockholder, (2) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, such interested stockholder owned at least 85% of the outstanding
voting stock of the corporation, not including shares owned by directors who
are also officers and by certain employee stock plans or (3) on or subsequent
to the date the stockholder becomes an interested stockholder, the business
combination is approved by the board of directors of the corporation and
authorized at a meeting of stockholders, and not by written consent, by the
affirmative vote of the holders of at least two-thirds of the outstanding
voting stock entitled to vote thereon, excluding shares owned by the interested
stockholder.
The restrictions contained in Section 203 generally do not apply to business
combinations with an interested stockholder that are proposed subsequent to the
public announcement of, and prior to the consummation or abandonment of,
certain mergers, sales of a majority of a corporation's assets or tender offers
for 50% or more of a corporation's voting stock.
The DGCL allows corporations to elect not to be subject to the provisions of
the DGCL. Neither the EDiX Certificate of Incorporation nor the EDiX Bylaws
contains any provision concerning business combinations with interested
persons.
Required Vote for Authorization of Mergers, Share Exchange, and Sale of Assets
IDX. Except as noted below, Vermont law generally requires a merger, share
exchange, consolidation or sale of substantially all of a corporation's assets
other than in the regular course of business, to be approved by the
corporation's board of directors and its shareholder. Unless the articles of
incorporation or the board requires a greater vote or a vote by voting groups,
such shareholder approval requires a majority of all votes entitled to be cast
on the transaction. Vermont law further provides that submission by a board of
directors may be conditioned on any basis. The IDX Articles require the
affirmative vote of the holders of shares representing at least two-thirds of
the votes cast on certain business combinations in order to approve such
business combinations if that the IDX Board does not recommend such business
combinations to the shareholders.
With respect to a merger, no vote is required from the shareholders of a
Vermont corporation that is a party to a merger if the corporation's separate
corporate existence does not cease as a result of the merger and (1) its
articles of incorporation will not differ from its articles before the merger,
subject to certain exceptions; (2) each shareholder of the corporation
immediately before the merger would hold the same number of shares, with
identical designations, preferences, limitations and relative rights,
immediately after the merger; and (3) the number of participating shares
outstanding immediately after the merger plus the number of participating
shares issuable as a result of the merger, will not exceed by more then 20% the
total number of participating shares outstanding immediately before the merger.
EDiX. Delaware law generally requires approval of any merger, consolidation or
sale of substantially all the assets of a corporation by vote of the holders of
a majority of all outstanding shares entitled to vote thereon, although the
certificate of incorporation may provide for a greater vote.
The EDiX Certificate of Incorporation provides that holders of Common Stock are
entitled to vote upon such matters and in such manner as may be provided by law
but requires the corporation to obtain the affirmative vote of the holders of
at least 67% of the outstanding shares of Series A-1 Preferred Stock to sell
all or substantially all of its property or business, to merge with another
corporation or to engage in certain other transactions.
Amendment of Articles of Incorporation
IDX. Vermont law provides that, unless the articles of incorporation, provide
otherwise, the board of directors can amend a corporation's articles of
incorporation without shareholder action, for certain changes, including (1)
changing the initial registered agent or registered office; (2) changing issued
and unissued shares of an
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outstanding class with a greater number of whole shares if the corporation has
only shares of that class outstanding; and (3) any other change expressly
permitted to be made under the VBCA without shareholder action. A corporation
can also amend its articles of incorporation by a director proposal that is
approved by the shareholders. Unless the VBCA, the IDX Articles of
Incorporation, or the IDX Bylaws require a greater vote, the amendment must be
approved by the majority of the votes entitled to be cast by any voting group
with respect to which the amendment would create dissenters' rights. Certain
provisions of the IDX Articles of Incorporation may not be amended without the
affirmative vote of the holders of at least two-thirds of the total number of
votes entitled to be cast thereon. These provisions, relating to (1) the
number, vacancies, removal and certain powers of the members of the IDX Board;
(2) the rights of IDX and shareholders of IDX to call special meetings of
shareholders; and (3) indemnification of officers and directors, and (4) the
elimination of liability of officers and directors, may not be amended without
the affirmative vote of the holders of at least two-thirds of the total number
of votes entitled to be cast.
EDiX. Section 242 of the DGCL provides that a corporation may amend its
certificate of incorporation in any respect provided the amendment contains
only provisions that would be lawful in an original certificate of
incorporation filed at the time of amendment. For a corporation that has
received payment for any of its capital stock to amend its certificate of
incorporation, the corporation's board of directors must adopt a resolution
presenting the proposed amendment. In addition, a majority of the shares
entitled to vote, as well as a majority of shares by class of each class
entitled to vote, must approve the amendment to make it effective. When the
substantial rights of a class of shares will be affected by an amendment, the
holders of those shares are entitled to vote as a class even if the shares are
non-voting shares. When only one or more series in a class of shares, and not
the entire class, will be adversely affected by an amendment, only the affected
series may vote as a class. Under Section 242(b)(2) of the DGCL, the right to
vote as a class may be limited in certain circumstances. Any provision in the
certificate of incorporation which requires a greater vote than required by law
cannot be amended or repealed except by such greater vote. Section 242(c) of
the DGCL provides that, in its resolution proposing an amendment, the board of
directors may insert a provision allowing the board of directors to abandon the
amendment, without concurrence by stockholders, after the amendment has
received stockholder approval but before it is filed with the Secretary of
State.
The EDiX Certificate of Incorporation provides that holders of Common Stock are
entitled to vote upon such matters and in such manner as may be provided by law
but requires the corporation to obtain the affirmative vote of the holders of
at least 67% of the outstanding shares of Series A-1 Preferred Stock to make
certain amendments to the Certificate of Incorporation. The EDiX Certificate of
Incorporation also provides that EDiX has reserved the right to amend, alter,
change or repeal any provision of the Certificate of Incorporation, in the
manner now or thereafter prescribed by statute, and that all rights conferred
upon stockholders are granted subject to this reservation.
Amendment of Bylaws
IDX. Vermont law provides that a corporation's bylaws may be amended or
repealed by the vote of a majority of the entire board of directors unless the
articles of incorporation reserve this power exclusively to the shareholders in
whole or in part or the shareholders, in amending or repealing a particular
bylaw, provided expressly that the board of directors may not amend or repeal
that bylaw. A corporation's shareholders may amend or repeal the corporation's
bylaws even though the bylaws may be amended or repealed by its board of
directors. The IDX Bylaws provide that the IDX Board may amend the IDX Bylaws,
but any bylaw made, altered or amended by the IDX shareholders may not be
altered, amended or repealed by the IDX Board.
EDiX. Section 109 of the DGCL provides that the power to adopt, amend or repeal
the bylaws rests with the stockholders entitled to vote, although the
certificate of incorporation may confer the power to adopt, amend or repeal the
bylaws upon the board of directors. Section 109 further provides that the fact
that the certificate of incorporation confers such power upon the board of
directors neither limits nor divests the stockholders of the power to adopt,
amend or repeal the bylaws. The EDiX Certificate of Incorporation does not
provide that the corporation's Bylaws may be amended by the Board of Directors.
65
<PAGE>
Appraisal and Dissenters' Rights
IDX. Vermont law generally provides dissenters' rights for (1) mergers if
shareholder approval is required or if the corporation is a subsidiary that is
merged with its parent; (2) share exchanges to which the corporation is a party
and its shares will be acquired; (3) sales of substantially all the assets
(other than sales that are in the usual and regular course of business and
certain liquidations and court-ordered sales); (4) certain amendments to the
articles of incorporation that materially and adversely affect rights in
respect of a dissenter's shares; and (5) any corporate actions taken pursuant
to a shareholder vote to the extent the articles of incorporation, bylaws or a
resolution of the board of directors provides that shareholders are entitled to
dissenters' rights. To perfect such dissenters' rights, the shareholder must
(1) file a written objection with the corporation, prior to the vote, stating
that such shareholder intends to demand payment for his shares if the action is
taken, and (2) not vote in favor of the proposed action. IDX is not a
corporation party to the merger pursuant to Vermont law, and the provisions of
the VBCA respecting dissenters' rights in the context of a merger do not apply
with respect to the merger or the Merger Agreement.
EDiX. Section 262 of the DGCL provides that stockholders have the right, in
some circumstances, to dissent from certain corporate reorganizations and to
demand payment of the fair cash value of their shares in lieu of the
consideration they otherwise would receive in the transaction. Unless a
corporation's certificate of incorporation provides otherwise, dissenters do
not have the right of appraisal with respect to (1) a merger by a corporation
the shares of which are either listed on a national securities exchange or held
by more than 2,000 stockholders if the stockholders are required to receive as
consideration in the transaction cash, shares in the surviving corporation,
shares of another corporation that are publicly listed or held by more than
2,000 stockholders, cash in lieu of fractional shares or any combination of the
above or (2) stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger
because the agreement of merger does not amend the existing certificate of
incorporation, each share of the surviving corporation outstanding prior to the
merger is an identical outstanding or treasury share after the merger and the
number of shares to be issued in the merger does not exceed 20% of the shares
of the surviving corporation outstanding immediately prior to the merger.
If stockholders follow the appropriate procedures set forth in Section 262 of
the DGCL, they shall have the right, within one hundred twenty (120) days after
the effective date of the merger, to file a petition in the Delaware Court of
Chancery demanding a determination of the value of the stock of all such
stockholders. To be entitled to an appraisal, an stockholder must, among other
things, (1) file with EDiX, before the taking of the vote on approval and
adoption of the Merger Agreement, a written demand for appraisal of his or her
shares if the merger is effected and (2) refrain from voting his or her shares
in favor of approval and adoption of the Merger Agreement or consenting
thereto. See "Appraisal Rights."
Limitation on Directors' Liability
IDX. The VBCA permits the elimination or limitation of the liability of a
director to the corporation or its shareholders for monetary damages for any
action taken, or any failure to take action, solely as a director, based on
failure to discharge his or her own duties as required by the VBCA, except (1)
liability for the amount of a financial benefit received by a director to which
the director is not entitled, (2) an intentional or reckless infliction of harm
on the corporation or its shareholders, (3) unlawful distributions or (4) an
intentional or reckless criminal acts. The IDX Articles of Incorporation
provide for the limitation of liability for breach of fiduciary duty to the
fullest extent permitted by Vermont law.
EDiX. Section 102(b)(7) of the DGCL allows a corporation, through its
certificate of incorporation, to limit or eliminate the personal liability of
directors to the corporation and its stockholders for monetary damages for
breach of fiduciary duty. This provision excludes any limitation on liability,
however, for (1) any breach of the director's duty of loyalty to the
corporation or its stockholders, (2) act or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3) willful
or negligent violation of the laws governing the payment of dividends or the
purchase or redemption of stock or (4) any transaction from which
66
<PAGE>
the director derives an improper personal benefit. The EDiX Certificate of
Incorporation limits the liability of directors in the above manner.
Indemnification of Officers, Directors and Employees
IDX. The VBCA permits indemnification of directors for reasonable expenses
(including attorneys' fees) incurred in a proceeding and amounts paid or
incurred in satisfaction of judgments, fines and settlements of any proceedings
(other than derivative actions) if such person acted in good faith and
reasonably believed that his or her conduct was in the best interest of the
corporation (or, in some circumstances, not opposed to its best interests). In
criminal proceedings, the director must also have had no reasonable cause to
believe his or her conduct was unlawful and cannot be found to have engaged in
a reckless or intentional unlawful act. A corporation may not, under this
statute, indemnify a director in connection with a proceeding in which he or
she was adjudged liable to the corporation, or in connection with a proceeding
in which he or she was adjudged liable on the basis that he or she received an
improper personal benefit.
Unless limited by its articles of incorporation, a corporation is required by
the VBCA to indemnify a director or officer for his or her reasonable expenses
if the director or officer is wholly successful in the defense of a proceeding
brought because he or she was a director or office. The IDX Articles of
Incorporation and the IDX Bylaws provide indemnification for officers,
directors, employees and agents to the fullest extent permitted by the VBCA
against all expense, liability and loss; they also authorize the advance of
expenses prior to the ultimate determination of entitlement to indemnification,
to the maximum extent permitted by the VBCA.
EDiX. Section 145 of the DGCL provides that a corporation may indemnify any
person made a party or threatened to be made a party to any type of proceeding
(other than certain actions by or in right of the corporation) because he or
she is or was a director, officer, employee or agent of the corporation or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, against expenses, judgments, fines and amounts
paid in settlement actually and reasonably incurred in connection with such
proceeding if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation; or in a criminal proceeding, if he or she had no reasonable cause
to believe his or her conduct was unlawful. Expenses incurred by an officer or
director (or other employees or agents as deemed appropriate by the board of
directors) in defending civil or criminal proceedings may be paid by the
corporation in advance of the final disposition of such proceeding upon receipt
of an undertaking by or on behalf of such person to repay such amount if it is
ultimately determined that such person is not entitled to be indemnified by the
corporation. To indemnify a party, the corporation must determine that the
party met the applicable standards of conduct. The EDiX Bylaws provide for
indemnification of directors and officers substantially in the manner described
above.
Cumulative Voting
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number
of directors to be elected. A shareholder may then cast all such votes for a
single nominee or may allocate them among as many nominees as the shareholder
may choose. Without cumulative voting, the holders of a majority of shares
present at an annual meeting or any special meeting held to elect directors
would have the power to elect all of the directors to be elected at that
meeting and no nominee could be elected without the support of a plurality of
the shares voting at such meeting.
IDX. Under Vermont law, unless otherwise provided in the articles of
incorporation, shareholders do not have a right to cumulate their votes for
directors, and directors are elected by a plurality of the votes cast by the
shares entitled to vote at a meeting at which a quorum is present. However, the
IDX Bylaws provide for cumulative voting in an election of directors.
EDiX. Delaware law provides that shareholders of a corporation cannot elect
directors by cumulative voting unless the certificate of incorporation so
provides.
67
<PAGE>
The EDiX Certificate of Incorporation does not provide for cumulative voting.
Conflict of Interest Transactions
IDX. In the case of a director's action, Vermont law provides that a
transaction with the corporation where a director has an interest is not
voidable by the corporation solely because of the director's interest if (1)
the required disclosure of the transaction and director interest was made to
the board of directors and the transaction is authorized by a majority of the
disinterested directors or (2) the transaction, judged according to the
circumstances at the time of the transaction, is fair to the corporation. In
the case of a shareholder's action, a transaction with the corporation where a
director has an interest is not voidable solely because of the director's
interest if (1) notice is given to shareholder's describing the director's
conflicting interest transaction; (2) the director discloses the number, and
the identify of persons' holding or controlling the vote of all shares
beneficially owned by the director or related person; and (3) required
disclosure was made to the shareholders who voted on the transaction; or (4)
the transaction is fair to the corporation.
IDX adopted a policy that all material transactions between IDX and its
officers, directors and other affiliates must (1) be approved by a majority of
the members of the IDX Board and by a majority of the disinterested members of
the IDX Board, and (2) be on terms no less favorable to IDX than could be
obtained from unaffiliated third parties. In addition, this policy requires
that any loans by IDX to its officers, directors and other affiliates be for
bona fide business purposes only.
EDiX. Section 144 of the DGCL provides that no transaction in which one or more
of a corporation's directors has an interest shall be void or voidable solely
because such director(s) has an interest in the transaction or because such
director(s) is present or votes at the meeting of the board or committee which
authorizes the transaction, so long as the stockholders or a majority of the
disinterested directors (even though less than a quorum) approve the
transaction in good faith after full disclosure of the material facts or the
transaction is fair as to the corporation at the time it was approved.
Dividends and Other Distributions
IDX. Under Vermont law, a corporation generally may pay dividends or make other
distributions to its shareholders unless after giving effect to the
distribution either the corporation would not be able to pay its debt as they
become due in the usual course of business or its assets would be less than the
sum of its total liabilities plus (unless the articles of incorporation permits
otherwise) preferential dissolution rights of any class of stock. Under the
VBCA, a corporation's articles of incorporation could further restrict its
ability to make distributions. However, the IDX Articles of Incorporation
contain no such provision.
EDiX. Subject to additional restrictions in a corporation's certificate of
incorporation, Section 170 of the DGCL allows the board of directors of a
Delaware corporation to pay dividends out of surplus or, if there is no
surplus, out of its net profits for the fiscal year in which the dividend is
declared or the preceding fiscal year. The EDiX Certificate of Incorporation
provides that the holders of Series A-1 Preferred Stock are entitled to receive
cumulative dividends, at the rate of $0.16 per share per annum, prior and in
preference to any declaration or payment of dividends on the Common Stock. Such
dividends are due and payable quarterly, when, as and if declared by the Board
of Directors.
Shareholder Inspection Rights
IDX. Under Vermont law, a corporation's shareholders are entitled to inspect
and copy, during regular business hours at the corporation's principal office,
the minutes of shareholder meetings, articles of incorporation, bylaws, the
most recent annual report, and certain other records of the corporation,
provided the shareholder gives the corporation written notice of his or her
demand at least five business days before the date on which the shareholder
wishes to inspect and copy the records. In addition, a shareholder who makes a
demand in good faith, for a proper purpose, and describes with reasonable
particularly the shareholder's
68
<PAGE>
purpose, may also, upon five business days written notice, inspect and copy
accounting and shareholder records of the corporation. A corporation's charter
or bylaws cannot limit these shareholder rights.
EDiX. Section 220 of the DGCL entitles any stockholder of record of a
corporation, in person or by an agent, upon written demand under oath stating
the purpose thereof, to inspect during usual business hours, for any proper
purpose, the corporation's stock ledger, a list of its stockholders and its
other books and records, and to make copies or extracts therefrom. A proper
purpose means a purpose reasonably related to such person's interest as a
stockholder.
LEGAL MATTERS
The validity of the shares of IDX Common Stock issuable in connection with the
merger will be passed upon for IDX by Robert W. Baker Jr., Esq., Vice President
and General Counsel to IDX. As of September 30, 1998, Mr. Baker held 11,220
shares of IDX Common Stock and held options to acquire 37,071 additional shares
of IDX Common Stock. Pillsbury Madison & Sutro LLP, San Francisco, California,
is counsel for EDiX in connection with certain legal matters relating to the
merger and the transactions contemplated thereby.
EXPERTS
The consolidated financial statements of IDX Systems Corporation appearing in
IDX Systems Corporation's Annual Report (Form 10-K) for the year ended December
31, 1997, have been audited by Ernst & Young LLP, Boston, Massachusetts,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference, which as to the years 1996 and 1995, are
based in part on the reports of KPMG Peat Marwick LLP, independent auditors.
The consolidated financial statements referred to above are incorporated herein
by reference in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing.
The consolidated financial statements of EDiX Corporation as of December 31,
1996 and 1997, and for each of the three years in the period ended December 31,
1997, have been included in this Proxy Statement/Prospectus in reliance upon
the report of Ernst & Young LLP, San Diego, California, independent auditors
and upon the authority of said firm as experts in accounting and auditing.
69
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF EDiX CORPORATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Audited Consolidated Financial Statements
Report of Independent Auditors.......................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997............ F-3
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997.................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended De-
cember 31, 1995, 1996 and 1997......................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997.................................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
Unaudited Consolidated Financial Statements
Unaudited Consolidated Balance Sheet as of September 30, 1998........... F-19
Unaudited Consolidated Statements of Operations for the Nine Months
Ended September 30, 1997 and 1998...................................... F-20
Unaudited Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1998...................................... F-21
Note to Unaudited Consolidated Financial Statements..................... F-22
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
EDiX Corporation
We have audited the accompanying consolidated balance sheets of EDiX
Corporation as of December 31, 1996 and 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of EDiX Corporation
as of December 31, 1996 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company's recurring
losses from operations and limited working capital raise substantial doubt
about its ability to continue as a going concern (Management's plans as to
these matters are discussed in Note 1). The 1997 financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
ERNST & YOUNG LLP
San Diego, California
May 6, 1998
except for Note 11, as to which the date is
September 11, 1998
F-2
<PAGE>
EDiX Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................ $ 493,284 $ 679,693
Accounts receivable, less allowance of $30,000 in
1996 and $396,049 in 1997....................... 882,300 2,820,556
Other current assets............................. 427,133 130,469
------------ ------------
Total current assets............................... 1,802,717 3,630,718
Amounts receivable from related parties............ 50,000 50,000
Property and equipment, net........................ 2,580,920 4,450,067
Acquired intangibles, net of accumulated
amortization of $300,146 in 1996.................. 1,389,173 --
Other assets....................................... -- 10,634
------------ ------------
$ 5,822,810 $ 8,141,419
============ ============
Liabilities and shareholders' equity
Current liabilities:
Lines of credit.................................. $ 500,000 $ --
Accounts payable................................. 1,307,828 869,486
Accrued liabilities.............................. 218,631 443,563
Accrued payroll.................................. 838,614 1,924,688
Deferred revenue................................. 191,724 --
Current portion of long-term debt................ 529,936 1,284,438
------------ ------------
Total current liabilities.......................... 3,586,733 4,522,175
Long-term debt, less current portion............... 1,614,639 2,368,315
Shareholders' equity:
Series A convertible preferred stock, $0.001 par
value:
Authorized shares--3,000,000
Issued and outstanding shares--2,500,209 in 1996
and 2,516,109 in 1997
Liquidation preference--$8,806,382.............. 2,500 2,516
Series B convertible preferred stock, $0.001 par
value:
Authorized shares--2,500,000
Issued and outstanding shares--1,629,981 in both
years
Liquidation preference--$5,704,934.............. 1,630 1,630
Series C convertible preferred stock, $0.001 par
value:
Authorized shares--3,575,000
Issued and outstanding shares--3,000,000
Liquidation preference--$12,000,000............. -- 3,000
Series D convertible preferred stock, $0.001 par
value:
Authorized shares--3,300,000
Issued and outstanding shares--3,000,000
Liquidation preference--$4,500,000.............. -- 3,000
Common stock, $0.001 par value:
Authorized shares--12,000,000 in 1996 and
24,000,000 in 1997
Issued and outstanding shares--2,174,943 in 1996
and 2,383,456 in 1997.......................... 2,175 2,383
Additional paid-in capital....................... 14,547,350 31,054,997
Notes receivable from shareholders............... (249,500) (189,500)
Accumulated deficit.............................. (13,682,717) (29,627,097)
------------ ------------
Total shareholders' equity......................... 621,438 1,250,929
------------ ------------
$ 5,822,810 $ 8,141,419
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
EDiX Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Net revenues........................... $ 5,857,059 $ 8,237,487 $ 20,590,140
Cost and expenses
Cost of revenues..................... 4,911,371 9,911,361 21,995,001
Selling and administrative........... 3,646,785 4,051,960 6,000,086
Development and technical support.... 1,045,591 2,652,606 3,266,958
Write-off of goodwill and acquired
intangibles......................... -- -- 4,830,994
----------- ----------- ------------
Loss from operations................... (3,746,688) (8,378,440) (15,502,899)
Interest (expense) income, net....... 12,403 (71,971) (441,481)
----------- ----------- ------------
Net loss............................... $(3,734,285) $(8,450,411) $(15,944,380)
=========== =========== ============
Net loss per share--basic and diluted.. $ (1.73) $ (3.94) $ (7.00)
=========== =========== ============
Weighted average common shares--basic.. 2,152,890 2,142,798 2,279,200
=========== =========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
EDiX Corporation
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1996 and 1997
<TABLE>
<CAPTION>
Series A Series B Series C Series D
convertible convertible convertible convertible
preferred stock preferred stock preferred stock preferred stock
---------------- ---------------- ---------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 974,535 $ 975 -- $ -- -- $ -- -- $ --
Issuance of Series A
convertible preferred
stock for conversion
of 5% Series A
convertible
subordinated
debentures including
accrued interest of
$63,490............... 435,802 435 -- -- -- -- -- --
Issuance of Series A
convertible preferred
stock for cash, net of
issuance costs of
$69,478............... 1,089,872 1,090 -- -- -- -- -- --
Exercise of stock
options............... -- -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- -- --
--------- ------ --------- ------ --------- ------ --------- ------
Balance at December 31,
1995................... 2,500,209 2,500 -- -- -- -- -- --
Issuance of Series B
convertible preferred
stock for cash and
note, net of issuance
costs of $71,230...... -- -- 1,558,553 1,559 -- -- -- --
Issuance of Series B
convertible preferred
stock in connection
with acquisition of
MTI................... -- -- 71,428 71 -- -- -- --
Issuance of common
stock for cash........ -- -- -- -- -- -- -- --
Repayments of note
receivable and
repurchase of common
stock through
repayment and
cancellation of note
receivable............ -- -- -- -- -- -- -- --
Exercise of stock
options............... -- -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- -- --
--------- ------ --------- ------ --------- ------ --------- ------
Balance at December 31,
1996................... 2,500,209 2,500 1,629,981 1,630 -- -- -- --
Issuance of Series A
convertible preferred
stock in connection
with the acquisition
of CPRS............... 15,900 16 -- -- -- -- -- --
Issuance of Series C
convertible preferred
stock for cash and
notes, net of issuance
costs of $82,505...... -- -- -- -- 3,000,000 3,000 -- --
Issuance of Series D
convertible preferred
stock for cash, net of
issuance costs of
$76,408............... -- -- -- -- -- -- 3,000,000 3,000
Exercise of stock
options............... -- -- -- -- -- -- -- --
Repayments of
shareholder notes..... -- -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- -- --
--------- ------ --------- ------ --------- ------ --------- ------
Balance at December 31,
1997................... 2,516,109 $2,516 1,629,981 $1,630 3,000,000 $3,000 3,000,000 $3,000
========= ====== ========= ====== ========= ====== ========= ======
</TABLE>
See accompanying notes.
