AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
UTILIMED, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ILLINOIS 8099 363692630
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
-------------------
40 SKOKIE BOULEVARD
NORTHBROOK, ILLINOIS 60062-1618
(847) 564-8500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
-------------------
LAWRENCE RUBINSTEIN, ESQ.
GENERAL COUNSEL
UTILIMED, INC.
40 SKOKIE BOULEVARD
NORTHBROOK, ILLINOIS 60062-1618
(847) 564-8500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD S. BORISOFF, ESQ. JOHN J. HUBER, ESQ.
BRUCE A. GUTENPLAN, ESQ. LATHAM & WATKINS
PAUL, WEISS, RIFKIND, WHARTON & GARRISON SUITE 1300
1285 AVENUE OF THE AMERICAS 1001 PENNSYLVANIA AVENUE
NEW YORK, NEW YORK 10019-6064 WASHINGTON, D.C. 20004
(212) 373-3000 (202) 637-2200
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement
becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
-------------------
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
PROPOSED
MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE(3)
<S> <C> <C>
Common Stock, no par value..................................... $46,000,000.00 $15,862.07
</TABLE>
(1) Includes 375,000 shares as to which the Underwriters have been granted an
option to cover over-allotments.
(2) Estimated solely for purposes of calculating the registration fee.
(3) Calculated pursuant to Rule 457(o).
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, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
UTILIMED, INC.
FORM S-1
REGISTRATION STATEMENT
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM IN FORM S-1 LOCATION IN PROSPECTUS
- ---------------------------------------------------- -----------------------------------------
<C> <S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front Cover and Outside Back Cover
Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................... Outside Front Cover Page; Prospectus
Summary; The Company; Risk Factors
4. Use of Proceeds................................ Use of Proceeds
5. Determination of Offering Price................ Outside Front Cover Page; Risk Factors;
Underwriters
6. Dilution....................................... Risk Factors; Dilution
7. Selling Security Holders....................... Not Applicable
8. Plan of Distribution........................... Outside Front Cover Page; Prospectus
Summary; Underwriters
9. Description of Securities to be Registered..... Outside Front Cover Page; Description of
Capital Stock
10. Interests of Named Experts and Counsel......... Not Applicable
11. Information with Respect to the Registrant
(a) Description of Business.................. Prospectus Summary; The Company;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business
(b) Description of Property.................. Business--Property
(c) Legal Proceedings........................ Business--Legal Proceedings
(d) Common Equity Securities................. Dividend Policy; Shares Eligible for
Future Sale; Description of Capital Stock
(e) Financial Statements..................... Index to Financial Statements
(f) Selected Financial Data.................. Prospectus Summary; Selected Consolidated
Financial Data
(g) Supplementary Financial Information...... Not Applicable
(h) Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(i) Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosure............................... Additional Information
(j) Directors and Executive Officers......... Management
(k) Executive Compensation................... Management
(l) Security Ownership of Certain Beneficial
Owners and Management.................... Principal Shareholders
(m) Certain Relationships and Related
Transactions............................. Certain Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act Not Applicable
Liabilities....................................
</TABLE>
<PAGE>
PROSPECTUS (Subject to Completion)
Issued , 1996
2,500,000 Shares
n86575be.g01,1020,360,H
COMMON STOCK
-------------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF
THE COMPANY. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS CONSIDERED IN
DETERMINING THE INITIAL OFFERING PRICE.
-------------------
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ULMD."
-------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE .
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total (3).......................... $ $ $
</TABLE>
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 375,000
additional Shares at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$ , $ and $ , respectively. See "Underwriters."
-------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Latham & Watkins, counsel for the Underwriters. It is expected that delivery
of the Shares will be made on or about , 1996 at the office of Morgan
Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
-------------------
MORGAN STANLEY & CO.
Incorporated
SMITH BARNEY INC.
VOLPE, WELTY & COMPANY
, 1996
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
COVERED LIVES UNDER UTILIMED CONTRACTS
[MAP]
"UtiliMed(R)" is a registered service mark of the Company. This Prospectus also
includes tradenames and service marks of the Company's clients.
------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
-------------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 7
The Company........................................................................... 12
Dividend Policy....................................................................... 12
Use of Proceeds....................................................................... 13
Capitalization........................................................................ 14
Dilution.............................................................................. 15
Selected Consolidated Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................ 17
Business.............................................................................. 28
Management............................................................................ 43
Principal Shareholders................................................................ 51
Certain Transactions.................................................................. 53
Shares Eligible for Future Sale....................................................... 56
Description of Capital Stock.......................................................... 58
Underwriters.......................................................................... 61
Additional Information................................................................ 62
Legal Matters......................................................................... 62
Experts............................................................................... 62
Index to Consolidated Financial Statements............................................ F-1
</TABLE>
-------------------
The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements examined by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus assumes (i) the conversion immediately prior to
the consummation of this offering of all of the shares of Series A Preferred
Stock (as defined herein) and Class B Stock (as defined herein) of the Company
into shares of Common Stock, (ii) no exercise of the Stock Purchase Warrants (as
defined herein), (iii) a 5.361849-for-one reverse stock split of the Common
Stock immediately prior to the consummation of this offering and (iv) no
exercise of the Underwriters' over-allotment option. See "Capitalization" and
"Certain Transactions." Unless the context indicates otherwise, all references
in this Prospectus to the "Company" or "UtiliMed" include UtiliMed, Inc., its
predecessors and its wholly-owned subsidiaries, UtiliMed C I, Inc. and UtiliMed
P II, Inc.
THE COMPANY
UtiliMed is the nation's leading manager of diagnostic imaging services,
providing a comprehensive approach to managing cost, quality and utilization for
payors with large memberships. The Company's products aim to manage the delivery
of quality necessary diagnostic imaging services by qualified physicians to
patients on a cost effective basis. UtiliMed's products manage costs by
decreasing the volume and increasing the quality of imaging services. Quality
improvement can decrease costs through fewer repeat or extra exams necessitated
by poor quality initial exams. At March 31, 1996, the Company managed diagnostic
imaging services for 16 clients representing over 2.5 million lives in 13
states. In addition, the Company signed a new RMP contract in March 1996
covering 220,000 lives which will be implemented in June 1996.
Founded in December 1989, the Company has achieved rapid growth, with
revenues growing from approximately $2.6 million in 1991 to $96.4 million in
1995 and covered lives, increasing from 102,000 at December 31, 1991 to 2.5
million at March 31, 1996. The Company believes that an opportunity exists for
payors to reduce costs while maintaining quality through more effective
management of these services. As the leading comprehensive provider of
diagnostic imaging management services, the Company believes that it is well
positioned to take advantage of the relatively unpenetrated market for
outsourced management of diagnostic imaging services.
The Company offers its clients a capitated product and a fee-based product,
each of which is designed to reduce excess or improper utilization and improve
the quality of service. The core program elements of the Company's two products
include diagnostic imaging assessment and privileging, diagnostic imaging
pre-certification processes, clinical- and claims-based retrospective
utilization database tools and structured physician education. In its Capitated
Diagnostic Imaging Program ("CDIP"), the Company establishes and maintains
networks of diagnostic imaging providers which meet the Company's assessment
requirements and agree to receive payment from the Company based on appropriate
utilization levels and financial incentives. The Company receives a per member
per month ("pmpm") fee, consisting of compensation for the assumption of
responsibility for medical costs and claims processing, and a fee for the
provision of network management services. In its recently introduced Resource
Management Program ("RMP"), the Company provides network management services in
return for a fee from participating clients. RMP clients are responsible for
establishing and maintaining networks of physicians and retain risk for medical
costs payable to physician providers. The RMP fee does not include payment for
medical costs since RMP does not alter the payment relationship between UtiliMed
clients and providing physicians. The Company maintains a database of claims
data, clinical reports, and assessment information which is an important tool
for network and utilization management. At March 31, 1996, the database
contained claims data for over eight million lives, assessment data for over
10,000 imaging sites and over one million clinical reports. The number of
monthly clinical reports added to the database has grown from approximately
35,000 in March 1995 to approximately 54,000 in March 1996. The database enables
the Company to develop protocols, produce outcomes and benchmarking analyses
(both provider-specific and diagnosis-specific) and to create educational
programs for physicians and other providers. Use of the Company's CDIP product
can result in cost savings of approximately 20% to clients within the first year
and the Company anticipates its RMP product will result in comparable savings to
its clients in the first year.
UtiliMed's objective is to enhance its leading position in diagnostic
imaging managed care services and continue its growth by pursuing a wide range
of significant new opportunities. The Company believes its ability to combine
utilization management, quality management, outcomes management and network
management provides an attractive alternative for payors in managing diagnostic
imaging services. The Company sees opportunities for growth both in establishing
new client relationships and expanding relationships with existing clients--by
extending coverage to additional local health plans of regional and national
payors, such as CIGNA Healthcare, Inc. and United HealthCare, Inc. and by
serving additional membership populations of existing clients, such as members
covered under Medicare and Medicaid programs. The Company will also seek to
market RMP to payors other than HMOs, such as self-funded employers and
indemnity insurers, and to market its products directly to large employer
groups, benefits administrators, and benefits consulting groups.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered......................... 2,500,000 shares
Common Stock to be outstanding after this
offering(1).................................. 6,762,147 shares
Use of Proceeds.............................. $17.6 million to repay indebtedness, $1
million for computer hardware enhancements,
and $
to achieve a positive working capital
position to support the Company's growth
strategy. See "Use of Proceeds" and "Certain
Transactions."
Proposed Nasdaq National Market Symbol....... ULMD
</TABLE>
- ------------
(1) Excludes 57,745 shares of Common Stock issuable upon exercise of outstanding
employee stock options under the Company's Time Accelerated Restricted Stock
Option Plan for Certain Employees ("TARSOP"), 55,108 shares of Common Stock
issuable upon exercise of outstanding stock options, and 48,821 shares of
Common Stock reserved for issuance under the Company's Stock Option Plan for
Non-Employee Directors (the "Directors Option Plan"). See
"Management--Executive Compensation," "Management--Directors Option Plan"
and "Management-- TARSOP". Also excludes 641,236 shares of Common Stock
issuable upon the exercise of the Stock Purchase Warrants, which are
exercisable in limited circumstances, including (i) the consummation of this
offering if the initial offering price is at least $24.90 per share and (ii)
on or prior to June 30, 1997 (or, under certain conditions, September 30,
1997), a sale of the capital stock of the Company in a merger, consolidation
or other business combination in which certain shareholders of the Company
receive proceeds in excess of $75 million (the "Stock Purchase Warrants").
See "Risk Factors--Dilution" and "Certain Transactions--1995 Transaction."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Contract revenues:
Continuing contracts.......... $ 2,573 $ 8,063 $ 19,308 $ 50,882 $ 76,457 $ 18,130 $ 24,055
Terminated contracts(1)....... -- 2,285 7,079 15,697 19,960 8,626 --
------- ------- --------- --------- --------- --------- ---------
Total contract revenues..... $ 2,573 $10,348 $ 26,387 $ 66,579 $ 96,417 $ 26,756 $ 24,055
------- ------- --------- --------- --------- --------- ---------
------- ------- --------- --------- --------- --------- ---------
Cost of services:
Continuing contracts.......... $ 2,138 $ 6,883 $ 16,916 $ 49,792 $ 72,365 $ 17,859 $ 20,628
Terminated contracts(1)....... -- 1,753 5,781 16,696 18,437 8,975 --
------- ------- --------- --------- --------- --------- ---------
Total cost of services...... $ 2,138 $ 8,636 $ 22,697 $ 66,488 $ 90,802 $ 26,834 $ 20,628
------- ------- --------- --------- --------- --------- ---------
------- ------- --------- --------- --------- --------- ---------
Net loss....................... $ (354) $ (106) $ (2,608) $ (13,879) $ (18,774) $ (5,390) $ (1,180)
------- ------- --------- --------- --------- --------- ---------
------- ------- --------- --------- --------- --------- ---------
Pro forma net loss per
share(2)....................... (0.57) (3.05) (4.37) (1.25) (0.27)
Number of shares used in pro
forma per share
computations(2)................ 4,568,824 4,547,914 4,296,439 4,303,522 4,375,823
STATISTICAL DATA:(3)
Covered lives:
Capitated..................... 102,000 202,000 485,000 1,035,000 1,152,000 1,098,000 1,380,000
Resource Management........... -- -- -- -- 1,111,000 -- 1,166,000
Number of contracts:
Capitated..................... 4 5 9 12 12 12 13
Resource Management........... -- -- -- -- 3 -- 3
Medical loss
ratio-capitated(4)............. 83.1% 85.4% 87.6% 97.9% 96.9% 98.5% 94.0%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
DECEMBER 31, 1995 ACTUAL AS ADJUSTED(5)
----------------------- -------- --------------
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital (deficit)...................... $ (18,644) $(19,766) $ 5,330
Total assets................................... 10,090 16,768
Payables to plans and providers................ 20,552 22,304 22,304
Total debt..................................... 10,499 17,775 506
Shareholders' equity (deficit)................. (61,267) (62,865)
</TABLE>
- ------------
(1) Represents seven CDIP contracts that were terminated in the third and fourth
quarters of 1995 (the "Terminated Contracts"). Five of the Terminated
Contracts were unprofitable contracts terminated by the Company's new
management team as part of the initiatives being implemented subsequent to
the 1995 Transaction (as defined herein). These unprofitable contracts were
entered into without establishment of appropriate provider networks, thereby
placing the Company at significant financial risk. The other two Terminated
Contracts were terminated prior to their completion by mutual agreement of
the Company and the clients. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Clients;
Capitation Contracts and Provider Contracts; RMP Contracts."
(2) Net loss per share is computed by dividing net loss by the number of common
and common equivalent shares outstanding during the periods in accordance
with the applicable rules of the Securities and Exchange Commission (the
"Commission"). All stock options and restricted common stock issued have
been considered as outstanding common stock equivalents for all periods
presented, even if anti-dilutive, under the treasury stock method (based on
initial public offering price). Shares of common stock issuable upon
conversion of the Series A Preferred Stock and Class B Stock are assumed to
be common share equivalents for all periods presented.
(3) The information set forth in Statistical Data reflects only continuing CDIP
and RMP contracts. Including the Terminated Contracts, the number of
capitated lives were 102,000, 314,000, 625,000, 1,514,000 and 1,152,000 and
the number of CDIP contracts were 4, 6, 11, 17 and 12 at December 31, 1991,
1992, 1993, 1994 and 1995, respectively, and the number of RMP contracts at
December 31, 1995 was three. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(4) Calculated as cost of services divided by continuing contract revenue
excluding RMP revenue.
(5) Adjusted to reflect the sale by the Company of 2,500,000 shares of Common
Stock offered hereby and the application of the net proceeds therefrom as
described under "Use of Proceeds."
6
<PAGE>
RISK FACTORS
HEALTH CARE AND REGULATORY ENVIRONMENT
Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change. Although Congress has
failed to pass comprehensive health care reform legislation thus far in 1996,
the Company anticipates that Congress and state legislatures will continue to
review and assess alternative health care delivery and payment systems. The
number of health care proposals considered by state legislatures has increased
in recent years. Potential approaches that have been considered include mandated
basic health care benefits, controls on health care spending through limitations
on the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups, the formation of
regional delivery markets and other fundamental changes to the health care
delivery system. Private sector providers and payors have embraced certain
elements of reform, resulting in increased consolidation of medical groups and
competition among managers of medical practice groups as these providers and
payors seek to form alliances in order to provide cost-effective, quality care.
The Company cannot predict whether federal or state health care reform will be
adopted and, if so, what effect any such measures or any private sector reform
may have on its business.
In addition to the possibility of comprehensive health care reform, the
health care industry and physicians' medical practices are highly regulated at
the state and federal levels. The Company believes its operations are in
compliance with applicable law. Nevertheless, because of the rapidly evolving
structure of existing and potential relationships between the Company and
insurers, self-funded employers, health plans and government-sponsored and other
health care cost payors, including health maintenance organizations ("HMOs") and
preferred provider organizations ("PPOs"), many aspects of these relationships
have not been the subject of regulatory interpretation. There can be no
assurance that the review of the Company's business by state or federal courts
or health care and other regulatory authorities will not result in
determinations that could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business--Regulation."
INSURANCE REGULATION
The laws of many states regulate the sharing of risk through capitation. In
many cases, placing providers of diagnostic imaging services at risk outside the
context of a licensed HMO will be deemed to require the obtaining of an
insurance license. In the states in which the Company currently operates,
licensed HMOs can enter into capitation agreements with networks established by
the Company that are comprised of (i) individual providers or (ii) a group of
providers who are linked through certain contractual arrangements ("provider
networks") without the possibility that the associated compensation mechanisms
will require the Company to obtain an insurance license. Due to state insurance
regulations, the Company only offers its CDIP product to HMOs. While the Company
believes that its participation in a capitated provider network does not require
insurance licensure in the states in which it does business, there are a number
of states which may require such licensure which in turn may restrict the
Company's ability to expand its business in such jurisdictions. There can be no
assurance that any state in which the Company does business or may do business
in the future will not impose insurance licensing requirements on all capitated
arrangements and, if it does, there can be no assurance that such insurance
licensing requirements will not have a material adverse effect on the Company's
business, operating results and financial condition. See
"Business--Regulation--State Regulation-- Insurance Regulation."
THIRD PARTY ADMINISTRATOR
Many states regulate third party administrators ("TPAs") or organizations
that provide certain administrative services, such as claims adjustment, claims
processing and premium collection. The administrative services provided by a TPA
include services normally provided by insurers. A TPA that provides services to
group benefit plans and self-insured employers may be subject to state
regulation. The Company believes it is not subject to regulation as a TPA as it
is not engaged in providing services which define a TPA in the states in which
the Company does business. However, there can be no assurance that any state in
which the Company does business or may do business in the future will not seek
to regulate the activities of the Company as a TPA and, if it does, that such
regulations will not
7
<PAGE>
have a material adverse effect on the Company's business, operating results and
financial condition. See "Business--Regulation--State Regulation--Third Party
Administrator."
PRIVATE UTILIZATION REVIEW
Some state laws regulate provider network organizations that perform
prospective, concurrent or retrospective reviews of the health care services
provided through the network. Such regulations typically require application and
licensure as a prerequisite to performing utilization review services on
residents of the state and may place restrictions on the types of personnel that
may conduct utilization review. While the Company believes that it is not
currently subject to regulation under utilization review statutes in certain
states, the Company has pending applications for licensure in other states in
which its review procedures fall within the scope of such utilization review
statutes. There can be no assurance that any state in which the Company does
business or may do business in the future will not seek to further regulate the
activities of the Company under such statutes and, if it does, that such
regulation will not have a material adverse effect on the Company's business,
operating results and financial condition. See "Business--Regulation--State
Regulation--Private Utilization Review Agent."
MEDICARE FRAUD AND ABUSE PROVISIONS; THE "STARK LAW"
Federal laws prohibit the offer, payment, solicitation or receipt of any
form of remuneration in return for the referral of Medicare or state health
program patients or patient care opportunities, or in return for the purchase,
lease or order of items or services that are covered by Medicare or state health
programs. Violations of these laws are felonies punishable by fines and
imprisonment for up to five years. The United States Department of Health and
Human Services ("HHS") or state health departments may also impose civil
penalties excluding violators from participation in Medicare or state health
programs. Some state laws include similar prohibitions which apply to private
pay patients as well. In addition, the "Stark Law" prohibits the referral of
Medicare and Medicaid patients by a physician for certain designated health
services, including radiology services, to an entity in which the physician has
an ownership or other financial relationship. Civil monetary penalties may be
imposed for certain prohibited referrals. Some state laws also have similiar
provisions. Although the Company believes that its operations do not violate or
are not subject to these laws, commonly known as the "anti-kickback statutes,"
there can be no assurance that its activities will not be challenged by
regulatory authorities. See "Business--Regulation--Federal Regulation--Medicare
Fraud and Abuse Provisions" and "Business--Regulation--Federal
Regulation--Prohibitions on Certain Referrals--The 'Stark Law.' "
CORPORATE PRACTICE OF MEDICINE AND FEE SPLITTING
The laws of many states prohibit non-physician entities (such as the
Company) from practicing medicine or physicians from splitting fees with
non-physicians. The Company, through its utilization management services, makes
recommendations concerning procedures to be performed by providers throughout
the United States. The Company does not believe that it engages in the practice
of medicine or the delivery of medical services. However, these laws and their
interpretations vary from state to state and are enforced by regulatory
authorities with broad discretion. There can be no assurance that the Company's
existing or future agreements will not be successfully challenged as
constituting the unlicensed practice of medicine or prohibited splitting of fees
with non-physicians. In addition, there can be no assurance that the Company
will not be subject to allegations that the Company engages in the practice of
medicine or the delivery of medical services or subject to claims or litigation
related to the grant or denial of claims for payment of benefits. A successful
challenge with respect to the Company's activities or claims or litigation
related to the grant or denial of claims could have a material adverse effect on
the Company's business, operating results and financial conditions. See
"Business-- Regulation--State Regulation--Corporate Practice of Medicine and Fee
Splitting."
REGULATORY COMPLIANCE
Health care regulations affecting the Company will continue to change and
vary on a state by state basis. The Company believes it will be able to continue
to structure its agreements and operations in accordance with applicable law or,
if necessary, modify its agreements and operations to comply with
8
<PAGE>
changing regulations. However, there can be no assurance that regulatory changes
will not have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Regulation--Regulatory
Compliance."
DEPENDENCE ON AND CONTRACT RISKS WITH CLIENTS
The Company's revenues depend entirely on fees and payments received from
the clients with which it contracts. Any material loss of revenue from such
clients could have a material adverse effect on the Company's business,
operating results and financial condition. The Company does not control the
marketing or administration of health care services by its clients or their
compliance with regulatory requirements directly applicable to them. In
addition, fees earned pursuant to contracts with ChoiceCare Health Plans, Inc.,
United HealthCare of Ohio, Inc-Western Region and CIGNA HealthCare of Northern
New Jersey, Inc. accounted for approximately 20.2%, 14.1% and 13.7%,
respectively, of the Company's total revenues in 1995, and approximately 20.0%,
14.6% and 16.0%, respectively, of the Company's total revenues for the first
quarter of 1996. Similarly, although the Company's contracts with clients
affiliated with CIGNA Healthcare, Inc. ("CIGNA") are independently negotiated
and operated, the Company had five such contracts in 1995 that represented, in
the aggregate, 29.3% of total revenues for the year ended December 31, 1995 and,
with the commencement of a sixth contract with a CIGNA affiliated client in
1996, such contracts represented, in the aggregate, 40.7% of the Company's total
revenues for the first quarter of 1996. The Company expects that a majority of
its revenues will continue to be attributable to a limited number of clients.
See "Business--Clients; Capitation Contracts and Provider Contracts; RMP
Contracts."
UtiliMed offers two products to payors: CDIP, a capitated product; and RMP,
a fee-based product. Under CDIP contracts, the Company receives a monthly
payment from its clients comprised of compensation for the assumption of
responsibility for medical costs and claims processing, and a fee for the
provision of network management services. By taking responsibility for the
payment of fees to physicians, the Company must fund any losses that arise in
the event the revenues it receives from clients do not exceed the amounts
payable by the Company to providers. Under RMP contracts, the Company provides
network management services in return for a fee from participating clients. A
portion or all of the Company's RMP fee may have to be refunded if the client
does not realize agreed upon cost savings. Under RMP, the Company makes an
appropriate accrual depending upon whether or not it believes it will meet the
utilization and cost reduction levels in a particular contract. There can be no
assurance that under CDIP contracts revenues from a particular contract will
exceed the Company's payment requirements to providers under such contract, or
that under RMP contracts there will not be negative adjustments in revenues for
future periods. See "Business--Company Products."
SHAREHOLDERS' DEFICIT; HISTORY OF OPERATING LOSSES
While the Company had a net deficit in shareholders' equity at March 31,
1996, following the consummation of this offering the Company will have positive
shareholders' equity. See "Capitalization." The Company has incurred operating
losses in each of the last five years. While the Company believes that it is
positioning itself for profitability, there can be no assurance that the Company
will achieve profitability, maintain working capital sufficient to support
operating cash requirements or maintain positive shareholders' equity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
UNCERTAIN ACCEPTANCE OF NEW PRODUCT
The Company expects to derive an increasing amount of revenue from RMP. To
date, there is insufficient experience with this product to determine its
acceptance in the marketplace. Failure of RMP to achieve market acceptance would
have a material adverse effect on the Company's business, operating results and
financial condition.
9
<PAGE>
NEW MANAGEMENT TEAM; KEY MANAGEMENT
The Company assembled a new executive management team during the second half
of 1995. Although each member of this new management team has experience in the
managed care industry, they have not worked together as a team for a significant
period of time and there can be no assurance that they will continue to perform
or contribute to the business of the Company. The Company is dependent upon its
key management, and the loss of their services, coupled with any inability to
attract and retain qualified replacements could have a material adverse effect
on the Company's business, operating results and financial condition. See
"Management."
COMPETITION
The Company faces current and potential competition from a number of diverse
sources and in differing degrees with respect to its two products. There can be
no assurance that other companies will not expand the scope or geographical
range of their services in the future, or that payors will not increasingly
internalize functions similar to those provided by the Company. Many of the
Company's potential competitors are significantly larger and have greater
financial, personnel and marketing resources than those of the Company, and
there can be no assurance that the Company will continue to maintain its
existing performance with respect to either product or be successful in any new
geographical markets it may enter. See "Business--Competition."
POSSIBLE LITIGATION AND INSURANCE
The Company does not believe that it engages in the practice of medicine or
the delivery of medical services. There can be no assurance, however, that the
Company will not be subject to claims or litigation related to the provision of
medical services, or that, in the future, certain states or courts will not seek
to assign liability to the Company in connection with its activities that would
subject the Company to the attendant risk of substantial damage awards. In
addition, there can be no assurance that the Company will not be subject to
other litigation that could have a material adverse effect on the Company's
business, operating results and financial condition. The Company maintains
professional liability insurance in the amount of $10 million in the aggregate.
While the Company believes it has adequate professional liability insurance
coverage, there can be no assurance that a future claim or claims will not be
deemed applicable to the Company and successful, or if successful, will not
exceed the limits of available insurance coverage or that such coverage will
continue to be available at acceptable costs and on favorable terms. See
"Business--Insurance."
MATERIAL BENEFIT TO INSIDERS; CONTROL BY PRIVATE EQUITY INVESTORS
Of the proceeds to be received by the Company from the sale of the shares of
Common Stock offered hereby, approximately $7 million will be used to repay the
Company's Senior Promissory Notes due March 6, 1997 (the "Senior Notes") issued
to Chase Capital Partners ("CCP") and J.H. Whitney & Co. ("Whitney") and to pay
certain associated deferred fees to CCP and Whitney and approximately $10
million will be used to repay the Company's Senior Subordinated Promissory Notes
due November 3, 2001 (the "Senior Subordinated Notes") issued to CCP and the
Whitney Subordinated Debt Fund, L.P. ("Whitney Debt Fund"). See "Use of
Proceeds" and "Certain Transactions." Two directors of the Board, Jeffrey R.
Jay, M.D. and Peter M. Castleman, are general partners of the Whitney Debt Fund
and Whitney. Two other directors, Mitchell J. Blutt, M.D. and Jonas L. Steinman,
are executive partner and principal, respectively, of CCP. See "Management."
Upon the completion of this offering, CCP, Whitney, Whitney Debt Fund and
the Whitney 1990 Equity Fund, L.P. (collectively, the "Private Equity
Investors") together will beneficially own approximately 47.8% of the
outstanding shares of Common Stock. See "Principal Shareholders." In addition,
as noted above, four of the six members of the Board are also employees of the
Private Equity Investors. Accordingly, the Private Equity Investors and their
affiliates will be able to determine the outcome of all corporate actions
requiring approval by the members of the Board or shareholders and will be able
to control the election of the members of the Board and the determination of the
Company's policies. Such control may have the effect of delaying or preventing a
change in control of the Company.
10
<PAGE>
DILUTION
The Company has a net deficit in shareholders' equity and a net tangible
deficit. Purchasers of Common Stock in this offering will experience immediate
and substantial dilution in the net tangible book value of $ per share
based upon an assumed initial public offering price of $ per share. See
"Dilution."
In addition, on September 6, 1995 the Company issued the Stock Purchase
Warrants to certain shareholders for the purchase of an aggregate of 641,236
shares of Common Stock at an exercise price of $.05 per share. Although the
Stock Purchase Warrants will not become exercisable upon the completion of this
offering, they will become exercisable if, on or prior to June 30, 1997 (or,
under certain conditions, prior to September 30, 1997), there occurs a sale of
the capital stock of the Company held by the Private Equity Investors or a
merger, consolidation or other business combination, such that the Private
Equity Investors receive cash proceeds (net of certain expenses and fees) that
exceed $75 million for their shares of Common Stock. See "Certain
Transactions--1995 Transaction" and "Capitalization." If the Stock Purchase
Warrants are exercised, all shareholders purchasing in this offering would
experience further additional dilution as up to 641,236 shares of Common Stock
would become outstanding.
NO PRIOR MARKET; POTENTIAL VOLATILITY
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this offering. The initial public offering price will be
determined by negotiation among the Company and the Representative of the
Underwriters and may not be indicative of prices that will prevail in the
trading market. Consequently, there can be no assurance that the market price
for the Common Stock will not fall below the public offering price. See
"Underwriters" for a discussion of the factors to be considered in determining
the initial public offering price. Although application has been made to have
the Common Stock listed on the Nasdaq National Market, there can be no assurance
that an active public market will develop or, if developed, will be sustained
following this offering. There has been significant volatility in the market
price of securities of companies involved in the health care industry that often
has been unrelated to the operating performance of such companies. The Company
believes that certain factors, such as legislative and regulatory developments,
lower revenues or earnings than those anticipated by securities analysts, the
overall economy and the financial markets, could cause the price of the Common
Stock to fluctuate substantially.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON MARKET PRICE
4,262,147 shares representing 63% of the number of shares of Common Stock
outstanding after the completion of this offering are or will be eligible for
future sale in the public market at prescribed times pursuant to Rule 144 or
Rule 701 under the Securities Act of 1933, as amended (the "Securities Act"), or
pursuant to the exercise of registration rights. Sales of such shares in the
public market, or the perception that such sales may occur, could adversely
affect the market price of the Common Stock or impair the Company's ability to
raise additional capital in the future through the sale of equity securities.
See "--Dilution," "Shares Eligible for Future Sale," "Underwriters" and
"Description of Capital Stock--Registration Rights."
ANTI-TAKEOVER CONSIDERATIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws and
the Illinois Business Corporation Act of 1983 ("IBCA") could, together or
separately, discourage potential acquisition proposals or delay or prevent a
change in control of the Company, even when shareholders, other than the Private
Equity Investors, consider such a transaction to be in their best interest.
Accordingly, such provisions may limit the price that certain investors might be
willing to pay in the future for shares of the Common Stock. See "--Material
Benefit to Insiders; Control by Private Equity Investors," "Description of
Capital Stock--Preferred Stock" and "Description of Capital Stock--Illinois
Takeover Statute." In addition, the equity ownership position of, and control of
the Board by, the Private Equity Investors may have the effect of delaying or
preventing a change in control of the Company. See "-- Material Benefit to
Insiders; Control by Private Equity Investors."
11
<PAGE>
THE COMPANY
UtiliMed is the nation's leading manager of diagnostic imaging services,
providing a comprehensive approach to managing cost, quality and utilization for
payors with large memberships. The Company's products aim to manage the delivery
of quality necessary diagnostic imaging services by qualified physicians to
patients on a cost effective basis. UtiliMed's products manage costs by
decreasing the volume and increasing the quality of imaging services. Quality
improvement can decrease costs through fewer repeat or extra exams necessitated
by poor quality initial exams. The Company offers its clients a capitated
product and a fee-based product, each of which is designed to reduce excess or
improper utilization and improve the quality of service. The core program
elements of the Company's two products include diagnostic imaging assessment and
privileging, diagnostic imaging pre-certification processes, clinical- and
claims-based retrospective utilization database tools and structured physician
education.
In November 1994, the Company redeemed outstanding shares of capital stock
from then existing management. To finance this transaction, the Company issued
debt in the principal amount of $10 million and shares of Common Stock and
instruments convertible into Common Stock to the Private Equity Investors. The
redemption and investment (together, the "Recapitalization") were undertaken to
provide limited liquidity for certain of the Company's founders, to align the
organizational and capital structure of the Company with that of other private
companies that have professional investors, to attract experienced and qualified
directors, to access the financial and managerial advice and experience of the
Private Equity Investors and to facilitate capital investment by other
professional investors that would not ordinarily invest in a closely-held
company. See "Certain Transactions-- Recapitalization."
Following the Recapitalization, the Company grew rapidly in terms of gross
revenues derived from new CDIP contracts. During the third quarter of 1995,
however, the then existing management and the Private Equity Investors
recognized significant problems in managing the rapid growth of the business and
that the financial condition of the Company had deteriorated during 1995 as
evidenced by substantial operating losses. As a result, the Private Equity
Investors and certain shareholders of the Company completed a capital
transaction in September 1995 that resulted in changes to the capitalization,
management and business of the Company (collectively, the "1995 Transaction").
In connection with the 1995 Transaction, a new management team, led by Dr. Carl
Adkins, the former CEO of United HealthCare of Ohio-Western Region (a subsidiary
of United HealthCare, Inc.), was asssembled. Since the new management team was
assembled, the Company has improved its operating condition through the
implementation of certain initiatives: implementation of the RMP product, the
Terminated Contracts, the renegotiation of six continuing CDIP contracts, and
the recruitment of new professional leadership in finance, operations, claims
management and professional relations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business-Strategy" and
"Certain Transactions--1995 Transaction."
The Company was incorporated in Illinois in December 1989. On May 22, 1996,
the Company changed its name from Medicon, Inc. to UtiliMed, Inc. The principal
executive offices of the Company are located at 40 Skokie Boulevard, Northbrook,
Illinois 60062-1618 and its telephone number is (847) 564-8500.
DIVIDEND POLICY
The Company has never declared or paid any dividend on its Common Stock
since its incorporation and does not expect to pay cash dividends on its Common
Stock in the foreseeable future. The Company currently intends to retain all of
its earnings for the operation and expansion of its business. Payment of any
future dividends will depend on the profitability, future earnings and working
capital requirements
12
<PAGE>
of the Company and other factors that the Board considers appropriate. See "Risk
Factors--Shareholders' Deficit; History of Operating Losses" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby, based on an assumed initial public offering price of
$ per share, are estimated to be approximately $ million (or
approximately $ million if the Underwriters' over-allotment option is
exercised in full). Approximately $17.6 million of the net proceeds will be used
to repay indebtedness, approximately $1 million will be used for certain
computer hardware enhancements (including the upgrade and purchase of
equipment), and the balance will be used for working capital. Of the net
proceeds to be used to repay indebtedness, approximately $6.1 million will be
used to repay the principal of and accrued interest on the Senior Notes due
March 6, 1997 which have a variable interest rate and currently bear interest at
14% per annum issued to CCP and Whitney; $1 million to pay certain associated
deferred fees to CCP and Whitney incurred in connection with the issuance of the
Senior Notes; approximately $10.1 million to repay the principal of and accrued
interest on the Senior Subordinated Notes due November 3, 2001 issued to CCP and
Whitney Debt Fund and bearing interest at 10.101% per annum (see "Certain
Transactions" and "Risk Factors--Material Benefit to Insiders; Control by
Private Equity Investors"); and approximately $416,000 to repay the principal of
and accrued interest on a promissory note issued by the Company to Jack M.
Korsower, M.D. (the "Korsower Note") that matures by its terms upon the
consummation of this offering and bears interest at 8.5% per annum. See "Certain
Transactions--1995 Transaction." Approximately $ million of the net proceeds
will be used to achieve positive working capital to support the implementation
of the Company's growth strategy. These funds are expected to remain invested in
short-term investment grade interest bearing securities. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
13
<PAGE>
CAPITALIZATION
The following table sets forth the (i) the capitalization of the Company at
March 31, 1996 (as if the 5.361849 for-one-reverse stock split declared by the
Board and the conversion of the $10.6 million principal amount Junior
Subordinated Promissory Notes (the "Junior Subordinated Notes") issued in
connection with the Recapitalization into 94,039 shares of Common Stock in
accordance with the terms thereof had occurred prior to March 31, 1996); (ii)
the pro forma capitalization as of such date, after giving effect to (a) the
conversion of the Series A Preferred Stock, no par value (the "Series A
Preferred Stock") and the Class B Stock, no par value (the "Class B Stock") into
3,231,507 shares of Common Stock and (b) the authorization by the Board on
, 1996 of a new class of preferred stock (see "Certain Transactions"
and "Description of Capital Stock"); and (iii) as adjusted to give effect to the
issuance of 2,500,000 shares of Common Stock offered hereby and the application
of the net proceeds therefrom as described under "Use of Proceeds." This table
should be read in conjunction with "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Short-term debt:
Due to shareholders...................................... $ 7,046 $ 7,046 $ --
Current maturities of long-term debt..................... 378 378 378
-------- --------- -----------
Total short-term debt.................................. $ 7,424 $ 7,424 $ 378
-------- --------- -----------
-------- --------- -----------
Long-term debt due to shareholders......................... 9,869 9,869 128
Long-term debt............................................. $ 528 $ 528 $ --
-------- --------- -----------
Total long-term debt..................................... 10,397 10,397 128
-------- --------- -----------
Series A Preferred Stock (no par value), 1,354,004 shares
authorized; 1,354,004 shares issued and outstanding
actual; none authorized, issued or outstanding pro forma
or pro forma, as adjusted................................ 28,460 -- --
Class B Stock (no par value), 458,480 shares authorized;
458,480 shares issued and outstanding actual; none
authorized, issued or outstanding pro forma or pro forma,
as adjusted.............................................. 8,047 -- --
Shareholders' equity (deficit):
Common Stock (no par value), 5,065,057 shares authorized
and 1,030,641 shares issued and outstanding, actual;
5,065,057 shares authorized and 4,262,147 shares issued
and outstanding, pro forma; 7,940,057 shares authorized
and 6,762,147 shares issued and outstanding, pro forma,
as adjusted(1)......................................... 16,444 52,951
Preferred Stock (no par value) shares authorized;
no shares issued and outstanding....................... -- --
Unearned compensation.................................... (1,212) (1,212)
Accumulated deficit...................................... (78,097) (78,097)
-------- --------- -----------
Total shareholders' equity (deficit)................... (62,865) (26,358)
-------- --------- -----------
Total capitalization................................. $(15,961) $ (15,961) $
-------- --------- -----------
-------- --------- -----------
</TABLE>
- ------------
(1) Excludes 57,745 shares of Common Stock issuable upon exercise of outstanding
employee stock options, 55,108 shares of Common Stock issuable upon
exercise of outstanding stock options and 48,821 shares of Common Stock
reserved for issuance under the Directors Option Plan. See "Management--
Executive Compensation" and "Management--TARSOP." Also excludes 641,236
shares of Common Stock issuable upon the exercise of the Stock Purchase
Warrants. Such Stock Purchase Warrants are exercisable in limited
circumstances, including (i) the consummation of this offering if the
price is at least $24.90 per share and (ii) on or prior to June 30, 1997
(or, under certain circumstances, September 30, 1997), a sale of the
capital stock of the Company in a merger, consolidation or other business
combination in which certain shareholders of the Company receive proceeds
in excess of $75 million. See "Risk Factors--Dilution" and "Certain
Transactions--1995 Transaction."
14
<PAGE>
DILUTION
The deficit in net tangible book value of the Company at March 31, 1996, was
approximately $62.9 million or $14.75 per share, as determined by dividing the
Company's total tangible assets less total liabilities by the number of shares
of Common Stock outstanding at that date (assuming conversion of the Company's
Series A Convertible Preferred Stock and Class B Stock into shares of Common
Stock). The pro forma net tangible book value of the Company at March 31, 1996,
would have been approximately $ million or $ per share after giving
effect to this offering (at an assumed initial public offering price of
$ per share) and the application of the estimated net proceeds to the
Company therefrom as set forth in "Use of Proceeds." This represents an
immediate increase of $ per share in the net tangible book value to
existing holders of the Common Stock and an immediate dilution in net tangible
book value of $ per share to new investors purchasing shares of Common
Stock in this offering. "Dilution in net tangible book value" means the
difference between the price per share paid by investors purchasing shares of
Common Stock in this offering and the deficit in pro forma net tangible book
value per share at March 31, 1996. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
Deficit in net tangible book value per share at March 31,
1996........................................................ $(14.75)
Increase in net tangible book value per share attributable
to this offering and the other transactions described
above.......................................................
-------
Pro forma net tangible book value per share at March 31,
1996........................................................ ()
---
Dilution in net tangible book value per share to new
investors................................................... $
---
---
</TABLE>
The following table summarizes, as of the consummation of this offering at
an assumed initial public offering price of $ per share, the number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average price per share paid by the existing holders of the Common Stock
and by the new investors purchasing shares of Common Stock in this offering.
<TABLE>
<CAPTION>
TOTAL AVERAGE
SHARES PURCHASED CONSIDERATION PRICE PER
----------------- ----------------- SHARE
NUMBER PERCENT AMOUNT PERCENT -
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Existing shareholders.............................
New investors.....................................
Total.........................................
</TABLE>
The foregoing tables exclude (i) 57,745 shares of Common Stock issuable upon
the exercise of outstanding employee stock options at an exercise price of $0.05
per share, (ii) 55,108 shares of Common Stock issuable upon the exercise of
outstanding stock options at an exercise price of $0.05 per share, (iii) 48,821
shares of Common Stock reserved for issuance under the Directors Option Plan and
(iv) 641,236 shares of Common Stock issuable upon the exercise of the Stock
Purchase Warrants. See "Management--Executive Compensation," "Management--
Directors Option Plan" and TARSOP. If these outstanding options and warrants
were exercised, new investors purchasing shares of Common Stock in this
offering would incur a decrease in dilution in net tangible book value per
share of $ per share.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data as of December 31, 1994 and 1995
for the three years ended December 31, 1995 are derived from consolidated
financial statements of UtiliMed which have been audited by Ernst & Young LLP,
independent auditors. The selected consolidated financial data as of December
31, 1993 and as of and for the year ended December 31, 1992 have been audited by
the Company's former independent auditors. The selected consolidated financial
data for the year ended December 31, 1991 have been compiled by an independent
accountant and the financial data for the three month periods ended March 31,
1996 and 1995 have been derived from unaudited consolidated financial
statements, each of which, in the opinion of UtiliMed, include all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the financial position and the results of operations for these periods.
Operating results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the entire year ended
December 31, 1996. The data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
----------- ------ ---------- ---------- ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenues:
Continuing contracts.............. $ 2,573 $8,063 $ 19,308 $ 50,882 $ 76,457 $ 18,130 $ 24,055
Terminated contracts(1)........... -- 2,285 7,079 15,697 19,960 8,626 --
----------- ------ ---------- ---------- ---------- ---------- ----------
Total contract revenues......... 2,573 10,348 26,387 66,579 96,417 26,756 24,055
Operating Expenses:
Cost of services:
Continuing contracts.............. 2,138 6,883 16,916 49,792 72,365 17,859 20,628
Terminated contracts(1)........... -- 1,753 5,781 16,696 18,437 8,975 --
----------- ------ ---------- ---------- ---------- ---------- ----------
Total cost of services.......... 2,138 8,636 22,697 66,488 90,802 26,834 20,628
Selling, general and
administrative..................... 790 1,728 6,107 13,224 22,016 4,815 4,118
Depreciation and amortization...... -- 76 209 493 740 163 210
Provision for loss on employee
notes.............................. -- -- -- -- 287 -- --
----------- ------ ---------- ---------- ---------- ---------- ----------
Total operating expenses.......... 2,928 10,440 29,013 80,205 113,845 31,812 24,956
----------- ------ ---------- ---------- ---------- ---------- ----------
Loss from operations............... (355) (92) (2,626) (13,626) (17,428) (5,056) (901)
Other income (expense):
Interest expense.................. -- (19) (41) (572) (2,053) (592) (419)
Interest income................... 1 5 58 311 700 258 144
Other income (expense)............ -- -- 1 8 7 -- (4)
----------- ------ ---------- ---------- ---------- ---------- ----------
Total other income (expense).... 1 (14) 18 (253) (1,346) (334) (279)
----------- ------ ---------- ---------- ---------- ---------- ----------
Net loss........................... $ (354) $ (106) $ (2,608) $ (13,879) $ (18,774) $ (5,390) $ (1,180)
----------- ------ ---------- ---------- ---------- ---------- ----------
----------- ------ ---------- ---------- ---------- ---------- ----------
Pro forma net loss per share(2).... (0.57) (3.05) (4.37) (1.25) (0.27)
Number of shares used in pro forma
net loss per share
computations(2).................... 4,568,824 4,547,914 4,296,439 4,303,522 4,375,823
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------- ---------
1991 1992 1993 1994 1995 1996
------ ------ ------- -------- -------- ---------
(IN THOUSANDS)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).............................. $ (351) $ (985) $(4,289) $ (6,080) $(18,644) $(19,766 )
Total assets(3)........................................ 265 1,277 3,416 23,933 10,090 16,768
Payables to plans and providers........................ -- 948 4,996 18,360 20,552 22,304
Total debt............................................. 344 616 783 24,667 10,499 17,775
Shareholders' equity (deficit)......................... (348) (470) (3,234) (54,382) (61,267) (62,865 )
</TABLE>
- ------------
(1) Represents seven CDIP contracts that were terminated in 1995 (the
"Terminated Contracts"). Five of the Terminated Contracts were unprofitable
contracts terminated by the Company's new management team as part of the
initiatives being implemented subsequent to the 1995 Transaction (as defined
herein). These unprofitable contracts were entered into without
establishment of appropriate provider networks, thereby placing the Company
at significant financial risk. The other two Terminated Contracts were
terminated prior to their completion by mutual agreement of the Company and
the client. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business-- Clients; Capitation Contracts and
Provider Contracts; RMP Contracts."
(2) Net loss per share is computed by dividing net loss by the number of common
and common equivalent shares outstanding during the periods in accordance
with the applicable rules of the Commission. All stock options and
restricted common stock issued have been considered as outstanding common
stock equivalents for all periods presented, even if anti-dilutive, under
the treasury stock method (based on initial public offering price). Shares
of common stock issuable upon conversion of the Series A Preferred Stock and
Class B Stock are assumed to be common share equivalents for all periods
presented.
(3) The December 31, 1992 total assets include $157,000 of deferred contract
development costs.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company derives its revenue and operating income from service contracts
with clients for the management of diagnostic imaging services. The Company
offers a capitated product, CDIP, as well as a fee-based product, RMP. Under
each of these products, the Company receives a fixed per member per month
("pmpm") payment in return for the provision of services. In connection with the
1995 Transaction, five unprofitable contracts with unfavorable terms were
terminated by the Company in the third and fourth quarters of 1995. In addition,
two other CDIP contracts were terminated during 1995. All seven of such
contracts are referred to herein as the "Terminated Contracts." See "Selected
Consolidated Financial Information." The following table sets forth the number
of covered lives and contracts managed by the Company as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- --------- --------- --------- ---------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Covered lives:(1)
Continuing CDIP................. 102,000 202,000 485,000 1,035,000 1,152,000 1,098,000 1,380,000
RMP............................. -- -- -- -- 1,111,000 -- 1,166,000(2)
------- ------- ------- --------- --------- --------- ---------
Total continuing lives........ 102,000 202,000 485,000 1,035,000 2,263,000 1,098,000 2,546,000
Terminated CDIP................. -- 112,000 140,000 479,000 -- 524,000 --
------- ------- ------- --------- --------- --------- ---------
Total lives...................... 102,000 314,000 625,000 1,514,000 2,263,000 1,622,000 2,546,000
------- ------- ------- --------- --------- --------- ---------
------- ------- ------- --------- --------- --------- ---------
Number of contracts:
Continuing CDIP................. 4 5 9 12 12 12 13
RMP............................. -- -- -- -- 3 -- 3(2)
------- ------- ------- --------- --------- --------- ---------
Total continuing contracts.... 4 5 9 12 15 12 16
Terminated CDIP................. -- 1 2 5 -- 6 --
------- ------- ------- --------- --------- --------- ---------
Total contracts.................. 4 6 11 17 15 18 16
------- ------- ------- --------- --------- --------- ---------
------- ------- ------- --------- --------- --------- ---------
</TABLE>
- ------------
(1) Represents covered lives as of the date indicated. Unless otherwise
indicated, covered lives in this table and this Prospectus are rounded to
the nearest thousand.
(2) In addition, the Company signed a new RMP contract in March 1996 covering
220,000 million lives which will be implemented in June 1996.
During the third quarter of 1995, the then existing management and the
Private Equity Investors recognized that there were significant problems
managing the rapid growth of the business and that the financial condition of
the Company had deteriorated during 1995 as evidenced by substantial operating
losses. As a result of the rapid growth of the Company, inadequate financial
performance and limited experience of the then existing management, the Company
began implementing the following business initiatives in the third quarter of
1995:
. A new Chief Executive Officer was hired.
. New, more experienced professionals were recruited in operations, claims
management, finance and client relations and a new management team was
assembled.
. A new operating strategy was developed that focused on (i) introducing the
new RMP product; (ii) expanding the CDIP product; (iii) evaluating the
current and future profitability of all existing contracts; (iv) reducing
operating costs and (v) improving financial controls.
. Five unprofitable contracts which had unfavorable terms were terminated.
. The Company initiated discussions to renegotiate six other contracts in an
effort to improve the profitability of such contracts. Two of such
contract renegotiations were completed on favorable terms, two additional
renegotiations are substantially completed, and two are in process.
17
<PAGE>
. General and administrative expenses were reduced through a 15.6% reduction
in the workforce from 224 full-time employees at June 30, 1995 to 189
full-time employees at March 31, 1996. In addition, expense controls were
implemented in other areas such as travel, legal, consulting, printing and
temporary services. As a result, the Company reduced its selling, general
and administrative expenses by 20.9% for the quarter ended March 31, 1996
compared to the quarter ended June 30, 1995.
. The Company developed and implemented an activity-based cost model for
evaluating potential business opportunities and improving financial
forecasting.
As a result of the ongoing implementation of these initiatives, the Company
has positioned itself for improved financial results. However, there can be no
assurance that the Company will be successful in continuing to improve its
financial performance.
REVENUE
The Company receives revenue in the form of pmpm payments from clients
pursuant to CDIP and RMP contracts with terms of one to five years. The pmpm
payment received under CDIP contracts includes an administrative fee associated
with the Company's management services and compensation for assuming the
responsibility for medical costs and claims processing related to the provision
of diagnostic imaging services. Eight of the CDIP contracts allow for annual
changes of the pmpm payment tied to changes in the Consumer Price Index ("CPI").
The pmpm received under RMP contracts consists solely of an administrative fee
associated with the Company's management services. Consequently, pmpm revenue
from the CDIP contracts is significantly greater than pmpm revenue from RMP
contracts.
Under RMP, the Company does not process claims for payments to providers
and, consequently, the RMP pmpm payment consists solely of an administrative fee
associated with the Company's management services. The Company includes an
incentive arrangement in its RMP contracts, whereby the Company and the client
set mutually agreed upon goals for achieving cost savings for the covered
population as a whole after the implementation of certain operational changes by
the client. In the event cost savings for the client exceed specified levels,
the Company and the client share in the savings. If the cost savings are not
achieved after the client has implemented certain operational changes, the
Company may be required to refund a portion, or in two RMP contracts, up to all
of the monthly pmpm payment. Under two RMP contracts, performance settlement is
made on an annual basis. A third RMP contract requires performance settlement at
the end of the three year term of the contract, with an interim settlement on or
about the second anniversary date of the contract. The fourth RMP contract does
not include an incentive arrangement nor is the pmpm payment subject to
reduction or refund. The Company's policy with RMP contracts is to accrue for
estimated incentive payments to the Company or refunds by the Company which may
be received or incurred, respectively, in accordance with the terms of each
contract. Because the RMP contracts are new, no such accruals have yet been
recognized. The Company intends to accrue for each RMP contract, if required,
once the client implements certain operational changes and experience patterns
are developed and identified. Adjustments relating to the accruals may be
material to the operating results of the Company.
Growth in revenue is expected to be achieved primarily through securing and
implementing new RMP and CDIP contracts. The Company believes that growth in
revenue will also be achieved through membership growth of its existing client
base, expanding relationships with current clients and by expanding program
offerings with health plans for additional population segments. See "Business--
Strategy."
EXPENSES
As a result of different program designs and financial risks, CDIP and RMP
have different expense levels. Under the CDIP contracts, the Company assumes the
responsibility for the processing and payment of claims for the provision of
diagnostic imaging services. These payments, which are cost of
18
<PAGE>
services, are generally made to providers on a monthly basis in accordance with
the provider contracts and payment methodologies. Under certain payment
methodologies, providers receive additional reimbursement on a quarterly or
annual basis. See "Business--Clients; Capitation Contracts and Provider
Contracts; RMP Contracts."
Payables to plans and providers under CDIP contracts include estimates of
unpaid reported and unreported services provided, accrued capitation fees and
adjustments. These estimates of payables are based on statistical information
and revised as additional information becomes available. Actual results
inevitably will differ from these estimates and such differences may have a
material effect on the Company's business, financial condition and results of
operations for a particular period. See Notes 1 and 3 to the Consolidated
Financial Statements. The Company's medical loss ratio (which is calculated as
cost of services divided by contract revenue, excluding RMP revenue) includes
both the actual payments made to providers and the estimate of amounts which
have been earned by providers but are either unpaid by or not yet reported to
the Company. Accordingly, while the Company's CDIP revenues are primarily fixed,
the cost of services will vary based upon the services rendered, the estimates
of payables and the contractual relationship with the provider.
Selling, general and administrative expenses include the costs of client
relations, clinical coding, claims processing, precertification, assessment,
provider services, utilization analysis and fixed costs such as information
systems, finance, marketing, administration, human resources and legal expenses.
Generally, CDIP contract expenses are higher than RMP expenses because of the
additional costs associated with claims processing and payment and provider
network management.
The Company incurs start-up costs before implementation of contracts, which
are expensed as incurred. Such costs, which include contracting provider
networks, interfacing of information systems and provider assessment and
training of new employees, are typically expensed beginning at least three
months prior to the initial recognition of revenue under a new contract. See
Note 1 to the Consolidated Financial Statements. Although RMP contracts do not
involve the cost of contracting provider networks, the cost of interfacing
information systems tends to be greater for RMP than for CDIP. Certain start-up
costs of CDIP and RMP contracts vary as a function of the size of the membership
of the client.
NET OPERATING LOSS CARRYFORWARDS
The Company's net operating loss carryforwards of $13.7 million, which will
expire in the years 2009 and 2010, are available to offset future taxable
income. See Note 5 to the Consolidated Financial Statements.
19
<PAGE>
RESULTS OF OPERATIONS
The following table presents selected financial data expressed as a
percentage of revenue for the periods indicated and should be read in
conjunction with the Consolidated Financial Statements and
notes thereto included elsewhere in this Prospectus:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- --------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<CAPTION>
<S> <C> <C> <C> <C> <C>
Total contract revenue.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Total cost of services.............................. 86.0 99.9 94.2 100.3 85.8
Selling, general and administrative................. 23.2 19.9 22.8 18.0 17.1
Depreciation and amortization....................... 0.8 0.7 0.8 0.6 0.9
Provision for loss on employee notes................ -- -- 0.3 -- --
----- ----- ----- ----- -----
Total operating expenses............................ 110.0 120.5 118.1 118.9 103.8
----- ----- ----- ----- -----
Loss from operations................................ (10.0) (20.5) (18.1) (18.9) (3.8)
Other income (expense):
Interest expense.................................. (0.1) (0.8) (2.1) (2.2) (1.7)
Interest income................................... 0.2 0.5 0.7 1.0 0.6
Other income...................................... -- -- -- -- --
----- ----- ----- ----- -----
Total other income (expense), net............... 0.1 (0.3) (1.4) (1.2) (1.1)
----- ----- ----- ----- -----
Net loss............................................ (9.9)% (20.8)% (19.5)% (20.1)% (4.9)%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
The following table presents the Company's medical loss ratio (calculated as
cost of services divided by contract revenue, excluding RMP revenue) for the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- --------------
1993 1994 1995 1995 1996
---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Continuing contracts............................ 87.6% 97.9% 96.9% 98.5% 94.0%
Terminated contracts(1)......................... 81.7% 106.4% 92.4% 104.0% --
</TABLE>
- ------------
(1) Total 1994 cost of services includes a charge of $3.2 million related to the
estimated cost of services in excess of revenues for four contracts, two of
which are Terminated Contracts, one of which has been renegotiated and the
other is being renegotiated. Total 1995 cost of services includes a $1.7
million reduction in cost of services related to the change in estimate
arising from the early termination of the two Terminated Contracts.
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
REVENUE
Revenue from continuing contracts increased from $18.1 million in the
quarter ended March 31, 1995 to $24.1 million in the quarter ended March 31,
1996, an increase of $6.0 million or 33.1%. Of this increase, $1.7 million was
attributable to the addition of one CDIP contract in the first quarter of 1996.
The introduction of the RMP product resulted in the implementation of three RMP
contracts in the third and fourth quarters of 1995 which generated revenue of
$2.1 million in the first quarter of 1996. The remainder relates to increases in
the number of covered lives under continuing contracts. The total number of
covered lives managed under CDIP contracts increased by 25.7% from March 31,
1995 to 1,380,000 at March 31, 1996. The covered lives under RMP contracts
aggregated 1,166,000 at March 31, 1996.
Revenue from Terminated Contracts decreased from $8.6 million in the quarter
ended March 31, 1995 to $0 in the quarter ended March 31, 1996 because revenues
from these contracts ended in 1995.
20
<PAGE>
COST OF SERVICES
Cost of services for continuing contracts was $20.6 million, or 85.8% of
continuing contract revenue, in the first quarter of 1996 compared to $17.9
million, or 98.5%, in the first quarter of 1995. The decrease in cost of
services as a percentage of continuing contract revenue resulted from the
addition of three RMP contracts in the third and fourth quarters of 1995, which
do not have the cost of services component of CDIP, and an improved medical loss
ratio. The medical loss ratio improved to 94.0% in the first quarter of 1996
compared to 98.5% for the comparable quarter in 1995 primarily due to cost
reductions on three contracts.
Cost of service for Terminated Contracts was $0 in the first quarter of 1996
compared to $9.0 million in the first quarter of 1995. No cost of services for
Terminated Contracts was incurred in the first quarter of 1996 because these
contracts were terminated in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses decreased to $4.1 million, or
17.1% of total contract revenue, in the first quarter of 1996, compared to $4.8
million, or 18.0%, in the first quarter of 1995.
Salaries, wages and related employee expenses were $3.2 million, or 13.2% of
total revenue, in the first quarter of 1996 compared to $3.1 million, or 11.6%,
in the first quarter of 1995. The increase of $.1 million resulted from the
increase in compensation expense related to employee restricted common stock
agreements offset in part by lower hiring expenses. The Company also did not
incur the level of expenses related to severance that was incurred in the second
half of 1995.
Outside services expense, which consists primarily of management consulting,
information systems consulting, temporary labor and legal, audit and tax costs
was $187,000, or 0.8% of total revenue, in the first quarter of 1996 compared to
$555,000, or 2.1%, in the first quarter of 1995. The decrease of $368,000
resulted primarily from temporary labor and management consulting costs. The
Company does not anticipate that the levels of temporary labor and management
consulting costs incurred in 1995 will be representative of expenditures for
such items in 1996.
Other selling, general and administrative expenses, which primarily consist
of travel, rent, printing, communications and marketing were $749,000, or 3.1%
of total revenue, in the first quarter of 1996 compared to $1.1 million, or
4.3%, in the first quarter of 1995. The decrease in the first quarter of 1996
resulted primarily from continued implementation of the new business
initiatives.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $210,000 or 0.9% of total revenue,
in the first quarter of 1996 compared to $163,000, or 0.6%, in the first quarter
of 1995. Depreciation and amortization expense increased primarily due to
capital expenditures relating to office equipment, computer hardware and
software, and leasehold improvements.
INTEREST EXPENSE
Interest expense decreased to $419,000, or 1.7% of total revenue, in the
first quarter of 1996 compared to $592,000, or 2.2%, in the first quarter of
1995. The decrease in interest expense resulted primarily from the conversion of
the Junior Subordinated Notes into Common Stock. See "Certain Transactions--1995
Transaction."
INTEREST INCOME
Interest income decreased to $144,000, or 0.6% of total revenue, in the
first quarter of 1996 compared to $258,000, or 1.0%, in the first quarter of
1995. This decrease resulted primarily from decreased interest from short-term
investments.
21
<PAGE>
NET LOSS
As a result of the foregoing, the Company incurred a net loss for the first
quarter of 1996 of $1.2 million compared to a net loss of $5.4 million for the
first quarter of 1995. The first quarter of 1996 represented an improvement in
financial performance which resulted from several factors that the Company
expects to continue. These factors include improvement in the medical loss ratio
due to decreased payments for out-of-network costs and improved management of
in-network costs, new RMP and CDIP contracts and realization of the effects of
the cost reduction initiative. Since the effect of these factors is ongoing,
there can be no assurance that such improvements will continue or that the
Company will become profitable.
YEARS ENDED DECEMBER 31, 1995 AND 1994
REVENUE
Revenue from continuing contracts increased from $50.9 million in 1994 to
$76.5 million in 1995, an increase of $25.6 million or 50.3%. Of this increase,
$21.3 million was related to services provided for a full year under CDIP
contracts entered into with three clients during 1994. The introduction of RMP
in the third quarter of 1995 resulted in three new RMP contracts which generated
revenue of $1.8 million. The remaining $2.5 million resulted from increases in
revenue from existing CDIP contracts related to increases in the number of
covered lives under clients' plans and, to a lesser extent, annual CPI-based
increases in pmpm rates in CDIP contracts. The number of lives managed under
continuing CDIP contracts increased by 11.3%, from 1,035,000 at December 31,
1994 to 1,152,000 at December 31, 1995. Covered lives under three RMP contracts
aggregated 1,111,000 at December 31, 1995.
Revenue from Terminated Contracts increased from $15.7 million in 1994 to
$20.0 million in 1995, an increase of $4.3 million or 27.4%. This increase
resulted primarily from two contracts which commenced operations in the fourth
quarter of 1994 and were in effect for the first three quarters of 1995 and two
contracts which commenced and were terminated in 1995. Such increase was offset
in part by a decline in revenue from a contract which was terminated in 1995,
but was in effect for all of 1994.
COST OF SERVICES
Cost of services for continuing contracts was $72.4 million, or 94.6% of
continuing contract revenue, in 1995 compared to $49.8 million, or 97.9%, in
1994. This increase was primarily attributable to services provided for a full
year under those CDIP contracts implemented in 1994. The decrease in cost of
services as a percentage of total revenue in 1995 resulted from the addition of
three RMP contracts during 1995 which do not have the cost of services component
of CDIP and an improved medical loss ratio. The medical loss ratio for CDIP
contracts improved from 97.9% during 1994 to 96.9% during 1995 primarily due to
cost reductions on two such contracts. In the fourth quarter of 1994, the
Company recognized cost of services in excess of revenue of $1.7 million for
such contracts through an estimated termination date. One of these contracts was
successfully renegotiated in 1996 and the Company is renegotiating the other
contract.
Cost of services for Terminated Contracts was $18.4 million, or 92.4% of
Terminated Contract revenue, in 1995 compared to $16.7 million, or 106.4%, in
1994. In the fourth quarter of 1994, the Company recognized (i) cost of services
in excess of revenue on two CDIP contracts of $961,000 and (ii) estimated cost
of services in excess of revenues of $1.5 million for these two contracts
through estimated termination dates. As a result of the initiatives which the
Company began implementing in the third quarter of 1995, the two contracts were
terminated earlier than originally estimated. Consequently, the Company incurred
$1.7 million less costs of services than originally estimated. Excluding the
impact of these adjustments, cost of services was 100.8% of Terminated Contract
revenue in 1995 compared to 90.1% for 1994. This increase as a percentage of
revenue resulted primarily from cost overruns associated with one Terminated
Contract which commenced operations in 1995.