F-5
<PAGE>
EDiX Corporation
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1996 and 1997
<TABLE>
<CAPTION>
Notes
Common stock Additional receivable Total
----------------- paid-in from Accumulated shareholders'
Shares Amount capital shareholders deficit equity
--------- ------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 2,145,000 $2,145 $ 3,631,053 $(453,250) $ (1,498,021) $ 1,682,902
Issuance of Series A
convertible
preferred stock for
conversion of 5%
Series A convertible
subordinated
debentures including
accrued interest of
$63,490............... -- -- 1,524,858 -- -- 1,525,293
Issuance of Series A
convertible preferred
stock for cash, net of
issuance costs of
$69,478............... -- -- 3,743,984 -- -- 3,745,074
Exercise of stock
options............... 15,780 16 7,716 -- -- 7,732
Net loss............... -- -- -- -- (3,734,285) (3,734,285)
--------- ------ ----------- --------- ------------ ------------
Balance at December 31,
1995................... 2,160,780 2,161 8,907,611 (453,250) (5,232,306) 3,226,716
Issuance of Series B
convertible
preferred stock for
cash and note,
net of issuance costs
of $71,230............ -- -- 5,382,147 (24,500) -- 5,359,206
Issuance of Series B
convertible preferred
stock in connection
with acquisition of
MTI................... -- -- 249,927 -- -- 249,998
Issuance of common
stock for cash........ 300,000 300 146,700 -- -- 147,000
Repayments of note
receivable and
repurchase of common
stock through
repayment and
cancellation of note
receivable............ (336,250) (336) (163,687) 228,250 -- 64,227
Exercise of stock
options............... 50,413 50 24,652 -- -- 24,702
Net loss............... -- -- -- -- (8,450,411) (8,450,411)
--------- ------ ----------- --------- ------------ ------------
Balance at December 31,
1996................... 2,174,943 2,175 14,547,350 (249,500) (13,682,717) 621,438
Issuance of Series A
convertible preferred
stock in connection
with the acquisition
of CPRS............... -- -- 63,584 -- -- 63,600
Issuance of Series C
convertible preferred
stock for cash and notes,
net of issuance
costs of $82,505....... -- -- 11,914,495 -- -- 11,917,495
Issuance of Series D
convertible preferred
stock for cash, net of
issuance costs of
$76,408............... -- -- 4,420,592 -- -- 4,423,592
Exercise of stock
options............... 208,513 208 108,976 -- -- 109,184
Repayments of
shareholder notes..... -- -- -- 60,000 -- 60,000
Net loss............... -- -- -- -- (15,944,380) (15,944,380)
--------- ------ ----------- --------- ------------ ------------
Balance at December 31,
1997................... 2,383,456 $2,383 $31,054,997 $(189,500) $(29,627,097) $ 1,250,929
========= ====== =========== ========= ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
EDiX Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Operating activities
Net loss............................... $(3,734,285) $(8,450,411) $(15,944,380)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization......... 450,233 786,067 1,362,818
Provision for loss on disposition of
property and equipment............... 150,000 -- 230,000
Write-off of acquired intangibles..... -- -- 4,830,994
Changes in operating assets and
liabilities:
Accounts receivable................. 29,619 (168,952) (1,103,462)
Inventory........................... (105,736) 105,736 --
Other assets........................ 59,673 (284,511) 348,048
Amounts receivable from related
parties............................ (705) (50,000) --
Accounts payable.................... 152,508 752,752 (547,510)
Accrued liabilities................. 305,863 269,660 918,377
Deferred revenue.................... 159,447 32,277 (191,724)
----------- ----------- ------------
Net cash used in operating activities.. (2,533,383) (7,007,382) (10,096,839)
Investing activities
Net cash acquired in acquisitions...... -- 86,715 5,044
Acquisition of Health Information
Associates, LLC....................... -- -- (3,916,370)
Acquisition of Computerized Patient
Record Services, Inc.................. -- -- (313,177)
Acquisition of Rocky Mountain
Transcription......................... -- -- (37,500)
Purchase of property and equipment..... (992,739) (1,688,561) (2,599,808)
----------- ----------- ------------
Net cash used in investing activities.. (992,739) (1,601,846) (6,861,811)
Financing activities
Repayments on lines of credit.......... -- -- (500,000)
Proceeds from long-term debt........... 968,097 2,613,371 2,123,429
Repayments on long-term debt........... (173,833) (1,533,458) (988,641)
Proceeds from convertible bridge
notes................................. -- -- 6,000,000
Proceeds from issuance of convertible
preferred stock, net.................. 3,745,074 5,359,205 10,341,087
Proceeds from issuance of common
stock................................. 7,732 171,702 109,184
Repayment of shareholder note
receivable............................ -- 64,227 60,000
----------- ----------- ------------
Net cash provided by financing
activities............................ 4,547,070 6,675,047 17,145,059
----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents...................... 1,020,948 (1,934,181) 186,409
Cash and cash equivalents at beginning
of year............................... 1,406,517 2,427,465 493,284
----------- ----------- ------------
Cash and cash equivalents at end of
year.................................. $ 2,427,465 $ 493,284 $ 679,693
=========== =========== ============
Supplemental disclosure of cash flow
information:
Cash paid for interest................. $ 68,761 $ 159,440 $ 572,270
=========== =========== ============
Conversion of 5% Series A convertible
subordinated debentures, including
accrued interest of $63,490........... $ 1,525,293 $ -- $ --
=========== =========== ============
Acquisition of Rocky Mountain
Transcription in exchange for note.... $ -- $ -- $ 87,500
=========== =========== ============
Conversion of bridge notes into Series
C convertible preferred stock......... $ -- $ -- $ 6,000,000
=========== =========== ============
Increase in goodwill relating to
purchase price adjustments............ $ 95,037 $ 82,538 $ --
=========== =========== ============
Acquisition of Medical Transcribers,
Inc. in exchange for 71,428 shares
Series B
convertible preferred stock........... $ -- $ 249,998 $ --
=========== =========== ============
Issuance of Series A convertible
preferred stock in connection with
acquisition of Computerized Patient
Record Services, Inc.................. $ -- $ -- $ 63,600
=========== =========== ============
Issuance of Series B convertible
preferred stock in exchange for
shareholder note receivable........... $ -- $ 24,500 $ --
=========== =========== ============
</TABLE>
See accompanying notes.
F-7
<PAGE>
EDiX Corporation
Notes to Consolidated Financial Statements
December 31, 1997
1. Organization and Summary of Significant Accounting Policies
Organization and Business Activity
EDiX Corporation ("EDiX" or the "Company") was formed and began operations in
February 1994. The Company provides transcription and medical documentation
services to health care delivery systems and large medical groups utilizing
proprietary micro computer and digital telecommunication technology which
provides significant cost savings while substantially improving records
turnaround time and quality. In April 1994, EDiX acquired Record Plus, Inc., a
Southern California-based service provider in the medical transcription
industry, followed in September 1996 by the acquisition of Medical
Transcribers, Inc. ("MTI"), based in Florida. EDiX acquired Health Information
Associates, L.L.C. ("HIA") based in Texas in January 1997, Rocky Mountain
Transcription ("RMT") based in Colorado in February 1997 and Computerized
Patient Record Services, Inc. ("CPRS") based in Arkansas in June 1997. The
Company's customer base includes 30,000 physicians throughout the U.S.
Basis of Presentation
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As of December 31, 1997, the Company has a
working capital deficiency and has incurred significant operating losses since
inception. To continue to fund its operations, the Company must raise
additional debt and equity (see Note 11). While management is acting on various
sources of financing, there are no assurances that their efforts will be
successful. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or amounts and classification of liabilities that may result from the outcome
of this uncertainty.
Use of Estimates
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and disclosures made in the accompanying notes to the consolidated
financial statements. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of EDiX and its
wholly owned subsidiaries. Significant intercompany accounts and transactions
have been eliminated in consolidation.
Cash and Cash Equivalents
EDiX considers all highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents. EDiX evaluates the financial
strength of institutions at which significant investments are made and believes
the related credit risk is limited to an acceptable level.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the property and
equipment which is generally three to ten years. Amortization of leasehold
improvements is provided over the lesser of the remaining lease term or the
life of the asset.
F-8
<PAGE>
EDiX Corporation
Notes to Consolidated Financial Statements
1. Organization and Summary of Significant Accounting Policies (continued)
Acquired Intangibles
Acquired intangibles consist of costs in excess of fair value of net assets
acquired. This value represents intangibles acquired, principally customer
lists and covenants not to compete. The customer lists were initially estimated
to have an estimated useful life of fifteen years. The covenants were believed
to have a useful life of two to three years based on the contract and term of
the covenants (see Note 5).
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets to be Disposed Of ("SFAS
121"), companies are required to record impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets (see Note 5).
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued FAS No. 123
("FAS 123"), Accounting for Stock-Based Compensation, which is effective for
the year ending December 31, 1996. FAS 123 allows companies to either account
for stock-based compensation under the new provisions of FAS 123 or under the
provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees ("APB 25"), but requires pro forma disclosure in the notes
to the financial statements as if the measurement provisions of FAS 123 had
been adopted. The Company has continued accounting for its stock-based
compensation in accordance with the provisions of APB 25.
Revenue Recognition
The Company provides document transcription services for physician groups and
various medical institutions for specified periods of time. Revenues under
these contracts are determined based on the number of lines or characters of
text that are transcribed and are earned as the transcription services are
performed and any payments received in excess of amounts earned are deferred
until the related services have been completed.
EDiX had two major customers which provided approximately 9% and 7% of net
revenues during 1997, two major customers which both provided approximately 14%
of 1996 net revenues and two major customers which provided approximately 19%
and 10% of net revenues during 1995.
2. Property and Equipment
Property and equipment consists of the following at:
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Computer and telephone equipment...................... $ 2,445,305 $ 4,713,459
Office furniture and equipment........................ 1,178,324 2,135,093
Purchased software.................................... 106,443 268,504
Leasehold improvements................................ 48,112 66,506
----------- -----------
3,778,184 7,183,562
Accumulated depreciation and amortization............. (1,197,264) (2,733,495)
----------- -----------
Property and equipment, net........................... $ 2,580,920 $ 4,450,067
=========== ===========
</TABLE>
F-9
<PAGE>
EDiX Corporation
Notes to Consolidated Financial Statements
3. Line of Credit
At December 31, 1997, the Company had a $1 million accounts receivable line of
credit with a bank, which accrues interest at the bank's prime rate plus 1.5%
(10.00% at December 31, 1997), and matures on February 28, 1998. The line of
credit contains certain restrictive covenants. The line of credit is secured by
a senior interest in EDiX's accounts receivable and a subordinated interest in
all other assets of the Company.
Borrowing capacity under the accounts receivable line of credit is limited to
80% of the eligible accounts receivable (as defined). At December 31, 1997,
there were no amounts outstanding under the line of credit.
4. Long-Term Debt
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Notes payable............................................. $2,087,266 $3,604,403
Other..................................................... 57,309 48,350
---------- ----------
2,144,575 3,652,753
Less current portion...................................... 529,936 1,284,438
---------- ----------
$1,614,639 $2,368,315
========== ==========
</TABLE>
The annual principal maturities of long-term debt are as follows at December
31, 1997:
<TABLE>
<S> <C>
1998............................................................. $1,284,438
1999............................................................. 1,560,118
2000............................................................. 663,722
2001............................................................. 144,475
----------
$3,652,753
==========
</TABLE>
The Company has an agreement with a commercial lender which provides up to
$5,000,000 for capital equipment financing. Under the terms of the agreement,
borrowings are to be repaid in 36 equal monthly installments, with a remaining
balance due shortly thereafter. The effective interest rate under this
agreement is approximately 14.98%. As of December 31, 1997, $3,604,403 was
outstanding under this agreement, and a total amount of $4,764,042 had been
advanced during the life of the agreement. The borrowings are secured by
substantially all of the assets of EDiX on a stand-alone basis.
5. Acquisitions
In June 1997, EDiX purchased all of the outstanding stock of Computerized
Patient Record Services, Inc. (CPRS) for $250,000 cash and 15,900 shares of
Series A preferred stock valued at $63,600. Direct costs of the acquisition
totaled $63,177. The transaction was accounted for as a purchase; accordingly,
the results of operations of CPRS have been included in EDiX's consolidated
financial statements from the date of acquisition. In addition, the purchase
agreement includes the issuance of up to 70,750 shares of EDiX Series A
convertible preferred stock valued at $283,000 contingent upon the achievement
of certain profitability based milestones.
In connection with the acquisition, EDiX entered into an employment agreement
with a former shareholder of CPRS whereby additional consideration may be
earned subject to certain revenue targets. These amounts, if any, will be
recorded as additional purchase price upon achievement of such targets.
F-10
<PAGE>
EDiX Corporation
Notes to Consolidated Financial Statements
5. Acquisitions (continued)
In February 1997, EDiX purchased all of the assets of Rocky Mountain
Transcription (RMT) for $12,500 cash and a note for $87,500, payable in seven
equal quarterly installments of $12,500 beginning July 1, 1997 and ending
January 1, 1999. The agreement includes a contingent payment of $25,000 based
on the execution of a contract with a certain customer. The transaction was
accounted for as a purchase. In connection with the agreement, EDiX entered
into a three-year employment agreement with a principal of RMT.
In January 1997, EDiX purchased all of the membership interest of Health
Information Associates, L.L.C. (HIA) for cash of $3,895,294. Direct costs of
the acquisition totaled $21,076. The transaction was accounted for as a
purchase; accordingly, the results of operations of HIA have been included in
EDiX's consolidated financial statements from the date of acquisition.
In September 1996, EDiX purchased all of the outstanding stock of Medical
Transcribers, Inc. (MTI) for 71,428 shares of EDiX Series B convertible
preferred stock valued at $249,998. Direct costs of the acquisition totaled
$34,585. The transaction was accounted for as a purchase. The results of
operations of MTI have been included in EDiX's consolidated financial
statements from the date of acquisition. Additional shares of Series B
convertible preferred stock may be issuable on the achievement of certain
revenue and profitability based milestones. In connection with the acquisition,
EDiX entered into an employment agreement with a former shareholder of MTI
whereby additional consideration may be earned subject to certain revenue and
profitability targets. These amounts will be recorded as additional purchase
price upon achievement of such targets.
In connection with the acquisition of Record Plus, Inc. which occurred in 1994,
the Company is committed to pay performance based consideration and
compensation and a covenant not-to-compete through 1997. The covenant not-to-
compete expires in 1999. Amounts accrued and charged to expense in the
accompanying statements of operations were $615,620 in 1996 and $37,500 in
1997, respectively. The $615,620 charge to expense in 1996 consists of $332,290
for performance based consideration and $283,330 for amortization of acquired
intangibles in connection with the acquisition of Record Plus, Inc. The $37,500
charge to expense in 1997 consists of the amortization of acquired intangibles
in connection with the acquisition of Record Plus, Inc.
As discussed in Note 1, the principal intangible assets acquired were the
customer lists of the acquired companies. It was management's intent to convert
those acquired customers to the Company's proprietary technology which would
generate significant current and future revenues. During 1997 the Company
determined that the likelihood of converting those customers was very small.
Therefore, management concluded, based on an analysis of future cash flows,
that the carrying value of the acquired intangibles was significantly impaired
and wrote-off the entire amount of the acquired intangibles in the accompanying
1997 statement of operations. The charge recorded of $4,830,994 resulted from
the impairment of the acquired intangibles related to RPI of $1,388,173, HIA of
$2,970,632, RMT of $125,000, and CPRS of $347,189.
The following unaudited pro forma combined results (in thousands) of EDiX and
the companies acquired in 1997 have been prepared assuming that the
acquisitions occurred at the beginning of the periods presented. This pro forma
information is not necessarily indicative of the results that would have
occurred, nor is it indicative of future results.
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------
1996 1997
------- --------
<S> <C> <C>
Net revenues.......................................... $16,306 $ 21,247
Operating income (loss)............................... (8,651) (15,631)
Net loss.............................................. (8,723) (16,072)
Net loss per share.................................... (4.07) (7.05)
</TABLE>
F-11
<PAGE>
EDiX Corporation
Notes to Consolidated Financial Statements
6. Operating Leases
EDiX leases office space and certain office equipment under non-cancelable
operating leases. Rent expense was $264,471 and $574,530 for the years ended
December 31, 1996 and 1997, respectively. Future annual minimum payments under
non-cancelable operating leases with initial terms of one year or more consist
of the following at December 31:
<TABLE>
<S> <C>
1998............................................................. $ 537,614
1999............................................................. 498,642
2000............................................................. 366,873
2001............................................................. 265,206
2002............................................................. 51,759
----------
$1,720,094
==========
</TABLE>
7. Shareholders' Equity
Convertible Preferred Stock
Shares of Series A and Series B convertible preferred stock are convertible at
any time at the holders' option into shares of common stock at a conversion
price per share determined by dividing the original issue price of the
convertible preferred stock by the conversion price per share of $3.50, subject
to adjustment for antidilution. Holders of Series A and Series B convertible
preferred stock have voting rights equal to the number of common shares into
which such shares are convertible.
Holders of Series A and Series B convertible preferred stock are entitled to
noncumulative dividends when and if declared by the Board of Directors. Holders
of common stock may not receive dividends unless dividends are declared and
paid on all outstanding shares of convertible preferred stock for the same
period of time at the rate of $0.25 per share per annum, payable quarterly. The
Company has never declared a dividend. In the event of liquidation, dissolution
or winding up of EDiX, each holder of Series A and Series B convertible
preferred stock shall be entitled to receive $3.50 per share, plus declared but
unpaid dividends, prior to any distributions to common shareholders.
In connection with the sale of Series A convertible preferred stock to an
officer and to a director in 1994, EDiX received promissory notes totaling
$225,000. The notes bear simple interest, payable annually, at 7.05% per annum.
Unpaid principal is due upon termination of the officer, a public offering with
proceeds of $10,000,000 or more, the sale of the Company or disposition of 50%
of the shareholders' voting power. The notes are collateralized by shares of
Series A convertible preferred stock. During 1997, one of the notes totaling
$25,000 was paid in full and a payment of $10,500 was received on the remaining
note.
During 1996, EDiX sold 1,558,553 shares of Series B convertible preferred stock
for $5,383,706 in cash and a note receivable of $24,500. The note bears simple
interest, payable annually, at 7.05% per annum. The note was paid in 1997.
In January 1997, in connection with and prior to the Series C convertible
preferred stock financing, the Company obtained $6,000,000 in convertible
bridge notes. The notes bear interest at a rate of 10% per annum. The bridge
notes were converted into 1,500,000 shares of Series C convertible preferred
stock in March 1997.
In March 1997, the Company sold an additional 1,500,000 shares of Series C
convertible preferred stock at $4.00 per share for net proceeds to the Company
of $5,917,495 in cash.
F-12
<PAGE>
EDiX Corporation
Notes to Consolidated Financial Statements
7. Shareholders' Equity (continued)
Convertible Preferred Stock (continued)
In September 1997, the Company sold 3,000,000 shares of Series D convertible
preferred stock at $1.50 per share for net proceeds to the Company of
$4,423,592 in cash.
Holders of the Series C and Series D convertible preferred stock are entitled
to receive noncumulative dividends at a rate of $0.29 and $0.12, respectively,
when and if declared by the Board of Directors. Shares of Series C and Series D
convertible preferred stock are convertible into common stock at an initial
conversion rate of 1.06 shares of common stock for each share of Series C
convertible preferred stock and 1.00 share of common stock for each share of
Series D convertible preferred stock, subject to adjustment for antidilution,
and have a preference in liquidation of $4.00 and $1.50, respectively, plus
declared but unpaid dividends, prior to any distributions to the Series A and
Series B convertible preferred shareholders and the common shareholders.
Holders of Series C and Series D convertible preferred stock have voting rights
equal to the number of common shares into which such shares are convertible.
Each share of convertible preferred stock will automatically be converted into
shares of common stock upon the consummation of a public offering meeting
certain pricing and volume levels or upon the request of the holders of at
least 67% of the outstanding convertible preferred stock.
During 1997, EDiX's Board of Directors approved an increase in authorized
shares of convertible preferred stock from 8,000,000 to 16,000,000.
Common Stock
On April 12, 1994, the Company sold 536,250 shares of common stock to an
officer for an aggregate purchase price of $261,575, consisting of cash of
$33,325 and a 6.3% promissory note in the amount of $228,250. In February 1996,
in connection with the resignation of the officer, the Company repurchased
336,250 of the shares for $.49 per share. The consideration included
cancellation of note principal of $164,023 and forgiveness of accrued interest
of $14,380. The remaining principal and accrued interest was repaid in June
1996.
During 1996, the Company sold 300,000 shares of common stock at $.49 per share
for cash to an officer of the Company.
During 1997, EDiX's Board of Directors approved an increase in authorized
shares of common stock from 12,000,000 to 24,000,000.
Stock Option Plan
In 1994, the Company adopted the 1994 Stock Option Plan (the "1994 Plan"),
authorizing the issuance of both incentive and non-qualified options to
purchase the Company's common stock. The terms of the 1994 Plan effectively
limit the issuance of options to certain senior managers, members of the Board
of Directors and certain consultants.
In 1996, to allow other employees and consultants to participate in the
Company's stock option program, the Company adopted the 1996 Stock Option Plan
(the "1996 Plan"), authorizing the issuance of both incentive and non-qualified
options to purchase the Company's common stock. Incentive stock options may be
granted to employees only, while non-qualified options may be granted to
employees, the Board of Directors and consultants.
F-13
<PAGE>
EDiX Corporation
Notes to Consolidated Financial Statements
7. Shareholders' Equity (continued)
Stock Option Plan (continued)
In September 1997, the Company adopted the 1997 Stock Incentive Plan (the "1997
Plan"). The purpose of the 1997 Plan is to promote the long-term success of the
Company and the creation of stockholder value by encouraging key employees to
focus on critical long-range objectives, encouraging the attraction and
retention of key employees with exceptional qualifications and linking key
employees directly to stockholder interests through increased stock ownership.
The 1997 Plan seeks to achieve this purpose by providing for awards in the form
of restricted shares, stock units, options (which may constitute incentive
stock options or nonstatutory stock options) or stock appreciation rights.
The option price for incentive stock options under the 1994 Plan, the 1996 Plan
and the 1997 Plan (the "Plans"), shall not be less than 100% of the fair market
value on the date of grant; whereas the option price of non-qualified options
under the Plans shall not be less than 85% of the fair market value on the date
of grant. The maximum term of options granted under the Plans is ten years, and
options granted under the Plans generally vest evenly on a daily basis over a
five-year period. Options granted under the 1994 Plan are exercisable upon
grant, with unvested shares held in escrow subject to repurchase. Options
granted under the 1996 Plan and the 1997 Plan are exercisable upon vesting. The
1994 Plan was amended in 1996, to increase the number of shares reserved for
issuance to 1,500,000, less options outstanding or exercised under the 1996
Plan.
A summary of the Company' stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning
of year................ 513,574 $0.49 562,660 $0.49 1,163,327 $0.49
Granted............... 143,087 0.49 734,040 0.49 1,588,652 0.31
Exercised............. (15,780) 0.49 (50,413) 0.49 (208,512) 0.49
Cancelled............. (78,221) 0.49 (82,960) 0.49 (705,177) 0.46
------- ----- --------- ----- --------- -----
Outstanding--end of
year................... 562,660 $0.49 1,163,327 $0.49 1,838,290 $0.35
======= ===== ========= ===== ========= =====
Weighted-average fair
value of options
granted during the
year................... $0.16 $0.13 $0.06
===== ===== =====
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------- --------------------------
Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
- ---------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.25-0.55 1,838,290 9.07 $0.35 886,469 $0.45
</TABLE>
At December 31, 1997, there were 964,326 options available for future grant and
886,469 options were exercisable.
Pro forma disclosure information regarding net loss is required by FAS 123, and
has been determined as if the Company has accounted for its employee stock
options under the fair value method of that statement. The fair
F-14
<PAGE>
EDiX Corporation
Notes to Consolidated Financial Statements
7. Shareholders' Equity (continued)
Stock Option Plan (continued)
value of these options was estimated at the date of grant using the minimal
value option pricing model with the following weighted average assumptions for
1995, 1996 and 1997, respectively: risk-free interest rates of 7.5%, 7.5% and
6.5%; dividend yields of 0%; and a weighted average life of the options of four
years. Option valuation models require the input of highly subjective
assumptions. Because the Company's employee stock options have characteristics
significantly different from those of traded stock options, and because changes
in subjective assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of such options. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Pro forma net loss..................... $(3,738,005) $(8,473,216) $(15,989,687)
Pro forma basic net loss per share..... $ (1.74) $ (3.95) $ (7.02)
</TABLE>
Common Stock Reserved
At December 31, 1997, a total of 18,634,834 shares of the Company's common
stock have been reserved, 15,727,957 shares for conversion of convertible
preferred stock, 266,106 shares upon exercise of warrants and other rights to
purchase and 2,802,616 shares reserved for issuance under the Stock Option
Plans.
Warrants
In connection with the $6,000,000 convertible bridge notes, EDiX issued
warrants to purchase up to 40,000 shares of Series B convertible preferred
stock. The warrants are exercisable at $3.50 per share, subject to adjustments
for antidilution, and expire on December 31, 2001.
In connection with the capital equipment financing facility, EDiX issued
warrants to purchase up to 51,429 shares of Series B convertible preferred
stock. The warrants are exercisable at $3.50 per share, subject to adjustment
for antidilution, and expire on November 15, 2001.
F-15
<PAGE>
EDiX Corporation
Notes to Consolidated Financial Statements
8. Income Taxes
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets as of December 31, 1997 are shown below. At
December 31, 1997, a valuation allowance of $9,134,000 has been recognized as
realization of such assets is uncertain.
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss and research credit
carryforwards..................................... $ 4,765,000 $ 8,584,000
Acquired intangibles............................... 282,000 160,000
Accruals........................................... 89,000 375,000
Reserves........................................... 60,000 211,000
Deferred revenue................................... 77,000 --
----------- -----------
Total deferred tax assets............................ 5,273,000 9,330,000
Valuation allowance.................................. (5,273,000) (9,155,000)
----------- -----------
-- 175,000
Deferred tax liability
Depreciation....................................... -- (175,000)
----------- -----------
Net deferred tax assets.............................. $ -- $ --
=========== ===========
</TABLE>
At December 31, 1997, the Company has federal and state tax net operating loss
carryforwards of approximately $23,305,000 and $9,875,000, respectively. The
difference between the federal and California tax loss carryforwards is
primarily attributable to the 50% limitation on the utilization of California
loss carryforwards. The federal and state tax loss carryforwards will begin to
expire in 2009 and 1999, unless previously utilized. The Company also has a
federal research and development tax credit carryforward of approximately
$92,000 which will begin to expire in 2009 unless previously utilized.
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 a three-year period.
9. Employee Benefit Plan
Effective January 1, 1995, EDiX approved a 401(k) savings plan covering most of
its employees. Employees who are 21 years of age with 1,000 hours of service
may contribute to the plan. EDiX may make elective matching employer
contributions in an amount determined by the Board of Directors in the form of
either cash or stock of EDiX. EDiX's contributions vest 20% after two years of
service, and become fully vested after five years of service or upon
retirement, death or disability. As of the year ended December 31, 1997, no
employer contributions have ever been made.
10. Year 2000 Costs (unaudited)
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The Company presently
believes that, with modifications and upgrades to existing software, the Year
2000 issue will not pose significant operations problems for the Company's
computer systems. However, if such
F-16
<PAGE>
EDiX Corporation
Notes to Consolidated Financial Statements
10. Year 2000 Costs (unaudited) (continued)
modifications and upgrades are not completed timely, the Year 2000 issue may
have a material impact on the operation of the Company.
11. Subsequent Events
Cancellation of Shareholder Notes
In February 1998, the Company entered into a Transition Agreement, Amendment of
Promissory Note and Release with a former officer. In connection with the
agreement, and consistent with the terms outlined in the 1994 Securities
Purchase Agreement the Company rescinded the 1994 purchase by the former
officer of 57,718 shares of Series A preferred stock and cancelled the related
shareholder note. The principal due on the note at the time of cancellation was
$189,500.
Sale of Series A-1 Convertible Preferred Stock
In February 1998, EDiX completed the sale of 19,157,098 shares of Series A-1
convertible preferred stock at $0.10 per share for net proceeds to the Company
of $1,915,710. The Series A-1 convertible preferred stock includes liquidation
preferences and conversion rights at $0.10 per share. In connection with the
sale of Series A-1 convertible preferred stock, all of the outstanding shares
of Series A, Series B, Series C and Series D convertible preferred stock were
converted into 173,934,824 shares of common stock. Also in connection with the
sale of Series A-1 convertible preferred stock, the Company effected a 20-to-1
reverse stock split of all of the shares of the Company's stock.
Line of Credit
In February 1998, the term of the Company's $1,000,000 accounts receivable line
of credit was extended from February 1998 to April 1998.
In April 1998, the Company entered into a new $2,500,000 Loan and Security
Agreement with a commercial lender to replace the $1,000,000 accounts
receivable line of credit. Under the Loan and Security Agreement,
the Company can borrow up to 85% of eligible accounts receivable, up to a
maximum of $2,500,000. Interest accrues at the lender's base rate plus 2.5%
(11.0% at August 31, 1998). The Loan and Security Agreement is secured by a
senior interest in EDiX's accounts receivable and a subordinated interest in
all of the other assets of the Company. The agreement expires in April 1999. At
August 31, 1998, $2,500,000 was outstanding under the Loan and Security
Agreement.
In August 1998, the Company obtained a $1,100,000 60-day bridge note as an
amendment to the Loan and Security Agreement, increasing the total amount
available under the agreement to $3,600,000. The interest rate on the note is
14%. The note was paid in September 1998.
Long-Term Debt
In May 1998, the Company signed an amendment to an existing capital equipment
financing facility with a commercial lender, increasing the limit from
$5,000,000 to $6,000,000. The amendment allows for the financing of equipment
purchases through December 1998. In connection with the amendment, the Company
issued warrants to purchase an aggregate of 678,710 shares of common stock at
$0.20 per share.
F-17
<PAGE>
EDiX Corporation
Notes to Consolidated Financial Statements
11. Subsequent Events (continued)
Stockholder Notes
In June 1998, the Company issued $1,000,000 in one-year subordinated promissory
notes to certain stockholders. Interest on the notes accrues at 12% per year
and is payable semi-annually in arrears. The notes are unsecured.
Amendment to 1997 Stock Incentive Plan
In June 1998, the Company increased the number of shares of common stock which
may be sold or for which options may be granted under the 1997 Stock Incentive
Plan to 2,000,000 shares.
Agreement and Plan of Merger
On September 11, 1998, the Company entered into an Agreement and Plan of Merger
with IDX Systems Corporation, a healthcare information systems solution
provider based in Burlington, Vermont. The merger will be accounted for as a
pooling of interests and is expected to close on January 30, 1999. Under terms
of the agreement, EDiX Corporation shareholders and option holders will receive
an aggregate of between 415,000 and 498,000 shares of IDX common stock, based
on the closing price of the IDX common stock on the five consecutive trading
days and ending three consecutive trading days prior to the closing, subject to
a downward adjustment in the event of certain contingencies.
Based on the closing price of the IDX common stock on September 10, 1998, the
transaction is valued at approximately $20 million, plus the assumption of EDiX
Corporation debt. In addition, IDX has agreed to loan EDiX up to $5 million,
subject to certain conditions, to fund EDiX operations prior to the closing.
Under terms of the loan agreement, promissory notes will be issued up to a
maximum of $5 million with a maturity date of September 2003 and bearing
interest at an annual rate of 14%.
F-18
<PAGE>
EDiX CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEET
September 30, 1998
(in thousands)
<TABLE>
<S> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents.......................................... $ 22
Accounts receivable, net........................................... 3,583
Other current assets............................................... 341
--------
Total current assets................................................. 3,946
Property and equipment, net.......................................... 4,445
Accounts receivable from related parties............................. 28
Other assets......................................................... 1
--------
$ 8,420
========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Current liabilities:
Lines of credit.................................................... $ 2,531
Accounts payable................................................... 1,578
Accrued liabilities................................................ 1,779
Current portion of long-term debt and capital lease obligations.... 2,552
--------
Total current liabilities............................................ 8,440
Long-term debt and capital lease obligations, less current portion... 2,274
Note payable to IDX.................................................. 2,016
Shareholders' equity (deficit):
Series A-1 convertible preferred stock, $0.001 par value,:
Authorized shares--20,000,000.....................................
Issued and outstanding shares--957,885............................
Liquidation preferences--$1,915,710............................... 1,850
Common stock, $0.001 par value:
Authorized shares--24,000,000
Issued and outstanding shares--8,817,318.......................... 9
Additional paid-in capital......................................... 30,867
Accumulated deficit................................................ (37,036)
--------
Total shareholders' equity (deficit)................................. (4,310)
--------
$ 8,420
========
</TABLE>
See note to unaudited consolidated financial statements.
F-19
<PAGE>
EDiX CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine months
ended September
30,
----------------
1998 1997
------- -------
<S> <C> <C>
Net revenues................................................. $20,449 $15,011
Costs and expenses:
Cost of revenues........................................... 20,578 15,726
Selling and administration................................. 3,821 4,268
Development and technical support.......................... 2,712 2,401
------- -------
Loss from operations......................................... (6,662) (7,384)
Interest (expense) income, net............................... (747) (346)
------- -------
Net loss..................................................... $(7,409) $(7,730)
======= =======
Basic and diluted net loss per share......................... $ (0.97) $ (3.34)
Weighted average shares...................................... 7,658 2,315
</TABLE>
See note to unaudited consolidated financial statements.
F-20
<PAGE>
EDiX CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
----------------
1998 1997
------- -------
<S> <C> <C>
Operating Activities
Net loss.................................................... $(7,409) $(7,730)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 1,310 959
Write off of fixed assets................................. 38
Changes in operating assets and liabilities:
Accounts receivable..................................... (762) (672)
Other assets............................................ (178) 231
Accounts payable........................................ 709 (568)
Accrued liabilities..................................... (590) 4
Deferred revenue........................................ (96)
------- -------
Net cash used in operating activities....................... (6,882) (7,872)
Investing activities
Net cash acquired in acquisitions........................... 5
Acquisition of Health Information Associates, LLC........... (3,916)
Acquisition of Computerized Patient Record Services, Inc. .. (313)
Acquisition of Rocky Mountain Transcription................. (38)
Purchase of property and equipment.......................... (1,344) (1,502)
------- -------
Net cash used in investing activities....................... (1,344) (5,764)
Financing activities
Proceeds from lines of credit............................... 2,531 1,000
Repayments on lines of credit............................... (500)
Proceeds from long-term debt................................ 6,612 1,326
Repayments on long-term debt................................ (3,424) (602)
Proceeds from convertible bridge note....................... 6,000
Proceeds from issuance of convertible preferred stock, net.. 1,849 10,278
Proceeds from issuance of common stock...................... 109
Repayment of shareholder note receivable.................... 60
------- -------
Net cash provided by financing activities................... 7,568 17,671
------- -------
Net (decrease) increase in cash and cash equivalents........ (658) 4,035
Cash and cash equivalents at beginning of year.............. 680 493
------- -------
Cash and cash equivalents at end of period.................. $ 22 $ 4,528
======= =======
Cash paid for interest...................................... $ 731 $ 346
Conversion of bridge notes into Series C convertible
preferred stock............................................ 6,000
Acquisition of Rocky Mountain Transcription in exchange for
note....................................................... 88
</TABLE>
See note to unaudited consolidated financial statements.
F-21
<PAGE>
Notes to Unaudited Consolidated Financial Statements
Note 1--Basis of Presentation
The interim unaudited consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission and in accordance with generally accepted accounting
principles. Accordingly, certain information and footnote disclosures normally
included in annual financial statements have been omitted or condensed. In the
opinion of management, all necessary adjustments have been made to provide a
fair presentation. The operating results for the nine months ended September
30, 1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998. For further information, refer to the
audited consolidated financial statements and footnotes included elsewhere
herein.
F-22
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
IDX SYSTEMS CORPORATION,
UNDERWOOD ACQUISITION CORP.
AND
EDiX CORPORATION
September 11, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I--THE MERGER..................................................... A-1
1.1 The Merger....................................................... A-1
1.2 The Closing...................................................... A-1
1.3 Actions at the Closing........................................... A-1
1.4 Additional Action................................................ A-2
1.5 Conversion of Shares............................................. A-2
1.6 Dissenting Shares................................................ A-4
1.7 Fractional Shares................................................ A-4
1.8 Escrow........................................................... A-4
1.9 Post-Closing Balance Sheet....................................... A-5
1.10 Options and Warrants............................................. A-5
1.11 Indemnification Representative................................... A-6
1.12 Certificate of Incorporation..................................... A-7
1.13 By-laws.......................................................... A-7
1.14 Directors and Officers........................................... A-7
1.15 No Further Rights................................................ A-7
1.16 Closing of Transfer Books........................................ A-7
1.17 Tax-Free Reorganization.......................................... A-7
1.18 Accounting Treatment............................................. A-7
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. A-7
2.1 Organization, Qualification and Corporate Power.................. A-7
2.2 Capitalization................................................... A-8
2.3 Authorization of Transaction..................................... A-8
2.4 Noncontravention................................................. A-8
2.5 Subsidiaries..................................................... A-9
2.6 Financial Statements............................................. A-10
2.7 Absence of Certain Changes....................................... A-10
2.8 Undisclosed Liabilities.......................................... A-10
2.9 Tax Matters...................................................... A-11
2.10 Assets........................................................... A-12
2.11 Owned Real Property.............................................. A-12
2.12 Intellectual Property............................................ A-12
2.13 Inventory........................................................ A-14
2.14 Real Property Leases............................................. A-14
2.15 Contracts........................................................ A-15
2.16 Accounts Receivable.............................................. A-17
2.17 Powers of Attorney............................................... A-17
2.18 Insurance........................................................ A-17
2.19 Litigation....................................................... A-17
2.20 Warranty......................................................... A-18
2.21 Employees........................................................ A-18
2.22 Employee Benefits................................................ A-18
2.23 Environmental Matters............................................ A-20
2.24 Legal Compliance................................................. A-21
2.25 Permits.......................................................... A-21
2.26 Certain Business Relationships With Affiliates................... A-21
2.27 Brokers' Fees.................................................... A-21
2.28 Books and Records................................................ A-21
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
2.29 Customers and Suppliers........................................ A-21
2.30 Pooling........................................................ A-22
2.31 Company Action................................................. A-22
2.32 Prepayments, Prebilled Invoices and Deposits................... A-22
2.33 Banking Facilities............................................. A-22
2.34 Year 2000...................................................... A-23
2.35 Disclosure..................................................... A-23
2.36 Information in Registration Statement.......................... A-23
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE
TRANSITORY SUBSIDIARY.................................................. A-23
3.1 Organization................................................... A-23
3.2 Capitalization................................................. A-23
3.3 Authorization of Transaction................................... A-23
3.4 Noncontravention............................................... A-24
3.5 Reports and Financial Statements............................... A-24
3.6 Brokers' Fees.................................................. A-24
3.7 Legality of Merger Shares...................................... A-24
3.8 Disclosure..................................................... A-24
ARTICLE IV--COVENANTS................................................... A-25
4.1 Best Efforts................................................... A-25
4.2 Notices and Consents........................................... A-25
4.3 Registration; Special Meeting; Other Actions................... A-25
4.4 Operation of Business.......................................... A-26
4.5 Full Access.................................................... A-27
4.6 Notice of Breaches............................................. A-27
4.7 Exclusivity.................................................... A-27
4.8 Agreements from Certain Affiliates of the Company.............. A-28
4.9 Monthly Financial Statements................................... A-28
4.10 Nasdaq National Market......................................... A-28
4.11 Blue Sky Approvals............................................. A-28
4.12 Hart-Scott-Rodino Act.......................................... A-28
4.13 Pooling Accounting............................................. A-28
4.14 Indemnification of Company Officers and Directors.............. A-28
4.15 Resolution of Computer Issue................................... A-29
ARTICLE V--CONDITIONS TO CONSUMMATION OF MERGER......................... A-29
5.1 Conditions to Each Party's Obligations......................... A-29
5.2 Conditions to Obligations of the Buyer and the Transitory
Subsidiary..................................................... A-30
5.3 Conditions to Obligations of the Company....................... A-31
ARTICLE VI--INDEMNIFICATION............................................. A-32
6.1 Indemnification................................................ A-32
6.2 Method of Asserting Claims..................................... A-33
6.3 Survival....................................................... A-33
6.4 Limitations.................................................... A-34
ARTICLE VII--TAX MATTERS................................................ A-34
7.1 Preparation and Filing of Tax Returns.......................... A-34
7.2 Tax Indemnification by the Company Stockholders................ A-35
7.3 Allocation of Certain Taxes.................................... A-35
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
7.4 [Intentionally omitted]........................................ A-35
7.5 Cooperation on Tax Matters..................................... A-35
7.6 Termination of Tax-Sharing Agreements.......................... A-35
ARTICLE VIII--TERMINATION................................................ A-36
8.1 Termination of Agreement....................................... A-36
8.2 Effect of Termination.......................................... A-36
8.3 Termination Fees............................................... A-36
ARTICLE IX--DEFINITIONS.................................................. A-37
ARTICLE X--MISCELLANEOUS................................................. A-39
10.1 Press Releases and Announcements............................... A-39
10.2 No Third Party Beneficiaries................................... A-39
10.3 Entire Agreement............................................... A-39
10.4 Succession and Assignment...................................... A-39
10.5 Counterparts................................................... A-40
10.6 Headings....................................................... A-40
10.7 Notices........................................................ A-40
10.8 Governing Law.................................................. A-40
10.9 Amendments and Waivers......................................... A-41
10.10 Severability................................................... A-41
10.11 Expenses....................................................... A-41
10.12 Specific Performance........................................... A-41
10.13 Submission to Jurisdiction..................................... A-41
10.14 Construction................................................... A-42
10.15 Incorporation of Exhibits and Schedules........................ A-42
Exhibits
Exhibit A--Escrow Agreement
Exhibit B--Affiliate's Agreement
Exhibit C--Form of Opinion of Counsel to the Company
Exhibit D--Form of Opinion of General Counsel to the Buyer
Exhibit E--Form of Closing Certificate of the Buyer and the Transitory
Subsidiary
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger entered into as of September 11, 1998 by and
among IDX Systems Corporation, a Vermont corporation (the "Buyer"), Underwood
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the
Buyer (the "Transitory Subsidiary"), and EDiX Corporation, a Delaware
corporation (the "Company"). The Buyer, the Transitory Subsidiary and the
Company are referred to collectively herein as the "Parties."
This Agreement contemplates a merger of the Transitory Subsidiary into the
Company. In such merger, the stockholders of the Company will receive capital
stock of the Buyer in exchange for their capital stock of the Company. This
Agreement contemplates a tax-free reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). It is intended that the
merger shall be accounted for on a pooling of interests basis.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
Agreement, the Transitory Subsidiary shall merge with and into the Company
(with such merger referred to herein as the "Merger") at the Effective Time,
(as defined below). From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"). The "Effective Time" shall be the time at which the Company and
the Transitory Subsidiary file the certificate of merger or other appropriate
documents prepared and executed in accordance with the relevant provisions of
the Delaware General Corporation Law (the "Certificate of Merger") with the
Secretary of State. The Merger shall have the effects set forth in Section 251
of the Delaware General Corporation Law.
1.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hale and Dorr LLP,
60 State Street, Boston, Massachusetts, commencing at 9:00 a.m. local time on
January 30, 1999, or, if all of the conditions to the obligations of the
Parties to consummate the transactions contemplated hereby have not been
satisfied or waived by such date, on such mutually agreeable later date as soon
as practicable after the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(the "Closing").
1.3 Actions at the Closing. At the Closing, (a) the Company shall deliver to
the Buyer and the Transitory Subsidiary the various certificates, instruments
and documents referred to in Section 5.2, (b) the Buyer and the Transitory
Subsidiary shall deliver to the Company the various certificates, instruments
and documents referred to in Section 5.3, (c) the Company and the Transitory
Subsidiary shall file with the Secretary of State of the State of Delaware the
Certificate of Merger, (d) each of the Company Stockholders (as defined below)
shall deliver to the Buyer the certificates ("Certificates") representing his,
her or its Company Shares (as defined below), (e) the Buyer shall deliver to
the Indemnification Representative (as defined below), for distribution to the
Company Stockholders, certificates for the Initial Shares (as defined below) in
accordance with Section 1.5 and (f) the Buyer, the Indemnification
Representative and the Escrow Agent (as defined therein) shall execute and
deliver the Escrow Agreement attached hereto as Exhibit A (the "Escrow
Agreement") and the Buyer shall deliver to the Escrow Agent a certificate for
the Escrow Shares (as defined below) being placed in escrow on the Closing Date
pursuant to Section 1.8.
A-1
<PAGE>
1.4 Additional Action. The Surviving Corporation may, at any time after the
Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
1.5 Conversion of Shares.
(a) Immediately prior to the Effective Time each issued and outstanding
share of Series A-1 Preferred Stock of the Company shall be converted into one
share of Common Stock of the Company. The Common Stock and the Series A-1
Preferred Stock are collectively referred to herein as the ("Company Shares").
(b) At the Effective Time, by virtue of the Merger and without any action
on the part of any Party or the holder of any of the following securities
(each, a "Company Stockholder"):
(i) Each share of Common Stock of the Company (other than Company
Shares owned beneficially by the Buyer or the Transitory Subsidiary, Dissenting
Shares (as defined below) and Company Shares held in the Company's treasury)
shall be converted into and represent the right to receive (subject to the
provisions of Section 1.8) such number of shares of common stock, $.01 par
value per share, of the Buyer ("Buyer Common Stock") as is equal to the
Conversion Ratio. The "Conversion Ratio" shall be the result obtained by (A)
dividing $19,930,000 (as such amount may be adjusted pursuant to subparagraph
vii below, the "Purchase Price"), by the average of the closing sale prices per
share of Buyer Common Stock on the five consecutive trading days ending three
business days before the Closing (the "Buyer Stock Price"), (B) then
multiplying such quotient (the "Clause A Quotient") by (i) the number of
Company Shares issued and outstanding immediately prior to the Closing divided
by (ii) the sum of (x) the number of Company Shares issued and outstanding
immediately prior to the Closing, (y) the number of Company Shares issuable
upon the exercise of Options (as defined below), and (z) the number of Company
Shares issuable upon the exercise of Warrants (as defined below), whether
vested or unvested or subject to repurchase by the Company following such
exercise, and (C) then dividing such quotient (the "Clause B Quotient") by the
number of Company Shares issued and outstanding immediately prior to the
Closing. For example, if the Buyer Stock Price is $48.00, the number of
outstanding Company Shares is 150, the number of shares issuable upon exercise
of outstanding Options is 30, the number of shares issuable upon the exercise
of outstanding Warrants is 20, then the Conversion Ratio would be computed as
follows: (A) $19,930,000 / $48.00 = 415,208; (B) 415,208 X 150/[150 + 30 + 20]
= 311,406; (C) 311,406 / 150 = 2,076 shares of Buyer Common Stock for each one
Company Share. The Conversion Ratio shall be subject to equitable adjustment in
the event of any stock split, stock dividend, reverse stock split or similar
event (each, a "Recapitalization") affecting the Buyer Common Stock between the
date of this Agreement and the Effective Time.
(ii) Each outstanding grant of Options, whether vested or unvested,
shall be exchanged into and collectively represent the right to receive
(subject to the provisions of Section 1.8) such number of shares of Buyer
Common Stock as is equal to the number obtained by (A) subtracting the Clause B
Quotient from the Clause A Quotient, (B) multiplying the resulting number by
(X) the total number of Options divided by (Y) the total number of Options and
Warrants, (C) multiplying the resulting number by (X) the number of Options in
such Option grant divided by (Y) the total number of Options, and (D)
multiplying the resulting number by the number that is determined to represent
the appropriate adjustment to reflect the present fair market value of such
Option grant, taking into consideration the exercise price, vesting schedule
and other appropriate factors (it being understood that certain grants of
Options may have a fair market value of zero and accordingly shall not be
entitled to receive any Merger Shares (as defined below)) (such number of
shares, the "Option Shares"). For purposes of determining the pro rata
allocation of the Option Shares to each holder of a Option that is part of an
Option grant, the numerator shall be the number of Options held by such holder
and the denominator shall be the total number of Options in such Option grant
as set forth on Section 1.10(a) of the Disclosure Schedule. For example, if the
Buyer Stock Price is $48.00, the number of outstanding Company Shares is 150,
the number of Company Shares issuable upon outstanding Options is 30, the
number of shares issuable upon the exercise of outstanding Warrants is 20, and
the appropriate present fair market value
A-2
<PAGE>
adjustment discount for the Options to acquire two Company Shares granted on a
particular date is 60% (.6), then the number of shares of Buyer Common Stock
would be computed as follows: (A) 415,208 - 311,406 = 103,802; (B) 103,802 X
30/30 + 20 = 62,281; (C) 62,281 X 2/30 = 4,152; (D) 4,152 X .6 = 2,491 shares
of Buyer Common Stock would be given in exchange for all of the outstanding
Options granted on such date to acquire two Company Shares.
(iii) Holders of the Company Shares shall be entitled to receive
immediately 90% of the shares of Buyer Common Stock into which their Company
Shares were converted pursuant to Section 1.5(b)(i) (the "Stockholder Initial
Shares"), and the remaining 10% of the shares of Buyer Common Stock into which
Company Shares were converted pursuant to Section 1.5(b)(i) (the "Stockholder
Escrow Shares") shall be deposited in escrow pursuant to Section 1.8 hereof and
shall be held and disposed of in accordance with the terms of the Escrow
Agreement. Holders of Options shall be entitled to receive immediately 90% of
the Option Shares (the "Optionholder Initial Shares"), and the remaining 10% of
the Option Shares (the "Optionholder Escrow Shares") shall be deposited into
escrow pursuant to Section 1.8 hereof and shall be held and disposed of in
accordance with the terms of the Escrow Agreement. The Stockholder Initial
Shares and the Optionholder Initial Shares shall together be referred to herein
as the "Initial Shares." The Stockholder Escrow Shares and the Optionholder
Escrow Shares shall together be referred to herein as the "Escrow Shares." The
Initial Shares and the Escrow Shares shall together be referred to as the
"Merger Shares."
(iv) Notwithstanding the foregoing, if the Buyer Stock Price is
greater than $48.00 per share (subject to equitable adjustment in the event of
any Recapitalization) the Buyer shall issue such number of Merger Shares as is
equal to the Purchase Price divided by $48.00 (subject to adjustment in the
event of a Recapitalization) which amount of Merger Shares shall be used for
calculating the respective amounts due the holders of Company Shares and the
holders of Options for the purpose of determining the Clause A Quotient in
Section 1.5(b)(i) and Section 1.5(b)(ii) above.
(v) Further notwithstanding the foregoing, to the extent that the
Buyer Stock Price is between $35.00 and $40.00 per share (subject to equitable
adjustment in the event of any Recapitalization) the Buyer shall issue a
maximum of such number of Merger Shares as is equal to the Purchase Price
divided by $40.00 (subject to adjustment in the event of a Recapitalization)
which amount of Merger Shares shall be used for calculating the respective
amounts due to the holders of Company Shares and the holders of Options for the
purpose of determining the Clause A Quotient in Section 1.5(b)(i) and Section
1.5(b)(ii) above.
(vi) Further notwithstanding the foregoing, the Buyer shall have the
right to terminate this Agreement pursuant to Section 8.1 if the Buyer Stock
Price is less than $35.00 per share (subject to equitable adjustment in the
event of any Recapitalization).
(vii) Further notwithstanding the foregoing, the Purchase Price to be
delivered at the Closing Date shall be reduced dollar for dollar by the
aggregate amount of any and all expenses, liabilities or damages incurred by
the Company or any Subsidiary in connection with the resolution of, or in any
way related to, the Computer Issue (as such term is defined in Section 2.12 of
the Disclosure Schedule) on or prior to the Closing Date (such amount the
"Computer Expenses") as evidenced by the Computer Certificate (as defined
below) to be delivered by the Company to the Buyer at least three days before
the Closing (the "Purchase Price Adjustment Closing Certificate"). The Company
and the Subsidiaries shall not incur Computer Expenses in excess of the amount
set forth in the Purchase Price Adjustment Closing Certificate, and any
Computer Expenses incurred by the Company and the Subsidiaries in excess of
such amounts shall be recovered by the Buyer pursuant to the Escrow Agreement
without regard to the provisions of the first sentence of Section 6.4(a).
(c) Each Company Share held in the Company's treasury immediately prior
to the Effective Time and each Company Share owned beneficially by the Buyer or
the Transitory Subsidiary shall be cancelled and retired without payment of any
consideration therefor.
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(d) Each share of common stock, $.01 par value per share, of the
Transitory Subsidiary issued and outstanding immediately prior to the Effective
Time shall be converted into and thereafter evidence one share of common stock,
$.01 par value per share, of the Surviving Corporation.
1.6 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares" means Company
Shares held as of the Effective Time by a Company Stockholder who has not voted
such Company Shares in favor of the adoption of this Agreement and the Merger
and with respect to which appraisal shall have been duly demanded and perfected
in accordance with Section 262 of the Delaware General Corporation Law and not
effectively withdrawn or forfeited prior to the Effective Time. Dissenting
Shares shall not be converted into or represent the right to receive Merger
Shares, unless such Company Stockholder shall have forfeited his or her right
to appraisal under the Delaware General Corporation Law or withdrawn, with the
consent of the Company, his or her demand for appraisal. If such Company
Stockholder has so forfeited or withdrawn his or her right to appraisal of
Dissenting Shares, then (i) as of the occurrence of such event, such holder's
Dissenting Shares shall cease to be Dissenting Shares and shall be converted
into and represent the right to receive the Merger Shares issuable in respect
of such Company Shares pursuant to Section 1.5(b), and (ii) promptly following
the occurrence of such event, the Buyer shall deliver to such Company
Stockholder a certificate representing 90% of the Merger Shares to which such
holder is entitled pursuant to Section 1.5(b) (which shares shall be considered
Initial Shares for all purposes of this Agreement) and shall deliver to the
Escrow Agent a certificate representing 10% of the Merger Shares to which such
holder is entitled pursuant to Section 1.5(b) (which shares shall be considered
Escrow Shares for all purposes of this Agreement).
(b) The Company shall give the Buyer (i) prompt notice of any written
demands for appraisal of any Company Shares, withdrawals of such demands, and
any other instruments that relate to such demands received by the Company and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the Delaware General Corporation Law. The Company
shall not, except with the prior written consent of the Buyer, make any payment
with respect to any demands for appraisal of Company Shares or offer to settle
or settle any such demands.
1.7 Fractional Shares. No certificates or scrip representing fractional
Initial Shares shall be issued to former Company Stockholders upon the
surrender for exchange of Certificates, and such former Company Stockholders
shall not be entitled to any voting rights, rights to receive any dividends or
distributions or other rights as a stockholder of the Buyer with respect to any
fractional Initial Shares that would otherwise be issued to such former Company
Stockholders. In lieu of any fractional Initial Shares that would otherwise be
issued, each former Company Stockholder that would have been entitled to
receive a fractional Initial Share shall, upon proper surrender of such
person's Certificates, receive such whole number of Initial Shares as is equal
to the precise number of Initial Shares to which such person would be entitled,
rounded down to the nearest whole number.
1.8 Escrow.
(a) On the Closing Date, the Buyer shall deliver to the Escrow Agent a
certificate (issued in the name of the Escrow Agent or its nominee)
representing the Escrow Shares, as described in Section 1.5(b), for the purpose
of securing the indemnification obligations of the Company Stockholders set
forth in this Agreement. The Escrow Shares shall be held by the Escrow Agent
under the Escrow Agreement pursuant to the terms thereof. The Escrow Shares
shall be held as a trust fund and shall not be subject to any lien, attachment,
trustee process or any other judicial process of any creditor of any party, and
shall be held and disbursed solely for the purposes and in accordance with the
terms of the Escrow Agreement.
(b) The adoption of this Agreement and the approval of the Merger by the
Company Stockholders shall constitute approval of the Escrow Agreement and of
all of the arrangements relating thereto,
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including without limitation the placement of the Escrow Shares in escrow and
the appointment of the Indemnification Representative.
1.9 Post-Closing Balance Sheet. Not later than 30 calendar days after the
Closing Date, the Indemnification Representative shall deliver to the Buyer a
balance sheet of the Company as of the Closing Date (the "Closing Balance
Sheet"). The Closing Balance Sheet shall be prepared in accordance with United
States generally accepted accounting principles ("GAAP") applied consistently
with the Company's past practices (to the extent such past practices are
consistent with GAAP), as the case may be, subject to the adjustments set forth
in this Section 1.9 (which shall be in addition to and not in lieu of those
required by GAAP) and shall be certified by the Company's Chief Financial
Officer.
1.10 Options and Warrants.
(a) (i) As of the Effective Time, all options to purchase Company Shares
issued by the Company pursuant to the stock option agreements set forth on
Section 1.10(a) of the Disclosure Schedule (as defined below) ("Options"),
whether vested or unvested, shall be exchanged into and represent the right to
receive (subject to the provisions of Section 1.8) such number of shares of
Buyer Common Stock as is equal to the holder of such Option's pro rata share of
the consideration determined pursuant to Section 1.5(b)(ii). Section 1.10(a) of
the Disclosure Schedule shall indicate the date of grant of each Option, the
vesting schedule and the exercise price.
(ii) As of the Effective Time, each Warrant (as defined below)
outstanding at the Effective Time, shall be assumed by the Buyer. Immediately
after the Effective Time, each Warrant outstanding immediately prior to the
Effective Time shall be deemed to constitute a warrant to acquire, on the same
terms and conditions as were applicable under such Warrant at the Effective
Time, such number of shares of Buyer Common Stock as is equal to the number of
Company Shares subject to the unexercised portion of such Warrant multiplied by
the Conversion Ratio (with any fraction resulting from such multiplication to
be rounded down to the next lowest whole number). The exercise price per share
of each such assumed Warrant shall be equal to the exercise price of such
Warrant immediately prior to the Effective Time, divided by the Conversion
Ratio (with any fraction of a cent resulting from such division to be rounded
up to the next highest whole cent). The term, exercisability, vesting schedule,
repurchase provisions and all of the other terms of the Warrants shall
otherwise remain unchanged.
(b) The Company shall cause the exercise prior to the Closing Date or the
termination in accordance with the terms of the Agreement, as of the Effective
Date, of any warrants, contingent obligations, options or other rights to
purchase Company Shares other than the Options (collectively referred to as the
"Warrants") which remain unexercised, all of which are set forth in Section
1.10(b) of the Disclosure Schedule.