22
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $22.0 million, or
22.8% of total revenue, in 1995 compared to $13.2 million, or 19.9% of total
revenue, in 1994.
Salaries, wages and related employee benefits and expenses were $14.1
million, or 14.7% of total revenue, in 1995 compared to $9.1 million, or 13.7%,
in 1994. This increase was attributable to the addition of personnel to support
the Company's revenue growth. Also, as a result of the initiatives the Company
began implementing in the third quarter of 1995, salaries, wages and benefits
costs increased in 1995 as a result of severance and hiring expenses, each of
which represented $1.1 million, or 1.1% of total revenue, in 1995. The Company
considers the amount of these expenses to be non-recurring.
Outside services expense, which primarily consists of management consulting,
information systems consulting, temporary labor and legal, audit and tax costs
was $3.5 million, or 3.7% of total revenue, in 1995 compared to $1.4 million, or
2.1%, in 1994. The increase in outside services expense resulted primarily from
information systems consulting and costs associated with implementing the
Company's new business initiatives.
Other selling, general and administrative expenses, which primarily consist
of travel, rent, bad debts, printing, communications and marketing were $4.3
million, or 4.4%, in 1995 compared to $2.7 million, or 4.1%, in 1994. The
increase in other selling, general and administrative expenses resulted
primarily from greater support costs associated with the Company's revenue
growth. In addition, the Company expensed a $482,000 account receivable related
to a joint venture established in connection with one of the Terminated
Contracts.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $740,000, or 0.8% of total
revenue, in 1995 compared to $493,000, or 0.7%, in 1994. Depreciation and
amortization expense increased due to the expansion of office facilities and
related leasehold improvements, as well as increased capital expenditures for
computer equipment and software.
INTEREST EXPENSE
Interest expense increased to $2.1 million, or 2.1% of total revenue, in
1995 compared to $572,000, or 0.8%, in 1994. The increase resulted from
additional long-term debt, including the Senior Subordinated Notes and the
Junior Subordinated Notes issued in November 1994 and capitalized lease
obligations. At December 31, 1995, long-term debt, including the Senior
Subordinated Notes and the Junior Subordinated Notes and capitalized lease
obligations, decreased $14.2 million, of which $10.6 million was attributable to
the conversion of Junior Subordinated Notes into Common Stock. See "Certain
Transactions--1995 Transaction" and Note 4 to the Consolidated Financial
Statements.
INTEREST INCOME
Interest income increased to $700,000, or 0.7% of total revenue, in 1995
compared to $311,000, or 0.5%, in 1994. This increase resulted from additional
interest from short-term investments.
NET LOSS
As a result of the foregoing, the net loss for 1995 was $18.8 million
compared to $13.9 million for 1994.
YEARS ENDED DECEMBER 31, 1994 AND 1993
REVENUE
Revenue from continuing contracts increased from $19.3 million in 1993 to
$50.9 million in 1994, an increase of $31.6 million or 163.7%. Of this increase,
$18.4 million was attributable to the addition of three CDIP contracts in 1994
and $11.7 million was related to services provided for a full year under CDIP
contracts entered into with four clients during 1993. The remaining $1.8 million
was the result of
23
<PAGE>
increases in revenue from existing contracts related to increases in the number
of covered lives under clients' plans and, to a lesser extent, increases in
capitated rates received by the Company. The number of lives managed under CDIP
agreements increased by 113.4% from 485,000 at December 31, 1993 to 1,035,000 at
December 31, 1994.
Revenue from Terminated Contracts increased from $7.1 million in 1993 to
$15.7 million in 1994, an increase of $8.6 million or 121.1%. This increase
resulted primarily from three contracts which commenced operations in 1994.
COST OF SERVICES
Cost of services for continuing contracts was $49.8 million, or 97.9% of
continuing contract revenue, in 1994 compared to $16.9 million, or 87.6%, in
1993. This increase was primarily attributable to services provided for a full
year under four CDIP contracts implemented in 1993. The increase in cost of
services as a percentage of continuing contract revenue in 1994 was primarily
attributable to cost of services in excess of revenue of $1.7 million, of which
one contract has subsequently been renegotiated. The remaining increase resulted
primarily from two contracts which had significantly higher medical loss ratios
than other continuing contracts, one of which commenced operations during 1994
and a second contract that commenced operations during the fourth quarter of
1993.
Cost of services for Terminated Contracts was $16.7 million, or 106.4% of
Terminated Contract revenue, in 1994 compared to $5.8 million, or 81.7%, in
1993. In the fourth quarter of 1994, the Company recognized (i) cost of services
in excess of revenues on two CDIP contracts of $961,000 and (ii) estimated cost
of services in excess of revenues of $1.5 million for these two contracts
through estimated termination dates. Excluding the impact of these adjustments,
cost of services was 90.1% of Terminated Contract revenue in 1994 compared to
81.7% in 1993. This increase resulted primarily from an increase in the medical
loss ratio for one Terminated Contract.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $13.2 million,
19.9% of total revenue, in 1994 compared to $6.1 million, or 23.2% of total
revenue, in 1993.
Salaries, wages and related employee benefits and expenses remained
relatively consistent as a percentage of total revenue from 1993 to 1994. These
expenses were $9.1 million, or 13.7% of total revenue, in 1994 compared to $3.8
million, or 14.4%, in 1993. This increase of $5.4 million is primarily
attributable to an increase in the number of employees from 110 at December 31,
1993 to 172 at December 31, 1994.
Outside services expense, which primarily consists of temporary labor,
management consulting, information systems consulting, and legal, audit and tax
costs was $1.4 million, or 2.1% of total revenue, in 1994 compared to $692,000,
or 2.6%, in 1993. The increase in outside services expense resulted primarily
from management consulting and information systems consulting to support the
Company's revenue growth.
Other selling, general and administrative expenses, which primarily consist
of travel, rent, printing, communications and marketing, were $2.7 million, or
4.1% of total revenue, in 1994 compared to $1.6 million, or 6.1%, in 1993. The
decrease as a percentage of total revenue resulted from operating efficiencies
achieved through revenue growth.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $493,000, or 0.7% of total
revenue, in 1994 compared to $209,000, or 0.8%, in 1993. The increase in
depreciation and amortization expense resulted from the expansion of office
facilities and related leasehold improvements, as well as increased capital
expenditures for computer equipment and software.
24
<PAGE>
INTEREST EXPENSE
Interest expense increased to $572,000, or 0.8% of total revenue, in 1994
compared to $41,000, or 0.1%, in 1993. The increase in interest expense resulted
from additional long-term debt, including the Senior Subordinated Notes and the
Junior Subordinated Notes issued in November 1994 and capitalized lease
obligations. Long-term debt increased from $.7 million at December 31, 1993 to
$24.7 million at December 31, 1994. See "Certain
Transactions--Recapitalization."
INTEREST INCOME
Interest income increased to $311,000, or 0.5% of total revenue, in 1994
compared to $58,000, or 0.2%, in 1993. This increase resulted from additional
interest from short-term investments.
NET LOSS
As a result of the foregoing, the net loss was $13.9 million in 1994
compared to $2.6 million for 1993.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had a working capital deficit of $19.8
million and a total shareholders' deficit of $62.9 million. Of the net proceeds
of this offering, approximately $17.6 million will be used to repay
indebtedness, approximately $1 million will be used for certain computer
hardware and software enhancements (including the upgrade and purchase of
equipment), and the balance will be used for working capital. Of the net
proceeds to be used to repay indebtedness, approximately $6.1 million will be
used to repay the principal of and accrued interest on the Senior Notes; $1
million to pay certain associated deferred fees to CCP and Whitney incurred in
connection with the issuance of the Senior Notes; approximately $10.1 million to
repay the principal of and accrued interest on the Senior Subordinated Notes;
and approximately $416,000 to repay the principal of and accrued interest on the
Korsower Note. Approximately $ million of the net proceeds will be used to
achieve positive working capital to support the implementation of the Company's
growth strategy. These funds are expected to remain invested in short-term
investment grade interest bearing securities. See "Use of Proceeds."
Immediately prior to consummation of this offering, the outstanding shares
of Series A Preferred Stock and Class B Stock will be converted into shares of
Common Stock. On a pro forma as adjusted basis at March 31, 1996, assuming such
conversion and application of the proceeds from this offering, the Company would
have had positive working capital, total indebtedness would have been reduced
from $17.8 million to approximately $507,000 and shareholders' equity would have
increased from a deficit of $62.9 million to positive shareholders' equity of
approximately $ million. See "Capitalization"
The Company's historical operating cash requirements have been met through a
combination of cash provided by operating activities, financing from
shareholders and a bank line of credit which was discontinued. See "Certain
Transactions". Net cash provided from operating activities was $2.0 million and
$2.9 million for the years ended December 31, 1993 and 1994, respectively,
compared to $13.9 million of cash used in operating activities for the year
ended December 31, 1995. Although the Company had a net loss of $13.9 million in
1994, the increase in payables to providers of $16.7 million contributed to the
overall increase in cash flow from operations. The negative cash flow for 1995
was primarily related to the Company's net loss of $18.8 million.
The Company's primary cash need is to pay provider diagnostic imaging claims
under CDIP agreements. The total amount due to providers was $20.6 million at
December 31, 1995, compared to $18.4 million at December 31, 1994 and $22.3
million at March 31, 1996. As the number of CDIP contracts increases, these
obligations will increase. In addition, the Company has been required to service
outstanding debt due to the Private Equity Investors, which aggregated $10.0
million at December 31, 1995 and $17.0 million at March 31, 1996, including a
$1.0 million transaction fee. A portion of the net proceeds of this offering
will be used to repay this indebtedness.
25
<PAGE>
Certain of the Company's RMP contracts include various performance criteria.
If these performance criteria are not met, the Company may be obligated to
refund a portion or all of the administrative fees received. Failure to achieve
contractual performance criteria could have a material adverse effect on the
Company's cash flows.
Capital expenditures for 1995, 1994 and 1993 were $1.4 million, $1.3 million
and $1.3 million, respectively. Such expenditures primarily consisted of office
equipment, leasehold improvements and computer hardware and software. Other than
the $1 million for planned computer hardware and software expenditures in 1996,
which will be funded by a portion of the net proceeds from this offering, the
Company does not expect to incur any significant capital expenditure in 1996.
The Company believes that cash flow from operating activities and the net
proceeds from this offering will be sufficient to fund the Company's working
capital needs through the end of 1996. The Company believes it has positioned
itself for further improvement in financial performance as a result of the
business initiatives being implemented since the 1995 Transaction. If the
Company does not achieve sustained profitability, however, it may not have
sufficient operating cash flow to meet its working capital needs over the next
twelve months. There can be no assurance that the Company will become profitable
or that the Company will maintain working capital sufficient to support the
Company's operating cash requirements or growth strategy. While the Private
Equity Investors committed to provide up to $3 million in 1996 should such
support be necessary, the commitment will expire upon the consummation of this
offering. If the Company requires additional funds to support its working
capital requirements or for other purposes, it may seek to raise such funds
through public or private equity financings or from other sources. There can be
no assurance that additional financing will be available or, if available, that
such financing will be obtainable on terms favorable to the Company and would
not be dilutive.
In addition to the Terminated Contracts, the Company has, in an effort to
improve profitability, engaged in renegotiations regarding six other CDIP
contracts. This effort has resulted in two contracts being renegotiated,
negotiations with respect to two additional contracts being substantially
completed and two others in process. As part of the renegotiations with respect
to one contract that is substantially completed, the Company agreed to deposit
with the client the amount of the estimated payable to providers affiliated with
such client. Until the return to the Company of the deposit, such funds are not
available to the Company for working capital or other purposes. See
"Business--Clients; Capitation Contracts and Provider Contracts; RMP Contracts"
and "Certain Transactions--Senior Notes." The Company believes that the terms of
the business agreement with such client, which are subject to definitive
documentation, will improve the profitability and cash flow from the contract
and will facilitate implementation of the initiatives to position the Company
for improved financial results.
From 1993 to 1995, the Company maintained a credit line providing for
maximum borrowings of $700,000. This credit line was not extended by the Company
in January 1995 following the Recapitalization. While the Company anticipates
that it will obtain a credit facility following the consummation of this
offering, the Company has not engaged in negotiations and no assurance can be
given that a credit facility will be obtained on terms acceptable to the
Company.
The Company's net operating loss carryforwards of $13.7 million, which
expire in the years 2009 and 2010, are available to offset future taxable
income. See Note 5 to the Consolidated Financial Statements. Upon the
consummation of this offering, the Company will incur non-recurring, non-cash
charges of $874,000 offset in part by a reversal of the valuation allowance of
$287,000 for loss on employee notes. See "Certain Transactions--1995
Transaction."
SUMMARY OF OPERATIONS BY QUARTER
The following table presents unaudited quarterly operating results for the
periods indicated. The Company believes all necessary adjustments, consisting
only of normal, recurring adjustments, have been included in the amounts stated
below to present fairly the quarterly results when read in conjunction with the
Consolidated Financial Statements and the notes thereto included elsewhere in
this
26
<PAGE>
Prospectus. Future quarterly results may fluctuate depending on the timing and
number of new contracts and start-up costs associated therewith, adjustments
relating to the accruals for incentive payments under RMP contracts and
adjustments resulting from changes to estimates of cost of services attributable
to fees due to providers. Results of operations for any particular quarter are
not necessarily indicative of results of operations for a full year or
predictive of future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1994 1994 1994 1994 1995 1995 1995 1995
--------- -------- ------------- ------------ --------- -------- ------------- ------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contract revenues:
Continuing contracts...... $ 8,679 $ 12,607 $13,404 $ 16,192 $18,130 $ 18,427 $19,497 $ 20,403
Terminated contracts...... 2,013 2,196 3,587 7,901 8,626 6,328 3,836 1,170
--------- -------- ------ ------ --------- -------- ------ ------
Total contract
revenues................... 10,692 14,803 16,991 24,093 26,756 24,755 23,333 21,573
Operating expenses:
Cost of services:
Continuing contracts.... 7,915 11,699 12,501 17,677 17,861 18,194 18,281 18,029
Terminated contracts.... 1,858 1,936 3,298 9,604 8,973 6,014 2,634 816
--------- -------- ------ ------ --------- -------- ------ ------
Total cost of
services................... 9,773 13,635 15,799 27,281 26,834 24,208 20,915 18,845
Selling, general and
administrative............. 2,742 2,985 3,326 4,171 4,815 5,204 6,551 5,446
Depreciation and
amortization............... 101 125 127 140 163 177 193 207
Provision for loss on
employee notes.......... -- -- -- -- -- 150 -- 137
--------- -------- ------ ------ --------- -------- ------ ------
Total operating
expenses................... 12,616 16,745 19,252 31,592 31,812 29,739 27,659 24,635
--------- -------- ------ ------ --------- -------- ------ ------
Loss from operations....... (1,924) (1,942) (2,261) (7,499) (5,056) (4,984) (4,326) (3,062)
Total other income
(expense), net............. (11) (34) (23) (185) (334) (456) (141) (415)
--------- -------- ------ ------ --------- -------- ------ ------
Net loss................... $(1,935) $ (1,976) $(2,284) $ (7,684) $(5,390) $ (5,440) $(4,467) $ (3,477)
--------- -------- ------ ------ --------- -------- ------ ------
--------- -------- ------ ------ --------- -------- ------ ------
<CAPTION>
<S> <C>
MARCH 31,
1996
---------
<S> <C>
Contract revenues:
Continuing contracts...... $24,055
Terminated contracts...... --
---------
Total contract
revenues................... 24,055
Operating expenses:
Cost of services:
Continuing contracts.... 20,628
Terminated contracts.... --
---------
Total cost of
services................... 20,628
Selling, general and
administrative............. 4,118
Depreciation and
amortization............... 210
Provision for loss on
employee notes.......... --
---------
Total operating
expenses................... 24,956
---------
Loss from operations....... (901)
Total other income
(expense), net............. (279)
---------
Net loss................... $(1,180)
---------
---------
</TABLE>
The fourth quarter of 1994 includes charges aggregating $3.2 million
relating to the estimated loss for four contracts through the estimated
termination dates. Two of the contracts were terminated in connection with the
1995 Transaction. One of the four contracts has been renegotiated and the fourth
contract is being renegotiated.
The third quarter and fourth quarter of 1995 include an adjustment to the
estimated loss accrual recorded in the fourth quarter of 1994 of $1.5 million
and $.2 million, respectively. These adjustments were recognized as a reduction
in cost of services.
During the third quarter of 1995, the Company began implementing certain
business initiatives and as a result, incurred severance expense of $481,000 and
$620,000 and hiring expenses of $440,000 and $181,000, all in the third and
fourth quarters, respectively.
27
<PAGE>
BUSINESS
INDUSTRY OVERVIEW
Diagnostic imaging services include, among other techniques, ultrasound,
diagnostic radiology (including mammography), magnetic resonance imaging
("MRI"), computed tomography ("CT") and nuclear medicine. Diagnostic imaging in
many instances enables physicians to provide early diagnostic capability to aid
in effective treatment. The Company believes that a significant amount of
diagnostic imaging utilization and associated cost is unnecessary and can be
reduced through comprehensive management (including utilization, quality,
outcomes and network management), physician education, and data analysis that
generate significant cost savings and improve the quality and utilization of
diagnostic imaging services for payors. Historically, however, utilization and
cost levels of diagnostic imaging services have increased and been largely
unmanaged, with minimal outsourcing to diagnostic imaging managed care
companies.
It is estimated that health care spending in the United States in 1994
amounted to approximately $1.06 trillion dollars, $604 billion of which was
attributable to payments to physicians and hospitals. Based on its analysis of
industry data, the Company believes that total expenditures on radiology
services (which include both therapeutic radiology and diagnostic imaging) in
1994 amounted to approximately $52.0 billion, including $6.1 billion by HMOs,
$9.1 billion by PPOs, $16.8 billion for Medicare, $17.5 billion by indemnity
insurers and $2.5 billion for Medicaid. The Company believes that diagnostic
imaging accounted for more than $47.8 billion, or 90.0%, of expenditures on
radiology services.
The Company, based on an analysis of its own data, estimates that in the
period from 1993 to 1995, per capita utilization of diagnostic imaging
procedures rose approximately 19.0%. Increases in utilization and expenditures
are expected to continue as the average age of the population of the United
States and the demand for diagnostic imaging services increases. Advances in
medical technology resulting in additional diagnostic imaging services and
increasing patient awareness of the variety of such services are also expected
to contribute to increased utilization and expenditures. The Company estimates
that radiology services can account for 8 to 10% of payors' medical costs.
The rapidly evolving managed health care environment has created substantial
economic pressures on payors and providers, leading to an increased focus on the
management of medical costs. In areas such as worker's compensation, dental
care, eye care and oncology, payors look to outsource to specialized third party
health care managers that provide expertise to generate cost savings through
increasing utilization efficiency. This expertise, coupled with access to a
broad base of regional and national data, enables such specialized health care
managers to control costs more effectively and provide payors and affiliated
physicians with reports that benchmark performance against the best practices in
a given industry. In addition, certain payors seek to transfer the financial
risk for changes in utilization levels and associated costs to such third party
managers, which are better able to manage risk because of the information and
expertise available to them.
Diagnostic imaging represents a complex segment of the health care industry.
The Company believes that the provision of such services has proven difficult
for payors to manage or fit into a management system that comprehensively
addresses quality, utilization and cost control. The cost management challenge
is related to: (i) the diversity of providers performing diagnostic imaging
services (including radiologists, primary care physicians, pediatricians and
orthopedists); (ii) the varied settings for these services (e.g., hospitals,
outpatient facilities, physician offices); and (iii) the diversity of symptoms
and disease states. For instance, the Company estimates that approximately 50%
of the volume of outpatient diagnostic imaging services (other than mammography)
are performed in-office by non-radiologists such as primary care physicians and
medical, surgical and pediatrics specialists. In the complex and highly
fragmented diagnostic imaging environment, there are few companies that have the
expertise, data resources and ability to provide an integrated, comprehensive
approach to managing cost, quality and utilization.
28
<PAGE>
THE COMPANY
UtiliMed is the nation's leading manager of diagnostic imaging services,
providing a comprehensive approach to managing cost, quality and utilization for
payors with large memberships. The Company's products aim to manage the delivery
of quality necessary diagnostic imaging services by qualified physicians to
patients on a cost effective basis. UtiliMed's products manage costs by
decreasing the volume and improving the quality of imaging services. Quality
improvement can decrease costs through fewer repeat or extra exams necessitated
by poor quality initial exams. At March 31, 1996, the Company managed diagnostic
imaging services for 16 clients representing over 2.5 million lives in 13
states. In addition, the Company signed a new RMP contract in March 1996
covering 220,000 lives which will be implemented in June 1996.
Founded in December 1989, the Company has achieved rapid growth, with
revenues having grown from approximately $2.5 million in 1991 to $96.4 million
in 1995 and covered lives having increased from 102,000 at December 31, 1991 to
2.5 million at March 31, 1996. The Company believes that an opportunity exists
for payors to reduce costs while maintaining quality through more effective
management of these services. As the leading comprehensive provider of
diagnostic imaging management services, the Company believes that it is well
positioned to take advantage of the relatively unpenetrated market for
outsourced management of diagnostic imaging services.
The Company offers its clients a capitated product and a fee-based product,
each of which is designed to reduce unnecessary or inappropriate utilization and
improve the quality of service. The core program elements of the Company's two
products include diagnostic imaging assessment and privileging, diagnostic
imaging pre-certification processes, clinical- and claims-based retrospective
utilization database tools and structured physician education. Use of the
Company's capitated product can result in cost savings of 20% to clients within
the first year and the Company anticipates that the use of its fee-based network
management product will result in comparable savings to its clients in the first
year.
In its Capitated Diagnostic Imaging Program ("CDIP"), the Company
establishes and maintains networks of diagnostic imaging providers which meet
the Company's assessment requirements and agree to receive payment from the
Company based on appropriate utilization levels and financial incentives. The
Company receives a pmpm fee, consisting of compensation for the assumption of
responsibility for medical costs and claims processing, and a fee for the
provision of network management services. By taking responsibility for the
payment of fees to physicians providing such services, the Company experiences
the benefits and risks resulting from variations in utilization levels and
associated medical costs--the capitation risk. Due to certain regulatory
requirements, the Company offers its CDIP product only to HMOs. See
"Business--Regulation."
In its recently introduced Resource Management Program ("RMP"), the Company
provides network management services in return for a fee from participating
clients. RMP clients are responsible for establishing and maintaining networks
of physicians and retain risk for medical costs payable to physician providers.
The RMP fee does not include payment for medical costs since RMP does not alter
the payment relationship between UtiliMed clients and the providing physicians.
RMP, which includes the core product elements of CDIP, can be provided to a wide
range of payors, including HMOs, self-funded employers and indemnity insurers.
The Company maintains a database of claims data, clinical reports and
assessment information which is an important tool for network and utilization
management. At March 31, 1996, the database contained claims data for over 8
million lives, assessment data for over 10,000 imaging sites and over one
million clinical reports. The number of monthly clinical reports added to the
database has grown from approximately 35,000 in March 1995 to approximately
54,000 in March 1996. The database enables the Company to develop protocols,
produce outcomes and benchmarking analyses (both provider-specific and
diagnosis-specific) and to create educational programs for physicians and other
providers. See "--Information Systems."
29
<PAGE>
STRATEGY
UtiliMed's objective is to enhance its leading position in diagnostic
imaging managed care services and continue its growth by pursuing a wide range
of significant new opportunities. The Company believes its ability to combine
utilization management, quality management, outcomes management and network
management provides an attractive alternative for payors in managing diagnostic
imaging services. The Company sees opportunities for growth both in establishing
new client relationships and expanding relationships with existing clients--by
extending coverage to additional local health plans of regional and national
payors, such as CIGNA and United HealthCare, Inc. and by serving additional
membership populations of existing clients, such as members covered under
Medicare and Medicaid programs. The Company will also seek to market RMP to
payors other than HMOs, such as self-funded employers and indemnity insurers,
and to market its products directly to large employer groups, benefits
administrators, and benefits consulting groups.
The key elements of the Company's strategy are to:
Increase Penetration of RMP. Through the development of RMP, the Company has
targeted a substantially broader market opportunity. RMP focuses on the
management of utilization and quality of client networks without accepting
capitation risk. As a result, the Company is not restricted by insurance
licensing requirements in connection with the provision of RMP and is able to
pursue contracts to provide RMP to payors, other than HMOs. In addition, the
Company believes that payors are receptive to RMP as it allows them to maintain
established payment relationships and associated claims processing and payment
with their provider networks. The Company is aggressively marketing RMP to a
wide variety of payors, including managed care organizations, traditional
indemnity plans, PPOs and self-funded employers, which the Company believes
represented an additional market of approximately $26.6 billion in radiology
health care costs in 1994. At March 31, 1996, the Company had implemented three
RMP contracts covering approximately 1.2 million lives.
Expand CDIP. The Company believes a significant opportunity exists for
capitated arrangements and will continue to aggressively market CDIP, targeting
those payors that seek to control costs and manage utilization through
capitation for large membership populations. The Company believes there is a
trend among HMOs to outsource management of diagnostic imaging services on a
capitated basis to fix their costs and reduce the internal burden of cost
management for these services. The limited penetration of capitated arrangements
in diagnostic imaging managed care to date will, in the Company's view, provide
the opportunity for increased implementation of CDIP. As of January 1, 1995,
total enrollment in HMOs is estimated to have been over 50 million lives. At
March 31, 1996, the Company had implemented 13 CDIP contracts covering
approximately 1.4 million lives.
Leverage Existing Client Relationships. The Company's existing client base
provides a significant opportunity for additional RMP and CDIP contracts. For
example, the Company believes it can expand geographic coverage by building on
existing contracts with national and regional payors. As RMP and CDIP are
marketed to local and regional health plan executives, the Company's expertise
and reputation will enable it to pursue arrangements with other local plans of
geographically diverse payors or with such payors on a regional or national
basis. In addition, the Company intends to expand its product offerings by
contracting with clients for additional member segments, such as commercial
Medicare and Medicaid plans. In the event the Company enters into arrangements
involving Medicare or Medicaid, certain provisions of federal law with respect
to referrals will become applicable to the Company's business activities. See
"--Regulation--Federal Regulation."
UtiliMed believes this strategy will enable it to remain the leading
provider of physician network management services in the diagnostic imaging
sector because of the advantages it offers to both providers and payors. Rather
than seeking to generate savings through discounted fees, the Company focuses on
utilization management, quality management, the education of physicians
regarding cost-effective protocols and the precertification of costly
procedures. The Company's products encourage consultation between the
radiologist and the referring physician in the clinical decision-making process
30
<PAGE>
to reduce unnecessary utilization and ensure that the most appropriate
procedures are performed to meet the needs of the patient. By building
relationships with and providing educational resources to network physicians,
the Company seeks to ensure that its clients obtain efficient and cost-effective
diagnostic imaging services.
COMPANY PRODUCTS
CDIP AND RMP
The Company offers two products to payors, CDIP, its capitated product,
through which the Company manages provider networks and accepts capitation risk,
and RMP, its fee-based product, through which the Company provides network
management services to control costs and enhance the quality and service
rendered by providers. CDIP and RMP, which share certain core elements, are both
designed to reduce excess utilization of diagnostic imaging and to improve the
quality of care for those patients who require diagnostic imaging services in an
effort to reduce costs. Under both CDIP and RMP, the Company receives a pmpm
payment from clients. The pmpm payment under CDIP is larger because the Company
is compensated for assuming the financial risk for variations in utilization
levels and associated medical costs, while under RMP the Company does not alter
the pre-existing payment relationship between the client and its providers.
Under CDIP, the Company receives a fixed pmpm payment from its client. The
Company, in turn, negotiates with providers to arrange for the provision of
diagnostic imaging services to the client's membership population. For each CDIP
client, the Company negotiates agreements with (i) individual providers or (ii)
a group of providers who are linked through certain contractual arrangements, in
the region served by the client and arrange payment structures with such
providers and provider networks. Depending upon the specific physician practices
and clinical entities involved, the Company uses variations of four provider
payment methods in its CDIP networks to manage capitation risk and appropriately
incentivize physicians to provide efficient utilization and quality care:
capitation, fee-for-service, fee-per-visit and episode-of-care. Under the
capitation method, providers receive a pmpm payment from the Company related to
the number of members under that provider's care. In the fee-for-service method,
providers receive a fee for each diagnostic imaging service rendered to a
member. In contrast, when the Company pays a provider through a fee-per-visit
method, the provider receives a fee for a member's visit, which may or may not
include the provision of diagnostic imaging services. The episode-of-care method
combines incentives to perform the most appropriate tests, while taking into
account the possibility of wide variations in the services required by
individual members. Under the episode-of-care methodology, the Company sets
aside a pool of funds each month based upon the capitation rate. Monthly
payments to the providers or distributions from the pool are based on the number
of appropriate and necessary procedures performed by the provider each month.
Such payments are modified according to the complexity of the diagnostic imaging
services performed in order to account for differences in patient illness
severity. In general, the Company employs capitation and episode-of-care payment
arrangements for payments to radiologists and for the use of their associated
diagnostic imaging facilities, and fee-for-service and fee-per-visit for
non-radiologists, such as podiatrists, orthopedic specialists and urologists. In
the event a client realizes significant savings in diagnostic imaging
expenditures under certain CDIP contracts, the client may receive a portion of
the pool of funds established by the Company to fund provider payments.
Under RMP, the Company also receives a pmpm fee, but payments to providers
continue to be made directly by the clients. The Company works with RMP clients
to manage the quality and utilization of existing provider networks, but does
not organize or establish networks of providers. The Company and its RMP clients
agree upon annual utilization cost reductions to be realized by the client
following adoption by the client of certain operational changes and
implementation of RMP. In two of the three RMP contracts, the Company will
receive additional revenue if the client realizes cost savings that exceed the
specified levels for utilization cost reductions. In one contract, a portion of,
and in another contract, up to all of the total fees received by the Company
under such agreements are
31
<PAGE>
dependent upon the realization by the client of the specified savings levels.
See "--Clients; Capitation Contracts and Provider Contracts; RMP Contracts."
CORE PRODUCT ELEMENTS
The following chart describes the product elements of CDIP and RMP:
<TABLE>
<CAPTION>
<S> <C> <C>
PRODUCT ELEMENTS CDIP RMP
Assessment X X
Network Development X
Privileging X X
Precertification X X
Retrospective Utilization
Reporting X X
Provider Payments X
Physician Education X X
</TABLE>
The core product elements shared by CDIP and RMP are:
Assessment. The Company provides a systematic review of the facility or
office of each provider affiliated with a client, assessing the integrity of the
provider's equipment, the quality and training of its personnel, and its
policies and procedures pertaining to quality and patient safety. The standards
for the Company's assessment are developed from the Company's own expertise, the
Occupational Health and Safety Act and applicable state guidelines, and are
finalized in consultation with the Company's clients. The Company's assessment
database enables it to identify imaging sites that do not conform to the quality
and safety standards determined by the Company through its analysis of
assessment data and in consultation with its client.
Privileging. The Company uses its expertise in diagnostic imaging service
management to recommend to its clients that certain procedures be performed by
specific participating network providers, such as primary care physicians and
specialists. These recommendations are based on physician specialty and patient
needs. Using the Company's recommendations, a participating client determines
the final privileging decisions based on the incentives best suited for its
health plan.
Precertification. Precertification is a process whereby referring physicians
are required to certify diagnostic imaging procedures with UtiliMed before they
are performed by providers. The Company's precertification process aims to
maintain or enhance the quality of care while reducing overutilization of
diagnostic imaging services. UtiliMed emphasizes precertification for more
expensive procedures such as MRI, CT and nuclear medicine, which according to
UtiliMed's data, account for approximately 11% of the volume of diagnostic
imaging performed but approximately 50% of the cost of diagnostic imaging.
By using the Company's precertification process, providers can be
compensated solely for procedures that are medically necessary. For
participating clients, the Company's precertification service works together
with the Company's assessment and privileging services to enhance the cost
efficiency and the appropriate use of diagnostic imaging. The Company provides a
toll free number for referring physicians affiliated with its clients to
precertify certain diagnostic imaging exams. In general, when it is determined
by a referring physician that a patient may need to undergo a diagnostic imaging
procedure, the physician calls the toll free number and is connected with a
trained referral associate. Using the Company's database and information
concerning the specific plan and membership, the referral associate may approve
the procedure. If the referral associate is unable to certify the procedure,
then the request is referred to a nurse, who is permitted to exercise more
discretion in providing precertification. If the nurse cannot approve the
proposed procedure, then the request must be referred to one of the
32
<PAGE>
Company's five medical directors (or, under one RMP contract, the physician who
is to perform the exam) to discuss the decision to approve or deny the
precertification request with the referring physician. Each of the Company's
medical directors is a licensed physician. Only a qualified physician may deny a
precertification request. A denial by a Company medical director (or, under one
RMP contract, the physician who is to perform the exam) may be appealed by the
referring physician to the client health plan.
Retrospective Utilization Reporting. The Company maintains an extensive
database of both clinical information and claims data. The Company collects
clinical information from reports made by imaging providers whenever diagnostic
imaging services are rendered. Claims data is collected from clients and
potential clients in the process of assessing utilization levels and in the
Company's determination of appropriate product pricing. See "--Regulation--State
Regulation--Private Utilization Review Agent."
Using the information in its database, the Company produces a series of
utilization management reports in which the Company analyzes (i) the diagnostic
imaging services that referring physicians order and the frequency with which
particular services are ordered and (ii) the practice patterns of providers.
These reports are distributed to clients as well as individual providers and
referring physicians. The Company focuses its utilization management reporting
and analysis on optimizing the use of diagnostic imaging procedures by allowing
clients to evaluate affiliated providers and enabling such providers to
benchmark themselves against their peer physicians. Utilization management
reports include the following:
. Quarterly Client Reports;
. Quarterly Radiologist Reports;
. Semi-annual Referring Physician Reports;
. Semi-annual In-office Provider Reports; and
. Specialty Reports, with respect to specific symptom complexes or disease
entities.
Physician Education. The Company uses its expertise in diagnostic imaging
and information derived from its database to educate physicians affiliated with
its clients concerning developments in diagnostic imaging and procedures that
enhance the efficient delivery of diagnostic imaging services. For each client
with which the Company contracts, the Company can establish Local Imaging
Advisory Councils (the "Councils") comprised of Company staff, employees of the
participating clients and physicians located in the contract area. Of its 16
contracts at March 31, 1996, the Company established Councils for eight of the
last nine contracts.
The Company uses its database to provide physician-specific education and
diagnosis-specific information, allowing clients and the Councils to work with
particular physicians to refine their diagnostic imaging procedures and also to
work with all physicians with whom the clients are affiliated to ensure that
particular procedures are utilized in cost-effective and appropriate ways. To
this end, the Company, after consultations with its clients and the Councils,
assembles educational materials with respect to common clinical indications,
which materials are delivered to specific referring physicians within a given
client's network. Each set of materials typically includes a report describing
the clinical entity and appropriate practice patterns, care algorithms and
relevant medical literature. The Company makes available to the referring
physician a toll free number to provide feedback to the Company following
receipt of the materials. The Company typically undertakes an analysis of the
referring physician's practice pattern approximately six months after delivery
of the materials. This subsequent analysis is provided to the relevant client
and Council.
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INFORMATION SYSTEMS
The Company makes use of a database consisting of three integrated
components claims information covering radiology services performed on over
eight million lives since 1991; assessment data recorded since 1993 on over
10,000 imaging sites in the United States; and clinical data from over one
million imaging exams collected since 1992. The number of monthly clinical
reports added to the database has grown from approximately 35,000 in March 1995
to approximately 54,000 in March 1996. These components interact to provide the
Company with detailed information on the reasons for ordering imaging exams, the
clinical results of such exams, the demographics of the populations involved and
the quality of the delivery sites and examinations actually performed. The
Company collects data through the performance of core elements of each program
and interactions with potential clients. This process results in the
accumulation and updating of information. A portion of the net proceeds of this
offering will be used to upgrade the UtiliMed computer system from a limited
file server environment to an integrated server Unix platform environment
through the purchase of systems hardware and software. See "Use of Proceeds" and
"Management's Discussion and Analysis of Results of Operations--Liquidity and
Capital Resources."
Access to the database is limited to certain employees of the Company. The
data is backed up daily, with a full copy kept off-site in a secure location.
CLIENTS; CAPITATION CONTRACTS AND PROVIDER CONTRACTS; RMP CONTRACTS
At March 31, 1996, the Company had agreements with 16 clients, comprised of
13 CDIP contracts and three RMP contracts. Fees earned pursuant to contracts
with ChoiceCare Health Plans, Inc., United HealthCare of Ohio, Inc.--Western
Region and CIGNA HealthCare of Northern New Jersey, Inc. accounted for
approximately 20.2%, 14.1% and 13.7%, respectively, of the Company's total
revenues in 1995, and approximately 20.0%, 14.6% and 16.0%, respectively, of the
Company's total revenues for the first quarter of 1996. Similarly, although the
Company's contracts with affiliates of CIGNA are independently negotiated and
operated, the Company had five such contracts in 1995 that represented, in the
aggregate, approximately 29.3% of total revenues for the year ended December 31,
1995 and, with the commencement of a sixth contract with a CIGNA affiliated
client in 1996, such contracts represented, in the aggregate, 40.7% of the
Company's total revenues for the first quarter of 1996. The Company expects that
a majority of its revenues will continue to be attributable to a limited number
of clients.
During the second half of 1996, the Company entered into discussions with a
client with respect to the renegotiation of a CDIP contract. Although willing to
consider proposed contract modifications, the client first required assurances
with respect to the Company's working capital position because of the Company's
financial condition at that time. On March 12, 1996, the Company and the client
executed a letter agreement (the "Letter Agreement"), requiring the Company to
deposit $6,200,000 with the client (the "Deposit"), which amount represented the
estimated amount of the payables to providers affiliated with the client. The
amount of the Deposit is subject to quarterly adjustment. At March 31, 1996, the
amount of the Deposit was adjusted by the Company to $5.6 million. The client is
required to return the Deposit when the Company's ratio of cash equivalents to
current liabilities has exceeded 1:1 for two consecutive fiscal quarters.
Following execution of the Letter Agreement, the Company and the client reached
a business agreement with respect to the renegotiation of the CDIP contract,
subject to completion of documentation. Until the return of the Deposit to the
Company, the Company is a general creditor of the client for the amount of the
Deposit. The Letter Agreement provides for the client to be paid interest on the
Deposit at short-term rates.
CDIP CONTRACTS
A CDIP contract is tailored to the particular structure and needs of a
specific client. Under these contracts, the Company arranges for providers to
render services to participating clients and their members, and maintains
networks to ensure that physicians provide timely service to client members. In
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these contracts, UtiliMed warrants the due licensing and certification of the
physicians, and the client may cause the Company to exclude providers from a
given network or terminate agreements with such providers. The client pays the
Company on a capitated basis pursuant to a schedule agreed upon by UtiliMed and
the client, which normally allows for annual changes based upon changes in the
CPI. Payments to providers are the sole responsibility of UtiliMed, except for
services not covered by the patient's benefit contract, co-payments or
deductibles. Neither the Company nor the providers has any right to payment from
the client for services rendered by the providers, other than the Company's
right to receive its pmpm. The CDIP contracts require UtiliMed to maintain
liability insurance, and the physician providers with which the Company
contracts, to maintain malpractice insurance. UtiliMed is required to keep
confidential information gained from clients and network physicians under CDIP.
CDIP contracts have an initial term of one to five years, with automatic renewal
for terms of one to five years. CDIP contracts can generally be terminated by
either the Company or the client upon a material breach and notice, after giving
the breaching party a period to cure. Several of the CDIP contracts may be
assigned by the client without UtiliMed's consent.
PROVIDER CONTRACTS
For CDIP, UtiliMed also enters into contracts with networks established by
the Company that are comprised of (i) individual providers or (ii) groups of
providers who are linked through certain contractual arrangements, to arrange
for the delivery of services to the members of client plans. Under these
contracts, providers perform and interpret diagnostic imaging tests in
consultation with the referring physicians of the client and are generally
obligated to make reasonable efforts to respond within 24 hours of a referral
request and deliver to the referring physician all preliminary reports within 24
hours of the examination. Providers warrant to UtiliMed that they hold all
licenses necessary for the provision of services for the term of the provider
contract. UtiliMed may terminate the contract or exclude the services of a
provider or any employee of a provider in the event of a revocation or
suspension of licenses or any disciplinary action taken against such persons.
The provider contracts generally provide that all patient files, examination
reports and images be made available to the Company on request, which
information is kept confidential by UtiliMed. The provider is paid by the
Company pursuant to one of the four primary payment methods employed by the
Company to incentivize such physicians. See "--Company Products--CDIP and RMP."
Under these contracts, physicians agree that in no event shall they have any
recourse against the client, members of the client plan or persons other than
the Company for services provided. However, the physician is generally permitted
to collect co-payments in accordance with the client's agreement with its plan
members, or for services not covered under the provider contract. In the first
quarter of 1996, the Company began to require submission by providers of all
claims for payment within 90 days of rendering services as a prerequisite to
receiving payment. As the Company's existing provider contracts are renewed or
the Company enters into new provider contracts, the Company intends to implement
similar provisions in such contracts. Under the provider contracts, physicians
are required to maintain malpractice insurance and submit proof of such
insurance to the Company prior to the delivery of services. Provider contracts
generally have a one year term, which is automatically renewable for additional
one year terms. If a provider ceases to participate in a particular client plan
subject to a CDIP contract, then the related provider agreement may be
terminated at the Company's discretion.
RMP CONTRACTS
Under RMP, the Company agrees to provide management services to a client's
existing provider network. The Company and the client determine RMP
pre-implementation baselines for utilization costs, and mutually agree on
specified savings levels with respect to such utilization costs over the term of
the contract. The pmpm fee is paid at a flat monthly rate, with provision for
settlement after more extended periods (annually or at the end of term) that
varies from contract to contract. In two of the three RMP contracts, the Company
will receive additional revenue if the client realizes cost savings that exceed
the specified levels for utilization cost reductions. In one contract, a portion
of, and in another contract, up to all of the total fees received by the Company
are dependent upon the realization by the client of the specified savings
levels. Under RMP, the Company is obligated to maintain professional
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liability insurance. RMP contracts generally have an initial term of up to five
years, allowing for renewal.
SALES AND MARKETING
The Company seeks to contract with large, sophisticated health care payors,
such as HMOs, PPOs, managed indemnity organizations and other health care payors
with enrollments in excess of 100,000 members. The Company markets directly to
key decision makers of both existing and potential clients. UtiliMed has begun
marketing its products to consulting organizations and large national employers,
which bring the Company and its products to the attention of benefits
administrators and managed care companies. As relationships are established,
UtiliMed typically obtains data enabling it to assess the product and pricing
that is most suitable for the payor, and demonstrate the value of the services
the Company offers. The Company and its personnel also participate in national
and regional health care conferences, which the Company considers a valuable way
to describe UtiliMed's products to the managed care market. The Company
continues to develop additional business by building upon existing client
relationships within national health care organizations, including United
HealthCare, Inc., CIGNA and Blue Cross Blue Shield plans, and marketing to
regional health care payors.
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COMPETITION
The Company faces current and potential competition from a number of diverse
sources and in differing degrees with respect to its two products. For CDIP,
certain health care providers have organized themselves into capitated networks,
while other companies have specialized in the capitation of radiology networks
on a more limited scale than the Company. In addition, certain companies have
established capitation programs with respect to disciplines outside of
radiology, which companies could expand the scope of services offered to include
diagnostic imaging. Finally, certain health care payors have chosen to establish
capitation programs on their own. For RMP, certain companies are attempting to
offer some of the same services as the Company in more limited geographical
areas, or with respect to certain components of the Company's business,
particularly for certification and utilization review. In addition, payors may
choose to reduce diagnostic imaging costs through the internal development of
aspects of the products offered by the Company. Other companies offer
utilization review of data analysis and reporting services (two of the Company's
core product elements) with respect to other health care specialties and
services. The Company competes on the basis of its specialized knowledge and
expertise in diagnostic imaging managed care, the effectiveness of its services,
its ability to offer a range of services in multiple markets, its database
management capability and pricing.
REGULATION
GENERAL
The Company's business is conducted within a highly regulated environment.
There are both state and federal regulatory programs relating to the provision
of health care services, access to health care, the cost of health care and the
manner in which health care providers are reimbursed for their services. The
state and federal health care and insurance laws and regulations to which the
Company may be subject in connection with its operations are summarized below.
As described herein, the regulatory obligations associated with the Company's
CDIP product are more extensive than under the RMP product. The Company believes
that it is in compliance with all regulatory requirements applicable to its
business.
STATE REGULATION
The Company's activities are regulated principally at the state level, so
that the Company must comply with regulatory requirements that vary from state
to state. The Company currently offers its CDIP and RMP products in the states
of Colorado, Connecticut, Florida, Illinois, Indiana, Kentucky, Missouri, New
Jersey, New York, Ohio and Oklahoma. In the states of Massachusetts and
Michigan, only the RMP product is offered.
Insurance Regulation. There are significant state law obstacles to third
party payors sharing risk through capitation with provider networks like those
that the Company organizes in connection with its CDIP program. The evaluation
of the regulatory obligations imposed upon provider networks which assume risk
must be conducted on a state-by-state basis as the positions taken on this
subject by state regulators are not uniform. In most states, insurance risk is
regulated primarily through two distinct insurance statutes: the state insurance
code (as a health insurer) and the state health maintenance organization act.
Under each of these types of statutes, any person who engages in the business of
insurance risk on an indemnified or prepaid basis must typically secure a
certificate of authority from the state department of insurance ("DOI"). These
statutory provisions could be interpreted such that contractual arrangements for
the sharing of risk among providers could be deemed by the state DOI as
constituting a contract of insurance which may be issued only by a
state-licensed insurance company or HMO.
On August 10, 1995, a working group of the National Association of Insurance
Commissioners ("NAIC") issued to state insurance commissioners a suggested
insurance bulletin which addressed the state regulation of risk-bearing provider
networks. Provider networks were described as groups of health care providers,
including integrated provider organizations, integrated provider arrangements,
physician hospital organizations and provider sponsored networks. The working
group's recommendations permitted provider networks to accept risk from licensed
insurance entities. The acceptance of risk
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directly from employers or individuals, however, would require the provider
network to obtain some form of insurance license. The actions of the NAIC are
not binding upon state insurance commissioners, but, historically, the
regulatory positions taken by the NAIC have been adopted in many states.
In the states in which the Company currently operates, state insurance
regulators have permitted HMOs to contract with provider networks on a capitated
basis. The rationale for this conclusion varies from state to state. Some states
view capitation arrangements between HMOs and provider networks as acceptable
without further licensure on the grounds that the HMO is properly structured to
monitor and oversee such arrangements and would ultimately be liable for any
losses. This is similar to traditional treatment of HMO contracts with physician
individual practice associations ("IPAs"). In other states, state insurance
regulators have concluded that the HMO licensure statute expressly authorizes
HMOs to enter into risk sharing arrangements with groups of providers. In still
other states, insurance regulators have concluded that HMO licensure is not
appropriate because provider networks do not market directly to the public, but
serve merely as subcontractors of health care services that comply with the
policies and procedures established by the HMO.
The ability of traditional indemnity insurers and self-insured employers to
share risk with groups of providers is more constrained. Consequently, the
Company only offers the CDIP product to HMOs, and not other types of payors. In
addition, the Company has established two wholly-owned subsidiaries which
operate in the state of New York and which are certified as IPAs under special
regulations governing provider risk sharing arrangements with HMOs.
In most states, HMOs are permitted by statute to capitate individual
providers or professional corporations established by providers. However, the
capitation of provider networks in which payors shift risk to organizations
providing healthcare services by unrelated providers may be interpreted in some
states as constituting the unlicensed business of insurance. Many states,
including states where the Company does business, currently are reviewing their
position on the issues described above relating to HMOs and insurance licensure.
The Company believes that in the states where it currently operates, HMOs
can enter into capitation arrangements with provider networks without the
possibility that the associated compensation mechanisms will require the Company
to obtain an insurance license. The Company believes that its participation in a
capitated provider network does not require insurance licensure.
Preferred Provider Organizations. Although the definition of a PPO may vary
from state to state, a PPO is generally a legal entity which has established a
provider network by entering into contractual arrangements with a variety of
health care providers. PPOs can also be established via a contractual
relationship among providers. The PPO, in turn, contracts with HMOs, health
insurers or self-insured employers to arrange for the provision of health care
services through the PPO's provider network. PPOs are typically organized under
state law as for-profit or not-for-profit corporations.
In states which have enacted a PPO law, the establishment of a provider
network under CDIP may subject the Company to compliance with the PPO law. The
Company's RMP product is unaffected by PPO laws. Generally, state PPO laws are
not onerous. Such laws usually require the submission to regulators of provider
contracts and guarantees of patient accessibility to providers in a geographic
area. In some states which regulate PPOs sponsored by insurance companies, the
PPO laws (and in some states, HMO laws) include an "any willing provider"
provision, which requires the PPO (or HMO) to include any provider in the panel
who is willing to accept the financial terms offered to the panel provider.
However, the independent provider networks in which the Company participates are
not usually subject to these "any willing provider" requirements.
The Company believes it has complied with all PPO laws which are applicable
to its operations.
Third Party Administrator. A TPA is an organization that provides
administrative services, such as claims adjustment, case management and premium
collection, that are normally provided by an insurer. When a TPA that is not an
insurer provides these services to group benefit plans and the self-insured,
they are often regulated by the state. States require that the TPA act in a
fiduciary capacity, maintain financial reserves and keep records confidential.
Moreover, many states prohibit a TPA from
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being compensated on the basis of claims experience. As such regulations are
currently interpreted in the states where the Company presently operates or
intends in the near term to operate, the Company believes it is not subject to
regulation as a TPA because the Company is not engaged in providing any of the
administrative services described above pursuant to either RMP or CDIP. In the
event the Company provides services in states where it would be subject to
regulation as a TPA, the Company intends to comply with such regulations.
Private Utilization Review Agent. Provider network organizations that
perform prospective, concurrent or retrospective review of the health care
services provided through a provider network may be subject to state licensure
as "private utilization review agents." Typically, licensure as a private
utilization review agent requires the submission of an application to the state
and prior approval before performing utilization review services ("UR Services")
on residents of the state. The application typically requires the submission of
information about the types of personnel performing UR Services, policies on
confidentiality of medical records, access (5 or 7 days a week, business hours
or 24 hours, or a toll-free telephone number) and appeals procedures. In
addition, some states require the submission of the actual criteria used in
conducting UR Services; other states may only request a copy of the process by
which the criteria were developed.
Potential limitations on the types of personnel who may perform UR Services
are emerging as an important regulatory concern for private utilization review
agents. For instance, some states mandate that only physicians and not nurses or
therapists may render denials to certification of health care service proposed
to be rendered by physicians. In addition, some states require that any denial
be made or any appeal be conducted only by a physician with board certification
in the same specialty as the physician requesting the health care services that
is the subject of the review. For example, in the Company's case, a radiologist
would be required to conduct appeals from denials of requests by radiologists.
Although the Company does (i) precertify the use of certain diagnostic imaging
techniques and (ii) perform certain retrospective utilization reviews under both
CDIP and RMP, these activities have generally not implicated the private
utilization review statutes of the states in which the Company operates; in
those states where such statutes are applicable to the Company's activities, the
Company has pending applications for licensure.
Corporate Practice of Medicine and Fee Splitting. In some states, physician
licensure provisions are construed to prohibit physicians from practicing
medicine through business corporations. This prohibition, known as the
"corporate practice of medicine" doctrine is sometimes expressly stated in the
state's medical practice act and corresponding regulations. In other states, the
corporate practice of medicine doctrine exists only as a product of the
development of common law. The corporate practice of medicine doctrine is
generally grounded upon concerns over the ability of a physician to exercise his
or her independent medical judgment and to preserve doctor-patient
confidentiality when non-physicians have a pecuniary interest in the physician's
practice. The corporate practice of medicine doctrine is usually used to prevent
the employment of physicians by a corporation other than a professional
corporation. Contractual relationships, depending upon the level of control
exerted over the physician through the contract and the level of enforcement of
the doctrine in the state, may trigger corporate practice concerns. Many states
provide for the suspension or revocation of a physician's license if the
physician enters into fee-splitting or referral arrangements with a third party.
An arrangement in which a provider network receives a capitation payment from an
HMO or from the Company pursuant to the CDIP program for health care services
provided by the participating physician's of such network could be perceived as
a split-fee arrangement. However, no state in which the Company currently
operates has adopted this position with regard to participation in a capitated
provider network.
The Company believes that its contractual relationships with providers
pursuant under CDIP are not violative of the "corporate practice of medicine" or
"fee splitting" prohibitions. These regulatory prohibitions are not applicable
in the context of RMP.
Self-Referral. Many states have adopted their own versions of the federal
physician self-referral statute described below which apply to all patients
irrespective of whether payment for health care services is provided by the
Medicare or Medicaid programs. In such states, physicians are prohibited
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from referring patients to certain health care services in which they have a
financial relationship. In those states that have enacted physician
self-referral prohibitions, an applicable statutory exception may permit certain
financial relationships with physicians. Alternatively, in other states the
physician's referral is not prohibited; provided, however, the physician must
provide the patient with a written disclosure that specifies the physician's
financial relationship or investment interest in an entity in which he or she
refers patients.
Anti-kickback. Many states have promulgated anti-kickback provisions similar
to the federal anti-kickback statute described below, that broadly prohibit the
offer, payment, solicitation or remuneration to a physician in return for
referring patients. Moreover, in some states, these kickback provisions apply to
all health care payors, not merely the Medicare or Medicaid programs. Further,
while some states provide certain exceptions to the anti-kickback statutes
similar to the safe harbor regulations promulgated pursuant to the federal
anti-kickback law, other states do not incorporate the federal safe harbor
regulations nor do these states provide similar guidance.
The Company believes the financial relationships between the Company and its
providers through the CDIP product are not violative of applicable state self
referral or anti-kickback laws.
FEDERAL REGULATION
The Company does not presently contract directly with the Medicare or
Medicaid programs. However, some of the entities with which the Company
contracts do provide services to beneficiaries of the Medicare and Medicaid
programs. Set forth below is a description of the federal laws and regulations
to which the Company may be subject through its contracts with clients providing
services to Medicare and Medicaid beneficiaries. See "--Strategy."
Medicare Fraud and Abuse Provisions. The Medicare and Medicaid anti-kickback
amendments (the "Anti-Kickback Amendments") prohibit the knowing and willful
offer, payment, solicitation or receipt of any form of remuneration in return
for the referral of Medicare or state health program patients or patient care
opportunities, or in return for the purchase, lease or order of any item or
service that is covered by Medicare or a state health program. In addition to
federal criminal penalties, the Anti-Kickback Amendments also establish the
intermediate sanction of excluding violators from participation in the Medicare
or Medicaid programs.
Pursuant to this law and in an effort to reduce potential fraud and abuse
relating to Medicare costs, the federal government has announced a policy of
increased scrutiny of various transactions among health care providers.
Nevertheless, the applicability of these provisions to many business practices
in the health care industry, including the Company's agreements with physician
groups and its agreements with HMOs, has not been subject to any enforcement
actions or judicial interpretation. In 1991, the Inspector General of HHS
adopted regulations defining safe harbors for certain arrangements that do not
violate the Anti-Kickback Amendments. On January 25, 1996, the HHS Office of
Inspector General issued the final managed care safe harbor regulations defining
certain managed care relationships that will not constitute a violation of the
anti-kickback amendments. The safe harbors address provider discounts to health
plans, incentives offered to enrollees to choose network providers, as well as
certain waivers of coinsurance amounts in connection with Medicare SELECT
policies. The safe harbors do not provide explicit protection for financial
arrangements engaged in by intermediary managed care organizations such as the
Company. However, the preamble to the safe harbors does address such financial
relationships with intermediary organizations in the context of fees charged to
participating providers. In addressing such relationships with providers, the
preamble states that PPOs can cover their marketing and administrative costs "in
fees charged to insurers or employers where the PPO administers the plan for
such entities", implying that such arrangements would not implicate the
anti-kickback statute in the first instance. The Company therefore believes that
the management fees payable to it by payors should not be viewed as remuneration
for referring or influencing referrals of Medicare or state health care program
patients as prohibited by the Anti-Kickback Amendments, as the Company is not
referring any patients to the payor which is paying the Company the management
fees. Rather, the only referrals the Company could be viewed as potentially
making is the referral of patients to its network providers.
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In any event, the safe harbor regulations are clear that failure to conform
to the terms of a particular safe harbor does not mean that the arrangement is
illegal. The preamble also states that compliance with the safe harbor
regulations is "purely voluntary."
The Company receives compensation under its CDIP and RMP agreements with
payors for management services. The Company believes that the management fees
payable to it should not be viewed as remuneration for referring or influencing
referrals of patients or services covered by such programs as prohibited by the
Anti-Kickback Amendments as the Company is not referring patients to the payor
which is paying the Company the management fees. The Company is not presently a
provider or supplier of services or items reimbursed by Medicare or state health
programs.
Prohibitions on Certain Referrals--The "Stark Law". The Omnibus Budget
Reconciliation Act of 1993 ("OBRA") includes a provision that significantly
expanded the scope of the Ethics in Patient Referral Act, also known as the
"Stark Law." The Stark Law originally prohibited a physician from referring a
Medicare or Medicaid patient to any entity for the provision of clinical
laboratory services if the physician or a family member of the physician had an
ownership interest or compensation relationship with the entity. The revisions
to the Stark Law included in OBRA prohibit a physician from referring Medicare
and Medicaid patients to an entity in which the physician or a family member has
an ownership interest or compensation relationship if the referral is for any of
a list of "designated health services." The list of designated health services
includes radiology services and radiation therapy. Under CDIP, the Company does
not currently contract with providers of therapeutic radiation services, only
diagnostic radiology services. As the Company is not owned by physicians, the
only financial relationship potentially relevant to the Stark Law between the
Company and its network physicians is the physicians' provider agreement. While
this agreement does constitute a financial relationship within the meaning of
the Stark Law, such a financial relationship only means that the physician
cannot refer Medicare and Medicaid patients to the Company for the furnishing of
designated health services, including radiology services. However, the Company
does not furnish designated health services; the Company merely contracts for
the provision of designated health services. Accordingly, the Company believes
that its contractual relationships with physicians do not implicate the Stark
Law. The Health Care Financing Administration has issued final regulations
regarding the Stark I clinical laboratory self-referral ban, but no final
regulations have yet been issued regarding the application of the Stark Law to
designated health services. The preamble to the Stark I regulations address
generally the issue of indirect financial relationships in the form of
compensation arrangements, but the regulations do not expressly address this
issue. In the event the Stark II regulations take the position that the
Company's contractual arrangements for the provision of radiology services do
implicate the Stark Law, then the Stark Law includes an exception for personal
services contracts, with which the Company should be able to conform its network
physician provider agreements.
Physician Incentive Law--Managed Care Organizations. By statute, HMOs and
competitive medical plans ("CMPs") which have a risk-sharing agreement with the
Medicare program and certain HMOs and health insuring organizations ("HIOs")
which contract with the Medicaid program cannot operate a physician incentive
plan unless that physician incentive plan meets certain specified criteria.
Under the Medicare and Medicaid programs, there are three requirements that a
managed care organization must meet with regard to any physician incentive plan
if the managed care organization has a Medicare or Medicaid contract. First, the
plan cannot, directly or indirectly, make payments to physicians as an
inducement to limit or reduce medically necessary services provided to a
specific enrollee. Second, the plan cannot place a physician at substantial
financial risk for services the physician does not provide without adequate
stop-loss protection and periodic enrollee surveys. Third, the organization must
disclose the nature of its plan to the Secretary of HHS. Failure to comply with
these requirements could subject the organization, by statute, to sanctions and
civil monetary penalties. The Company has not entered into a risk contract with
the Medicare or Medicaid programs. To the extent the Company contracts with HMOs
that have a Medicare or Medicaid risk contract, the Company may be indirectly
affected by the physician incentive law. On March 28, 1996, the Health Care
Financing Administration issued final regulations regarding this law. The
Company believes that its capitation and episode-of-care compensation
arrangements with providers do not violate the requirements of the
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physician incentive laws and, if necessary, can be restructured in a manner to
comply with the final physician incentive regulations. Such compensation
arrangements have been developed by the Company on the basis of the levels of
Medicare reimbursement and utilization by physicians prior to the implementation
of the Company's products. Therefore, these arrangements should not contain
improper financial incentives to reduce the utilization of health care services.
REGULATORY COMPLIANCE
The Company believes that health care regulations affecting the Company will
continue to change and, as a result, regularly monitors developments in health
care law. The Company believes it will be able to continue to structure all its
agreements and operations in accordance with applicable law or, if necessary,
modify its agreements and operations as regulations applicable to its business
undergo change. However, there can be no assurance that current or future
operations will not require compliance with additional governmental regulatory
schemes or be adversely affected by changes in regulatory requirements
applicable to the Company's business.
EMPLOYEES
At March 31, 1996, the Company had 189 full-time employees, and two
part-time employees. The Company also has consulting arrangements with six
additional persons, four of whom are full-time. None of the Company's employees
is represented by a labor union or subject to a collective bargaining agreement.
The Company has never experienced a work stoppage and believes that its employee
relations are good.
PROPERTY
The Company's principal executive offices, located at 40 Skokie Boulevard,
Northbrook, Illinois, 60062-1618 are leased. The Company occupies approximately
40,364 square feet under several leases, expiring at various times from August
31, 1996 to August 31, 1999. In addition, the Company leases storage space in
the same facility under a short term lease and is negotiating to lease
additional office space in the same facility, which it believes will be
sufficient for its operations in the future. See Note 7 to the Consolidated
Financial Statements.
LEGAL PROCEEDINGS
No litigation is currently pending against the Company or its property, and
the Company is not aware of any outstanding claims against any participating
payors or providers, in either case, that would have a material adverse effect
on the Company's business, operating results or financial condition. The Company
expects its clients to be involved in legal proceedings incident to their
business, some of which may involve claims related to the practices of
affiliated health care providers. See "Risk Factors-- Possible Litigation and
Insurance."
INSURANCE
The Company's agreements with clients generally require the Company to
maintain professional liability insurance in the amounts of $1 million per
occurrence and $3 million in the aggregate. However, the Company maintains at
its own expense professional liability insurance in the amounts of $10 million
per occurrence and $10 million in the aggregate. Separately, the Company
generally requires each physician with which it contracts under CDIP to maintain
professional liability insurance coverage of $1 million per occurrence and $3
million in the aggregate, except where state law allows lesser amounts.
42
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their respective
ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- -------------------------------------
<S> <C> <C>
Carl R. Adkins, M.D. ........... 51 Chairman of the Board, President and
Chief Executive Officer
Mark T. Richards................ 37 Chief Financial Officer
Alan H. Spiro, M.D. ............ 43 Director, Chief Medical Officer
Bradford W. Keller.............. 35 Vice-President of Client Services
James E. Zechman................ 45 Principal Marketing Officer
Lawrence Rubinstein, Esq. ...... 63 General Counsel, Secretary
Peter M. Castleman.............. 39 Director
Jeffrey R. Jay, M.D.(1)(2) ..... 37 Director
Mitchell J. Blutt, M.D.(1) ..... 39 Director
Jonas L. Steinman(2)............ 31 Director
</TABLE>
- ------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Carl R. Adkins, M.D., Chairman of the Board since January 1996, has been
President and Chief Executive Officer of the Company since September 1995. From
1992 to 1995, he served in various positions with United HealthCare, including
CEO for United HealthCare of Ohio--Western Region. From 1986 to 1992, Dr. Adkins
was employed by US Healthcare where he served in various positions including
Senior Vice President of the New York Region. He holds an M.B.A. from Wake
Forest University.