(c) The Company has obtained a written consent from each of the following
holders of Options to the amendment to waive the accelerated vesting under such
Option:
Lisa Ayala; Gene Barduson; Vincent Estrada;
Andrew Putterbaugh, Joseph Grane; Armando
Jackson; John Bonsee; David Blue; Connie Symes;
Laura Fackreli; Kathleen Johnson; Lynn Runyan;
Len Shaw; Michael Kimball; Doug Murray; and
Bonnie Sullivan.
(d) The Company shall use its best efforts to obtain, prior to the
Closing, the consent from each holder of an Option or a Warrant to the
amendment or exercise of such Option or Warrant pursuant to this Section 1.10,
and in the case of holders of Options, the consent to be bound by the
provisions of this Agreement and the Escrow Agreement.
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1.11 Indemnification Representative.
(a) In order to efficiently administer the transactions contemplated
hereby, including (i) the waiver of any condition to the obligations of the
Company Stockholders to consummate the transactions contemplated hereby, (ii)
the preparation of the Closing Balance Sheet, (iii) the defense and/or
settlement of any claims for which the Company Stockholders may be required to
indemnify the Buyer and/or the Company pursuant to the Escrow Agreement,
Article VI and Article VII, below, the Company Stockholders hereby designate
Joel D. Liffmann as their representative (the "Indemnification
Representative").
(b) The Company Stockholders hereby authorize the Indemnification
Representative (i) to take all action necessary in connection with the waiver
of any condition to the obligations of the Company Stockholders to consummate
the transactions contemplated hereby, or the defense and/or settlement of any
claims for which the Company Stockholders may be required to indemnify the
Buyer and/or the Company pursuant to the Escrow Agreement, Article VI and
Article VII below, (ii) to give and receive all notices required to be given
under this Agreement and the Escrow Agreement, and (iii) to take any and all
additional action as is contemplated to be taken by or on behalf of the Company
Stockholders by the terms of this Agreement or the Escrow Agreement.
(c) In the event that the Indemnification Representative dies, becomes
unable to perform his responsibilities hereunder or resigns from such position,
the Company Stockholders holding, prior to the Closing, a majority of the
Company Shares as set forth on Attachment A to the Escrow Agreement shall
select another representative to fill such vacancy and such substituted
representative shall be deemed to be the Indemnification Representative for all
purposes of this Agreement and the documents delivered pursuant hereto.
(d) All decisions and actions by the Indemnification Representative,
including without limitation any agreement between the Indemnification
Representative and the Buyer relating to the defense or settlement of any
claims for which the Company Stockholders may be required to indemnify the
Buyer and/or the Company pursuant to the Escrow Agreement, Article VI and
Article VII below, shall be binding upon all of the Company Stockholders and no
Company Stockholder shall have the right to object, dissent, protest or
otherwise contest the same.
(e) By his, her or its approval of this Agreement, each Company
Stockholder agrees that:
(i) the Buyer shall be able to rely conclusively on the instructions
and decisions of the Indemnification Representative as to the settlement of any
claims for indemnification by the Buyer and/or the Company pursuant to the
Escrow Agreement, Article VI and Article VII below or any other actions
required or permitted to be taken by the Indemnification Representative
hereunder or under the Escrow Agreement, and no party hereunder shall have any
cause of action against the Buyer to the extent the Buyer has relied upon the
instructions or decisions of the Indemnification Representative;
(ii) all actions, decisions and instructions of the Indemnification
Representative shall be conclusive and binding upon all of the Company
Stockholders and no Company Stockholder shall have any cause of action against
the Indemnification Representative for any action taken, decision made or
instruction given by the Indemnification Representative under this Agreement,
except for fraud or willful breach of this Agreement by the Indemnification
Representative;
(iii) the provisions of this Section 1.11 are independent and
severable, are irrevocable and coupled with an interest and shall be
enforceable notwithstanding any rights or remedies that any Company Stockholder
may have in connection with the transactions contemplated by this Agreement;
(iv) remedies available at law for any breach of the provisions of
this Section 1.11 are inadequate; therefore, the Buyer and the Company shall be
entitled to temporary and permanent injunctive relief without the necessity of
proving damages if either the Buyer and/or the Company brings an action to
enforce the provisions of this Section 1.11; and
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(v) the provisions of this Section 1.11 shall be binding upon the
executors, heirs, legal representatives, personal representatives, successor
trustees, and successors of each Company Stockholder, and any references in
this Agreement to a Company Stockholder or the Company Stockholders shall mean
and include the successors to the Company Stockholder's rights hereunder,
whether pursuant to testamentary disposition, the laws of descent and
distribution or otherwise.
(f) All reasonable out-of-pocket expenses incurred by the Indemnification
Representative shall be paid by the Company Stockholders in proportion to their
ownership of Company Shares as set forth in Attachment A to the Escrow
Agreement attached hereto and shall be paid from the Escrow Property (as
defined in the Escrow Agreement) in accordance with the provisions of the
Escrow Agreement.
1.12 Certificate of Incorporation. The Certificate of Incorporation of the
Surviving Corporation shall be the same as the Certificate of Incorporation of
the Transitory Subsidiary immediately prior to the Effective Time, except that
the name of the corporation set forth therein shall be changed to the name of
the Company.
1.13 By-laws. The By-laws of the Surviving Corporation shall be the same as
the By-laws of the Transitory Subsidiary immediately prior to the Effective
Time, except that the name of the corporation set forth therein shall be
changed to the name of the Company.
1.14 Directors and Officers. The directors of the Transitory Subsidiary
shall become the directors of the Surviving Corporation as of the Effective
Time. The officers of the Transitory Subsidiary shall became the officers of
the Surviving Corporation as of the Effective Time, in their respective
positions with the Transitory Subsidiary.
1.15 No Further Rights. From and after the Effective Time, no Company
Shares, Options or Warrants shall be deemed to be outstanding, and holders of
Certificates, or agreements relating to Options or Warrants, as the case may
be, shall cease to have any rights with respect thereto, except as provided
herein or by law.
1.16 Closing of Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Company Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Surviving Corporation, they shall be cancelled and exchanged for Initial
Shares in accordance with Section 1.5(b), subject to Section 1.8 and Section
1.9 and to applicable law in the case of Dissenting Shares.
1.17 Tax-Free Reorganization. The Merger is intended to be a reorganization
within the meaning of Section 368(a) of the Code, and this Agreement is
intended to be a "plan of reorganization" within the meaning of the regulations
promulgated under Section 368 of the Code.
1.18 Accounting Treatment. The business combination to be effected by the
Merger is intended to be treated for accounting purposes as a "pooling of
interests."
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer and the Transitory
Subsidiary that the statements contained in this Article II are true and
correct, except as set forth in the disclosure schedule attached hereto (the
"Disclosure Schedule"). The Disclosure Schedule shall be initialed by the
Parties and shall be arranged in section and paragraphs corresponding to the
numbered and lettered sections and paragraphs contained in this Article II, and
the disclosures in any paragraph of the Disclosure Schedule shall qualify only
the corresponding section or paragraph in this Article II.
2.1 Organization, Qualification and Corporate Power. The Company is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the state of its
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incorporation. The Company is duly qualified to conduct business and is in
corporate and tax good standing under the laws of each jurisdiction in which
the nature of its businesses or the ownership or leasing of its properties
requires such qualification, each of which jurisdiction is set forth in Section
2.1 of the Disclosure Schedule and/or the filing of Tax Returns (as defined
below). The Company has all requisite corporate power and authority to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it. The Company has furnished to the Buyer true and complete copies
of its Certificate of Incorporation and By-laws, each as amended and as in
effect on the date hereof. The Company is not in default under or in violation
of any provision of its Certificate of Incorporation or By-laws.
2.2 Capitalization. The authorized capital stock of the Company consists of
16,100,000 Company Shares, of which 9,775,173 shares are issued and outstanding
and no shares are held in the treasury of the Company. Section 2.2 of the
Disclosure Schedule sets forth a complete and accurate list of (i) all
stockholders of the Company, indicating the number of Company Shares held by
each stockholder, and (ii) all holders of Options and Warrants, indicating the
number of Company Shares subject to each Option and Warrant and the exercise
price thereof. True and complete copies of all Options and Warrants have
previously been provided to the Buyer. All of the issued and outstanding
Company Shares are, and all Company Shares that may be issued upon exercise of
Options and Warrants, when issued in compliance with the terms of such Options
or Warrants, will be, duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. There are no outstanding or
authorized options, warrants, rights, calls, convertible instruments,
agreements or commitments to which the Company is a party or which are binding
upon the Company providing for the issuance, disposition or acquisition of any
of its capital stock, other than the Options and Warrants listed in Section 2.2
of the Disclosure Schedule, which Warrants will expire or be exercised in full
prior to the Effective Time or be assumed by the Buyer at the Effective Time
pursuant to Section 1.10(a) and which Options will expire or be cancelled or
exercised prior to the Effective Time or be exchanged into a right to receive
shares of Buyer Common Stock pursuant to Section 1.10(a) at the Effective Time.
There are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to the Company. There are no agreements, voting
trusts, proxies, or understandings with respect to the voting, or registration
under the Securities Act of 1933, as amended (the "Securities Act"), of any
Company Shares. All of the issued and outstanding Company Shares were issued in
compliance with applicable federal and state securities laws.
2.3 Authorization of Transaction. The Company has all requisite power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement and, subject to the
adoption of this Agreement and the approval of the Merger by a majority of the
votes represented by the outstanding Company Shares entitled to vote on this
Agreement and the Merger (the "Requisite Stockholder Approval"), the
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of the Company.
Without limiting the generality of the foregoing, the Company has taken all
necessary corporate actions relating to its stock option plans, warrants and
other securities to effect the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by the Company and constitutes
a valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, and as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies.
2.4 Noncontravention. Subject to compliance with the applicable requirements
of the Securities Act, any applicable state securities laws and the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "Hart-Scott-Rodino
Act"), and the filing of the Certificate of Merger as required by the Delaware
General Corporation Law, neither the execution and delivery of this Agreement
by the Company, nor the consummation by the Company of the transactions
contemplated hereby, will (a) conflict with or violate any provision of the
charter, By-laws or comparable agreement or document of the Company or any
corporation, partnership, limited liability company or other form of business
association (each, a "Business
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Entity") with respect to which the Company, directly or indirectly, either (i)
has the power to vote or direct the voting of sufficient securities to elect a
majority of the directors (or to control the operations and governance of the
Business Entity in a similar manner) or (ii) in the case of a partnership,
serves as the general partner or holds a majority of the partnership interests
(each, a "Subsidiary"), (b) require on the part of the Company or any
Subsidiary any filing with, or any permit, authorization, consent or approval
of, any court, arbitrational tribunal, administrative agency or commission or
other governmental or regulatory authority or agency (a "Governmental Entity"),
(c) conflict with, result in a breach of, constitute (with or without due
notice or lapse of time or both) a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify or cancel,
or require any notice, consent or waiver under, any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest (as defined
below) or other arrangement to which the Company or any Subsidiary is a party
or by which the Company or any Subsidiary is bound or to which any of their
assets is subject, (d) result in the imposition of any Security Interest upon
any assets of the Company or any Subsidiary or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, any
Subsidiary or any of their properties or assets. For purposes of this
Agreement, "Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge or other lien (whether arising by contract or by operation
of law), other than (i) mechanic's, materialmen's, and similar liens, (ii)
liens arising under worker's compensation, unemployment insurance, social
security, retirement and similar legislation and (iii) liens on goods in
transit incurred pursuant to documentary letters of credit, capital lease
arrangements, in each case arising in the ordinary course of business
consistent with past custom and practice (including with respect to frequency
and amount) of the Company (the "Ordinary Course of Business") and not incurred
in connection with the borrowing of money.
2.5 Subsidiaries.
(a) Section 2.5(a) of the Disclosure Schedule sets forth for each
Subsidiary that is not a partnership (a "Corporate Subsidiary") (i) its name
and jurisdiction of incorporation, (ii) the number of shares of authorized
capital stock of each class of its capital stock, (iii) the number of issued
and outstanding shares of each class of its capital stock, the names of the
holders thereof and the number of shares held by each such holder, (iv) the
number of shares of its capital stock held in treasury, and (v) its directors
and officers. Each Corporate Subsidiary is a corporation duly organized,
validly existing and in corporate and tax good standing under the laws of the
jurisdiction of its incorporation. Each Corporate Subsidiary is duly qualified
to conduct business and is in corporate and tax good standing under the laws of
each jurisdiction in which the nature of its businesses or the ownership or
leasing of its properties requires such qualification and/or the filing of Tax
Returns. Each Corporate Subsidiary has all requisite corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it. The Company has delivered to the Buyer
correct and complete copies of the charter and By-laws of each Corporate
Subsidiary, as amended to date. No Corporate Subsidiary is in default under or
in violation of any provision of its charter or By-laws. All of the issued and
outstanding shares of capital stock of each Corporate Subsidiary are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. All shares of each Subsidiary that are held of record or owned
beneficially by either the Company or any Corporate Subsidiary are held or
owned free and clear of any restrictions on transfer (other than restrictions
under the Securities Act and state securities laws), claims, Security
Interests, options, warrants, rights, contracts, calls, commitments, equities
and demands. There are no outstanding or authorized options, warrants, rights,
agreements or commitments to which the Company or any Corporate Subsidiary is a
party or which are binding on any of them providing for the issuance,
disposition or acquisition of any capital stock of any Corporate Subsidiary.
There are no outstanding stock appreciation, phantom stock or similar rights
with respect to any Corporate Subsidiary. There are no voting trusts, proxies,
or other agreements or understandings with respect to the voting of any capital
stock of any Corporate Subsidiary.
(b) Section 2.5(b) of the Disclosure Schedule sets forth for each
Subsidiary that is a partnership (a "Partnership Subsidiary") (i) its name and
jurisdiction of formation and (ii) the name and
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address of each person or entity holding an interest in the Partnership
Subsidiary and the amount of the interest. Each Partnership Subsidiary is duly
organized, legally existing and in corporate and tax good standing under the
laws of the jurisdiction of its formation. Each Partnership Subsidiary is duly
qualified to conduct business and is in corporate and tax good standing under
the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification and/or the
filing of Tax Returns. Each Partnership Subsidiary has all requisite
partnership power and authority to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. The Company has
delivered to the Buyer correct and complete copies of the organizational
documents of each Partnership Subsidiary, as amended to date, including without
limitation its partnership agreement and, if applicable, its certificate of
limited partnership. No Partnership Subsidiary is in default under or in
violation of any provision of its partnership agreement. The partnership
interests in each Partnership Subsidiary that are held of record or owned
beneficially by either the Company or any Subsidiary are held or owned free and
clear of any restrictions on transfer (other than restrictions under the
Securities Act and state securities laws), claims, Security Interests, options,
warrants, rights, contracts, calls, commitments, equities and demands. There
are no outstanding or authorized options, warrants, rights, agreements or
commitments to which the Company or any Partnership Subsidiary is a party or
which are binding on any of them providing for the issuance, disposition or
acquisition of any interest in any Partnership Subsidiary. No Partnership
Subsidiary has any employees.
(c) The Company does not control directly or indirectly or have any
direct or indirect equity participation in any corporation, partnership, trust,
or other business association which is not a Subsidiary.
2.6 Financial Statements. The Company has previously furnished to the Buyer
complete and accurate copies of its (a) audited balance sheets and related
statements of income, retained earnings, stockholders' equity and cash flows
for the fiscal year ended December 31, 1996 and a draft of its audited balance
sheets and related statements of income, retained earnings, shareholders'
equity and cash flows for the fiscal year ended December 31, 1997, and (b)
unaudited balance sheet (the "Most Recent Balance Sheet") and related
statements of income, retained earnings, stockholders' equity and cash flows
for the seven-month period ended July 31, 1998 (the "Balance Sheet Date"). The
foregoing financial statements (the "Financial Statements") have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein or in the notes thereto and
except that the Most Recent Balance Sheet and related unaudited statements of
income do not include footnotes and are subject to normal and recurring year-
end audit adjustments, which will not individually or in the aggregate be
material in amount), fairly present the financial condition, results of
operations and cash flows of the Company and the Subsidiaries, on a
consolidated basis, as of the respective dates thereof and for the periods
referred to therein, and are consistent with the books and records of the
Company and the Subsidiaries, as the case may be. The accruals for vacation,
sickness and disability expenses are accounted for on the Most Recent Balance
Sheet and are adequate and properly reflect the expenses associated therewith
in accordance with GAAP.
2.7 Absence of Certain Changes. Since the Balance Sheet Date, (a) there has
not been any material adverse change in the assets, business, financial
condition, results of operations or future prospects of the Company and its
Subsidiaries, taken as a whole, nor has there occurred any event or development
which could reasonably be foreseen to result in such a material adverse change
in the future, and (b) neither the Company nor any Subsidiary has taken any of
the actions set forth in paragraphs (a) through (p) of Section 4.4. The Company
has not been profitable as is disclosed in the Financial Statements, and does
not expect to be profitable prior to the Closing. The Company's continued lack
of profitability consistent with the results of operations in the Financial
Statements will not be considered a material adverse effect for purposes of
this Agreement.
2.8 Undisclosed Liabilities. None of the Company and its Subsidiaries has
any liability (whether known or unknown, whether absolute or contingent,
whether liquidated or unliquidated and whether due or to become due), except
for (a) liabilities shown on the Most Recent Balance Sheet, a copy of which is
included in Section 2.8 of the Disclosure Schedule (b) liabilities which have
arisen since the Balance Sheet Date in the Ordinary Course of Business of the
Company and which are similar in nature and amount to the liabilities
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which arose during the comparable period of time in the immediately preceding
fiscal period and (c) contractual liabilities incurred in the Ordinary Course
of Business of the Company that are not required by GAAP to be reflected on a
balance sheet and that are not in the aggregate material.
2.9 Tax Matters.
(a) Each of the Company and the Subsidiaries has timely filed all Tax
Returns (as defined below) that it was required to file and all such Tax
Returns were correct and complete in all material respects. Each of the Company
and the Subsidiaries has paid on a timely basis all Taxes (as defined below)
due on or before the Closing Date whether or not shown on any such Tax Returns.
The unpaid Taxes of the Company and the Subsidiaries for tax periods through
the date of the Most Recent Balance Sheet do not exceed the accruals and
reserves for Taxes set forth on the Most Recent Balance Sheet. Neither the
Company nor any Subsidiary has any actual or potential liability for any Tax
obligation of any taxpayer (including without limitation any affiliated group
of corporations or other entities that included the Company or any Subsidiary
during a prior period) other than the Company and the Subsidiaries. All Taxes
that the Company or any Subsidiary is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been timely paid to the proper Governmental Entity. For purposes of this
Agreement, "Taxes" means all taxes, charges, fees, levies or other similar
assessments or liabilities, including without limitation income, gross
receipts, ad valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, payroll, profits,
license, leave service, service use, severance, stamp, occupation, windfall
profits, customs, franchise and other taxes imposed by the United States of
America or any state, local or foreign government, or any agency thereof, or
other political subdivision of the United States or any such government, and
any interest, fines, penalties, assessments or additions to tax resulting from,
attributable to or incurred in connection with any tax or any contest or
dispute thereof. For purposes of this Agreement, "Tax Returns" means all
reports, returns, declarations, statements or other information required to be
supplied to a taxing authority in connection with Taxes.
(b) The Company has delivered to the Buyer correct and complete copies of
all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Company or any Subsidiary
since 1994. No examination or audit of any Tax Returns of the Company or any
Subsidiary by any Governmental Entity is currently in progress or, to the
knowledge of the Company and the Subsidiaries, threatened or contemplated.
Neither the Company nor any Subsidiary has waived any statute of limitations
with respect to Taxes or agreed to an extension of time with respect to a Tax
assessment or deficiency.
(c) Neither the Company nor any Subsidiary is a "consenting corporation"
within the meaning of Section 341(f) of the Code and none of the assets of the
Company or the Subsidiaries are subject to an election under Section 341(f) of
the Code.
(d) Neither the Company nor any Subsidiary has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(l)(A)(ii) of the
Code.
(e) Neither the Company nor any Subsidiary is a party to any Tax
allocation or sharing agreement, and neither the Company nor any Subsidiary has
any accrual or potential liability for any Taxes of any person or entity other
than the Company and its Subsidiaries.
(f) To the knowledge of the Company and each of its Subsidiaries, no
claim exists by a taxing authority in any jurisdiction that the Company or any
of its Subsidiaries is, or may be, subject to Taxes assessed by such
jurisdiction for any period in which they did not file Tax Returns in such
jurisdiction.
(g) Neither the Company nor any of its Subsidiaries has made any
payments, or is, or shall become, obligated (under any contract entered into on
or before the Closing Date) to make any payments, that
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shall be nondeductible under Section 280G of the Code (or any corresponding
provision of state, local or foreign income Tax law).
(h) Neither the Company nor any Subsidiary is or has ever been a member
of a group of corporations with which it has filed for (or been required to
file for) consolidated, combined, or unitary Tax Returns, other than a group of
which only the Company and the Subsidiaries are or were members.
(i) Neither the Company nor any Subsidiary is or has been required to
make a basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or
Treasury Regulation Section 1.337(d)-2(b).
(j) None of the assets of the Company or any Subsidiary: (i) is property
that is required to be treated as being owned by any other person pursuant to
the provisions of former Section 168(f)(8) of the Code; (ii) is "tax-exempt use
property" within the meaning of Section 168(h) of the Code; or (iii) directly
or indirectly secures any debt the interest on which is tax exempt under
Section 103(a) of the Code.
(k) Neither the Company nor any Subsidiary has undergone a change in its
method of accounting resulting in an adjustment to its taxable income pursuant
to Section 481(h) of the Code.
(l) No state or federal "net operating loss" of the Company or any
Subsidiary determined as of the Closing Date is subject to limitation on its
use pursuant to Section 382 of the Code or comparable provisions of state law
as a result of any "ownership change" within the meaning of Section 382(g) of
the Code or comparable provisions of state law occurring prior to the Closing
Date.
2.10 Assets.
(a) Each of the Company and the Subsidiaries owns or leases all tangible
assets necessary for the conduct of its businesses as presently conducted and
as presently proposed to be conducted. Each such tangible asset is free from
material defects, has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear) and is suitable for the purposes for which it presently is used. No asset
of the Company (tangible or intangible) is subject to any Security Interest.
(b) Section 2.10(b) of the Disclosure Schedule sets forth (i) a true,
correct and complete list of all items of tangible personal property, including
without limitation computers, furniture and equipment and purchased and
capitalized software, owned by the Company or any Subsidiary, or not owned by
the Company or any Subsidiary but in the possession of or used in the business
of the Company or any Subsidiary (the "Personal Property"), other than
individual assets with a book value of less than $10,000, and (ii) a
description of the owner of, and any agreement relating to the use of, each
item of Personal Property not owned by the Company or any Subsidiary and the
circumstances under which such Personal Property is used. Each item of Personal
Property not owned by the Company or any Subsidiary is in such condition that
upon the return of such property to its owner in its present condition at the
end of the relevant lease term or as otherwise contemplated by the applicable
agreement between the Company or any Subsidiary and the owner or lessor
thereof, the obligations of the Company or such Subsidiary to such owner or
lessor will be discharged.
2.11 Owned Real Property. Neither the Company nor any Subsidiary now owns,
or has ever owned, any real property.
2.12 Intellectual Property.
(a) Each of the Company and the Subsidiaries owns, or is licensed or
otherwise possesses legally enforceable right to use, all Intellectual Property
(as defined below in this Section 2.12) used in the operation of its business
or necessary for the operation of its businesses as presently proposed to be
conducted. Each item of Intellectual Property owned by or used in the operation
of the business of the Company or any Subsidiary at any time during the period
covered by the Financial Statements will be owned or available for use by the
Company on identical terms and conditions immediately following the Closing.
Each of the
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Company and the Subsidiaries has taken reasonable measures to protect the
proprietary nature of each item of Intellectual Property and to maintain in
confidence all trade secrets and confidential information, that it owns or
uses. To the knowledge of the Company and the Subsidiaries, no other person or
Business Entity has any rights to any of the Intellectual Property owned or
used by the Company or any Subsidiary (other than in connection with
Intellectual Property representing commercially available software licensed to
the Company on a non-exclusive basis), and no other person or Business Entity
is infringing, violating or misappropriating any of the Intellectual Property
that the Company or any Subsidiary owns or uses. For purposes of this
Agreement, "Intellectual Property" means all (i) patents, patent applications,
patent disclosures and all related continuation, continuation-in-part,
divisional, reissue, reexamination, utility model, certificate of invention and
design patents, patent applications, registrations and applications for
registrations, (ii) trademarks, service marks, trade dress, logos, trade names
and corporate names and registrations and applications for registration
thereof, (iii) copyrights and registrations and applications for registration
thereof, (iv) computer software, data and documentation, (v) trade secrets and
confidential business information, whether patentable or unpatentable and
whether or not reduced to practice, know-how, manufacturing and production
processes and techniques, research and development information, copyrightable
works, financial, marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and information,
(vi) other proprietary rights relating to any of the foregoing, and (vii)
copies and tangible embodiments thereof.
(b) None of the activities or business conducted by the Company or any of
the Subsidiaries infringes, violates or constitutes a misappropriation of (or
in the past infringed, violated or constituted a misappropriation of) any
Intellectual Property rights of any other person or Business Entity. Neither
the Company nor any Subsidiary has received any complaint, claim or notice
alleging any such infringement, violation or misappropriation, and to the
knowledge of the Company and the Subsidiaries, there is no basis for any such
complaint, claim or notice.
(c) Section 2.12(c) of the Disclosure Schedule identifies each (i) patent
or registration that has been issued to the Company or any Subsidiary with
respect to any of its Intellectual Property, (ii) pending patent application or
application for registration that the Company or any Subsidiary has made with
respect to any of its Intellectual Property, and (iii) license or other
agreement pursuant to which the Company or any Subsidiary has granted any
rights to any third party with respect to any of its Intellectual Property. The
Company has delivered to the Buyer correct and complete copies of all such
patents, registrations, applications, licenses and agreements (as amended to
date) and has specifically identified and made available to the Buyer correct
and complete copies of all other written documentation evidencing ownership of,
and any claims or disputes relating to, each such item. Except as set forth in
Section 2.12(c) of the Disclosure Schedule, with respect to each item of
Intellectual Property that the Company or any Subsidiary owns:
(A) subject to such rights as have been granted by the Company or any
Subsidiary under license agreements entered into in the Ordinary Course of
Business of the Company and the Subsidiaries, the Company or a Subsidiary
possesses all right, title and interest in and to such item;
(B) such item is not subject to any outstanding judgment, order,
decree, stipulation or injunction; and
(C) Subject to any indemnity given in agreements entered into in the
Ordinary Course of Business of the Company and its Subsidiaries as set forth in
Section 2.12(c) of the Disclosure Schedule, neither the Company nor any
Subsidiary has agreed to indemnify any person or Business Entity for or against
any infringement, misappropriation or other conflict with respect to such item.
(d) Section 2.12(d) of the Disclosure Schedule identifies each item of
Intellectual Property used in the operation of the business of the Company and
the Subsidiaries at any time during the period covered by the Financial
Statements, or that the Company or any Subsidiary plans to use in the future,
that is owned by a party other than the Company or a Subsidiary (other than
commercially available desktop software applications generally available to the
public, which are not listed in Section 2.12(d) of the Disclosure Schedule but
with
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respect to which the representations set forth below on this Section 2.12(d)
are true). The Company has supplied the Buyer with correct and complete copies
of all licenses, sublicenses or other agreements (as amended to date) pursuant
to which the Company or any Subsidiary uses such Intellectual Property, all of
which are listed on Section 2.12(d) of the Disclosure Schedule (other than
commercially available desktop software applications generally available to the
public). Except as set forth in Section 2.12(d) of the Disclosure Schedule,
with respect to each such item of Intellectual Property:
(i) the license, sublicense or other agreement covering such item is
legal, valid, binding, enforceable and in full force and effect, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditor's rights generally;
(ii) such license, sublicense or other agreement will continue to be
legal, valid, binding, enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect prior
to the Closing, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditor's rights
generally;
(iii) neither the Company or any Subsidiary nor, to the knowledge of
the Company and the Subsidiaries, any other party to such license, sublicense
or other agreement is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default or permit
termination, modification or acceleration thereunder;
(iv) to the Company's and the Subsidiaries' knowledge, the underlying
item of Intellectual Property is not subject to any outstanding judgment,
order, decree, stipulation or injunction;
(v) subject to any indemnity given in agreements entered into in the
Ordinary Course of Business of the Company and its Subsidiaries as set forth in
Section 2.12(c) of the Disclosure Schedule, neither the Company nor any
Subsidiary has agreed to indemnify any person or Business Entity for or against
any interference, infringement, misappropriation or other conflict with respect
to such item; and
(vi) no license or other fee is payable upon any transfer or
assignment of such license, sublicense or other agreement.
2.13 Inventory. All inventory of the Company and the Subsidiaries, whether
or not reflected on the Most Recent Balance Sheet, consists of a quality and
quantity usable and saleable in the Ordinary Course of Business, except for
obsolete items and items of below-standard quality, all of which have been
written-off or written-down to net realizable value on the Most Recent Balance
Sheet. The Company has no inventory recorded on its Most Recent Balance Sheet.
The quantities of each type of inventory, whether raw materials, work-in-
process or finished goods, are not excessive in the present circumstances of
the Company and the Subsidiaries.
2.14 Real Property Leases. Section 2.14 of the Disclosure Schedule lists and
describes briefly all real property leased or subleased to the Company or any
Subsidiary and lists the term of such lease, any extension and expansion
options, and the rent payable thereunder. The Company has delivered to the
Buyer correct and complete copies of the leases and subleases (as amended to
date) listed in Section 2.14 of the Disclosure Schedule. With respect to each
lease and sublease listed in Section 2.14 of the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding, enforceable and in
full force and effect with respect to the Company, and, to the knowledge of the
Company, with respect to the other parties thereto, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditor's rights generally;
(b) the lease or sublease will continue to be legal, valid, binding,
enforceable and in full force and effect with respect to the Company, and, to
the knowledge of the Company, with respect to the other parties thereto,
immediately following the Closing in accordance with the terms thereof as in
effect prior to the
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Closing, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditor's rights
generally;
(c) neither the Company or any Subsidiary nor, to the Company's knowledge
any other party to the lease or sublease is in breach or default, and no event
has occurred which, with notice or lapse of time, would constitute a breach or
default or permit termination, modification, or acceleration thereunder;
(d) there are no disputes, oral agreements or forbearance programs in
effect as to the lease or sublease;
(e) neither the Company nor any Subsidiary has assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the
leasehold or subleasehold;
(f) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said facilities;
(g) to the knowledge of the Company, the owner of the facility leased or
subleased by the Company or any Subsidiary has good and clear record and
marketable title to the parcel of real property, free and clear of any Security
Interest, easement, covenant or other restriction, except for recorded
easements, covenants, and other restrictions which do not impair the Intended
Uses, occupancy or value of the property subject thereto; and
(h) no construction, alteration or other leasehold improvement work with
respect to the lease or sublease remains to be paid for or performed by the
Company or any Subsidiary.
2.15 Contracts.
(a) Section 2.15 of the Disclosure Schedule lists the following written
arrangements (including without limitation written agreements) to which the
Company or any Subsidiary is a party:
(i) any written arrangement (or group of related written arrangements)
for the furnishing or receipt of services;
(ii) any written arrangement concerning confidentiality, non-
competition or non-solicitation (other than confidentiality agreements with
customers or employees of the Company or any Subsidiary set forth in the
Company's standard terms and conditions of sale or standard form of employment
agreement, copies of which have previously been delivered to the Buyer);
(iii) any written arrangement under which the consequences of a
default or termination could have a material adverse effect on the assets,
business, financial condition, results of operations or future prospects of the
Company or any Subsidiary or on the ability of the Parties to consummate the
transactions contemplated by this Agreement;
(iv) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to third parties
providing (A) for lease payments in excess of $10,000 per annum or (B) for a
term of more than three years;
(v) any written arrangement establishing a partnership or joint
venture;
(vi) any written arrangement (or group of related written
arrangements) under which it has created, incurred, assumed, or guaranteed (or
may create, incur, assume, or guarantee) indebtedness (including capitalized
lease obligations) involving more than $10,000 or under which it has imposed
(or may impose) a Security Interest on any of its assets, tangible or
intangible;
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(vii) any written arrangement involving any of the Company
Stockholders or their Affiliates (for the purposes of this Agreement,
"Affiliate" shall mean (A) in the case of an individual, the members of the
immediate family (including parents, siblings and children) or (i) the
individual and (ii) the individual's spouse, and (iii) any Business Entity that
directly or indirectly, through one or more intermediaries controls, or is
controlled by, or is under common control with any of the foregoing
individuals, or (B) in the case of a Business Entity, another Business Entity
or a person that directly or indirectly, through one or more intermediaries
controls, or is controlled by, or is under common control with the Business
Entity);
(viii) any written arrangement under which the consequences of a
default or termination could have a material adverse effect on the assets,
business, financial condition, results of operations or future prospects of the
Company and the Subsidiaries, taken as a whole;
(ix) any written arrangement which requires or contemplates the
performance of services or the delivery of products by the Company or any
Subsidiary;
(x) any written arrangement based in any manner upon the sales,
purchases, receipts, revenues, income or profits of the Company or any
Subsidiary;
(xi) any written arrangement restricting the Company or any Subsidiary
from carrying on its business anywhere in the world;
(xii) any written arrangement for joint product development with any
party, other than Company Customer Contracts;
(xiii) any written arrangements with vendors of material equipment
purchased by the Company or any Subsidiary as reseller of equipment, other than
purchase orders in the ordinary course of business;
(xiv) any written franchise arrangement, marketing arrangement or
royalty arrangement that requires payments or results in recurring revenues and
with respect to each such arrangement, Section 2.14 of the Company Disclosure
Schedule sets forth or describes the aggregate royalties or similar payment
paid or payable thereunder by the Company or any Subsidiary as of the date
hereof;
(xv) any written arrangement as of the date of this Agreement relating
to the evaluation of the Company by any other company, person or entity who was
or is considering acquiring all or a significant part of the Company's business
by acquisition, merger, joint venture or otherwise; and
(xvi) any other written arrangement (or group of related written
arrangements) involving more than $25,000 or not entered into in the Ordinary
Course of Business of the Company or any Subsidiary.
(b) Section 2.15 of the Disclosure Schedule accurately discloses with
respect to each arrangement or agreement disclosed therein (the "Contracts"),
if applicable, (i) the project name; (ii) the date of the Contract; (iii) the
customer name and address and customer contact person and phone number; (iv)
the contract amount or, if the contract amount is not fixed, a good faith,
reasonable estimate of the contract amount; (v) the estimated contract amount
most recently communicated to the customer; (vi) the total billings to date
under such Contract; (vii) the estimated completion dates therefor; (viii)
estimated costs to complete based on hours and rates; and (ix) whether or not
the Company has any reason to believe that its profit margin with respect to
such Contract might be less than it has customarily achieved in the past for
similar contracts.
(c) The Company has delivered to the Buyer a correct and complete copy of
each Contract (as amended to date). With respect to each Contract: (i) the
Contract is legal, valid, binding and enforceable against the Company and in
full force and effect; (ii) to the knowledge of the Company, the Contract is
legal, valid, binding and enforceable against the other party thereto; (iii)
the Contract will continue to be legal, valid,
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binding and enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect prior to the Closing;
and (iv) no party is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default or permit
termination, modification or acceleration, under the Contract.
(d) Neither the Company nor any Subsidiary is a party to any oral
contract, agreement or other arrangement which, if reduced to written form,
would be required to be listed in Section 2.15 of the Disclosure Schedule under
the terms of this Section 2.15. Neither the Company nor any Subsidiary is a
party to any written or oral arrangement (i) to perform services or sell
products which is expected to be performed at, or to result in, a loss, (ii)
which requires the performance of services or the delivery of products by the
Company or any Subsidiary at a fixed price (which shall include, for purposes
of this Agreement, an agreement for the provision of services on a "time and
materials not to exceed" basis), or (iii) for which the customer has already
been billed or paid that have not been fully accounted for on the Most Recent
Balance Sheet. Neither the Company nor any Subsidiary is restricted by any
Contract from carrying on business anywhere in the world.
2.16 Accounts Receivable. All accounts receivable of the Company and the
Subsidiaries reflected on the Most Recent Balance Sheet are valid receivables
subject to no setoffs or counterclaims and, except to the extent collected
since the date of the Most Recent Balance Sheet, are current and collectible
(within 90 days after the date on which it first became due and payable), net
of the applicable reserve for bad debts on the Most Recent Balance Sheet. All
accounts receivable reflected in the financial or accounting records of the
Company that have arisen since the Balance Sheet Date are valid receivables
subject to no setoffs or counterclaims and are collectible, net of a reserve
for bad debts in an amount proportionate to the reserve shown on the Most
Recent Balance Sheet.
2.17 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company or any Subsidiary.
2.18 Insurance. Section 2.18 of the Disclosure Schedule lists each insurance
policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Company or any Subsidiary has been a party, a named insured, or otherwise the
beneficiary of coverage at any time within the past three years. Each such
insurance policy is enforceable and in full force and effect and will continue
to be enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect prior to the Closing.
Neither the Company nor any Subsidiary is in breach or default (including with
respect to the payment of premiums or the giving of notices) under any such
policy, and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default or permit termination, modification
or acceleration, under such policy; and neither the Company nor any Subsidiary
has received any notice from the insurer disclaiming coverage or reserving
rights with respect to a particular claim or such policy in general. Section
2.18 of the Disclosure Schedule identifies all claims asserted by the Company
or any Subsidiary pursuant to any insurance policy since January 1, 1995 and
describes the nature and status of each such claim. Neither the Company nor any
Subsidiary has incurred any loss, damage, expense or liability covered by any
such insurance policy for which it has not properly asserted a claim under such
policy. Each of the Company and the Subsidiaries is covered by insurance in
scope and amount customary and reasonable for the businesses in which it is
engaged.
2.19 Litigation. Section 2.19 of the Disclosure Schedule identifies, and
contains a brief description of, (a) any unsatisfied judgement, order, decree,
stipulation or injunction and (b) any claim, complaint, action, suit,
proceeding, hearing or investigation of or in any Governmental Entity or before
any arbitrator to which the Company or any Subsidiary is a party or, to the
knowledge of the Company and the Subsidiaries, is threatened to be made a
party. None of the complaints, actions, suits, proceedings, hearings, and
investigations set forth in Section 2.19 of the Disclosure Schedule,
individually or collectively, could have a material adverse effect on
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the assets, business, financial condition, results of operations or future
prospects of the Company and Subsidiaries, taken as a whole.
2.20 Warranty. No product or service manufactured, sold, leased, licensed,
delivered or otherwise provided by the Company or any Subsidiary is subject to
any guaranty, warranty, right of return or other indemnity.
2.21 Employees.
(a) Section 2.21 of the Disclosure Schedule contains a list of all
employees of the Company and each Subsidiary, along with the position, date of
hire, the annual rate of compensation (or with respect to employees compensated
on an hourly or per diem basis, the hourly or per diem rate of compensation)
and estimated or target annual incentive compensation of each such person. None
of such employees is a party to an employment agreement or contract with the
Company. Each such Employee has entered into the Company's standard form of
confidentiality and assignment of inventions agreement with the Company or a
Subsidiary, a copy of which has previously been delivered to the Buyer. To the
knowledge of the Company and its Subsidiaries, no key employee or group of
employees has any plans to terminate employment with the Company or any
Subsidiary.
(b) Neither the Company nor any Subsidiary is a party to or bound by any
collective bargaining agreement, nor has any of them experienced any strikes,
grievances, claims of unfair labor practices or other collective bargaining
disputes. The Company and the Subsidiaries have no knowledge of any
organizational effort made or threatened, either currently or within the past
two years, by or on behalf of any labor union with respect to employees of the
Company or any Subsidiary.
(c) Neither the Company or any Subsidiary nor any director, who is also
an employee of the Company or a Subsidiary, officer or other key employee of
the Company or any Subsidiary owns, directly or indirectly, individually or
collectively, any interest in any Business Entity (other than as the holder of
less than 20% of the stock of a public Business Entity) which is in a business
similar or competitive to the businesses of the Company and the Subsidiaries or
which has any existing undisclosed contractual relationship with the Company or
any of the Subsidiaries.
(d) For purposes of this Agreement, the term "employee" shall be
construed to include sales agents and other independent contractors who spend a
majority of their working time on the business of the Company or any Subsidiary
(each of whom shall be so identified in Section 2.21 of the Disclosure
Schedule).
2.22 Employee Benefits.
(a) Section 2.22(a) of the Disclosure Schedule contains a complete and
accurate list of all Employee Benefit Plans (as defined below) maintained, or
contributed to, by the Company, any Subsidiary, or any ERISA Affiliate (as
defined below). For purposes of this Agreement, "Employee Benefit Plan" means
any "employee pension benefit plan" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), any "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA), and any other
written or oral plan, agreement or arrangement involving direct or indirect
compensation, including without limitation insurance coverage, severance
benefits, disability benefits, deferred compensation, bonuses, stock options,
stock purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement compensation. For purposes of this Agreement,
"ERISA Affiliate" means any entity which is a member of (i) a controlled group
of corporations (as defined in Section 414(b) of the Code), (ii) a group of
trades or businesses under common control (as defined in Section 414(c) of the
Code), or (iii) an affiliated service group (as defined under Section 414(m) of
the Code or the regulations under Section 414(o) of the Code), any of which
includes the Company or a Subsidiary. Complete and accurate copies of (i) all
Employee Benefit Plans which have been reduced to writing, (ii) written
summaries of all unwritten Employee Benefit Plans, (iii) all related trust
agreements, insurance contracts and summary plan
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descriptions, and (iv) all annual reports filed on IRS Form 5500, 5500C or
5500R for the last five plan years for each Employee Benefit Plan, have been
delivered to the Buyer. Each Employee Benefit Plan has been administered in
accordance with its terms and each of the Company, the Subsidiaries and the
ERISA Affiliates has met its obligations with respect to such Employee Benefit
Plan and has made all required contributions thereto. The Company and all
Employee Benefit Plans are in compliance with the currently applicable
provisions of ERISA and the Code and the regulations thereunder.
(b) There are no investigations by any Governmental Entity, termination
proceedings or other claims (except claims for benefits payable in the normal
operation of the Employee Benefit Plans and proceedings with respect to
qualified domestic relations orders) suits or proceedings against or involving
any Employee Benefit Plan or asserting any rights or claims to benefits under
any Employee Benefit Plan that could give rise to any liability.
(c) All the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, no
such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date
of its most recent determination letter or application therefor in any respect,
and no act or omission has occurred, that would adversely affect its
qualification or increase its cost.
(d) Neither the Company, any Subsidiary, nor any ERISA Affiliate has ever
maintained an Employee Benefit Plan subject to Section 412 of the Code or Title
IV of ERISA.
(e) At no time has the Company, any Subsidiary or any ERISA Affiliate
been obligated to contribute to any "multi-employer plan" (as defined in
Section 4001(a)(3) of ERISA).
(f) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination of employment to any employee of the
Company or any Subsidiary (or to any beneficiary of any such employee),
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980B of the Code and insurance conversion privileges under state law.
(g) No act or omission has occurred and no condition exists with respect
to any Employee Benefit Plan maintained by the Company, any Subsidiary or any
ERISA Affiliate that would subject the Company, any Subsidiary or any ERISA
Affiliate to any material fine, penalty, tax or liability of any kind imposed
under ERISA or the Code.
(h) No Employee Benefit Plan is funded by, associated with, or related to
a "voluntary employee's beneficiary association" within the meaning of Section
501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan documentation or agreement, summary
plan description or other written communication distributed generally to
employees by its terms prohibits the Company from amending or terminating any
such Employee Benefit Plan.
(j) Section 2.22(j) of the Disclosure Schedule discloses each: (i)
agreement with any director, executive officer or other key employee of the
Company or any Subsidiary (A) the benefits of which are contingent, or the
terms of which are altered, upon the occurrence of a transaction involving the
Company or any Subsidiary of the nature of any of the transactions contemplated
by this Agreement, (B) providing any term of employment or compensation
guarantee or (C) providing severance benefits or other benefits after the
termination of employment of such director, executive officer or key employee;
(ii) agreement, plan or arrangement under which any person may receive payments
from the Company or any Subsidiary that may be subject to the tax imposed by
Section 4999 of the Code or included in the determination of such person's
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"parachute payment" under Section 280G of the Code; and (iii) agreement or plan
binding the Company or any Subsidiary, including without limitation any stock
option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan, severance benefit plan, or any Employee Benefit Plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement. The accruals for vacation, sickness and disability expenses are
accounted for on the Most Recent Balance Sheet and are adequate and properly
reflect the expenses associated therewith in accordance with GAAP.
2.23 Environmental Matters.
(a) Each of the Company and the Subsidiaries has complied with all
applicable Environmental Laws (as defined below). There is no pending or, to
the knowledge of the Company and the Subsidiaries, threatened civil or criminal
litigation, written notice of violation, formal administrative proceeding, or
investigation, inquiry or information request by any Governmental Entity,
relating to any Environmental Law involving the Company or any Subsidiary. For
purposes of this Agreement, "Environmental Law" means any federal, state or
local law, statute, rule or regulation or the common law relating to the
environment or occupational health and safety, including without limitation any
statute, regulation or order pertaining to (i) treatment, storage, disposal,
generation and transportation of industrial, toxic or hazardous substances or
solid or hazardous waste; (ii) air, water and noise pollution; (iii)
groundwater and soil contamination; (iv) the release or threatened release into
the environment of industrial, toxic or hazardous substances, or solid or
hazardous waste, including without limitation emissions, discharges,
injections, spills, escapes or dumping of pollutants, contaminants or
chemicals; (v) the protection of wild life, marine sanctuaries and wetlands,
including without limitation all endangered and threatened species; (vi)
storage tanks, vessels and containers; (vii) underground and other storage
tanks or vessels, abandoned, disposed or discarded barrels, containers and
other closed receptacles; (viii) health and safety of employees and other
persons; and (ix) manufacture, processing, use, distribution, treatment,
storage, disposal, transportation or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or oil or petroleum
products or solid or hazardous waste. As used above, the terms "release" and
"environment" shall have the meaning set forth in the federal Comprehensive
Environmental Compensation, Liability and Response Act of 1980 ("CERCLA").
(b) There have been no releases of any Materials of Environmental Concern
(as defined below) into the environment at any parcel of real property or any
facility formerly or currently owned, operated or controlled by the Company or
a Subsidiary. With respect to any such releases of Materials of Environmental
Concern, the Company or such Subsidiary has given all required notices to
Governmental Entities (copies of which have been provided to the Buyer).
Neither the Company nor any Subsidiary is aware of any releases of Materials of
Environmental Concern at parcels of real property or facilities other than
those owned, operated or controlled by the Company or a Subsidiary that could
reasonably be expected to have an impact on the real property or facilities
owned, operated or controlled by the Company or a Subsidiary. For purposes of
this Agreement, "Materials of Environmental Concern" means any chemicals,
pollutants or contaminants, hazardous substances (as such term is defined under
CERCLA), solid wastes and hazardous wastes (as such terms are defined under the
federal Resources Conservation and Recovery Act), toxic materials, oil or
petroleum and petroleum products, or any other material subject to regulation
under any Environmental Law.
(c) Set forth in Section 2.23(c) of the Disclosure Schedule is a list of
all environmental reports, investigations and audits relating to premises
currently or previously owned or operated by the Company or a Subsidiary
(whether conducted by or on behalf of the Company or a Subsidiary or a third
party, and whether done at the initiative of the Company or a Subsidiary or
directed by a Governmental Entity or other third party) which the Company has
possession of or access to. Complete and accurate copies of each such report,
or the results of each such investigation or audit, have been provided to the
Buyer.
(d) Set forth in Section 2.23(d) of the Disclosure Schedule is a list of
all of the solid and hazardous waste transporters and treatment, storage and
disposal facilities that have been utilized by the
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Company or a Subsidiary. Neither the Company nor any Subsidiary is aware of any
material environmental liability of any such transporter or facility.
2.24 Legal Compliance. Each of the Company and the Subsidiaries, and the
conduct and operations of their respective businesses, are and have been in
full compliance with each law (including rules and regulations thereunder) of
any federal, state, local or foreign government, or any Governmental Entity,
which (a) affects or relates to this Agreement or the transactions contemplated
hereby or (b) is applicable to the Company or such Subsidiary or business.
2.25 Permits. Section 2.25 of the Disclosure Schedule sets forth a list of
all permits, licenses, registrations, certificates, orders or approvals from
any Governmental Entity (including without limitation those issued or required
under Environmental Laws and those relating to the occupancy or use of owned or
leased real property) ("Permits") issued to or held by the Company or any
Subsidiary. Such listed Permits are the only Permits that are required for the
Company and the Subsidiaries to conduct their respective businesses as
presently conducted. Each such Permit is in full force and effect and, to the
best of the knowledge of the Company or any Subsidiary, no suspension or
cancellation of such Permit is threatened and there is no basis for believing
that such Permit will not be renewable upon expiration. Each such Permit will
continue in full force and effect immediately following the Closing.
2.26 Certain Business Relationships With Affiliates. No Company
Stockholders, Affiliate of any Company Stockholder or Affiliate of the Company
or of any Subsidiary (a) owns any property or right, tangible or intangible,
which is used in the business of the Company or any Subsidiary, (b) has any
claim or cause of action against the Company or any Subsidiary, (c) owes any
money to the Company or any Subsidiary or (d) is a party to any contract or
other arrangement (written or verbal) with the Company or any Subsidiary (the
agreements, arrangements and relationships described in this sentence are
hereinafter referred to as "Related Party Transactions"). Section 2.26 of the
Disclosure Schedule summarizes any Related Party Transactions.
2.27 Brokers' Fees. Except for fees payable to Piper Jaffray Inc., which
will be reflected as a liability on the Closing Balance Sheet if not paid in
full prior to the Closing, neither the Company nor any Subsidiary has any
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
2.28 Books and Records. The minute books and other similar records of the
Company and each Subsidiary contain true and complete records of all actions
taken at any meetings of the Company's or such Subsidiary's stockholders, Board
of Directors or any committee thereof and of all written consents executed in
lieu of the holding of any such meeting. The books and records of the Company
and each Subsidiary accurately reflect the assets, liabilities, business,
financial condition and results of operations of the Company or such Subsidiary
and have been maintained in accordance with good business and bookkeeping
practices.
2.29 Customers and Suppliers. No customer of the Company or any Subsidiary
has indicated within the past year that it will stop, or decrease the rate of,
buying materials, products or services from the Company or such Subsidiary. The
Company has good customer relations with its customers, and none of such
customers has notified the Company that it intends to discontinue its
relationship with the Company. To the knowledge of the Company and the
Subsidiaries, no unfilled customer order or commitment obligating the Company
or any Subsidiary to process, manufacture or deliver products or perform
services will result in a loss to the Company or any Subsidiary upon completion
of performance. To the knowledge of the Company and the Subsidiaries, no
purchase order or commitment of the Company or any Subsidiary is in excess of
normal requirements, nor are prices provided therein in excess of current
market prices for the products or services to be provided thereunder. No
material supplier of the Company or any Subsidiary has indicated within the
past year that it will stop, or decrease the rate of, supplying materials,
products or services to them. Section 2.29 of the Disclosure Schedule sets
forth a list of each customer of the Company during the last full fiscal year
and the interim period through the Balance Sheet Date and the amount of
revenues accounted for by such customer during each such periods. No supplier
is the sole supplier of any significant product or component to the
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Company or a Subsidiary. The Company has not received or submitted any invoices
or requests for any prepayment or deposits from customers for products to be
shipped, or services to be performed, after the Closing Date.
2.30 Pooling. To the knowledge of the Company and each Subsidiary, neither
the Company nor any of its Affiliates has through the date of this Agreement
taken or agreed to take any action that would prevent the Company and the Buyer
from accounting for the business combination to be effected by the Merger as a
"pooling of interests" in conformity with GAAP.
2.31 Company Action.
(a) The Board of Directors of the Company, at a meeting duly called and
held, has by the unanimous vote of all directors present (i) determined that
the Merger is fair and in the best interests of the Company and its
stockholders, (ii) adopted this Agreement in accordance with the provisions of
the Delaware General Corporation Law, and (iii) directed that this Agreement
and the Merger be submitted to the Company Stockholders for their adoption and
approval and resolved to recommend that Company Stockholders vote in favor of
the adoption of this Agreement and the approval of the Merger.
(b) The financial advisors to the Company have delivered to the Company
an opinion, dated the date hereof, to the effect that the terms of the Merger
are fair to the Company Stockholders from a financial point of view and will
deliver to the Buyer as soon as it is received a copy of such opinion in the
form reduced to writing and signed by the Company's financial advisor dated the
date of this Agreement.
2.32 Prepayments, Prebilled Invoices and Deposits.
(a) Section 2.32(a) of the Disclosure Schedule sets forth (i) all
prepayments, prebilled invoices and deposits that have been received by the
Company or any Subsidiary as of the date of this Agreement from customers for
products to be shipped, or services to be performed, after the Closing Date,
and (ii) with respect to each such prepayment, prebilled invoice or deposit,
(A) the party and contract credited, (B) the date received or invoiced, (C) the
products and/or services to be delivered, and (D) the conditions for the return
of such prepayment, prebilled invoice or deposit. All such prepayments,
prebilled invoices and deposits are properly accrued for on the Most Recent
Balance Sheet in accordance with GAAP applied on a consistent basis with the
past practice of the Company and the Subsidiaries.
(b) Section 2.32(b) of the Disclosure Schedule sets forth (i) all
prepayments, prebilled invoices and deposits that have been made or paid by the
Company or any Subsidiary as of the date of this Agreement for products to be
purchased, services to be performed or other benefits to be received after the
Closing Date, and (ii) with respect to each such prepayment, prebilled invoice
or deposit, (A) the party to whom such prepayment, prebilled invoice or deposit
was made or paid, (B) the date made or paid, (C) the products and/or services
to be delivered, and (D) the conditions for the return of such prepayment,
prebilled invoice or deposit. All such prepayments, prebilled invoices and
deposits are properly accrued for on the Most Recent Balance Sheet in
accordance with GAAP applied on a consistent basis with the past practices of
the Company.
2.33 Banking Facilities. Section 2.33 of the Disclosure Schedule identifies:
(a) Each bank, savings and loan or similar financial institution in which
the Company or any Subsidiary has an account or safety deposit box and the
numbers of the accounts or safety deposit boxes maintained by the Company or
such Subsidiary thereat; and
(b) The names of all persons authorized to draw on each such account or
to have access to any such safety deposit box facility, together with a
description of the authority (and conditions thereof, if any) or each such
person with respect thereto.
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2.34 Year 2000.
(a) Other than commercially available software licensed to the Company on
a non-exclusive basis and except as set forth in Section 2.34 of the Disclosure
Schedule attached hereto, all software used by the Company or any Subsidiary
that contains or calls on a calendar function, including without limitation any
function that is indexed to a computer processing unit clock, provides specific
dates or calculates spans of dates, is and will be able to record, store,
process and provide true and accurate dates and calculations for dates and
spans of dates including and following January 1, 2000.
(b) All software sold, licensed or otherwise made available to any third
party by the Company or any Subsidiary, that in each case, contains or calls on
a calendar function, including without limitation any function that is indexed
to a computer processing unit clock, provides specific dates or calculates
spans of dates, is and will be able to record, store, process and provide true
and accurate dates and calculations for dates and spans of dates including and
following January 1, 2000.
2.35 Disclosure. No representation or warranty by the Company contained in
this Agreement, and no statement contained in the Disclosure Schedule or any
other document, certificate or other instrument delivered or to be delivered by
or on behalf of the Company pursuant to this Agreement, and no other statement
made by the Company or any of its representatives in connection with this
Agreement, contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading. The Company has disclosed to the
Buyer all material information relating to the business of the Company and any
Subsidiary and the transactions contemplated by this Agreement.
2.36 Information in Registration Statement. None of the information supplied
or to be supplied by the Company or any of its Subsidiaries for the purpose of
inclusion in the registration statement on Form S-4 to be filed with the
Securities and Exchange Commission (the "SEC") by the Buyer under the
Securities Act for the purpose of registering the Merger Shares to be issued
(together with any amendments or supplements thereto, whether prior to or after
the effective date thereof, the "Registration Statement") will, at the time the
Registration Statement is filed with the SEC, at the time the Registration
Statement becomes effective under the Securities Act and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents and warrants to
the Company as follows:
3.1 Organization. Each of the Buyer and the Transitory Subsidiary is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the state of its incorporation.