Mark T. Richards, CPA, has been Chief Financial Officer of the Company since
January 1996. From 1988 to 1995, Mr. Richards was with H.M.S.S., Inc., a home
healthcare provider where he held positions of increasing responsibility in the
Finance Department, including Vice-President of Finance. From 1982 to 1988, he
was with Price Waterhouse LLP, most recently as an audit manager.
Alan H. Spiro, M.D., a director since 1994, has been Chief Medical Officer
of the Company since 1991. From 1989 to 1991, he was Senior Vice President and
Medical Director of Connecticare, Inc. Since 1991 Dr. Spiro has been active in
many national organizations, serving on major committees for the American
Gastroenterologic Association, American College of Physician Executives and the
American Society for G.I. Endoscopy. From 1982 to 1989, Dr. Spiro was in a
private practice of gastroenterology and was also Vice President and Medical
Director of Celtic Life Insurance Company. He holds an M.B.A. from the Kellogg
School of Management of Northwestern University.
Bradford W. Keller has been Vice President of Client Services of the Company
since 1995. From 1992 to 1995, Mr. Keller held several management positions at
United HealthCare of Ohio--Western Region, including Vice President, Network
Development. From 1989 to 1992, he was employed by the Harvard Community Health
Plan in its Marketing Department, most recently as Marketing Manager for small
group products. He holds an M.B.A. from the Harvard Business School.
James E. Zechman has been Principal Marketing Officer of the Company since
1992. From 1989 through 1992, Mr. Zechman was the President of APWEL, Inc., a
sales, marketing, international trade and financial consulting company which he
founded. From 1976 to 1988, Mr. Zechman was employed by the Capital Markets
Division of Merrill Lynch Company, most recently as Vice President and Manager
of the Proprietary Trading, Financial Futures and Options Group.
43
<PAGE>
Lawrence Rubinstein has been associated with the Company since 1989 and has
acted as General Counsel since 1991. Mr. Rubinstein co-founded Robbins,
Rubinstein, Salomon & Greenblatt, Ltd. of Chicago, Illinois, where he remained a
Senior Partner until 1990.
Peter M. Castleman has been a Director since November 1994. Mr. Castleman
joined Whitney in 1987, where he is a Managing Partner. Mr. Castleman is a
director of Advance ParadigM, Inc., The North Face, Inc., Brothers Gourmet
Coffees, Inc. and a number of private companies. He holds an M.B.A. from the
Harvard Business School.
Jeffrey R. Jay, M.D., has been a Director since November 1994. Since 1993,
he has been a General Partner of Whitney. From 1988 to 1993, Dr. Jay was
employed by Canaan Partners, a venture capital firm. Dr. Jay currently is a
national advisory member of the American Medical Association's Physician Capital
Source Committee and is on the Board of CRA Managed Care, Inc., a workers
compensation managed care company and Advance ParadigM, Inc., a health benefits
manager. He holds an M.B.A. from the Harvard Business School.
Mitchell J. Blutt, M.D., has been a Director since November 1994. Since
1990, he has been the Executive Partner at Chase Capital Partners (formerly
Chemical Venture Partners). Dr. Blutt is Adjunct Assistant Professor at the New
York Hospital/Cornell Medical Center and Professor at Cornell University
Graduate Program in Health Services where he continues to provide patient care.
Dr. Blutt serves on the Boards of The Hanger Orthopedic Group, General Medical
Corp., Landec Corp., Innotech Corporation, EuroHealth, Inc., several private
companies and he is also on the Board of the New York Venture Capital Forum. He
is a Fellow of the New York Academy of Medicine, a member of the American
College of Physicians and American Medical Association and is an Advisory Board
Member of the Center on Addiction and Substance Abuse at Columbia University.
Dr. Blutt holds an M.B.A. from the Wharton School of the University of
Pennsylvania.
Jonas L. Steinman has been a Director since January 1996. He is currently a
Principal of Chase Capital Partners (formerly Chemical Venture Partners). Prior
to joining Chase Capital Partners, Mr. Steinman was employed by Anthem Partners,
Booz, Allen & Hamilton and Drexel Burnham Lambert, Inc. Mr. Steinman serves on
the Board of several private companies. Mr. Steinman holds an M.B.A. from the
Harvard Business School.
44
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
-----------------------------
ANNUAL SECURITIES
COMPENSATION RESTRICTED UNDERLYING
NAME AND ------------ STOCK AWARD(S) OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY (1) ($)(2) SARS (3) COMPENSATION(4)
- --------------------------------------- ---- ------------ -------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Carl R. Adkins, M.D.,(5)............... 1995 $ 98,509 -- 33,429 $83,086
President, Chief Executive Officer
Bradford W. Keller (6)................. 1995 26,172 -- -- 12,360
Vice-President Client Services
Alan H. Spiro, M.D..................... 1995 197,421 -- -- --
Chief Medical Officer
James E. Zechman....................... 1995 165,189 -- 79,842 --
Principal Marketing Officer
Lawrence Rubinstein.................... 1995 144,129 -- -- --
General Counsel, Secretary
Alan P. Mintz, M.D.(7)................. 1995 326,165 -- -- --
Cheryl E. Lippert(7)(8)................ 1995 147,954 -- 29,250 37,940
</TABLE>
- ------------
(1) The salaries for Dr. Spiro and Messrs. Zechman and Rubinstein reflect
short-term reductions in connection with the 1995 Transaction. The amounts
of salaries for Dr. Spiro and Messrs. Zechman and Rubinstein will be
increased to $200,000, $175,000 and $150,000, respectively, at such time as
the net income of the Company is positive for any fiscal quarter. For the
period prior to these reductions, the annual salaries for Dr. Spiro and
Messrs. Zechman and Rubinstein were $200,000, $150,000 and $175,000,
respectively. See "Certain Transactions--1995 Transaction."
(2) Dr. Adkins was awarded 245,149 restricted shares of Common Stock at $0.05
per share pursuant to a restricted shares agreement dated as of November 17,
1995 with the Company (and amended as of January 26, 1996). Of the
restricted stock held by Dr. Adkins, 88,254 shares have already vested; the
remaining 156,895 shares will vest pro rata on December 31, 1996, 1997, 1998
and 1999, or earlier upon the occurrence of certain circumstances specified
in Dr. Adkins' restricted shares agreement. Mr. Keller, Dr. Spiro and Mr.
Zechman purchased 33,429, 25,995 and 109,434 restricted shares,
respectively, of Common Stock at $0.05 per share pursuant to restricted
shares agreements dated as of January 15, 1996, September 6, 1995 and
September 6, 1995, respectively, with the Company. The restricted stock held
by Mr. Keller, Dr. Spiro and Mr. Zechman will vest pro rata on December 31,
1996, 1997, 1998, 1999, and 2000, or earlier upon the occurrence of certain
circumstances specified in the respective restricted shares agreements.
(3) On September 6, 1995, the Company issued Stock Purchase Warrants to Dr.
Adkins, Dr. Spiro, Messrs. Zechman and Rubinstein, Dr. Mintz and Ms. Lippert
for the purchase of 33,429, 81,069, 79,842, 128,851, 184,057 and 29,250
shares of Common Stock, respectively, which warrants become exercisable, if
at all, on or prior to June 30, 1997 (or, under certain conditions, prior to
September 30, 1997) if (i) the Company consummates an initial public
offering of the Common Stock such that (a) the net cash proceeds to the
Company from such offering exceed $30 million and (b) the price per share of
Common Stock sold in such offering is at least $24.90 or (ii) there occurs a
sale of the capital stock of the Company held by the Private Equity
Investors or a merger, consolidation or other business combination, and in
each case, (x) the Senior Subordinated Notes are repaid in full and (y) the
Private Equity Investors receive cash proceeds (net of certain expenses and
fees) that exceed $75 million for the Common Stock held by the Private
Equity Investors. See "Risk Factors--Dilution" and "Certain
Transactions--1995 Transaction." The Stock Purchase Warrants held by Drs.
Spiro and Mintz and Mr. Rubinstein were issued in connection with the
capital transaction portion of the 1995 Transaction and are not, therefore,
reflected as compensation. An option was also issued to Dr. Mintz to
purchase 4,457 shares of Common Stock in 1996 which will vest pro rata at
August 15, 1996, 1997 and 1998.
(4) Represent amounts paid by the Company in 1995 for expenses incurred by Dr.
Adkins, Mr. Keller and Ms. Lippert when they relocated to join the Company.
Dr. Adkins and Mr. Keller also received
(Footnotes continued on following page)
45
<PAGE>
(Footnotes continued from preceding page)
$33,362 and $17,165, respectively, in 1996 for additional expenses incurred
by them in connection with their relocation.
(5) Dr. Adkins was hired pursuant to an employment agreement effective as of
September 5, 1995 which provides for a base salary of $275,000 per annum.
His salary compensation for the period from September 5, 1995 through
December 31, 1995 was paid as a pro rata portion of the annual salary
specified in Dr. Adkins' employment agreement. See also footnotes 2, 3 and 4
above.
(6) Mr. Keller was hired in October 1995 at a salary of $150,000 per year and
his salary for the period from October 30, 1995 through December 31, 1995
was paid as a pro rata portion of such amount. See also footnotes 2 and 4
above.
(7) Dr. Mintz served as President and Chief Executive Officer until September
1995, and as Chairman of the Board until December 31, 1995. Dr. Mintz's
annual salary was $350,000 until October 1, and was $250,000 for the
remainder of the year. Ms. Lippert is no longer employed by the Company, but
from May 4, 1995 through the end of the year she served as the Company's
Chief Financial Officer and the table reflects Ms. Lippert's salary for such
period. See "Certain Transactions--1995 Transaction." See also footnotes 3
and 4 above.
(8) Mr. Richards, the Company's Chief Financial Officer, was hired in January
1996 at a salary of $150,000 per year. He received a sign-on bonus of
$50,000, $25,000 of which was paid on January 31, 1996 and the remaining
$25,000 of which will be paid on July 15, 1996. Mr. Richards also received
an option to purchase 50,651 shares of Common Stock in April 1996 which will
vest pro rata on January 15, 1997, 1998, 1999, 2000, and 2001.
Option Grants. The following table provides information with respect to the
stock option grants made to each person named below during the fiscal year 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
------------------------------------------------------ ASSUMED ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE APPRECIATION
SECURITIES OPTIONS/SARS FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ----------------------- ------------ ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Carl R. Adkins, M.D.... 33,429 5.35% $0.05 9/30/97 $ 882,667 $ 935,623
Bradford W. Keller..... -- -- -- -- -- --
Alan H. Spiro, M.D..... -- -- -- -- -- --
James E. Zechman....... 79,842 12.78 0.05 9/30/97 2,108,153 2,234,632
Lawrence Rubinstein.... -- -- -- -- -- --
Alan P. Mintz,
M.D.(3)(4)............. -- -- -- -- -- --
Cheryl E.
Lippert(3)(5).......... 29,250 4.68 0.05 9/30/97 772,336 818,672
</TABLE>
- ------------
(1) This table reflects the Stock Purchase Warrants held by Dr. Adkins, Mr.
Zechman and Ms. Lippert for the purchase of 33,429, 79,842 and 29,250 shares
of Common Stock, respectively. This table does not, however, reflect the
Stock Purchase Warrants held by Drs. Spiro and Mintz and Mr. Rubinstein for
the purchase of 81,069, 184,057 and 128,851 shares of Common Stock,
respectively, as such warrants were issued in connection with the capital
transaction portion of the 1995 Transaction and are not, therefore,
reflected as compensation.
(2) Represents amounts that would be realizable if the price per share in this
offering is at least $24.90 or, if the price per share is not at least
$25.17, there occurs, on or before June 30, 1997 (or, under certain
conditions, September 30, 1997), a sale of the common stock of the Company
in a merger, consolidation or other business combination in which certain
shareholders of the Company receive proceeds in excess of $75 million. See
"Risk Factors--Dilution" and "Certain Transactions--1995 Transaction."
(3) Dr. Mintz is no longer employed by the Company, but during a portion of 1995
he served as the Company's President and Chief Executive Officer. Ms.
Lippert is no longer employed by the Company, but during a portion of 1995
she served as the Company's Chief Financial Officer.
(4) Dr. Mintz received an option in 1996 to purchase 4,457 shares of Common
Stock.
(Footnotes continued on following page)
46
<PAGE>
(Footnotes continued from preceding page)
(5) Mr. Richards, the Company's Chief Financial Officer, received an option to
purchase 50,651 shares of Common Stock in April 1996 which will vest pro
rata on January 15, 1997, 1998, 1999, 2000 and 2001.
Option Exercises and Value. None of the persons named below exercised
options during the fiscal year 1995. The following table summarizes the number
of securities underlying unexercised options and the value of such options on an
aggregated basis held by the persons named below at December 31, 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)
--------------------------------- ---------------------------------
NAME EXERCISABLE/ UNEXERCISABLE(1) EXERCISABLE/ UNEXERCISABLE(2)
- ---------------------------------------- ------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Carl R. Adkins, M.D. ................... -- 33,429 $-- $--
Bradford W. Keller...................... -- -- -- --
Alan H. Spiro, M.D. .................... -- -- -- --
James E. Zechman........................ -- 79,842
Lawrence Rubinstein..................... -- -- -- --
Alan P. Mintz, M.D.(3).................. -- -- -- --
Cheryl E. Lippert(3)(4)................. -- 29,250
</TABLE>
- ------------
(1) This table reflects the Stock Purchase Warrants held by Dr. Adkins, Mr.
Zechman and Ms. Lippert for the purchase of 33,429, 79,842 and 29,250 shares
of Common Stock, respectively. This table does not, however, reflect the
Stock Purchase Warrants held by Drs. Spiro and Mintz and Mr. Rubinstein for
the purchase of 81,069, 184,057 and 128,851 shares of Common Stock,
respectively, as such warrants were issued in connection with the capital
transaction portion of the 1995 Transaction and are not, therefore,
reflected as compensation. None of such Stock Purchase Warrants are
exercisable upon the consummation of this offering but may become
exercisable in the future for a limited period of time and under limited
circumstances. See "Risk Factors--Dilution" and "Certain Transactions--1995
Transaction."
(2) This table does not reflect any values as the Stock Purchase Warrants were
not in-the-money at December 31, 1995 because the conditions to
exercisability specified in the Stock Purchase Warrants had not been met.
(3) Dr. Mintz is no longer employed by the Company, but during a portion of 1995
he served as the Company's President and Chief Executive Officer. Ms.
Lippert is no longer employed by the Company, but during a portion of 1995
she served as the Company's Chief Financial Officer.
(4) Mr. Richards, the Company's Chief Financial Officer, received an option to
purchase 50,651 shares of Common Stock in April 1996 which will vest pro
rata on January 15, 1997, 1998, 1999, 2000 and 2001.
EMPLOYMENT AGREEMENTS
CHIEF EXECUTIVE OFFICER EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with Carl R. Adkins, M.D.
effective as of September 5, 1995 (the "CEO Employment Agreement"). The CEO
Employment Agreement provides for Dr. Adkins to be paid a base salary of
$275,000. Under the CEO Employment Agreement, Dr. Adkins will also be paid an
annual bonus of up to 100% of the base salary if the Company achieves certain
annual performance targets to be established by the Compensation Committee of
the Board. The CEO Employment Agreement provides for the initial term of
employment to end December 31, 1996, which term will automatically be renewed
for one-year extension periods unless the renewal is canceled by the Company
upon at least 90, but no more than 120, days prior notice.
47
<PAGE>
The CEO Employment Agreement also provides for the Company to issue 245,149
shares of Common Stock to Dr. Adkins pursuant to a restricted stock agreement
(See "--Restricted Shares Agreements"), and for the payment of certain fringe
benefits, relocation expenses and vacations of not less than four weeks per year
with pay. Dr. Adkins has agreed to be bound by certain confidentiality,
non-competition and non-solicitation restrictions set forth in the CEO
Employment Agreement.
OTHER EXECUTIVE EMPLOYMENT CONTRACTS
The Company entered into employment contracts with Alan Spiro, M.D. and
Lawrence Rubinstein on January 1, 1994, and with James E. Zechman on June 10,
1994. Each such employment contract was amended in connection with the
Recapitalization and again in connection with the 1995 Transaction
(collectively, such employment contracts, as amended, the "Executive Employment
Contracts"). Each Executive Employment Contract provides for a term that ends on
December 31, 1996.
As amended in connection with the 1995 Transaction, Dr. Spiro's Executive
Employment Contract provides for an annual salary of $160,000; Mr. Zechman's
Executive Employment Contract provides for an annual salary of $140,000; Mr.
Rubinstein's Executive Employment Contract provides for an annual salary of
$120,000. If the net income of the Company is positive for any fiscal quarter,
the Executive Employment Contracts provide for the annual salaries of Dr. Spiro
and Messrs. Zechman and Rubinstein to be increased to $200,000, $175,000 and
$150,000, respectively.
The Executive Employment Contracts provide for Dr. Spiro and Messrs. Zechman
and Rubinstein to be paid discretionary bonuses at the times and in the amounts
as are declared by the Board. Each of Dr. Spiro and Messrs. Zechman and
Rubinstein receive four weeks paid vacation.
OTHER AGREEMENTS
Alan P. Mintz, M.D. served as the President and Chief Executive Officer of
the Company from its incorporation until September 1995, and as Chairman of the
Board until December 31, 1995. In connection with the 1995 Transaction and the
addition of Dr. Adkins, Dr. Mintz reduced his role solely to that of Chairman of
the Board and Dr. Mintz and the Company entered into a severance agreement
effective December 31, 1995. See "Certain Transactions--1995 Transaction."
Cheryl E. Lippert served as the Company's Chief Financial Officer from April
1995 to January 1996 and, following the termination of her employment, the
Company and Ms. Lippert entered into a severance agreement. See "Certain
Transactions--1995 Transaction."
See Note 2 of Summary Compensation Table for a description of restricted
stock awards made to certain executive officers.
DIRECTORS OPTION PLAN
Effective November 3, 1994, the Board and shareholders of the Company
approved the Company Stock Option Plan for Non-Employee Directors (the
"Directors Option Plan"). As amended, the Directors Option Plan provides for the
issuance of options to purchase up to 48,821 shares of Common Stock. All
non-employee directors of the Company are eligible to receive options under the
Directors Option Plan, subject to the discretion of the Compensation Committee
(as defined below). The exercise price of an option granted under the Directors
Option Plan shall be the fair market value of the Common Stock on the date of
grant and may be exercised at any time, in accordance with the individual option
agreement with the relevant non-employee director. All of the options under the
Directors Option Plan terminate on the earliest to occur of (i) ten years from
the date of the grant of the option, (ii) one year after termination of the
optionee's service with the Company due to disability, (iii) one year after the
optionee's death, if death occurs during, or within three months after, the
optionee's service with the Company, (iv) termination of the optionee's service
with the Company for cause (as defined in the Directors Option Plan), or (v)
three months after the termination of the optionee's service with the
48
<PAGE>
Company. As of March 31, 1996, no options to purchase shares of Common Stock had
been granted under the Directors Option Plan.
TARSOP
Effective October 28, 1994, the Board and shareholders of the Company
approved the TARSOP. As amended, the TARSOP provides for the issuance of options
to purchase up to 57,745 shares of Common Stock which either do not meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
("Nonqualified Options"), or options which do meet such requirements ("Incentive
Options"). All key employees and consultants of the Company are eligible to
receive options under the TARSOP. Options are granted to key employees
(including officers and directors of the Company) selected by the Compensation
Committee of the Company's Board (the "Compensation Committee") consisting of
directors who are not eligible to receive options under the TARSOP. The
Compensation Committee determines the number of shares subject to option and
whether the option is intended to be a Nonqualified Option or an Incentive
Option. The exercise price of an option may not be less than the fair market
value of the Common Stock on the date of grant. In the case of an Incentive
Option, if the grantee at the time of grant owns stock constituting 10% or more
of the total combined voting power of all classes of the Company's capital
stock, the exercise period may not extend beyond five years from the date of
grant and the option exercise price per share may not be less than 110% of the
fair market value of the Common Stock on the date of grant. Incentive Options
must also comply with the other requirements of Section 422 of the Internal
Revenue Code. None of such restrictions apply to the grant of Nonqualified
Options. All of the options under the TARSOP terminate on or shortly after
termination of the option holder's employment with the Company as described
below. As of March 31, 1996, options to purchase 57,745 shares of Common Stock
at an exercise price of $.05 per share had been granted under the TARSOP, all of
which were outstanding and no options had vested.
Options granted under the TARSOP become fully exercisable no later than the
ninth anniversary of the date of grant and no option may have a term in excess
of ten years from the date of grant. The TARSOP provides for accelerated vesting
each year with respect to ten to twenty percent of the shares subject to the
option in the event certain financial tests are met, commencing with respect to
the fiscal year ended December 31, 1995. The Compensation Committee may require
all options to be terminated unless exercised within 30 days (or such longer
period as determined by the Compensation Committee), or provide that all or some
of the restrictions on options may lapse, in either case upon (i) a merger or
consolidation of the Company with another corporation such that there is a
change in the shares of the Common Stock by reason of such merger or
consolidation, (ii) a sale or conveyance of all or substantially all of the
assets of the Company, (iii) a reorganization or liquidation of the Company, or
(iv) a change in control of the Company, which includes, among other events, any
person becoming the beneficial owner of securities representing 50.0% or more of
the combined voting power of the then outstanding securities of the Company
ordinarily having the right to vote for the election of directors.
Options are exercisable only while the optionee remains an employee of the
Company and terminate upon the optionee's termination of employment if the
optionee is terminated for cause. If any optionee's employment terminates
because the optionee becomes disabled or dies, such optionee's options remain
exercisable for one year after the optionee's termination of employment, unless
such options expire earlier by their own terms. If any optionee's employment is
terminated other than for cause, death or disability, such optionee's options
remain exercisable for 90 days after the optionee's termination of employment,
unless such options expire earlier by their terms. Options that are exercisable
following termination of employment are exercisable only to the extent that the
optionee was entitled to exercise such options on the date of such termination.
All options are non-transferable other than by will or the laws of descent and
distribution.
49
<PAGE>
DIRECTOR COMPENSATION
The Company's policy is not to pay additional compensation to Directors who
are also employees of the Company. Non-employee directors of the Company do not
receive any compensation for serving as a director of the Board, other than
reimbursement for travel costs and out-of-pocket expenses incurred in attending
each directors' meeting and committee meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Dr. Jay, who has
served as a member and Chairman since December 1994 and Mr. Steinman, who has
been a member since January 1996. Damion E. Wicker, M.D. served as a member of
the Compensation Committee from December 1994 to January 1996. John Adams served
as a member of the Compensation Committee from December 1994 to July 1995.
Dr. Jay is a general partner of Whitney. Mr. Steinman and Dr. Wicker are
principals of CCP. For a discussion of the transactions between the Private
Equity Investors and the Company, see "Certain Transactions." John Adams served
as an executive officer of the Company from August 1991 until his resignation in
July 1995.
50
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 30, 1996, and as adjusted to reflect
this offering, by (i) each director of the Company, (ii) each executive officer,
(iii) each person known to the Company to be the beneficial owner of more than
5% of the Common Stock and (iv) all directors and executive officers of the
Company as a group. See "Management--Compensation Committee Interlocks and
Insider Participation" and "Description of Capital Stock." Except as may be
indicated in the footnotes to the table, the Company believes that each of the
persons named in the table has the sole voting and investment power with respect
to all shares of Common Stock indicated. Unless otherwise indicated, the address
of each shareholder is c/o UtiliMed, Inc., 40 Skokie Boulevard, Northbrook,
Illinois 60062-1618.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED
-----------------------
SHARES PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING(2)
- -------------------------------------------------------- --------------------- -------- -----------
<S> <C> <C> <C>
Carl R. Adkins, M.D. (3)(4)............................. 88,253 2.1% 1.3%
Mark T. Richards(5)..................................... -- -- --
Bradford W. Keller(6)................................... -- -- --
Alan H. Spiro, M.D.(3)(4)(6)............................ 22,387 0.5 0.3
James E. Zechman(3)(4)(6)............................... 33,198 0.8 0.5
Lawrence Rubinstein, Esq.(3)(4)(7)...................... 117,105 2.8 1.7
Peter M. Castleman(8)................................... 1,615,753 37.9 23.9
Jeffrey R. Jay, M.D.(8)................................. 1,615,753 37.9 23.9
Mitchell J. Blutt, M.D.(9).............................. 1,615,753 37.9 23.9
Jonas L. Steinman(9).................................... 1,615,753 37.9 23.9
Alan P. Mintz, M.D.(3)(4)(10)........................... 235,260 5.5 3.5
J.H. Whitney & Co.(4)(11)............................... 1,615,753 37.9 23.9
177 Broad Street
Stamford, CT 06901
Chase Capital Partners(4)(12)........................... 1,615,753 37.9 23.9
380 Madison Avenue
New York, NY 10017
Cheryl E. Lippert(3)(13)................................ -- -- --
All executive officers and directors as a group......... 3,727,709 87.5% 55.1%
</TABLE>
- ------------
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days upon the exercise of options or
warrants. Each beneficial owner's percentage ownership is determined by
assuming that the shares underlying an option or warrant that are
exercisable within 60 days have been exercised. It is assumed that the
Stock Purchase Warrants are not exercisable. See Note 1 to the "Offering."
(2) If the Stock Purchase Warrants become exercisable subsequent to the
consummation of this offering, the percent of shares of Common Stock
beneficially owned after this offering by Dr. Adkins, Mr. Richards, Mr.
Keller, Dr. Spiro, Mr. Zechman, Mr. Rubinstein, Mr. Castleman, Dr. Jay, Dr.
Blutt, Mr. Steinman, Dr. Mintz, J.H.Whitney & Co., Chase Capital Partners
and Ms. Lippert would be 1.6%, 0%, 0%, 1.4%, 1.5%, 3.3%, 21.8%, 21.8%,
21.8%, 21.8%, 5.7%, 21.8%, 21.8% and 0.4%, respectively. See "Risk
Factors--Dilution," "Capitalization" and "Certain Transactions--1995
Transaction."
(3) Does not include shares of Common Stock issuable upon the exercise of the
Stock Purchase Warrants held by Drs. Adkins, Mintz and Spiro, Messrs.
Zechman, Rubinstein and Adams and Ms. Lippert in the amounts of 33,429,
184,057, 81,069, 79,842, 128,851, 73,645 and 29,250 shares of Common Stock,
respectively. See "Certain Transactions--1995 Transaction."
(4) These shareholders are parties to the Shareholders' Agreement, which will
terminate upon the consummation of this offering. See "Certain
Transactions--Shareholders' Agreement."
(Footnotes continued on following page)
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(Footnotes continued from preceding page)
(5) Does not include 50,651 shares of Common Stock underlying a stock option
granted to Mr. Richards. See "Management--Executive Compensation."
(6) Does not include 33,429, 25,999 and 109,434 shares of Common Stock sold to
each of Mr. Keller, Dr. Spiro and Mr. Zechman pursuant to restricted share
agreements dated as of January 15, 1996, September 15, 1995 and September
15, 1996, respectively. See "Management--Executive Compensation" and
"Management--Restricted Share Agreements."
(7) Includes 9,043 shares of Common Stock held of record by the Adam M.
Rubinstein Irrevocable Trust (12/19/94), 9,043 shares of Common Stock held
of record by the Adina R. Herman Irrevocable Trust (12/19/94) and 9,043
shares of Common Stock held of record by the Elana B. Rubinstein
Irrevocable Trust (12/19/94).
(8) The address of these directors is c/o J.H. Whitney & Co. Consists of an
aggregate of 1,615,753 shares of Common Stock held of record by Whitney,
Whitney Equity Fund and Whitney Debt Fund (together, the "Whitney
Entities") that Mr. Castleman and Dr. Jay may be deemed to beneficially own
due to their relationship with such entities. Such beneficial ownership is
disclaimed by both Mr. Castleman and Dr. Jay. See footnote 11 below and
"Management-- Executive Officers and Directors."
(9) The address of these directors is c/o Chase Capital Partners. Consists of
1,615,753 shares of Common Stock held of record by CCP that Dr. Blutt and
Mr. Steinman may be deemed to beneficially own due to their relationship
with such entity. Such beneficial ownership is disclaimed by both Dr. Blutt
and Mr. Steinman. See footnote 12 below and "Management--Executive Officers
and Directors."
(10) The address of this shareholder is 1140 Sheridan Road, Glencoe, Illinois
60022. Includes 18,086 shares of Common Stock held of record by the Steven
Hillel Mintz Irrevocable Trust (12/19/94), 18,086 shares of Common Stock
held of record by the Ari David Mintz Irrevocable Trust (12/19/94), 18,086
shares of Common Stock held by record by the Jonathon Ephraim Mintz
Irrevocable Trust (12/19/94) and 18,086 shares of Common Stock held of
record by the Jeffery Adam Mintz Irrevocable Trust (12/19/94).
(11) The shares of Common Stock beneficially owned by the Whitney Entities are
issuable upon conversion of 677,002 shares of Series A Preferred Stock and
229,240 shares of Class B Stock held by the Whitney Entities prior to this
offering. The conversion of Series A Preferred Stock and Class B Stock will
occur immediately prior to the consummation of this offering. See "Certain
Transactions--Recapitalization," "Certain Transactions--1995 Transaction"
and "Description of Capital Stock."
(12) The shares of Common Stock beneficially owned by CCP are issuable upon
conversion of 677,002 shares of Series A Preferred Stock and 229,240 shares
of Class B Stock held by CCP prior to this offering. The conversion of
Series A Preferred Stock and Class B Stock will occur immediately prior to
the consummation of this offering. See "Certain Transactions
--Recapitalization," "Certain Transactions--1995 Transaction" and
"Description of Capital Stock."
(13) The address of this shareholder is 2872 Whittier Drive, Bloomfield Hills,
Michigan 48304.
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<PAGE>
CERTAIN TRANSACTIONS
RECAPITALIZATION
In November 1994, the Company entered into the Recapitalization whereby it
redeemed outstanding shares of capital stock from then existing management and
financed the transaction by issuing new capital stock and debt to the Private
Equity Investors in order to provide liquidity to the Company's founders and
senior management. By aligning the Company's organizational and capital
structure with professional investors, the Company believed the Recapitalization
would also allow the Company (i) to attract experienced and qualified directors,
such as Dr. Blutt, Mr. Castleman, Mr. Steinman and Dr. Jay who, based on their
prior business or related experience, could assist management with operational
issues as well as the strategic direction of the Company, (ii) to access the
financial and managerial advice and experience of CCP and Whitney, private
investment firms which have each invested in other similarly situated companies;
and (iii) to facilitate capital investment by other professional investors that
would not ordinarily invest in a closely-held company. See "Use of Proceeds."
In the Recapitalization, the Company redeemed an aggregate of 56% of the
then outstanding shares of Common Stock from Alan P. Mintz, M.D., John E. Adams,
Lawrence Rubinstein, Nancie Blatt, Alan H. Spiro, M.D. and Sheldon K. Gulinson
(together, the "Redeemed Holders") for a total consideration of $39,874,059. The
consideration consisted of cash and an aggregate of $10,574,059 of Junior
Subordinated Notes due November 3, 2002 bearing interest at 10.0% per annum,
issued to each of the following in the specified principal amounts: Dr. Mintz,
$5,000,000; Mr. Adams, $2,500,000; Dr. Spiro, $574,059; and Mr. Rubinstein,
$2,500,000. In connection with the 1995 Transaction, the holders of the Junior
Subordinated Notes irrevocably waived the right to receive any and all accrued
but unpaid interest thereon and agreed that no further interest would accrue. On
May 24, 1996 the Junior Subordinated Notes were converted into 94,039 shares of
Common Stock in accordance with their terms.
To finance the redemptions and related expenses of the Recapitalization, the
Company issued (i) 22,969 shares of Common Stock at $7.22 per share, 427,328
shares of Class B Stock at $17.55092 per share and 1,262,000 shares of Series A
Preferred Stock at $17.82884 per share representing, in the aggregate, 37.381%
of the Company's capital stock on a fully-diluted basis (giving effect to the
conversion of the Series A Preferred Stock and Class B Stock into shares of
Common Stock in accordance with their terms) to the Private Equity Investors;
and (ii) the Senior Subordinated Notes bearing interest at 10.101% per annum.
The Company has paid an aggregate of $1,422,557 in interest on the Senior
Subordinated Notes quarterly, and intends to use the net proceeds of this
offering to pay the outstanding principal amount of and accrued interest on the
Senior Subordinated Notes. See "Use of Proceeds."
1995 TRANSACTION
Following the Recapitalization, the Company grew rapidly in terms of gross
revenues derived from new CDIP contracts. During the third quarter of 1995,
however, then existing management and the Private Equity Investors recognized
that there were significant problems managing the rapid growth of the business
and that the financial condition of the Company had deteriorated during 1995 as
evidenced by substantial operating losses. As a result, in September 1995 the
Company, together with the Redeemed Holders, the Private Equity Investors and
certain others completed the 1995 Transaction, which resulted in changes to the
capitalization, management and business of the Company. The principal components
of the 1995 Transaction included a return of capital to the Company by the
Redeemed Holders as well as significant adjustments to the relative equity
positions of the Company's shareholders, a new management team and development
and introduction of the RMP product. See "Business--Strategy."
In the 1995 Transaction: (i) the Redeemed Holders subsequently reduced the
aggregate redemption price paid at the time of the Recapitalization by
$7,500,000 through a combination of cash payments and the delivery of
irrevocable letters of credit and promissory notes to the Company; (ii) the
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<PAGE>
holders of the Junior Subordinated Notes irrevocably waived their right to
receive any and all accrued and unpaid interest thereon and agreed that no
further interest would accrue; (iii) Whitney Debt Fund and CCP exchanged an
aggregate of 22,969 shares of Common Stock for 92,004 shares of Series A
Preferred Stock and 31,152 shares of Class B Stock and the conversion ratios
applicable to the conversion of Series A Preferred Stock and Class B Stock into
Common Stock were adjusted so that the Private Equity Investors' percentage
ownership of the Company, immediately prior to the consummation of this offering
and assuming conversion of all shares of Series A Preferred Stock and Class B
Stock into Common Stock, increased from 37.4% to 73.0% on a fully diluted basis;
(iv) the Private Equity Investors obtained control of the Board pursuant to an
amendment to the Shareholders' Agreement; and (v) Dr. Mintz resigned as
President and Chief Executive Officer and agreed to a $100,000 reduction in his
salary.
The Company also issued the Stock Purchase Warrants to the Redeemed Holders
and certain other members of the management for the purchase of an aggregate of
641,236 shares of Common Stock that are exercisable at an exercise price of $.05
per share only if, on or prior to June 30, 1997 (or, under certain conditions,
prior to September 30, 1997), (i) the Company consummates an initial public
offering of the Common Stock such that (a) the net cash proceeds to the Company
from such offering exceed $30 million and (b) the price per share of Common
Stock sold in such offering is at least $24.90 or (ii) there occurs on or prior
to June 30, 1997 (or, under certain conditions, September 30, 1997), a sale of
the capital stock of the Company held by the Private Equity Investors or a
merger, consolidation or other business combination, and in each case, (x) the
Senior Subordinated Notes are repaid in full and (y) the Private Equity
Investors receive cash proceeds (net of certain expenses and fees) that exceed
$75 million for the Class B Stock and Series A Preferred Stock held by the
Private Equity Investors. If the Stock Purchase Warrants do not become
exercisable upon the consummation of this offering they may become exercisable
in the future upon a sale of the stock of the Company under the conditions
specified in clause (ii) above. See "Risk Factors--Dilution," "Capitalization"
and "Principal Shareholders."
In connection with the 1995 Transaction, the Company entered into amendments
to the employment agreements of Alan H. Spiro, M.D., Lawrence Rubinstein and
James E. Zechman. See "Management--Employment Agreements."
Dr. Spiro executed a promissory note (the "Spiro Note") in favor of the
Company to evidence (i) a demand loan in the original principal amount of
$150,000 advanced to Dr. Spiro by the Company on April 14, 1995 and (ii) an
initial advance of $374,625 on September 6, 1995 to satisfy certain of Dr.
Spiro's obligations arising out of the 1995 Transaction. The Spiro Note (i) is
secured by a pledge of 53,487 shares of Common Stock to the Company owned by Dr.
Spiro, (ii) matures on the earlier to occur of September 6, 2005 or Dr. Spiro
ceasing to be an employee of the Company (subject in some cases to a grace
period before repayment) and (iii) is subject to certain mandatory prepayment
events.
Prior to the 1995 Transaction, the Company entered into long term employment
arrangements with Jack Korsower, M.D. and Maria McAfee to assist in the
development of physician networks for the Company. As these arrangements
contained economic terms that were unfavorable to the Company, the new
management team renegotiated Ms. McAfee's employment arrangement and reached a
mutually agreeable termination of Dr. Korsower's employment arrangement.
The Company and Ms. McAfee agreed to shorten the term of her employment
agreement from five years to one year (subject to renewal each year) and to
reduce her base salary to less than 50% of its previous level. Simultaneously
therewith, the Company issued 55,298 shares of Common Stock to Ms. McAfee
pursuant to a restricted shares agreement, all of which will vest on June 30,
1996. Ms. McAfee also received a stock option, which has been exercised, for
3,029 shares of Common Stock and the Company made a loan to her in the amount of
$137,000 pursuant to a promissory note (the "McAfee Note") that is secured by a
pledge of 55,298 shares of the Common Stock of the Company owned by Ms. McAfee.
The McAfee Note bears interest at 6% per annum and is repayable on the earlier
of November 15, 1999 or the occurrence of certain events specified therein.
54
<PAGE>
On February 15, 1996 the Company and Dr. Korsower entered into a severance
agreement pursuant to which the parties agreed upon a mutual release. Dr.
Korsower agreed to certain noncompetition, nonsolicitation and confidentiality
covenants and the Company agreed to the issuance of certain stock options, the
payment over three fiscal quarters of severance totaling $72,604 and the
issuance of the Korsower Note. The Korsower Note bears interest at 8.5% per
annum and matures by its terms on the closing of this offering. The Company
intends to pay the outstanding principal amount and accrued interest of the
Korsower Note with the net proceeds of this offering. See "Use of Proceeds."
Simultaneously with the hiring of Dr. Adkins to lead the Company's
management team, Dr. Mintz reduced his role solely to that of non-executive
Chairman and, effective as of December 31, 1995, the Company and Dr. Mintz
entered into a severance agreement (the "Mintz Severance Agreement"). Pursuant
to the Mintz Severance Agreement: (i) the Company agreed to allow Dr. Mintz to
reduce the amount of the letter of credit he posted with the Company in
connection with the 1995 Transaction by $430,898 in lieu of payment of any
severance or other monies to him, including with respect to any indebtedness for
personal funds previously deposited with the Company; (ii) Dr. Mintz agreed to
certain noncompetition, nonsolicitation and confidentiality obligations; and
(iii) the parties agreed to a mutual release. Simultaneously with the Mintz
Severance Agreement, the Company entered into a Settlement Agreement with Dr.
Michael P. Grossman, a former business partner of Dr. Mintz, pursuant to which
the Company paid Dr. Grossman, a former shareholder of a predecessor of the
Company, $100,000 as part of the settlement of a lawsuit between Dr. Grossman
and Dr. Mintz. The Company was not a party to such suit and received a release
of any potential claims Dr. Grossman may have had against the Company.
The employment of Cheryl Lippert, who served as Chief Financial Officer from
May 1995 to January 1996, was terminated effective January 11, 1996. The Company
and Ms. Lippert entered into a settlement agreement and general release pursuant
to which Ms. Lippert (i) received cash payments totaling $95,500 and (ii) agreed
to release the Company from any and all claims related to her employment with
the Company and her termination therefrom.
SENIOR NOTES
On March 6, 1996, the Company issued the Senior Notes to CCP and Whitney.
The Company used the proceeds of the Senior Notes issued to CCP and Whitney on
March 6, 1996 to fund a substantial amount of the deposit to a client in
connection with the renegotiation of a CDIP contract. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Clients; Capitation Contracts and Provider Contracts; RMP Contracts."
The Senior Notes bear interest at a rate of 14% per annum until September 6,
1996, after which time the rate increases to 16% per annum. The Company has paid
quarterly interest of $56,000 on the Senior Notes since March 31, 1996. The
Company intends to use a portion of the net proceeds of this offering to pay the
outstanding principal amount of and accrued interest on the Senior Notes, as
well as an additional $1 million representing certain deferred fees to the
Private Equity Investors incurred in connection with the issuance of the Senior
Notes. See "Use of Proceeds."
SHAREHOLDERS' AGREEMENT
In connection with the Recapitalization, the Company entered into a
shareholders' agreement with the Private Equity Investors, the Redeemed Holders
and certain others governing the relationships among such shareholders (as
amended, the "Shareholders' Agreement"), which agreement will be terminated upon
the consummation of this offering. The Shareholders' Agreement provides for
restrictions on transfers of shares, rights of first refusal, tag-along
registration rights and election of directors. The members of the Board were
elected pursuant to the terms of the Shareholders' Agreement, which requires all
the parties to vote their shares in favor of a Board consisting of one member
designated by Whitney, two members designated by Whitney Equity Fund, three
members designated by CCP, two members designated by certain management
shareholders of the Company and three members designated by the vote of a
majority of the other members of the Board.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect the prevailing market price from time to time.
Since only a limited number of shares will be available for sale shortly after
this offering because of certain contractual and legal restrictions on resale
(as described below), sales of substantial amounts of Common Stock in the public
market after the restrictions lapse could adversely affect the prevailing market
price.
Upon completion of this offering, 6,762,147 shares of Common Stock will be
outstanding. Of these shares, the 2,500,000 shares of Common Stock sold in this
offering will be freely tradeable by persons other than "affiliates" of the
Company, without restriction under the Securities Act and the remaining
4,262,147 shares of Common Stock outstanding will be "restricted" securities
within the meaning of Rule 144 under the Securities Act and may not be sold in
the absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption contained in Rule 144. As
defined in Rule 144, an "affiliate" of an issuer is a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, such issuer.
Upon completion of this offering, the holders of shares of Common
Stock, or their transferees, will be entitled to certain registration rights for
such shares under the Securities Act. See "Description of Capital Stock --
Registration Rights." Registration of such shares under the Securities Act would
result in such shares (except for shares purchased by affiliates) being
available for sale immediately upon the effectiveness of such registration.
All directors, executive officers and existing shareholders of the Company,
holding in the aggregate all of the shares of Common Stock outstanding prior to
this offering, have agreed with the Underwriters not to sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated. However, Morgan Stanley & Co. Incorporated may in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to such agreements. See "Underwriters." The number of shares
of Common Stock available for sale in the public market is further limited by
restrictions under the Securities Act. Separately, Dr. Mintz and Messrs. Adams
and Rubinstein have agreed that for a period of two years following the
consummation of this offering, except upon exercise of certain registration
rights (see "Description of Capital Stock--Registration Rights"), they will not
effect any public sale or distribution of Common Stock without the prior written
consent of Whitney and CCP.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least two years, including
persons who may be deemed "affiliates" of the Company, would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of one percent of the number of shares of Common Stock then outstanding
or the average weekly trading volume of the Common Stock as reported through
Nasdaq National Market during the four calendar weeks preceding the filing of a
Form 144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. In addition, a
person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned for at least
three years the restricted shares proposed to be sold, would be entitled to sell
such shares under Rule 144(k) without regard to the volume limitation, manner of
sale provisions, public information requirements or notice requirements. The
Commission has proposed to amend the holding periods of Rule 144 by reducing the
two year period referred to above to one year and the three year period referred
to above to two years. The proposed amendments have not yet been adopted.
Subject to certain limitations on the aggregate offering price of a
transaction and certain other conditions, Rule 701 permits resales of shares
issued prior to the date the issuer becomes subject to the
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reporting requirements of the Exchange Act pursuant to certain compensatory
benefit plans and contracts commencing 90 days after the issuer becomes subject
to the reporting requirements of the Exchange Act, in reliance upon Rule 144 but
without compliance with certain restrictions, including the holding period
requirements, contained in Rule 144. In addition, the Commission has indicated
that Rule 701 will apply to typical stock options granted by an issuer before it
becomes subject to the reporting requirements of the Exchange Act, along with
the shares acquired upon exercise of such options (including exercises after the
date of this Prospectus). Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this Prospectus, may be sold by
persons other than affiliates pursuant to the manner of sale provisions of Rule
144 and by affiliates without compliance with the two-year minimum holding
period requirements under Rule 144.
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DESCRIPTION OF CAPITAL STOCK
The Company has amended and restated the Articles of Incorporation (the
"Articles") and Bylaws of the Company (the "Bylaws") to take effect upon the
effective date of the Registration Statement.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Prior to the consummation of this offering, the Company's capital stock
consisted of one series of preferred stock (1,354,004 Series A Preferred Stock,
all of which were issued and outstanding) and two classes of common stock
(27,158,071 shares of Common Stock, of which [ ] shares were issued and
outstanding and 458,480 shares of Class B Stock, all of which shares were issued
and outstanding). Immediately prior to the consummation of this offering, all of
the issued and outstanding shares of Series A Preferred Stock and Class B Stock
will be converted into shares of Common Stock and the Company will effectuate a
5.361849 for one reverse stock split. As a result of the foregoing, immediately
prior to the consummation of this offering and after such conversion and reverse
stock split, all shares of Series A Preferred Stock and Class B Stock shall be
cancelled, retired and eliminated from the Company's authorized shares of Series
A Preferred Stock and Class B Stock.
Upon the consummation of this offering, the authorized capital stock of the
Company will consist of [ ] shares of Common Stock, of which 6,762,147 will
be issued and outstanding, and [ ] shares of preferred stock, no par value
("Preferred Stock"), none which will be issued. The description of the capital
stock below is qualified in its entirety by reference to the Articles and
Bylaws, which are filed as exhibits to the Registration Statement and
incorporated by reference herein.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share of Common
Stock held of record by such holder on all matters on which shareholders
generally are entitled to vote under Illinois law. Voting rights are not
cumulative, so that the holders of a majority of the voting power of the Company
would elect all the directors standing for election at any annual or special
meeting of the shareholders, and the holders of the remaining shares may not be
able to elect any director.
The holders of the Common Stock are entitled to receive ratably dividends
only when and if declared by the Board out of funds legally available for
payment thereof. The ability of the Board to declare or pay dividends on Common
Stock or to cause the Company to repurchase shares of its capital stock may be
subject to restrictions or limitations contained in the provisions of any series
of Preferred Stock which may hereafter be issued by the Company.
Upon the liquidation, dissolution or winding up of the Company, or any
distribution of its assets, the holders of the Common Stock will be entitled to
receive ratably the assets of the Company available after the payment of all
debts and other liabilities and after the holders of any series of Preferred
Stock which may be issued have received the preferential amount fixed by the
Board for such shares.
The holders of Common Stock have no preemptive rights to purchase shares of
capital stock of the Company. Shares of Common Stock are not subject to any
redemption provisions and are not convertible into any other securities or
property. The rights, preferences and privileges of the holder of Common Stock
are subject to, and may be adversely affected by, the rights of the holders of
the shares of any series of Preferred Stock which the Company may designate and
issue in the future. All outstanding shares of Common Stock are fully-paid and
non-assessable and the shares of Common Stock offered will be fully-paid and
non-assessable when issued.
PREFERRED STOCK
Pursuant to the Articles, the Board, without further shareholder
authorization, is authorized to issue shares of Preferred Stock in one or more
series and to determine and fix the rights, preferences and privileges of each
series, including dividend rights and preferences over dividends on the Common
Stock
58
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and one or more series of the Preferred Stock, conversion rights, voting rights
(in addition to those provided by law), redemption rights and the terms of any
sinking fund therefor, and rights upon liquidation, dissolution or winding up,
including preferences over the Common Stock and one or more series of the
Preferred Stock. Although the Company has no plan to issue any shares of
Preferred Stock, the issuance of shares of Preferred Stock, or the issuance of
rights to purchase such shares, may have the effect of delaying, deferring or
preventing a change in control of the Company or an unsolicited acquisition
proposal.
DIRECTOR'S AND OFFICER'S LIABILITY
The Company has included in its Articles provisions to eliminate the
personal liability of its directors and officers for monetary damages resulting
from breaches of their fiduciary duty. This provision does not eliminate
liability for breaches of the duty of loyalty, acts or omissions not in good
faith or which involve gross negligence or willful misconduct. These provisions
will not limit the liability of the Company's directors under the Federal
securities laws. The Company believes that these provisions are necessary to
attract and retain qualified persons as directors and officers.
REGISTRATION RIGHTS
At the completion of this offering, certain persons and entities the
("Rightsholders") will be entitled to certain rights with respect to the
registration under the Securities Act of a total of approximately
shares of Common Stock (the "Registerable Shares") under the terms of a
registration rights agreement entered into in connection with the
Recapitalization (the "Registration Rights Agreement"). In general, the
Registration Rights Agreement provides that in the event the Company proposes to
register any of its securities under the Securities Act for its own account or
for the account of other shareholders at any time or times subject to certain
exceptions, the Rightsholders shall be entitled to include certain Registerable
Shares in such registration, subject to the right of the managing underwriter of
any such offering to exclude for marketing reasons certain of such Registerable
Shares from such registration. Certain Rightsholders have the additional right
under the Registration Rights Agreement to require the Company to prepare and
file from time to time up to four registration statements under the Securities
Act with respect to their Registerable Shares if Rightsholders holding at least
25% of the Registerable Shares so request, and the Company is required to use
its best efforts to effect such registration, subject to certain conditions and
limitations. The Company is generally required to bear the expenses of all such
registrations. All the Registerable Shares are subject to the contractual
restrictions with respect to the sale or disposition of shares of Common Stock.
See "Shares Eligible for Future Sale."
ILLINOIS TAKEOVER STATUTE
Upon the consummation of this offering, the Company will become subject to
Section 7.85 of the IBCA and, at such times as a certain amount of shares are
held by or a certain number of shareholders are Illinois residents, Section
11.75 of the IBCA. These statutes place restrictions on business combinations
between certain Illinois corporations and Interested Shareholders as defined in
the respective sections.
Section 7.85 of the IBCA requires, in addition to any other requirements
imposed by law or a corporation's Articles of Incorporation, that a business
combination (as defined in the statute) involving a corporation and an
Interested Shareholder be approved by: (i) the affirmative vote of the holders
of at least 80% of the combined voting power of the voting shares (as defined in
the statute), voting together as a single class (but with the votes per share
specified in the corporation's Articles of Incorporation) and (ii) the
affirmative vote of a majority of the combined voting power of the then
outstanding voting shares held by disinterested shareholders voting together as
a single class. These voting requirements will not apply if the business
combination is approved by 66 2/3% of the disinterested directors, the price
paid to the shareholders of the corporation in such business combination is,
generally, the higher of fair market value (as defined in the statute) or the
price per share paid by the interested shareholder in
59
<PAGE>
acquiring its shares, and certain other conditions are met relating to the form
of consideration paid, the absence of dividend defaults, the absence of special
benefits to the interested shareholder and the provision of information to
shareholders. Section 7.85 of the IBCA defines an Interested Shareholder as a
person who (i) beneficially owns, directly or indirectly, 10% or more of the
combined voting power of the outstanding voting shares of a corporation or (ii)
is an affiliate or associate (as those terms are defined in Rule 12b-2 of the
Exchange Act) of the corporation and was the beneficial owner, directly or
indirectly, of 10% or more of the combined voting power of the then outstanding
voting shares at any time in the previous two years.
Section 11.75 of the IBCA prohibits a business combination (as defined in
the statute) involving a corporation and an Interested Shareholder for three
years after such shareholder becomes an Interested Shareholder unless: (i) prior
to such date, the Board of Directors approved the transaction that resulted in
the shareholder becoming an Interested Shareholder, (ii) upon completion of the
transaction that resulted in the shareholder becoming an Interested Shareholder,
the Interested Shareholder owned at least 85% of the voting shares outstanding
at the time such transaction commenced (excluding shares owned by directors who
are also officers and shares reserved under employee stock plans), or (iii) on
or after such date, the business combination is approved by the Board of
Directors and authorized at a meeting of the shareholders by 66 2/3% of the
outstanding voting shares not owned by the Interested Shareholder. For purposes
of Section 11.75 of the IBCA, an Interested Shareholder is a person who (i) owns
15% or more of the outstanding voting shares of a corporation or (ii) is an
affiliate or associate (as defined in the statute) of the corporation and was
the owner of 15% or more of the then outstanding voting shares at any time in
the previous three years.
Section 8.85 of the IBCA permits directors and officers to consider the
interests of certain constituencies other than the shareholders when exercising
their duties, including in the consideration of actions which could result in a
change of control of the Company.
60
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below have severally
agreed to purchase, and the Company has agreed to sell to them, severally, the
respective number of shares of Common Stock set forth opposite their names
below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...............................
Smith Barney Inc................................................
Volpe, Welty & Company..........................................
---------
Total...........................................................
---------
---------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all the shares of Common Stock offered hereby (other than the shares of
Common Stock covered by the over-allotment option described below) if any such
shares are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of $ a
share to other Underwriters or to certain other dealers. After the initial
offering of the shares of Common Stock, the offering price and other selling
terms may from time to time be varied by the Underwriters.
The Company and the Underwriters have agreed in the Underwriting Agreement
to indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 375,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The Underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the shares of Common Stock offered
hereby. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of Common Stock as the number set forth
next to such Underwriter's name in the preceding table bears to the total number
of shares of Common Stock offered by the Underwriters hereby.
The Company and its executive officers and directors, and certain
shareholders of the Company have agreed that they will not (a) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or (b) enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (a) or (b) above is to
be settled by delivery of Common Stock or other securities, in cash or otherwise
for a 180-day period after the date of this Prospectus, without the prior
written consent of Morgan Stanley & Co. Incorporated, except that the Company
may, without such consent, grant options or issue stock upon the exercise of
outstanding stock options, pursuant to the Company's stock option plans.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price was determined through negotiations
among the Company and the Underwriters. Among the factors considered in such
negotiations, in addition to prevailing market conditions, were price-earnings
ratios of publicly traded companies that the Company and the Underwriters
believe to be
61
<PAGE>
comparable to the Company, the Company's results of operations in recent
periods, estimates of the business potential and earnings prospects of the
Company, the present state of the Company's development and the current state of
the Company's industry and the economy as a whole. The initial public offering
price set forth on the cover page of the Prospectus should not, however, be
considered an indication of the actual value of the Common Stock. Such price is
subject to change as a result of market conditions and other factors.
The Company will apply for listing of the Common Stock on the Nasdaq
National Market, under the symbol "ULMD," subject to official notice of
issuance. In connection with the listing, the Underwriters have undertaken that
sales of Common Stock will meet the Nasdaq National Market's minimum
distribution standards.
ADDITIONAL INFORMATION
The Company has filed with the Commission, a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is
hereby made to such Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents of any
contract or other documents are not necessarily complete and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. The Registration Statement, including exhibits
thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549 and at the Commission's Regional Offices located at
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such materials may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
During December 1995, the Board decided to retain Ernst & Young LLP as its
independent public accountants and dismissed the Company's former auditors. The
former auditors' report on the Company's financial statement for the two years
ended December 31, 1994 does not cover the consolidated financial statements of
the Company included in this Prospectus. Such report did not contain an adverse
opinion or disclaimer of opinion and was not modified as to uncertainty, audit
scope or accounting principles. There were no disagreements with the former
auditors on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure at the time of the change or
with respect to the Company's financial statements for fiscal years 1993 and
1994, which, if not resolved to the former auditors' satisfaction, would have
caused them to make reference to the subject matter of the disagreement in
connection with their report. Prior to retaining Ernst & Young LLP, the Company
had not consulted with Ernst & Young LLP regarding accounting principles.
LEGAL MATTERS
The validity of the Common Stock and certain other legal matters in
connection with this offering will be passed upon for the Company by Paul,
Weiss, Rifkind, Wharton & Garrison, New York, New York. Certain legal matters in
connection with the Common Stock offered hereby will be passed upon for the
Underwriters by Latham & Watkins, Washington, D.C..
EXPERTS
The consolidated financial statements of UtiliMed, Inc. at December 31, 1995
and 1994 and for each of the three years in the period ended December 31, 1995,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
62
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UTILIMED, INC.
Report of Ernst & Young LLP, Independent Auditors.................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995......................... F-3
Consolidated Statements of Changes in Shareholders' Equity (Deficit)................. F-4
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995................................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995................................................................................. F-6
Notes to Consolidated Financial Statements........................................... F-7
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
UtiliMed, Inc.
We have audited the accompanying consolidated balance sheets of UtiliMed,
Inc. (the Company) as of December 31, 1994 and 1995, and the related
consolidated statements of operations, changes in shareholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1995. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 1994 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
May 10, 1996
F-2
<PAGE>
UTILIMED, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------------- -----------
1994 1995 1996
------- -------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $19,218 $ 4,696 $ 5,145
Accounts receivable..................................................... 485 146 271
Employee notes, less allowance for doubtful amounts of $287,000-1995
and 1996.............................................................. 905 1,895 1,094
Deposit with managed care organization.................................. -- -- 6,200
Prepaid expenses........................................................ 31 81 81
------- -------- -----------
Total current assets............................................ 20,639 6,818 12,791
Equipment and leasehold improvements:
Office equipment and furniture.......................................... 1,459 1,922 1,848
Leasehold improvements.................................................. 392 469 469
Computer equipment and software......................................... 1,433 2,222 2,226
------- -------- -----------
3,284 4,613 4,543
Less accumulated depreciation and amortization.......................... (762) (1,461) (1,637)
------- -------- -----------
Total equipment and leasehold improvements...................... 2,522 3,152 2,906
Other assets:
Deferred debt issuance costs, net of accumulated amortization........... 740 -- 917
Other................................................................... 32 120 154
------- -------- -----------
Total other assets.............................................. 772 120 1,071
------- -------- -----------
$23,933 $ 10,090 $ 16,768
------- -------- -----------
------- -------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Payables to plans and providers......................................... $18,360 $ 20,552 $ 22,304
Current maturities of long-term debt.................................... 3,782 537 378
Due to shareholders..................................................... 160 84 7,046
Loss contract accruals.................................................. 3,191 755 605
Other payables and accrued expenses..................................... 1,226 3,534 2,224
------- -------- -----------
Total current liabilities....................................... 26,719 25,462 32,557
Long-term liabilities:
Long-term debt, net of current maturities............................... 311 99 528
Long-term debt, net of current maturities due to shareholders........... 20,574 9,863 9,869
Deferred rent........................................................... 227 178 172
------- -------- -----------
Total long-term liabilities..................................... 21,112 10,140 10,569
Redeemable, convertible Series A preferred stock (1,262,000,1,354,004
and 1,354,004 shares authorized, issued and outstanding in 1994, 1995
and 1996, respectively; no par value; $17.83 per share redemption
value plus accrued 13.39% cumulative dividends of $484,300, $3,568,000
and $4,319,500 in 1994, 1995 and 1996, respectively).................. 22,984 27,708 28,460
Redeemable, convertible Class B stock (427,328, 458,480 and 458,480
shares authorized, issued and outstanding in 1994, 1995 and 1996,
respectively; no par value; $17.55 per share redemption value)........ 7,500 8,047 8,047
Shareholders' equity (deficit):
Common stock (8,310,672, 27,158,071 and 27,158,071 shares authorized;
2,577,489, 5,295,654 and 5,526,140 shares issued and outstanding in
1994, 1995 and 1996, respectively; no par value; 2,337,100 and
2,516,343 shares restricted in 1995 and 1996)......................... 4,465 14,898 16,444
Unearned compensation................................................... -- -- (1,212)
Accumulated deficit..................................................... (58,847) (76,165) (78,097)
------- -------- -----------
Total shareholders' equity (deficit).................................... (54,382) (61,267) (62,865)
------- -------- -----------
$23,933 $ 10,090 $ 16,768
------- -------- -----------
------- -------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
UTILIMED, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
----------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Contract revenues:
Continuing contracts.............. $ 19,308 $ 50,882 $ 76,457 $ 18,130 $ 24,055
Terminated contracts.............. 7,079 15,697 19,960 8,626 --
--------- --------- --------- --------- ---------
Total contract revenues......... 26,387 66,579 96,417 26,756 24,055
Operating expenses:
Cost of services:
Continuing contracts.............. 16,916 49,792 72,365 17,859 20,628
Terminated contracts.............. 5,781 16,696 18,437 8,975 --
--------- --------- --------- --------- ---------
Total cost of services.......... 22,697 66,488 90,802 26,834 20,628
Selling, general and
administrative...................... 6,107 13,224 22,016 4,815 4,118
Depreciation and amortization....... 209 493 740 163 210
Provision for loss on employee
notes............................... -- -- 287 -- --
--------- --------- --------- --------- ---------
Total operating expenses........ 29,013 80,205 113,845 31,812 24,956
--------- --------- --------- --------- ---------
Loss from operations................ (2,626) (13,626) (17,428) (5,056) (901)
Other income (expense):
Interest expense.................. (41) (572) (2,053) (592) (419)
Interest income................... 58 311 700 258 144
Other income (expense)............ 1 8 7 -- (4)
--------- --------- --------- --------- ---------
Total other income (expense),
net................................. 18 (253) (1,346) (334) (279)
--------- --------- --------- --------- ---------
Net loss............................ $ (2,608) $ (13,879) $ (18,774) $ (5,390) $ (1,180)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net loss per share:
Primary........................... $ (0.57) $ (3.05) $ (4.37) $ (1.25) $ (0.27)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Fully diluted..................... $ (0.50) $ (2.68) $ (3.63) $ (1.02) $ (0.24)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Number of shares used in pro forma
net loss per share:
Primary........................... 4,568,824 4,547,914 4,296,439 4,303,522 4,375,823
Fully diluted..................... 5,208,679 5,187,769 5,030,074 5,037,415 5,015,677
</TABLE>
See accompanying notes.