3.2 Capitalization. The authorized capital stock of the Transitory
Subsidiary consists of 1,000 shares of common stock, $.01 par value per share,
of which 1,000 shares are issued and outstanding and held by the Buyer. The
common stock of the Transitory Subsidiary will represent the only class or
series of capital stock of the Transitory Subsidiary entitled to vote on the
adoption of this Agreement.
3.3 Authorization of Transaction. Each of the Buyer and the Transitory
Subsidiary has all requisite power and authority to execute and deliver this
Agreement and (in the case of the Buyer) the Escrow Agreement and to perform
its obligations hereunder and thereunder. The execution and delivery of this
Agreement and (in the case of the Buyer) the Escrow Agreement by the Buyer and
the Transitory Subsidiary and the performance of this Agreement and (in the
case of the Buyer) the Escrow Agreement the
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consummation of the transactions contemplated hereby and thereby by the Buyer
and the Transitory Subsidiary have been duly and validly authorized by all
necessary corporate action on the part of the Buyer and Transitory Subsidiary.
This Agreement has been duly and validly executed and delivered by the Buyer
and the Transitory Subsidiary and constitutes a valid and binding obligation of
the Buyer and the Transitory Subsidiary, enforceable against them in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditor's rights
generally.
3.4 Noncontravention. Subject to compliance with the applicable requirements
of the Securities Act and any applicable state securities laws, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Hart-Scott- Rodino
Act, the rules and regulations of the Nasdaq National Market, and the filing of
the Certificate of Merger as required by the Delaware General Corporation Law,
neither the execution and delivery of this Agreement or (in the case of the
Buyer) the Escrow Agreement by the Buyer or the Transitory Subsidiary, nor the
consummation by the Buyer or the Transitory Subsidiary of the transactions
contemplated hereby or thereby (including the issuance of the Merger Shares),
will (a) conflict or violate any provision of the charter or By-laws of the
Buyer or the Transitory Subsidiary, (b) require on the part of the Buyer or the
Transitory Subsidiary any filing with, or permit, authorization, consent or
approval of, any Governmental Entity, (c) conflict with, result in breach of,
constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of, create in any party any right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest or other arrangement to which the Buyer or
Transitory Subsidiary is a party or by which either is bound or to which any of
their assets are subject, or (d) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer or the Transitory
Subsidiary or any of their properties or assets.
3.5 Reports and Financial Statements. The Buyer has previously furnished to
the Company complete and accurate copies, as amended or supplemented, of its
(a) Annual Report on Form 10-K for the fiscal year ended December 31, 1997, as
filed with the SEC, and (b) all other reports filed by the Buyer under Section
13 of the Exchange Act with the SEC since January 1, 1998 (such reports,
together with any amendments or supplements thereto are collectively referred
to herein as the "Buyer Reports"). As of their respective dates, the Buyer
Reports did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited financial statements and unaudited interim
financial statements of the Buyer included in the Buyer Reports (i) comply as
to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, (ii) have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby (except as may be indicated therein or in the notes
thereto, and in the case of quarterly financial statements, as permitted by
Form 10-Q under the Exchange Act), (iii) fairly present the consolidated
financial condition, results of operations and cash flows of the Buyer as of
the respective dates thereof and for the periods referred to therein, and (iv)
are consistent with the books and records of the Buyer.
3.6 Brokers' Fees. Except for fees payable to Cowen & Co., neither the Buyer
nor the Transitory Subsidiary has any liability or obligation to pay any fees
or commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.
3.7 Legality of Merger Shares. All of the Merger Shares have been duly
authorized and, when issued and delivered in accordance with the terms hereof,
will be validly issued, fully paid and non-assessable, and free of pre-emptive
rights.
3.8 Disclosure. No representation or warranty by the Buyer contained in this
Agreement, and no statement contained in any document, certificate or other
instrument delivered to or to be delivered by or on behalf of the Buyer
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact or omit or will omit to state any material fact necessary, in
light of the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading.
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ARTICLE IV
COVENANTS
4.1 Best Efforts. Each of the Parties shall use its best efforts, to the
extent commercially reasonable, to take all actions and to do all things
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement; provided, however, that notwithstanding anything in this
Agreement to the contrary, the Buyer shall not be required to sell or dispose
of or hold separately (through a trust or otherwise) any assets or businesses
of the Buyer or its Affiliates. The Buyer and the Company shall each use all
commercially reasonable efforts to cause the Merger to be treated as a
reorganization within the meaning of Section 368 of the Code.
4.2 Notices and Consents. The Company shall use its best efforts to obtain,
at its expense, all such waivers, permits, consents, approvals or other
authorizations from third parties and Governmental Entities, and to effect all
such registrations, filings and notices with or to third parties and
Governmental Entities, as may be required by or with respect to the Company in
connection with the transactions contemplated by this Agreement (including
without limitation those listed in Section 2.4, Section 2.12 or Section 2.25 of
the Disclosure Schedule). Each of the Buyer and the Transitory Subsidiary shall
use its best efforts to obtain, at its expense, all such waivers, permits,
consents, approvals or other authorizations from third parties and Governmental
Entities, and to effect all such registrations, filings and notices with or to
third parties and Governmental Entities, as may be required by or with respect
to the Buyer or the Transitory Subsidiary, as the case may be, in connection
with the transactions contemplated by this Agreement.
4.3 Registration; Special Meeting; Other Actions
(a) Within 90 days of the date hereof, assuming receipt by the Buyer of
the initial Computer Certificate, the Buyer shall prepare and file the
Registration Statement with the SEC. The Buyer acknowledges that the Company
and its counsel may participate in the preparation of the Registration
Statement, provided that the final determination of any issues related thereto
shall be made by the Buyer. The Buyer shall also take actions (other than
qualifying to do business in any jurisdiction in which the Buyer is now not so
qualified) as may be required to be taken under any applicable state securities
laws in connection with the issuance of Buyer Common Stock in the Merger. The
Company and its counsel and accountants shall furnish all information
concerning the Company and the holders of Company Shares as may be reasonably
requested in connection with the foregoing, including without limitation all
information concerning the Company and the holders of Company Shares that is
required by the SEC to be included in the Registration Statement.
(b) Each Party agrees, subject to applicable laws relating to the
exchange of information, promptly to furnish the other Parties with copies of
written communications (and memoranda setting forth the substance of all oral
communications) received by such Party, or any of its Subsidiaries, affiliates
or associates (as such terms are defined in Rule 12b-2 under the Exchange Act
as in effect on the date hereof), from, or delivered by any of the foregoing
to, any Governmental Entity relating to or in respect of the transactions
contemplated under this Agreement.
(c) The Company shall use its reasonable best efforts to cause to be
delivered to the Buyer a "comfort" letter of Ernst & Young LLP, the Company's
independent public accountants, dated the date on which the Registration
Statement shall become effective and as of the Effective Time, and addressed to
the Buyer and the Company, in form and substance reasonably satisfactory to the
Buyer and reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as those
contemplated by this Agreement.
(d) The Company (i) shall call a meeting of its stockholders to be held
as promptly as practicable after the date hereof for purposes of voting upon
this Agreement (the "Company Special Meeting") or (ii) shall solicit written
consents of its stockholders in lieu thereof. The Company and the Subsidiaries
shall
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comply with all applicable provisions of the Delaware General Corporation Law
in the calling and holding of the Company Special Meeting.
(e) The Company, acting through its Board of Directors, shall include in
any proxy statement or written action relating to the Company Special Meeting
the recommendation of its Board of Directors that the Company Stockholders vote
in favor of the adoption of this Agreement and the approval of the Merger, and
shall otherwise use its best efforts to obtain the Requisite Stockholder
Approval.
(f) Gene Barduson and Vincent Estrada each agree to (i) vote all Company
Shares that are beneficially owned by him or it, or for which he or it has
voting authority, in favor of the adoption of this Agreement and the approval
of the Merger and (ii) otherwise use his or its best efforts to obtain the
Requisite Stockholder Approval.
4.4 Operation of Business. Except as contemplated by this Agreement, during
the period from the date of this Agreement to the Effective Time, the Company
shall (and shall cause each Subsidiary to) conduct its operations in the
Ordinary Course of Business and in compliance with all applicable laws and
regulations and, to the extent consistent therewith, use all reasonable efforts
to preserve intact its current business organization, keep its physical assets
in good working condition, keep available the services of its current officers
and employees and preserve its relationships with customers, suppliers and
others having business dealings with it to the end that its goodwill and
ongoing business shall not be impaired in any material respect. Without
limiting the generality of the foregoing, prior to the Effective Time, neither
the Company nor any Subsidiary shall, without the prior written consent of the
Buyer:
(a) issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) or authorize the issuance, sale
or delivery of, or redeem or repurchase, any stock of any class or any other
securities or any rights, warrants or options to acquire any such stock or
other securities (except pursuant to the conversion or exercise of convertible
securities, Options or Warrants outstanding on the date hereof), or amend any
of the terms of any such convertible securities, Options or Warrants;
(b) split, combine or reclassify any shares of its capital stock; or
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
(c) create, incur or assume any debt not currently outstanding (including
obligations in respect of capital leases) other than from the Buyer pursuant to
that certain loan agreement dated the date hereof; assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or make any
loans, advances or capital contributions to, or investments in, any other
person or entity;
(d) enter into, adopt or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement of the type described in
Section 2.22(j) or (except for normal increases in the Ordinary Course of
Business) increase in any manner the compensation or fringe benefits of, or
materially modify the employment terms of, its directors, officers or
employees, generally or individually, or pay any benefit not required by the
terms in effect on the date hereof of any existing Employee Benefit Plan;
(e) acquire, sell, lease, encumber or dispose of any assets or property
(including without limitation any shares or other equity interests in or
securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases and
sales of assets in the Ordinary Course of Business;
(f) amend its Certificate of Incorporation or By-laws;
(g) change in any material respect its accounting methods, principles or
practices, except insofar as may be required by a generally applicable change
in GAAP;
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(h) discharge or satisfy any Security Interest or pay any obligation or
liability other than in the Ordinary Course of Business;
(i) mortgage or pledge any of its property or assets or subject any such
assets to any Security Interest;
(j) sell, assign, transfer or license any Intellectual Property, other
than in the Ordinary Course of Business;
(k) enter into, amend, terminate, take or omit to take any action that
would constitute a violation of or default under, or waive any rights under,
any material contract or agreement;
(l) make or commit to make any capital expenditure in excess of $10,000
per expenditure or $50,000 in the aggregate;
(m) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Company set
forth in this Agreement becoming untrue in any material respect or (ii) any of
the conditions to the Merger set forth in Article V not being satisfied;
(n) take any action that would jeopardize the treatment of the Merger as
a "pooling of interests" for accounting purposes;
(o) agree in writing or otherwise to take any of the foregoing actions;
or
(p) make any accrual or promise to pay any bonus or other form of
compensation or make any loan to any employee or entity outside the Ordinary
Course of Business.
The Parties acknowledge that as a condition to receiving the Buyer's prior
written consent in accordance with this Section 4.4, the Buyer and the Company
may mutually agree to reduce the Purchase Price.
4.5 Full Access. The Company shall (and shall cause each Subsidiary to)
permit representatives of the Buyer to have full access (at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of the Company and the Subsidiaries) to all premises, properties,
financial and accounting records, contracts, other records and documents, and
personnel, of or pertaining to the Company and each Subsidiary. The officers
and management of the Company and the Subsidiaries shall cooperate fully with
the Buyer's representatives and agents and shall make themselves available to
the extent necessary to complete the due diligence process and the Closing. The
Company shall, at the request of the Buyer, introduce the Buyer to the
principal customers and employees and the Company and the Subsidiaries to
facilitate discussions between such persons and the Buyer in regard to the
conduct of the business of the Company and the Subsidiaries following the
Closing. Notwithstanding the foregoing, the Buyer shall work with and consult
with officers of the Company with respect to contacting such employees and
customers.
4.6 Notice of Breaches. The Company shall promptly deliver to the Buyer
written notice of any event or development that would (a) render any statement,
representation or warranty of the Company in this Agreement (including the
Disclosure Schedule) inaccurate or incomplete in any respect, or (b) constitute
or result in a breach by the Company of, or a failure by the Company to comply
with, any agreement or covenant in this Agreement applicable to such party. No
such disclosure shall be deemed to avoid or cure any such misrepresentation or
breach.
4.7 Exclusivity. The Company, Gene Barduson and Vincent Estrada shall not,
and the Company shall use its best efforts to cause its Affiliates and each of
its officers, directors, employees, representatives and agents not to, directly
or indirectly, (a) encourage, solicit, initiate, engage or participate in
discussions or
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negotiations with any person or entity (other than the Buyer) concerning any
merger, consolidation, sale of material assets, tender offer, recapitalization,
accumulation of Company Shares, proxy solicitation or other business
combination involving the Company, any Subsidiary or any division of the
Company or any Subsidiary or (b) provide any non-public information concerning
the business, properties or assets of the Company or any Subsidiary to any
person or entity (other than the Buyer) without the prior written consent of
the Buyer other than providing pricing information and information concerning
the Company's system architecture to customers and prospective customers in the
Ordinary Course of Business. The Company shall immediately notify the Buyer of,
and shall disclose to the Buyer all details of, any inquiries, discussions or
negotiations of the nature described in the first sentence of this Section 4.7.
4.8 Agreements from Certain Affiliates of the Company. Concurrently with the
execution of this Agreement, the Company shall deliver to the Buyer a list of
all persons or entities who are at such time Affiliates of the Company (the
"Company Affiliates"). In order to help ensure that the Merger will be
accounted for as a "pooling of interests," that the issuance of Merger Shares
will comply with the Securities Act, and that the Merger will be treated as a
tax-free reorganization, the Company shall cause each Company Affiliate to
execute and deliver to the Buyer, concurrently with the signing of this
Agreement, a written agreement substantially in the form attached hereto as
Exhibit B (the "Affiliate Agreement").
4.9 Monthly Financial Statements. Promptly as possible following the last
day of each month after the date of this Agreement until the Closing Date, and
in any event within 15 days after the end of each such month, the Company shall
deliver to the Buyer an unaudited consolidated balance sheet of the Company and
the Subsidiaries and the related statements of income, retained earnings,
stockholders' equity and cash flows for the one-month period then ended
(collectively, the "Interim Financial Statements"). The Interim Financial
Statements shall, from and after the delivery thereof, constitute part of the
"Financial Statements" for purposes of this Agreement.
4.10 Nasdaq National Market. The Buyer will file all documents required to
be filed to list the Merger Shares on the Nasdaq National Market and use its
best efforts to effect said listing.
4.11 Blue Sky Approvals. The Buyer will file all documents required to
obtain the Blue Sky permits and approvals, if any, required to carry out the
transactions contemplated by this Agreement (to the extent required prior to
the Effective Time), will pay all expenses incident thereto and will use its
best efforts to obtain such permits and approvals; provided, however, that the
Buyer shall not be required in connection with this Section 4.11 to qualify as
a foreign corporation or execute a general consent to service of process in any
jurisdiction.
4.12 Hart-Scott-Rodino Act. Each of the Buyer, the Company and the Company
Stockholders shall promptly file any Notification and Report Forms and related
material that it, he or she may be required to file with the Federal Trade
Commission and the Antitrust Division of the United States Department of
Justice under the Hart-Scott-Rodino Act, shall use his, her or its best efforts
to obtain an early termination of the applicable waiting period, and shall make
any further filings or information submissions pursuant thereto that may be
necessary, proper or advisable.
4.13 Pooling Accounting. From and after the date hereof and until the
Effective Time, neither the Company nor the Buyer nor any of their respective
subsidiaries shall knowingly take any action that is reasonably likely to
jeopardize the treatment of the merger as a "pooling of interests" for
accounting purposes.
4.14 Indemnification of Company Officers and Directors. Buyer shall
guarantee and shall cause the Surviving Corporation to maintain and perform the
Company's existing indemnification provisions with respect to present and
former directors and officers of the Company for all losses, claims, damages,
expenses or liabilities arising out of actions or omissions or alleged actions
or omissions in their capacities as directors and/or officers occurring at or
prior to the Effective Time to the extent required under the Company's
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Certificate of Incorporation and Bylaws in effect as of the date hereof and
permitted under and consistent with applicable law, for a period of not less
than three years after the Effective Time. During the period commencing as of
the Effective Time and ending on the third anniversary of the Effective Time,
Buyer shall cause to be maintained in effect, for the benefit of present and
former directors and officers of the Company, a policy of directors' and
officers' liability insurance that is substantially identical in scope and
coverage to the directors' and officers' liability insurance policy currently
maintained by Company. Prior to the Effective Time, the Company shall obtain a
three year tail policy on the Company's directors' and officers' liability
insurance policy.
4.15 Resolution of Computer Issue. The Company shall use its best efforts to
resolve, to the satisfaction of the Buyer, the Computer Issue within eight
weeks of the date of this Agreement. No later than eight weeks after the date
of this Agreement, the Company shall provide to the Buyer a certificate (the
"Computer Certificate") signed by an officer of the Company setting forth in
detail, together with all supporting documentation, the following information:
(i) the results of the work to be performed by IKON Office Solutions on the
status of the Company's computer systems which shall include a full inventory
of the Company's computers and a description of the licenses that are necessary
to operate the computers using the Necessary Software (as defined in Section
2.12 of the Disclosure Schedule) for the Minimum Number of Computers (as
defined in Section 2.12 of the Disclosure Schedule); (ii) an itemization of all
costs incurred by the Company in connection with the Company's efforts to
resolve the Computer Issue; (iii) a description of all steps taken and to be
taken by the Company to resolve the Computer Issue; (iv) a description of any
claims asserted or threatened to be asserted against the Company in any way
related to the Computer Issue; and (v) if the Computer Issue has not been
resolved as of the date of delivery of the Computer Certificate, an estimate of
the future costs the Company expects to incur on or after the date of such
Certificate in connection with the resolution of the Computer Issue which
future costs shall include (x) any amounts estimated by IKON Office Solutions
or any other mutually agreeable third party plus any other amount equal the
additional current retail license fees necessary in order to obtain the
Necessary Software for the Minimum Number of Computers that had not been
incurred by the Company on the date of the Certificate (the "Compliance Costs")
and, (y) if not included in the Compliance Costs, the amount of any threatened
or asserted claim in clause (iv) if specified or, if not specified, a
reasonable estimate of the maximum amount of any such claim (the "Computer
Claim Amount"). The Company shall provide to the Buyer updated Computer
Certificates pursuant to Sections 1.5(b)(iii) and 5.2(m) of the Agreement. In
the event that the Computer Issue is not fully resolved as of the Closing Date,
then such additional number of shares as is equal to sum of (x) 2.7 times the
Compliance Costs plus (y) 1.2 times the Computer Claim Amount divided by the
Buyer Stock Price shall be deemed to be Escrow Shares instead of Initial Shares
and shall be deposited in a special escrow account to be established at Closing
(the "Computer Escrow"). In such event, the percentages set forth in Section
1.5(b)(iii) of the Agreement shall automatically be adjusted to reflect that
the number of Initial Shares derived from the calculation set forth in the
foregoing sentence had become Escrow Shares such that the Escrow Shares shall
be deducted from the Initial Shares delivered to each Optionholder and
Stockholder at the Closing on a pro rata basis.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations. The respective obligations of
each Party to consummate the Merger are subject to the satisfaction of the
following conditions:
(a) all applicable waiting periods (and any extensions thereof) under the
Hart-Scott-Rodino Act shall have expired or otherwise been terminated;
(b) this Agreement and the Merger shall have received the Requisite
Stockholder Approval; and
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(c) no action, suit or proceeding shall be pending or threatened by or
before any Governmental Entity wherein an unfavorable judgment, order, decree,
stipulation or injunction would (i) prevent consummation of any of the
transactions contemplated by this Agreement, (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation or (iii)
affect adversely the right of the Buyer to own, operate or control any of the
assets and operations of the Surviving Corporation and the Subsidiaries
following the Merger, and no such judgment, order, decree, stipulation or
injunction shall be in effect.
5.2 Conditions to Obligations of the Buyer and the Transitory
Subsidiary. The obligation of each of the Buyer and the Transitory Subsidiary
to consummate the Merger is subject to the satisfaction of the following
additional conditions:
(a) the number of Dissenting Shares shall not exceed 5% of the number of
outstanding Company Shares as of the Effective Time;
(b) the Company and the Subsidiaries shall have obtained (i) all of the
waivers, permits, consents, approvals or other authorizations, and effected all
of the registrations, filings and notices, referred to in the first sentence of
Section 4.2;
(c) the representations and warranties of the Company set forth in
Article II shall be true and correct in all material respects when made on the
date hereof and shall be true and correct in all material respects as of the
Effective Time as if made as of the Effective Time, except for (i)
representations and warranties made as of a specific date, which shall be true
and correct in all material respects as of such date and (ii) any breach or
noncompliance resulting from occurrences or developments between the date of
this Agreement and the Effective Time which are (x) not material to the Company
and the Subsidiaries, taken as a whole, or (y) not material to that segment of
the business of the Company and the Subsidiaries serviced on the Company's
proprietary network;
(d) the Company shall have performed or complied with its agreements and
covenants required to be performed or complied with under this Agreement as of
or prior to the Effective Time in all material respects;
(e) the Company shall have delivered to the Buyer and the Transitory
Subsidiary a certificate (without qualification as to knowledge or materiality
or otherwise) to the effect that each of the conditions specified in clauses
(b) and (c) of Section 5.1 and clauses (a) through (d) of this Section 5.2 is
satisfied in all respects;
(f) the Buyer and the Transitory Subsidiary shall have received from
Pillsbury Madison & Sutro LLP, counsel to the Company, an opinion substantially
in the form attached hereto as Exhibit C, addressed to the Buyer and the
Transitory Subsidiary and dated as of the Closing Date unless such opinion
cannot be delivered due to facts, circumstances or events or for a reason that
is not material and would not otherwise constitute a failure of a condition
under Section 5.1 or 5.2.
(g) [Intentionally omitted]
(h) the Buyer, the Indemnification Representative and the Escrow Agent
shall have entered into the Escrow Agreement in the form attached hereto as
Exhibit A and such Agreement shall be in full force and effect on the Closing
Date in accordance with its terms;
(i) the Buyer shall have received a letter from Ernst & Young LLP,
auditors for the Buyer, in a form reasonably satisfactory to the Buyer, dated
the Closing Date, to the effect that the Buyer shall be entitled to treat the
Merger as a "pooling of interests" for accounting purposes as provided for in
Accounting Principles Board Opinion No. 16;
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(j) the Buyer and the Transitory Subsidiary shall have received the
resignations, effective as of the Effective Time, of each director and officer
of the Company and the Subsidiaries specified by the Buyer in writing at least
five business days prior to the Closing;
(k) the Buyer shall have received, from all advisors, consultants,
accountants, lawyers, investment bankers, brokers, agents and other such
professionals, final invoices for fees, services, expenses and other amounts to
be paid by the Company or any Subsidiary in connection with the transactions
contemplated hereby (such final invoices, together with all invoices previously
rendered in connection with this transaction, the "Transaction Invoices");
(l) each holder of an Option shall have delivered to the Company a
written instrument providing for the exchange of such Option into a right to
receive shares of Buyer Common Stock (if any) prior to the Closing as
contemplated by Section 1.10 and each holder of an Option shall have agreed in
writing to be bound by the provisions of this Agreement and the Escrow
Agreement prior to the Closing provided however that so long as the Company
shall have received such instruments and agreements from holders of an
aggregate of 94% of the Options it shall be deemed to have satisfied the
condition specified in this Section 5.2(e);
(m) the Company shall have delivered a Computer Certificate dated as of
the Closing Date to the Buyer and, if the Computer Issue has not been resolved
to Buyer's satisfaction prior to Closing, the parties shall have created the
Computer Escrow; and
(n) all actions to be taken by the Company in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
the Buyer and the Transitory Subsidiary.
5.3 Conditions to Obligations of the Company. The obligation of the Company
to consummate the Merger is subject to the satisfaction of the following
additional conditions:
(a) the representations and warranties of the Buyer and the Transitory
Subsidiary set forth in Article III shall be true and correct in all material
respects when made on the date hereof and shall be true and correct in all
material respects as of the Effective Time as if made as of the Effective Time,
except for (i) representations and warranties made as of a specific date, which
shall be true and correct in all material respects as of such date and (ii) any
breach or noncompliance resulting from occurrences or developments between the
date of this Agreement and the Effective Date (other than those which have been
publicly disclosed pursuant to filings by the Buyer with the SEC) which are not
material to the Buyer;
(b) the Buyer and the Transitory Subsidiary shall have obtained all of
the waivers, permits, consents, approvals or other authorizations, and effected
all of the registrations, filings and notices, referred in the second sentence
of Section 4.2 hereof;
(c) each of the Buyer and the Transitory Subsidiary shall have performed
or complied with its agreements and covenants required to be performed or
complied with under this Agreement as of or prior to the Effective Time in all
material respects;
(d) there has not been any material adverse change in the business,
financial condition or results of operations of the Buyer and its subsidiaries,
taken as a whole, since the date of this Agreement;
(e) each of the Buyer and the Transitory Subsidiary shall have delivered
to the Company a certificate (without qualification as to knowledge or
materiality or otherwise) to the effect that each of the conditions specified
in clause (c) of Section 5.1 and clauses (a) through (d) of this Section 5.3 is
satisfied in all respects;
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(f) the Company shall have received from the General Counsel to the Buyer
and the Transitory Subsidiary, an opinion substantially in the form attached
hereto as Exhibit D, addressed to the Company and dated as of the Closing Date
unless such opinion cannot be delivered due to facts, circumstances or events
or for a reason that would not otherwise constitute a failure of a condition
under Section 5.1 or 5.3;
(g) the Buyer, the Indemnification Representative and Escrow Agent shall
have entered into the Escrow Agreement in the form attached hereto as Exhibit A
and such Agreement shall be in full force and effect on the Closing Date in
accordance with its terms;
(h) the Buyer and Transitory Subsidiary shall have delivered to the
Company a certificate, dated the Closing Date and executed by an executive
officer of the Buyer, in substantially the form attached as Exhibit E hereto;
and
(i) all actions to be taken by the Buyer and the Transitory Subsidiary in
connection with the consummation of the transactions contemplated hereby and
all certificates, opinions, instruments and other documents required to effect
the transactions contemplated hereby shall be reasonably satisfactory in form
and substance to the Company.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification. The Company Stockholders (including the holders of the
Options) shall indemnify the Surviving Corporation and the Buyer (the
"Indemnified Persons") in respect of, and hold the Indemnified Persons harmless
against, any and all claims, debts, obligations and other liabilities (whether
absolute, accrued, contingent, fixed or otherwise, or whether known or unknown,
or due or to become due or otherwise), monetary damages, fines, fees, Taxes,
penalties, interest obligations, deficiencies, losses and expenses (including
without limitation amounts paid in settlement, interest, court costs, costs of
investigators, reasonable fees and expenses of attorneys, accountants,
financial advisors and other experts, and other expenses of litigation)
incurred or suffered by the Indemnified Persons or any Affiliate thereof
("Damages"):
(a) resulting from, relating to or constituting any misrepresentation,
breach of warranty or failure to perform any covenant or agreement of the
Company contained in this Agreement or in the Certificates delivered pursuant
to Section 5.2(e) or Section 5.2(m), provided, that any indemnity for Damages
relating to Taxes shall be determined in accordance with Article VII hereof;
(b) resulting from or relating to any failure of any Company Stockholders
to have good, valid and marketable title to the issued and outstanding Company
Shares held by such Company Stockholders, free and clear of all liens, claims,
pledges, options, adverse claims or charges of any nature whatsoever;
(c) resulting from or relating to any claim by a stockholder or former
stockholder of the Company, or any other person or Business Entity, seeking to
assert, or based upon: (i) ownership or rights to ownership of any shares of
stock of the Company; (ii) any rights of a stockholder (other than the right to
receive the Merger Shares pursuant to this Agreement or appraisal rights under
the applicable provisions of the Delaware General Corporation Law), including
any option, preemptive rights or rights to notice or to vote; (iii) any rights
under the Certificate of Incorporation or By-laws of the Company; or (iv) any
claim that his, her or its shares were wrongfully repurchased by the Company;
(d) resulting from or relating to the complaint filed by Michelle Stuckey
against the Company alleging damages from violation of the Family and Medical
Leave Act and the Fair Labor Standards Act or the alleged actions of the
Company set forth in such complaint;
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(e) resulting from or relating to any claim against the Company or any
Subsidiary relating to the alleged failure to pay employment related taxes for
any employee or independent contractor of the Company or any Subsidiary; or
(f) resulting from or relating to any claim against the Company or any
Subsidiary relating in any way to the Computer Issue (except that such claims
shall first be made against amounts to be held in the Computer Escrow if a
Computer Escrow is established).