F-4
<PAGE>
UTILIMED, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------- UNEARNED ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT COMPENSATION DEFICIT DEFICIT
---------- ------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Balance at January 1, 1993............... 4,000,000 $ 1 $ -- $ (627) $ (626)
Net loss................................. -- -- -- (2,608) (2,608)
---------- ------- ------------ ----------- -------------
Balance at December 31, 1993............. 4,000,000 1 -- (3,235) (3,234)
Net loss................................. -- -- -- (13,879) (13,879)
Stock issuance costs..................... -- -- -- (1,375) (1,375)
Redemption of Common stock by Company.... (2,241,375) -- -- (39,874) (39,874)
Accrual of dividends on Series A
preferred shares....................... -- -- -- (484) (484)
Common stock issuance.................... 695,708 4,300 -- -- 4,300
Common stock issued as attached to senior
subordinated notes....................... 123,156 164 -- -- 164
---------- ------- ------------ ----------- -------------
Balance at December 31, 1994............. 2,577,489 4,465 -- (58,847) (54,382)
Net loss................................. -- -- -- (18,774) (18,774)
Stock issuance costs..................... -- -- -- (187) (187)
Capital contributions.................... -- -- -- 7,500 7,500
Note receivable from shareholder......... -- -- -- (375) (375)
Accrual of dividends on Series A
preferred shares....................... -- -- -- (3,083) (3,083)
Conversion of junior subordinated debt... 504,221 10,574 -- (376) 10,198
Conversion of common stock to Series A
preferred and Class B shares............. (123,156) (164) -- (2,023) (2,187)
Common stock issuance--restricted........ 2,337,100 23 -- -- 23
---------- ------- ------------ ----------- -------------
Balance at December 31, 1995............. 5,295,654 14,898 -- (76,165) (61,267)
(Unaudited):
Net loss................................. -- -- -- (1,180) (1,180)
Accrual of dividends on Series A
preferred shares....................... -- -- -- (752) (752)
Common stock issuance--restricted........ 179,243 1,220 (1,218) -- 2
Common stock issuance--options
exercised................................ 51,243 59 -- -- 59
Common stock issuance--TARSOP options.... -- 267 (267) -- --
Amortization of unearned compensation.... -- -- 273 -- 273
---------- ------- ------------ ----------- -------------
Balance at March 31, 1996................ 5,526,140 $16,444 $ (1,212) $ (78,097) $ (62,865)
---------- ------- ------------ ----------- -------------
---------- ------- ------------ ----------- -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
UTILIMED, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------- ------------------
1993 1994 1995 1995 1996
------- -------- -------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................... $(2,608) $(13,879) $(18,774) $(5,390) $(1,180)
Adjustments to reconcile net loss to net
cash and cash equivalents provided by
(used in) operating activities:
Depreciation and amortization............ 209 515 1,504 190 634
Valuation allowance on employee notes.... -- -- 287 -- --
Changes in assets and liabilities:
Decrease (increase) in receivables
and other assets................... (128) (1,071) 1,106 463 642
Deposit with managed care
organization............................... -- -- -- -- (6,200)
Increase in payables to providers.... 4,391 16,728 2,192 2,597 1,602
Increase (decrease) in other payables
and accrued expenses....................... 180 580 (253) 307 (916)
------- -------- -------- ------- -------
Net cash and cash equivalents provided by
(used in) operating activities............. 2,044 2,873 (13,938) (2,447) (5,418)
INVESTING ACTIVITIES
Issuance of shareholder notes.............. -- -- (287) -- --
Purchases of property and equipment........ (1,319) (1,313) (1,418) (396) (8)
Proceeds on sale of property............... -- -- 47 -- 41
------- -------- -------- ------- -------
Net cash and cash equivalents provided by
(used in) investing activities............. (1,319) (1,313) (1,658) (396) 33
FINANCING ACTIVITIES
Capital contributions...................... -- -- 5,231 -- --
Increase in capital leases................. -- -- 325 35 --
Decrease (increase) in shareholder notes
and advances............................. (1,176) 1,257 -- (154) (38)
Payments on note payable to bank........... (40) (75) (135) -- --
Proceeds from long-term debt............... 582 10,660 -- -- 6,000
Deferred debt issuance costs............... -- (758) -- -- --
Payments on long-term debt and capital
leases..................................... (104) (415) (3,807) (3,268) (130)
Issuance of common stock................... -- 4,300 23 -- 2
Issuance of Series A preferred stock....... -- 22,500 -- -- --
Issuance of Class B stock.................. -- 7,500 -- -- --
Stock issuance costs....................... -- (1,375) (563) -- --
Redemption of common shares................ -- (26,000) -- -- --
------- -------- -------- ------- -------
Net cash and cash equivalents provided by
(used in) financing activities............. (738) 17,594 1,074 (3,387) 5,834
------- -------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................ (13) 19,154 (14,522) (6,230) 449
Cash and cash equivalents at beginning of
period..................................... 77 64 19,218 19,218 4,696
------- -------- -------- ------- -------
Cash and cash equivalents at end of
period..................................... $ 64 $ 19,218 $ 4,696 $12,988 $ 5,145
------- -------- -------- ------- -------
------- -------- -------- ------- -------
</TABLE>
See accompanying notes.
F-6
<PAGE>
UTILIMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(MARCH 31, 1996 AMOUNTS ARE UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
UtiliMed, Inc. (formerly Medicon, Inc.) and subsidiaries (the Company)
contracts with managed care organizations and diagnostic imaging providers
throughout the United States to manage the utilization and quality of diagnostic
imaging services. Customers of the Company representing more than ten percent of
total contract revenues are as follows: 1993--32%, 23% and 22%; 1994--22%, 16%,
11% and 10%; 1995--20%, 14% and 14%; and 1996--20%, 15% and 16%.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP). The preparation
of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates. The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, UtiliMed C I, Inc.
(formerly Medicon C I, Inc.) and UtiliMed P II, Inc. (formerly Medicon P II,
Inc.) All significant intercompany accounts and transactions have been
eliminated.
CONTRACT REVENUES AND COST OF SERVICES
The Company's contract revenues are derived primarily from services rendered
under contracts with managed care organizations which pay a fixed monthly
capitated charge for each covered member. Cost of services represents payments
to providers for covered diagnostic imaging services. Certain full-service
network providers of diagnostic imaging services receive a contracted, fixed
monthly amount per covered managed care member, subject to various utilization
adjustments. The Company also pays other network providers of specialty
diagnostic imaging services a contracted fee per incident of care rendered.
Under certain managed care contracts, the Company is also obligated to pay
noncontracted providers of covered diagnostic imaging services on a
fee-for-service basis. Accordingly, the Company's revenues are primarily fixed
while the cost of services will vary based upon the services rendered and the
contractual relationship with the providers.
During 1995, the Company began providing resource management services. Under
these agreements, the Company receives an administrative fee per covered managed
care member to provide various managed care services including credentialing,
pre-certification and utilization review. Under certain of these contracts, the
administrative fee received may be increased or decreased based upon the
achievement of various performance criteria. Included in 1995 and 1996 contract
revenues is $1,763,000 and $2,121,000, respectively, of administrative fee
revenue related to resource management services.
Revenues and cost of services are recognized for financial reporting
purposes in the period in which the services are provided.
"Contract revenues--terminated contracts" and "Costs of services--terminated
contracts" represent amounts related to certain unprofitable contracts
terminated during 1995.
LOSS CONTRACTS
Based upon analysis of individual contracts, management establishes a loss
contract accrual for the excess of estimated future cost of services over
estimated future contract revenue for the remaining
F-7
<PAGE>
UTILIMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
contract period. Loss contract accruals are charged to earnings when known and
amortized over the remaining term of the specific contracts.
CONTRACT DEVELOPMENT COSTS
All costs incurred related to obtaining and implementing client contracts
are expensed as incurred. These costs include marketing and business development
activities conducted before the client contract is probable, as well as direct
contract costs and indirect overhead costs associated with the implementation of
new client accounts.
During 1992 and 1993, the Company capitalized contract development costs.
During 1994, in conjunction with the decision to seek equity financing, the
Company changed its method of accounting to expense contract development costs
as incurred. The consolidated financial statements for 1993 were restated to
give effect to this change.
STOCK-BASED COMPENSATION
The Company measures the compensation cost of all stock-based employee
compensation using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," which is effective for fiscal years beginning after
December 15, 1995, encourages, but does not require, all entities to adopt the
fair value based method of accounting for stock-based employee compensation.
While management continues to evaluate this new pronouncement, management
anticipates electing the option of continuing to use APB 25 in the preparation
of consolidated financial statements.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid short-term investments with a
maturity at date of acquisition of three months or less.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Depreciation and
amortization are computed using straight-line methods for financial reporting
purposes and accelerated methods for tax purposes over the estimated useful
lives of the respective assets (3 -- 7 years) or, for capital leases, the terms
of the related leases.
DEPOSIT WITH MANAGED CARE ORGANIZATION
Deposit with managed care organization represents interest bearing funds
deposited under the terms of one of the Company's contracts.
INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
income taxes reflect the tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial statement purposes and
amounts used for income tax purposes.
F-8
<PAGE>
UTILIMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
PAYABLES TO PLANS AND PROVIDERS
Payables to plans and providers include estimates of reported and unreported
services provided and accrued capitation fees and adjustments, which are unpaid
as of the balance sheet date. These payables estimates are based on statistical
information and revised as additional information becomes available. Any
adjustments resulting from these revisions are reflected in earnings currently.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that it is not practicable to estimate the fair value
of redeemable, convertible Series A preferred stock, redeemable, convertible
Class B stock or long-term debt obligations due to the significant restrictions
imposed on these instruments and the absence of a market for these instruments.
DEFERRED DEBT ISSUANCE COSTS
During 1994, the Company deferred approximately $758,000 of expenses
directly related to certain financing transactions completed during the year.
The junior subordinated notes payable were converted to equity effective as of
December 31, 1995, and the corresponding $376,000 of unamortized deferred debt
issuance costs were transferred to shareholders' deficit.
NET LOSS PER SHARE
Net loss per share is computed by dividing net loss by the number of common
and common equivalent shares outstanding during the periods in accordance with
the applicable rules of the Securities and Exchange Commission. All stock
options and restricted common stock issued have been considered as outstanding
common stock equivalents for all periods presented, even if anti-dilutive, under
the treasury stock method (based on initial public offering price). Shares of
common stock issuable upon conversion of the Series A preferred stock and Class
B stock are assumed to be common share equivalents for all periods presented.
Additionally, the number of shares used to compute the fully diluted net
loss per share includes shares issuable upon conversion of the junior
subordinated notes which have been treated as converted into common shares as if
such shares had been outstanding since January 1, 1995. All contingent warrants
for the purchase of shares of common stock have been considered as outstanding
common stock equivalents for all periods presented, even if anti-dilutive, under
the treasury stock method (based upon the contingent price specified in the
warrants). The net loss used to compute the fully diluted net loss per share has
been reduced by interest of $529,000 expensed in 1995 related to the junior
subordinated notes.
2. OPERATIONAL MATTERS
The Company has experienced significant growth in new managed care contracts
and the number of covered lives. Revenues increased 45% from $66,579,000 in 1994
to $96,417,000 in 1995. The costs of negotiating new managed care contracts,
establishing provider networks to service the contracts, and implementing new
contracts are charged to operations as such costs are incurred. In addition,
certain contracts were not favorable to the Company. The Company experienced net
losses of $13,879,000 and $18,774,000 for the years 1994 and 1995, respectively,
and negative cash flows of $14,522,000 for the year ended December 31, 1995. At
December 31, 1995, the Company has an accumulated deficit of $76,165,000 and
current liabilities exceeded current assets by $18,644,000.
F-9
<PAGE>
UTILIMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
2. OPERATIONAL MATTERS-- (CONTINUED)
Beginning in mid-1995, the Company implemented a number of operational
initiatives to improve profitability, including the engagement of a new
executive management team with more experienced professionals in finance,
operations, claims management and professional relations; the termination of
certain unprofitable contracts and the amendment of other contracts to improve
profitability; and the reduction of costs through a specific program.
In addition, certain shareholders provided financial support to the Company
in exchange for $6 million of senior promissory notes in March 1996 (see Note
4), and such shareholders have committed to provide additional financial support
of up to $3 million should such financial support be necessary in 1996. The
Company is in discussions with investment bankers and intends to raise
additional equity capital in 1996 to provide for its expansion and working
capital needs beyond 1996.
Assurances cannot be given that the Company will be successful in raising
additional capital through an initial public offering or in achieving profitable
operations and generating positive cash flow.
3. RISKS AND UNCERTAINTIES
PAYABLES TO PLANS AND PROVIDERS
While management has recorded their best estimate of payables to plans and
providers, considerable variability is inherent in this estimate given the
limited historical data available to project the liability. Actual results
inevitably will differ from these estimates, and such differences may adversely
affect the financial statements.
CONTRACT TERMINATIONS
Certain of the Company's contracts with managed care organizations and
diagnostic imaging providers include termination provisions which provide for
unilateral contract termination prior to expiration of the contract term. Early
termination of contracts with managed care organizations or diagnostic imaging
providers could adversely affect the Company's operations and cash flows.
RESOURCE MANAGEMENT SERVICES PROGRAM
Under the Company's Resource Management Program contracts, a portion or all
of the Company's administrative fee revenues may have to be refunded if the
contract does not result in specified cost savings. In the opinion of
management, the performance criteria will be met and, accordingly, a provision
for possible refund of administrative fees has not been made. Failure to achieve
the contractual performance criteria could adversely affect the Company's
operations and cash flows.
F-10
<PAGE>
UTILIMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
4. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Senior term note payable to bank, in monthly installments of $11,250
through February 1997, plus interest at prime (8.5% at December 31,
1995) plus 2%, secured by certain equipment............................ $ 268 $ 133
Senior subordinated notes payable to certain Series A preferred and Class
B common shareholders, due November 2001, interest at 10.101%,
guaranteed by the Company's subsidiary (see below)..................... 10,000 10,000
Junior subordinated notes payable to certain shareholders, converted into
common stock, interest payable quarterly at 10% (see below).............. 10,574 --
Junior subordinated notes payable to certain shareholders, paid January
1995, interest at 10%.................................................. 3,300 --
Capitalized lease obligations, payable in various monthly installments
through December 1996, plus interest at 5% to 17%, secured by certain
equipment, guaranteed in part by a shareholder......................... 685 503
------- -------
24,827 10,636
Less discount on senior subordinated notes............................... 160 137
------- -------
24,667 10,499
Less current maturities of long-term debt................................ 3,782 537
------- -------
Long-term debt........................................................... $20,885 $ 9,962
------- -------
------- -------
</TABLE>
On November 3, 1994, the Company completed a private debt and equity
placement resulting in a new debt structure. In connection with the placement,
certain Series A preferred and Class B shareholders loaned the Company
$10,000,000 under the terms of senior subordinated note agreements with a face
value of $10,000,000 and with 123,156 shares of common stock attached thereto.
The Company recorded a discount on the senior subordinated notes equal to the
estimated fair market value of the common shares which totaled approximately
$164,000.
Payment of the senior subordinated notes is mandatory when certain events
occur, including a change in control of the Company, as defined, or the
completion of an initial public offering of the Company's stock.
If the Company fails to achieve certain annual earnings before interest,
taxes, depreciation and amortization (EBITDA) and revenue targets, as defined,
the holders of the senior subordinated notes may request prepayment. Prepayments
are restricted to the amount by which the current assets of the Company
(excluding receivables and prepaid expenses) exceed 50% of the payables to
providers due within one month. During 1995, the Company did not achieve the
annual EBITDA and revenue targets, as defined. The holders of the notes have
waived their prepayment rights through December 31, 1996, except in the event of
an initial public offering. As a result, the senior subordinated notes have been
classified as a non-current liability.
During 1994, the Company also entered into junior subordinated note
agreements with certain common shareholders in consideration of the redemption
of certain common shares. These junior subordinated notes had a face value of
approximately $10,574,000 and were convertible into common shares at a
conversion rate of $20.971 per share. During 1995, the Company did not achieve
the annual EBITDA and revenue targets specified in the agreements; thus the
junior subordinated notes have been treated as converted into common shares as
of December 31, 1995.
F-11
<PAGE>
UTILIMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
4. DEBT-- (CONTINUED)
Aggregate maturities of long-term debt are as follows: 1996-$537,000 and
1997-$10,099,000.
The Company paid interest of $158,000 and $2,046,000 in 1995 and 1994,
respectively.
In March 1996, the Company issued $6,000,000 of senior promissory notes due
March 1997, held by certain shareholders. Costs of $1,000,000 were incurred and
capitalized but will not be paid until the debt is repaid in conjunction with
the issuance of these senior promissory notes.
5. INCOME TAXES
The Company files a consolidated federal income tax return that includes
both wholly owned subsidiaries.
In connection with certain debt and equity transactions on November 3, 1994,
the Company changed its tax status from that of an S Corporation to a C
Corporation. At the date that the Company became a C Corporation, net deferred
income tax assets, before valuation allowance, of approximately $3,605,000
existed relating to temporary differences.
At December 31, 1995, the Company has net operating loss carryforwards of
$13,700,000 available to offset future taxable income, of which $900,000 expires
in 2009, and $12,800,000 expires in 2010.
Full valuation allowances have been provided against net deferred income tax
assets at December 31, 1994 and 1995, respectively.
The income tax provisions for the years ended December 31, 1994 and 1995,
are as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal................................................. $ (138) $ --
State................................................... (18) --
Deferred:
Federal................................................. (584) (5,515)
State................................................... (75) (690)
Effect of change in corporate tax status................ (3,605) --
Recognition of valuation allowance on deferred tax
assets.................................................. $ 4,420 $ 6,205
------- -------
$ -- $ --
------- -------
------- -------
</TABLE>
The federal statutory tax rate is reconciled to the effective tax rate as
follows:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Federal statutory rate....................................... (34.0)% (34.0)%
State taxes, net of federal benefit.......................... (4.3) (4.3)
Effect of change in corporate tax status to record deferred
tax assets................................................. (26.0) --
S Corporation tax loss passed through to shareholders........ 32.3 --
Recognition of valuation allowance on deferred tax assets.... 31.8 37.8
Other........................................................ 0.2 0.5
----- -----
--% --%
----- -----
----- -----
</TABLE>
F-12
<PAGE>
UTILIMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
5. INCOME TAXES-- (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
1994 1995
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Payable to providers................................... $ 4,198 $ 4,837
Other.................................................. 193 717
Net operating loss carryforwards....................... 157 5,232
------- --------
Total deferred tax assets.............................. 4,548 10,786
Valuation allowance for deferred tax assets............ (4,420) (10,625)
------- --------
Net deferred tax assets................................ 128 161
Deferred tax liabilities
Depreciation........................................... 128 161
------- --------
Total deferred tax liabilities......................... 128 161
------- --------
Net deferred tax asset................................. $ -- $ --
------- --------
------- --------
</TABLE>
The Company paid no income taxes in 1993, 1994 or 1995.
6. CAPITAL STRUCTURE
On November 3, 1994, the Company completed a private debt and equity
placement. In connection with the placement, the Company authorized a new class
structure, including Series A preferred stock, Class B stock and common stock.
The Company then revised its capital structure by converting each share of
existing common stock to 5,000 shares of common stock. The shares authorized,
issued and outstanding have been restated to give retroactive effect to this
common stock conversion.
The placement also included the issuance of 1,262,000 shares of Series A
preferred stock for cash consideration of $22,500,000 and the issuance of
427,328 shares of Class B stock for cash consideration of $7,500,000.
In connection with the placement, certain Series A preferred and Class B
shareholders loaned the Company $10,000,000 under the terms of senior
subordinated notes with a face value of $10,000,000 and with 123,156 shares of
common stock attached thereto. The Company recorded a discount on the senior
subordinated notes equal to the estimated fair market value of the common shares
(see Note 4). Accordingly, the common shares were valued at approximately
$164,000.
On November 3, 1994, the Company redeemed 2,241,375 common shares for cash
consideration of $26,000,000 and junior subordinated notes totaling
approximately $13,874,000. The redemption of these shares increased the
Company's accumulated deficit by $39,874,000.
On September 6, 1995, the Company completed a capital transaction. In
connection with the restructuring, certain shareholders converted 123,156 shares
of common stock into 31,152 shares of Class B stock and 92,004 shares of Series
A preferred stock. The conversion of these shares reduced common stock by
$164,000 and increased the Company's accumulated deficit by $2,023,000. In
connection with the transaction, certain common shareholders were obligated to
make capital contributions aggregating $7,500,000. As of December 31, 1995,
capital contributions aggregating $5,230,000 had been received by the Company.
The remaining capital contributions of $1,895,000 are backed by irrevocable
letters of credit.
F-13
<PAGE>
UTILIMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
6. CAPITAL STRUCTURE-- (CONTINUED)
The Company incurred approximately $187,000 and $1,375,000 of costs in
connection with the restructuring and private equity placement transactions of
September 6, 1995 and November 3, 1994, respectively.
COMMON STOCK
Each share of common stock is entitled to one vote. Certain common stock
shares are restricted. The restricted shares vest over various periods of no
more than five years. Vesting may be accelerated upon the occurrence of certain
specified events such as the sale of the Company or a public offering of the
Company's common stock.
Warrants to purchase 3,438,212 shares of the Company's common stock at $.01
per share are outstanding at December 31, 1995. These warrants are contingent
upon the occurrence of certain events.
SERIES A PREFERRED STOCK
Each share of Series A preferred stock is entitled to one vote, earns
cumulative dividends at the rate of 13.39% per annum and has liquidation
preference over all other classes of stock.
The Series A preferred stock is redeemable at $17.83 per share plus accrued
13.39% cumulative dividends at the option of the shareholder, after all
principal and interest on the senior subordinated notes have been paid in full.
Each share of Series A preferred stock is convertible to 9.59757 shares of
common stock at any time at the option of the shareholder, or at the option of
the Company upon the occurrence of an initial offering of the Company's stock.
CLASS B STOCK
Each share of Class B stock is entitled to one vote and has liquidation
preference over common stock.
The Class B stock is redeemable at $17.55 per share at the option of the
shareholder after all principal and interest on the senior subordinated notes
have been paid in full.
Each share of Class B stock is convertible to 9.44796 shares of common stock
at any time at the option of the shareholder, or at the option of the Company
upon the occurrence of an initial public offering of the Company's stock.
7. LEASE COMMITMENTS
The Company leases certain office facilities and equipment under
noncancellable operating leases. Rental expense was approximately $351,000,
$685,000 and $714,000 for the years ended December 31, 1993, 1994 and 1995,
respectively. Future minimum rental payments required under operating leases as
of December 31, 1995, are as follows: 1996-$441,000; 1997-$139,000;
1998-$54,000; and 1999-$2,000.
The Company has a noncancellable office facilities operating lease which had
an initial rent-free period. Deferred rent provides for recognition of lease
expense ratably over the entire lease term.
F-14
<PAGE>
UTILIMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
8. EMPLOYEE BENEFIT PLANS
During 1994, the Company adopted a defined contribution profit-sharing plan
which includes provisions under Section 401(k) of the Internal Revenue Code.
Full-time employees are eligible to participate in the plan after completing six
months of continuous service, as defined. Plan participants may defer up to 15%
of their annual compensation. The Company matches 50% of each participant's
contributions up to a maximum of 6% of the participant's compensation. The
Company may also make discretionary contributions to the plan. The Company's
contribution to the plan was approximately $100,000 and $83,000 during the year
ended December 31, 1995 and 1994, respectively.
The Company has a Time Accelerated Restricted Stock Option Plan (TARSOP) for
certain key employees. All options outstanding under this plan were canceled in
February 1996 and new options for 269,618 shares of common stock with an
exercise price of $.01 per share were granted. The aggregate number of shares of
common stock available for grant under this plan is 269,618. The options granted
vest nine years from the grant date. Vesting may be accelerated if various
performance targets are achieved.
During 1995, the Company granted an employee an option to purchase 16,243
shares of common stock at an exercise price of $.01 per share. The option vested
immediately and expires on November 30, 2004. The option terminates if the
employee leaves the Company's employment.
During 1995, the Company issued 2,337,100 shares of restricted common stock
to employees for cash consideration of $8,000 and as compensation of $15,000.
During January 1996, the Company amended an agreement related to 1,051,561
shares of common stock. The amendment accelerated the vesting provisions of the
original agreement resulting in immediate vesting of 20% with the remainder
vesting over a four year period. Compensation expense is being recognized
related to the amended agreement.
During the first quarter of 1996, the Company granted two former employees
options to purchase 58,899 shares of common stock at an exercise price of $.01
per share. The Company recorded compensation expense for the TARSOP grants and
grants to former employees.
In April 1996, the Company amended the TARSOP increasing the aggregate
number of shares of common stock available for grant to 309,618 and granted
options for 40,000 shares of common stock with an exercise price of $.01. The
Company also granted an employee an option to purchase 271,581 shares of common
stock at an exercise price of $.01 per share. The option vests over five years.
The Company will record compensation expense related to these option grants.
F-15
<PAGE>
n86575gb.g01,4090,1440,H
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, in connection with the issuance and distribution of
the securities registered hereby other than underwriting discounts and
commissions. All the amounts shown are estimates, except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market listing fee. All of the following fees and expenses will be paid
by the Company.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee.............. $15,862
NASD filing fee.................................................. 5,100
Nasdaq National Market listing fee............................... 36,908
Printing and engraving expenses.................................. *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Blue Sky fees and expenses (including counsel fees and
expenses)........................................................ *
Transfer Agent and Registrar fees and expenses................... *
Miscellaneous.................................................... *
-------
Total........................................................ $
-------
-------
</TABLE>
- ------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Illinois law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to an action (other than an action by
or in the right of the corporation) by reason of his service as a director or
officer of the corporation, or his service, at the corporation's request, as a
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees) that are actually and reasonably
incurred by him ("Expenses"), and judgments, fines and amounts paid in
settlement that are actually and reasonably incurred by him, in connection with
the defense or settlement of such action, provided that he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Although Illinois law permits a corporation to indemnify any person referred to
above against Expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in, or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the adjudicating court (or
the court in which the action was brought) determines that, despite the
adjudication of liability, such person is entitled to indemnity for such
Expenses as the court deems proper. The determination as to whether a person
seeking indemnification has met the required standard of conduct is to be made
(1) by a majority vote of a quorum of disinterested members of the board, or (2)
by independent legal counsel in a written opinion, if such a quorum does not
exist or if the disinterested directors so direct, or (3) by the shareholders.
The Business Corporation Act of Illinois also provides for mandatory
indemnification of any director, officer, employee or agent against Expenses to
the extent such person has been successful in any proceeding covered by the
statute. In addition, the Business Corporation Act of Illinois provides the
general authorization of advancement of a director's or officer's litigation
expenses in lieu of requiring the authorization of such advancement by the board
in specific cases, and that indemnification and advancement of expenses provided
by the statute shall not be deemed exclusive of any other rights to
II-1
<PAGE>
which those seeking indemnification or advancement of expenses may be entitled
under any by-law, agreement, vote of shareholders or disinterested directors or
otherwise.
The Company's Articles of Incorporation provides that the Company shall
indemnify its directors and officers, and to the extent authorized by the Board,
employees and agents of the Company, to the full extent permitted by the law of
the State of Illinois. In addition, the Articles of Incorporation also permit
the Board to authorize the Company to purchase and maintain insurance against
any liability asserted against any director, officer, employee or agent of the
Company arising out of his or her capacity as such. The Company currently has in
place a standard director and officer liability insurance which, subject to
customary exclusions and specified limits, insures its directors and officers
against certain losses and expenses suffered or incurred by such persons as a
result of serving in such capacity. The Company believes that these provisions
and agreements are necessary to attract and retain talented and experienced
directors and officers.
The Company's Articles of Incorporation provides that the Company's
directors shall not be liable to the Company or its shareholders for monetary
damages for breach of fiduciary duty as a director, except to the extent that
exculpation from liabilities is not permitted under the Illinois Business
Corporation Act as in effect at the time such liability is determined.
The Underwriting Agreement provides for indemnification by the Underwriters
of the Company and its officers and directors for certain liabilities arising
under the Securities Act, or otherwise.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Company in which
indemnification is being sought nor is the Company aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years the Company has issued the following securities,
none of which have been registered under the Securities Act of 1933, as amended
(the "Act"):
On January 1, 1994, the Company issued 391.966 shares of common stock, no
par value (the "Original Voting Stock"), to Alan P. Mintz, M.D. in exchange for
services rendered.
On January 1, 1994, the Company issued 34 shares of Original Voting Stock to
Lawrence Rubinstein in exchange for services rendered.
On January 1, 1994, the Company issued 34 shares of Original Voting Stock to
John Adams in exchange for services rendered.
On January 1, 1994, the Company issued 1.8 shares of non-voting common
stock, no par value (the "Original Non-Voting Stock"), to Nancie Blatt in
exchange for services rendered.
On January 1, 1994, the Company issued 44.5 shares of Original Non-Voting
Stock to Alan H. Spiro, M.D. in exchange for services rendered.
On January 1, 1994, the Company issued 8.9 shares of Original Non-Voting
Stock to Sheldon Gulinson in exchange for services rendered.
On January 1, 1994, the Company issued 35.6 shares of Original Non-Voting
Stock to James E. Zechman for an aggregate consideration of $356.00.
On July 11, 1994, the Company issued 17.8 shares of Original Non-Voting
Stock to Nancie Blatt in exchange for services rendered.
On July 11, 1994, the Company issued 44.5 shares of Original Non-Voting
Stock to Alan H. Spiro, M.D. in exchange for services rendered.
II-2
<PAGE>
On July 11, 1994, the Company issued 8.9 shares of Original Non-Voting Stock
to Sheldon Gulinson in exchange for services rendered.
On July 11, 1994, the Company issued 35.6 shares of Original Non-Voting
Stock to James E. Zechman for an aggregate consideration of $356.00.
On October 27, 1994, the Company issued 387.512 shares of Original Voting
Stock to Alan P. Mintz, M.D. in exchange for services rendered.
On October 27, 1994, the Company issued 5.79 shares of Original Voting Stock
to Lawrence Rubinstein in exchange for services rendered.
On October 27, 1994, the Company issued 5.79 shares of Original Voting Stock
to John Adams in exchange for services rendered.
On October 27, 1994, the Company issued 8.908 shares of Original Non-Voting
Stock to Sheldon Gulinson in exchange for services rendered.
On November 3, 1994, the Company issued 11,484 shares of Common Stock to
Whitney Subordinated Debt Fund, L.P. ("Whitney Debt Fund") for an aggregate
consideration of $82,948.00.
On November 3, 1994, the Company issued 504,800 shares of Series A Preferred
Stock and 170,931 shares of Class B Stock to Whitney 1990 Equity Fund, L.P.
("Whitney Equity Fund") for an aggregate consideration of $9,000,000.00 and
$3,000,000.00, respectively.
On November 3, 1994, the Company issued 126,200 shares of Series A Preferred
Stock and 42,733 shares of Class B Stock to J.H. Whitney & Co. ("Whitney") for
an aggregate consideration of $2,250,000.00 and $750,000.00, respectively.
On November 3, 1994, the Company issued 631,000 shares of Series A Preferred
Stock, 213,664 shares of Class B Stock and 11,484 shares of Common Stock to
Chase Capital Partners ("CCP"), the successor entity to Chemical Venture
Partners, for an aggregate consideration of $11,250,000.00, $3,750,000.00 and
$82,948.00, respectively.
On November 3, 1994, the Company issued a 10.101% Senior Subordinated
Promissory Note in the original principal amount of $5,000,000.00 to Whitney
Debt Fund for an aggregate consideration of $4,917,052.00.
On November 3, 1994, the Company issued a 10.101% Senior Subordinated
Promissory Note in the original principal amount of $5,000,000.00 to CCP for an
aggregate consideration of $4,917,052.00.
On November 3, 1994, as part of a share redemption transaction the Company
issued 10.0% Junior Subordinated Promissory Notes to each of Alan P. Mintz,
M.D., John Adams, Alan H. Spiro, M.D. and Lawrence Rubinstein in the original
principal amounts of $5,000,000, $2,500,000, $574,059 and $2,500,000,
respectively. On May , 1996, such Junior Subordinated Promissory Notes were
converted into 94,039 shares of Common Stock in accordance with their terms.
On December 1, 1994, the Company issued options to purchase 3,029 shares of
Common Stock at an exercise price of $95.39 per share to Maria McAfee in
connection with her employment by the Company.
On March 29, 1995, the Company issued options to purchase an aggregate of
shares of Common Stock at an exercise price of $95.39 per share pursuant to
the Company's Time Accelerated Restricted Stock Option Plan for Certain
Employees ("TARSOP").
On May 1, 1995, the Company issued options to purchase 3,029 shares of
Common Stock at an exercise price of $95.39 per share to Jack M. Korsower,M.D.
in connection with his employment by the Company.
II-3
<PAGE>
On September 6, 1995, Whitney Debt Fund and CCP each exchanged 11,484 shares
of Common Stock for 46,002 shares of Series A Preferred Stock and 15,576 shares
of Class B Stock.
On September 6, 1995, the Company adjusted the conversion ratios applicable
to the conversion of the Series A Preferred Stock and Class B Stock into Common
Stock from $17.82884 and $17.55092, respectively, to $1.857641.
On September 6, 1995, the Company issued stock purchase warrants for the
purchase of an aggregate of 641,236 shares of Common Stock that become
exercisable at an exercise price of $.01 per share only upon certain the
satisfaction of certain conditions.
On September 6, 1995, the Company issued 109,434 shares of Common Stock to
James E. Zechman for an aggregate consideration of $5,867.71.
On September 6, 1995, the Company issued 25,995 shares of Common Stock to
Alan H. Spiro, M.D. for an aggregate consideration of $1,393.79.
On November 15, 1995, in connection with the restructuring of Nancie Blatt's
employment arrangement with the Company, the Company issued 55,298 shares of
Common Stock to Ms. Blatt for an aggregate consideration of $2,964.99. Also on
November 15, 1995, the Company canceled the options previously granted to Ms.
McAfee and granted her a new option to purchase 15,299 shares of Common Stock at
an exercise price of $.01 per share.
On November 17, 1995, the Company issued 245,149 shares of Common Stock to
Carl R. Adkins, M.D. for an aggregate consideration of $13,144.51 in connection
with his employment by the Company.
On January 15, 1996, the Company issued 33,429 shares of Common Stock to
Bradford W. Keller for an aggregate consideration of $1,792.43 in connection
with his employment by the Company.
On February 6, 1996, all of the options issued by the Company pursuant to
the TARSOP on March 29, 1995 were canceled and the Company issued options to
purchase an aggregate of 100,935 shares of Common Stock at an exercise price of
$.05 per share pursuant to the TARSOP.
On February 15, 1996, the Company canceled the options previously granted to
Jack M. Koroswer, M.D. and, in connection with the termination of his
employment, granted to Dr. Korsower a new option to purchase 6,528 shares of
Common Stock at an exercise price of $.05 per share. Also in connection with the
termination of Dr. Korsower's employment, the Company issued to him a 8.5%
Junior Subordinated Promissory Note in the original principal amount of
$400,000.00.
On February 15, 1996, the Company granted to Alan P.Mintz, M.D. an option to
purchase 4,457 shares of Common Stock at an exercise price of $.01 per share.
On March 6, 1996, the Company issued Senior Promissory Notes to each of
Whitney Debt Fund and CCP in the original principal amount of $3,000,000.00 for
an aggregate consideration of $3,000,000 for each of Whitney Debt Fund and CCP.
The interest rate on these Senior Promissory Notes is 14% per annum until
September 6, 1996, after which time the interest rate increases to 16%.
On April 8, 1996, the Company issued options to purchase an aggregate of
7,460 shares of Common Stock at an exercise price of $.05 per share pursuant to
the TARSOP.
On April 8, 1996, the Company canceled an option to purchase 50,651 shares
of Common Stock issued on February 6, 1996 pursuant to the TARSOP and, instead,
issued an option to purchsae 50,651 shares of Common Stock at an exercise price
of $.05 per share to Mark T. Richards in connection with his employment by the
Company.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Act set forth in Section 4(2) thereof, relative to sales by an issuer not
involving any public offering or the rules and regulations thereunder, or, in
the
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<PAGE>
case of options to purchase Common Stock, Rule 701 of the Act. All of the
foregoing securities are deemed restricted securities for the purposes of the
Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
<C> <C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Articles of Incorporation of the Company
*3.2 Amended and Restated Bylaws of the Company
4.1 Specimen Common Stock Certificate of the Company
*5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
10.1 Stock Purchase Agreement, dated as of November 3, 1994, among the Company, Whitney
Equity Fund, Whitney, CCP, Alan P. Mintz, John E. Adams, Lawrence Rubinstein, Alan
Spiro, M.D., Nancie Blatt and Sheldon K. Gulinson.
10.2 Subordinated Note and Stock Purchase Agreement, dated as of November 3, 1994,
among the Company, Whitney Debt Fund, CCP, Alan P. Mintz, John E. Adams, Lawrence
Rubinstein, Alan Spiro, Nancie Blatt and Sheldon K. Gulinson.
10.3 Senior Subordinated Promissory Note Due November 3, 2001, in the principal sum of
$5,000,000, dated November 3, 1994, and issued by the Company to Whitney Debt
Fund.
10.4 Senior Subordinated Promissory Note Due November 3, 2001, in the principal sum of
$5,000,000, dated November 3, 1994, and issued by the Company to CCP.
10.5 Guaranty, dated as of November 3, 1994, by UtiliMed C I, Inc. in favor of Whitney
Debt Fund and CCP.
10.6 Junior Subordinated Promissory Note Due November 3, 2002, in the principal sum of
$5,000,000, dated November 3, 1994 and issued by the Company to Alan P. Mintz,
M.D.
10.7 Junior Subordinated Promissory Note Due November 3, 2002, in the principal sum of
$2,500,000, dated November 3, 1994 and issued by the Company to John Adams.
10.8 Junior Subordinated Promissory Note Due November 3, 2002, in the principal sum of
$2,500,000, dated November 3, 1994 and issued by the Company to Lawrence
Rubinstein.
10.9 Junior Subordinated Promissory Note Due November 3, 2002, in the principal sum of
$574,059, dated November 3, 1994 and issued by the Company to Alan Spiro, M.D.
10.10 Registration Rights Agreement, dated as of November 3, 1994, among the Company,
Whitney, Whitney Equity Fund, Whitney Debt Fund, CCP, Alan P. Mintz, Lawrence
Rubinstein, John Adams, Nancie Blatt, Alan Spiro, Sheldon Gulinson and James E.
Zechman.
10.11 Stockholders' Agreement, dated as of November 3, 1994, among the Company, Whitney,
Whitney Equity Fund, Whitney Debt Fund, CCP, Alan P. Mintz, Lawrence Rubinstein,
John Adams, Nancie Blatt, Alan Spiro, Sheldon Gulinson and James Zechman.
10.12 Amendment No. 1 to the Stockholders' Agreement, dated as of September 6, 1995,
among the Company, Whitney, Whitney Equity Fund, Whitney Debt Fund, CCP, Alan P.
Mintz, Lawrence Rubinstein, John E. Adams, Nancie Blatt, Alan Spiro, Sheldon
Gulinson, James Zechman and the other parties named therein.
10.13 Amendment No. 2 to the Stockholders' Agreement, dated as of September 28, 1995,
among the Company, Whitney, Whitney Equity Fund, Whitney Debt Fund, CCP, Alan P.
Mintz, Lawrence Rubinstein, John E. Adams, Nancie Blatt, Alan Spiro, Sheldon
Gulinson, James Zechman and the other parties named therein.
10.14 Letter Agreement Terminating the Stockholders' Agreement upon the consummation of
an initial public offering by the Company, among the Company and all parties to
the Stockholders' Agreement named therein.
</TABLE>
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<PAGE>
<TABLE>
<C> <C> <S>
10.15 Restructuring Agreement, dated as of September 6, 1995, among the Company,
Whitney, Whitney Equity Fund, Whitney Debt Fund, CCP, Alan P. Mintz, Lawrence
Rubinstein, John E. Adams, Nancie Blatt, Alan Spiro, Sheldon K. Gulinson, James
Zechman and the other parties named therein.
10.16 Class A Common Stock Purchase Warrant to purchase 986,894 shares of Class A Common
Stock, dated September 6, 1995 issued to Alan P. Mintz.
10.17 Class A Common Stock Purchase Warrant to purchase 690,883 shares of Class A Common
Stock, dated September 6, 1995 issued to Lawrence Rubinstein.
10.18 Class A Common Stock Purchase Warrant to purchase 394,872 shares of Class A Common
Stock, dated September 6, 1995 issued to John E. Adams.
10.19 Class A Common Stock Purchase Warrant to purchase 434,683 shares of Class A Common
Stock, dated September 6, 1995 issued to Alan H. Spiro.
10.20 Class A Common Stock Purchase Warrant to purchase 428,102 shares of Class A Common
Stock, dated September 6, 1995 issued to James E. Zechman.
10.21 Class A Common Stock Purchase Warrant to purchase 73,510 shares of Class A Common
Stock, dated September 6, 1995 issued to Nancie Blatt.
10.22 Class A Common Stock Purchase Warrant to purchase 73,470 shares of Class A Common
Stock, dated September 6, 1995 issued to Sheldon K. Gulinson.
10.23 Class A Common Stock Purchase Warrant to purchase 156,838 shares of Class A Common
Stock, dated September 6, 1995 issued to Cheryl Lippert.
10.24 Class A Common Stock Purchase Warrant to purchase 19,717 shares of Class A Common
Stock, dated September 6, 1995 issued to Patrick Sager.
10.25 Senior Promissory Note Due March 6, 1997, in the principal sum of $3,000,000.00,
dated as of March 6, 1996 and issued by the Company to CCP.
10.26 Senior Promissory Note Due March 6, 1997 in the principal sum of $3,000,000.00,
dated as of March 6, 1996 and issued by the Company to Whitney .
10.27 Deferred Fee Letter Agreement, dated March 6, 1996, among the Company, Whitney and
CCP.
10.28 Settlement Agreement, dated December 20, 1995, by and between the Company and
Affiliated Radiologists S.C.
10.29 Settlement Agreement by and between Unimed, Ltd., Michael P. Grossman, M.D. and
the Company, effective as of January 31, 1996.
10.30 MedEcon Services, Inc. vs. MedEcon, Inc., Consent Decree and Order of Dismissal,
filed May 14, 1996, United States District Court Southern District of Ohio Western
Division (Dayton).
** 10.31 Diagnostic Imaging Services Agreement, dated April 1, 1996, by and between
ChoiceCare Health Plans, Inc. and the Company.
10.32 Earmarking Letter Agreement, dated as of March 12, 1996, between the Company and
ChoiceCare Health Plans, Inc.
** 10.33 Diagnostic Imaging Services Agreement for HMO, dated May 3, 1993, by and between
the Company and United HealthCare of Ohio, Inc.--Western Region.
** 10.34 Diagnostic Imaging Services Agreement, dated June 1, 1996, by and between CIGNA
HealthCare of Northern New Jersey, Inc. and the Company.
** 10.35 Diagnostic Imaging Services Agreement, dated as of February 1, 1996, by and
between CIGNA HealthCare of Florida, Inc. and the Company.
** 10.36 Diagnostic Imaging Services Agreement for HMO, effective November 1, 1993, by and
between CIGNA HealthCare, Inc., for itself and on behalf of CIGNA HealthCare of
Oklahoma, Inc., and the Company.
** 10.37 Diagnostic Imaging Services Agreement for HMO, effective November 1, 1993, by and
between CIGNA HealthCare, Inc., for itself and on behalf of CIGNA Healthplan of
Colorado, Inc., and the Company.
** 10.38 Diagnostic Imaging Services Agreement for HMO, effective February 1, 1994, by and
between CIGNA HealthCare of New York, Inc. and UtiliMed C I, Inc.
</TABLE>
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<PAGE>
<TABLE>
<C> <C> <S>
10.39 Lease, Boulevard 40, Northbrook, Illinois, dated as of August 10, 1992, between
the Company and Teachers Insurance and Annuity Association of America.
10.40 First Amendment to Lease, dated as of August 11, 1993, by and between Teachers
Insurance and Annuity Association of America and the Company.
10.41 Second Amendment to Lease, dated as of April 24, 1995, by and between Teachers
Insurance and Annuity Association of America and the Company.
10.42 Employment Agreement dated as of November 17, 1995, by and between the Company and
Carl R. Adkins, M.D.
10.43 Restricted Shares Agreement, dated as of November 17, 1995, by and between the
Company and Carl R. Adkins, M.D.
10.44 Amendment No. 1 to Restricted Shares Agreement, dated as of January 26, 1996, by
and between the Company and Carl R. Adkins, M.D.
10.45 Restricted Shares Agreement, dated as of January 15, 1996, by and between the
Company and Brad Keller.
10.46 Severance Agreement, dated as of February 15, 1996, and effective as of December
31, 1995, among the Company and Jack M. Korsower, M.D.
10.47 Company Stock Option Agreement, dated as of February 15, 1996, by and between the
Company and Jack M. Korsower, M.D.
10.48 Junior Subordinated Promissory Note in the principal sum of $400,000, dated as of
February 15, 1996, issued by the Company to Jack M. Korsower, M.D.
10.49 Settlement Agreement and General Release, dated April 11, 1996, between Ms. Cheryl
Lippert and the Company.
10.50 Restricted Shares Agreement, dated as of November 15, 1995, by and between the
Company and Maria McAfee.
10.51 Limited Recourse Promissory Note in the principal amount of $137,000, dated
November 15, 1995 and issued by Maria McAfee to the Company.
10.52 Pledge Agreement, dated as of November 15, 1995, by and between Maria McAfee and
the Company.
10.53 Employment Agreement dated September 6, 1995 and effective as of October 1, 1995,
between the Company and Alan P. Mintz, M.D.
10.54 First Amendment to Employment Agreement, dated as of November 3, 1994, by and
between the Company and Alan P. Mintz, M.D.
10.55 Severance Agreement, dated as of January 31, 1996, among the Company and Alan P.
Mintz, M.D.
10.56 Company Stock Option Agreement, dated as of February 15, 1996, by and between the
Company and Alan P. Mintz, M.D.
10.57 Nonqualified Stock Option Agreement, effective, April 8, 1996, between the Company
and Mark Richards.
10.58 Employment Agreement dated as of January 1, 1994 between Company and Lawrence
Rubinstein.
10.59 First Amendment to Employment Agreement dated as of November 3, 1994 by and
between the Company and Lawrence Rubinstein.
10.60 Second Amendment to Employment Agreement, dated September 6, 1995, by and between
the Company and Lawrence Rubinstein.
10.61 Employment Agreement dated as of January 1, 1994 between the Company and Alan H.
Spiro, M.D.
10.62 First Amendment to Employment Agreement dated as of November 3, 1994 by and
between the Company and Alan Spiro, M.D.
10.63 Second Amendment to Employment Agreement, dated September 6, 1995, by and between
the Company and Alan Spiro, M.D.
10.64 Restricted Shares Agreement, dated as of September 6, 1995, by and between the
Company and Alan H. Spiro, M.D.
</TABLE>
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<PAGE>
<TABLE>
<C> <C> <S>
10.65 Promissory Note in the principal sum of $614,625.00, dated September 6, 1995 and
issued by Alan H. Spiro, M.D. to the Company.
10.66 Pledge and Security Agreement, dated as of September 6, 1995, between Alan H.
Spiro, M.D. and the Company.
10.67 Employment Agreement dated as of June 10, 1994 between Company and James E.
Zechman.
10.68 First Amendment to Employment Agreement, dated as of September 6, 1995, by and
between the Company and James E. Zechman.
10.69 Restricted Shares Agreement, dated as of September 6, 1995, by and between the
Company and James E. Zechman.
10.70 Company Stock Option Plan for Non-Employee Directors.
10.71 Amendment No. 1 to Company Stock Option Plan for Non-Employee Directors, dated as
of September 6, 1995.
10.72 Amendment No. 2 to Company Stock Option Plan for Non-Employee Directors, dated as
of April 23, 1996.
10.73 Company Time Accelerated Restricted Stock Option Plan for Certain Employees.
10.74 Amendment No. 1 to Company Time Accelerated Restricted Stock Option Plan for
Certain Employees, dated as of September 6, 1995.
10.75 Amendment No. 2 to Company Time Accelerated Restricted Stock Option Plan for
Certain Employees, dated as of November 14, 1995.
10.76 Amendment No. 3 to Company Time Accelerated Restricted Stock Option Plan for
Certain Employees, dated as of November 28, 1995.
10.77 Amendment No. 4 to Company Time Accelerated Restricted Stock Option Plan for
Certain Employees, dated as of February 6, 1996.
10.78 Amendment No. 5 to Company Time Accelerated Restricted Stock Option Plan for
Certain Employees, dated as of February 15, 1996.
10.79 Amendment No. 6 to Company Time Accelerated Restricted Stock Option Plan for
Certain Employees, dated as of April 8, 1996.
10.80 Amendment No. 7 to Company Time Accelerated Restricted Stock Option Plan for
Certain Employees, dated as of April 23, 1996.
11.1 Statement re Computation of Per Share Earnings
16.1 Letter from Arthur Andersen LLP.
21.1 List of Subsidiaries of UtiliMed, Inc.
*23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (contained in the opinion
filed as Exhibit 5.1 hereto).
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney from officers and directors (included in signature pages).
</TABLE>
- ------------
* To be filed by amendment.
** To be filed separately with the Securities and Exchange Commission in paper
format. Confidential treatment has been requested.
(b) Financial Statement Schedules
The following schedule is filed as part of this Registration Statement, but
not included in the Prospectus.
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in Regulation S-X of the
Commission are not required under the related instructions or are inapplicable
or the required information is included in the Consolidated Financial Statements
and Notes thereto and, therefore, have been omitted.
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<PAGE>
ITEM 17. UNDERTAKINGS
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
for 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.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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 provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the Village of Northbrook, State of Illinois, on May 24, 1996.
UTILIMED, INC.
By: /s/ CARL R. ADKINS,
M.D.
..................................
Carl R. Adkins, M.D.
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below hereby constitutes and appoints Carl R. Adkins, M.D. and Jeffrey R. Jay,
M.D., and each of them, his or her true and lawful agent, proxy and
attorney-in-fact, with full power of substitution and resubstitution, for him or
her and in his or her name, place and stead, in any and all capacities, to (i)
act on, sign and file with the Securities and Exchange Commission any and all
amendments (including post-effective amendments) to this registration statement
together with all schedules and exhibits thereto, (ii) act on, sign and file
such certificates, instruments, agreements and other documents as may be
necessary or appropriate in connection therewith, (iii) act on and file any
supplement to any prospectus included in this registration statement or any such
amendment and (iv) take any and all actions which may be necessary or
appropriate in connection therewith, granting unto such agents, proxies and
attorneys-in-fact, and each of them, full power and authority to do and perform
each and every act and thing necessary or appropriate to be done, as fully for
all intents and purposes as he or she might or could do in person, hereby
approving, ratifying and confirming all that such agents, proxies and
attorneys-in-fact, any of them or any of his or her or their substitutes may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE OR CAPACITIES DATE
- -------------------------------------- ------------------------------------ -------------
<S> <C> <C>
/s/ CARL R. ADKINS, M.D. President and Chief Executive May 24, 1996
...................................... Officer, Chairman of the Board
Carl R. Adkins, M.D.
/s/ MARK T. RICHARDS Chief Financial Officer (Principal May 24, 1996
...................................... Financial and Accounting Officer)
Mark T. Richards
/s/ ALAN H. SPIRO, M.D. Chief Medical Officer, Director May 24, 1996
......................................
Alan H. Spiro, M.D.
/s/ PETER M. CASTLEMAN Director May 24, 1996
......................................
Peter M. Castleman
/s/ JEFFREY R. JAY, M.D. Director May 24, 1996
......................................
Jeffrey R. Jay, M.D.
/s/ MITCHELL J. BLUTT, M.D. Director May 24, 1996
......................................
Mitchell J. Blutt, M.D.
/s/ JONAS L. STEINMAN Director May 24, 1996
......................................
Jonas L. Steinman
</TABLE>
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<PAGE>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
We have audited the consolidated financial statements of UtiliMed, Inc. as
of December 31, 1994 and 1995, and for each of the three years in the period
ended December 31, 1995, and have issued our report thereon dated May 10, 1996
(included elsewhere in this Registration Statement). Our audits also included
the financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
May 10, 1996
S-1
<PAGE>
VALUATION AND QUALIFYING ACCOUNTS
UTILIMED, INC.
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING COSTS AND ACCOUNTS - DEDUCTIONS - BALANCE AT END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- ----------------------------------- ---------- ---------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
Reserve and allowances deducted
from asset accounts................ -- $ 287,000 -- -- $287,000
---------- ---------- ---------- ------------ --------------
-- $ 287,000 -- -- $287,000
---------- ---------- ---------- ------------ --------------
---------- ---------- ---------- ------------ --------------
Year Ended December 31, 1994
Reserve and allowances deducted
from asset accounts................ -- -- -- -- --
---------- ---------- ---------- ------------ --------------
---------- ---------- ---------- ------------ --------------
Year Ended December 31, 1993
Reserve and allowances deducted
from asset accounts................ -- -- -- -- --
---------- ---------- ---------- ------------ --------------
---------- ---------- ---------- ------------ --------------
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ---------- ----------------------------------------------------------------------- ------------
<C> <C> <S> <C>
*1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Articles of Incorporation of the Company
*3.2 Amended and Restated Bylaws of the Company
4.1 Specimen Common Stock Certificate of the Company
*5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
10.1 Stock Purchase Agreement, dated as of November 3, 1994, among the
Company, Whitney Equity Fund, Whitney, CCP, Alan P. Mintz, John E.
Adams, Lawrence Rubinstein, Alan Spiro, M.D., Nancie Blatt and Sheldon
K. Gulinson.
10.2 Subordinated Note and Stock Purchase Agreement, dated as of November 3,
1994, among the Company, Whitney Debt Fund, CCP, Alan P. Mintz, John E.
Adams, Lawrence Rubinstein, Alan Spiro, Nancie Blatt and Sheldon K.
Gulinson.
10.3 Senior Subordinated Promissory Note Due November 3, 2001, in the
principal sum of $5,000,000, dated November 3, 1994, and issued by the
Company to Whitney Debt Fund.
10.4 Senior Subordinated Promissory Note Due November 3, 2001, in the
principal sum of $5,000,000, dated November 3, 1994, and issued by the
Company to CCP.
10.5 Guaranty, dated as of November 3, 1994, by UtiliMed C I, Inc. in favor
of Whitney Debt Fund and CCP.
10.6 Junior Subordinated Promissory Note Due November 3, 2002, in the
principal sum of $5,000,000, dated November 3, 1994 and issued by the
Company to Alan P. Mintz, M.D.
10.7 Junior Subordinated Promissory Note Due November 3, 2002, in the
principal sum of $2,500,000, dated November 3, 1994 and issued by the
Company to John Adams.
10.8 Junior Subordinated Promissory Note Due November 3, 2002, in the
principal sum of $2,500,000, dated November 3, 1994 and issued by the
Company to Lawrence Rubinstein.
10.9 Junior Subordinated Promissory Note Due November 3, 2002, in the
principal sum of $574,059, dated November 3, 1994 and issued by the
Company to Alan Spiro, M.D.
10.10 Registration Rights Agreement, dated as of November 3, 1994, among the
Company, Whitney, Whitney Equity Fund, Whitney Debt Fund, CCP, Alan P.
Mintz, Lawrence Rubinstein, John Adams, Nancie Blatt, Alan Spiro,
Sheldon Gulinson and James E. Zechman.
10.11 Stockholders' Agreement, dated as of November 3, 1994, among the
Company, Whitney, Whitney Equity Fund, Whitney Debt Fund, CCP, Alan P.
Mintz, Lawrence Rubinstein, John Adams, Nancie Blatt, Alan Spiro,
Sheldon Gulinson and James Zechman.
10.12 Amendment No. 1 to the Stockholders' Agreement, dated as of September
6, 1995, among the Company, Whitney, Whitney Equity Fund, Whitney Debt
Fund, CCP, Alan P. Mintz, Lawrence Rubinstein, John E. Adams, Nancie
Blatt, Alan Spiro, Sheldon Gulinson, James Zechman and the other
parties named therein.
10.13 Amendment No. 2 to the Stockholders' Agreement, dated as of September
28, 1995, among the Company, Whitney, Whitney Equity Fund, Whitney Debt
Fund, CCP, Alan P. Mintz, Lawrence Rubinstein, John E. Adams, Nancie
Blatt, Alan Spiro, Sheldon Gulinson, James Zechman and the other
parties named therein.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ---------- ----------------------------------------------------------------------- ------------
<C> <C> <S> <C>
10.14 Letter Agreement Terminating the Stockholders' Agreement upon the
consummation of an initial public offering by the Company, among the
Company and all parties to the Stockholders' Agreement named therein.
10.15 Restructuring Agreement, dated as of September 6, 1995, among the
Company, Whitney, Whitney Equity Fund, Whitney Debt Fund, CCP, Alan P.
Mintz, Lawrence Rubinstein, John E. Adams, Nancie Blatt, Alan Spiro,
Sheldon K. Gulinson, James Zechman and the other parties named therein.
10.16 Class A Common Stock Purchase Warrant to purchase 986,894 shares of
Class A Common Stock, dated September 6, 1995 issued to Alan P. Mintz.
10.17 Class A Common Stock Purchase Warrant to purchase 690,883 shares of
Class A Common Stock, dated September 6, 1995 issued to Lawrence
Rubinstein.
10.18 Class A Common Stock Purchase Warrant to purchase 394,872 shares of
Class A Common Stock, dated September 6, 1995 issued to John E. Adams.
10.19 Class A Common Stock Purchase Warrant to purchase 434,683 shares of
Class A Common Stock, dated September 6, 1995 issued to Alan H. Spiro.
10.20 Class A Common Stock Purchase Warrant to purchase 428,102 shares of
Class A Common Stock, dated September 6, 1995 issued to James E.
Zechman.
10.21 Class A Common Stock Purchase Warrant to purchase 73,510 shares of
Class A Common Stock, dated September 6, 1995 issued to Nancie Blatt.
10.22 Class A Common Stock Purchase Warrant to purchase 73,470 shares of
Class A Common Stock, dated September 6, 1995 issued to Sheldon K.
Gulinson.
10.23 Class A Common Stock Purchase Warrant to purchase 156,838 shares of
Class A Common Stock, dated September 6, 1995 issued to Cheryl Lippert.
10.24 Class A Common Stock Purchase Warrant to purchase 19,717 shares of
Class A Common Stock, dated September 6, 1995 issued to Patrick Sager.
10.25 Senior Promissory Note Due March 6, 1997, in the principal sum of
$3,000,000.00, dated as of March 6, 1996 and issued by the Company to
CCP.
10.26 Senior Promissory Note Due March 6, 1997 in the principal sum of
$3,000,000.00, dated as of March 6, 1996 and issued by the Company to
Whitney .
10.27 Deferred Fee Letter Agreement, dated March 6, 1996, among the Company,
Whitney and CCP.
10.28 Settlement Agreement, dated December 20, 1995, by and between the
Company and Affiliated Radiologists S.C.
10.29 Settlement Agreement by and between Unimed, Ltd., Michael P. Grossman,
M.D. and the Company, effective as of January 31, 1996.
10.30 MedEcon Services, Inc. vs. MedEcon, Inc., Consent Decree and Order of
Dismissal, filed May 14, 1996, United States District Court Southern
District of Ohio Western Division (Dayton).
** 10.31 Diagnostic Imaging Services Agreement, dated April 1, 1996, by and
between ChoiceCare Health Plans, Inc. and the Company.
10.32 Earmarking Letter Agreement, dated as of March 12, 1996, between the
Company and ChoiceCare Health Plans, Inc.
** 10.33 Diagnostic Imaging Services Agreement for HMO, dated May 3, 1993, by
and between the Company and United HealthCare of Ohio, Inc.--Western
Region.
** 10.34 Diagnostic Imaging Services Agreement, dated June 1, 1996, by and
between CIGNA HealthCare of Northern New Jersey, Inc. and the Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ---------- ----------------------------------------------------------------------- ------------
<C> <C> <S> <C>
** 10.35 Diagnostic Imaging Services Agreement, dated as of February 1, 1996, by
and between CIGNA HealthCare of Florida, Inc. and the Company.
** 10.36 Diagnostic Imaging Services Agreement for HMO, effective November 1,
1993, by and between CIGNA HealthCare, Inc., for itself and on behalf
of CIGNA HealthCare of Oklahoma, Inc., and the Company.
** 10.37 Diagnostic Imaging Services Agreement for HMO, effective November 1,
1993, by and between CIGNA HealthCare, Inc., for itself and on behalf
of CIGNA Healthplan of Colorado, Inc., and the Company.
** 10.38 Diagnostic Imaging Services Agreement for HMO, effective February 1,
1994, by and between CIGNA HealthCare of New York, Inc. and UtiliMed C
I, Inc.
10.39 Lease, Boulevard 40, Northbrook, Illinois, dated as of August 10, 1992,
between the Company and Teachers Insurance and Annuity Association of
America.
10.40 First Amendment to Lease, dated as of August 11, 1993, by and between
Teachers Insurance and Annuity Association of America and the Company.
10.41 Second Amendment to Lease, dated as of April 24, 1995, by and between
Teachers Insurance and Annuity Association of America and the Company.
10.42 Employment Agreement dated as of November 17, 1995, by and between the
Company and Carl R. Adkins, M.D.
10.43 Restricted Shares Agreement, dated as of November 17, 1995, by and
between the Company and Carl R. Adkins, M.D.
10.44 Amendment No. 1 to Restricted Shares Agreement, dated as of January 26,
1996, by and between the Company and Carl R. Adkins, M.D.
10.45 Restricted Shares Agreement, dated as of January 15, 1996, by and
between the Company and Brad Keller.
10.46 Severance Agreement, dated as of February 15, 1996, and effective as of
December 31, 1995, among the Company and Jack M. Korsower, M.D.
10.47 Company Stock Option Agreement, dated as of February 15, 1996, by and
between the Company and Jack M. Korsower, M.D.
10.48 Junior Subordinated Promissory Note in the principal sum of $400,000,
dated as of February 15, 1996, issued by the Company to Jack M.
Korsower, M.D.
10.49 Settlement Agreement and General Release, dated April 11, 1996, between
Ms. Cheryl Lippert and the Company.
10.50 Restricted Shares Agreement, dated as of November 15, 1995, by and
between the Company and Maria McAfee.
10.51 Limited Recourse Promissory Note in the principal amount of $137,000,
dated November 15, 1995 and issued by Maria McAfee to the Company.
10.52 Pledge Agreement, dated as of November 15, 1995, by and between Maria
McAfee and the Company.
10.53 Employment Agreement dated September 6, 1995 and effective as of
October 1, 1995, between the Company and Alan P. Mintz, M.D.
10.54 First Amendment to Employment Agreement, dated as of November 3, 1994,
by and between the Company and Alan P. Mintz, M.D.
10.55 Severance Agreement, dated as of January 31, 1996, among the Company
and Alan P. Mintz, M.D.
10.56 Company Stock Option Agreement, dated as of February 15, 1996, by and
between the Company and Alan P. Mintz, M.D.
10.57 Nonqualified Stock Option Agreement, effective, April 8, 1996, between
the Company and Mark Richards.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ---------- ----------------------------------------------------------------------- ------------
<C> <C> <S> <C>
10.58 Employment Agreement dated as of January 1, 1994 between Company and
Lawrence Rubinstein.
10.59 First Amendment to Employment Agreement dated as of November 3, 1994 by
and between the Company and Lawrence Rubinstein.
10.60 Second Amendment to Employment Agreement, dated September 6, 1995, by
and between the Company and Lawrence Rubinstein.
10.61 Employment Agreement dated as of January 1, 1994 between the Company
and Alan H. Spiro, M.D.
10.62 First Amendment to Employment Agreement dated as of November 3, 1994 by
and between the Company and Alan Spiro, M.D.
10.63 Second Amendment to Employment Agreement, dated September 6, 1995, by
and between the Company and Alan Spiro, M.D.
10.64 Restricted Shares Agreement, dated as of September 6, 1995, by and
between the Company and Alan H. Spiro, M.D.
10.65 Promissory Note in the principal sum of $614,625.00, dated September 6,
1995 and issued by Alan H. Spiro, M.D. to the Company.
10.66 Pledge and Security Agreement, dated as of September 6, 1995, between
Alan H. Spiro, M.D. and the Company.
10.67 Employment Agreement dated as of June 10, 1994 between Company and
James E. Zechman.
10.68 First Amendment to Employment Agreement, dated as of September 6, 1995,
by and between the Company and James E. Zechman.
10.69 Restricted Shares Agreement, dated as of September 6, 1995, by and
between the Company and James E. Zechman.
10.70 Company Stock Option Plan for Non-Employee Directors.
10.71 Amendment No. 1 to Company Stock Option Plan for Non-Employee
Directors, dated as of September 6, 1995.
10.72 Amendment No. 2 to Company Stock Option Plan for Non-Employee
Directors, dated as of April 23, 1996.
10.73 Company Time Accelerated Restricted Stock Option Plan for Certain
Employees.
10.74 Amendment No. 1 to Company Time Accelerated Restricted Stock Option
Plan for Certain Employees, dated as of September 6, 1995.
10.75 Amendment No. 2 to Company Time Accelerated Restricted Stock Option
Plan for Certain Employees, dated as of November 14, 1995.
10.76 Amendment No. 3 to Company Time Accelerated Restricted Stock Option
Plan for Certain Employees, dated as of November 28, 1995.
10.77 Amendment No. 4 to Company Time Accelerated Restricted Stock Option
Plan for Certain Employees, dated as of February 6, 1996.
10.78 Amendment No. 5 to Company Time Accelerated Restricted Stock Option
Plan for Certain Employees, dated as of February 15, 1996.
10.79 Amendment No. 6 to Company Time Accelerated Restricted Stock Option
Plan for Certain Employees, dated as of April 8, 1996.
10.80 Amendment No. 7 to Company Time Accelerated Restricted Stock Option
Plan for Certain Employees, dated as of April 23, 1996.
11.1 Statement re Computation of Per Share Earnings.
16.1 Letter from Arthur Andersen LLP.
21.1 List of Subsidiaries of UtiliMed, Inc.
*23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (contained in the
opinion filed as Exhibit 5.1 hereto).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ---------- ----------------------------------------------------------------------- ------------
<C> <C> <S> <C>
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney from officers and directors (included in signature
pages).
</TABLE>
- ------------
* To be filed by amendment.
** To be filed separately with the Securities and Exchange Commission in paper
format. Confidential treatment has been requested.
Exhibit 4.1
<TABLE><CAPTION>
<S> <C> <C> <C>
NUMBER SHARES
UM
UTILIMED, INC.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF ILLINOIS CERTAIN DEFINITIONS
CUSIP 918006 10 7
THIS CERTIFIES that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, NO PAR VALUE, OF
===================================== UtiliMed, Inc. =====================================
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar, WITNESS the facsimile seal of the
Corporation and the facsimile signatures of its duly authorized officers.
[CERTIFICATE OF STOCK]
Dated:
[UtiliMed, Inc. CORPORATION SEAL]
CHIEF FINANCIAL OFFICER PRESIDENT
</TABLE>
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests a statement of the designations, powers, preferences and relative
participating, optional or other special rights of each class of stock or
series thereof of the Corporation and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests may be made to
the Corporation or the Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in commons UNIF GIFT MIN ACT -- ________ Custodian ________
(Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
JT TEN -- as joint tenants with right of Act ____________
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
</TABLE>
For value received, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- ------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________
--------------------------------------------------------
NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATIONS OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<TABLE>
<S> <C>
- --------------------------------------------- ------------------------------------------------------
AMERICAN BANKNOTE COMPANY PRODUCTION CORPORATION-DEE FERTIG 215-830-2197
680 BLAIR MILL ROAD PROOF OF MAY 10, 1996
HORSEMAN, PA 19044 UTILIMED, INC.
215 647-3480 H 43973bk
- --------------------------------------------- ------------------------------------------------------
SALESPERSON: R. JOHNS - 212 557-9100 Opr. eg/lr NEW
- --------------------------------------------- ------------------------------------------------------
/home/ed/inprogress/home15/Utilimed43973 /net/banknote/home15/U
- --------------------------------------------- ------------------------------------------------------
</TABLE>
Exhibit 10.1
=================================================================
STOCK PURCHASE AGREEMENT
among
MEDICON, INC.
WHITNEY 1990 EQUITY FUND, L.P.
J.H. WHITNEY & CO.,
CHEMICAL VENTURE CAPITAL ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
ALAN P. MINTZ,
JOHN E. ADAMS,
LAWRENCE RUBINSTEIN,
ALAN SPIRO,
NANCIE BLATT
and
SHELDON K. GULINSON
______________________________
Dated as of November 3, 1994
______________________________
================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . 2
1.1 Definitions . . . . . . . . . . . . . . . . . . 2
1.2 Accounting Terms; Financial Statements . . . . . 9
ARTICLE 2 PURCHASE AND SALE OF STOCK . . . . . . . . . . . 10
2.1 Purchase and Sale of Stock . . . . . . . . . . . 10
2.2 Powers, Rights and Preferences . . . . . . . . . 11
2.3 Reimbursement of Expenses . . . . . . . . . . . 12
2.4 Closing . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 3 CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE . . . . . . . . . . 12
3.1 Representations and Warranties . . . . . . . . . 12
3.2 Compliance with this Agreement . . . . . . . . . 13
3.3 Secretary's Certificate . . . . . . . . . . . . 13
3.4 Documents . . . . . . . . . . . . . . . . . . . 13
3.5 Purchase Permitted by Applicable Laws . . . . . 13
3.6 Opinion of Counsel . . . . . . . . . . . . . . . 13
3.7 Consents and Approvals . . . . . . . . . . . . . 13
3.8 No Material Adverse Change . . . . . . . . . . . 14
3.9 Capitalization and Ownership; Conduct of Business
14
3.10 Registration Rights Agreement . . . . . . . . . 14
3.11 Stockholders' Agreement . . . . . . . . . . . . 14
3.12 Certificate of Incorporation and By-laws . . . . 14
3.13 Employment Agreements . . . . . . . . . . . . . 14
3.14 Subordinated Loan . . . . . . . . . . . . . . . 15
3.15 Additional Capital Contribution . . . . . . . . 15
3.16 Share Redemption . . . . . . . . . . . . . . . . 15
3.17 Stock Option Plans . . . . . . . . . . . . . . . 15
3.18 Subsidiary . . . . . . . . . . . . . . . . . . . 15
3.19 Shareholder Loans . . . . . . . . . . . . . . . 15
3.20 No Material Judgment or Order . . . . . . . . . 15
3.21 Pro Forma Balance Sheet . . . . . . . . . . . . 15
ARTICLE 4 CONDITIONS TO THE OBLIGATION OF THE
COMPANY AND THE MANAGEMENT STOCKHOLDERS TO CLOSE 16
4.1 Representations and Warranties . . . . . . . . . 16
4.2 Compliance with this Agreement . . . . . . . . . 16
4.3 Issuance Permitted by Applicable Laws . . . . . 16
4.4 Consents and Approvals . . . . . . . . . . . . . 16
4.5 Stockholders' Agreement . . . . . . . . . . . . 17
4.6 No Material Judgment or Order . . . . . . . . . 17
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE MANAGEMENT STOCKHOLDERS . . . . . . . . 17
5.1 Corporate Existence and Power . . . . . . . . . 17
i
<PAGE>
Page
----
5.2 Corporate Authorization; No Contravention . . . 18
5.3 Governmental Authorization; Third Party Consents 18
5.4 Binding Effect . . . . . . . . . . . . . . . . . 19
5.5 Litigation . . . . . . . . . . . . . . . . . . . 19
5.6 Compliance with Laws . . . . . . . . . . . . . . 19
5.7 No Default or Breach . . . . . . . . . . . . . . 20
5.8 Title to Properties . . . . . . . . . . . . . . 20
5.9 Taxes . . . . . . . . . . . . . . . . . . . . . 20
5.10 Financial Condition . . . . . . . . . . . . . . 21
5.11 ERISA . . . . . . . . . . . . . . . . . . . . . 22
5.12 Disclosure . . . . . . . . . . . . . . . . . . . 22
5.13 No Material Adverse Change . . . . . . . . . . . 23
5.14 Environmental Matters . . . . . . . . . . . . . 23
5.15 Investment Company/Government Regulations . . . 24
5.16 Subsidiaries . . . . . . . . . . . . . . . . . . 24
5.17 Capitalization . . . . . . . . . . . . . . . . . 25
5.18 Solvency . . . . . . . . . . . . . . . . . . . . 25
5.19 Private Offering . . . . . . . . . . . . . . . . 25
5.20 Broker's, Finder's or Similar Fees . . . . . . . 26
5.21 Labor Relations . . . . . . . . . . . . . . . . 26
5.22 Employee Benefit Plans . . . . . . . . . . . . . 26
5.23 Patents, Trademarks, Etc. . . . . . . . . . . . 27
5.24 Potential Conflicts of Interest . . . . . . . . 28
5.25 Trade Relations . . . . . . . . . . . . . . . . 28
5.26 Outstanding Borrowings . . . . . . . . . . . . . 28
5.27 Material Contracts. . . . . . . . . . . . . . . 29
5.28 Insurance . . . . . . . . . . . . . . . . . . . 29
5.29 Prospective Contracts and Projections . . . . . 30
5.30 Effect of Proposed Transactions on Representations
30
5.31 Revenue Accounting . . . . . . . . . . . . . . . 30
5.32 Small Business Matters . . . . . . . . . . . . . 30
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS 31
6.1 Authorization; No Contravention . . . . . . . . 31
6.2 Binding Effect . . . . . . . . . . . . . . . . . 31
6.3 Purchase for Own Account . . . . . . . . . . . . 31
6.4 Broker's, Finder's or Similar Fees . . . . . . . 32
ARTICLE 7 INDEMNIFICATION . . . . . . . . . . . . . . . . 32
7.1 Indemnification . . . . . . . . . . . . . . . . 32
7.2 Notification . . . . . . . . . . . . . . . . . . 34
7.3 Limitations on Indemnification . . . . . . . . . 35
ARTICLE 8 AFFIRMATIVE COVENANTS . . . . . . . . . . . . . 36
8.1 Operation of Company . . . . . . . . . . . . . . 36
8.2 Exclusivity . . . . . . . . . . . . . . . . . . 36
8.3 Use of Proceeds . . . . . . . . . . . . . . . . 36
8.4 Consummation of Share Redemption . . . . . . . . 36
ii
<PAGE>
Page
----
8.5 Taxes . . . . . . . . . . . . . . . . . . . . . 36
8.6 Information Rights . . . . . . . . . . . . . . . 37
ARTICLE 9 MISCELLANEOUS . . . . . . . . . . . . . . . . . 39
9.1 Survival of Representations and Warranties . . . 39
9.2 Notices . . . . . . . . . . . . . . . . . . . . 39
9.3 Successors and Assigns . . . . . . . . . . . . . 40
9.4 Amendment and Waiver . . . . . . . . . . . . . . 41
9.5 Counterparts . . . . . . . . . . . . . . . . . . 41
9.6 Headings . . . . . . . . . . . . . . . . . . . . 41
9.7 Governing Law . . . . . . . . . . . . . . . . . 41
9.8 Jurisdiction . . . . . . . . . . . . . . . . . . 42
9.9 Severability . . . . . . . . . . . . . . . . . . 42
9.10 Rules of Construction . . . . . . . . . . . . . 42
9.11 Variations in Pronouns . . . . . . . . . . . . . 42
9.12 Entire Agreement . . . . . . . . . . . . . . . . 42
9.13 Certain Expenses . . . . . . . . . . . . . . . . 42
9.14 Publicity . . . . . . . . . . . . . . . . . . . 43
9.15 Limitations on Rights of Third Parties. . . . . 43
9.16 Further Assurances . . . . . . . . . . . . . . . 43
Exhibits
--------
A - Terms of Preferred Shares and Common Shares
B - Form of Registration Rights Agreement
C - Form of Stockholders' Agreement
Schedules
---------
2.1 Names of Purchasers, Number of Shares of Series A
Preferred Stock, Number of Shares of Class B Common
Stock and Purchase Prices Thereof
3.19 Shareholder Loans
5.5 Litigation
5.9 Exceptions to S Corporation Elections
5.13 Material Adverse Change
5.16 Subsidiaries
5.17 Capitalization
5.22(a) Employee Benefits
5.22(b) Employee Benefits
5.24 Conflicts of Interest
5.26 Outstanding Borrowings
5.27 Material Contracts
5.28 Insurance
iii
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of November 3, 1994, among MEDICON, INC., an
Illinois corporation (the "Company"), WHITNEY 1990 EQUITY FUND, L.P., a Delaware
-------
limited partnership ("Whitney Equity Fund"), J.H. WHITNEY & CO., a New York
limited partnership ("Whitney"), CHEMICAL VENTURE CAPITAL ASSOCIATES, A
-------
California Limited Partnership ("CVCA" and, together with Whitney Equity Fund
----
and Whitney, the "Purchasers"), ALAN P. MINTZ ("Mintz"), JOHN E. ADAMS
----------
("Adams"), LAWRENCE RUBINSTEIN ("Rubinstein"), ALAN SPIRO ("Spiro"), NANCIE
---------- -----
BLATT ("Blatt") and SHELDON K. GULINSON ("Gulinson" and, together with Mintz,
----- --------
Adams, Rubinstein, Spiro and Blatt, the "Management Stockholders").
-----------------------
WHEREAS, the Company proposes to issue and sell to the Purchasers
(a) 1,262,000 shares of Series A Convertible Preferred Stock, no par value, and
(b) 427,328 shares of Class B Common Stock, no par value, of the Company for an
aggregate purchase price of $30,000,000.00 (subject to adjustment as set forth
in Section 2.1.2);
WHEREAS, it is contemplated that concurrently with the execution of
this Agreement, pursuant to a Subordinated Note and Stock Purchase Agreement,
dated as of the date hereof (the "Subordinated Note and Stock Purchase Agree-
-------------------------------------------
ment"), among the Company, Whitney Subordinated Debt Fund, L.P. ("Whitney Debt
- ---- ------------
Fund"), CVCA and the Management Stockholders, (a) the Company will issue and
- ----
sell to Whitney Debt Fund and CVCA Senior Subordinated Promissory Notes due
November 3, 2001 in the aggregate principal amount of $10,000,000.00 (the
"Senior Subordinated Notes") and (b) the Company will issue and sell to Whitney
-------------------------
Debt Fund and CVCA 123,156 shares (the "Class A Shares") of Class A Common
--------------
Stock, no par value, of the Company (the transactions contemplated by items (a)
and (b) of this recital are collectively referred to herein as the "Subordinated
------------
Loan"); and
- ----
WHEREAS, it is further contemplated that such other transactions as
are described in Articles 3 and 8 hereof shall be consummated as provided for in
such Articles and any other documents pertaining to such transactions;
NOW, THEREFORE, in consideration of the mutual covenants and agree-
ments set forth herein and for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
<PAGE>
2
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Accounting Change" means any change in GAAP after the date hereof
-----------------
occasioned by promulgation of rules, regulations, pronouncements or opinions by
or otherwise required by the Financial Accounting Standards Board (or a
successor thereto), which change results in a decrease in the amount of revenue
recognized by the Company and its subsidiaries.
"Affiliate" means, as to any Person, any other Person directly or
---------
indirectly controlling, controlled by or under direct or indirect common control
with such Person. For the purposes of this definition, "control," when used
with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise. The terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" means this Agreement (including the exhibits and schedules
---------
hereto) as the same may be amended, supplemented or modified in accordance with
the terms hereof.
"Audited Financial Statements" has the meaning assigned to such term
----------------------------
in Section 5.10(a).
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.
"Capital Lease Obligations" means, as to any Person, any obligation of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligation is required to be classified and accounted
for as a capital lease on a balance sheet of such Person under GAAP.
"Class A Shares" has the meaning assigned to that term in the second
--------------
Whereas clause of this Agreement.
<PAGE>
3
"Class A Common Stock" means the Class A Common Stock, no par value,
--------------------
of the Company, or any other capital stock of the Company into which such stock
is reclassified or reconstituted.
"Class B Common Stock" means the Class B Common Stock, no par value,
--------------------
of the Company, or any other capital stock of the Company into which such stock
is reclassified or reconstituted.
"Closing Date" means the date specified in Section 2.4.
------------
"Closing" has the meaning assigned to that term in Section 2.4.
-------
"Code" means the Internal Revenue Code of 1986, as amended, or any
----
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Shares" has the meaning assigned to such term in Section 2.1.
-------------
"Common Stock" means the Company's Class A Common Stock and Class B
------------
Common Stock.
"Condition of the Company" means the assets, business, properties,
------------------------
operations or financial condition of the Company and its Subsidiaries, taken as
a whole.
"Contingent Obligation" means, as to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "primary
-------
obligation") of another Person (with respect to a given primary obligation, the
- ----------
"primary obligor"), whether or not contingent, (a) to purchase, repurchase or
---------------
otherwise acquire any such primary obligation or any property constituting
direct or indirect security therefor, or (b) to advance or provide funds (i) for
the payment or discharge of any such primary obligation, or (ii) to maintain
working capital or equity capital of the primary obligor in respect of any such
primary obligation or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of such primary
obligor, or (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor in respect thereof to make payment of such primary
obligation, or (d) otherwise to
<PAGE>
4
assure or hold harmless the owner of any such primary obligation against loss or
failure or inability to perform in respect thereof. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof.
"Contractual Obligations" means, as to any Person, any provision of
-----------------------
any security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Defined Benefit Plan" means a defined benefit plan within the meaning
--------------------
of Section 3(35) of ERISA or Section 414(j) of the Code, whether funded or
unfunded, qualified or nonqualified (whether or not subject to ERISA or the
Code).
"EBITDA" shall mean, with respect to the Company and its Subsidiaries
------
on a consolidated basis for any period, the sum of (a) Net Income for such
period, (b) Interest Expense for such period, (c) Federal, state and local
income and franchise taxes deducted from revenue in determining such Net Income,
(d) depreciation and amortization deducted from revenue in determining such Net
Income (including any effect from the capitalization, amortization and write-off
of implementation costs) and (e) all non-cash expenses which reduce Net Income,
less (f) interest income and all non-cash items which increase Net Income. For
purposes of calculating (e) and (f) above, all items that would not be
considered operating items in the ordinary course of business or would result in
changes in long-term asset or liability accounts shall be excluded.
"Environmental Laws" means any federal, state, territorial, provincial
------------------
or local law, common law doctrine, rule, order, decree, judgment, injunction,
license, permit or regulation relating to environmental matters, including those
pertaining to land use, air, soil, surface water, ground water (including the
protection, cleanup, removal, remediation or damage thereof), public or employee
health or safety or any other environmental matter, together with any other laws
(federal, state, territorial, provincial or local) relating to emissions,
discharges, releases or threatened releases of any pollutant or contaminant,
including, without limitation, medical, chemical, biological, biohazardous or
radioactive waste and materials, into ambient air, land, surface water,
groundwater, personal property or structures, or otherwise relating to the
<PAGE>
5
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, discharge or handling of any contaminant.
"ERISA Affiliate" means any Person that is treated as a single
---------------
employer with the Company or any of its Subsidiaries under Section 414(b), (c),
(m) or (o) of the Code.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Event of Default" means (a) any default by the Company or the
----------------
Management Stockholders in the due observance or performance of any covenant or
agreement to be observed or performed pursuant to Article 8 of this Agreement or
pursuant to any other Transaction Agreement or any Related Transaction Agreement
or (b) any representation, warranty, certification or statement made by or on
behalf of the Company or the Management Stockholders in this Agreement or in any
other Transaction Agreement, any Related Transaction Agreement or in any
certificate or other document delivered pursuant hereto or thereto shall have
been incorrect in any material respect when made.
"Exchange Act" means the Securities and Exchange Act of 1934, as
------------
amended, and the rules and regulations of the Commission thereunder.
"GAAP" means generally accepted United States accounting principles in
----
effect from time to time.
"Governmental Authority" means the government of any nation, state,
----------------------
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative func-
tions of or pertaining to government, and any corporation or other entity owned
or controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Hazardous Materials" means those substances which are regulated by or
-------------------
form the basis of liability under any Environmental Laws.
"Indebtedness" means, as to any Person, (a) all obligations of such
------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except
<PAGE>
6
trade accounts payable and accrued commercial or trade liabilities arising in
the ordinary course of business, (d) all interest rate and currency swaps, caps,
collars and similar agreements or hedging devices under which payments are
obligated to be made by such Person, whether periodically or upon the happening
of a contingency, (e) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property), (f) all obligations of such Person under leases which have been
or should be, in accordance with GAAP, recorded as capital leases, (g) all
indebtedness secured by any lien (other than liens in favor of lessors under
leases other than leases included in clause (f)) on any property or asset owned
or held by such Person regardless of whether the indebtedness secured thereby
shall have been assumed by such Person or is non-recourse to the credit of such
Person and (h) all Contingent Obligations of such Person.
"Indemnified Party" has the meaning assigned to such term in
-----------------
Section 7.1.
"Interest Expense" shall mean, with respect to the Company and its
----------------
Subsidiaries on a consolidated basis for any period, the sum of (a) gross
interest expense of the Company and its subsidiaries for such period in
accordance with GAAP consistently applied, including (i) the amortization of
debt discounts, (ii) the amortization of all fees payable in connection with the
incurrence of Indebtedness to the extent included in interest expense and
(iii) the portion of any payments or accruals with respect to Capital Lease
Obligations allocable to interest expense, and (b) any other capitalized
interest of the Company and its Subsidiaries determined on a consolidated basis
in accordance with GAAP.
"Junior Subordinated Notes" means the Company's Junior Subordinated
-------------------------
Promissory Notes, dated the Closing Date, issued pursuant to the Share
Redemption Agreement.
"Liabilities" has the meaning assigned to such term in Section 7.1.
-----------
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock or equity related preferences),
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, any interest of a
lessor
<PAGE>
7
under a capital lease, or any financing lease having substantially the same
economic effect as any of the foregoing.
"Medicon Stock Option Plans" means (i) the Medicon, Inc. Time
--------------------------
Accelerated Restricted Stock Option Plan for Certain Employees, (ii) the
Medicon, Inc. Stock Option Plan for Non-Employee Directors and (iii) such other
stock option plans as may be approved from time to time by the Board of
Directors of the Company.
"Net Income" shall mean for any period and prior to accounting for the
----------
payment of any dividends on the Series A Preferred Stock, (a) the net income
(loss) of the Company and its Subsidiaries, determined on a consolidated basis
in accordance with GAAP, minus (b) the aggregate for such period of, without
-----
duplication, (i) the net income (loss) of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition,
determined in accordance with GAAP, and (ii) any other items that are treated as
expenses under GAAP, but excluding from the definition of Net Income any
extraordinary or non-recurring charges, expenses, gains or losses, all computed
in accordance with GAAP.
"Outstanding Borrowings" means all Indebtedness of the Company or any
----------------------
of its Subsidiaries for money borrowed.
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"Plans" has the meaning assigned to such term in Section 5.22.
-----
"Preferred Shares" has the meaning assigned to such term in
----------------
Section 2.1.
"Pro Forma Balance Sheet" means the pro forma consolidated balance
-----------------------
sheet of the Company and its Subsidiaries delivered pursuant to Section 3.22.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement substantially in the form attached hereto as Exhibit B.
---------
"Related Transaction Agreements" means all of the agreements executed
------------------------------
and delivered in connection with the Share Redemption.
<PAGE>
8
"Requirements of Law" means, as to any Person, the articles or
-------------------
certificate of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation, right,
privilege, qualification, license or franchise or determination of an arbitrator
or a court or other Governmental Authority, in each case applicable or binding
upon such Person or any of its property or to which such Person or any of its
property is subject or pertaining to any or all of the transactions contemplated
or referred to herein.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Senior Subordinated Notes" has the meaning assigned to that term in
-------------------------
the second Whereas clause of this Agreement.
"Series A Preferred Stock" means the Series A Convertible Preferred
------------------------
Stock, no par value, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Share Redemption" means the redemption by the Company of common stock
----------------
from the Management Stockholders as contemplated by the Share Redemption
Agreement.
"Share Redemption Agreement" means the Redemption Agreement, dated as
--------------------------
of the date hereof, among the Company and the Management Stockholders.
"Shares" has the meaning assigned such term in Section 2.1.
------
"Solvent" means, as to any Person, that the fair saleable value on a
-------
going concern basis of the assets and property of such Person is, on the date of
determination, greater than the total amount of liabilities (including contin-
gent and unliquidated liabilities) of such Person as of such date and that, as
of such date, such Person is able to pay all liabilities of such Person as such
liabilities mature. In computing the amount of contingent or unliquidated
liabilities at any time, such liabilities will be computed as the amount which,
in light of all the facts and circumstances existing at such time, represents
the amount that is probable to become an actual or matured liability.
"State Regulatory Laws" means the laws, rules or regulations of any
---------------------
Governmental Authority of any state for which any consent, approval or
expiration of any waiting
<PAGE>
9
period is necessary in connection with the proposed purchase and sale
contemplated hereby.
"Stockholders' Agreement" means the Stockholders' Agreement
-----------------------
substantially in the form attached hereto as Exhibit C.
---------
"Subordinated Note and Stock Purchase Agreement" has the meaning
----------------------------------------------
assigned to such term in the second Whereas clause of this Agreement.
"Subordinated Loan" has the meaning assigned to such term in the
-----------------
second Whereas clause of this Agreement.
"Subsidiary" means, with respect to any Person, a corporation or other
----------
entity of which 50% or more of the voting power of the voting equity securities
or equity interests is owned, directly or indirectly, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in
this Agreement shall refer to a Subsidiary or Subsidiaries of the Company.
"Tax" or "Taxes" means all federal, state, county, local, foreign and
--- -----
other taxes (including, without limitation, income, profits, premium, estimated,
excise, sales, use, occupancy, gross receipts, franchise, ad valorem, severance,
capital levy, production, transfer, withholding, employment, unemployment
compensation, payroll-related and property taxes, import duties and other
governmental charges and assessments), whether or not measured in whole or in
part by net income, and including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including expenses associated
with any proposed adjustment relating to any of the foregoing (including advice
in connection with contesting such adjustment).
"Transaction Agreements" means, collectively, this Agreement, the
----------------------
Stockholders' Agreement, the Registration Rights Agreement, the Subordinated
Note and Stock Purchase Agreement and the Senior Subordinated Notes.
"Unaudited Financial Statements" has the meaning assigned to such term
------------------------------
in Section 5.10(a).
"Zechman" means James E. Zechman.
-------
1.2 Accounting Terms; Financial Statements. All accounting terms
--------------------------------------
used herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice
<PAGE>
10
as, in the opinion of the independent certified public accountants regu-
larly retained by the Company, conforms at the time to GAAP applied on a
consistent basis except for changes with which such accountants concur.
ARTICLE 2
PURCHASE AND SALE OF STOCK
--------------------------
2.1 Purchase and Sale of Stock.
--------------------------
2.1.1 Purchase and Sale of Stock. Subject to the terms and
--------------------------
conditions herein set forth, the Company agrees that it will issue to each of
the Purchasers, and each of the Purchasers agrees that it will acquire from the
Company, on the Closing Date, the number of shares of Series A Preferred Stock
(the "Preferred Shares") and Class B Common Stock (the "Common Shares" and,
---------------- -------------
together with the Preferred Shares the "Shares") set forth next to such
------
Purchaser's name on Schedule 2.1 hereto. The purchase price of the Shares to be
------------
acquired by each Purchaser shall be as set forth next to each such Purchaser's
name on Schedule 2.1 hereto, as adjusted pursuant to Section 2.1.2.
------------
2.1.2 Purchase Price Adjustment.
-------------------------
(a) EBITDA and Revenue; Certification of Amounts; Arbitration.
---------------------------------------------------------
As soon as available, but not later than March 31, 1996, the Company shall
deliver to the Purchasers a statement certified by Arthur Andersen & Co. (or any
successor thereto) or another "Big Five" accounting firm setting forth the
amount of the EBITDA and revenue of the Company and its Subsidiaries on a
consolidated basis for the fiscal year ended December 31, 1995. The certified
amounts of EBITDA and revenue set forth in such statement are hereinafter
referred to as the "Certified EBITDA and Revenue Amounts." The Certified EBITDA
------------------------------------
and Revenue Amounts shall become final and binding on the Company and the
Purchasers unless the Purchasers give written notice of their disagreement (a
"Notice of Disagreement") to the Company within 20 days following receipt of the
----------------------
statement setting forth the Certified EBITDA and Revenue Amounts. Any such
Notice of Disagreement shall specify in all reasonable detail the nature of any
disagreements so asserted. During a period of 30 days following the aforesaid
20-day period, the Company and the Purchasers shall attempt to resolve in
writing any differences that they may have with respect to any matter specified
in any Notice of Disagreement. If at the end of such 30-day period, the Company
and the Purchasers have failed to reach written agreement with respect to all of
such matters, then all such matters as
<PAGE>
11
specified in any Notice of Disagreement as to which such written agreement has
not been reached (the "Disputed Matters") shall be submitted to and reviewed by
----------------
an arbitrator (the "Arbitrator"), which shall be an independent public
----------
accounting firm of outstanding national reputation (other than Arthur Andersen &
Co. or any successor thereto) selected by the Company and the Purchasers. If
within five business days following the expiration of such 30-day period, the
Company and the Purchasers have failed to agree in writing upon the selection of
the Arbitrator or any Arbitrator selected by them has not agreed to perform the
services called for hereunder, the Arbitrator shall thereupon be selected by the
American Arbitration Association (the "AAA"), with preference being given by the
---
AAA in making such selection to an independent accounting firm (other than any
accounting firm having a significant ongoing relationship with the Company, any
affiliate of the Company, the Purchasers, any affiliate of the Purchasers, the
Management Stockholders or any affiliate of the Management Stockholders) of
outstanding national reputation that is willing to perform such services. If a
Notice of Disagreement is delivered in a timely manner, the Certified EBITDA and
Revenue Amounts, as modified to reflect the resolution of Disputed Matters in
accordance with this Section 2.1.2, shall become final and binding on the
Company and the Purchasers upon the earlier of (a) the date the Company and the
Purchasers resolve in writing all Disputed Matters and (b) the date the
Arbitrator resolves in writing all Disputed Matters. The amounts of the
Company's EBITDA and revenue that become final and binding on the Company and
the Purchasers under this Section 2.1.2 are hereinafter referred to as the
"Final EBITDA and Revenue Amounts."
--------------------------------
(b) Payment of Purchase Price Adjustment. If the Final EBITDA
------------------------------------
and Revenue Amounts exceed $6,359,700.00 and $175,486,750.00, respectively,
within five business days following the date upon which the Final EBITDA and
Revenue Amounts are determined, an adjustment to the purchase price set forth on
Schedule 2.1 shall be paid by the Purchasers, in an amount set forth next to
- ------------
each Purchaser's name on Schedule 2.1 plus interest from the Closing Date until
------------
the payment of the adjustment to the purchase price pursuant to this Section
2.2, calculated at 6.50% per annum (the "Purchase Price Adjustment").
-------------------------
Notwithstanding the foregoing, however, the Company may at any time waive, in
writing, its right to receipt of the Purchase Price Adjustment otherwise
provided for in this Section 2.1
2.2 Powers, Rights and Preferences. The Preferred Shares and Common
------------------------------
Shares shall have the powers, rights and preferences set forth in Exhibit A.
---------
<PAGE>
12
2.3 Reimbursement of Expenses. Concurrently with the execution
-------------------------
hereof, or on such later date as may be specified in writing by the Purchasers,
the Company shall reimburse all of the Purchasers' reasonable out-of-pocket
expenses (including, without limitation, (i) lawyers' fees, charges and
disbursements, (ii) consultants' fees and expenses and (iii) expenses of
tombstone advertisements and other public relations expenses) incurred in
connection with the transactions contemplated by this Agreement. Any payment to
be made by the Company pursuant to this Section 2.3 may, at the discretion of
the Purchaser to whom such payment is to be made, be made by way of deduction
from the purchase price of the Shares otherwise payable by such Purchaser.
2.4 Closing. The purchase and issuance of the Shares shall take
-------
place at the closing (the "Closing"), to be held at the offices of Paul, Weiss,
-------
Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, New York
10019, at 10:00 a.m., Eastern Standard Time, on November 3, 1994, or at such
other time and place as the Company and the Purchasers may agree in writing (the
"Closing Date"). At the Closing, the Company shall deliver to the Purchasers
------------
the Shares against delivery to the Company by the Purchasers of the purchase
price therefor by wire transfer of immediately available funds. If the Closing
shall not have occurred on or before November 7, 1994, except as provided in the
proviso to this sentence, all of the provisions of this Agreement, and the
rights and obligations of the parties hereunder, shall terminate and shall be
without further force and effect; provided, however, that Sections 2.3, 9.2,
-------- -------
9.3, 9.5, 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13, 9.14, 9.15 and 9.16, and the
rights and obligations of the parties thereunder, shall remain in full force and
effect.
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
-----------------------------
The obligation of the Purchasers to purchase the Shares, to pay the
purchase prices therefor at the Closing and to perform any obligations hereunder
shall be subject to the satisfaction, as determined by the Purchasers, of the
following conditions on or before the Closing Date (subject to any waiver of any
such condition by the Purchasers):
3.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company and the Management Stockholders contained in Section 5
hereof shall be true and
<PAGE>
13
correct at and as of the Closing Date as if made at and as of such date.
3.2 Compliance with this Agreement. The Company and the Management
------------------------------
Stockholders shall have performed and complied with all of their respective
agreements and conditions set forth or contemplated herein that are required to
be performed or complied with on or before the Closing Date.
3.3 Secretary's Certificate. The Purchasers shall have received a
-----------------------
certificate from the Company, dated the Closing Date and signed by the Secretary
or an Assistant Secretary of the Company, certifying that the attached copies of
the Amended and Restated Articles of Incorporation and By-laws of the Company,
and resolutions of the Board of Directors of the Company approving this
Agreement and the transactions contemplated hereby, are all true, complete and
correct and remain unamended and in full force and effect.
3.4 Documents. The Purchasers shall have received true, complete and
---------
correct copies of such documents as they may request in connection with or
relating to the sale of the Shares and the transactions contemplated hereby, all
in form and substance satisfactory to the Purchasers.
3.5 Purchase Permitted by Applicable Laws. The acquisition of and
-------------------------------------
payment for the Shares to be acquired by the Purchasers hereunder and the
consummation of the transactions contemplated hereby (a) shall not be prohibited
by any Requirement of Law, (b) shall not subject any of the Purchasers to any
penalty or, in their reasonable judgment, any other onerous condition under or
pursuant to any Requirement of Law and (c) shall be permitted by all Require-
ments of Law to which they or the transactions contemplated by or referred to
herein are subject; and the Purchasers shall have received such certificates or
other evidence as they may reasonably request to establish compliance with this
condition.
3.6 Opinion of Counsel. The Purchasers shall have received opinions
------------------
from (i) Katten Muchin & Zavis, counsel to the Company and the Management
Stockholders, (ii) Epstein Becker & Green, P.C., regulatory counsel to the
Company and (iii) such other counsel as the Purchasers may reasonably request,
each dated the Closing Date, relating to the transactions contemplated by or
referred to herein, in form and substance acceptable to the Purchasers.
3.7 Consents and Approvals. All approvals, consents, exemptions,
----------------------
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and
<PAGE>
14
other Persons in respect of all Requirements of Law, State Regulatory Laws and
Contractual Obligations of the Company or any of the Management Stockholders
necessary or required in connection with the execution, delivery or performance
(including, without limitation, the issuance of Class A Common Stock upon
conversion of the Shares) by the Company or any of the Management Stockholders,
or enforcement against the Company and the Management Stockholders, of the
Transaction Agreements and the Related Transaction Agreements to which it, she
or he, as the case may be, is a party and the transactions contemplated thereby
shall have been obtained and be in full force and effect, and the Purchasers
shall have been furnished with appropriate evidence thereof, and all applicable
waiting periods shall have lapsed without extension or the imposition of any
conditions or restrictions.
3.8 No Material Adverse Change. Since December 31, 1993, there shall
--------------------------
have been no material adverse change, nor shall any such change be threatened,
in the Condition of the Company.
3.9 Capitalization and Ownership; Conduct of Business. From the date
-------------------------------------------------
of this Agreement through the Closing Date, there shall have been no change in
the capital structure or ownership of the Company except as contemplated by the
Transaction Agreements and the Related Transaction Agreements, and the Company
shall not have entered into any transaction or taken any action other than in
the ordinary course of its business, except with the prior written consent of
the Purchasers.
3.10 Registration Rights Agreement. The Company shall have duly
-----------------------------
executed and delivered the Registration Rights Agreement.
3.11 Stockholders' Agreement. The stockholders agreement between the
-----------------------
Company, the Management Stockholders and Zechman, dated as of January 1, 1994
shall have been terminated, and the Company, the Management Stockholders and
Zechman shall have duly executed and delivered the Stockholders' Agreement.
3.12 Certificate of Incorporation and By-laws. The Amended and
----------------------------------------
Restated Articles of Incorporation and By-laws of the Company shall be in form
and substance satisfactory to the Purchasers.
3.13 Employment Agreements. The Company shall have entered into
---------------------
amendments to the employment agreements of Mintz, Adams, Rubinstein, Spiro,
Gulinson, Roberta
<PAGE>
15
Delanois, Cheryl McClees and George Roe in form and substance satisfactory to
the Purchasers.
3.14 Subordinated Loan. The Company shall have consummated the
-----------------
Subordinated Loan upon terms and subject to conditions acceptable to the
Purchasers as to their form and substance.
3.15 Additional Capital Contribution. Mintz, Adams and Rubinstein, in
-------------------------------
the aggregate, shall have made an additional capital contribution to the Company
in the amount of $1,000,000.00 prior to consummation of the Share Redemption.
3.16 Share Redemption. The Company and the Management Stockholders
----------------
shall have entered into a binding agreement to consummate the Share Redemption,
which shall be in form and substance satisfactory to the Purchasers, and all
necessary consents and approvals in respect of such transaction shall have been
obtained by the Company.
3.17 Stock Option Plans. The Company shall have adopted the Medicon
------------------
Stock Option Plans.
3.18 Subsidiary. All issued and outstanding shares of capital stock
----------
of Medicon CI, Inc., a New York corporation, shall have been transferred to the
Company so that Medicon CI, Inc. is a wholly-owned Subsidiary of the Company.
3.19 Shareholder Loans. All Indebtedness (i) owed to the Company by
-----------------
Zechman and any Management Stockholder, including the shareholder loans set
forth on Schedule 3.19 hereto, shall have been repaid in full to the Company
-------------
(except to the extent set forth on Schedule 3.19) and (ii) owed to Whitney or an
-------------
affiliate of CVCA by Mintz, Adams and Rubinstein shall have been repaid to
Whitney or an affiliate of CVCA, as the case may be.
3.20 No Material Judgment or Order. There shall not be on the
-----------------------------
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any Governmental Authority or any condition imposed under any
Requirement of Law that, in the judgment of the Purchasers, would (a) prohibit
the purchase of the Shares hereunder, (b) subject the Purchasers to any penalty
if the Shares were to be purchased hereunder or (c) prohibit the consummation of
the transactions contemplated by the Transaction Agreements and Related
Transaction Agreements.
3.21 Pro Forma Balance Sheet. The Company shall have delivered to
-----------------------
the Purchasers as of the Closing Date a
<PAGE>
16
pro forma consolidated balance sheet of the Company and its Subsidiaries as of
September 30, 1994, certified as true, correct and complete in all material
respects by the chief financial officer of the Company, reflecting the effect of
the Share Redemption, the Subordinated Loan and the consummation of the
transactions contemplated by this Agreement, including all material fees and
expenses in connection therewith, and the application of those adjustments to
the historical consolidated balance sheet of the Company and its Subsidiaries as
of September 30, 1994.
ARTICLE 4
CONDITIONS TO THE OBLIGATION OF THE
COMPANY AND THE MANAGEMENT STOCKHOLDERS TO CLOSE
------------------------------------------------
The obligations of the Company to issue and sell the Shares and of the
Company, and the Management Stockholders to perform any other obligations here-
under shall be subject to the satisfaction, as determined by the Company and the
Management Stockholders of the following conditions on or before the Closing
Date (subject to any waiver of any such condition by the Company and the
Management Stockholders):
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Purchasers contained in Section 6 hereof shall be true and
correct at and as of the Closing Date as if made at and as of such date.
4.2 Compliance with this Agreement. The Purchasers shall have
------------------------------
performed and complied with all of their agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by the
Purchasers on or before the Closing Date.
4.3 Issuance Permitted by Applicable Laws. The issuance of the
-------------------------------------
Shares to be issued by the Company hereunder and the consummation of the
transactions contemplated hereby (a) shall not be prohibited by any Requirement
of Law, (b) shall not subject the Company to any penalty or, in its reasonable
judgment, other onerous condition under or pursuant to any Requirement of Law
and (c) shall be permitted by all Requirements of Law to which it is or the
transactions contemplated by or referred to herein are subject.
4.4 Consents and Approvals. All approvals, consents, exemptions,
----------------------
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of
Law, State
<PAGE>
17
Regulatory Laws and Contractual Obligations of the Purchasers necessary or
required in connection with the execution, delivery or performance by the
Purchasers, or enforcement against the Purchasers, of the Transaction Agreements
shall have been obtained and be in full force and effect, and the Company shall
have been furnished with appropriate evidence thereof, and all applicable
waiting periods shall have lapsed without extension or the imposition of any
conditions or restrictions.
4.5 Stockholders' Agreement. The Purchasers shall have duly executed
-----------------------
and delivered the Stockholders' Agreement.
4.6 No Material Judgment or Order. There shall not be on the Closing
-----------------------------
Date any judgment or order of a court of competent jurisdiction or any ruling of
any Governmental Authority or any condition imposed under any Requirement of Law
which, in the judgment of the Company, would (a) prohibit the sale of the Shares
hereunder, (b) subject the Company to any penalty if the Shares were to be sold
hereunder or (c) prohibit the consummation of the transactions contemplated by
the Transaction Agreements and Related Transaction Agreements.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE MANAGEMENT STOCKHOLDERS
----------------------------------------------
The Company and the Management Stockholders each hereby represent and
warrant, on a joint and several basis, to the Purchasers as follows:
5.1 Corporate Existence and Power.
-----------------------------
(a) The Company and each of its Subsidiaries: (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation; (ii) has all requisite corporate power
and authority to own and operate its property, to lease the property it operates
as lessee and to conduct the business in which it is currently, or is currently
proposed to be, engaged; (iii) is duly qualified as a foreign corporation and
licensed in each jurisdiction in which such qualification or license is required
by law and is in good standing under the laws of each such jurisdiction, except
where the failure to be so qualified, licensed or in good standing would not
have a material adverse effect on the Condition of the Company; and (iv) has the
corporate power and authority to execute, deliver and
<PAGE>
18
perform its obligations under each Transaction Agreement and each Related
Transaction Agreement to which it is or will be a party.
(b) The Amended and Restated Articles of Incorporation of the
Company and the By-laws of the Company delivered to the Purchasers pursuant to
Section 3.3 are the true and complete copies thereof as in effect on the date
hereof. The minute books of the Company which have been made available to the
Purchasers contain true and complete records of all meetings and consents in
lieu of meetings of the Board of Directors (and any committee thereof) of the
Company since the time of its organization and accurately reflect all
transactions referred to in such minutes and consents in lieu of meeting. The
stock books of the Company which have been made available to the Purchasers for
their inspection are true and complete.
5.2 Corporate Authorization; No Contravention. The execution and
-----------------------------------------
delivery by the Company and its Subsidiaries of each Transaction Agreement and
Related Transaction Agreement to which it is a party and the performance of the
transactions contemplated hereby or thereby, including, without limitation, the
issuance of the Shares, (a) has been duly authorized by all necessary corporate,
and, if required, stockholder action and (b) does not contravene the terms of
the Company's or any Subsidiary's Certificate of Incorporation or By-Laws, or
any amendment of either thereof. The execution, delivery and performance by the
Company, its Subsidiaries and the Management Stockholders of each Transaction
Agreement and Related Transaction Agreement to which it, she or he, as the case
may be, is a party does not and will not violate, conflict with or result in any
breach or contravention of or the creation of any Lien under any Contractual
Obligation of the Company, any of its Subsidiaries or any of the Management
Stockholders or any Requirement of Law applicable to the Company, any of its
Subsidiaries or any of the Management Stockholders. Except for the Shareholders
Agreement between the Company, the Management Stockholders and Zechman, dated as
of January 1, 1994, which is to be terminated in connection with the execution
of the Stockholders' Agreement, neither the Company nor any of its Subsidiaries
have previously entered into any agreement which is currently in effect or to
which the Company or any of its Subsidiaries is currently bound, granting any
registration rights to any Person that is inconsistent with the rights to be
granted by the Company in the Registration Rights Agreement.
5.3 Governmental Authorization; Third Party Consents. No approval,
------------------------------------------------
consent, compliance, exemption,
<PAGE>
19
authorization, or other action by, or notice to, or filing with, any
Governmental Authority or any other Person in respect of any Requirement of Law,
any State Regulatory Law or Contractual Obligation of the Company, any of its
Subsidiaries or any of the Management Stockholders, and no lapse of a waiting
period under any Requirement of Law or State Regulatory Law, is necessary or
required in connection with the execution, delivery or performance (including,
without limitation, the issuance of Class A Common Stock upon the conversion of
the Shares) by the Company, any of its Subsidiaries or any of the Management
Stockholders, or enforcement against the Company, any of its Subsidiaries and
the Management Stockholders, of the Transaction Agreements and the Related
Transaction Agreements to which it, she or he, as the case may be, is a party or
the transactions contemplated thereby.
5.4 Binding Effect. This Agreement, the other Transaction Agreements
--------------
and the Related Transaction Agreements have been duly executed and delivered by
the Company, each Subsidiary and the Management Stockholders (to the extent that
each such Person is a party thereto) and constitute the legal, valid and binding
obligations of the Company, each Subsidiary and the Management Stockholders (to
the extent that each such Person is a party thereto) enforceable against the
Company, each Subsidiary and the Management Stockholders (to the extent that
each such Person is a party thereto) in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity relating to enforceability.
5.5 Litigation. Except as set forth on Schedule 5.5, there are no
---------- ------------
legal actions, suits, proceedings, claims or disputes pending, or to the best
knowledge of the Company, any of its Subsidiaries and the Management Stock-
holders, threatened, at law, in equity, in arbitration or before any
Governmental Authority against or affecting the Company, any of its Subsidiaries
or any of the Management Stockholders.
5.6 Compliance with Laws. The Company and its Subsidiaries are in
--------------------
compliance with all Requirements of Law in all material respects. Neither the
Company nor any of its Subsidiaries is required to be licensed or is otherwise
subject to regulation as a health maintenance organization. The Company and its
Subsidiaries either (i) are not subject to regulation as a preferred provider
organization in any State in which the Company or any of its Subsidiaries con-
ducts business or (ii) if subject to regulation as a preferred provider
organization in any such State, are in compliance
<PAGE>
20
with such regulations. The contracts and agreements of the Company and
its Subsidiaries either (x) are not subject to regulation as preferred provider
arrangements in any State in which the Company or any of its Subsidiaries con-
ducts business or (y) if subject to regulation as preferred provider
arrangements in any such State, are in compliance with such regulations.
5.7 No Default or Breach. No event has occurred and is continuing
--------------------
(or would result from the incurring of obligations by the Company, any of its
Subsidiaries or any of the Management Stockholders under the Transaction Agree-
ments or the Related Transaction Agreements) which constitutes or which with the
giving of notice or passage of time would constitute an Event of Default or a
default or event of default under any Contractual Obligation to which the
Company, any of its Subsidiaries or any of the Management Stockholders is a
party. Neither the Company, nor any of its Subsidiaries is in default under or
with respect to any Contractual Obligation in any respect, which, individually
or together with all such defaults, would have a material adverse effect on the
Condition of the Company, or which could adversely affect the ability of the
Company or any of its Subsidiaries to perform its obligations under any Trans-
action Agreements or Related Transaction Agreements.
5.8 Title to Properties. The Company and each of its Subsidiaries
-------------------
have good record and marketable title in fee simple to, or holds interests as
lessee under leases in full force and effect in, all of its real property,
except for such defects in title as would not, individually or in the aggregate,
have a material adverse effect on the Condition of the Company, or an adverse
effect on the ability of the Company or any of its Subsidiaries to perform their
obligations under the Transaction Agreements or the Related Transaction
Agreements.
5.9 Taxes. The Company and each of its Subsidiaries have timely
-----
filed all returns with respect to Taxes required to be filed through the date
hereof in a manner consistent with prior years and applicable laws and regula-
tions and all such Tax returns are true and complete in all material respects.
The Company and each of its Subsidiaries have timely paid all Taxes that are due
through the date hereof, or that are claimed or asserted by any taxing authority
to be due through the date hereof, and the Management Stockholders have timely
paid all Taxes that are due through the date hereof, or that are claimed or
asserted by any taxing authority to be due through the date hereof, with respect
to the operations of the Company and each of its Subsidiaries and with respect
to which the Company or any of its Subsidiaries could at any time be directly or
indirectly
<PAGE>
21
liable, in each case except for those Taxes that are being contested in good
faith by appropriate proceedings and with respect to which adequate reserves
have been set aside. With respect to any period for which Tax returns have not
yet been filed, or for which Taxes are not yet due or owing, the Company and
each of its Subsidiaries have no liability for Taxes in each case other than
Taxes incurred in the ordinary course of business or for which accruals are
reflected in the Unaudited Financial Statements, and the Management Stockholders
have no liability for Taxes with respect to the operations of the Company or any
of its Subsidiaries and with respect to which the Company or any of its
Subsidiaries could at any time be directly or indirectly liable, other than
Taxes incurred in the ordinary course of the business of the Company and its
Subsidiaries.
(a) No audit or other proceeding by any court, taxing authority,
or similar person is pending or, to the knowledge of the Company, any of its
Subsidiaries or the Management Stockholders, threatened with respect to any
Taxes due from or with respect to the operations of the Company or any of its
Subsidiaries or any Tax return filed by or with respect to the operations of the
Company or any of any its Subsidiaries. No assessment of Taxes is proposed
against the Company, any of its Subsidiaries or their assets.
(b) For all taxable periods ending on or before the Closing
Date, the Company has had a valid election in effect to be treated as an "S
corporation," within the meaning of Section 1361(a)(1) of the Code, and, except
as set forth on Schedule 5.9, has had similar elections in effect under
------------
comparable provisions of state and local laws in each jurisdiction in which it
does business.
(c) None of the Management Stockholders are a "foreign person,"
within the meaning of Section 1445(b)(2) of the Code.
5.10 Financial Condition.
-------------------
(a) The Company has furnished the Purchasers with true and
complete copies of (i) the audited balance sheets of the Company as of
December 31, 1993 and December 31, 1992 and the related consolidated statements
of operations and cash flows, together with the notes thereto, of the Company
for the years ended December 31, 1993 and December 31, 1992 (collectively, the
"Audited Financial Statements") and (ii) the unaudited balance sheet of the
----------------------------
Company as of September 30, 1994 and the related statements of operations and
cash flows, together with the notes thereto, of the Company for the 9 month
period ended September
<PAGE>
22
30, 1994, in each case certified as being fairly stated in all material
respects by the Chief Financial Officer of the Company (collectively, the
"Unaudited Financial Statements"). The Audited Financial Statements fairly
------------------------------
present the financial position of the Company as of the date thereof, and the
results of operations and cash flows of the Company for the periods set forth
therein, all in conformity with GAAP consistently applied during the periods
involved. The Unaudited Financial Statements fairly present the financial
position of the Company as of the date thereof and the results of operations and
cash flows of the Company for the periods set forth therein, all in conformity
with GAAP consistently applied during the periods involved (subject to the
absence of footnotes otherwise required by GAAP and to year end adjustments).
(b) The Pro Forma Balance Sheet delivered to the Purchasers
pursuant to Section 3.22 sets forth the consolidated assets and liabilities of
the Company and its Subsidiaries on a pro forma basis after taking into account
the Share Redemption, the Subordinated Loan and the consummation of the
transactions contemplated by this Agreement. The Pro Forma Balance Sheet has
been prepared by the Company in accordance with GAAP and fairly presents in all
material respects the assets and liabilities of the Company and its
Subsidiaries, as of September 30, 1994, based on the assumptions set forth
therein.
5.11 ERISA. The execution and delivery of the Transaction Agreements
-----
and the Related Transaction Agreements, the purchase and sale of the Shares
hereunder and the consummation of the transactions contemplated hereby and
thereby will not result in any non-exempt (within the meaning of the Code)
prohibited transaction (within the meaning of Section 406 of ERISA or
Section 4975 of the Code) arising (i) by reason of the Company, a Subsidiary or
any ERISA Affiliate being either a "party in interest" (as defined in Section
3(14) of ERISA or a "disqualified person" (as defined in Section 4975(e) of the
Code) or by reason of a non-exempt prohibited transaction involving a Plan of
the Company, a Subsidiary or any ERISA Affiliate or (ii) with respect to "plan
assets" (as defined in Section 2510.3-101 of Department of Labor regulations
under ERISA) of the Plans.
5.12 Disclosure.
----------
(a) Agreement and Other Documents. This Agreement, the other
-----------------------------
Transaction Agreements, the Related Transaction Agreements and any other
agreements, documents and certificates furnished to the Purchasers by the
Company pursuant to this Agreement at the Closing do not contain any
<PAGE>
23
untrue statement of a material fact or omit to state a material fact necessary
in order to make any statement contained herein or therein, in the light of the
circumstances under which it was made, not misleading.
(b) Material Adverse Effects. Except for facts generally
------------------------
affecting the health care industry or otherwise generally known within the
health care industry, there is no fact known to any of the Management
Stockholders which has not been disclosed to the Purchasers in writing which
materially adversely affects, or, insofar as any of the Management Stockholders
can reasonably foresee, will materially adversely affect the Condition of the
Company or the ability of the Company or any of the Management Stockholders to
perform its, her or his obligations under the Transaction Agreements, the
Related Transaction Agreements or any other document or transaction contemplated
thereby.
5.13 No Material Adverse Change. Except as described in Schedule
-------------------------- --------
5.13, since December 31, 1993, there has not been any material adverse change in
- ----
the Condition of the Company.
5.14 Environmental Matters.
---------------------
(a) The property, assets and operations of the Company and each
of its Subsidiaries are and have been in material compliance with all applicable
Environmental Laws. There are no Hazardous Materials stored or otherwise
located in, on or under any of the property or assets of the Company or any of
its Subsidiaries, including the groundwater, and, to the best knowledge of the
Company or any of the Management Stockholders, there have been no releases or
threatened releases of Hazardous Materials in, on or under any property
adjoining any of the property or assets of the Company or any of its
Subsidiaries.
(b) None of the properties, assets or operations of the Company
or any of its Subsidiaries is the subject of any federal, state or local
investigation evaluating whether (i) any remedial action is needed to respond to
a release or threatened release of any Hazardous Materials into the environment
or (ii) any release or threatened release of any Hazardous Materials into the
environment is in contravention of any Environmental Law.
(c) Neither the Company nor any of its Subsidiaries have
received any notice or claim, nor are there pending, or, to the best knowledge
of the Company or any of the Management Stockholders, threatened or reasonably
anticipated lawsuits or proceedings against the Company or any of its
Subsidiaries with respect to violations of an
<PAGE>
24
Environmental Law or in connection with the presence of or exposure to any
Hazardous Materials in the environment or any release or threatened release of
any Hazardous Materials into the environment, and the Company and each of its
Subsidiaries neither are nor were the owner or operator of any property which
(i) pursuant to any Environmental Law has been placed on any list of Hazardous
Materials disposal sites, including without limitation, the "National Priorities
List" or "CERCLIS List," (ii) has or, to the knowledge of the Company or any of
the Management Stockholders, had any subsurface storage tanks located thereon or
(iii) to the knowledge of the Company or any of the Management Stockholders has
ever been used as or for a waste disposal facility, a mine, a gasoline service
station or a petroleum products storage facility.
(d) Neither the Company nor any of its Subsidiaries have any
present or contingent liability in connection with the presence either on or off
the property or assets of the Company or any of its Subsidiaries of any
Hazardous Materials in the environment or any release or threatened release of
any Hazardous Materials into the environment.
5.15 Investment Company/Government Regulations. After giving effect
-----------------------------------------
to the transactions contemplated by the Transaction Agreements and the Related
Transaction Agreements, neither the Company, any of its Subsidiaries or any
Person controlling, controlled by or under common control with the Company will
be an "investment company" within the meaning of the Investment Company Act of
1940, as amended. Neither the Company or any of its Subsidiaries are subject to
regulation under the Public Utility Holding Company Act of 1935, as amended, the
Federal Power Act, the Interstate Commerce Act, or any federal or state statute
or regulation limiting its ability to incur Indebtedness.
5.16 Subsidiaries. Schedule 5.16 sets forth a complete and accurate
------------ -------------
list of all of the Subsidiaries of the Company together with their respective
jurisdictions of incorporation or organization. Each such Subsidiary is
directly wholly owned by the Company. All of the outstanding shares of capital
stock of the Subsidiaries that are corporations are validly issued, fully paid
and non-assessable. All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Subsidiaries are owned by the Company or by
a wholly owned Subsidiary free and clear of any Liens. No Subsidiary has
outstanding options, warrants, subscriptions, calls, rights convertible
securities or other agreements or commitments obligating the Subsidiary to
issue, transfer or sell any securities of the Subsidiary.
<PAGE>
25
5.17 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of
8,310,672 shares of Class A Common Stock, 427,328 shares of Class B Common Stock
and 1,262,000 shares of Series A Preferred Stock. As of the Closing and after
giving effect to the transactions contemplated by the Transaction Agreements and
the Related Transaction Agreements, (i) 2,268,836 shares of Class A Common
Stock, 427,328 shares of Class B Common Stock and 1,262,000 shares of Series A
Preferred Stock will be issued and outstanding, all of which will be owned of
record by the Persons listed on Schedule 5.17 in the amounts listed next to the
-------------
name of each such Person, (ii) 581,839 shares of Class A Common Stock will be
reserved for issuance pursuant to employee stock options granted or which may be
granted pursuant to the Medicon Stock Option Plans and (iii) 1,689,328 shares of
Class A Common Stock are reserved for issuance in connection with the conversion
of the Series A Preferred Stock and the Class B Common Stock. All outstanding
shares of capital stock of the Company have been duly authorized. All
outstanding shares of capital stock of the Company are, and the shares of Class
A Common Stock issuable upon conversion of the Shares will be, validly issued,
fully paid, nonassessable and free and clear of any Lien.
(b) At the Closing, except for the Series A Preferred Stock and
the Class B Common Stock, there will be no outstanding securities convertible
into or exchangeable for capital stock of the Company or options, warrants or
other rights to purchase or subscribe to capital stock of the Company or
contracts, commitments, agreements, understandings or arrangements of any kind
to which the Company is a party relating to the issuance of any capital stock of
the Company, any such convertible or exchangeable securities or any such
options, warrants or rights.
5.18 Solvency. The Company and each of its Subsidiaries are Solvent
--------
and will not as a result of any transaction contemplated in any Transaction
Agreement or Related Transaction Agreement become not Solvent.
5.19 Private Offering. No form of general solicitation or general
----------------
advertising was used by the Company or its representatives in connection with
the offer or sale of the Shares, the Senior Subordinated Notes, the Junior
Subordinated Notes or the Class A Shares. No registration of the Shares, the
Senior Subordinated Notes, the Junior Subordinated Notes or the Class A shares
pursuant to the provisions of the Securities Act or any state securities or
"blue sky" laws will be required in connection with the offer, sale or issuance
of the Shares, the Senior
<PAGE>
26
Subordinated Notes, the Junior Subordinated Notes or the Class A Shares. The
Company agrees that neither it, nor anyone acting on its behalf, will offer or
sell the Shares, the Senior Subordinated Notes, the Junior Subordinated Notes or
the Class A Shares or any other security so as to require the registration of
the Shares, the Senior Subordinated Notes, the Junior Subordinated Notes or the
Class A Shares pursuant to the provisions of the Securities Act or any state
securities or "blue sky" laws, unless such Shares, Senior Subordinated Notes,
Junior Subordinated Notes or Class A Shares are so registered.
5.20 Broker's, Finder's or Similar Fees. Except for the Company's
----------------------------------
agreement with Wasserstein Perella & Co. which requires the Company to pay fees
totaling $1,125,000.00, all of which fees have been paid by the Company, there
are no brokerage commissions, finder's fees or similar fees or commissions
payable in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with the Company or any action taken by
the Company.
5.21 Labor Relations. Neither the Company nor any of its
---------------
Subsidiaries is engaged in any unfair labor practice. There is (a) no unfair
labor practice complaint pending or, to the best knowledge of the Company or any
of the Management Stockholders, threatened against the Company or any of its
Subsidiaries before the National Labor Relations Board and no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is so pending or, to the best knowledge of the Company or any of the
Management Stockholders, threatened, (b) no strike, labor dispute, slowdown or
stoppage pending or threatened against the Company or any of its Subsidiaries,
and (c) no union representation question existing with respect to the employees
of the Company or any of its Subsidiaries and, to the knowledge of the Company
or any of the Management Stockholders, no union organizing activities are taking
place.
5.22 Employee Benefit Plans. Neither the Company nor any of its
----------------------
Subsidiaries nor any ERISA Affiliate has any actual or contingent, direct or
indirect, liability in respect of any employee benefit plan (as defined in Sec-
tion 3(3) of ERISA) or other employee benefit arrangement, other than as listed
on Schedule 5.22(a) (collectively, the "Plans"). Except for the items noted on
---------------- -----
Schedule 5.22(a), the Company has delivered to the Purchasers accurate and
- ----------------
complete copies of all of the Plans. All of the Plans are in compliance with
all applicable Requirements of Law. Except as set forth on Schedule 5.22(b),
----------------
there is no "employee benefit plan" (as defined in Section 3(3) of
<PAGE>
27
ERISA) or "plan" (as defined in Section 4975 of the Code) in respect of which
either the Company, or any ERISA Affiliate, is either a "party in interest" (as
defined in Section 3(14) of ERISA) or "disqualified person" (as defined in
Section 4975(e) of the Code). No Plan (a) is subject to Title IV of ERISA, or
is otherwise a Defined Benefit Plan, or is a multiple employer plan (within the
meaning of Section 413(c) of the Code); or (b) except as set forth on
Schedule 5.22(b), provides for post-retirement welfare benefits or a "parachute
- ----------------
payment" (within the meaning of Section 280G(b) of the Code).
5.23 Patents, Trademarks, Etc.
-------------------------
(a) The Company and each of its Subsidiaries owns or has
licensed or otherwise has the right to use all patents, trademarks, service
marks, trade names, copyrights, licenses, franchises and other rights that are
material to the operation of their businesses as presently conducted or proposed
to be conducted.
(b) The Company and each of its Subsidiaries own all computer
software, including the source codes thereto, that is material to the operation
of their businesses as presently conducted or proposed to be conducted. All
computer software owned by the Company and each of its Subsidiaries, including
the source codes thereto, is free and clear of all Liens, has not in any
material way been divulged to any third party and represents unique work product
to which the Company and each of its Subsidiaries, as the case may be, has good
and marketable title. The Company and each of its Subsidiaries uses and has
used its best efforts to secure and maintain its intellectual property rights in
any and all computer software it owns. Duplicates of all such computer
software, including the source codes thereto, are at a secure off-site location.
(c) No product, process, method, substance or other material
presently owned, sold, licensed or employed by the Company or any of its
Subsidiaries, or which the Company or any of its Subsidiaries contemplates
owning, selling, licensing or employing, (i) infringes upon the patents,
trademarks, service marks, copyrights or licenses that are owned by others or
(ii) to the best knowledge of the Company or any of the Management Stockholders,
is being infringed upon by any other Person. No litigation is pending and no
claim has been made against the Company or any of its Subsidiaries or, to the
best knowledge of the Company or any of the Management Stockholders, is
threatened, contesting the right of the Company or any of its Subsidiaries to
own, sell, license or use any product,
<PAGE>
28
process, method, substance or other material presently owned, sold, licensed or
employed by the Company or any of its Subsidiaries or which the Company or any
of its Subsidiaries intends to acquire an ownership interest in, sell, license
or employ.
5.24 Potential Conflicts of Interest. To the best knowledge of the
-------------------------------
Company or any of the Management Stockholders, except as set forth on Schedule
--------
5.24, no officer, director or stockholder of the Company or any of its
- ----
Subsidiaries, no relative or spouse of any such officer, director or stockholder
and no Affiliate of any of the foregoing: (a) owns, directly or indirectly, any
interest in (excepting less than 1% stock holdings for investment purposes in
securities of publicly held and traded companies), or is an officer, director,
employee or consultant of, any Person which is, or is engaged in business as, a
competitor, lessor, lessee, supplier, distributor, sales agent or customer of,
or lender to or borrower from, the Company or any of its Subsidiaries; (b) owns,
directly or indirectly, in whole or in part, any tangible or intangible property
that the Company or any of its Subsidiaries uses in the conduct of its business;
or (c) has any cause of action or other claim whatsoever against, or owes any
amount to, the Company or any of its Subsidiaries, except for claims in the
ordinary course of business such as for accrued vacation pay, accrued benefits
under employee benefit plans, and similar matters and agreements arising in the
ordinary course of business.