6.2 Method of Asserting Claims.
(a) All claims for indemnification by an Indemnified Person pursuant to
this Article VI shall be made in accordance with the provisions of the Escrow
Agreement.
(b) The Indemnified Person shall give prompt written notification to the
Indemnification Representative of the commencement of any action, suit or
proceeding relating to a third party claim for which indemnification pursuant
to this Article VI may be sought; provided, however, that no delay on the part
of the Indemnified Person in notifying the Indemnification Representative shall
relieve the Company Stockholders of any liability or obligation hereunder
except to the extent of any damage or liability caused by or arising out of
such delay. Within 20 days after delivery of such notification, the
Indemnification Representative may, upon written notice thereof to the
Indemnified Person, assume control of the defense of such action, suit or
proceeding with counsel reasonably satisfactory to the Indemnified Person,
provided (i) the Indemnification Representative acknowledges in writing to the
Indemnified Person, on behalf of the Company Stockholders, that any damages,
fines, costs or other liabilities that may be assessed against the Indemnified
Person in connection with such action, suit or proceeding constitute Damages
for which the Indemnified Person shall be entitled to indemnification pursuant
to this Article VI, (ii) the third party seeks monetary damages only, and (iii)
an adverse resolution of the third party's claim would not have a material
adverse effect on the goodwill or the reputation of the Indemnified Person or
the business, operations or future conduct of the Indemnified Person. If the
Indemnification Representative does not so assume control of such defense, the
Indemnified Person shall control such defense. The party not controlling such
defense may participate therein at its own expense; provided that if the
Indemnification Representative assumes control of such defense and the
Indemnified Person reasonably concludes that the indemnifying parties and the
Indemnified Person have conflicting interests or different defenses available
with respect to such action, suit or proceeding, the reasonable fees and
expenses of counsel to the Indemnified Person shall be considered "Damages" for
purposes of this Agreement. The party controlling such defense shall keep the
other party advised of the status of such action, suit or proceeding and the
defense thereof and shall consider in good faith recommendations made by the
other party with respect thereto. The Indemnified Person shall not agree to any
settlement of such action, suit or proceeding without the prior written consent
of the Indemnification Representative, which shall not be unreasonably withheld
or delayed. The Indemnification Representative shall not agree to any
settlement of or the entry of a judgment in any action, suit or proceeding
without the prior written consent of the Indemnified Person, which shall not be
unreasonably withheld (it being understood that it is reasonable to withhold
such consent if, among other things, the settlement or the entry of a judgment
(A) lacks a complete release of the Indemnified Person for all liability with
respect thereto or (B) imposes any liability or obligation on the Indemnified
Person).
6.3 Survival.
(a) Unless otherwise specified in this Section 6.3 or elsewhere in this
Agreement, all provisions of this Agreement shall survive the Closing and the
consummation of the transactions contemplated hereby and shall continue forever
in full force and effect in accordance with their terms.
(b) The representations and warranties of the Company set forth in
Article II above or in any other location in this Agreement, including the
certificate delivered by the Company pursuant to Section 5.2(e) hereof, and the
indemnification obligations set forth in this Article VI:
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(i) shall survive the Closing and the consummation of the transactions
contemplated hereby and continue until the first anniversary of the Closing
Date;
(ii) shall not be affected by any examination made for or on behalf of
the Buyer or the knowledge of any of the Buyer's officers, directors,
stockholders, employees or agents.
Notwithstanding the foregoing, the indemnification obligations set forth in
this Article VI specified in Sections 6.1(d) and (e) and, in the event a
Computer Escrow is established, Section 6.1(f) shall continue until the
expiration of the later of the applicable statute of limitations or the final
resolution by settlement, judicial resolution or other resolution of any claim
asserted pursuant to the foregoing Sections. For purposes of the
indemnification obligations set forth in this Article VI specified in Section
6.1(d), such number of shares having a Fair Market Value (as defined in the
Escrow Agreement) of $150,000 shall remain in escrow under the Escrow Agreement
until the final resolution by settlement, judicial resolution or other
resolution of any claim asserted pursuant to the foregoing Section prior to the
third anniversary of the Closing Date. For purposes of the indemnification
obligations set forth in this Article VI specified in Section 6.1(e), such
number of shares having a Fair Market Value of $200,000 shall remain in escrow
under the Escrow Agreement until the later of (i) the third anniversary of the
Closing Date or (ii) the final resolution by settlement, judicial resolution or
other resolution of any claim asserted pursuant to Section 6.1(e) prior to the
third anniversary of the Closing Date.
(c) The date on which any particular representation, warranty or
indemnification obligation of the Company and/or each of the Company
Stockholders terminates shall be referred to herein and in the Escrow Agreement
as the "Termination Date." If a notice of a claim is given in accordance with
the notice provisions of this Agreement or the Escrow Agreement before the
Termination Date, then (notwithstanding the occurrence of the Termination Date)
the representation, warranty or indemnification obligation applicable to such
claim shall survive until, but only for purposes of, the resolution of such
claim.
6.4 Limitations.
(a) Notwithstanding anything to the contrary herein, except as provided
in this Section 6.4, (a) the aggregate liability of the Company Stockholders
for Damages under this Article VI shall not exceed the fair market value of the
Escrow Property (as defined in the Escrow Agreement), as determined in
accordance with the Escrow Agreement and (b) the Company Stockholders shall not
be liable under this Article VI unless and until the aggregate Damages exceed
$100,000 (at which point the Company Stockholders shall become liable for all
Damages, in excess of $20,000). No Company Stockholder shall have any right of
contribution against the Company with respect to any breach by the Company of
any of its representations, warranties, covenants or agreements.
(b) The Buyer's recourse for Damages under Article VII and Sections
1.5(b)(vii), 6.1(b), (c), (d) and (e) and 10.11 shall not be subject to the
limitations set forth in Section 6.4(a). In the event that a Computer Escrow is
established, the Buyer's recourse for Damages under Section 6.1(f) shall not be
subject to the limitations set forth in 6.4(a).
ARTICLE VII
TAX MATTERS
7.1 Preparation and Filing of Tax Returns.
(a) The Company at the direction of the Company Stockholders shall cause
to be accurately prepared and timely filed all Tax Returns required to be filed
(taking into account extensions) prior to the Closing Date with respect to the
Company and any Subsidiaries or in respect of their businesses, assets or
operations.
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(b) The Buyer shall prepare and timely file or shall cause to be prepared
and timely filed all other Tax Returns with respect to the Company and any
Subsidiaries or in respect of their businesses, assets or operations.
7.2 Tax Indemnification by the Company Stockholders.
(a) The Company Stockholders shall indemnify the Buyer in respect of, and
hold the Buyer harmless, on an after-Tax basis, against the following Taxes
with respect to the Company and the Subsidiaries to the extent such Taxes
exceed the accruals or reserves for Taxes set forth on the Closing Balance
Sheet and the amount of any estimated Tax payments made on or before the
Closing Date (to the extent they had not been applied on or before the Closing
Date):
(i) Any and all Taxes due and payable by the Company or any
Subsidiaries for any taxable period that ends (or is deemed pursuant to Section
7.3(b) to end) on or before the Closing Date; and
(ii) Any sales, use, transfer, stamp, conveyance, value added,
recording, registration, documentary, filing or other Taxes and fees, whether
levied on the Buyer, the Company Stockholders, the Company, a Subsidiary or any
of their respective Affiliates, resulting from the Merger or otherwise on
account of this Agreement or the transactions contemplated hereby.
(b) Amounts payable pursuant to this Section 7.2 shall be computed after
taking into account all Tax consequences to the Buyer (or its Affiliates) of
(i) the receipt of (or the right to receive) the indemnification payment and
(ii) the incurrence of the liability that gave rise to the right to receive the
indemnification payment. Thus, it is the intention of the Parties that the
Buyer be held harmless with respect to the liability that gave rise to the
right to the indemnification payment on an after-Tax basis.
(c) All claims for indemnification pursuant to this Article VII shall be
made in accordance with Section 6.2 hereof.
7.3 Allocation of Certain Taxes.
(a) The Buyer and the Company Stockholders agree that if the Company or
any Subsidiary is permitted but not required under applicable foreign, state or
local Tax laws to treat the Closing Date as the last day of a taxable period,
the Buyer and the Company Stockholders shall treat such day as the last day of
a taxable period.
(b) Any Taxes for a taxable period ending after the Closing Date with
respect to the Company and/or any Subsidiary shall be the obligation of the
Buyer, the Company and/or any Subsidiary, and the Taxes for such period shall
be apportioned for the purpose of Section 7.2 based on the actual operations of
the Company and/or any Subsidiaries, as the case may be, during the portion of
such period ending on (and including) the Closing Date, if any, and the portion
of such period beginning on the day following the closing Date, and for
purposes of the provision of Section 7.2, each portion of such period shall be
deemed to be a taxable period (whether or not it is in fact a taxable period).
7.4 [Intentionally omitted]
7.5 Cooperation on Tax Matters. The Buyer and the Company Stockholders and
their respective Affiliates shall cooperate in the preparation of all Tax
Returns for any Tax periods for which one Party could reasonably require the
assistance of the other Party or Parties in obtaining any necessary
information.
7.6 Termination of Tax-Sharing Agreements. All Tax sharing agreements or
similar arrangements with respect to or involving the Company and its
Subsidiaries shall be terminated prior to the Closing Date and, after the
Closing Date, the Company and its Subsidiaries shall not be bound thereby or
have any liability thereunder for amounts due in respect of periods ending on
or before the Closing Date.
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<PAGE>
ARTICLE VIII
TERMINATION
8.1 Termination of Agreement. The Parties may terminate this Agreement prior
to the Effective Time (whether before or after Requisite Stockholder Approval)
as provided below:
(a) the Parties may terminate this Agreement by mutual written consent;
(b) the Buyer may terminate this Agreement by giving written notice to
the Company in the event the Company is in breach, and the Company may
terminate this Agreement by giving written notice to the Buyer and the
Transitory Subsidiary in the event the Buyer or the Transitory Subsidiary is in
breach, of (i) any representation or warranty, such that the condition
specified in Section 5.2(c), in the case of a breach by the Company or in
Section 5.3(a), in the case of a breach by the Buyer or the Transitory
Subsidiary, would not be satisfied at the Effective Time if the Effective Time
were the date of the notice, or (ii) any material covenant contained in this
Agreement, and, in the event such breach can be remedied, such breach is not
remedied within 30 days of delivery of written notice thereof;
(c) any Party may terminate this Agreement by giving written notice to
the other Parties at any time after the Company Stockholders have voted on
whether to approve this Agreement and the Merger in the event this Agreement
and the Merger failed to receive the Requisite Stockholder Approval;
(d) the Buyer may terminate this Agreement by giving written notice to
the Company if the Closing shall not have occurred on or before January 30,
1999 by reason of the failure of any condition precedent under Section 5.1 or
5.2 hereof (unless the failure results primarily from a breach by the Buyer or
the Transitory Subsidiary of any representation, warranty or covenant contained
in this Agreement); or
(e) the Company may terminate this Agreement by giving written notice to
the Buyer and the Transitory Subsidiary if the Closing shall not have occurred
on or before January 30, 1999 by reason of the failure of any condition
precedent under Section 5.1 or 5.3 hereof (unless the failure results primarily
from a breach by the Company, any Subsidiary or any Company Stockholder of any
representation, warranty or covenant contained in this Agreement).
(f) [Intentionally omitted]
(g) the Buyer may terminate this Agreement if the Buyer Stock Price is
less than $35.00 per share (subject to equitable adjustment in the event of any
Recapitalization).
8.2 Effect of Termination. If any Party terminates this Agreement pursuant
to Section 8.1 or otherwise, all obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except as
expressly set forth in Section 8.3). Without limiting the foregoing, in the
event of termination of this Agreement, there shall be no liability or
obligation on the part of the Company, the Buyer or the Transitory Subsidiary
or their respective officers, directors, stockholders or affiliates, except as
expressly set forth in Section 8.3.
8.3 Termination Fees.
(a) Except as set forth in Sections 8.3(b) and 8.3(c), all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Party incurring such expenses, whether
or not the Merger is consummated; provided, however, that the Company and the
Buyer shall share equally all fees and expenses, other than attorneys' fees,
incurred in relation to the printing and filing of the Registration Statement
(including financial statements and exhibits) and any amendments or
supplements.
(b) Notwithstanding paragraph (a) above, the Company shall reimburse the
Buyer for all expenses of the Buyer and the Transitory Subsidiary actually
incurred relating to the transactions contemplated
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<PAGE>
by this Agreement prior to termination (including but not limited to, fees and
expenses of the Buyer's accountants, financial advisors and counsel) up to a
maximum amount of $75,000 upon the earlier to occur of the following events:
(i) the termination of this Agreement by the Buyer pursuant to Section
8.1(b) after a breach by the Company; or
(ii) the termination of this Agreement by any Party pursuant to
Section 8.1(c).
(c) Notwithstanding paragraph (a) above, the Buyer shall reimburse the
Company for all expenses actually incurred by the Company relating to the
transactions contemplated by this Agreement prior to termination (including but
not limited to, fees and expenses of the Company's accountants, financial
advisors and counsel) up to a maximum amount of $75,000 upon the earlier to
occur of the following events:
(i) the termination of this Agreement by the Company pursuant to
Section 8.1(b) after a breach by the Buyer or the Transitory Subsidiary; or
(ii) the termination of this Agreement by the Buyer pursuant to
Section 8.1(g).
(d) Notwithstanding paragraph (a) above, the Buyer shall deliver to the
Company the sum of $1,500,000 and the Company shall deliver to the Buyer in
exchange therefor 750,000 shares of the Company's Series A-1 Preferred Stock
and warrants to purchase 508,500 shares of the Company's Common Stock at an
exercise price of $.20 per share, which warrants shall be exercisable at any
time during the period of seven years commencing on the Effective Time upon the
earlier to occur of the following events:
(i) the termination of this Agreement by the Company pursuant to
Section 8.1(b) after a breach by the Buyer or the Transitory Subsidiary; or
(ii) the termination of this Agreement by the Buyer pursuant to
Section 8.1(g).
(e) This Section 8.3 shall be the exclusive remedy of the Parties in the
event of termination of this Agreement. In no event shall any Party be liable
to the other Party for any consequential or other damages arising from the
termination, for any reason, of this Agreement.
ARTICLE IX
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
<TABLE>
<CAPTION>
Defined Term Section
------------ -------
<S> <C>
Affiliate...................................................... 2.15(a)(vii)
Affiliate Agreement............................................ 4.8
Balance Sheet Date............................................. 2.6
Business Entity................................................ 2.4
Buyer.......................................................... Introduction
Buyer Common Stock............................................. 1.5(b)(i)
Buyer Reports.................................................. 3.5
Buyer Stock Price.............................................. 1.5(b)
CERCLA......................................................... 2.23(a)
Certificate of merger.......................................... 1.1
Certificates................................................... 1.3
</TABLE>
A-37
<PAGE>
<TABLE>
<CAPTION>
Defined Term Section
------------ -------
<S> <C>
Clause A Quotient...................................... 1.5(b)(i)
Clause B Quotient...................................... 1.5(b)(i)
Closing................................................ 1.2
Closing Balance Sheet.................................. 1.9
Closing Date........................................... 1.2
Code................................................... Introduction
Company................................................ Introduction
Company Affiliates..................................... 4.8
Company Shares......................................... 1.5(a)
Company Special Meeting................................ 4.3(d)
Company Stockholder.................................... 1.5(b)
Compliance Costs....................................... 4.15
Computer Claim Amount.................................. 4.15
Computer Escrow........................................ 4.15
Computer Expenses...................................... 1.5(b)(vii)
Computer Issue......................................... Section 2.12 of
Disclosure Statement
Computer Certificate................................... 4.15
Contracts.............................................. 2.15(b)
Conversion Ratio....................................... 1.5(b)
Corporate Subsidiary................................... 2.5(a)
Damages................................................ 6.2(b)
Disclosure Schedule.................................... Article II
Dissenting Shares...................................... 1.6(a)
Effective Time......................................... 1.1
Employee Benefit Plan.................................. 2.22(a)
Environmental Law...................................... 2.23(a)
ERISA.................................................. 2.22(a)
ERISA Affiliate........................................ 2.22(a)
Escrow Agreement....................................... 1.3
Escrow Agent........................................... 1.3
Escrow Shares.......................................... 1.5(b)(iii)
Exchange Act........................................... 3.4
Facility............................................... 4.11
Financial Statements................................... 2.6
GAAP................................................... 1.9
Governmental Entity.................................... 2.4
Indemnification Representative......................... 1.3
Indemnified Persons.................................... 6.1
Initial Shares......................................... 1.5(b)(iii)
Intellectual Property.................................. 2.12(a)
Intended Uses.......................................... 2.11(a)
Interim Financial Statements........................... 4.9
Materials of Environmental Concern..................... 2.23(b)
Merger................................................. 1.1
Merger Shares.......................................... 1.5(b)(iii)
Most Recent Balance Sheet.............................. 2.6
Optionholder Initial Shares............................ 1.5(b)(iii)
Optionholder Escrow Shares............................. 1.5(b)(iii)
Option Shares.......................................... 1.5(b)(ii)
Options................................................ 1.10(a)
</TABLE>
A-38
<PAGE>
<TABLE>
<CAPTION>
Defined Term Section
------------ -------
<S> <C>
Ordinary Course of Business.................................... 2.4
Partnership Subsidiary......................................... 2.5(b)
Party.......................................................... Introduction
Permit......................................................... 2.25
Personal Property.............................................. 2.10(b)
Purchase Price................................................. 1.5(b)
Purchase Price Adjustment Closing Certificate.................. 1.5(b)(vii)
Recapitalization............................................... 1.5(b)(i)
Registration Statement......................................... 2.36
Related Party Transactions..................................... 2.26
Requisite Stockholder Approval................................. 2.3
SEC............................................................ 2.36
Securities Act................................................. 2.2
Security Interest.............................................. 2.4
Stockholder Initial Shares..................................... 1.5(b)(iii)
Stockholder Escrow Shares...................................... 1.5(b)(iii)
Subsidiary..................................................... 2.4
Surviving Corporation.......................................... 1.1
Taxes.......................................................... 2.9(a)
Tax Returns.................................................... 2.9(a)
Termination Date............................................... 6.3(c)
Transaction Invoices........................................... 10.12
Transitory Subsidiary.......................................... Introduction
Warrants....................................................... 1.10(b)
</TABLE>
ARTICLE X
MISCELLANEOUS
10.1 Press Releases and Announcements. No Party shall issue any press
release or public disclosure relating to the subject matter of this Agreement
without the prior written approval of the other Parties; provided, however,
that any Party may make any public disclosure it believes in good faith is
required by law or regulation (in which case the disclosing Party shall advise
the other Parties and provide them with a copy of the proposed disclosure prior
to making the disclosure); provided; further, that following the Closing, the
Buyer may issue any press release or make public disclosure relating to the
subject matter of this Agreement without the consent of the other Parties.
10.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that (a) the provisions in
Article I concerning issuance of the Merger Shares and the representations and
warranties of the Buyer and the Transitory Subsidiary set forth in Article III
hereof are intended for the benefit of the Company Stockholders.
10.3 Entire Agreement. This Agreement, including the Exhibits and Schedules
attached hereto and the documents referred to herein, (together with the loan
agreement and related documents dated the date hereof relating to certain
interim financing to be provided to the Company by the Buyer), constitute the
entire agreement among the Parties and supersede any prior understandings,
agreements, or representations by or among the Parties, written or oral, with
respect to the subject matter hereof.
10.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this
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<PAGE>
Agreement or any of its rights, interests, or obligations hereunder without the
prior written approval of the other Parties; provided that the Transitory
Subsidiary may assign its rights, interests and obligations hereunder to an
Affiliate of the Buyer and, after the Closing, the Buyer may assign its rights,
interests and obligations hereunder to an Affiliate of the Buyer.
10.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
10.6 Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent via a
reputable nationwide overnight courier service, in each case to the intended
recipient as set forth below:
<TABLE>
<S> <C>
If to the Company: Copy to:
EDiX Corporation Thomas E. Sparks, Esq.
4250 Executive Square Pillsbury Madison & Sutro LLP
Suite 850 235 Montgomery Street
La Jolla, California 92037 San Francisco, California 94104
and
Joel D. Liffmann
Oracle Partners, L.P.
712 Fifth Avenue
New York, New York 10019
If to the Buyer: Copy to:
IDX Systems Corporation Robert W. Baker, Jr., Esq.
1400 Shelburne Road IDX Systems Corporation
P.O. Box 1070 1400 Shelburne Road
Burlington, Vermont 05402-1070 P.O. Box 1070
Attn: President Burlington, Vermont 05402-1070
If to the Transitory Subsidiary: Copy to:
IDX Systems Corporation Robert W. Baker, Jr., Esq.
1400 Shelburne Road IDX Systems Corporation
P.O. Box 1070 1400 Shelburne Road
Burlington, Vermont 05402-1070 P.O. Box 1070
Attn: President Burlington, Vermont 05402-1070
</TABLE>
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the party for whom it is intended. Any Party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State
of Delaware.
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<PAGE>
10.9 Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time; provided, however, that
any amendment effected subsequent to the Requisite Stockholder Approval shall
be subject to the restrictions contained in the Delaware General Corporation
Law. No amendment of any provision of this Agreement shall be valid unless the
same shall be in writing and signed by all of the Parties. No waiver by any
Party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior
or subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
10.10 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
10.11 Expenses. Except as set forth in the Escrow Agreement and in Section
8.3, each of the Parties shall bear its own costs and expenses (including fees
and expenses of their respective legal, accounting and financial advisors)
incurred in connection with this Agreement and the transactions contemplated
hereby and all fees and expenses incurred by the Company or its Subsidiaries in
connection with this Agreement and the transactions contemplated hereby,
including without limitation those set forth on the Transaction Invoices, shall
be set forth as liabilities on the Closing Balance Sheet. If the Acquisition is
consummated, the Company and the Subsidiaries shall not incur fees and expenses
of legal, accounting and financial advisors in connection with the Merger in
excess of the amounts set forth in Section 10.11 of the Disclosure Schedule,
and any fees and expenses incurred by the Company and the Subsidiaries in
excess of such amounts shall be recovered by the Buyer pursuant to the Escrow
Agreement without regard to the provisions of the first sentence of
Section 6.4(a).
10.12 Specific Performance. Each of the Parties (including without
limitation for purposes of this Section 10.12 the stockholders of the Company
signing this Agreement) acknowledges and agrees that one or more of the other
Parties would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties agrees that the other
Parties shall be entitled to an injunction or injunctions to prevent breaches
of the provisions of this Agreement and to enforce specifically this Agreement
and the terms and provisions hereof in any action instituted in any court of
the United States or any state thereof having jurisdiction over the Parties and
the matter (subject to the provisions of Section 10.13), in addition to any
other remedy to which it may be entitled, at law or in equity.
10.13 Submission to Jurisdiction. Each of the Parties (a) submits to the
jurisdiction of any state or federal court sitting in Vermont in any action or
proceeding arising out of or relating to this Agreement, (b) agrees that all
claims in respect of the action or proceeding may be heard and determined in
any such court, and (c) agrees not to bring any action or proceeding arising
out of or relating to this Agreement in any other court. Each of the Parties
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety or other security that might
be required of any other Party with respect thereto. Any Party may make service
on another Party by sending or delivering a copy of the process to the Party to
be served at the address and in the manner provided for the giving of notices
in Section 10.7. Nothing in this Section 10.13, however, shall affect the right
of any Party to serve legal process in any other manner permitted by law.
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<PAGE>
10.14 Construction. The language used in this Agreement shall be deemed to
be the language chosen by the Parties hereto to express their mutual intent,
and no rule of strict construction shall be applied against any Party. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise.
10.15 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
IDX SYSTEMS CORPORATION
By: /s/ John A. Kane
-------------------------------------
Title: Chief Financial Officer
-----------------------------------
UNDERWOOD ACQUISITION CORP.
By: /s/ John A. Kane
-------------------------------------
Title: President
-----------------------------------
EDiX CORPORATION
By: /s/ Gene H. Barduson
-------------------------------------
Title: Chief Executive Officer
-----------------------------------
The following officers and equity holders of the Company hereby execute this
Agreement for the limited purpose of agreeing to and becoming bound by the
provisions of Sections 1.11, 2.21(c), 4.3(f), 4.7 and 10.12 hereof.
/s/ Gene Barduson
----------------------------------------
Gene Barduson
/s/ Vincent Estrada
----------------------------------------
Vincent Estrada
The undersigned, being the duly elected [Secretary or Assistant Secretary]
of the Transitory Subsidiary, hereby certifies that this Agreement has been
adopted by a majority of the votes represented by the outstanding shares of
capital stock of the Transitory Subsidiary entitled to vote on this Agreement.
----------------------------------------
[Secretary or Assistant Secretary]
The undersigned, being the duly elected [Secretary or Assistant Secretary]
of the Company, hereby certifies that this Agreement has been adopted by a
majority of the votes represented by the outstanding Company Shares entitled to
vote on this Agreement.
----------------------------------------
[Secretary or Assistant Secretary]
A-43
<PAGE>
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF MERGER
Amendment made this 20th day of November, 1998, by and among IDX Systems
Corporation, a Vermont corporation (the "Buyer"), Underwood Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of the Buyer (the
"Transitory Subsidiary"), and EDiX Corporation, a Delaware corporation (the
"Company"), to the Agreement and Plan of Merger by and among the Buyer, the
Transitory Subsidiary and the Company (the "Agreement"). Except as set forth
below, the Agreement shall remain in full force and effect. Capitalized terms
used herein and not otherwise defined shall have the meanings ascribed to them
in the Agreement.
Preliminary Statement
WHEREAS, the Agreement currently provides for the holders of Options to
acquire capital stock of the Company to receive shares of Buyer Common Stock in
exchange for their Options; and
WHEREAS, the Parties, acting in accordance with Section 10.9 of the
Agreement, desire to amend the Agreement to specify that the number of shares
of Buyer Common Stock to be received by each holder of an Option will be based
on the fair market value of such Option and to make certain conforming changes
in connection therewith;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties agree as follows:
1. Section 1.5(b)(i) of the Agreement shall be deleted in its entirety and
the following substituted in its place:
"(i) Each share of Common Stock of the Company (other than Company Shares
owned beneficially by the Buyer or the Transitory Subsidiary, Dissenting
Shares (as defined below) and Company Shares held in the Company's
treasury) shall be converted into and represent the right to receive
(subject to the provisions of Section 1.8) such number of shares of common
stock, $.01 par value per share, of the Buyer ("Buyer Common Stock") as is
equal to the Conversion Ratio. The "Conversion Ratio" shall be the result
obtained by (A) dividing $19,302,000 (as such amount may be adjusted
pursuant to subparagraph vii below, the "Purchase Price@), by the average
of the closing sale prices per share of Buyer Common Stock on the five
consecutive trading days ending three business days before the Closing (the
?Buyer Stock Price@), (B) then multiplying such quotient (the "Clause A
Quotient") by (i) the number of Company Shares issued and outstanding
immediately prior to the Closing divided by (ii) the sum of (x) the number
of Company Shares issued and outstanding immediately prior to the Closing,
(y) the number of Company Shares issuable to all option holders based on
the Fair Market Value Quantity of such Options (as defined below), and (z)
the number of Company Shares issuable upon the exercise of Warrants (as
defined below), whether vested or unvested or subject to repurchase by the
Company following such exercise, and (C) then dividing such quotient (the
"Clause B Quotient") by the number of Company Shares issued and outstanding
immediately prior to the Closing. For example, if the Buyer Stock Price is
$40.00, the number of outstanding Company Shares is 9,000,000, the number
of shares issuable to option holders based on the Fair Market Value
Quantity of such Options is 1,300,000, the number of shares issuable upon
the exercise of outstanding Warrants is 750,000, then the Conversion Ratio
would be computed as follows: (A) $19,302,000/$40.00 = 482,550; (B) 482,550
x 9,000,000/[9,000,000 + 1,300,000 + 750,000] = 393,027; (C)
393,027/9,000,000 = 0.044 shares of Buyer Common Stock for each one Company
Share. The Conversion Ratio shall be subject to equitable adjustment in the
event of any stock split, stock dividend, reverse stock split or similar
event (each, a "Recapitalization") affecting the Buyer Common Stock between
the date of this Agreement and the Effective Time."