5.25 Trade Relations. To the best knowledge of the Company or any of
---------------
the Management Stockholders, there exists no actual or threatened termination,
cancellation or limitation of, or any adverse modification or change in, the
business relationship or business of the Company and its Subsidiaries taken as a
whole or their business with any customer or any group of customers whose use of
their services are individually or in the aggregate material to the business of
the Company and its Subsidiaries then as a whole, or with any material supplier,
and there exists no condition or state of facts or circumstances that would
adversely affect the Condition of the Company or prevent the Company or its
Subsidiaries from conducting their business after the consummation of the
transactions contemplated by the Transaction Agreements and the Related
Transaction Agreements in substantially the same manner in which it heretofore
has been conducted.
5.26 Outstanding Borrowings. Schedule 5.26 lists (i) the amount of
---------------------- -------------
all Outstanding Borrowings (other than the Senior Subordinated Notes and the
Junior Subordinated Notes), (ii) the Liens that relate to such Outstanding
<PAGE>
29
Borrowings and that encumber the assets of the Company or any of its
Subsidiaries and (iii) the name of each lender thereof.
5.27 Material Contracts. Neither the Company nor any Subsidiary is a
------------------
party to any Contractual Obligation and is not subject to any charge, corporate
restriction, judgment, injunction, decree or Requirement of Law materially
adversely affecting, or which may adversely affect, the Condition of the
Company. Schedule 5.27 lists all contracts, agreements and commitments of the
-------------
Company and any Subsidiary as of the Closing Date, whether written or oral,
other than (a) the Transaction Agreements, (b) the Related Transaction
Agreements, (c) provider contracts with individual physicians or other providers
whose payments received from the Company do not represent cost of services for
the period from January 1, 1994 through September 30, 1994 in excess of those
paid to the one-hundred largest, non-individual physician providers, (d) pur-
chase orders in the ordinary course of the Company's and any Subsidiary's
business and (e) any other contracts, agreements and commitments of the Company
or any Subsidiary that (i) do not extend beyond December 31, 1995 and involve
the receipt or payment of not more than $50,000, (ii) do not relate to
employment or labor matters and (iii) are not material to the Condition of the
Company. All of the contracts, agreements and commitments of the Company and
its Subsidiaries are in full force and effect and binding upon the parties
thereto in accordance with their terms. Neither the Company nor any Subsidiary
thereof, nor to the knowledge of the Company and the Management Stockholders,
any other party to such contracts, agreements and commitments is in default
thereunder, nor does any condition exist that with notice or lapse of time or
both would constitute a default thereunder. Neither the Company nor any
Management Stockholder has any knowledge of any proposed, pending, or likely
cancellation or termination of any such contract, agreement or commitment.
5.28 Insurance. Schedule 5.28 (a) accurately summarizes all of the
--------- -------------
Company's and any Subsidiary's insurance policies or programs in effect as of
the date hereof and indicates the insurer's name, policy number, expiration
date, amount of coverage, type of coverage, annual premiums, exclusions and
deductibles, and (b) indicates any self-insurance program that is in effect.
The Company and each of its Subsidiaries maintain insurance in such amounts and
covering such risks as are usually and customarily carried with respect to
similar businesses according to their respective locations.
<PAGE>
30
5.29 Prospective Contracts and Projections. Prior to the date
-------------------------------------
hereof, the Company delivered to the Purchasers financial projections (the
"Projections") and a list of prospective contracts (the "Prospective Contracts
----------- ---------------------
List"). The assumptions used in preparation of the Projections were reasonable
- ----
when made and continue to be reasonable as of the Closing Date. The Projections
and Prospective Contracts List have been prepared in good faith and the
Projections give effect to the transactions contemplated by the Transaction
Agreements and the Related Transaction Agreements, except that they do not
reflect the issuance of debt by the Company. The Purchasers acknowledge that
the Prospective Contracts List and Projections contain assumptions about future
events and that actual results during the period or periods covered may differ
from the data and results contained in such Prospective Contracts List and
Projections.
5.30 Effect of Proposed Transactions on Representations. All
--------------------------------------------------
representations and warranties of the Company and the Management Stockholders in
the Transaction Agreements, the Related Transaction Agreements and in any other
documents or certificates delivered to the Purchasers in connection with the
transactions contemplated hereby and/or thereby are true and correct on the date
hereof and at and as of the Closing Date after giving effect to the transactions
contemplated by such documents and certificates.
5.31 Revenue Accounting. Neither the Company or any Management
------------------
Stockholder is aware of any proposed Accounting Changes or any proposal from any
of its clients with respect to payments to the Company that would be reasonably
likely to negatively impact the way in which the Company recognizes revenue.
5.32 Small Business Matters. The Company, together with its
----------------------
"affiliates" (as that term is defined in Title 13, Code of Federal Regulations,
Sec. 121.401), is a "small business concern" within the meaning of the Small
Business Investment Act of 1958 and the regulations thereunder, including
Title 13, Code of Federal Regulations, Sec. 121.802. The information set forth
in the Small Business Administration Forms 480, 652 and Section A of Form 1031
regarding the Company is accurate and complete. Copies of such forms shall have
been completed and executed by the Company and delivered to CVCA at the Closing.
Neither the Company nor any of its Subsidiaries presently engages in, and it
shall not hereafter engage in, any activities, nor shall the Company or any of
its Subsidiaries use directly or indirectly the proceeds from the sale of the
Shares, for any purpose for which a Small Business
<PAGE>
31
Investment Company is prohibited from providing funds by the Small Business
Investment Act of 1958 and the regulations thereunder, including Title 13, Code
of Federal Regulations, Sec. 107.901. The proceeds from the Company's sale of
the Shares will only be used as provided in Section 8.3.
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
----------------------------
Each of the Purchasers, severally and not jointly, hereby represents
and warrants as follows:
6.1 Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by such Purchaser of this Agreement (a) is within such Purchaser's
power and authority and has been duly authorized by all necessary action,
(b) does not contravene the terms of such Purchaser's organizational documents
or any amendment thereof, and (c) will not violate, conflict with or result in
any breach or contravention of or the creation of any Lien under any Contractual
Obligation of such Purchaser or any Requirement of Law applicable to such
Purchaser.
6.2 Binding Effect. This Agreement has been duly executed and
--------------
delivered by such Purchaser, and this Agreement constitutes the legal, valid and
binding obligation of such Purchaser enforceable against it in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
6.3 Purchase for Own Account. The Shares to be acquired by such
------------------------
Purchaser pursuant to this Agreement are being or will be acquired for its own
account and with no intention of distributing or reselling such securities or
any part thereof in any transaction that would be in violation of the securities
laws of the United States of America, or any state thereof, without prejudice,
however, to the rights of such Purchaser at all times to sell or otherwise
dispose of all or any part of its Shares or any shares of Class A Common Stock
issued upon conversion of Shares under an effective registration statement under
the Securities Act, or under an exemption from such registration available under
the Securities Act, and subject, nevertheless, to the disposition of such
Purchaser's property being at all times within its control. If such Purchaser
should in the future decide to dispose of any of its Shares or any shares of
Class A Common Stock issued upon conversion of Shares, such
<PAGE>
32
Purchaser understands and agrees that it may do so only in compliance with the
Securities Act and applicable state securities laws, as then in effect. Such
Purchaser agrees to the imprinting, so long as required by law, of a legend on
certificates representing all of its Shares and any shares of Class A Common
Stock issued upon conversion of the Shares to the following effect: "THE
---
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
- -----------------------------------------------------------------------------
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY
- -------------------------------------------------------------------------------
NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
- --------------------------------------------------------------------
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
- -----------------------------------------------------------------------------
PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT
- --------------------------------------------------------------------------------
AND SUCH LAWS."
- -------------
6.4 Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with such Purchaser or any action taken by such Purchaser.
ARTICLE 7
INDEMNIFICATION
---------------
7.1 Indemnification. In addition to all other sums due hereunder or
---------------
provided for in this Agreement, the Company and the Management Stockholders each
agree, on a joint and several basis, but subject to Section 7.3, to indemnify
and hold harmless each of the Purchasers and its Affiliates and their respective
officers, directors, agents, employees, subsidiaries, partners and controlling
persons (each, an "Indemnified Party") to the fullest extent permitted by law
-----------------
from and against any and all losses, claims, damages, expenses (including,
without limitation, reasonable fees, disbursements and other charges of counsel)
or other liabilities (collectively, "Liabilities") resulting from or arising out
-----------
of (i) any breach of any representation or warranty, covenant or agreement of
the Company or any of the Management Stockholders in this Agreement, any other
Transaction Agreement, any Related Transaction Agreement or any legal, admini-
strative or other actions (including actions brought by the Purchasers or the
Company or any equity holders of the Company or derivative actions brought by
any Person claiming through or in the Company's name), proceedings or investi-
gations (whether formal or informal), or written threats thereof, based upon,
relating to or arising out of this Agreement, any other Transaction Agreement,
any Related Transaction Agreement or any transaction contemplated thereby or any
Indemnified Party's
<PAGE>
33
role therein or in any transaction contemplated thereby and (ii) any negligent
act, willful misconduct or malpractice that occurred prior to the Closing and
that was performed by any Person in rendering any kind of medical services
whether in the course of their employment with the Company or any of its
Subsidiaries or while acting as their agent or pursuant to any arrangement, be
it contractual or otherwise (but only to the extent the Company's payments with
respect to such negligence, misconduct or malpractice are not covered by
insurance); provided, however, that neither the Company nor any of the
-------- -------
Management Stockholders shall be liable under this Section 7.1 to an Indemnified
Party (a) for any amount paid in settlement of claims without the Company's
consent (which consent shall not be unreasonably withheld), (b) to the extent
that it is finally judicially determined that such Liabilities resulted
primarily from the willful misconduct or gross negligence of such Indemnified
Party or (c) to the extent that it is finally judicially determined that such
Liabilities resulted from the material breach by such Indemnified Party of any
representation, warranty, covenant or other agreement of such Indemnified Party
contained in this Agreement; provided, further, that if and to the extent that
-------- -------
such indemnification is unenforceable for any reason, first the Management
Stockholders shall, on a joint and several basis, make the maximum contribution
to the payment and satisfaction of such Liabilities which shall be permissible
under applicable laws and if and to the extent any such Liabilities are still
not fully satisfied, the Company shall thereafter make the maximum contribution
to the payment and satisfaction of such Liabilities which shall be permissible
under applicable laws. In connection with the obligations of the Company and
the Management Stockholders to indemnify for expenses as set forth above, the
Company and the Management Stockholders further agree, on a joint and several
basis, upon presentation to the Company of appropriate invoices containing
reasonable detail, to reimburse each Indemnified Party for all such expenses
(including, without limitation, reasonable fees, disbursements and other charges
of counsel) as they are incurred by such Indemnified Party; provided, however,
-------- -------
that, if an Indemnified Party is reimbursed hereunder for any expenses, such
reimbursement of expenses shall be refunded to the extent it is finally judi-
cially determined that the Liabilities in question resulted (a) primarily from
the willful misconduct or gross negligence of such Indemnified Party or (b) from
the material breach by such Indemnified Party of any representation, warranty,
covenant or other agreement of such Indemnified Party contained in this
Agreement. For the benefit of the Purchasers, the Management Stockholders also
agree to waive all right to contribution from the Company and agree that they
will in no event seek contribution from the Company resulting from or
<PAGE>
34
arising out of the payment and satisfaction of Liabilities hereunder.
7.2 Notification. Each Indemnified Party under this Article 7 will,
------------
promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Company or any of the
Management Stockholders under this Article 7, notify the Company in writing of
the commencement thereof (and the Company shall so notify the Management
Stockholders). The omission of any Indemnified Party to so notify the Company
of any such action shall not relieve the Company or any of the Management
Stockholders from any liability which any of them may have to such Indemnified
Party (a) other than pursuant to this Article 7 or (b) under this Article 7
unless, and only to the extent that, such omission results in the forfeiture of
substantive rights or defenses. In case any such action, claim or other
proceeding shall be brought against any Indemnified Party and it shall notify
the Company of the commencement thereof, the Company (but not any Management
Stockholder) shall be entitled to assume the defense thereof at its own expense,
with counsel satisfactory to such Indemnified Party in its reasonable judgment;
provided, however, that any Indemnified Party may, at its own expense, retain
- -------- -------
separate counsel to participate in such defense. Notwithstanding the foregoing,
in any action, claim or proceeding in which the Company or any of the Management
Stockholders, on the one hand, and an Indemnified Party, on the other hand, is,
or is reasonably likely to become, a party, such Indemnified Party shall have
the right to employ separate counsel at the Company's expense and to control its
own defense of such action, claim or proceeding if, in the reasonable opinion of
counsel to such Indemnified Party, a conflict or potential conflict exists
between the Company or any Management Stockholder, on the one hand, and such
Indemnified Party, on the other hand, that would make such separate representa-
tion advisable. The Company and the Management Stockholders each agree that it,
she or he, as the case may be, will not, without the prior written consent of
the Purchasers, settle, compromise or consent to the entry of any judgment in
any pending or threatened claim, action or proceeding relating to the matters
contemplated hereby (if any Indemnified Party is a party thereto or has been
actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of the Purchasers and
each other Indemnified Party from all liability arising or that may arise out of
such claim, action or proceeding. The Company and the Management Stockholders
shall not be liable for any settlement of any claim, action or proceeding
effected against an Indemnified Party without the Company's
<PAGE>
35
written consent, which consent shall not be unreasonably withheld. The rights
accorded to Indemnified Parties hereunder shall be in addition to any rights
that any Indemnified Party may have at common law, by separate agreement or
otherwise.
7.3 Limitations on Indemnification. Notwithstanding any other
------------------------------
provision of this Article 7, the indemnification obligation of the Management
Stockholders and the Company hereunder shall be limited as follows:
(i) the Management Stockholders and the Company shall not be
obligated to make any payment for indemnification pursuant to
Section 7.1(i) hereof until the aggregate amount of indemnification
payments under this Agreement and the Subordinated Note and Stock Purchase
Agreement (other than payments pursuant to Section 7.1(ii) of this
Agreement and Section 7.1(ii) of the Subordinated Note and Stock Purchase
Agreement) exceed $500,000.00 (the "Basket Amount"), whereupon the Company
-------------
and the Management Stockholders shall be obligated to pay in full all such
amounts for indemnification, including the Basket Amount, subject to clause
(iii) below;
(ii) the Management Stockholders and the Company shall not be
obligated to make any payment for indemnification pursuant to Section
7.1(ii) hereof until the aggregate amount of indemnification payments under
this Agreement and the Subordinated Note and Stock Purchase Agreement
(other than payments pursuant to Section 7.1(i) of this Agreement and
Section 7.1(i) of the Subordinated Note and Stock Purchase Agreement)
exceed $500,000.00 (the "Insurance Basket Amount"), whereupon the Company
-----------------------
shall be obligated to pay in full all such amounts for indemnification,
including the Insurance Basket Amount, subject to clause (iii) below; and
(iii) none of the Management Stockholders shall be individually
obligated to pay any amount for indemnification pursuant to Section 7
hereof and under the Subordinated Note and Stock Purchase Agreement in
excess of 100% of the aggregate payment received by such Management
Stockholder from the Company pursuant to the Share Redemption Agreement.
<PAGE>
36
ARTICLE 8
AFFIRMATIVE COVENANTS
---------------------
8.1 Operation of Company. From and after the date hereof through the
--------------------
Closing Date, the Company and its Subsidiaries shall not, and the Management
Stockholders shall cause the Company and its Subsidiaries not to, enter into any
transaction or take any action other than in the ordinary course of business,
except with the prior written consent of the Purchasers.
8.2 Exclusivity. From the date hereof through the earlier of the
-----------
Closing Date and December 31, 1994, neither the Company nor any Management
Stockholder shall enter into discussions or negotiations with any Persons other
than the Purchasers and Whitney Debt Fund in respect of any transaction similar
in nature to any transaction contemplated by any Transaction Agreement or
Related Transaction Agreement.
8.3 Use of Proceeds. The Company shall use the proceeds of the sale
---------------
of the Shares hereunder only (a) in connection with the Share Redemption,
(b) for the payment of fees and expenses in connection with the transactions
contemplated in the Transaction Agreements and (c) for general corporate
purposes.
8.4 Consummation of Share Redemption. On the Closing Date, the
--------------------------------
Company and the Management Stockholders shall consummate the Share Redemption on
the terms provided for in the Share Redemption Agreement and shall deliver to
the Purchasers evidence thereof, which evidence shall be in form and substance
satisfactory to the Purchasers.
8.5 Taxes. The Company and its Subsidiaries shall prepare and
-----
timely file, in a manner consistent with prior years and applicable laws and
regulations, all Tax returns required to be filed on or before the Closing Date,
and all such Tax returns will be true and complete in all material respects.
The Company and its Subsidiaries shall timely pay all Taxes required to be paid
by them on or before the Closing Date, or that are claimed or asserted by any
taxing authority to be due on or before the Closing Date, and the Management
Stockholders shall timely pay all Taxes required to be paid by any of them on or
before the Closing Date, or that are claimed or asserted by any taxing authority
to be due on or before the Closing Date, with respect to the operations of the
Company and its Subsidiaries and with respect to which the Company and its
Subsidiaries could at any time be directly or indirectly liable, in each case
except for those Taxes that are being
<PAGE>
37
contested in good faith by appropriate proceedings and with respect to which
adequate reserves have been set aside.
8.6 Information Rights.
------------------
8.6.1 Compliance. Upon the request of any Purchaser, the
----------
Company promptly (and in any event within 20 days of such request) will furnish
to such Purchaser all information necessary in order for such Purchaser to
(i) prepare and file SBA Form 468 and any other information requested or
required by any Governmental Authority asserting jurisdiction over such
Purchaser and (ii) confirm that the use of the proceeds of the sale of the
Shares contemplated hereby was as described in Section 8.3. If the Company
breaches this covenant in any material respect, then in addition to all other
remedies available to the Purchasers, the Purchasers may demand that the Company
repurchase all of the Shares acquired by the Purchasers at the purchase price
thereof.
8.6.2 Regulatory Compliance Cooperation.
---------------------------------
(a) In the event that any Purchaser determines that it has a
Regulatory Problem (as defined below), the Company agrees to take all such
actions as are reasonably requested by such Purchaser in order (i) to effectuate
and facilitate any transfer by such Purchaser of any Securities (as defined
below) of the Company then held by such Purchaser to any Affiliate of the
Purchaser designated by such Purchaser, (ii) to permit such Purchaser (or any
Affiliate of such Purchaser) to exchange all or any portion of the voting
Securities then held by such Person on a share-for-share basis for shares of a
class of nonvoting Securities of the Company, which nonvoting Securities shall
be identical in all respects to such voting Securities, except that such new
Securities shall be nonvoting and shall be convertible into voting Securities on
such terms as are requested by such Purchaser in light of regulatory
considerations then prevailing, and (iii) to continue and preserve the
respective allocation of the voting interests with respect to the Company
provided for in the Stockholders' Agreement and with respect to such Purchaser's
ownership of the Company's voting Securities. Such actions may include, but
shall not necessarily be limited to:
(A) entering into such additional agreements as are
requested by such Purchaser to permit any Person(s) designated by such
Purchaser to exercise any voting power which is relinquished by such
Purchaser upon any exchange of voting Securities for nonvoting
Securities of the Company; and
<PAGE>
38
(B) entering into such additional agreements, adopting such
amendments to the Amended and Restated Articles of Incorporation and
Bylaws of the Company and taking such additional actions as are
reasonably requested by such Purchaser in order to effectuate the
intent of the foregoing.
The Management Stockholders shall cooperate with the Company in
complying with this Section 8.6, including approving the amendment of the
Company's Restated Articles of Incorporation in a manner reasonably requested by
any Purchaser.
(b) In the event any Purchaser has the right to acquire any of
the Company's Securities (as the result of a preemptive offer, pro rata offer or
--- ----
otherwise), at such Purchaser's request the Company will offer to sell to such
Purchaser non-voting Securities on the same terms as would have existed had such
Purchaser acquired the Securities so offered and immediately requested their
exchange for non-voting Securities pursuant to paragraph (a) above.
(c) The Company shall grant to any subsequent holder of
Securities originally acquired by any Purchaser ("Subsequent Purchasers"), upon
---------------------
such Person's request, the same rights granted to the Purchasers pursuant to
this Section 8.6.
(d) In the event that any Subsidiary of the Company ever offers
to sell any of its Securities, then the Company will cause such Subsidiary to
enter into agreements with the Purchasers and any Subsequent Purchasers
substantially similar to this Section 8.6.
(e) For purposes of this Section 8.6, a "Regulatory Problem"
------------------
means any set of facts or circumstances wherein it has been asserted in writing
by any governmental regulatory agency (or there is a substantial risk of such
assertion) that such Purchaser is not entitled to hold, or exercise any
significant right with respect to, the Securities.
(f) As used in this Section 8.6, "Securities" means with respect
----------
to any Person, such Person's capital stock or any options, warrants or other
securities which are directly or indirectly convertible into, or exercisable or
exchangeable for, such Person's capital stock. Whenever a reference herein to
Securities is referring to any derivative Securities, the rights of any
Purchaser and Subsequent Purchasers shall apply to such derivative Securities
and all underlying Securities directly
<PAGE>
39
or indirectly issuable upon conversion, exchange or exercise of such derivative
Securities.
ARTICLE 9
MISCELLANEOUS
-------------
9.1 Survival of Representations and Warranties. All of the repre-
------------------------------------------
sentations and warranties made herein shall survive the execution and delivery
of this Agreement, any investigation by or on behalf of the Purchasers,
acceptance of the Shares and payment therefor, conversion of the Shares or
termination of this Agreement and shall terminate on April 30, 1997; provided,
--------
however, that the representations and warranties set forth in Section 5.14
- -------
hereof shall expire on the fourth anniversary hereof and the representations and
warranties set forth in Section 5.9 hereof shall expire upon the expiration of
any statute of limitations period applicable to the subject matter thereof
(after taking into account any waivers or extensions of any such period pursuant
to applicable law).
9.2 Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing and shall be by telecopier,
courier service or personal delivery:
(a) if to Whitney or Whitney Equity Fund:
J.H. Whitney & Co.
177 Broad Street
Stamford, Connecticut 06901
Telecopier No.: (203) 973-1422
Attention: Jeffrey R. Jay, M.D.
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopier No.: (212) 757-3990
Attention: Toby S. Myerson, Esq.
<PAGE>
40
(b) if to CVCA:
Chemical Venture Capital
Associates, A California
Limited Partnership
c/o Chemical Venture Partners
270 Park Avenue
5th Floor
New York, New York 10017-2070
Telecopier No.: (212) 270-2327
Attention: Mitchell J. Blutt, M.D.
Damion E. Wicker, M.D.
with a copy to:
O'Sullivan, Graev & Karabell
30 Rockefeller Plaza
41st Floor
New York, NY 10112
Telecopier No.: (212) 408-2420
Attention: John Suydam, Esq.
(c) if to the Company:
Medicon, Inc.
40 Skokie Boulevard
Northbook, Illinois 60062-1618
Telecopier No.: (708) 559-6900
Attention: Lawrence Rubinstein, Esq.
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Telecopier No.: (312) 902-1061
Attention: Herbert S. Wander, Esq.
(d) if to any Management Stockholder, at his or her address as
it appears on the record books of the Company.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; and when receipt
is acknowledged, if telecopied.
9.3 Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. Subject to
<PAGE>
41
applicable securities laws, each of the Purchasers may assign any of its rights
under any of the Transaction Agreements to any of its Affiliates. Neither the
Company nor any Management Stockholder may assign any of its, hers or his, as
the case may be, rights under this Agreement without the written consent of the
Purchasers. Except as provided in Article 7, no Person other than the parties
hereto and their successors and permitted assigns is intended to be a
beneficiary of any of the Transaction Agreements.
9.4 Amendment and Waiver.
--------------------
(a) No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to any party hereto
at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by any party hereto from the terms of any provision
of this Agreement, shall be effective (i) only if it is made or given in writing
and signed by the other parties hereto and (ii) only in the specific instance
and for the specific purpose for which made or given. Except where notice is
specifically required by this Agreement, no notice to or demand on any party
hereto in any case shall entitle such party to any other or further notice or
demand in similar or other circumstances.
9.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
9.6 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
9.7 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York, without regard to the
principles of conflicts of law of such State.
<PAGE>
42
9.8 Jurisdiction. Each party to this Agreement hereby irrevocably
------------
agrees that any legal action or proceeding arising out of or relating to this
Agreement or any agreements or transactions contemplated hereby may be brought
in the courts of the State of New York or of the United States of America for
the Southern District of New York and hereby expressly submits to the personal
jurisdiction and venue of such courts for the purposes thereof and expressly
waives any claim of improper venue and any claim that such courts are an
inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth or referred to in Section 9.2, such
service to become effective 10 days after such mailing.
9.9 Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
9.10 Rules of Construction. Unless the context otherwise requires,
---------------------
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Agreement.
9.11 Variations in Pronouns. All pronouns and any variations thereof
----------------------
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
9.12 Entire Agreement. This Agreement, the other Transaction
----------------
Agreements and the Related Transaction Agreements, are intended by the parties
to be a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings other than those set forth or
referred to herein or therein. This Agreement, the other Transaction Agreements
and the Related Transaction Agreements, supersede all prior agreements and
understandings between the parties with respect to such subject matter.
9.13 Certain Expenses. The Company will pay all expenses of the
----------------
Purchasers (including reasonable fees,
<PAGE>
43
charges and disbursements of counsel) in connection with any amendment,
supplement, modification or waiver of or to any provision of this Agreement or
the Amended and Restated Articles of Incorporation of the Company, or any
consent to any departure by the Company or any of the Management Stockholders
from the terms of any provision of this Agreement or the Amended and Restated
Articles of Incorporation of the Company.
9.14 Publicity. Except as may be required by applicable law, none of
---------
the parties hereto shall issue a publicity release or announcement or otherwise
make any public disclosure concerning this Agreement or the transactions con-
templated hereby, without prior approval by the other parties hereto; provided,
--------
however, that the Purchasers and their Affiliates shall be permitted, without
- -------
the prior approval of the other parties hereto, to arrange for the publication
on or after the Closing Date of customary "tombstone" advertisements. If any
announcement is required by law to be made by any party hereto, prior to making
such announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
9.15 Limitations on Rights of Third Parties. Nothing expressed or
---------------------------------------
implied in this Agreement is intended or shall be construed to confer upon or
give any person other than the Company, the Purchasers and the Indemnified
Parties any rights or remedies under or by reason of this Agreement.
9.16 Further Assurances. Each of the parties shall execute such
------------------
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first above written.
MEDICON, INC.
By /s/ John E. Adams
------------------------------
Name: John E. Adams
Title: EVP & COO
WHITNEY 1990 EQUITY FUND, L.P.
By /s/ Jeffrey R. Jay
-----------------------------
Name: Jeffrey R. Jay
A General Partner
J.H. WHITNEY & CO.
By /s/ Jeffrey R. Jay
-----------------------------
Name: Jeffrey R. Jay
A General Partner
CHEMICAL VENTURES CAPITAL ASSOCIATES, A California
Limited Partnership
By: Chemical Venture Partners
Its General Partner
By: /s/
---------------------------
Name:
Executive Partner
____________________________
Alan P. Mintz
/s/ John E. Adams
----------------------------
John E. Adams
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be executed and delivered as of the date first above
written.
MEDICON, INC.
By
------------------------------
Name:
Title:
WHITNEY 1990 EQUITY FUND, L.P.
By
-----------------------------
Name:
A General Partner
J.H. WHITNEY & CO.
By /s/ Jeffrey R. Jay
-----------------------------
Name: Jeffrey R. Jay
A General Partner
CHEMICAL VENTURES CAPITAL ASSOCIATES, A California
Limited Partnership
By: Chemical Venture Partners
Its General Partner
By:
---------------------------
Name:
Executive Partner
/s/ Alan P. Mintz
----------------------------
Alan P. Mintz
----------------------------
John E. Adams
<PAGE>
/s/ Lawrence Rubinstein
----------------------------
Lawrence Rubinstein
____________________________
Alan Spiro
___________________________
Sheldon K. Gulinson
___________________________
Nancie Blatt
<PAGE>
----------------------------
Lawrence Rubinstein
/s/ Alan Spiro
----------------------------
Alan Spiro
___________________________
Sheldon K. Gulinson
___________________________
Nancie Blatt
<PAGE>
----------------------------
Lawrence Rubinstein
____________________________
Alan Spiro
/s/ Sheldon K. Gulinson
----------------------------
Sheldon K. Gulinson
___________________________
Nancie Blatt
<PAGE>
----------------------------
Lawrence Rubinstein
____________________________
Alan Spiro
----------------------------
Sheldon K. Gulinson
/s/ Nancie Blatt
----------------------------
Nancie Blatt
EXHIBIT 10.2
________________________________________________________________________________
SUBORDINATED NOTE AND
STOCK PURCHASE AGREEMENT
among
MEDICON, INC.
WHITNEY SUBORDINATED DEBT FUND, L.P.,
CHEMICAL VENTURE CAPITAL ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
ALAN P. MINTZ,
JOHN E. ADAMS,
LAWRENCE RUBINSTEIN,
ALAN SPIRO,
NANCIE BLATT
and
SHELDON K. GULINSON
______________________________
Dated as of November 3, 1994
______________________________
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
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Page
----
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . 2
1.1 Definitions . . . . . . . . . . . . . . . . . 2
1.2 Accounting Terms; Financial Statements . . . 8
ARTICLE 2 PURCHASE AND SALE OF STOCK . . . . . . . . . 9
2.1 Purchase and Sale of Stock . . . . . . . . . 9
2.2 Purchase and Sale of Class A Shares . . . . . 9
2.3 Powers, Rights and Preferences . . . . . . . 9
2.4 Reimbursement of Fees and Expenses . . . . . 9
2.5 Closing . . . . . . . . . . . . . . . . . . 9
ARTICLE 3 CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE . . . . . . . . 10
3.1 Representations and Warranties . . . . . . . 10
3.2 Compliance with this Agreement . . . . . . . 10
3.3 Secretary's Certificate . . . . . . . . . . 10
3.4 Documents . . . . . . . . . . . . . . . . . 11
3.5 Purchase Permitted by Applicable Laws . . . 11
3.6 Opinion of Counsel . . . . . . . . . . . . . 11
3.7 Consents and Approvals . . . . . . . . . . . 11
3.8 No Material Adverse Change . . . . . . . . . 12
3.9 Capitalization and Ownership; Conduct of
Business . . . . . . . . . . . . . . . . . . 12
3.10 Registration Rights Agreement . . . . . . . 12
3.11 Stockholders' Agreement . . . . . . . . . . 12
3.12 Certificate of Incorporation and By-laws . . 12
3.13 Employment Agreements . . . . . . . . . . . 12
3.14 Stock Purchase . . . . . . . . . . . . . . . 12
3.15 Additional Capital Contribution . . . . . . 12
3.16 Share Redemption . . . . . . . . . . . . . . 13
3.17 Stock Option Plans . . . . . . . . . . . . . 13
3.18 Subsidiary . . . . . . . . . . . . . . . . . 13
3.19 Shareholder Loans . . . . . . . . . . . . . 13
3.20 No Material Judgment or Order . . . . . . . 13
3.21 Pro Forma Balance Sheet . . . . . . . . . . 13
ARTICLE 4 CONDITIONS TO THE OBLIGATION OF THE
COMPANY AND THE MANAGEMENT STOCKHOLDERS TO CLOSE
14
4.1 Representations and Warranties . . . . . . . 14
4.2 Compliance with this Agreement . . . . . . . 14
4.3 Issuance Permitted by Applicable Laws . . . 14
4.4 Consents and Approvals . . . . . . . . . . . 14
4.5 Stockholders' Agreement . . . . . . . . . . 15
4.6 No Material Judgment or Order . . . . . . . 15
<PAGE>
Page
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ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE MANAGEMENT STOCKHOLDERS . . 15
5.1 Corporate Existence and Power . . . . . . . 15
5.2 Corporate Authorization; No Contravention . 16
5.3 Governmental Authorization; Third Party
Consents . . . . . . . . . . . . . . . . . . 16
5.4 Binding Effect . . . . . . . . . . . . . . . 17
5.5 Litigation . . . . . . . . . . . . . . . . . 17
5.6 Compliance with Laws . . . . . . . . . . . . 17
5.7 No Default or Breach . . . . . . . . . . . . 17
5.8 Title to Properties . . . . . . . . . . . . 18
5.9 Taxes . . . . . . . . . . . . . . . . . . . 18
5.10 Financial Condition . . . . . . . . . . . . 19
5.11 ERISA . . . . . . . . . . . . . . . . . . . 20
5.12 Disclosure . . . . . . . . . . . . . . . . 20
5.13 No Material Adverse Change . . . . . . . . . 21
5.14 Environmental Matters . . . . . . . . . . . 21
5.15 Investment Company/Government Regulations . 22
5.16 Subsidiaries . . . . . . . . . . . . . . . . 22
5.17 Capitalization . . . . . . . . . . . . . . . 22
5.18 Solvency . . . . . . . . . . . . . . . . . . 23
5.19 Private Offering . . . . . . . . . . . . . . 23
5.20 Broker's, Finder's or Similar Fees . . . . . 24
5.21 Labor Relations . . . . . . . . . . . . . . 24
5.22 Employee Benefit Plans . . . . . . . . . . . 24
5.23 Patents, Trademarks, Etc. . . . . . . . . . 25
5.24 Potential Conflicts of Interest . . . . . . 25
5.25 Trade Relations . . . . . . . . . . . . . . 26
5.26 Outstanding Borrowings . . . . . . . . . . . 26
5.27 Material Contracts. . . . . . . . . . . . . 26
5.28 Insurance . . . . . . . . . . . . . . . . . 27
5.29 Prospective Contracts and Projections . . . 27
5.30 Effect of Proposed Transactions on
Representations . . . . . . . . . . . . . . 28
5.31 Revenue Accounting . . . . . . . . . . . . . 28
5.32 Small Business Matters . . . . . . . . . . . 28
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE
PURCHASERS . . . . . . . . . . . . . . . . . 29
6.1 Authorization; No Contravention . . . . . . 29
6.2 Binding Effect . . . . . . . . . . . . . . . 29
6.3 Purchase for Own Account . . . . . . . . . . 29
6.4 Broker's, Finder's or Similar Fees . . . . . 30
ARTICLE 7 INDEMNIFICATION . . . . . . . . . . . . . . 30
7.1 Indemnification . . . . . . . . . . . . . . 30
7.2 Notification . . . . . . . . . . . . . . . . 31
7.3 Limitations on Indemnification . . . . . . . 32
ii
<PAGE>
Page
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ARTICLE 8 AFFIRMATIVE COVENANTS . . . . . . . . . . . 33
8.1 Operation of Company . . . . . . . . . . . . 33
8.2 Exclusivity . . . . . . . . . . . . . . . . . 34
8.3 Use of Proceeds . . . . . . . . . . . . . . 34
8.4 Consummation of Share Redemption . . . . . . 34
8.5 Taxes . . . . . . . . . . . . . . . . . . . 34
8.6 Information Rights . . . . . . . . . . . . . 34
ARTICLE 9 MISCELLANEOUS . . . . . . . . . . . . . . . 37
9.1 Survival of Representations and Warranties . 37
9.2 Notices . . . . . . . . . . . . . . . . . . . 37
9.3 Successors and Assigns . . . . . . . . . . . 38
9.4 Amendment and Waiver . . . . . . . . . . . . 39
9.5 Counterparts . . . . . . . . . . . . . . . . 39
9.6 Headings . . . . . . . . . . . . . . . . . . 39
9.7 Governing Law . . . . . . . . . . . . . . . . 39
9.8 Jurisdiction . . . . . . . . . . . . . . . . 40
9.9 Severability . . . . . . . . . . . . . . . . 40
9.10 Rules of Construction . . . . . . . . . . . 40
9.11 Variations in Pronouns . . . . . . . . . . . 40
9.12 Entire Agreement . . . . . . . . . . . . . . 40
9.13 Certain Expenses . . . . . . . . . . . . . . 40
9.14 Publicity . . . . . . . . . . . . . . . . . 41
9.15 Limitations on Rights of Third Parties . . . 41
9.16 Further Assurances . . . . . . . . . . . . . 41
Exhibits
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A - Form of Senior Subordinated Promissory Note
B - Terms of Class A Shares
C - Form of Registration Rights Agreement
D - Form of Stockholders' Agreement
Schedules
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2.1 Names of Purchasers, Principal Amounts of Notes,
Number of Class A Common Shares and Purchase
Prices Thereof
3.19 Shareholder Loans
5.5 Litigation
5.9 Exceptions to S Corporation Elections
5.13 Material Adverse Change
5.16 Subsidiaries
5.17 Capitalization
5.22(a) Employee Benefits
5.22(b) Employee Benefits
5.24 Conflicts of Interest
5.26 Outstanding Borrowings
5.27 Material Contracts
5.28 Insurance
iii
<PAGE>
SUBORDINATED NOTE AND
STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of November 3, 1994, among MEDICON, INC., an
Illinois corporation (the "Company"), WHITNEY SUBORDINATED DEBT FUND, L.P., a
-------
Delaware limited partnership ("Whitney Debt Fund"), CHEMICAL VENTURE CAPITAL
-----------------
ASSOCIATES, L.P., a California limited partnership ("CVCA" and, together with
----
Whitney Debt Fund, the "Purchasers"), ALAN P. MINTZ ("Mintz"), JOHN E. ADAMS
----------
("Adams"), LAWRENCE RUBINSTEIN ("Rubinstein"), ALAN SPIRO ("Spiro"), NANCIE
---------- -----
BLATT ("Blatt") and SHELDON K. GULINSON ("Gulinson" and, together with Mintz,
----- --------
Adams, Rubinstein, Spiro and Blatt, the "Management Stockholders").
-----------------------
WHEREAS, the Company proposes to issue and sell to the Purchasers
(a) Senior Subordinated Promissory Notes due November 3, 2001 in the aggregate
principal amount of $10,000,000.00 (the "Senior Subordinated Notes") and (b) an
-------------------------
aggregate of 123,156 shares (the "Class A Shares") of Class A Common Stock, no
--------------
par value, of the Company;
WHEREAS, it is contemplated that concurrently with the execution of
this Agreement, pursuant to a Stock Purchase Agreement, dated as of the date
hereof (the "Stock Purchase Agreement"), among the Company, Whitney 1990 Equity
------------------------
Fund, L.P. ("Whitney Equity Fund"), J.H. Whitney & Co. ("Whitney"), CVCA and the
------------------- -------
Management Stockholders, (a) the Company will issue and sell to Whitney Equity
Fund, Whitney and CVCA (a) shares of Series A Convertible Preferred Stock, no
par value, of the Company, and (b) shares of Class B Common Stock, no par value,
of the Company, for an aggregate purchase price of $30,000,000.00 (subject to
adjustment as set forth in the Stock Purchase Agreement); and
WHEREAS, it is further contemplated that such other transactions as
are described in Articles 3 and 8 hereof shall be consummated as provided for in
such Articles and any other documents pertaining to such transactions;
NOW, THEREFORE, in consideration of the mutual covenants and agree-
ments set forth herein and for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
<PAGE>
2
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Accounting Change" means any change in GAAP after the date hereof
-----------------
occasioned by promulgation of rules, regulations, pronouncements or opinions by
or otherwise required by the Financial Accounting Standards Board (or a
successor thereto), which change results in a decrease in the amount of revenue
recognized by the Company and its subsidiaries.
"Affiliate" means, as to any Person, any other Person directly or
---------
indirectly controlling, controlled by or under direct or indirect common control
with such Person. For the purposes of this definition, "control," when used
with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise. The terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" means this Agreement (including the exhibits and schedules
---------
hereto) as the same may be amended, supplemented or modified in accordance with
the terms hereof.
"Audited Financial Statements" has the meaning assigned to such term
----------------------------
in Section 5.10(a).
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.
"Class A Shares" has the meaning assigned to that term in the first
--------------
Whereas clause of this Agreement.
"Class A Common Stock" means the Class A Common Stock, no par value,
--------------------
of the Company, or any other capital stock of the Company into which such stock
is reclassified or reconstituted.
"Class B Common Stock" means the Class B Common Stock, no par value,
--------------------
of the Company, or any other capital stock of the Company into which such stock
is reclassified or reconstituted.
<PAGE>
3
"Closing Date" means the date specified in Section 2.4.
------------
"Closing" has the meaning assigned to that term in Section 2.4.
-------
"Code" means the Internal Revenue Code of 1986, as amended, or any
----
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Condition of the Company" means the assets, business, properties,
------------------------
operations or financial condition of the Company and its Subsidiaries, taken as
a whole.
"Contingent Obligation" means, as to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "primary
-------
obligation") of another Person (with respect to a given primary obligation, the
- ----------
"primary obligor"), whether or not contingent, (a) to purchase, repurchase or
---------------
otherwise acquire any such primary obligation or any property constituting
direct or indirect security therefor, or (b) to advance or provide funds (i) for
the payment or discharge of any such primary obligation, or (ii) to maintain
working capital or equity capital of the primary obligor in respect of any such
primary obligation or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of such primary
obligor, or (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor in respect thereof to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof.
"Contractual Obligations" means, as to any Person, any provision of
-----------------------
any security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
<PAGE>
4
"Defined Benefit Plan" means a defined benefit plan within the meaning
--------------------
of Section 3(35) of ERISA or Section 414(j) of the Code, whether funded or
unfunded, qualified or nonqualified (whether or not subject to ERISA or the
Code).
"Environmental Laws" means any federal, state, territorial, provincial
------------------
or local law, common law doctrine, rule, order, decree, judgment, injunction,
license, permit or regulation relating to environmental matters, including those
pertaining to land use, air, soil, surface water, ground water (including the
protection, cleanup, removal, remediation or damage thereof), public or employee
health or safety or any other environmental matter, together with any other laws
(federal, state, territorial, provincial or local) relating to emissions,
discharges, releases or threatened releases of any pollutant or contaminant,
including, without limitation, medical, chemical, biological, biohazardous or
radioactive waste and materials, into ambient air, land, surface water,
groundwater, personal property or structures, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, discharge or handling of any contaminant.
"ERISA Affiliate" means any Person that is treated as a single
---------------
employer with the Company or any of its Subsidiaries under Section 414(b), (c),
(m) or (o) of the Code.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Event of Default" means (a) any default by the Company or the
----------------
Management Stockholders in the due observance or performance of any covenant or
agreement to be observed or performed pursuant to Article 8 of this Agreement or
pursuant to any other Transaction Agreement or any Related Transaction Agreement
or (b) any representation, warranty, certification or statement made by or on
behalf of the Company or the Management Stockholders in this Agreement or in any
other Transaction Agreement, any Related Transaction Agreement or in any
certificate or other document delivered pursuant hereto or thereto shall have
been incorrect in any material respect when made.
"Exchange Act" means the Securities and Exchange Act of 1934, as
------------
amended, and the rules and regulations of the Commission thereunder.
"GAAP" means generally accepted United States accounting principles in
----
effect from time to time.
<PAGE>
5
"Governmental Authority" means the government of any nation, state,
----------------------
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative func-
tions of or pertaining to government, and any corporation or other entity owned
or controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Guaranty" means the guaranty, dated the date hereof, executed by
--------
Medicon CI, Inc. in favor of Whitney Debt Fund and CVCA.
"Hazardous Materials" means those substances which are regulated by or
-------------------
form the basis of liability under any Environmental Laws.
"Indebtedness" means, as to any Person, (a) all obligations of such
------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any lien (other than
liens in favor of lessors under leases other than leases included in clause
(f)) on any property or asset owned or held by such Person regardless of whether
the indebtedness secured thereby shall have been assumed by such Person or is
non-recourse to the credit of such Person and (h) all Contingent Obligations of
such Person.
"Indemnified Party" has the meaning assigned to such term in
-----------------
Section 7.1.
"Junior Subordinated Notes" means the Company's Junior Subordinated
-------------------------
Promissory Notes, dated the Closing Date, issued pursuant to the Share
Redemption Agreement.
<PAGE>
6
"Liabilities" has the meaning assigned to such term in Section 7.1.
-----------
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock or equity related preferences),
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, any interest of a
lessor under a capital lease, or any financing lease having substantially the
same economic effect as any of the foregoing.
"Medicon Stock Option Plans" means (i) the Medicon, Inc. Time
--------------------------
Accelerated Restricted Stock Option Plan for Certain Employees, (ii) the
Medicon, Inc. Stock Option Plan for Non-Employee Directors and (iii) such other
stock option plans as may be approved from time to time by the Board of
Directors of the Company.
"Outstanding Borrowings" means all Indebtedness of the Company or any
----------------------
of its Subsidiaries for money borrowed.
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"Plans" has the meaning assigned to such term in Section 5.22.
-----
"Pro Forma Balance Sheet" means the pro forma consolidated balance
-----------------------
sheet of the Company and its Subsidiaries delivered pursuant to Section 3.22.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement substantially in the form attached hereto as Exhibit C.
---------
"Related Transaction Agreements" means all of the agreements executed
------------------------------
and delivered in connection with the Share Redemption.
"Requirements of Law" means, as to any Person, the articles or
-------------------
certificate of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation, right,
privilege, qualification, license or franchise or determination of an arbitrator
or a court or other Governmental Authority, in
<PAGE>
7
each case applicable or binding upon such Person or any of its property or to
which such Person or any of its property is subject or pertaining to any or all
of the transactions contemplated or referred to herein.
"Securities" has the meaning assigned such term in Section 5.19
----------
hereof.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Senior Subordinated Notes" has the meaning assigned to that term in
-------------------------
the first Whereas clause of this Agreement.
"Series A Preferred Stock" means the Series A Convertible Preferred
------------------------
Stock, no par value, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Share Redemption" means the redemption by the Company of common stock
----------------
from the Management Stockholders as contemplated by the Share Redemption
Agreement.
"Share Redemption Agreement" means the Redemption Agreement, dated as
--------------------------
of the date hereof, among the Company and the Management Stockholders.
"Solvent" means, as to any Person, that the fair saleable value on a
-------
going concern basis of the assets and property of such Person is, on the date of
determination, greater than the total amount of liabilities (including contin-
gent and unliquidated liabilities) of such Person as of such date and that, as
of such date, such Person is able to pay all liabilities of such Person as such
liabilities mature. In computing the amount of contingent or unliquidated
liabilities at any time, such liabilities will be computed as the amount which,
in light of all the facts and circumstances existing at such time, represents
the amount that is probable to become an actual or matured liability.
"State Regulatory Laws" means the laws, rules or regulations of any
---------------------
Governmental Authority of any state for which any consent, approval or
expiration of any waiting period is necessary in connection with the proposed
purchase and sale contemplated hereby.
"Stockholders' Agreement" means the Stockholders' Agreement
-----------------------
substantially in the form attached hereto as Exhibit D.
---------
<PAGE>
8
"Stock Purchase Agreement" has the meaning assigned such term in the
------------------------
second Whereas clause of this Agreement.
"Subsidiary" means, with respect to any Person, a corporation or other
----------
entity of which 50% or more of the voting power of the voting equity securities
or equity interests is owned, directly or indirectly, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in
this Agreement shall refer to a Subsidiary or Subsidiaries of the Company.
"Tax" or "Taxes" means all federal, state, county, local, foreign and
--- -----
other taxes (including, without limitation, income, profits, premium, estimated,
excise, sales, use, occupancy, gross receipts, franchise, ad valorem, severance,
capital levy, production, transfer, withholding, employment, unemployment
compensation, payroll-related and property taxes, import duties and other
governmental charges and assessments), whether or not measured in whole or in
part by net income, and including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including expenses associated
with any proposed adjustment relating to any of the foregoing (including advice
in connection with contesting such adjustment).
"Transaction Agreements" means, collectively, this Agreement, the
----------------------
Stockholders' Agreement, the Registration Rights Agreement, the Stock Purchase
Agreement, the Guaranty and the Senior Subordinated Notes.
"Unaudited Financial Statements" has the meaning assigned to such term
------------------------------
in Section 5.10(a).
"Zechman" means James E. Zechman.
-------
1.2 Accounting Terms; Financial Statements. All accounting terms
--------------------------------------
used herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company, conforms at the time to GAAP applied on a consistent basis except
for changes with which such accountants concur.
<PAGE>
9
ARTICLE 2
PURCHASE AND SALE OF STOCK
--------------------------
2.1 Purchase and Sale of Stock. Subject to the terms and conditions
--------------------------
herein set forth, the Company agrees that it will issue to each of the
Purchasers, and each of the Purchasers agrees that it will acquire from the
Company, on the Closing Date, the principal amount of Senior Subordinated Notes
set forth next to such Purchaser's name on Schedule 2.1 hereto, with each such
------------
Note being substantially in the form attached hereto as Exhibit A, appropriately
---------
completed in conformity herewith. The purchase price of the Notes shall be as
set forth next to each Purchaser's name on Schedule 2.1 hereto.
------------
2.2 Purchase and Sale of Class A Shares. Subject to the terms and
-----------------------------------
conditions herein set forth, the Company agrees that it will issue to each of
the Purchasers, and each of the Purchasers agrees that it will acquire from the
Company, on the Closing Date, the number of Class A Shares set forth next to
such Purchaser's name on Schedule 2.1 hereto. The purchase price for the
------------
Class A Shares shall be as set forth next to each Purchaser's name on
Schedule 2.1 hereto.
- ------------
2.3 Powers, Rights and Preferences. The Class A Shares shall have
------------------------------
the powers, rights and preferences set forth in Exhibit B.
---------
2.4 Reimbursement of Fees and Expenses. Concurrently with the
----------------------------------
execution hereof, or on such later date as may be specified in writing by the
Purchasers, the Company shall (a) reimburse all of the Purchasers' reasonable
out-of-pocket expenses (including, without limitation, (i) lawyers' fees,
charges and disbursements, (ii) consultants' fees and expenses and
(iii) expenses of tombstone advertisements and other public relations expenses)
incurred in connection with the transactions contemplated by this Agreement and
(b) pay to each of J.H. Whitney & Co. and CVCA a debt placement fee in the
amount of $150,000.00 each, which payments shall be made by wire transfer of
immediately available funds to the account of accounts designated by the
Purchasers. Any payment to be made by the Company pursuant to this Section 2.4
may, at the discretion of the Purchaser to whom such payment is to be made, be
made by way of deduction from the purchase price of the Senior Subordinated
Notes or the Class A Shares otherwise payable by such Purchaser.
2.5 Closing. The purchase and issuance of the Class A Shares and the
-------
Senior Subordinated Notes shall take
<PAGE>
10
place at the closing (the "Closing"), to be held at the offices of Paul, Weiss,
-------
Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, New York
10019, at 10:00 a.m., Eastern Standard Time, on November 3, 1994, or at such
other time and place as the Company and the Purchasers may agree in writing (the
"Closing Date"). At the Closing, the Company shall deliver to the Purchasers
------------
the Class A Shares and the Senior Subordinated Notes against delivery to the
Company by the Purchasers of the purchase price therefor by wire transfer of
immediately available funds. If the Closing shall not have occurred on or
before November 7, 1994, except as provided in the proviso to this sentence, all
of the provisions of this Agreement, and the rights and obligations of the
parties hereunder, shall terminate and shall be without further force and
effect; provided, however, that Sections 2.4, 9.2, 9.3, 9.5, 9.7, 9.8, 9.9,
-------- -------
9.10, 9.11, 9.12, 9.13, 9.14, 9.15 and 9.16, and the rights and obligations of
the parties thereunder, shall remain in full force and effect.
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
-----------------------------
The obligation of the Purchasers to purchase the Class A Shares and
the Senior Subordinated Notes, to pay the purchase prices therefor at the
Closing and to perform any obligations hereunder shall be subject to the
satisfaction, as determined by the Purchasers, of the following conditions on or
before the Closing Date (subject to any waiver of any such condition by the
Purchasers):
3.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company and the Management Stockholders contained in Section 5
hereof shall be true and correct at and as of the Closing Date as if made at and
as of such date.
3.2 Compliance with this Agreement. The Company and the Management
------------------------------
Stockholders shall have performed and complied with all of their respective
agreements and conditions set forth or contemplated herein that are required to
be performed or complied with on or before the Closing Date.
3.3 Secretary's Certificate. The Purchasers shall have received a
-----------------------
certificate from the Company, dated the Closing Date and signed by the Secretary
or an Assistant Secretary of the Company, certifying that the attached copies of
the Amended and Restated Articles of Incorporation
<PAGE>
11
and By-laws of the Company, and resolutions of the Board of Directors of the
Company approving this Agreement and the transactions contemplated hereby, are
all true, complete and correct and remain unamended and in full force and
effect.
3.4 Documents. The Purchasers shall have received true, complete and
---------
correct copies of such documents as they may request in connection with or
relating to the sale of the Class A Shares and the Senior Subordinated Notes and
the transactions contemplated hereby, all in form and substance satisfactory to
the Purchasers.
3.5 Purchase Permitted by Applicable Laws. The acquisition of and
-------------------------------------
payment for the Class A Shares and the Senior Subordinated Notes to be acquired
by the Purchasers hereunder and the consummation of the transactions
contemplated hereby (a) shall not be prohibited by any Requirement of Law,
(b) shall not subject any of the Purchasers to any penalty or, in their
reasonable judgment, any other onerous condition under or pursuant to any
Requirement of Law and (c) shall be permitted by all Requirements of Law to
which they or the transactions contemplated by or referred to herein are
subject; and the Purchasers shall have received such certificates or other
evidence as they may reasonably request to establish compliance with this condi-
tion.
3.6 Opinion of Counsel. The Purchasers shall have received opinions
------------------
from (i) Katten Muchin & Zavis, counsel to the Company and the Management
Stockholders, (ii) Epstein Becker & Green, P.C., regulatory counsel to the
Company, and (iii) such other counsel as the Purchasers may reasonably request,
each dated the Closing Date, relating to the transactions contemplated by or
referred to herein, in form and substance acceptable to the Purchasers.
3.7 Consents and Approvals. All approvals, consents, exemptions,
----------------------
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of
Law, State Regulatory Laws and Contractual Obligations of the Company or any of
the Management Stockholders necessary or required in connection with the exe-
cution, delivery or performance (including, without limitation, the issuance of
Class A Common Stock upon conversion of the Series A Preferred Stock and Class B
Common Stock) by the Company or any of the Management Stockholders, or
enforcement against the Company and the Management Stockholders, of the
Transaction Agreements and the Related Transaction Agreements to which it, she
or he, as the case may be, is a party and the transactions contemplated thereby
shall have been obtained and be in full force and effect, and the Purchasers
shall
<PAGE>
12
have been furnished with appropriate evidence thereof, and all applicable
waiting periods shall have lapsed without extension or the imposition of any
conditions or restrictions.
3.8 No Material Adverse Change. Since December 31, 1993, there shall
--------------------------
have been no material adverse change, nor shall any such change be threatened,
in the Condition of the Company.
3.9 Capitalization and Ownership; Conduct of Business. From the date
-------------------------------------------------
of this Agreement through the Closing Date, there shall have been no change in
the capital structure or ownership of the Company except as contemplated by the
Transaction Agreements and the Related Transaction Agreements, and the Company
shall not have entered into any transaction or taken any action other than in
the ordinary course of its business, except with the prior written consent of
the Purchasers.
3.10 Registration Rights Agreement. The Company shall have duly
-----------------------------
executed and delivered the Registration Rights Agreement.
3.11 Stockholders' Agreement. The stockholders agreement between the
-----------------------
Company, the Management Stockholders and Zechman, dated as of January 1, 1994
shall have been terminated, and the Company and the Management Stockholders and
Zechman shall have duly executed and delivered the Stockholders' Agreement.
3.12 Certificate of Incorporation and By-laws. The Amended and
----------------------------------------
Restated Articles of Incorporation and By-laws of the Company shall be in form
and substance satisfactory to the Purchasers.
3.13 Employment Agreements. The Company shall have entered into
---------------------
amendments to the employment agreements of Mintz, Adams, Rubinstein, Spiro,
Gulinson, Roberta Delanois, Cheryl McClees and George Roe in form and substance
satisfactory to the Purchasers.
3.14 Stock Purchase. The Company shall have consummated the
--------------
transactions contemplated by the Stock Purchase Agreement, upon terms and
subject to conditions acceptable to Purchasers as to their form and substance.
3.15 Additional Capital Contribution. Mintz, Adams and Rubinstein,
-------------------------------
in the aggregate, shall have made an additional capital contribution to the
Company in the amount of $1,000,000.00 prior to consummation of the Share
Redemption.
<PAGE>
13
3.16 Share Redemption. The Company and the Management Stockholders
----------------
shall have entered into a binding agreement to consummate the Share Redemption,
which shall be in form and substance satisfactory to the Purchasers, and all
necessary consents and approvals in respect of such transaction shall have been
obtained by the Company.
3.17 Stock Option Plans. The Company shall have adopted the Medicon
------------------
Stock Option Plans.
3.18 Subsidiary. All issued and outstanding shares of capital stock
----------
of Medicon CI, Inc., a New York corporation, shall have been transferred to the
Company so that Medicon CI, Inc. is a wholly-owned Subsidiary of the Company.
3.19 Shareholder Loans. All Indebtedness (i) owed to the Company by
-----------------
Zechman and any Management Stockholder, including the shareholder loans set
forth on Schedule 3.19 hereto, shall have been repaid in full to the Company
-------------
(except to the extent set forth on Schedule 3.19) and (ii) owed to Whitney or an
-------------
affiliate of CVCA by Mintz, Adams and Rubinstein shall have been repaid to
Whitney or an affiliate of CVCA, as the case may be.
3.20 No Material Judgment or Order. There shall not be on the
-----------------------------
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any Governmental Authority or any condition imposed under any
Requirement of Law that, in the judgment of the Purchasers, would (a) prohibit
the purchase of the Class A Shares or the Senior Subordinated Notes hereunder,
(b) subject the Purchasers to any penalty if the Class A Shares or the Senior
Subordinated Notes were to be purchased hereunder or (c) prohibit the
consummation of the transactions contemplated by the Transaction Agreements and
Related Transaction Agreements.
3.21 Pro Forma Balance Sheet. The Company shall have delivered to
-----------------------
the Purchasers as of the Closing Date a pro forma consolidated balance sheet of
the Company and its Subsidiaries as of September 30, 1994, certified as true,
correct and complete in all material respects by the chief financial officer of
the Company, reflecting the effect of the Share Redemption, the Stock Purchase
Agreement and the consummation of the transactions contemplated by this
Agreement, including all material fees and expenses in connection therewith, and
the application of those adjustments to the historical consolidated balance
sheet of the Company and its Subsidiaries as of September 30, 1994.
<PAGE>
14
ARTICLE 4
CONDITIONS TO THE OBLIGATION OF THE
COMPANY AND THE MANAGEMENT STOCKHOLDERS TO CLOSE
------------------------------------------------
The obligations of the Company to issue and sell the Class A Shares
and the Senior Subordinated Notes and of the Company, and the Management
Stockholders to perform any other obligations hereunder shall be subject to the
satisfaction, as determined by the Company and the Management Stockholders of
the following conditions on or before the Closing Date (subject to any waiver of
any such condition by the Company and the Management Stockholders):
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Purchasers contained in Section 6 hereof shall be true and
correct at and as of the Closing Date as if made at and as of such date.
4.2 Compliance with this Agreement. The Purchasers shall have
------------------------------
performed and complied with all of their agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by the
Purchasers on or before the Closing Date.
4.3 Issuance Permitted by Applicable Laws. The issuance of the
-------------------------------------
Class A Shares and the Senior Subordinated Notes to be issued by the Company
hereunder and the consummation of the transactions contemplated hereby (a) shall
not be prohibited by any Requirement of Law, (b) shall not subject the Company
to any penalty or, in its reasonable judgment, other onerous condition under or
pursuant to any Requirement of Law and (c) shall be permitted by all
Requirements of Law to which it is or the transactions contemplated by or
referred to herein are subject.
4.4 Consents and Approvals. All approvals, consents, exemptions,
----------------------
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of
Law, State Regulatory Laws and Contractual Obligations of the Purchasers
necessary or required in connection with the execution, delivery or performance
by the Purchasers, or enforcement against the Purchasers, of the Transaction
Agreements shall have been obtained and be in full force and effect, and the
Company shall have been furnished with appropriate evidence thereof, and all
applicable waiting periods shall have lapsed without extension or the imposition
of any conditions or restrictions.
<PAGE>
15
4.5 Stockholders' Agreement. The Purchasers shall have duly executed
-----------------------
and delivered the Stockholders' Agreement.
4.6 No Material Judgment or Order. There shall not be on the Closing
-----------------------------
Date any judgment or order of a court of competent jurisdiction or any ruling of
any Governmental Authority or any condition imposed under any Requirement of Law
which, in the judgment of the Company, would (a) prohibit the sale of the
Class A Shares or the Senior Subordinated Notes hereunder, (b) subject the
Company to any penalty if the Class A Shares or the Senior Subordinated Notes
were to be sold hereunder or (c) prohibit the consummation of the transactions
contemplated by the Transaction Agreements and Related Transaction Agreements.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE MANAGEMENT STOCKHOLDERS
----------------------------------------------
The Company and the Management Stockholders each hereby represent and
warrant, on a joint and several basis, to the Purchasers as follows:
5.1 Corporate Existence and Power.
-----------------------------
(a) The Company and each of its Subsidiaries: (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation; (ii) has all requisite corporate power
and authority to own and operate its property, to lease the property it operates
as lessee and to conduct the business in which it is currently, or is currently
proposed to be, engaged; (iii) is duly qualified as a foreign corporation and
licensed in each jurisdiction in which such qualification or license is required
by law and is in good standing under the laws of each such jurisdiction, except
where the failure to be so qualified, licensed or in good standing would not
have a material adverse effect on the Condition of the Company; and (iv) has the
corporate power and authority to execute, deliver and perform its obligations
under each Transaction Agreement and each Related Transaction Agreement to which
it is or will be a party.
(b) The Amended and Restated Articles of Incorporation of the
Company and the By-laws of the Company delivered to the Purchasers pursuant to
Section 3.3 are the true and complete copies thereof as in effect on the date
hereof. The minute books of the Company which have been
<PAGE>
16
made available to the Purchasers contain true and complete records of all
meetings and consents in lieu of meetings of the Board of Directors (and any
committee thereof) of the Company since the time of its organization and
accurately reflect all transactions referred to in such minutes and consents in
lieu of meeting. The stock books of the Company which have been made available
to the Purchasers for their inspection are true and complete.
5.2 Corporate Authorization; No Contravention. The execution and
-----------------------------------------
delivery by the Company and its Subsidiaries of each Transaction Agreement and
Related Transaction Agreement to which it is a party and the performance of the
transactions contemplated hereby or thereby, including, without limitation, the
issuance of the Class A Shares and the Senior Subordinated Notes, (a) has been
duly authorized by all necessary corporate, and, if required, stockholder action
and (b) does not contravene the terms of the Company's or any Subsidiary's
Certificate of Incorporation or By-Laws, or any amendment of either thereof.
The execution, delivery and performance by the Company, its Subsidiaries and the
Management Stockholders of each Transaction Agreement and Related Transaction
Agreement to which it, she or he, as the case may be, is a party does not and
will not violate, conflict with or result in any breach or contravention of or
the creation of any Lien under any Contractual Obligation of the Company, any of
its Subsidiaries or any of the Management Stockholders or any Requirement of Law
applicable to the Company, any of its Subsidiaries or any of the Management
Stockholders. Except for the Shareholders Agreement between the Company, the
Management Stockholders and Zechman, dated as of January 1, 1994, which is to be
terminated in connection with the execution of the Stockholders' Agreement,
neither the Company nor any of its Subsidiaries have previously entered into any
agreement which is currently in effect or to which the Company or any of its
Subsidiaries is currently bound, granting any registration rights to any Person
that is inconsistent with the rights to be granted by the Company in the
Registration Rights Agreement.
5.3 Governmental Authorization; Third Party Consents. No approval,
------------------------------------------------
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person in respect of any
Requirement of Law, any State Regulatory Law or Contractual Obligation of the
Company, any of its Subsidiaries or any of the Management Stockholders, and no
lapse of a waiting period under any Requirement of Law or State Regulatory Law,
is necessary or required in connection with the execution, delivery or
performance by the Company, any of its Subsidiaries or any of the Management
<PAGE>
17
Stockholders, or enforcement against the Company, any of its Subsidiaries and
the Management Stockholders, of the Transaction Agreements and the Related
Transaction Agreements to which it, she or he, as the case may be, is a party or
the transactions contemplated thereby.
5.4 Binding Effect. This Agreement, the other Transaction Agreements
--------------
and the Related Transaction Agreements have been duly executed and delivered by
the Company, each Subsidiary and the Management Stockholders (to the extent that
each such Person is a party thereto) and constitute the legal, valid and binding
obligations of the Company, each Subsidiary and the Management Stockholders (to
the extent that each such Person is a party thereto) enforceable against the
Company, each Subsidiary and the Management Stockholders (to the extent that
each such Person is a party thereto) in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity relating to enforceability.
5.5 Litigation. Except as set forth on Schedule 5.5, there are no
---------- ------------
legal actions, suits, proceedings, claims or disputes pending, or to the best
knowledge of the Company, any of its Subsidiaries and the Management
Stockholders, threatened, at law, in equity, in arbitration or before any
Governmental Authority against or affecting the Company, any of its Subsidiaries
or any of the Management Stockholders.
5.6 Compliance with Laws. The Company and its Subsidiaries are in
--------------------
compliance with all Requirements of Law in all material respects. Neither the
Company nor any of its Subsidiaries is required to be licensed or is otherwise
subject to regulation as a health maintenance organization. The Company and its
Subsidiaries either (i) are not subject to regulation as a preferred provider
organization in any State in which the Company or any of its Subsidiaries
conducts business or (ii) if subject to regulation as a preferred provider
organization in any such State, are in compliance with such regulations. The
contracts and agreements of the Company and its Subsidiaries either (x) are not
subject to regulation as preferred provider arrangements in any State in which
the Company or any of its Subsidiaries conducts business or (y) if subject to
regulation as preferred provider arrangements in any such State, are in
compliance with such regulations.
5.7 No Default or Breach. No event has occurred and is continuing
--------------------
(or would result from the incurring of obligations by the Company, any of its
Subsidiaries or any
<PAGE>
18
of the Management Stockholders under the Transaction Agreements or the Related
Transaction Agreements) which constitutes or which with the giving of notice or
passage of time would constitute an Event of Default or a default or event of
default under any Contractual Obligation to which the Company, any of its
Subsidiaries or any of the Management Stockholders is a party. Neither the
Company, nor any of its Subsidiaries is in default under or with respect to any
Contractual Obligation in any respect, which, individually or together with all
such defaults, would have a material adverse effect on the Condition of the
Company, or which could adversely affect the ability of the Company or any of
its Subsidiaries to perform its obligations under any Transaction Agreements or
Related Transaction Agreements.
5.8 Title to Properties. The Company and each of its Subsidiaries
-------------------
have good record and marketable title in fee simple to, or holds interests as
lessee under leases in full force and effect in, all of its real property,
except for such defects in title as would not, individually or in the aggregate,
have a material adverse effect on the Condition of the Company, or an adverse
effect on the ability of the Company or any of its Subsidiaries to perform their
obligations under the Transaction Agreements or the Related Transaction
Agreements.
5.9 Taxes. The Company and each of its Subsidiaries have timely
-----
filed all returns with respect to Taxes required to be filed through the date
hereof in a manner consistent with prior years and applicable laws and
regulations and all such Tax returns are true and complete in all material
respects. The Company and each of its Subsidiaries have timely paid all Taxes
that are due through the date hereof, or that are claimed or asserted by any
taxing authority to be due through the date hereof, and the Management
Stockholders have timely paid all Taxes that are due through the date hereof, or
that are claimed or asserted by any taxing authority to be due through the date
hereof, with respect to the operations of the Company and each of its
Subsidiaries and with respect to which the Company or any of its Subsidiaries
could at any time be directly or indirectly liable, in each case except for
those Taxes that are being contested in good faith by appropriate proceedings
and with respect to which adequate reserves have been set aside. With respect
to any period for which Tax returns have not yet been filed, or for which Taxes
are not yet due or owing, the Company and each of its Subsidiaries have no
liability for Taxes in each case other than Taxes incurred in the ordinary
course of business or for which accruals are reflected in the Unaudited
Financial Statements, and the Management Stockholders have no liability for
Taxes with
<PAGE>
19
respect to the operations of the Company or any of its Subsidiaries and with
respect to which the Company or any of its Subsidiaries could at any time be
directly or indirectly liable, other than Taxes incurred in the ordinary course
of the business of the Company and its Subsidiaries.
(a) No audit or other proceeding by any court, taxing authority,
or similar person is pending or, to the knowledge of the Company, any of its
Subsidiaries or the Management Stockholders, threatened with respect to any
Taxes due from or with respect to the operations of the Company or any of its
Subsidiaries or any Tax return filed by or with respect to the operations of the
Company or any of any its Subsidiaries. No assessment of Taxes is proposed
against the Company, any of its Subsidiaries or their assets.
(b) For all taxable periods ending on or before the Closing
Date, the Company has had a valid election in effect to be treated as an "S
corporation," within the meaning of Section 1361(a)(1) of the Code, and, except
as set forth on Schedule 5.9, has had similar elections in effect under
------------
comparable provisions of state and local laws in each jurisdiction in which it
does business.
(c) None of the Management Stockholders are a "foreign person,"
within the meaning of Section 1445(b)(2) of the Code.
5.10 Financial Condition.
-------------------
(a) The Company has furnished the Purchasers with (i) true and
complete copies of the audited balance sheets of the Company as of December 31,
1993 and December 31, 1992 and the related consolidated statements of operations
and cash flows, together with the notes thereto, of the Company for the years
ended December 31, 1993 and December 31, 1992 (collectively, the "Audited
-------
Financial Statements") and (ii) the unaudited balance sheet of the Company as of
- --------------------
September 30, 1994 and the related statements of operations and cash flows,
together with the notes thereto, of the Company for the 9 month period ended
September 30, 1994, in each case certified as being fairly stated in all
material respects by the Chief Financial Officer of the Company (collectively,
the "Unaudited Financial Statements"). The Audited Financial Statements fairly
------------------------------
present the financial position of the Company as of the date thereof, and the
results of operations and cash flows of the Company for the periods set forth
therein, all in conformity with GAAP consistently applied during the periods
involved. The Unaudited Financial Statements fairly present the financial
position of the Company as of the date
<PAGE>
20
thereof and the results of operations and cash flows of the Company for the
periods set forth therein, all in conformity with GAAP consistently applied
during the periods involved (subject to the absence of footnotes otherwise
required by GAAP and to year end adjustments.
(b) The Pro Forma Balance Sheet delivered to the Purchasers
pursuant to Section 3.22 sets forth the consolidated assets and liabilities of
the Company and its Subsidiaries on a pro forma basis after taking into account
the Share Redemption, the Stock Purchase Agreement and the consummation of the
transactions contemplated by this Agreement. The Pro Forma Balance Sheet has
been prepared by the Company in accordance with GAAP and fairly presents in all
material respects the assets and liabilities of the Company and its
Subsidiaries, as of September 30, 1994, based on the assumptions set forth
therein.
5.11 ERISA. The execution and delivery of the Transaction Agreements
-----
and the Related Transaction Agreements, the purchase and sale of the Shares
hereunder and the consummation of the transactions contemplated hereby and
thereby will not result in any non-exempt (within the meaning of the Code)
prohibited transaction (within the meaning of Section 406 of ERISA or
Section 4975 of the Code) arising (i) by reason of the Company, a Subsidiary or
any ERISA Affiliate being either a "party in interest" (as defined in Section
3(14) of ERISA) or a "disqualified person" (as defined in Section 4975(e) of the
Code) or by reason of a non-exempt prohibited transaction involving a Plan of
the Company, Subsidiary or any ERISA Affiliate or (ii) with respect to "plan
assets" (as defined in Section 2510.3-101 of Department of Labor regulations
under ERISA) of the Plans.
5.12 Disclosure.
----------
(a) Agreement and Other Documents. This Agreement, the other
-----------------------------
Transaction Agreements, the Related Transaction Agreements and any other
agreements, documents and certificates furnished to the Purchasers by the
Company pursuant to this Agreement at the Closing do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make any statement contained herein or therein, in the light of the circum-
stances under which it was made, not misleading.
(b) Material Adverse Effects. Except for facts generally
------------------------
affecting the health care industry or otherwise generally known within the
health care industry, there is no fact known to any of the Management
Stockholders which has not been disclosed to the Purchasers in writing
<PAGE>
21
which materially adversely affects, or, insofar as any of the Management
Stockholders can reasonably foresee, will materially adversely affect the
Condition of the Company or the ability of the Company or any of the Management
Stockholders to perform its, her or his obligations under the Transaction
Agreements, the Related Transaction Agreements or any other document or
transaction contemplated thereby.
5.13 No Material Adverse Change. Except as described in Schedule
-------------------------- --------
5.13, since December 31, 1993, there has not been any material adverse change in
- ----
the Condition of the Company.
5.14 Environmental Matters.
---------------------
(a) The property, assets and operations of the Company and each
of its Subsidiaries are and have been in material compliance with all applicable
Environmental Laws. There are no Hazardous Materials stored or otherwise
located in, on or under any of the property or assets of the Company or any of
its Subsidiaries, including the groundwater, and, to the best knowledge of the
Company or any of the Management Stockholders, there have been no releases or
threatened releases of Hazardous Materials in, on or under any property
adjoining any of the property or assets of the Company or any of its
Subsidiaries.
(b) None of the properties, assets or operations of the Company
or any of its Subsidiaries is the subject of any federal, state or local
investigation evaluating whether (i) any remedial action is needed to respond to
a release or threatened release of any Hazardous Materials into the environment
or (ii) any release or threatened release of any Hazardous Materials into the
environment is in contravention of any Environmental Law.
(c) Neither the Company nor any of its Subsidiaries have
received any notice or claim, nor are there pending, or, to the best knowledge
of the Company or any of the Management Stockholders, threatened or reasonably
anticipated lawsuits or proceedings against the Company or any of its
Subsidiaries with respect to violations of an Environmental Law or in connection
with the presence of or exposure to any Hazardous Materials in the environment
or any release or threatened release of any Hazardous Materials into the
environment, and the Company and each of its Subsidiaries neither are nor were
the owner or operator of any property which (i) pursuant to any Environmental
Law has been placed on any list of Hazardous Materials disposal sites, including
without limitation, the "National Priorities List" or "CERCLIS List," (ii) has
or, to the knowledge of the Company or any of the Management
<PAGE>
22
Stockholders, had any subsurface storage tanks located thereon or (iii) to the
knowledge of the Company or any of the Management Stockholders has ever been
used as or for a waste disposal facility, a mine, a gasoline service station or
a petroleum products storage facility.
(d) Neither the Company nor any of its Subsidiaries have any
present or contingent liability in connection with the presence either on or off
the property or assets of the Company or any of its Subsidiaries of any
Hazardous Materials in the environment or any release or threatened release of
any Hazardous Materials into the environment.
5.15 Investment Company/Government Regulations. After giving effect
-----------------------------------------
to the transactions contemplated by the Transaction Agreements and the Related
Transaction Agreements, neither the Company, any of its Subsidiaries or any
Person controlling, controlled by or under common control with the Company will
be an "investment company" within the meaning of the Investment Company Act of
1940, as amended. Neither the Company or any of its Subsidiaries are subject to
regulation under the Public Utility Holding Company Act of 1935, as amended, the
Federal Power Act, the Interstate Commerce Act, or any federal or state statute
or regulation limiting its ability to incur Indebtedness.
5.16 Subsidiaries. Schedule 5.16 sets forth a complete and accurate
------------ -------------
list of all of the Subsidiaries of the Company together with their respective
jurisdictions of incorporation or organization. Each such Subsidiary is
directly wholly owned by the Company. All of the outstanding shares of capital
stock of the Subsidiaries that are corporations are validly issued, fully paid
and non-assessable. All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Subsidiaries are owned by the Company or by
a wholly owned Subsidiary free and clear of any Liens. No Subsidiary has
outstanding options, warrants, subscriptions, calls, rights convertible
securities or other agreements or commitments obligating the Subsidiary to
issue, transfer or sell any securities of the Subsidiary.
5.17 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of
8,310,672 shares of Class A Common Stock, 427,328 shares of Class B Common Stock
and 1,262,000 shares of Series A Preferred Stock. As of the Closing and after
giving effect to the transactions contemplated by the Transaction Agreements and
the Related Transaction Agreements, (i) 2,268,836 shares of Class A Common
Stock,
<PAGE>
23
427,328 shares of Class B Common Stock and 1,262,000 shares of Series A
Preferred Stock will be issued and outstanding, all of which will be owned of
record by the Persons listed on Schedule 5.17 in the amounts listed next to the
-------------
name of each such Person, (ii) 581,839 shares of Class A Common Stock will be
reserved for issuance pursuant to employee stock options granted or which may be
granted pursuant to the Medicon Stock Option Plans and (iii) 1,689,328 shares of
Class A Common Stock are reserved for issuance in connection with the conversion
of the Series A Preferred Stock and the Class B Common Stock. All outstanding
shares of capital stock of the Company have been duly authorized. All outstand-
ing shares of capital stock of the Company are, and the shares of Class A Common
Stock issuable upon conversion of the Shares will be, validly issued, fully
paid, nonassessable and free and clear of any Lien.
(b) At the Closing, except for the Series A Preferred Stock and
the Class B Common Stock, there will be no outstanding securities convertible
into or exchangeable for capital stock of the Company or options, warrants or
other rights to purchase or subscribe to capital stock of the Company or
contracts, commitments, agreements, understandings or arrangements of any kind
to which the Company is a party relating to the issuance of any capital stock of
the Company, any such convertible or exchangeable securities or any such
options, warrants or rights.
5.18 Solvency. The Company and each of its Subsidiaries are Solvent
--------
and will not as a result of any transaction contemplated in any Transaction
Agreement or Related Transaction Agreement become not Solvent.
5.19 Private Offering. No form of general solicitation or general
----------------
advertising was used by the Company or its representatives in connection with
the offer or sale of the shares of Series A Convertible Preferred Stock and
Class B Common Stock sold pursuant to the Stock Purchase Agreement, the Class A
Shares, the Senior Subordinated Notes or the Junior Subordinated Notes
(collectively, the "Securities"). No registration of the Securities pursuant to
----------
the provisions of the Securities Act or any state securities or "blue sky" laws
will be required in connection with the offer, sale or issuance of the
Securities. The Company agrees that neither it, nor anyone acting on its
behalf, will offer or sell the Securities or any other security so as to require
the registration of the Securities pursuant to the provisions of the Securities
Act or any state securities or "blue sky" laws, unless such Securities are so
registered.
<PAGE>
24
5.20 Broker's, Finder's or Similar Fees. Except for the Company's
----------------------------------
agreement with Wasserstein Perella & Co. which requires the Company to pay fees
totaling $1,125,000.00, all of which fees have been paid by the Company, and
except for the transaction fees payable to each of the Purchasers pursuant to
Section 2.3 hereof, there are no brokerage commissions, finder's fees or similar
fees or commissions payable in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with the Company or
any action taken by the Company.
5.21 Labor Relations. Neither the Company nor any of its
---------------
Subsidiaries is engaged in any unfair labor practice. There is (a) no unfair
labor practice complaint pending or, to the best knowledge of the Company or any
of the Management Stockholders, threatened against the Company or any of its
Subsidiaries before the National Labor Relations Board and no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is so pending or, to the best knowledge of the Company or any of the
Management Stockholders, threatened, (b) no strike, labor dispute, slowdown or
stoppage pending or threatened against the Company or any of its Subsidiaries,
and (c) no union representation question existing with respect to the employees
of the Company or any of its Subsidiaries and, to the knowledge of the Company
or any of the Management Stockholders, no union organizing activities are taking
place.
5.22 Employee Benefit Plans. Neither the Company nor any of its
----------------------
Subsidiaries nor any ERISA Affiliate has any actual or contingent, direct or
indirect, liability in respect of any employee benefit plan (as defined in Sec-
tion 3(3) of ERISA) or other employee benefit arrangement, other than as listed
on Schedule 5.22(a) (collectively, the "Plans"). Except for the items noted on
---------------- -----
Schedule 5.22(a), the Company has delivered to the Purchasers accurate and
- ----------------
complete copies of all of the Plans. All of the Plans are in compliance with
all applicable Requirements of Law. Except as set forth on Schedule 5.22(b),
----------------
there is no "employee benefit plan" (as defined in Section 3(3) of ERISA) or
"plan" (as defined in Section 4975 of the Code) in respect of which either the
Company, or any ERISA Affiliate, is either a "party in interest" (as defined in
Section 3(14) of ERISA) or "disqualified person" (as defined in Section 4975(e)
of the Code). No Plan (a) is subject to Title IV of ERISA, or is otherwise a
Defined Benefit Plan, or is a multiple employer plan (within the meaning of
Section 413(c) of the Code); or (b) except as set forth on Schedule 5.22(b),
----------------
provides for post-retirement welfare
<PAGE>
25
benefits or a "parachute payment" (within the meaning of Section 280G(b) of the
Code).
5.23 Patents, Trademarks, Etc.
-------------------------
(a) The Company and each of its Subsidiaries owns or has
licensed or otherwise has the right to use all patents, trademarks, service
marks, trade names, copyrights, licenses, franchises and other rights that are
material to the operation of their businesses as presently conducted or proposed
to be conducted.
(b) The Company and each of its Subsidiaries own all computer
software, including the source codes thereto, that is material to the operation
of their businesses as presently conducted or proposed to be conducted. All
computer software owned by the Company and each of its Subsidiaries, including
the source codes thereto, is free and clear of all Liens, has not in any
material way been divulged to any third party and represents unique work product
to which the Company and each of its Subsidiaries, as the case may be, has good
and marketable title. The Company and each of its Subsidiaries uses and has
used its best efforts to secure and maintain its intellectual property rights in
any and all computer software it owns. Duplicates of all such computer
software, including the source codes thereto, are at a secure off-site location.
(c) No product, process, method, substance or other material
presently owned, sold, licensed or employed by the Company or any of its
Subsidiaries, or which the Company or any of its Subsidiaries contemplates
owning, selling, licensing or employing, (i) infringes upon the patents,
trademarks, service marks, copyrights or licenses that are owned by others or
(ii) to the best knowledge of the Company or any of the Management Stockholders,
is being infringed upon by any other Person. No litigation is pending and no
claim has been made against the Company or any of its Subsidiaries or, to the
best knowledge of the Company or any of the Management Stockholders, is
threatened, contesting the right of the Company or any of its Subsidiaries to
own, sell, license or use any product, process, method, substance or other mate-
rial presently owned, sold, licensed or employed by the Company or any of its
Subsidiaries or which the Company or any of its Subsidiaries intends to acquire
an ownership interest in, sell, license or employ.
5.24 Potential Conflicts of Interest. To the best knowledge of the
-------------------------------
Company or any of the Management Stockholders, except as set forth on Schedule
--------
5.24, no
- ----
<PAGE>
26
officer, director or stockholder of the Company or any of its Subsidiaries, no
relative or spouse of any such officer, director or stockholder and no Affiliate
of any of the foregoing: (a) owns, directly or indirectly, any interest in
(excepting less than 1% stock holdings for investment purposes in securities of
publicly held and traded companies), or is an officer, director, employee or
consultant of, any Person which is, or is engaged in business as, a competitor,
lessor, lessee, supplier, distributor, sales agent or customer of, or lender to
or borrower from, the Company or any of its Subsidiaries; (b) owns, directly or
indirectly, in whole or in part, any tangible or intangible property that the
Company or any of its Subsidiaries uses in the conduct of its business; or
(c) has any cause of action or other claim whatsoever against, or owes any
amount to, the Company or any of its Subsidiaries, except for claims in the
ordinary course of business such as for accrued vacation pay, accrued benefits
under employee benefit plans, and similar matters and agreements arising in the
ordinary course of business.
5.25 Trade Relations. To the best knowledge of the Company or any of
---------------
the Management Stockholders, there exists no actual or threatened termination,
cancellation or limitation of, or any adverse modification or change in, the
business relationship or business of the Company and its Subsidiaries taken as a
whole or their business with any customer or any group of customers whose use of
their services are individually or in the aggregate material to the business of
the Company and its Subsidiaries then as a whole, or with any material supplier,
and there exists no condition or state of facts or circumstances that would
adversely affect the Condition of the Company or prevent the Company or its
Subsidiaries from conducting their business after the consummation of the
transactions contemplated by the Transaction Agreements and the Related
Transaction Agreements in substantially the same manner in which it heretofore
has been conducted.
5.26 Outstanding Borrowings. Schedule 5.26 lists (i) the amount of
---------------------- -------------
all Outstanding Borrowings (other than the Senior Subordinated Notes and the
Junior Subordinated Notes), (ii) the Liens that relate to such Outstanding
Borrowings and that encumber the assets of the Company or any of its
Subsidiaries and (iii) the name of each lender thereof.
5.27 Material Contracts. Neither the Company nor any Subsidiary is a
------------------
party to any Contractual Obligation and is not subject to any charge, corporate
restriction, judgment, injunction, decree or Requirement of Law materially
adversely
<PAGE>
27
affecting, or which may adversely affect, the Condition of the Company.
Schedule 5.27 lists all contracts, agreements and commitments of the Company and
- -------------
any Subsidiary as of the Closing Date, whether written or oral, other than
(a) the Transaction Agreements, (b) the Related Transaction Agreements,
(c) provider contracts with individual physicians or other providers whose
payments received from the Company do not represent cost of services for the
period from January 1, 1994 through September 30, 1994 in excess of those paid
to the one-hundred largest, non-individual physician providers, (d) purchase
orders in the ordinary course of the Company's and any Subsidiary's business and
(e) any other contracts, agreements and commitments of the Company or any
Subsidiary that (i) do not extend beyond December 31, 1995 and involve the
receipt or payment of not more than $50,000, (ii) do not relate to employment or
labor matters and (iii) are not material to the Condition of the Company. All
of the contracts, agreements and commitments of the Company and its Subsidiaries
are in full force and effect and binding upon the parties thereto in accordance
with their terms. Neither the Company nor any Subsidiary thereof, nor to the
knowledge of the Company and the Management Stockholders, any other party to
such contracts, agreements and commitments is in default thereunder, nor does
any condition exist that with notice or lapse of time or both would constitute a
default thereunder. Neither the Company nor any Management Stockholder has any
knowledge of any proposed, pending, or likely cancellation or termination of any
such contract, agreement or commitment.
5.28 Insurance. Schedule 5.28 (a) accurately summarizes all of the
--------- -------------
Company's and any Subsidiary's insurance policies or programs in effect as of
the date hereof and indicates the insurer's name, policy number, expiration
date, amount of coverage, type of coverage, annual premiums, exclusions and
deductibles, and (b) indicates any self-insurance program that is in effect.
The Company and each of its Subsidiaries maintain insurance in such amounts and
covering such risks as are usually and customarily carried with respect to
similar businesses according to their respective locations.
5.29 Prospective Contracts and Projections. Prior to the date
-------------------------------------
hereof, the Company delivered to the Purchasers financial projections (the
"Projections") and a list of prospective contracts (the "Prospective Contracts
----------- ---------------------
List"). The assumptions used in preparation of the Projections were reasonable
- ----
when made and continue to be reasonable as of the Closing Date. The Projections
and Prospective Contracts List have been prepared in good faith and the
Projections give effect to the transactions contemplated by the Transaction
Agreements and the Related
<PAGE>
28
Transaction Agreements, except that they do not reflect the issuance of debt by
the Company. The Purchasers acknowledge that the Prospective Contracts List and
Projections contain assumptions about future events and that actual results
during the period or periods covered may differ from the data and results
contained in such Prospective Contracts List and Projections.
5.30 Effect of Proposed Transactions on Representations. All
--------------------------------------------------
representations and warranties of the Company and the Management Stockholders in
the Transaction Agreements, the Related Transaction Agreements and in any other
documents or certificates delivered to the Purchasers in connection with the
transactions contemplated hereby and/or thereby are true and correct on the date
hereof and at and as of the Closing Date after giving effect to the transactions
contemplated by such documents and certificates.
5.31 Revenue Accounting. Neither the Company or any Management
------------------
Stockholder is aware of any proposed Accounting Changes or any proposal from any
of its clients with respect to payments to the Company that would be reasonably
likely to negatively impact the way in which the Company recognizes revenue.
5.32 Small Business Matters. The Company, together with its
----------------------
"affiliates" (as that term is defined in Title 13, Code of Federal Regulations,
Sec. 121.401), is a "small business concern" within the meaning of the Small
Business Investment Act of 1958 and the regulations thereunder, including
Title 13, Code of Federal Regulations, Sec. 121.802. The information set forth
in the Small Business Administration Forms 480, 652 and Section A of Form 1031
regarding the Company is accurate and complete. Copies of such forms shall have
been completed and executed by the Company and delivered to CVCA at the Closing.
Neither the Company nor any of its Subsidiaries presently engages in, and it
shall not hereafter engage in, any activities, nor shall the Company or any of
its Subsidiaries use directly or indirectly the proceeds from the sale of the
Senior Subordinated Notes and Class A Shares, for any purpose for which a Small
Business Investment Company is prohibited from providing funds by the Small
Business Investment Act of 1958 and the regulations thereunder, including
Title 13, Code of Federal Regulations, Sec. 107.901. The proceeds from the
Company's sale of the Senior Subordinated Notes and Class A Shares will only be
used as provided in Section 8.3.
<PAGE>
29
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
----------------------------
Each of the Purchasers, severally and not jointly, hereby represents
and warrants as follows:
6.1 Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by such Purchaser of this Agreement (a) is within such Purchaser's
power and authority and has been duly authorized by all necessary action,
(b) does not contravene the terms of such Purchaser's organizational documents
or any amendment thereof, and (c) will not violate, conflict with or result in
any breach or contravention of or the creation of any Lien under any Contractual
Obligation of such Purchaser or any Requirement of Law applicable to such
Purchaser.
6.2 Binding Effect. This Agreement has been duly executed and
--------------
delivered by such Purchaser, and this Agreement constitutes the legal, valid and
binding obligation of such Purchaser enforceable against it in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
6.3 Purchase for Own Account. The Class A Shares to be acquired by
------------------------
such Purchaser pursuant to this Agreement are being or will be acquired for its
own account and with no intention of distributing or reselling such securities
or any part thereof in any transaction that would be in violation of the
securities laws of the United States of America, or any state thereof, without
prejudice, however, to the rights of such Purchaser at all times to sell or
otherwise dispose of all or any part of its Class A Shares under an effective
registration statement under the Securities Act, or under an exemption from such
registration available under the Securities Act, and subject, nevertheless, to
the disposition of such Purchaser's property being at all times within its
control. If such Purchaser should in the future decide to dispose of any of its
Class A Shares, such Purchaser understands and agrees that it may do so only in
compliance with the Securities Act and applicable state securities laws, as then
in effect. Such Purchaser agrees to the imprinting, so long as required by law,
of a legend on certificates representing all of its Class A Shares to the
following effect: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
------------------------------------------------------------
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
- -------------------------------------------------------------------------------
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT
- --------------------------------------------------------------------------
<PAGE>
30
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
- --------------------------------------------------------------------------
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION
- --------------------------------------------------------------------------
REQUIREMENTS OF SUCH ACT AND SUCH LAWS."
- --------------------------------------
6.4 Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with such Purchaser or any action taken by such Purchaser.
ARTICLE 7
INDEMNIFICATION
---------------
7.1 Indemnification. In addition to all other sums due hereunder or
---------------
provided for in this Agreement, the Company and the Management Stockholders each
agree, on a joint and several basis, but subject to Section 7.3, to indemnify
and hold harmless each of the Purchasers and its Affiliates and their respective
officers, directors, agents, employees, subsidiaries, partners and controlling
persons (each, an "Indemnified Party") to the fullest extent permitted by law
-----------------
from and against any and all losses, claims, damages, expenses (including,
without limitation, reasonable fees, disbursements and other charges of counsel)
or other liabilities (collectively, "Liabilities") resulting from or arising out
-----------
of (i) any breach of any representation or warranty, covenant or agreement of
the Company or any of the Management Stockholders in this Agreement, any other
Transaction Agreement, any Related Transaction Agreement or any legal, admini-
strative or other actions (including actions brought by the Purchasers or the
Company or any equity holders of the Company or derivative actions brought by
any Person claiming through or in the Company's name), proceedings or investi-
gations (whether formal or informal), or written threats thereof, based upon,
relating to or arising out of this Agreement, any other Transaction Agreement,
any Related Transaction Agreement or any transaction contemplated thereby or any
Indemnified Party's role therein or in any transaction contemplated thereby and
(ii) any negligent act, willful misconduct or malpractice that occurred prior to
the Closing and that was performed by any Person in rendering any kind of
medical services whether in the course of their employment with the Company or
any of its Subsidiaries or while acting as their agent or pursuant to any
arrangement, be it contractual or otherwise (but only to the extent the
Company's payments with respect to such negligence, misconduct or malpractice
are not covered by insurance).; provided, however, that neither the Company nor
-------- -------
<PAGE>
31
any of the Management Stockholders shall be liable under this Section 7.1 to an
Indemnified Party (a) for any amount paid in settlement of claims without the
Company's consent (which consent shall not be unreasonably withheld), (b) to the
extent that it is finally judicially determined that such Liabilities resulted
primarily from the willful misconduct or gross negligence of such Indemnified
Party or (c) to the extent that it is finally judicially determined that such
Liabilities resulted from the material breach by such Indemnified Party of any
representation, warranty, covenant or other agreement of such Indemnified Party
contained in this Agreement; provided, further, that if and to the extent that
-------- -------
such indemnification is unenforceable for any reason, first the Management
Stockholders shall, on a joint and several basis, make the maximum contribution
to the payment and satisfaction of such Liabilities which shall be permissible
under applicable laws and if and to the extent any such Liabilities are still
not fully satisfied, the Company shall thereafter make the maximum contribution
to the payment and satisfaction of such Liabilities which shall be permissible
under applicable laws. In connection with the obligations of the Company and
the Management Stockholders to indemnify for expenses as set forth above, the
Company and the Management Stockholders further agree, on a joint and several
basis, upon presentation to the Company of appropriate invoices containing
reasonable detail, to reimburse each Indemnified Party for all such expenses
(including, without limitation, reasonable fees, disbursements and other charges
of counsel) as they are incurred by such Indemnified Party; provided, however,
-------- -------
that, if an Indemnified Party is reimbursed hereunder for any expenses, such
reimbursement of expenses shall be refunded to the extent it is finally judi-
cially determined that the Liabilities in question resulted (a) primarily from
the willful misconduct or gross negligence of such Indemnified Party or (b) from
the material breach by such Indemnified Party of any representation, warranty,
covenant or other agreement of such Indemnified Party contained in this
Agreement. For the benefit of the Purchasers, the Management Stockholders also
agree to waive all right to contribution from the Company and agree that they
will in no event seek contribution from the Company resulting from or arising
out of the payment and satisfaction of Liabilities hereunder.
7.2 Notification. Each Indemnified Party under this Article 7 will,
------------
promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Company or any of the
Management Stockholders under this Article 7, notify the Company in writing of
the commencement thereof (and the
<PAGE>
32
Company shall so notify the Management Stockholders). The omission of any
Indemnified Party to so notify the Company of any such action shall not relieve
the Company or any of the Management Stockholders from any liability which any
of them may have to such Indemnified Party (a) other than pursuant to this
Article 7 or (b) under this Article 7 unless, and only to the extent that, such
omission results in the forfeiture of substantive rights or defenses. In case
any such action, claim or other proceeding shall be brought against any
Indemnified Party and it shall notify the Company of the commencement thereof,
the Company (but not any Management Stockholder) shall be entitled to assume the
defense thereof at its own expense, with counsel satisfactory to such Indem-
nified Party in its reasonable judgment; provided, however, that any Indemnified
-------- -------
Party may, at its own expense, retain separate counsel to participate in such
defense. Notwithstanding the foregoing, in any action, claim or proceeding in
which the Company or any of the Management Stockholders, on the one hand, and an
Indemnified Party, on the other hand, is, or is reasonably likely to become, a
party, such Indemnified Party shall have the right to employ separate counsel at
the Company's expense and to control its own defense of such action, claim or
proceeding if, in the reasonable opinion of counsel to such Indemnified Party, a
conflict or potential conflict exists between the Company or any Management
Stockholder, on the one hand, and such Indemnified Party, on the other hand,
that would make such separate representation advisable. The Company and the
Management Stockholders each agree that it, she or he, as the case may be, will
not, without the prior written consent of the Purchasers, settle, compromise or
consent to the entry of any judgment in any pending or threatened claim, action
or proceeding relating to the matters contemplated hereby (if any Indemnified
Party is a party thereto or has been actually threatened to be made a party
thereto) unless such settlement, compromise or consent includes an unconditional
release of the Purchasers and each other Indemnified Party from all liability
arising or that may arise out of such claim, action or proceeding. The Company
and the Management Stockholders shall not be liable for any settlement of any
claim, action or proceeding effected against an Indemnified Party without the
Company's written consent, which consent shall not be unreasonably withheld.
The rights accorded to Indemnified Parties hereunder shall be in addition to any
rights that any Indemnified Party may have at common law, by separate agreement
or otherwise.
7.3 Limitations on Indemnification. Notwithstanding any other
------------------------------
provision of this Article 7, the indemnification obligation of the Management
Stockholders and the Company hereunder shall be limited as follows:
<PAGE>
33
(i) the Management Stockholders and the Company shall not be
obligated to make any payment for indemnification pursuant to
Section 7.1(i) hereof until the aggregate amount of indemnification
payments under this Agreement and the Stock Purchase Agreement (other than
payments pursuant to Section 7.1(ii) of this Agreement and Section 7.1(ii)
of the Stock Purchase Agreemnt) exceed $500,000.00 (the "Basket Amount"),
-------------
whereupon the Company and the Management Stockholders shall be obligated to
pay in full all such amounts for indemnification, including the Basket
Amount, subject to clauses (iii) and (iv) below;
(ii) the Management Stockholders and the Company shall not be
obligated to make any payment for indemnification pursuant to Section
7.1(ii) hereof until the aggregate amount of indemnification payments under
this Agreement and the Stock Purchase Agreement (other than payments
pursuant to Section 7.1(i) of this Agreement Section 7.1(i) of the Stock
Purchase Agreement) exceed $500,000.00 (the "Insurance Basket Amount"),
-----------------------
whereupon the Company shall be obligated to pay in full all such amounts
for indemnification, including the Insurance Basket Amount, subject to
clauses (iii) and (iv) below;
(iii) none of the Management Stockholders shall be individually
obligated to pay any amount for indemnification pursuant to Section 7
hereof and under the Stock Purchase Agreement in excess of 100% of the
aggregate payment received by such Management Stockholder from the Company
pursuant to the Share Redemption Agreement; and
(iv) the Company shall not be obligated to pay any amount for
indemnification pursuant to Section 7 hereof in excess of $10,000,000.00
plus accrued and unpaid interest on the Senior Subordinated Notes.
ARTICLE 8
AFFIRMATIVE COVENANTS
---------------------
8.1 Operation of Company. From and after the date hereof through the
--------------------
Closing Date, the Company and its Subsidiaries shall not, and the Management
Stockholders shall cause the Company and its Subsidiaries not to, enter into any
transaction or take any action other than in the ordinary course of business,
except with the prior written consent of the Purchasers.
<PAGE>
34
8.2 Exclusivity. From the date hereof through the earlier of the
-----------
Closing Date and December 31, 1994, neither the Company nor any Management
Stockholder shall enter into discussions or negotiations with any Persons other
than the Purchasers, Whitney Equity Fund and Whitney in respect of any
transaction similar in nature to any transaction contemplated by any Transaction
Agreement or Related Transaction Agreement.
8.3 Use of Proceeds. The Company shall use the proceeds of the sale
---------------
of the Class A Shares and Senior Subordinated Notes hereunder only (a) in
connection with the Share Redemption, (b) for the payment of fees and expenses
in connection with the transactions contemplated in the Transaction Agreements
and (c) for general corporate purposes.
8.4 Consummation of Share Redemption. On the Closing Date, the
--------------------------------
Company and the Management Stockholders shall consummate the Share Redemption on
the terms provided for in the Share Redemption Agreement and shall deliver to
the Purchasers evidence thereof, which evidence shall be in form and substance
satisfactory to the Purchasers.
8.5 Taxes. The Company and its Subsidiaries shall prepare and
-----
timely file, in a manner consistent with prior years and applicable laws and
regulations, all Tax returns required to be filed on or before the Closing Date,
and all such Tax returns will be true and complete in all material respects.
The Company and its Subsidiaries shall timely pay all Taxes required to be paid
by them on or before the Closing Date, or that are claimed or asserted by any
taxing authority to be due on or before the Closing Date, and the Management
Stockholders shall timely pay all Taxes required to be paid by any of them on or
before the Closing Date, or that are claimed or asserted by any taxing authority
to be due on or before the Closing Date, with respect to the operations of the
Company and its Subsidiaries and with respect to which the Company and its
Subsidiaries could at any time be directly or indirectly liable, in each case
except for those Taxes that are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been set aside.
8.6 Information Rights.
------------------
8.6.1 Compliance. Upon the request of any Purchaser, the Company
----------
promptly (and in any event within 20 days of such request) will furnish to such
Purchaser all information necessary in order for such Purchaser to (i) prepare
and file SBA Form 468 and any other information requested or required by any
Governmental Authority
<PAGE>
35
asserting jurisdiction over such Purchaser and (ii) confirm that the use of the
proceeds of the sale of the Senior Subordinated Notes and Class A Shares
contemplated hereby was as described in Section 8.3. If the Company breaches
this covenant in any material respect, then in addition to all other remedies
available to the Purchasers, the Purchasers may demand that the Company
repurchase all of the Senior Subordinated Notes and Class A Shares acquired by
the Purchasers at the purchase price thereof plus accrued and unpaid interest on
the Senior Subordinated Notes.
8.6.2 Regulatory Compliance Cooperation.
---------------------------------
(a) In the event that any Purchaser determines that it has a
Regulatory Problem (as defined below), the Company agrees to take all such
actions as are reasonably requested by such Purchaser in order (i) to effectuate
and facilitate any transfer by such Purchaser of any Securities (as defined
below) of the Company then held by such Purchaser to any Affiliate of the
Purchaser designated by such Purchaser, (ii) to permit such Purchaser (or any
Affiliate of such Purchaser) to exchange all or any portion of the voting
Securities then held by such Person on a share-for-share basis for shares of a
class of nonvoting Securities of the Company, which nonvoting Securities shall
be identical in all respects to such voting Securities, except that such new
Securities shall be nonvoting and shall be convertible into voting Securities on
such terms as are requested by such Purchaser in light of regulatory
considerations then prevailing, and (iii) to continue and preserve the
respective allocation of the voting interests with respect to the Company
provided for in the Stockholders' Agreement and with respect to such Purchaser's
ownership of the Company's voting Securities. Such actions may include, but
shall not necessarily be limited to:
(A) entering into such additional agreements as are requested by
such Purchaser to permit any Person(s) designated by such Purchaser to
exercise any voting power which is relinquished by such Purchaser upon
any exchange of voting Securities for nonvoting Securities of the
Company; and
(B) entering into such additional agreements, adopting such
amendments to the Amended and Restated Articles of Incorporation and
Bylaws of the Company and taking such additional actions as are
reasonably requested by such Purchaser in order to effectuate the
intent of the foregoing.
<PAGE>
36
The Management Stockholders shall cooperate with the Company in
complying with this Section 8.6, including approving the amendment of the
Company's Restated Articles of Incorporation in a manner reasonably requested by
any Purchaser.
(b) In the event any Purchaser has the right to acquire any of
the Company's Securities (as the result of a preemptive offer, pro rata offer or
--- ----
otherwise), at such Purchaser's request the Company will offer to sell to such
Purchaser non-voting Securities on the same terms as would have existed had such
Purchaser acquired the Securities so offered and immediately requested their
exchange for non-voting Securities pursuant to paragraph (a) above.
(c) The Company shall grant to any subsequent holder of
Securities originally acquired by any Purchaser ("Subsequent Purchasers"), upon
---------------------
such Person's request, the same rights granted to the Purchasers pursuant to
this Section 8.6.
(d) In the event that any Subsidiary of the Company ever offers
to sell any of its Securities, then the Company will cause such Subsidiary to
enter into agreements with the Purchasers and any Subsequent Purchasers
substantially similar to this Section 8.6.
(e) For purposes of this Section 8.6, a "Regulatory Problem"
------------------
means any set of facts or circumstances wherein it has been asserted in writing
by any governmental regulatory agency (or there is a substantial risk of such
assertion) that such Purchaser is not entitled to hold, or exercise any
significant right with respect to, the Securities.
(f) As used in this Section 8.6, "Securities" means with respect
----------
to any Person, such Person's capital stock or any options, warrants or other
securities which are directly or indirectly convertible into, or exercisable or
exchangeable for, such Person's capital stock. Whenever a reference herein to
Securities is referring to any derivative Securities, the rights of any
Purchaser and Subsequent Purchasers shall apply to such derivative Securities
and all underlying Securities directly or indirectly issuable upon conversion,
exchange or exercise of such derivative Securities.
<PAGE>
37
ARTICLE 9
MISCELLANEOUS
-------------
9.1 Survival of Representations and Warranties. All of the repre-
------------------------------------------
sentations and warranties made herein shall survive the execution and delivery
of this Agreement, any investigation by or on behalf of the Purchasers,
acceptance of the Class A Shares and payment therefor, acceptance of the Senior
Subordinated Notes and payment therefor or termination of this Agreement and
shall terminate on April 30, 1997; provided, however, that the representations
-------- -------
and warranties set forth in Section 5.14 hereof shall expire on the fourth
anniversary hereof and the representations and warranties set forth in
Section 5.9 hereof shall expire upon the expiration of any statute of
limitations period applicable to the subject matter thereof (after taking into
account any waivers or extensions of any such period pursuant to applicable
law).
9.2 Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing and shall be by telecopier,
courier service or personal delivery:
(a) if to Whitney Debt Fund:
J.H. Whitney & Co.
177 Broad Street
Stamford, Connecticut 06901
Telecopier No.: (203) 973-1422
Attention: Jeffrey R. Jay, M.D.
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopier No.: (212) 757-3990
Attention: Toby S. Myerson, Esq.
<PAGE>
38
(b) if to CVCA:
Chemical Venture Capital
Associates, A California
Limited Partnership
c/o Chemical Venture Partners
270 Park Avenue
5th Floor
New York, New York 10017-2070
Telecopier No.: (212) 270-2327
Attention: Mitchell J. Blutt, M.D.
Damion E. Wicker, M.D.
with a copy to:
O'Sullivan Graev & Karabell
30 Rockefeller Plaza
41st Floor
New York, NY 10112
Telecopier No.: (212) 408-2420
Attention: John Suydam, Esq.
(c) if to the Company:
Medicon, Inc.
40 Skokie Boulevard
Northbook, Illinois 60062-1618
Telecopier No.: (708) 559-6900
Attention: Lawrence Rubinstein, Esq.
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Telecopier No.: (312) 902-1061
Attention: Herbert S. Wander, Esq.
(d) if to any Management Stockholder, at his or her address as
it appears on the record books of the Company.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; and when receipt
is acknowledged, if telecopied.
9.3 Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. Subject to
<PAGE>
39
applicable securities laws, each of the Purchasers may assign any of its rights
under any of the Transaction Agreements to any of its Affiliates. Neither the
Company nor any Management Stockholder may assign any of its, hers or his, as
the case may be, rights under this Agreement without the written consent of the
Purchasers. Except as provided in Article 7, no Person other than the parties
hereto and their successors and permitted assigns is intended to be a
beneficiary of any of the Transaction Agreements.
9.4 Amendment and Waiver.
--------------------
(a) No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to any party hereto
at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by any party hereto from the terms of any provision
of this Agreement, shall be effective (i) only if it is made or given in writing
and signed by the other parties hereto and (ii) only in the specific instance
and for the specific purpose for which made or given. Except where notice is
specifically required by this Agreement, no notice to or demand on any party
hereto in any case shall entitle such party to any other or further notice or
demand in similar or other circumstances.
9.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
9.6 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
9.7 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York, without regard to the
principles of conflicts of law of such State.
<PAGE>
40
9.8 Jurisdiction. Each party to this Agreement hereby irrevocably
------------
agrees that any legal action or proceeding arising out of or relating to this
Agreement or any agreements or transactions contemplated hereby may be brought
in the courts of the State of New York or of the United States of America for
the Southern District of New York and hereby expressly submits to the personal
jurisdiction and venue of such courts for the purposes thereof and expressly
waives any claim of improper venue and any claim that such courts are an
inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth or referred to in Section 9.2, such
service to become effective 10 days after such mailing.
9.9 Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
9.10 Rules of Construction. Unless the context otherwise requires,
---------------------
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Agreement.
9.11 Variations in Pronouns. All pronouns and any variations thereof
----------------------
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
9.12 Entire Agreement. This Agreement, the other Transaction
----------------
Agreements and the Related Transaction Agreements, are intended by the parties
to be a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings other than those set forth or
referred to herein or therein. This Agreement, the other Transaction Agreements
and the Related Transaction Agreements, supersede all prior agreements and
understandings between the parties with respect to such subject matter.
9.13 Certain Expenses. The Company will pay all expenses of the
----------------
Purchasers (including reasonable fees,
<PAGE>
41
charges and disbursements of counsel) in connection with any amendment,
supplement, modification or waiver of or to any provision of this Agreement or
the Amended and Restated Articles of Incorporation of the Company, or any
consent to any departure by the Company or any of the Management Stockholders
from the terms of any provision of this Agreement or the Amended and Restated
Articles of Incorporation of the Company.
9.14 Publicity. Except as may be required by applicable law, none of
---------
the parties hereto shall issue a publicity release or announcement or otherwise
make any public disclosure concerning this Agreement or the transactions con-
templated hereby, without prior approval by the other parties hereto; provided,
--------
however, that the Purchasers and their Affiliates shall be permitted, without
- -------
the prior approval of the other parties hereto, to arrange for the publication
on or after the Closing Date of customary "tombstone" advertisements. If any
announcement is required by law to be made by any party hereto, prior to making
such announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
9.15 Limitations on Rights of Third Parties. Nothing expressed or
--------------------------------------
implied in this Agreement is intended or shall be construed to confer upon or
give any person other than the Company, the Purchasers and the Indemnified
Parties any rights or remedies under or by reason of this Agreement.
9.16 Further Assurances. Each of the parties shall execute such
------------------
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first above written.
MEDICON, INC.
By /s/ John E. Adams
------------------------------
Name: John E. Adams
Title: EVP & COO
WHITNEY 1990 EQUITY FUND, L.P.
By /s/ Jeffrey R. Jay
-----------------------------
Name: Jeffrey R. Jay
A General Partner
J.H. WHITNEY & CO.
By /s/ Jeffrey R. Jay
-----------------------------
Name: Jeffrey R. Jay
A General Partner
CHEMICAL VENTURES CAPITAL ASSOCIATES, A California
Limited Partnership
By: Chemical Venture Partners
Its General Partner
By: /s/
---------------------------
Name:
Executive Partner
____________________________
Alan P. Mintz
/s/ John E. Adams
----------------------------
John E. Adams
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be executed and delivered as of the date first above
written.
MEDICON, INC.
By
------------------------------
Name:
Title:
WHITNEY 1990 EQUITY FUND, L.P.
By
-----------------------------
Name:
A General Partner
J.H. WHITNEY & CO.
By
-----------------------------
Name:
A General Partner
CHEMICAL VENTURES CAPITAL ASSOCIATES, A California
Limited Partnership
By: Chemical Venture Partners
Its General Partner
By: /s/
---------------------------
Name:
Executive Partner
/s/ Alan P. Mintz
----------------------------
Alan P. Mintz
----------------------------
John E. Adams
<PAGE>
/s/ Lawrence Rubinstein
----------------------------
Lawrence Rubinstein
____________________________
Alan Spiro
___________________________
Sheldon K. Gulinson
___________________________
Nancie Blatt
<PAGE>
----------------------------
Lawrence Rubinstein
/s/ Alan Spiro
----------------------------
Alan Spiro
___________________________
Sheldon K. Gulinson
___________________________
Nancie Blatt
<PAGE>
----------------------------
Lawrence Rubinstein
____________________________
Alan Spiro
/s/ Sheldon K. Gulinson
----------------------------
Sheldon K. Gulinson
___________________________
Nancie Blatt
<PAGE>
----------------------------
Lawrence Rubinstein
____________________________
Alan Spiro
----------------------------
Sheldon K. Gulinson
/s/ Nancie Blatt
----------------------------
Nancie Blatt
Exhibit 10.3
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS
MEDICON, INC.
SENIOR SUBORDINATED PROMISSORY NOTE
DUE NOVEMBER 3, 2001
$ 5,000,000.00 New York, New York
November 3, 1994
FOR VALUE RECEIVED, the undersigned, MEDICON, INC., an Illinois
corporation (the "Company"), promises to pay to the order of WHITNEY
-------
SUBORDINATED DEBT FUND, L.P. (the "Purchaser"), the principal sum of five
---------
million dollars ($5,000,000.00) on November 3, 2001, with interest thereon from
time to time as provided herein.
1. Purchase Agreement; Guaranty. This Senior Subordinated Promis-
----------------------------
sory Note (this "Note") is issued pursuant to the Subordinated Note and Stock
----
Purchase Agreement, dated as of the date hereof, between the Company, the
Purchaser and certain other parties thereto (the "Purchase Agreement"), and is
------------------
guaranteed by Medicon CI, Inc., a New York corporation (the "Guarantor")
---------
pursuant to a Guaranty, dated as of the date hereof (the "Guaranty"). The
--------
holder of this Note is entitled to the benefits of this Note, the Purchase
Agreement and the Guaranty and may enforce the agreements of the Company and the
Guarantor contained herein and therein and exercise the remedies provided for
hereby and thereby or otherwise available in respect hereto and thereto.
Capitalized terms used herein
1
<PAGE>
and not otherwise defined are used herein with the meanings ascribed to such
terms in Section 9 hereof.
2. Interest. The Company promises to pay interest on the principal
--------
amount of this Note at the rate of 10.101% per annum. The Company shall pay
accrued interest quarterly on each March 31, June 30, September 30 and
December 31 of each year or, if any such date shall not be a Business Day, on
the next succeeding Business Day to occur after such date (each date upon which
interest shall be so payable, an "Interest Payment Date"), beginning on
---------------------
December 31, 1994. Interest on this Note shall be paid by wire transfer of imme-
diately available funds to an account designated by the holder of this Note.
Interest on this Note shall accrue from the date of issuance until repayment of
the principal and payment of all accrued interest in full. Interest shall be
computed on the basis of a 360-day year of twelve 30-day months. Notwith-
standing the foregoing provisions of this Section 2, but subject to applicable
law, any overdue principal of and overdue interest on this Note shall bear
interest, payable on demand in immediately available funds, for each day from
the date payment thereof was due to the date of actual payment, at the rate of
12.101% per annum, and, upon and during the continuance of an Event of Default,
this Note shall bear interest, from the date of the occurrence of such Event of
Default until such Event of Default is cured or waived, payable on demand in
immediately available funds, at the rate of 12.101% per annum. Subject to
applicable law, any interest that shall accrue on overdue interest on this Note
as provided in the preceding sentence and shall not have been paid in full on or
before the next Interest Payment Date to occur after the Interest Payment Date
on which the overdue interest became due and payable shall itself be deemed to
be overdue interest on this Note to which the preceding sentence shall apply.
3. Mandatory Prepayment.
--------------------
(a) Initial Public Offering. Upon the consummation of an
-----------------------
Initial Public Offering, the Company shall prepay this Note (together with
interest accrued thereon) pro rata with the prepayment of all other Notes issued
pursuant to the Purchase Agreement, in an amount equal to the lesser of (i) the
Net Cash Proceeds received from the Initial Public Offering, or (ii) the out-
standing principal amount of this Note (together with interest accrued thereon),
within 5 Business Days after receipt by the Company of the proceeds of such
Initial Public Offering.
(b) Change of Control. Upon the occurrence of a Change of
-----------------
Control, the Company shall prepay this Note
2
<PAGE>
pro rata with the prepayment of all other Notes issued pursuant to the Purchase
Agreement, in an amount equal to the outstanding principal amount of this Note
(together with interest accrued thereon).
(c) Notice. The Company shall give written notice to the holder
------
of this Note of any mandatory prepayment pursuant to Section 3(a) or (b) at
least 3 Business Days prior to the date of such prepayment. Such notice shall
be given in the manner specified in Section 11 of this Note.
(d) Prepayment Event. At the request from time to time of the
----------------
holder of this Note made on any date after the occurrence of a Prepayment Event,
the Company shall prepay this Note (together with interest accrued thereon) in
an amount equal to the lesser of (i) the amount by which, as of the Applicable
Test Date, the current assets (other than receivables and prepaid expenses) of
the Company and its Subsidiaries exceeds fifty percent (50%) of the accounts
payable - providers (due within one-month) of the Company and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP, or (ii) the
outstanding principal amount of this Note (together with interest accrued
thereon), within 5 Business Days after receipt by the Company of any such
request for prepayment; provided, however, that if (x) there occurs an
-------- -------
Accounting Change and (y) there is a Standstill in effect for any fiscal year
with respect to which there is a Prepayment Event, the holder of this Note may
not make a request for prepayment pursuant to this Section 3(d) for a period of
one year after the end of such fiscal year. Any request for prepayment to this
Section 3(d) shall be given in the manner specified in Section 11 of this Note.
4. Optional Prepayment.
-------------------
(a) Upon notice given to the holder of this Note as provided in
subsection (b) of this Section 4, the Company, at its option, may prepay all or
any portion of this Note, pro rata with the prepayment of all other Notes issued
pursuant to the Purchase Agreement, at any time, by paying an amount equal to
the outstanding principal amount of this Note, or the portion of this Note
called for prepayment, together with interest accrued and unpaid thereon to the
date fixed for prepayment, without penalty or premium.
(b) The Company may give written notice of prepayment of this
Note or any portion thereof not less than 10 nor more than 60 days prior to the
date fixed for such prepayment. Such notice of prepayment shall be given in the
3
<PAGE>
manner specified in Section 11 of this Note. Upon notice of prepayment being
given by the Company, the Company covenants and agrees that it shall prepay, on
the date therein fixed for prepayment, this Note or the portion hereof so called
for prepayment, at the outstanding principal amount thereof or the portion
thereof so called for prepayment together with interest accrued and unpaid
thereon to the date fixed for such prepayment.
(c) All optional prepayments under this Section 4 shall include
payment of accrued interest on the principal amount so prepaid and shall be
applied first to all costs, expenses and indemnities payable under the Purchase
Agreement, then to payment of default interest, if any, then to payment of
accrued interest, and thereafter to principal.
5. Affirmative Covenants. Until the payment by the Company of all
---------------------
principal of and interest on the Note and all other amounts due at the time of
payment of such principal and interest to the holder of this Note, including,
without limitation, all fees, expenses and amounts due at such time in respect
of indemnity obligations under Article 7 of the Purchase Agreement, the Company
hereby covenants and agrees as follows:
(a) Financial Statements and Other Information. The Company
------------------------------------------
shall deliver to the holder of this Note:
(i) as soon as available, but not later than ninety (90)
days after the end of each fiscal year of the Company, a copy of the audited
consolidated balance sheet of the Company and its Subsidiaries as of the end of
such year and the related consolidated statements of operations and cash flows
for such fiscal year, setting forth in each case in comparative form the figures
for the previous year, all in reasonable detail and accompanied by a management
summary and analysis of the operations of the Company for such fiscal year and
by the opinion of Arthur Anderson & Co. (or any successor thereto) or another
"Big Five" accounting firm, which report shall state that such consolidated
financial statements present fairly the financial position as of such date and
results of operations and cash flows for the periods indicated in conformity
with GAAP applied on a consistent basis (except for changes that have been made
in accordance with GAAP with the concurrence of the accounting firm reporting on
such consolidated financial statements);
(ii) commencing with the fiscal period ending on March 31,
1995, as soon as available, but in any event not later than forty-five (45) days
after the end of
4
<PAGE>
each of the first three fiscal quarters of each fiscal year, (a) a copy of the
unaudited consolidated balance sheet of the Company and its Subsidiaries, and
the related consolidated statements of operations and cash flows, in each case
for such quarter and for the period commencing on the first day of the fiscal
year and ending on the last day of such quarter, and (b) such financial
information concerning each office and product line of the Company and its
Subsidiaries as the holder of this Note may request, all certified by the chief
financial officer of the Company as being fairly stated in all material
respects;
(iii) commencing with the month ending on October 31, 1994,
as soon as available, but in any event not later than thirty (30) days after the
end of each month, (a) the unaudited consolidated balance sheet of the Company
and its Subsidiaries and the related consolidated statements of operations and
cash flows for such month and (b) a statement comparing the material results for
such month to the budgeted results for such month, all certified by an
appropriate officer of the Company as being fairly stated in all material
respects;
(iv) as soon as available, but not later than sixty (60)
days prior to the end of each fiscal year of the Company, the budget for the
Company and its Subsidiaries for each month of the subsequent fiscal year;
provided, however, that the budget of the Company and its Subsidiaries for the
- -------- -------
1995 fiscal year shall be delivered by November 30, 1994; and
(v) such other financial and operating data of the
Company and its Subsidiaries, as the holder of this Note reasonably may request.
(b) Certificates. The Company shall deliver to the holder of
------------
this Note:
(i) concurrently with the delivery of the consolidated
financial statements referred to in Section 5(a)(i), a certificate of the
Company's Chief Financial Officer stating that to best of his or her knowledge
no Event of Default shall have occurred and is continuing, except as specified
in such certificate; and
(ii) concurrently with the delivery of the consolidated
financial statements referred to in Sections 5(a)(i) and (ii), a certificate of
an officer of the Company including calculations set forth in reasonable detail
showing the Company's compliance with the financial covenants contained herein.
5
<PAGE>
(c) Preservation of Corporate Existence. The Company shall, and
-----------------------------------
shall cause its Subsidiaries, to:
(i) preserve and maintain in full force and effect their
corporate existence;
(ii) conduct their businesses in accordance with sound
business practices, keep their properties in good working order and condition
(normal wear and tear excepted), and from time to time make all needed repairs
to, renewals of or replacements of their properties (except to the extent that
any of such properties are obsolete or are being replaced) so that the
efficiency of their business operations shall be fully maintained and preserved;
and
(iii) file or cause to be filed in a timely manner all
reports, applications, estimates and licenses that shall be required by a
Governmental Authority and that, if not timely filed, would be reasonably likely
to have a material adverse effect on the Condition of the Company.
(d) Payment of Obligations. The Company shall, and shall cause
----------------------
its Subsidiaries, to pay and discharge as the same shall become due and payable,
all their respective obligations and liabilities, including without limitation:
(i) all tax liabilities, assessments and governmental
charges or levies upon them or their properties or assets, unless the same are
being contested in good faith by appropriate proceedings and adequate reserves
in accordance with GAAP are being maintained by the Company and its
Subsidiaries;
(ii) all lawful claims which the Company of any of its
Subsidiaries obligated to pay, which are due and which, if unpaid, might by law
become a Lien upon their properties, unless the same are being contested in good
faith by appropriate proceedings and adequate reserves in accordance with GAAP
are being maintained by the Company and its Subsidiaries; and
(iii) all payments of principal, interest and other amounts
when due on Indebtedness, unless the same are being contested in good faith by
appropriate proceedings and adequate reserves in accordance with GAAP are being
maintained by the Company and its Subsidiaries.
(e) Compliance with Laws. The Company shall comply, and shall
--------------------
cause its Subsidiaries to comply, in all
6
<PAGE>
material respects with all Requirements of Law and with the directions of any
Governmental Authority having jurisdiction over them or their business or the
ownership of their property (including all applicable Environmental Laws).
(f) Notices. Within 5 days of obtaining knowledge of any of the
-------
events described below, the Company shall give written notice to the holder of
this Note in the manner specified in Section 11 of this Note:
(i) of the occurrence of any Event of Default or any event
that, after notice or lapse of time or both, would become an Event of Default;
and
(ii) of any (a) material default or event of default under
any material Contractual Obligation of the Company or any of its Subsidiaries or
(b) material dispute, litigation, investigation, proceeding or suspension which
may exist at any time between the Company or any of its Subsidiaries and any
Governmental Authority.
Each notice pursuant to this Section 5(f) shall be accompanied by a
statement by the Chief Executive Officer, President or Chief Financial Officer
of the Company setting forth details of the occurrence referred to therein and
stating what action the Company proposes to take with respect thereto.
(g) Inspection. The Company will permit representatives of the
----------
holder of this Note to visit and inspect any of its or its Subsidiaries'
properties, to examine their corporate, financial and operating records and make
copies thereof or abstracts therefrom, and to discuss their affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested, upon reasonable advance notice to the
Company or its Subsidiary, as the case may be.
(h) Payment of Note. The Company shall pay the principal of,
---------------
interest on and other amounts due in respect of, this Note on the dates and in
the manner provided in this Note.
(i) Insurance. The Company shall, and shall cause it
---------
Subsidiaries, to maintain insurance in such amounts and covering such risks as
are usually and customarily carried with respect to similar businesses according
to their respective locations. In addition, the Company shall maintain "key-
man" life insurance on the life of Alan Mintz
7
<PAGE>
in the amount of at least $3,000,000.00 and John Adams in the amount of at least
$1,000,000.00.
(j) Books and Records. The Company shall, and shall cause it
-----------------
Subsidiaries to, keep proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the assets and
business of the Company and its Subsidiaries in accordance with GAAP
consistently applied.
6. Negative Covenants. Until the payment by the Company of all
------------------
principal of and interest on this Note and all other amounts due at the time of
payment of such principal and interest to the holder of this Note, including,
without limitation, all expenses and amounts due at such time in respect of
indemnity obligations under Article 7 of the Purchase Agreement, the Company
hereby covenants and agrees with the Purchaser as follows:
(a) Consolidations and Mergers; Sale of Assets. Neither the
----------------------------------- ------
Company nor any of its Subsidiaries shall merge, consolidate with or into, or
convey, transfer, lease or otherwise dispose of (whether in one transaction or
in a series of transactions) all or substantially all of their assets (whenever
acquired).
(b) Transactions with Affiliates. The Company shall not, and
----------------------------
shall not permit any of its Subsidiaries to, (i) enter into any transaction with
any Affiliate of the Company or any of its Subsidiaries or any stockholder (or
any Affiliate of such stockholder) of the Company or any of its Subsidiaries,
except pursuant to the reasonable requirements of the business of the Company or
any of its Subsidiaries and on terms substantially no less favorable to the
Company or any of its Subsidiaries than those that the Company or any of its
Subsidiaries would obtain in a comparable arm's-length transaction with a Person
not an Affiliate or stockholder (or Affiliate of a stockholder) of the Company
or any of its Subsidiaries, (ii) purchase any selling, general, management or
administrative services from an Affiliate or stockholder (or an Affiliate of
such stockholder) of the Company or any of its Subsidiaries, or (iii) directly
or indirectly make any sales to or purchases from an Affiliate or stockholder
(or an Affiliate of such stockholder) of the Company or any of its Subsidiaries
during any calendar quarter that, in the aggregate, are in excess of 1% of the
Company's or any of its Subsidiary's total sales or purchases, respectively,
during such quarter; provided, however, that nothing contained in this
Section 6(b) shall prohibit the transactions described on Schedule 6(b).
-------------
8
<PAGE>
(c) No Inconsistent Agreements; Amendments. Neither the Company
--------------------------------------
nor any of its Subsidiaries shall enter into any loan or other agreement, or
enter into any amendment or other modification to any currently existing agree-
ment, which by its terms restricts or prohibits the ability of the Company to
pay the principal of or interest on this Note.