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<PAGE>
2. Section 1.5(b)(ii) of the Agreement shall be deleted in its entirety and
the following substituted in its place:
"(ii) Each outstanding grant of Options, whether vested or unvested,
shall be exchanged into and collectively represent the right to receive
(subject to the provisions of Section 1.8) such number of shares of Buyer
Common Stock as is equal to the number obtained by (A) subtracting the
Clause B Quotient from the Clause A Quotient and (B) multiplying the
resulting number by (X) the total number of Company Shares issuable to
holders of Options granted in such grant of Options based on the Fair
Market Value Quantity of the Options in such grant of Options divided by
(Y) the sum of total number of Company Shares issuable to all option
holders based on the Fair Market Value Quantity of all of the outstanding
Options and the total number of Warrants, (such number of shares, the
"Option Shares"). The present fair market value of such Option grant,
taking into consideration the exercise price, vesting schedule and other
appropriate factors shall be known as the "Fair Market Value Quantity" of
such Options (it being understood that certain grants of Options may have a
fair market value of zero and accordingly shall not be entitled to receive
any Merger Shares (as defined below)). For purposes of determining the pro
rata allocation of the Option Shares to each holder of a Option that is
part of an Option grant, the numerator shall be the number of Options held
by such holder and the denominator shall be the total number of Options in
such Option grant as set forth on Section 1.10(a) of the Disclosure
Schedule. For example, if the Buyer Stock Price is $40.00, the number of
outstanding Company Shares is 9,000,000, the number of Company Shares
issuable based on the Fair Market Value Quantity for all outstanding
Options is 1,300,000, the number of shares issuable the exercise of
outstanding Warrants is 750,000, and the Fair Market Value Quantity of the
Options in a particular Option grant is 1,200,000 shares, then the number
of shares of Buyer Common Stock that would be issued in exchange for all of
the outstanding Options in that particular Option grant would be computed
as follows: (A) 482,550--393,027 = 89,523; and (B) 89,523 x
1,200,000/[1,300,000 + 750,000] = 52,403 shares of Buyer Common Stock."
3. The first sentence of Section 4.3(a) of the Agreement shall be deleted in
its entirety and the following substituted in its place:
"Within 90 days of the date hereof, assuming receipt by the Buyer of the
initial Computer Certificate, the Buyer shall prepare and file the
Registration Statement (or, at the option of the Buyer, confidential
preliminary proxy materials) with the SEC."
4. The Agreement, as supplemented and modified by this Amendment, together
with the other writings referred to in the Agreement or delivered pursuant
thereto which form a part thereof, contain the entire agreement among the
parties with respect to the subject matter thereof and amend, restate and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
5. Upon effectiveness of this Amendment, on and after the date hereof, each
reference in the Agreement to "this Agreement," "hereunder," "hereof," "herein"
or words of like import, and each reference in the other documents entered into
in connection with the Agreement, shall mean and be a reference to the
Agreement, as amended hereby. Except as specifically amended above, the
Agreement shall remain in full force and effect and is hereby ratified and
confirmed.
6. This Amendment shall be governed by and construed in accordance with the
internal laws (and not the law of conflicts) of the State of Delaware.
7. This Amendment may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.
IDX SYSTEMS CORPORATION
By: /s/ Robert W. Baker, Jr.
-----------------------------------
Title: Vice President
UNDERWOOD ACQUISITION CORP.
By: /s/ Robert W. Baker, Jr.
-----------------------------------
Title: Vice President
EDiX CORPORATION
By: /s/ Vincent Estrada
-----------------------------------
Title: Chief Financial Officer
A-46
<PAGE>
AMENDMENT NO. 2
TO
AGREEMENT AND PLAN OF MERGER
Amendment made this 15th day of January, 1999, by and among IDX Systems
Corporation, a Vermont corporation (the "Buyer"), Underwood Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of the Buyer (the
"Transitory Subsidiary"), and EDiX Corporation, a Delaware corporation (the
"Company"), to the Agreement and Plan of Merger, dated as of September 11,
1998, by and among the Buyer, the Transitory Subsidiary and the Company (as
amended, the "Agreement"). Except as set forth below, the Agreement shall
remain in full force and effect. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Agreement.
Preliminary Statement
WHEREAS, the Agreement currently provides for a target Closing Date of
January 30, 1999;
WHEREAS, the Agreement currently provides for the resolution of the Computer
Issue prior to the Closing and provides for the establishment of a special
escrow in the event the Computer Issue is not resolved; and
WHEREAS, the Parties, acting in accordance with Section 10.9 of the Agreement
desire to amend the Agreement to extend the Closing Date and to reflect the
resolution of the Computer Issue;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties agree as follows:
1. Section 1.2 of the Agreement shall be deleted in the entirety and the
following shall be substituted in its place:
"1.2 The Closing. The closing of the transactions contemplated by this
Agreement (the " Closing") shall take place at the offices of Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts, commencing at 9:00 a.m. local
time on March 15, 1999, or, if all of the conditions to the obligations of
the Parties to consummate the transactions contemplated hereby have not
been satisfied or waived by such date, on such mutually agreeable later
date as soon as practicable after the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (the "Closing Date")."
2. The last two sentences of Section 4.15 of the Agreement shall be deleted
in their entirety.
3. Section 5.2(m) of the Agreement shall be deleted in its entirety and the
following substituted in its place:
"(m) the Company shall have delivered a Computer Certificate dated as of
the Closing Date to the Buyer; and"
4. Section 6.1(f) shall be deleted in its entirety and the following
substituted in its place:
"(f) resulting from or relating to any claim against the Company or any
Subsidiary relating in any way to the Computer Issue."
5. The first sentence of the second paragraph of Section 6.3(b) shall be
deleted in its entirety and the following shall be substituted in its place:
"Notwithstanding the foregoing, the indemnification obligations set forth
in this Article VI specified in Sections 6.1(d) and (e) shall continue
until the expiration of the later of the applicable
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statute of limitations or the final resolution by settlement, judicial
resolution or other resolution of any claim asserted pursuant to the
foregoing Sections."
6. The second sentence of Section 6.4(b) shall be deleted in its entirety.
7. Sections 8.1(d) and (e) of the Agreement shall be deleted in their
entirety and the following substituted in their place:
"(d) the Buyer may terminate this Agreement by giving written notice to
the Company if the Closing shall not have occurred on or before March 31,
1999 by reason of the failure of any condition precedent under Section 5.1
or 5.2 hereof (unless the failure results primarily from a breach by the
Buyer or the Transitory Subsidiary of any representation, warranty or
covenant contained in this Agreement); or
(e) the Company may terminate this Agreement by giving written notice to
the Buyer and the Transitory Subsidiary if the Closing shall not have
occurred on or before March 31, 1999 by reason of a failure of any
condition precedent under Section 5.1 or 5.3 hereof (unless the failure
results primarily from a breach by the Company, any Subsidiary or a Company
Stockholder of any representation, warranty or covenant contained in this
Agreement)."
8. The Agreement, as supplemented and modified by this Amendment, together
with the other writings referred to in the Agreement or delivered pursuant
thereto which form a part thereof, contain the entire agreement among the
parties with respect to the subject matter thereof and amend, restate and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
9. Upon effectiveness of this Amendment, on and after the date hereof, each
reference in the Agreement to "this Agreement," "hereunder," "hereof," "herein"
or words of like import, and each reference in the other documents entered into
in connection with the Agreement, shall mean and be a reference to the
Agreement, as amended hereby. Except as specifically amended above, the
Agreement shall remain in full force and effect and is hereby ratified and
confirmed.
10. This Amendment shall be governed by and construed in accordance with the
internal laws (and not the law of conflicts) of the State of Delaware.
11. This Amendment may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.
IDX SYSTEMS CORPORATION
By: /s/ John A. Kane
-----------------------------------
Title: Vice President
UNDERWOOD ACQUISITION CORP.
By: /s/ John A. Kane
-----------------------------------
Title: Vice President
EDiX CORPORATION
By: /s/ Vincent Estrada
-----------------------------------
Title: Chief Financial Officer
A-49
<PAGE>
ANNEX B
[Letterhead of Piper Jaffray Inc.]
September 3, 1998
The Board of Directors
EDiX Corporation
4250 Executive Square, Suite 850
La Jolla, CA 92037
Attention: Gene H. Barduson
President and Chief Executive Officer
Members of the Board:
In connection with the proposed transaction (the "Transaction") in which
Underwood Acquisition Corp., a wholly-owned subsidiary of IDX Systems
Corporation ("IDX"), shall be merged with and into EDiX Corporation ("EDiX")
and EDiX shall thereupon be a wholly-owned subsidiary of IDX, you have
requested our opinion as to the fairness, from a financial point of view, to
the holders of common stock of EDiX at the time of consummation of the
Transaction of the proposed Merger consideration to be received by such holders
in the Transaction. As detailed in the Agreement and Plan of Merger (the
"Agreement"), the Series A1 preferred stock will be exchanged for common stock
of EDiX prior to the closing of the Transaction. Accordingly, we have assumed
the current holders of the Series A1 preferred stock will be holders of common
stock at the closing of the Transaction. Under the terms of the Agreement, at
the effective time of the Transaction, the outstanding EDiX common stock and
all options (vested and unvested) to purchase common stock will be exchanged
for common stock of IDX ("Buyer Common Stock"). The EDiX common stock and
options will be exchanged based on a conversion ratio which, subject to
specified exceptions, adjusts depending on the average closing sale price of
Buyer Common Stock ("Buyer Stock Price") over a specified period prior to
closing of the Transaction. If the Buyer Stock Price is below $35.00, IDX has
the right to terminate the Agreement. "Merger consideration" as used herein
shall mean the shares of Buyer Common Stock to be issued to holders of EDiX
common stock pursuant to the Agreement where the Buyer Stock Price is $35.00 or
more. In addition, if not previously exercised (and except as provided below),
outstanding warrants to purchase EDiX common stock shall be assumed in the
Transaction by IDX and the right to purchase Buyer Common Stock shall be
substituted based on the conversion ratio. We have assumed that warrants to
purchase 1.25 million shares of EDiX common stock issued in conjunction with a
loan provided to EDiX by current investors, specifically Oracle Strategic
Partners, Galen and Associates and Kingsbury Capital Partners, will be
rescinded as a condition for the transaction to qualify as a pooling-of-
interests and, accordingly, have excluded them from our determination. The
Transaction is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code")
and will be treated as a pooling-of-interests for accounting purposes.
Piper Jaffray Inc., as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, underwriting and secondary distributions of
securities, private placements and valuations for estate, corporate and other
purposes. We will receive a fee for providing this opinion. This opinion fee is
not contingent upon the consummation of the Transaction. EDiX has also agreed
to indemnify us against certain liabilities in connection with our services. In
the ordinary course of our business, we and our affiliates may actively trade
securities of IDX for our own account or the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed (i) a draft copy of the Agreement
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and Plan of Merger dated August 21, 1998, (ii) certain financial, operating and
business information related to EDiX, (iii) certain internal financial
information of EDiX on a stand-alone basis prepared for financial planning
purposes and furnished by the management of EDiX, (iv) to the extent publicly
available, financial terms of certain acquisition transactions involving
companies operating in industries deemed similar to that in which EDiX operates
and selected public companies deemed comparable to EDiX, (v) certain publicly
available information relative to IDX, (vi) certain publicly available
financial and securities data of IDX, and (vii) information relating to EDiX
and IDX on a combined basis. We had discussions with members of the management
of (a) IDX concerning the financial condition, current operating results and
business outlook for both IDX and EDiX on a stand-alone basis and the combined
company resulting from the Transaction and IDX's plans relating to such
combined company as well as the amount and timing of the cost savings and
related expenses expected to result from the Transaction, and (b) EDiX
concerning the financial condition, current operating results and business
outlook for EDiX and the combined company.
We have relied upon and assumed the accuracy, completeness and fairness of the
financial statements and other information provided to us by EDiX and IDX and
have not assumed responsibility for the independent verification of such
information. Such information was prepared for financial planning purposes and
was not prepared with the expectation of public disclosure. We have relied upon
the assurances of the management of EDiX and IDX that the information provided
to us as set forth above by EDiX and IDX has been prepared on a reasonable
basis, and, with respect to financial planning data and other business outlook
information, reflects the best currently available estimates, and that they are
not aware of any information or facts that would make the information provided
to us incomplete or misleading.
We have assumed that the final form of the Agreement will be substantially
similar to the last draft reviewed by us, without modification or waiver of
material terms or conditions by IDX or EDiX. With your consent, we have also
assumed that the escrow shares (as defined in the Agreement) will be
distributed in their entirety to the shareholders of EDiX. We have also assumed
that the transactions contemplated by the Agreement will constitute a
"reorganization" within the meaning of Section 368(a) of the Code and that the
transaction will be treated as a pooling-of-interests for accounting purposes.
In addition, in arriving at our opinion, we have assumed that, in the course of
obtaining the necessary regulatory approvals for the Transaction, no
restrictions, including any divestiture requirements will be imposed that will
have a material adverse effect on the contemplated benefits of the Transaction.
Pursuant to the engagement letter dated March 12, 1998, Piper Jaffray was hired
to seek equity capital for EDiX. As part of this process, Piper Jaffray
approached numerous financial as well as strategic investors regarding an
investment in EDiX. Although we were not asked to and accordingly did not
undertake to sell EDiX, as a result of our engagement, we participated in
discussions with a limited number of prospective strategic investors regarding
a possible business combination.
In arriving at our opinion, we have not performed any appraisals or valuations
of any specific assets or liabilities of IDX or EDiX, and have not been
furnished with any such appraisals or valuations. We have analyzed EDiX as a
going concern and accordingly express no opinion regarding the liquidation
value of any entity.
This opinion is necessarily based upon the information available to us and
facts and circumstances as they exist and are subject to evaluation on the date
hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the price at which shares of IDX common stock have traded or may
trade at any future time. In particular, without limiting the generality of the
foregoing, we are expressing no opinion as to the fairness of the consideration
proposed to be paid if the Buyer Stock Price is below $35.00. We have not
undertaken to reaffirm or revise this opinion or otherwise comment upon any
events occurring after the date hereof and do not have any obligation to
update, revise or reaffirm this opinion.
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<PAGE>
This opinion is directed to the Board of Directors of EDiX and is not intended
to be and does not constitute a recommendation to any stockholder as to how
such stockholder should vote with respect to the Transaction. We were not
requested to opine as to, and this opinion does not address, the basic business
decision to proceed with or effect the Transaction. This opinion shall not be
published, relied upon or otherwise used, nor shall any public references to us
be made, without our prior written approval.
Based upon and subject to the foregoing and based upon such other factors as we
consider relevant, it is our opinion that, as of the date hereof, the Merger
consideration proposed to be received in the Transaction pursuant to the
Agreement by the holders, at the time of consummation of the Transaction, of
EDiX common stock is fair, from a financial point of view, to such holders.
Sincerely,
/s/ Piper Jaffray, Inc.
-------------------------------
PIPER JAFFRAY INC.
B-3
<PAGE>
ANNEX C
DELAWARE GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
262. APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of
a nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251 (other than a merger effected pursuant to (S)251(g)
of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of
(S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to (S)(S)251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock any thing
except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a., b. and c. of this paragraph.
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<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein provided.
Within 10 days after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each stockholder of each
constituent corporation who has complied with this subsection and has not voted
in favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such
notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date of the
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merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair market value exclusive
of any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this section.
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(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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ANNEX D
EDiX Corporation
Proxy Solicited on Behalf of the Board of Directors for
Special Meeting of Stockholders on February , 1999
The undersigned stockholder of EDiX Corporation acknowledges receipt of the
Notice of Special Meeting of Stockholders dated , 1999, revokes all prior
proxies and appoints Gene H. Barduson and Vincent E. Estrada, or each of them,
proxies for the undersigned to vote all shares of Common Stock and/or Series A-
1 Preferred Stock of EDiX which the undersigned would be entitled to vote at
the Special Meeting of Stockholders to be held at the offices of Oracle
Strategic Partners L.P., 712 Fifth Avenue, 45th Floor, New York, New York 10019
at 10:00 a.m. on February , 1999, and any postponement or adjournment thereof,
and instructs said proxies to vote as follows:
TO APPROVE THE MERGER OF EDiX AND IDX SYSTEMS CORPORATION, THE CREATION
OF A 10 PERCENT ESCROW AND THE APPOINTMENT OF JOEL D. LIFFMANN AS THE
UNDERSIGNED'S REPRESENTATIVE IN CONNECTION WITH INDEMNIFICATION MATTERS.
[_] FOR approval and adoption of the Agreement and Plan of Merger dated
September 11, 1998, as amended, which provides for the acquisition of
EDiX by IDX Systems Corporation
[_] WITHHOLD AUTHORITY to vote in favor of the acquisition of EDiX by IDX
Systems Corporation
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
This Proxy Will Be Voted in Accordance with the Specifications Made. If No
Specifications Are Made, this Proxy Will Be Voted for the acquisition of EDiX
by IDX Systems Corporation
EDiX CORPORATION
BOARD OF DIRECTORS PROXY
Special Meeting of Stockholders
February , 1999
Dated this day of , 1999
----------------------------------------
(Signature of Stockholder)
----------------------------------------
(Signature of Stockholder)
Please sign exactly as your name or
names appear hereon. When signing as
attorney, executor, administrator,
trustee or guardian, please give full
title as such. If shares are held
jointly, each holder must sign.
Please Mark, Sign, Date and Mail This Proxy Card Promptly, Using the Enclosed
Envelope.
D-1
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Sections 8.50 through 8.58 of the Vermont Business Corporation Act contain
provisions governing the indemnification of corporate directors and officers.
In general, the statute permits a corporation to indemnify any person who was
or is a party to or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation or entity, against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation. With respect to any criminal action or
proceeding, the indemnified individual must have had no reasonable cause to
believe his conduct was unlawful and must not be found to have engaged in a
reckless or intentional unlawful act. With respect to action or suits by or in
the right of the corporation, such indemnification is limited to expenses
(including attorney's fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit.
Indemnification is not permitted with respect to any claim, issue or matter as
to which such person has been adjudged to be liable to the corporation unless
and only to the extent that the court in which such action or suit was brought
determines upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Additionally, a corporation is required to indemnify its directors and officers
against expenses to the extent that such directors or officers have been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above or in defense of any claim, issue or matter
therein.
Indemnification can be made by a corporation only upon a determination made in
the manner prescribed by the statute that indemnification is proper in the
circumstances because the party seeking indemnification has met the applicable
standard of conduct as set forth in the Vermont Business Corporation Act. That
statutory indemnification is not deemed to be exclusive of any other rights to
which those seeking indemnification may be entitled under any bylaw, agreement,
vote of shareholders or disinterested directors, or otherwise. A corporation
also has the power to purchase and maintain insurance on behalf of any person
covering any liability incurred by such person in his capacity as a director,
officer, employee or agent of the corporation, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability. The indemnification provided by the Vermont Business
Corporation Act, unless otherwise provided when authorized or ratified,
continues as to a person who has ceased to be a director, officer, employee or
agent and inures to the benefit of the heirs, executors and administrators of
such a person.
The Registrant's Bylaws generally allow indemnification of officers and
directors to the fullest extent permitted by law.
The Registrant has obtained directors' and officers' liability insurance
coverage from Lloyds of London. The policy covers up to $5,000,000 for each
claim during each policy year subject to a retention of $250,000 per claim
under Securities laws and $100,000 per claim for all other claims.
Pursuant to Section 4.14 of the Merger Agreement, the Registrant, for a period
of three years after the effective time of the Merger, has agreed that any of
EDiX Corporation's directors and officers who subsequently become directors or
officers of the Registrant shall be covered by the directors' and officers'
liability insurance, if any, applicable to the then current directors and
officers of the Registrant. See "The Merger Agreement--Director and Officer
Indemnification."
II-1
<PAGE>
The Registrant has entered into a Tax Indemnification Agreement with certain
persons that were shareholders of the Registrant while it was an S corporation
(the "Existing Shareholders") that provides for, among other things, the
indemnification of the Registrant by such shareholders for any federal and
state income taxes (including interest) incurred by the Registrant if for any
reason the Registrant is deemed to be treated as a C corporation during any
period which it reported its taxable income as an S corporation. The Tax
Indemnification Agreement further provides for the cross-indemnification of the
Registrant and of each Existing Shareholder for any losses or liabilities with
respect to certain additional taxes (including interest and, in the case of
Existing Shareholders, penalties) resulting from the Registrant's operations
during the period in which it was an S corporation.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<C> <S>
2.1(1)* Agreement and Plan of merger dated as of September 11, 1998 by and
among the Registrant, Underwood Acquisition Corp. ("Underwood") and
EDiX Corporation ("EDiX").
2.2(1)* Amendment No. 1 to Agreement and Plan of merger dated as of
November 20, 1998 by and among the Registrant, Underwood
Acquisition Corp. and EDiX.
2.3* Form of Escrow Agreement to be entered into by and among the
Registrant, Joel D. Liffmann, as representative of the shareholders
of EDiX and State Street Bank & Trust Company.
2.4(1) Amendment No. 2 to Agreement and Plan of merger dated as of January
15, 1999 by and among the Registrant, Underwood Acquisition Corp.
and EDiX.
3.1(2)* Second Amended and Restated Articles of Incorporation of the
Registrant, as amended to date.
3.2(2)* Second Amended and Restated Bylaws of the Registrant, as amended to
date.
5.1* Opinion of Robert W. Baker, Jr., Esq.
8.1* Opinion of Pillsbury Madison & Sutro LLP as to Tax Matters.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Robert W. Baker, Jr., Esq. (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP (Boston, Massachusetts).
23.3 Consent of Ernst & Young LLP (San Diego, California).
23.4 Consent of KPMG Peat Marwick LLP
23.5* Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 8.1).
23.6 Consent of Piper Jaffray Inc.
24.1* Power of Attorney (See page II-5).
99.1(3)* Opinion of Piper Jaffray Inc.
99.2(4) Form of Proxy Card of EDiX.
</TABLE>
- --------
* Previously filed.
(1) Attached as Annex A to the Proxy Statement/Prospectus.
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-1, as amended (File No. 33-97104).
(3) Attached as Annex B to the Proxy Statement/Prospectus.
(4) Attached as Annex D to the Proxy Statement/Prospectus.
II-2
<PAGE>
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are not applicable, and, therefore, have been
omitted.
Item 22. Undertakings.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Exchange
Act that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
B. The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended (the "Securities Act"),
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (and where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act), that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. The Registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an
II-3
<PAGE>
underwriter within the meaning of Rule 145(c), the Registrant undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
Items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to this Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
D. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
E. The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11, or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this Registration Statement through the
date of responding to the request.
F. The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of South Burlington, State of Vermont on
the 19th day of January, 1999.
IDX Systems Corporation
By: /s/ Richard E. Tarrant
-----------------------------------
Richard E. Tarrant
President and Chief Executive
Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C>
Signature Title
Date
/s/ Richard E. Tarrant President, Chief Executive January 19, 1999
- ----------------------------- Officer and Director
Richard E. Tarrant
/s/ John A. Kane Vice President, Finance and January 19, 1999
- ----------------------------- Administration, Chief
John A. Kane Financial Officer and
Treasurer (Principal
Financial and Accounting
Officer)
/s/ *Robert H. Hoehl Director January 19, 1999
- -----------------------------
Robert H. Hoehl
/s/ *Stuart H. Altman, Ph.D. Director January 19, 1999
- -----------------------------
Stuart H. Altman, Ph.D.
/s/ *Malcolm A. Gleser, Director January 19, 1999
M.D., Ph.D.
- -----------------------------
Malcolm A. Gleser, M.D.,
Ph.D.
/s/ *Steven M. Lash Director January 19, 1999
- -----------------------------
Steven M. Lash
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
/s/ *Frank T. Sample Director January 19, 1999
- -----------------------------
Frank T. Sample
/s/ *Henry M. Tufo, M.D. Director January 19, 1999
- -----------------------------
Henry M. Tufo, M.D.
</TABLE>
*By: /s/ John A. Kane
- -------------------------------
John A. Kane
Attorney-in-fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1(1)* Agreement and Plan of Merger dated as of September 11, 1998 by and
among the Registrant, Underwood Acquisition Corp. ("Underwood") and
EDiX Corporation ("EDiX").
2.2(1)* Amendment No. 1 to Agreement and Plan of Merger dated as of
November 20, 1998 by and among the Registrant, Underwood
Acquisition Corp. and EDiX.
2.3* Form of Escrow Agreement to be entered into by and among the
Registrant, Joel D. Liffmann, as representative of the shareholders
of EDiX and State Street Bank & Trust Company.
2.4(1) Amendment No. 2 to Agreement and Plan of Merger dated as of January
15, 1999 by and among the Registrant, Underwood Acquisition Corp.
and EDiX.
3.1(2)* Second Amended and Restated Articles of Incorporation of the
Registrant, as amended to date.
3.2(2)* Second Amended and Restated Bylaws of the Registrant, as amended to
date.
5.1* Opinion of Robert W. Baker, Jr., Esq.
8.1* Opinion of Pillsbury Madison & Sutro LLP as to Tax Matters.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Robert W. Baker, Jr., Esq. (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP (Boston, Massachusetts).
23.3 Consent of Ernst & Young LLP (San Diego, California).
23.4 Consent of KPMG Peat Marwick LLP
23.5* Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 8.1).
23.6 Consent of Piper Jaffray Inc.
24.1* Power of Attorney (See page II-5).
99.1(3)* Opinion of Piper Jaffray Inc.
99.2(4) Form of Proxy Card of EDiX.
</TABLE>
- --------
* Previously filed.
(1) Attached as Annex A to the Proxy Statement/Prospectus.
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-1, as amended (File No. 33-97104).
(3) Attached as Annex B to the Proxy Statement/Prospectus.
(4) Attached as Annex D to the Proxy Statement/Prospectus.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-4) and the related Proxy
Statement/Prospectus of IDX Systems Corporation for the registration of its
common stock and to the incorporation by reference therein of our report dated
February 3, 1998, with respect to the consolidated financial statements and
schedule of IDX Systems Corporation included in its Annual Report (Form 10-K)
for the year ended December 31, 1997, filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
- ---------------------
ERNST & YOUNG LLP
Boston, Massachusetts
January 15, 1999
<PAGE>
Exhibit 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated May 6, 1998, except for Note 11, as to which the date
is September 11, 1998 regarding the consolidated financial statements of EDiX
Corporation, which is included in Amendment No. 1 to the Registration Statement
(Form S-4) and related Prospectus of IDX Corporation for the registration of
483,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
- ---------------------
ERNST & YOUNG LLP
San Diego, California
January 15, 1999
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
PHAMIS, Inc.:
We consent to the use of our report dated January 31, 1997, except for note 14
which is as of March 25, 1997, incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
- -------------------------
Seattle, Washington
January 15, 1999
<PAGE>
Exhibit 23.6
CONSENT OF PIPER JAFFRAY INC.
We hereby consent to the inclusion in the Registration Statement of IDX Systems
Corporation ("IDX") relating to the proposed merger of EDiX Corporation with
and into a wholly owned subsidiary of IDX, of our opinion letter appearing as
Annex B to the Proxy Statements/Prospectus which is a part of the Registration
Statement, and to the references of our firm name therein. In giving such
consent, we do not thereby admit that we come within the category of person
whose consent is required under Section 7 or Section 11 of the Securities Act
of 1933, as amended, or the rules and regulations adopted by the Securities and
Exchange Commission thereunder nor do we admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
By /s/ Piper Jaffray Inc.
-----------------------------
Piper Jaffray Inc.
Minneapolis, Minnesota
January 12, 1999