(d) Limitation on Indebtedness. Neither the Company nor any of
--------------------------
its Subsidiaries shall, directly or indirectly, issue, assume or otherwise incur
any Indebtedness, other than: (i) Indebtedness under the Purchase Agreement and
this Note; (ii) Indebtedness under the Bank Line of Credit in an amount not
exceeding $1,000,000.00 at any one time outstanding; (iii) Indebtedness under
the Junior Subordinated Notes; (iv) Indebtedness secured by a Lien permitted
under Section 6(e); and (v) additional unsecured Indebtedness at any one time
outstanding in an amount not exceeding the excess of (A) $5,000,000.00 over
(B) the amount of Indebtedness outstanding under the Bank Line of Credit.
(e) Limitation on Liens. Neither the Company nor any of its
-------------------
Subsidiaries shall create, incur, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it, other than: (i) Liens under the
Bank Line of Credit; (ii) Liens existing on the date of this Note and disclosed
on Schedule 6(e); (iii) Liens for taxes, statutory Liens of landlords and Liens
-------------
of carriers, warehousemen, mechanics and materialmen, in each case only to the
extent the obligations thereto are not yet due or are being contested in good
faith by appropriate proceedings diligently pursued; (iv) Liens to secure
performance of tenders, bids, statutory obligations or government contracts, and
similar Liens not securing Indebtedness and arising in the ordinary course of
business; and (v) any Lien on equipment or real property securing Indebtedness
up to $1,000,000.00 in any 12-month period incurred or assumed for the sole
purpose of financing all or part of the cost of acquiring such equipment or real
property, provided that such Lien attaches to such asset concurrently with or
--------
within 10 days after the acquisition thereof.
(f) Limitation on Conduct of Business. The Company will refrain
---------------------------------
from creating or acquiring any Subsidiary, except that the Company shall be
permitted to create or acquire Subsidiaries to the extent that such Subsidiaries
shall execute and deliver to the holders of this Note and all other Notes issued
pursuant to the Purchase Agreement guarantees guaranteeing the obligations of
the Company hereunder and thereunder, which such guarantees shall be in form and
substance satisfactory to
9
<PAGE>
the holders of at least a majority of the aggregate outstanding principal amount
of the Notes issued pursuant to the Purchase Agreement and the obligations under
such guarantees shall be subordinated to the same extent as the Company's
obligations are subordinated hereunder.
(g) Investments. Neither the Company nor any Subsidiary thereof
-----------
shall make any Investment, except for (i) Investments in Temporary Cash
Investments, (ii) loans and advances to employees for reasonable travel and
business expenses in the ordinary course of business, (iii) prepaid expenses
incurred in the ordinary course of business, (iv) trade accounts receivable
created in the ordinary course of business, (v) Investments existing as of the
date of, and reflected on, the unaudited balance sheet of the Company as of
December 31, 1993 and the related statements of income and cash flows for the
fiscal year then ended, which Investments are listed on Schedule 6(g),
-------------
(vi) Investments in a newly created wholly-owned Subsidiary that has,
concurrently with such Investment, executed and delivered to the holders of the
Notes any guarantees required pursuant to Section 6(f) hereof, and
(vii) additional Investments not to exceed $500,000.00 in the aggregate.
(h) Limitations on Restricted Payments. Neither the Company nor
----------------------------------
any Subsidiary will declare or make any Restricted Payment, except that the
Company may purchase, redeem, retire or otherwise acquire shares of the
Company's Capital Stock from employees of the Company or any of its Subsidiaries
in an amount not to exceed $250,000.00 in any 12-month period.
(i) Dispositions of Assets. Neither the Company nor any
----------------------
Subsidiary shall sell, transfer, lease or otherwise dispose of (in one trans-
action or in a series of transactions) all or any part of the assets or
properties of the Company or any Subsidiary other than (i) assets or properties
sold in the ordinary course of business, or (ii) assets or properties, sales of
which do not exceed in the aggregate $500,000.00 in any 12-month period.
(j) Financial Covenants.
-------------------
(i) Maintenance of Temporary Cash Investments. The Company
-----------------------------------------
shall at all times maintain Temporary Cash Investments of at least $3,000,000.00
in the aggregate.
(ii) Cash Flow Coverage Ratio. The Company shall not
------------------------
permit the Cash Flow Coverage Ratio to be less than (i) 2:1 for any period of 12
consecutive months
10
<PAGE>
ending after December 31, 1995 and on or before December 31, 1996, (ii) 2.5:1
for any period of 12 consecutive months ending after December 31, 1996 and on or
before December 31, 1997, (iii) 3.0:1 for any period of 12 consecutive months
ending after December 31, 1997.
(k) Capital Expenditures. The Company shall not make, or cause
--------------------
any Subsidiary to make, an aggregate amount of Capital Expenditures in excess of
$2,000,000.00 in any 12-month period.
7. Defaults and Remedies.
---------------------
(a) Events of Default. An "Event of Default" shall occur if:
-----------------
(i) the Company shall default in the payment of the
principal of this Note, when and as the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or by acceleration or
otherwise; or
(ii) the Company shall default in the payment of any
installment of interest on this Note according to its terms, when and as the
same shall become due and payable and such default shall continue for a period
of three days; or
(iii) the Company shall default in the due observance or
performance of any covenant to be observed or performed pursuant to
Sections 5(a)(i) and 6 (other than Section 6(j)(ii)) hereof; or
(iv) the Company shall default in the due observance or
performance of any covenant to be observed or preformed pursuant to Section 5
(other than Section 5(a)(i)) hereof and such default shall continue for a period
of 15 days; or
(v) the Company shall default in the due observance or
performance of the covenant contained in Section 6(j)(ii) hereof and such
default shall continue for a period of 90 days; or
(vi) the Company or the Guarantor, as the case may be, shall
default in the due observance or performance of any other covenant, condition or
agreement on the part of the Company or the Guarantor to be observed or per-
formed pursuant to the terms hereof or pursuant to the terms of the Purchase
Agreement or the Guaranty, and such default shall continue for 30 days after the
earliest of (A) the date the Company gives notice thereof to the holder
11
<PAGE>
of this Note or the holder of any other Note issued pursuant to the Purchase
Agreement or (B) the date written notice thereof, specifying such default and,
if such default is capable of being remedied, requesting that the same be
remedied, shall have been given to the Company by the holder of this Note or the
holder of any other Note issued pursuant to the Purchase Agreement; or
(vii) any representation, warranty, certification or
statement made by or on behalf of the Company or the Guarantor, as the case may
be, in this Note, the Purchase Agreement, the Guaranty or in any certificate or
other document delivered pursuant hereto or thereto shall have been incorrect in
any material respect when made; or
(viii) any (A) default in any payment of principal of or
interest of any Indebtedness of the Company or any Subsidiary, in an aggregate
amount outstanding at any one time equal to or exceeding $250,000.00; or (B)
default in the observance or performance of any other agreement or condition
relating to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition, is to
cause, or to permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause, with the giving of notice
if required, such Indebtedness to become due prior to its stated maturity; or
(ix) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(a) relief in respect of the Company or any Subsidiary thereof, or of a substan-
tial part of its property or assets, under Title 11 of the United States Code,
as now constituted or hereafter amended, or any other Federal or state bank-
ruptcy, insolvency, receivership or similar law, (b) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Company or any Subsidiary thereof, or for a substantial part of its property
or assets, or (c) the winding up or liquidation of the Company or any Subsidiary
thereof; and such proceeding or petition shall continue undismissed for 60 days,
or an order or decree approving or ordering any of the foregoing shall be
entered; or
(x) the Company or any Subsidiary thereof shall
(a) voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency,
12
<PAGE>
receivership or similar law, (b) consent to the institution of or the entry of
an order for relief against it, or fail to contest in a timely and appropriate
manner, any proceeding or the filing of any petition described in paragraph (ix)
of this Section 7(a), (c) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Company or any such Subsidiary, or for a substantial part of its property or
assets, (d) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (e) make a general assignment for the
benefit of creditors, (f) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (g) take any action for the
purpose of effecting any of the foregoing; or
(xi) one or more judgments for the payment of money in an
aggregate amount in excess of $250,000.00 (to the extent not covered by
insurance) shall be rendered against the Company or any Subsidiary thereof and
the same shall remain undischarged for a period of 30 days during which
execution shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to levy upon assets or properties of the Company to
enforce any such judgment.
(b) Acceleration. If an Event of Default occurs under
------------
clauses (a)(ix) or (x) of this Section 7, then the outstanding principal of and
all accrued interest on this Note shall automatically become immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which are expressly waived. If any other Event of Default occurs and is
continuing, the holders of at least 25% of the aggregate outstanding principal
amount of all of the Indebtedness of the Company issued pursuant to the Purchase
Agreement and initially represented by this Note and the other Notes issued
pursuant to the Purchase Agreement, by written notice to the Company, may
declare the principal of and accrued interest on the Notes issued pursuant to
the Purchase Agreement to be due and payable immediately. Upon such
declaration, such principal and interest shall become immediately due and
payable. The holders of more than 50% of the aggregate outstanding principal
amount of all of the Indebtedness of the Company issued pursuant to the Purchase
Agreement and initially represented by this Note and the other Notes issued
pursuant to the Purchase Agreement may rescind an acceleration and its
consequences if all existing Events of Default have been cured or waived, except
nonpayment of principal or interest that has become due solely because of the
acceleration, and if the rescission would not conflict with any judgment or
13
<PAGE>
decree. Any notice or rescission shall be given in the manner specified in
Section 11 hereof.
8. Subordination. This Note and the other Notes issued pursuant to
-------------
the Purchase Agreement shall at all times be wholly subordinate and junior in
right of payment to all Senior Indebtedness to the extent and in the manner
provided in this Section 8.
(a) As used in this Section 8, the following terms shall have
the following meanings:
"Junior Securities" means any debt or equity securities distributed to
-----------------
the holders of this Note and the other Notes issued pursuant to the Purchase
Agreement, but only if they are subordinated to at least the same extent as such
Notes.
"Senior Indebtedness" shall mean the principal of and interest on
-------------------
(including without limitation any interest that accrues after the commencement
of any case, proceeding or other legal action relating to the bankruptcy,
insolvency or reorganization of the Company to the extent such interest
constitutes an allowed claim) any Indebtedness for borrowed money of the Company
that is permitted to be incurred by the Company under Sections 6(d)(ii) and (v)
hereof, whether outstanding on the date hereof or thereafter created, incurred,
assumed or guaranteed by the Company, unless the instrument creating or
evidencing the same expressly provides that such Indebtedness is on a parity
with or subordinated in right of payment to the Subordinated Indebtedness.
"Subordinated Indebtedness" shall mean (i) the principal of and
-------------------------
interest on this Note and the other Notes issued pursuant to the Purchase
Agreement; and (ii) any other monetary obligations of the Company or the
Guarantor arising out of or in connection with the Purchase Agreement, such
Notes or the Guaranty.
(b) General. Subject to the rights of the holder of the
-------
Subordinated Indebtedness to receive Junior Securities and any distributions
provided in this Section 8, upon the maturity of any Senior Indebtedness by
lapse of time, acceleration, required prepayment or otherwise, all Senior
Indebtedness then so due and payable shall first be paid or provided for in
full, before any payment is made on account of the Subordinated Indebtedness
then so due and payable or to acquire this Note or any of the other Notes issued
pursuant to the Purchase Agreement.
14
<PAGE>
(c) Subordination Upon Certain Events. Upon the occurrence of
---------------------------------
any Event of Default under Sections 7(a)(ix) or (x) of this Note:
(i) Upon any payment or distribution of assets of the
Company to creditors of the Company, holders of Senior Indebtedness shall be
entitled to receive payment in full before the holders of Subordinated
Indebtedness shall be entitled to receive any payment in respect of the
Subordinated Indebtedness, except that the holders of Subordinated Indebtedness
may receive Junior Securities.
(ii) Until all Senior Indebtedness is paid in full, any
distribution to which the holders of Subordinated Indebtedness would be entitled
but for this Section 8 shall be made to holders of Senior Indebtedness, as their
interests may appear, except that the holders of Subordinated Indebtedness may
receive Junior Securities.
(iii) For purposes of this Section 8, a distribution may
consist of cash, securities or other property, by set-off or otherwise.
(iv) Notwithstanding the foregoing provisions of this
Section 8(c), if payment or delivery by the Company of Junior Securities to the
holders of Subordinated Indebtedness is authorized by an order or decree giving
effect, and stating in such order or decree that effect is given, to the
subordination of the Subordinated Indebtedness to the Senior Indebtedness, and
made by a court of competent jurisdiction in a proceeding under any applicable
bankruptcy or reorganization law, payment or delivery by the Company of such
Junior Securities shall be made to the holders of the Subordinated Indebtedness
in accordance with such order or decree.
(d) Payments and Distributions Received. If the holders of the
-----------------------------------
Subordinated Indebtedness shall have received any payment from or distribution
of assets of the Company in respect of the Subordinated Indebtedness in
contravention of the terms of this Section 8 before all Senior Indebtedness is
paid in full, then and in such event such payment or distribution shall be
received and held in trust for and shall be paid over or delivered to the
holders of Senior Indebtedness (or their authorized agent) to the extent
necessary to pay all such Senior Indebtedness in full.
(e) Subrogation. After all amounts payable under or in respect
-----------
of Senior Indebtedness are paid in full, the holders of the Subordinated
Indebtedness shall be subrogated to the rights of holders of Senior Indebtedness
15
<PAGE>
to receive payments or distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the holders of the Subordinated
Indebtedness have been applied to the payment of Senior Indebtedness. A
distribution made under this Section 8 to a holder of Senior Indebtedness which
otherwise would have been made to the holders of the Subordinated Indebtedness
is not, as between the Company and the holders of the Subordinated Indebtedness,
a payment by the Company on Senior Indebtedness.
(f) Relative Rights. This Section defines the relative rights
---------------
of the holders of the Subordinated Indebtedness and the holders of Senior
Indebtedness. Nothing in this Section shall: (i) impair, as between the
Company and the holders of the Subordinated Indebtedness, the obligation of the
Company, which is absolute and unconditional, to pay principal of and interest
(including default interest) on Subordinated Indebtedness in accordance with its
terms; (ii) effect the relative rights of holders of Subordinated Indebtedness
and creditors of the Company other than holders of Senior Indebtedness; or (iii)
prevent the holders of Subordinated Indebtedness from exercising their available
remedies upon a default or Event of Default, subject to the rights, if any,
under this Section 8 of holders of Senior Indebtedness to receive distributions
otherwise payable to the holders of Subordinated Indebtedness.
(g) Subordination May Not Be Impaired by the Company. No right
------------------------------------------------
of any holder of any Senior Indebtedness to enforce the subordination of the
Subordinated Indebtedness shall be impaired by any failure by the Company to
comply with this Note.
(h) Payments. A payment with respect to principal of or
--------
interest on the Subordinated Indebtedness shall include, without limitation,
payment of principal of, and interest on the Subordinated Indebtedness, any
depositing of funds for the defeasance of the Subordinated Indebtedness and any
payment on account of mandatory prepayment or optional prepayment provisions.
(i) Section Not to Prevent Events of Default. The failure to
----------------------------------------
make a payment on account of principal of or interest on or other amounts
constituting Subordinated Indebtedness by reason of any provision of this
Section 8 shall not be construed as preventing the occurrence of an Event of
Default under Section 7.
16
<PAGE>
9. Definitions. As used in this Note, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Accounting Change" means any change in GAAP after the date hereof
-----------------
occasioned by promulgation of rules, regulations, pronouncements or opinions by
or otherwise required by the Financial Accounting Standards Board (or a
successor thereto), which change results in a decrease in the amount of revenue
recognized by the Company and its Subsidiaries.
"Affiliate" means, as to any Person, any other Person directly or
---------
indirectly controlling, controlled by or under direct or indirect common control
with such Person. For the purposes of this definition, "control," when used
with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise. The terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Applicable Test Date" means either (i) the tenth day of the month in
--------------------
which the Company receives a request for prepayment from the holder of this Note
pursuant to Section 3(d) of this Note, or (ii) if such request is received prior
to the tenth day of any month, the tenth day of the immediately preceding month.
"Bank Line of Credit" means the Company's line of credit of up to
-------------------
$1,000,000.00 with Harris Bank evidenced by a Promissory Note, dated as of
July 17, 1994.
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.
"Capital Expenditures" means, for any period, the aggregate of all
--------------------
expenditures (including that portion of Capital Lease Obligations which is
capitalized on the consolidated balance sheet of the Company and its
Subsidiaries) by the Company or any Subsidiary during such period that, in
conformity with GAAP, are required to be included in the property, plant or
equipment or similar fixed capital or asset accounts reflected in the
consolidated balance sheet of the Company and its Subsidiaries (including
equipment that is purchased simultaneously with the trade-in of existing
equipment owned by the Company or any Subsidiary to the extent of the gross
amount of such purchase price less the trade-in value of the equipment being
traded in at such time), but excluding
17
<PAGE>
expenditures made in connection with the replacement or restoration of assets to
the extent reimbursed or financed from insurance proceeds paid on account of the
loss of or damage to the assets being replaced or restored or from awards of
compensation arising from the taking by condemnation or eminent domain of such
assets being replaced.
"Capital Lease Obligations" means, as to any Person, any obligation of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligation is required to be classified and accounted
for as a capital lease on a balance sheet of such Person under GAAP and, for the
purposes of this Note, the amount of any such obligation at any time shall be
the capitalized amount thereof at such time determined in accordance with GAAP
consistently applied.
"Capital Stock" of any Person means any and all shares, interests,
-------------
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
common stock and preferred stock and any rights, warrants or options to purchase
such Person's capital stock.
"Cash Flow Coverage Ratio" means the ratio, as of the end of any
------------------------
fiscal period, determined by dividing (a) EBITDA for such fiscal period, by
(b) Cash Interest Expense for such period.
"Cash Interest Expense" means Interest Expense less the sum of
---------------------
(a) pay-in-kind Interest Expense, (b) the amortization of debt discounts, if
any, (c) the amortization of all fees payable in connection with the incurrence
of Indebtedness to the extent included in Interest Expense and (d) any other
expense classified under GAAP as Interest Expense which is not paid or payable
in cash.
"Change of Control" shall mean (i) the direct or indirect sale, lease,
-----------------
exchange or other transfer of all or substantially all of the assets of the
Company to any Person or entity or group of Persons or entities acting in
concert as a partnership or other group (a "Group of Persons"), (ii) the merger
----------------
or consolidation of the Company with or into another corporation with the effect
that the then existing stockholders of the Company hold less than 50% of the
combined voting power of the then outstanding securities of the surviving
corporation of such merger or the corporation resulting from such consolidation
ordinarily (and apart from
18
<PAGE>
rights accruing under special circumstances) having the right to vote in the
election of directors, (iii) the replacement of a majority of the Board of
Directors of the Company, over a two-year period, from the directors who
constituted the Board of Directors at the beginning of such period, and such
replacement shall not have been approved by the Board of Directors of the
Company (or its replacements approved by the Board of Directors of the Company)
as constituted at the beginning of such period, (iv) a Person or Group of
Persons shall, as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, have become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of securities of the
Company representing 50% or more of the combined voting power of the then
outstanding securities of the Company ordinarily (and apart from rights accruing
under special circumstances) having the right to vote in the election of
directors.
"Class A Common Stock" means the Company's Class A Common Stock, no
--------------------
par value.
"Class B Common Stock" means the Company's Class B Common Stock, no
--------------------
par value.
"Closing Date" means the date specified in Section 2.5 of the Purchase
------------
Agreement.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Company's Class A Common Stock and Class B
------------
Common Stock.
"Condition of the Company" means the assets, business, properties,
------------------------
prospects, operations or financial condition of the Company and its
Subsidiaries, taken as a whole.
"Contingent Obligation" means, as to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "primary
-------
obligation") of another Person (with respect to a given primary obligation, the
- ----------
"primary obligor"), whether or not contingent, (a) to purchase, repurchase or
---------------
otherwise acquire any such primary obligation or any property constituting
direct or indirect security therefor, or (b) to advance or provide funds (i) for
the payment or discharge of any such primary obligation, or (ii) to maintain
working capital or equity capital of the primary obligor in respect of any such
primary
19
<PAGE>
obligation or otherwise to maintain the net worth or solvency or any balance
sheet item, level of income or financial condition of such primary obligor, or
(c) to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor in respect thereof to make payment of such primary obligation, or
(d) otherwise to assure or hold harmless the owner of any such primary obliga-
tion against loss or failure or inability to perform in respect thereof. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof.
"Contractual Obligations" means, as to any Person, any provision of
-----------------------
any security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Contribution Margin" shall mean for any period the contribution
-------------------
margin of the Company and its Subsidiaries calculated on a basis consistent with
the calculation of the contribution margin in the Projections.
"EBITDA" shall mean, with respect to the Company and its Subsidiaries
------
on a consolidated basis for any period, the sum of (a) Net Income for such
period, (b) Interest Expense for such period, (c) Federal, state and local
income and franchise taxes deducted from revenue in determining such Net Income,
(d) depreciation and amortization deducted from revenue in determining such Net
Income (including any effect from the capitalization, amortization and write-off
of implementation costs) and (e) all non-cash expenses which reduce Net Income,
less (f) interest income and all non-cash items which increase Net Income. For
purposes of calculating (e) and (f) above, all items that would not be
considered operating items in the ordinary course of business or would result in
changes in long-term asset or liability accounts shall be excluded.
"Environmental Laws" means any federal, state, territorial, provincial
------------------
or local law, common law doctrine, rule, order, decree, judgment, injunction,
license, permit or regulation relating to environmental matters, including those
pertaining to land use, air, soil, surface water, ground water (including the
protection, cleanup, removal, remediation or damage thereof), public or employee
health or safety or any other environmental matter, together with any other laws
(federal, state, territorial, provincial or
20
<PAGE>
local) relating to emissions, discharges, releases or threatened releases of any
pollutant or contaminant, including, without limitation, medical, chemical,
biological, biohazardous or radioactive waste and materials, into ambient air,
land, surface water, groundwater, personal property or structures, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transportation, discharge or handling of any contaminant.
"Event of Default" has the meaning assigned such term in Section 7(a).
----------------
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
------------
amended and the rules and regulations of the Commission promulgated thereunder.
"GAAP" means generally accepted United States accounting principles in
----
effect from time to time.
"Governmental Authority" means the government of any nation, state,
----------------------
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative func-
tions of or pertaining to government, and any corporation or other entity owned
or controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Indebtedness" means, as to any Person, (a) all obligations of such
------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any lien (other than
liens in favor of lessors under leases other than leases included in clause
(f)) on any property or
21
<PAGE>
asset owned or held by such Person regardless of whether the indebtedness
secured thereby shall have been assumed by such Person or is non-recourse to the
credit of such Person and (h) all Contingent Obligations of such Person.
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Capital Stock pursuant to a registration
statement on Form S-1 or otherwise under the Securities Act.
"Interest Expense" shall mean, with respect to the Company and its
----------------
Subsidiaries on a consolidated basis for any period, the sum of (a) gross
interest expense of the Company and its Subsidiaries for such period in
accordance with GAAP consistently applied, including (i) the amortization of
debt discounts, (ii) the amortization of all fees payable in connection with the
incurrence of Indebtedness to the extent included in interest expense and
(iii) the portion of any payments or accruals with respect to Capital Lease
Obligations allocable to interest expense, and (b) any other capitalized
interest of the Company and its Subsidiaries determined on a consolidated basis
in accordance with GAAP.
"Investment" means, for any Person (i) the acquisition (whether for
----------
cash, property, services, securities or otherwise) of Capital Stock, bonds,
notes, debentures, partnership or other ownership interests or other securities
of any other Person or any agreement to make any such acquisition; and (ii) the
making of any advance, loan or other extension of credit to, any other Person
(including the purchase of property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such property to
such other Person, but excluding any accounts receivable created in the ordinary
course of business).
"Junior Subordinated Notes" means the Company's Junior Subordinated
-------------------------
Promissory Notes, dated the Closing Date, issued pursuant to the Share
Redemption Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock or equity related preferences),
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, any interest of a
lessor under a capital lease, or any financing lease having substantially the
same economic effect as any of the foregoing.
22
<PAGE>
"Net Cash Proceeds" shall mean, with respect to any Initial Public
-----------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) relating to such Initial Public Offering.
"Net Income" shall mean for any period and prior to accounting for the
----------
payment of any dividends on the Series A Preferred Stock, (a) the net income
(loss) of the Company and its Subsidiaries, determined on a consolidated basis
in accordance with GAAP, minus (b) the aggregate for such period of, without
-----
duplication, (i) the net income (loss) of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition,
determined in accordance with GAAP, and (ii) any other items that are treated as
expenses under GAAP, but excluding from the definition of Net Income any
extraordinary or non-recurring charges, expenses, gains or losses, all computed
in accordance with GAAP.
"Outstanding Shares" shall mean all shares of Class A Common Stock
------------------
issued and outstanding immediately following the closing of a Qualified Public
Offering. For the purposes of any computation of the amount of Outstanding
Shares, all shares of Series A Preferred Stock and Class B Common Stock shall be
deemed to be converted into the maximum number of shares of Class A Common Stock
into which such shares of Series A Preferred Stock and Class B Common Stock were
then convertible as provided in the Amended and Restated Articles of
Incorporation.
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"Prepayment Event" means that at the end of any fiscal year ending
----------------
prior to a Qualified Public Offering, either the revenue or EBITDA of the
Company and its Subsidiaries on a consolidated basis for such fiscal year shall
fall below the revenue or EBITDA amount (as the case may be) set forth below
with respect to such fiscal year (determined on the basis of the audited
consolidated financial statements of the Company and its Subsidiaries for such
fiscal year):
23
<PAGE>
Fiscal Year
Ended December 31: Revenue: EBIDTA:
----------------- ------- ------
1995 $103,228,000.00 $ 3,741,000.00
1996 $180,234,000.00 $11,407,000.00
1997 $198,257,000.00 $12,548,000.00
1998 $218,083,000.00 $13,802,000.00
1999 $239,891,000.00 $15,183,000.00
2000 $263,880,000.00 $16,701,000.00
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Net Cash Proceeds to the Company in excess of $30,000,000.00 and in
respect of which the price per share of Common Stock sold in such Qualified
Public Offering multiplied by the number of Outstanding Shares is at least
$250,000,000.00.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement substantially in the form attached as an exhibit to the Stock Purchase
Agreement.
"Related Transaction Agreements" means all of the agreements executed
------------------------------
and delivered in connection with the Share Redemption.
"Requirements of Law" means, as to any Person, the articles of
-------------------
certificate of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation, right,
privilege, qualification, license or franchise or determination of an arbitrator
or a court or other Governmental Authority, in each case applicable or binding
upon such Person or any of its property or to which such Person or any of its
property is subject or pertaining to any or all of the transactions contemplated
or referred to herein.
"Restricted Payment" means (a) any dividend or other distribution on
------------------
any share of the Company's capital stock (except dividends payable solely in
shares of its capital stock) or (b) any payment by the Company or any Subsidiary
on account of the direct or indirect purchase, redemption, retirement or other
acquisition of (i) any shares of the Company's capital stock (except shares
acquired upon the conversion thereof into other shares of its capital stock),
(ii) any option, warrant or other right to acquire shares of the Company's
capital stock or (iii) any Indebtedness of the Company (other than indebtedness
incurred pursuant to this Note and the other Notes issued
24
<PAGE>
pursuant to the Purchase Agreement), including indebtedness represented by the
Junior Subordinated Notes, prior to any date set forth for mandatory repayment
of principal or interest thereon.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Senior Indebtedness" has the meaning assigned such term in
-------------------
Section 8(a).
"Share Redemption" means the redemption by the Company of shares of
----------------
its common stock from certain of the Company's stockholders pursuant to the
Share Redemption Agreement.
"Share Redemption Agreement" means the Redemption Agreement, dated as
--------------------------
of the date hereof, among the Company, Alan P. Mintz, John E. Adams, Lawrence
Rubinstein, Sheldon Gulinson, Alan H. Spiro and Nancie Blatt.
"Standstill" shall mean that for any fiscal year in which there is a
----------
Prepayment Event, both the Contribution Margin and EBITDA of the Company and its
Subsidiaries on a consolidated basis for such fiscal year shall equal or exceed
the Contribution Margin and EBITDA amounts set forth below with respect to such
fiscal year (determined on the basis of the audited consolidated financial
statements of the Company and its Subsidiaries for such fiscal year):
Fiscal Year Contribution
Ended December 31: Margin: EBIDTA:
----------------- ------------ ------
1995 $14,709,000.00 $ 3,741,000.00
1996 $25,893,000.00 $11,407,000.00
1997 $28,482,000.00 $12,548,000.00
1998 $31,331,000.00 $13,802,000.00
1999 $34,464,000.00 $15,183,000.00
2000 $37,910,000.00 $16,701,000.00
"Stock Purchase Agreement" means the Stock Purchase Agreement, dated
------------------------
as of the date hereof, among the Company, Whitney 1990 Equity Fund, L.P.,
J.H. Whitney & Co., Chemical Venture Capital Associates, L.P. and certain other
parties thereto.
25
<PAGE>
"Stockholders' Agreement" means the Stockholders' Agreement, dated as
-----------------------
of the date hereof, among the Company and the stockholders named therein.
"Subsidiary" means, with respect to any Person, a corporation or other
----------
entity of which 50% or more of the voting power of the voting equity securities
or equity interests is owned, directly or indirectly, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in
this Note shall refer to a Subsidiary or Subsidiaries of the Company.
"Temporary Cash Investment" means any Investment in (i) United States
-------------------------
Government Obligations, (ii) commercial paper rated at least A or the equivalent
thereof by Moody's Investors Services, Inc. or a similar nationally recognized
credit rating agency or (iii) time deposits (including certificates of deposit)
with any bank or trust company which is organized, licensed or otherwise
regulated under the laws of the United States or any state thereof, the long-
term debt securities of which are rated at least A or the equivalent thereof by
Moody's Investors Service, Inc. or a similar nationally recognized credit rating
agency; provided, in each case, that such Investment matures within one (1) year
--------
from the date of acquisition thereof by the Company or a Subsidiary thereof.
"Transaction Agreements" means, collectively, this Note and the other
----------------------
Notes issued pursuant to the Purchase Agreement, the Stockholders' Agreement,
the Registration Rights Agreement, the Purchase Agreement, the Stock Purchase
Agreement and the Guaranty.
"United States Government Obligations" means direct non-callable
------------------------------------
obligations of, or non-callable obligations guaranteed by the United States for
the payment of which obligation the full faith and credit of the United States
is pledged.
10. Expenses due to Default. In case of any default under this Note,
-----------------------
the Company will pay to the holder of this Note such amounts as shall be
sufficient to cover the costs and expenses of such holder due to such default,
including without limitation, costs of collection and reasonable fees,
disbursements and other charges of counsel.
11. Notices. All notices, demands, requests and other communications
-------
provided for or permitted hereunder shall be made in the manner specified in
Section 9.2 of the Purchase Agreement.
26
<PAGE>
12. Successors and Assigns. This Note shall inure to the benefit of
----------------------
and be binding upon the successors and permitted assigns of the parties hereto.
Subject to applicable securities laws, the holder of this Note may assign any of
its rights under this Note to any other Person. The Company may not assign any
of its obligations under this Note without the written consent of the holder of
this Note.
13. Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the holder
of this Note in exercising any right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the holder of this Note at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Note, any waiver of any provision of this Note, and any
consent to any departure by the Company from the terms of any provision of this
Note, shall be effective (i) only if it is made or given in writing and signed
by the Company and Persons holding at least a majority of the aggregate
outstanding principal amount of all of the Indebtedness of the Company issued
pursuant to the Purchase Agreement and initially represented by the Note and the
other Notes issued pursuant to the Purchase Agreement, and (ii) only in the
specific instance and for the specific purpose for which made or given. Except
where notice is specifically required by this Note, no notice to or demand on
the Company in any case shall entitle the Company to any other or further notice
or demand in similar or other circumstances.
(c) Notwithstanding the foregoing, without the written consent
of the holder of this Note, an amendment, supplement or waiver may not:
(i) reduce the percentage of Persons necessary to consent
to an amendment, supplement or waiver pursuant to this Section 13;
(ii) reduce the rate or extend the time for payment of
interest on this Note;
(iii) reduce the principal of, extend the fixed maturity of,
or alter the ranking of, this Note;
27
<PAGE>
(iv) make this Note payable in money other than that stated
in this Note; or
(v) alter or amend Section 3 of this Note.
14. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without regard to the
principles of conflicts of law of such State.
15. Jurisdiction. Each party to this Note hereby irrevocably agrees
------------
that any legal action or proceeding arising out of or relating to this Note or
any agreements or transactions contemplated hereby may be brought in the courts
of the State of New York or of the United States of America for the Southern
District of New York and hereby expressly submits to the personal jurisdiction
and venue of such courts for the purposes thereof and expressly waives any claim
of improper venue and any claim that such courts are an inconvenient forum.
Each party hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the address
set forth in Section 11, such service to become effective 10 days after such
mailing.
16. Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
17. Entire Agreement. This Note, the other Transaction Agreements,
----------------
and the Related Transaction Agreements are intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive state-
ment of the agreement and understanding of the parties hereto in respect of the
subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein. This Note, the other Transaction Agreements and the Related
Transaction Agreements supersede all prior agreements and understandings between
the parties with respect to such subject matter.
28
<PAGE>
18. Certain Expenses. The Company will pay all expenses of the
----------------
holder of this Note (including reasonable fees, charges and disbursements of
counsel) in connection with any amendment, supplement, modification or waiver of
or to any provision of this Note, or any consent to any departure by the Company
from the terms of any provision of this Note.
MEDICON, INC.
By /s/ John E. Adams
-------------------------------
Name: John E. Adams
Title: EVP & COO
Exhibit 10.4
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS
MEDICON, INC.
SENIOR SUBORDINATED PROMISSORY NOTE
DUE NOVEMBER 3, 2001
$ 5,000,000.00 New York, New York
November 3, 1994
FOR VALUE RECEIVED, the undersigned, MEDICON, INC., an Illinois
corporation (the "Company"), promises to pay to the order of CHEMICAL VENTURE
-------
CAPITAL ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP (the "Purchaser"), the
---------
principal sum of five million dollars ($5,000,000.00) on November 3, 2001, with
interest thereon from time to time as provided herein.
1. Purchase Agreement; Guaranty. This Senior Subordinated Promis-
----------------------------
sory Note (this "Note") is issued pursuant to the Subordinated Note and Stock
----
Purchase Agreement, dated as of the date hereof, between the Company, the
Purchaser and certain other parties thereto (the "Purchase Agreement"), and is
------------------
guaranteed by Medicon CI, Inc., a New York corporation (the "Guarantor")
---------
pursuant to a Guaranty, dated as of the date hereof (the "Guaranty"). The
--------
holder of this Note is entitled to the benefits of this Note, the Purchase
Agreement and the Guaranty and may enforce the agreements of the Company and the
Guarantor contained herein and therein and exercise the remedies provided for
hereby and thereby or otherwise available in respect hereto and thereto.
Capitalized terms used herein
<PAGE>
and not otherwise defined are used herein with the meanings ascribed to such
terms in Section 9 hereof.
2. Interest. The Company promises to pay interest on the principal
--------
amount of this Note at the rate of 10.101% per annum. The Company shall pay
accrued interest quarterly on each March 31, June 30, September 30 and
December 31 of each year or, if any such date shall not be a Business Day, on
the next succeeding Business Day to occur after such date (each date upon which
interest shall be so payable, an "Interest Payment Date"), beginning on
---------------------
December 31, 1994. Interest on this Note shall be paid by wire transfer of imme-
diately available funds to an account designated by the holder of this Note.
Interest on this Note shall accrue from the date of issuance until repayment of
the principal and payment of all accrued interest in full. Interest shall be
computed on the basis of a 360-day year of twelve 30-day months. Notwith-
standing the foregoing provisions of this Section 2, but subject to applicable
law, any overdue principal of and overdue interest on this Note shall bear
interest, payable on demand in immediately available funds, for each day from
the date payment thereof was due to the date of actual payment, at the rate of
12.101% per annum, and, upon and during the continuance of an Event of Default,
this Note shall bear interest, from the date of the occurrence of such Event of
Default until such Event of Default is cured or waived, payable on demand in
immediately available funds, at the rate of 12.101% per annum. Subject to
applicable law, any interest that shall accrue on overdue interest on this Note
as provided in the preceding sentence and shall not have been paid in full on or
before the next Interest Payment Date to occur after the Interest Payment Date
on which the overdue interest became due and payable shall itself be deemed to
be overdue interest on this Note to which the preceding sentence shall apply.
3. Mandatory Prepayment.
--------------------
(a) Initial Public Offering. Upon the consummation of an
-----------------------
Initial Public Offering, the Company shall prepay this Note (together with
interest accrued thereon) pro rata with the prepayment of all other Notes issued
pursuant to the Purchase Agreement, in an amount equal to the lesser of (i) the
Net Cash Proceeds received from the Initial Public Offering, or (ii) the out-
standing principal amount of this Note (together with interest accrued thereon),
within 5 Business Days after receipt by the Company of the proceeds of such
Initial Public Offering.
(b) Change of Control. Upon the occurrence of a Change of
-----------------
Control, the Company shall prepay this Note
2
<PAGE>
pro rata with the prepayment of all other Notes issued pursuant to the Purchase
Agreement, in an amount equal to the outstanding principal amount of this Note
(together with interest accrued thereon).
(c) Notice. The Company shall give written notice to the holder
------
of this Note of any mandatory prepayment pursuant to Section 3(a) or (b) at
least 3 Business Days prior to the date of such prepayment. Such notice shall
be given in the manner specified in Section 11 of this Note.
(d) Prepayment Event. At the request from time to time of the
----------------
holder of this Note made on any date after the occurrence of a Prepayment Event,
the Company shall prepay this Note (together with interest accrued thereon) in
an amount equal to the lesser of (i) the amount by which, as of the Applicable
Test Date, the current assets (other than receivables and prepaid expenses) of
the Company and its Subsidiaries exceeds fifty percent (50%) of the accounts
payable - providers (due within one-month) of the Company and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP, or (ii) the
outstanding principal amount of this Note (together with interest accrued
thereon), within 5 Business Days after receipt by the Company of any such
request for prepayment; provided, however, that if (x) there occurs an
-------- -------
Accounting Change and (y) there is a Standstill in effect for any fiscal year
with respect to which there is a Prepayment Event, the holder of this Note may
not make a request for prepayment pursuant to this Section 3(d) for a period of
one year after the end of such fiscal year. Any request for prepayment to this
Section 3(d) shall be given in the manner specified in Section 11 of this Note.
4. Optional Prepayment.
-------------------
(a) Upon notice given to the holder of this Note as provided in
subsection (b) of this Section 4, the Company, at its option, may prepay all or
any portion of this Note, pro rata with the prepayment of all other Notes issued
pursuant to the Purchase Agreement, at any time, by paying an amount equal to
the outstanding principal amount of this Note, or the portion of this Note
called for prepayment, together with interest accrued and unpaid thereon to the
date fixed for prepayment, without penalty or premium.
(b) The Company may give written notice of prepayment of this
Note or any portion thereof not less than 10 nor more than 60 days prior to the
date fixed for such prepayment. Such notice of prepayment shall be given in the
3
<PAGE>
manner specified in Section 11 of this Note. Upon notice of prepayment being
given by the Company, the Company covenants and agrees that it shall prepay, on
the date therein fixed for prepayment, this Note or the portion hereof so called
for prepayment, at the outstanding principal amount thereof or the portion
thereof so called for prepayment together with interest accrued and unpaid
thereon to the date fixed for such prepayment.
(c) All optional prepayments under this Section 4 shall include
payment of accrued interest on the principal amount so prepaid and shall be
applied first to all costs, expenses and indemnities payable under the Purchase
Agreement, then to payment of default interest, if any, then to payment of
accrued interest, and thereafter to principal.
5. Affirmative Covenants. Until the payment by the Company of all
---------------------
principal of and interest on the Note and all other amounts due at the time of
payment of such principal and interest to the holder of this Note, including,
without limitation, all fees, expenses and amounts due at such time in respect
of indemnity obligations under Article 7 of the Purchase Agreement, the Company
hereby covenants and agrees as follows:
(a) Financial Statements and Other Information. The Company
------------------------------------------
shall deliver to the holder of this Note:
(i) as soon as available, but not later than ninety (90)
days after the end of each fiscal year of the Company, a copy of the audited
consolidated balance sheet of the Company and its Subsidiaries as of the end of
such year and the related consolidated statements of operations and cash flows
for such fiscal year, setting forth in each case in comparative form the figures
for the previous year, all in reasonable detail and accompanied by a management
summary and analysis of the operations of the Company for such fiscal year and
by the opinion of Arthur Anderson & Co. (or any successor thereto) or another
"Big Five" accounting firm, which report shall state that such consolidated
financial statements present fairly the financial position as of such date and
results of operations and cash flows for the periods indicated in conformity
with GAAP applied on a consistent basis (except for changes that have been made
in accordance with GAAP with the concurrence of the accounting firm reporting on
such consolidated financial statements);
(ii) commencing with the fiscal period ending on March 31,
1995, as soon as available, but in any event not later than forty-five (45) days
after the end of
4
<PAGE>
each of the first three fiscal quarters of each fiscal year, (a) a copy of the
unaudited consolidated balance sheet of the Company and its Subsidiaries, and
the related consolidated statements of operations and cash flows, in each case
for such quarter and for the period commencing on the first day of the fiscal
year and ending on the last day of such quarter, and (b) such financial
information concerning each office and product line of the Company and its
Subsidiaries as the holder of this Note may request, all certified by the chief
financial officer of the Company as being fairly stated in all material
respects;
(iii) commencing with the month ending on October 31, 1994,
as soon as available, but in any event not later than thirty (30) days after the
end of each month, (a) the unaudited consolidated balance sheet of the Company
and its Subsidiaries and the related consolidated statements of operations and
cash flows for such month and (b) a statement comparing the material results for
such month to the budgeted results for such month, all certified by an
appropriate officer of the Company as being fairly stated in all material
respects;
(iv) as soon as available, but not later than sixty (60)
days prior to the end of each fiscal year of the Company, the budget for the
Company and its Subsidiaries for each month of the subsequent fiscal year;
provided, however, that the budget of the Company and its Subsidiaries for the
- -------- -------
1995 fiscal year shall be delivered by November 30, 1994; and
(v) such other financial and operating data of the
Company and its Subsidiaries, as the holder of this Note reasonably may request.
(b) Certificates. The Company shall deliver to the holder of
------------
this Note:
(i) concurrently with the delivery of the consolidated
financial statements referred to in Section 5(a)(i), a certificate of the
Company's Chief Financial Officer stating that to best of his or her knowledge
no Event of Default shall have occurred and is continuing, except as specified
in such certificate; and
(ii) concurrently with the delivery of the consolidated
financial statements referred to in Sections 5(a)(i) and (ii), a certificate of
an officer of the Company including calculations set forth in reasonable detail
showing the Company's compliance with the financial covenants contained herein.
5
<PAGE>
(c) Preservation of Corporate Existence. The Company shall, and
-----------------------------------
shall cause its Subsidiaries, to:
(i) preserve and maintain in full force and effect their
corporate existence;
(ii) conduct their businesses in accordance with sound
business practices, keep their properties in good working order and condition
(normal wear and tear excepted), and from time to time make all needed repairs
to, renewals of or replacements of their properties (except to the extent that
any of such properties are obsolete or are being replaced) so that the
efficiency of their business operations shall be fully maintained and preserved;
and
(iii) file or cause to be filed in a timely manner all
reports, applications, estimates and licenses that shall be required by a
Governmental Authority and that, if not timely filed, would be reasonably likely
to have a material adverse effect on the Condition of the Company.
(d) Payment of Obligations. The Company shall, and shall cause
----------------------
its Subsidiaries, to pay and discharge as the same shall become due and payable,
all their respective obligations and liabilities, including without limitation:
(i) all tax liabilities, assessments and governmental
charges or levies upon them or their properties or assets, unless the same are
being contested in good faith by appropriate proceedings and adequate reserves
in accordance with GAAP are being maintained by the Company and its
Subsidiaries;
(ii) all lawful claims which the Company of any of its
Subsidiaries obligated to pay, which are due and which, if unpaid, might by law
become a Lien upon their properties, unless the same are being contested in good
faith by appropriate proceedings and adequate reserves in accordance with GAAP
are being maintained by the Company and its Subsidiaries; and
(iii) all payments of principal, interest and other amounts
when due on Indebtedness, unless the same are being contested in good faith by
appropriate proceedings and adequate reserves in accordance with GAAP are being
maintained by the Company and its Subsidiaries.
(e) Compliance with Laws. The Company shall comply, and shall
--------------------
cause its Subsidiaries to comply, in all
6
<PAGE>
material respects with all Requirements of Law and with the directions of any
Governmental Authority having jurisdiction over them or their business or the
ownership of their property (including all applicable Environmental Laws).
(f) Notices. Within 5 days of obtaining knowledge of any of the
-------
events described below, the Company shall give written notice to the holder of
this Note in the manner specified in Section 11 of this Note:
(i) of the occurrence of any Event of Default or any event
that, after notice or lapse of time or both, would become an Event of Default;
and
(ii) of any (a) material default or event of default under
any material Contractual Obligation of the Company or any of its Subsidiaries or
(b) material dispute, litigation, investigation, proceeding or suspension which
may exist at any time between the Company or any of its Subsidiaries and any
Governmental Authority.
Each notice pursuant to this Section 5(f) shall be accompanied by a
statement by the Chief Executive Officer, President or Chief Financial Officer
of the Company setting forth details of the occurrence referred to therein and
stating what action the Company proposes to take with respect thereto.
(g) Inspection. The Company will permit representatives of the
----------
holder of this Note to visit and inspect any of its or its Subsidiaries'
properties, to examine their corporate, financial and operating records and make
copies thereof or abstracts therefrom, and to discuss their affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested, upon reasonable advance notice to the
Company or its Subsidiary, as the case may be.
(h) Payment of Note. The Company shall pay the principal of,
---------------
interest on and other amounts due in respect of, this Note on the dates and in
the manner provided in this Note.
(i) Insurance. The Company shall, and shall cause it
---------
Subsidiaries, to maintain insurance in such amounts and covering such risks as
are usually and customarily carried with respect to similar businesses according
to their respective locations. In addition, the Company shall maintain "key-
man" life insurance on the life of Alan Mintz
7
<PAGE>
in the amount of at least $3,000,000.00 and John Adams in the amount of at least
$1,000,000.00.
(j) Books and Records. The Company shall, and shall cause it
-----------------
Subsidiaries to, keep proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the assets and
business of the Company and its Subsidiaries in accordance with GAAP
consistently applied.
6. Negative Covenants. Until the payment by the Company of all
------------------
principal of and interest on this Note and all other amounts due at the time of
payment of such principal and interest to the holder of this Note, including,
without limitation, all expenses and amounts due at such time in respect of
indemnity obligations under Article 7 of the Purchase Agreement, the Company
hereby covenants and agrees with the Purchaser as follows:
(a) Consolidations and Mergers; Sale of Assets. Neither the
----------------------------------- ------
Company nor any of its Subsidiaries shall merge, consolidate with or into, or
convey, transfer, lease or otherwise dispose of (whether in one transaction or
in a series of transactions) all or substantially all of their assets (whenever
acquired).
(b) Transactions with Affiliates. The Company shall not, and
----------------------------
shall not permit any of its Subsidiaries to, (i) enter into any transaction with
any Affiliate of the Company or any of its Subsidiaries or any stockholder (or
any Affiliate of such stockholder) of the Company or any of its Subsidiaries,
except pursuant to the reasonable requirements of the business of the Company or
any of its Subsidiaries and on terms substantially no less favorable to the
Company or any of its Subsidiaries than those that the Company or any of its
Subsidiaries would obtain in a comparable arm's-length transaction with a Person
not an Affiliate or stockholder (or Affiliate of a stockholder) of the Company
or any of its Subsidiaries, (ii) purchase any selling, general, management or
administrative services from an Affiliate or stockholder (or an Affiliate of
such stockholder) of the Company or any of its Subsidiaries, or (iii) directly
or indirectly make any sales to or purchases from an Affiliate or stockholder
(or an Affiliate of such stockholder) of the Company or any of its Subsidiaries
during any calendar quarter that, in the aggregate, are in excess of 1% of the
Company's or any of its Subsidiary's total sales or purchases, respectively,
during such quarter; provided, however, that nothing contained in this
Section 6(b) shall prohibit the transactions described on Schedule 6(b).
-------------
8
<PAGE>
(c) No Inconsistent Agreements; Amendments. Neither the Company
--------------------------------------
nor any of its Subsidiaries shall enter into any loan or other agreement, or
enter into any amendment or other modification to any currently existing agree-
ment, which by its terms restricts or prohibits the ability of the Company to
pay the principal of or interest on this Note.
(d) Limitation on Indebtedness. Neither the Company nor any of
--------------------------
its Subsidiaries shall, directly or indirectly, issue, assume or otherwise incur
any Indebtedness, other than: (i) Indebtedness under the Purchase Agreement and
this Note; (ii) Indebtedness under the Bank Line of Credit in an amount not
exceeding $1,000,000.00 at any one time outstanding; (iii) Indebtedness under
the Junior Subordinated Notes; (iv) Indebtedness secured by a Lien permitted
under Section 6(e); and (v) additional unsecured Indebtedness at any one time
outstanding in an amount not exceeding the excess of (A) $5,000,000.00 over
(B) the amount of Indebtedness outstanding under the Bank Line of Credit.
(e) Limitation on Liens. Neither the Company nor any of its
-------------------
Subsidiaries shall create, incur, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it, other than: (i) Liens under the
Bank Line of Credit; (ii) Liens existing on the date of this Note and disclosed
on Schedule 6(e); (iii) Liens for taxes, statutory Liens of landlords and Liens
-------------
of carriers, warehousemen, mechanics and materialmen, in each case only to the
extent the obligations thereto are not yet due or are being contested in good
faith by appropriate proceedings diligently pursued; (iv) Liens to secure
performance of tenders, bids, statutory obligations or government contracts, and
similar Liens not securing Indebtedness and arising in the ordinary course of
business; and (v) any Lien on equipment or real property securing Indebtedness
up to $1,000,000.00 in any 12-month period incurred or assumed for the sole
purpose of financing all or part of the cost of acquiring such equipment or real
property, provided that such Lien attaches to such asset concurrently with or
--------
within 10 days after the acquisition thereof.
(f) Limitation on Conduct of Business. The Company will refrain
---------------------------------
from creating or acquiring any Subsidiary, except that the Company shall be
permitted to create or acquire Subsidiaries to the extent that such Subsidiaries
shall execute and deliver to the holders of this Note and all other Notes issued
pursuant to the Purchase Agreement guarantees guaranteeing the obligations of
the Company hereunder and thereunder, which such guarantees shall be in form and
substance satisfactory to
9
<PAGE>
the holders of at least a majority of the aggregate outstanding principal amount
of the Notes issued pursuant to the Purchase Agreement and the obligations under
such guarantees shall be subordinated to the same extent as the Company's
obligations are subordinated hereunder.
(g) Investments. Neither the Company nor any Subsidiary thereof
-----------
shall make any Investment, except for (i) Investments in Temporary Cash
Investments, (ii) loans and advances to employees for reasonable travel and
business expenses in the ordinary course of business, (iii) prepaid expenses
incurred in the ordinary course of business, (iv) trade accounts receivable
created in the ordinary course of business, (v) Investments existing as of the
date of, and reflected on, the unaudited balance sheet of the Company as of
December 31, 1993 and the related statements of income and cash flows for the
fiscal year then ended, which Investments are listed on Schedule 6(g),
-------------
(vi) Investments in a newly created wholly-owned Subsidiary that has,
concurrently with such Investment, executed and delivered to the holders of the
Notes any guarantees required pursuant to Section 6(f) hereof, and
(vii) additional Investments not to exceed $500,000.00 in the aggregate.
(h) Limitations on Restricted Payments. Neither the Company nor
----------------------------------
any Subsidiary will declare or make any Restricted Payment, except that the
Company may purchase, redeem, retire or otherwise acquire shares of the
Company's Capital Stock from employees of the Company or any of its Subsidiaries
in an amount not to exceed $250,000.00 in any 12-month period.
(i) Dispositions of Assets. Neither the Company nor any
----------------------
Subsidiary shall sell, transfer, lease or otherwise dispose of (in one trans-
action or in a series of transactions) all or any part of the assets or
properties of the Company or any Subsidiary other than (i) assets or properties
sold in the ordinary course of business, or (ii) assets or properties, sales of
which do not exceed in the aggregate $500,000.00 in any 12-month period.
(j) Financial Covenants.
-------------------
(i) Maintenance of Temporary Cash Investments. The Company
-----------------------------------------
shall at all times maintain Temporary Cash Investments of at least $3,000,000.00
in the aggregate.
(ii) Cash Flow Coverage Ratio. The Company shall not
------------------------
permit the Cash Flow Coverage Ratio to be less than (i) 2:1 for any period of 12
consecutive months ending after December 31, 1995 and on or before December 31,
1996, (ii) 2.5:1 for any period of 12 consecutive months
10
<PAGE>
ending after December 31, 1996 and on or before December 31, 1997, (iii) 3.0:1
for any period of 12 consecutive months ending after December 31, 1997.
(k) Capital Expenditures. The Company shall not make, or cause
--------------------
any Subsidiary to make, an aggregate amount of Capital Expenditures in excess of
$2,000,000.00 in any 12-month period.
7. Defaults and Remedies.
---------------------
(a) Events of Default. An "Event of Default" shall occur if:
-----------------
(i) the Company shall default in the payment of the
principal of this Note, when and as the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or by acceleration or
otherwise; or
(ii) the Company shall default in the payment of any
installment of interest on this Note according to its terms, when and as the
same shall become due and payable and such default shall continue for a period
of three days; or
(iii) the Company shall default in the due observance or
performance of any covenant to be observed or performed pursuant to
Sections 5(a)(i) and 6 (other than Section 6(j)(ii)) hereof; or
(iv) the Company shall default in the due observance or
performance of any covenant to be observed or preformed pursuant to Section 5
(other than Section 5(a)(i)) hereof and such default shall continue for a period
of 15 days; or
(v) the Company shall default in the due observance or
performance of the covenant contained in Section 6(j)(ii) hereof and such
default shall continue for a period of 90 days; or
(vi) the Company or the Guarantor, as the case may be, shall
default in the due observance or performance of any other covenant, condition or
agreement on the part of the Company or the Guarantor to be observed or per-
formed pursuant to the terms hereof or pursuant to the terms of the Purchase
Agreement or the Guaranty, and such default shall continue for 30 days after the
earliest of (A) the date the Company gives notice thereof to the holder
11
<PAGE>
of this Note or the holder of any other Note issued pursuant to the Purchase
Agreement or (B) the date written notice thereof, specifying such default and,
if such default is capable of being remedied, requesting that the same be
remedied, shall have been given to the Company by the holder of this Note or the
holder of any other Note issued pursuant to the Purchase Agreement; or
(vii) any representation, warranty, certification or
statement made by or on behalf of the Company or the Guarantor, as the case may
be, in this Note, the Purchase Agreement, the Guaranty or in any certificate or
other document delivered pursuant hereto or thereto shall have been incorrect in
any material respect when made; or
(viii) any (A) default in any payment of principal of or
interest of any Indebtedness of the Company or any Subsidiary, in an aggregate
amount outstanding at any one time equal to or exceeding $250,000.00; or (B)
default in the observance or performance of any other agreement or condition
relating to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition, is to
cause, or to permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause, with the giving of notice
if required, such Indebtedness to become due prior to its stated maturity; or
(ix) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(a) relief in respect of the Company or any Subsidiary thereof, or of a substan-
tial part of its property or assets, under Title 11 of the United States Code,
as now constituted or hereafter amended, or any other Federal or state bank-
ruptcy, insolvency, receivership or similar law, (b) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Company or any Subsidiary thereof, or for a substantial part of its property
or assets, or (c) the winding up or liquidation of the Company or any Subsidiary
thereof; and such proceeding or petition shall continue undismissed for 60 days,
or an order or decree approving or ordering any of the foregoing shall be
entered; or
(x) the Company or any Subsidiary thereof shall
(a) voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency,
12
<PAGE>
receivership or similar law, (b) consent to the institution of or the entry of
an order for relief against it, or fail to contest in a timely and appropriate
manner, any proceeding or the filing of any petition described in paragraph (ix)
of this Section 7(a), (c) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Company or any such Subsidiary, or for a substantial part of its property or
assets, (d) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (e) make a general assignment for the
benefit of creditors, (f) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (g) take any action for the
purpose of effecting any of the foregoing; or
(xi) one or more judgments for the payment of money in an
aggregate amount in excess of $250,000.00 (to the extent not covered by
insurance) shall be rendered against the Company or any Subsidiary thereof and
the same shall remain undischarged for a period of 30 days during which
execution shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to levy upon assets or properties of the Company to
enforce any such judgment.
(b) Acceleration. If an Event of Default occurs under
------------
clauses (a)(ix) or (x) of this Section 7, then the outstanding principal of and
all accrued interest on this Note shall automatically become immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which are expressly waived. If any other Event of Default occurs and is
continuing, the holders of at least 25% of the aggregate outstanding principal
amount of all of the Indebtedness of the Company issued pursuant to the Purchase
Agreement and initially represented by this Note and the other Notes issued
pursuant to the Purchase Agreement, by written notice to the Company, may
declare the principal of and accrued interest on the Notes issued pursuant to
the Purchase Agreement to be due and payable immediately. Upon such
declaration, such principal and interest shall become immediately due and
payable. The holders of more than 50% of the aggregate outstanding principal
amount of all of the Indebtedness of the Company issued pursuant to the Purchase
Agreement and initially represented by this Note and the other Notes issued
pursuant to the Purchase Agreement may rescind an acceleration and its
consequences if all existing Events of Default have been cured or waived, except
nonpayment of principal or interest that has become due solely because of the
acceleration, and if the rescission would not conflict with any judgment or
13
<PAGE>
decree. Any notice or rescission shall be given in the manner specified in
Section 11 hereof.
8. Subordination. This Note and the other Notes issued pursuant to
-------------
the Purchase Agreement shall at all times be wholly subordinate and junior in
right of payment to all Senior Indebtedness to the extent and in the manner
provided in this Section 8.
(a) As used in this Section 8, the following terms shall have
the following meanings:
"Junior Securities" means any debt or equity securities distributed to
-----------------
the holders of this Note and the other Notes issued pursuant to the Purchase
Agreement, but only if they are subordinated to at least the same extent as such
Notes.
"Senior Indebtedness" shall mean the principal of and interest on
-------------------
(including without limitation any interest that accrues after the commencement
of any case, proceeding or other legal action relating to the bankruptcy,
insolvency or reorganization of the Company to the extent such interest
constitutes an allowed claim) any Indebtedness for borrowed money of the Company
that is permitted to be incurred by the Company under Sections 6(d)(ii) and (v)
hereof, whether outstanding on the date hereof or thereafter created, incurred,
assumed or guaranteed by the Company, unless the instrument creating or
evidencing the same expressly provides that such Indebtedness is on a parity
with or subordinated in right of payment to the Subordinated Indebtedness.
"Subordinated Indebtedness" shall mean (i) the principal of and
-------------------------
interest on this Note and the other Notes issued pursuant to the Purchase
Agreement; and (ii) any other monetary obligations of the Company or the
Guarantor arising out of or in connection with the Purchase Agreement, such
Notes or the Guaranty.
(b) General. Subject to the rights of the holder of the
-------
Subordinated Indebtedness to receive Junior Securities and any distributions
provided in this Section 8, upon the maturity of any Senior Indebtedness by
lapse of time, acceleration, required prepayment or otherwise, all Senior
Indebtedness then so due and payable shall first be paid or provided for in
full, before any payment is made on account of the Subordinated Indebtedness
then so due and payable or to acquire this Note or any of the other Notes issued
pursuant to the Purchase Agreement.
14
<PAGE>
(c) Subordination Upon Certain Events. Upon the occurrence of
---------------------------------
any Event of Default under Sections 7(a)(ix) or (x) of this Note:
(i) Upon any payment or distribution of assets of the
Company to creditors of the Company, holders of Senior Indebtedness shall be
entitled to receive payment in full before the holders of Subordinated
Indebtedness shall be entitled to receive any payment in respect of the
Subordinated Indebtedness, except that the holders of Subordinated Indebtedness
may receive Junior Securities.
(ii) Until all Senior Indebtedness is paid in full, any
distribution to which the holders of Subordinated Indebtedness would be entitled
but for this Section 8 shall be made to holders of Senior Indebtedness, as their
interests may appear, except that the holders of Subordinated Indebtedness may
receive Junior Securities.
(iii) For purposes of this Section 8, a distribution may
consist of cash, securities or other property, by set-off or otherwise.
(iv) Notwithstanding the foregoing provisions of this
Section 8(c), if payment or delivery by the Company of Junior Securities to the
holders of Subordinated Indebtedness is authorized by an order or decree giving
effect, and stating in such order or decree that effect is given, to the
subordination of the Subordinated Indebtedness to the Senior Indebtedness, and
made by a court of competent jurisdiction in a proceeding under any applicable
bankruptcy or reorganization law, payment or delivery by the Company of such
Junior Securities shall be made to the holders of the Subordinated Indebtedness
in accordance with such order or decree.
(d) Payments and Distributions Received. If the holders of the
-----------------------------------
Subordinated Indebtedness shall have received any payment from or distribution
of assets of the Company in respect of the Subordinated Indebtedness in
contravention of the terms of this Section 8 before all Senior Indebtedness is
paid in full, then and in such event such payment or distribution shall be
received and held in trust for and shall be paid over or delivered to the
holders of Senior Indebtedness (or their authorized agent) to the extent
necessary to pay all such Senior Indebtedness in full.
(e) Subrogation. After all amounts payable under or in respect
-----------
of Senior Indebtedness are paid in full, the holders of the Subordinated
Indebtedness shall be subrogated to the rights of holders of Senior Indebtedness
15
<PAGE>
to receive payments or distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the holders of the Subordinated
Indebtedness have been applied to the payment of Senior Indebtedness. A
distribution made under this Section 8 to a holder of Senior Indebtedness which
otherwise would have been made to the holders of the Subordinated Indebtedness
is not, as between the Company and the holders of the Subordinated Indebtedness,
a payment by the Company on Senior Indebtedness.
(f) Relative Rights. This Section defines the relative rights
---------------
of the holders of the Subordinated Indebtedness and the holders of Senior
Indebtedness. Nothing in this Section shall: (i) impair, as between the
Company and the holders of the Subordinated Indebtedness, the obligation of the
Company, which is absolute and unconditional, to pay principal of and interest
(including default interest) on Subordinated Indebtedness in accordance with its
terms; (ii) effect the relative rights of holders of Subordinated Indebtedness
and creditors of the Company other than holders of Senior Indebtedness; or (iii)
prevent the holders of Subordinated Indebtedness from exercising their available
remedies upon a default or Event of Default, subject to the rights, if any,
under this Section 8 of holders of Senior Indebtedness to receive distributions
otherwise payable to the holders of Subordinated Indebtedness.
(g) Subordination May Not Be Impaired by the Company. No right
------------------------------------------------
of any holder of any Senior Indebtedness to enforce the subordination of the
Subordinated Indebtedness shall be impaired by any failure by the Company to
comply with this Note.
(h) Payments. A payment with respect to principal of or
--------
interest on the Subordinated Indebtedness shall include, without limitation,
payment of principal of, and interest on the Subordinated Indebtedness, any
depositing of funds for the defeasance of the Subordinated Indebtedness and any
payment on account of mandatory prepayment or optional prepayment provisions.
(i) Section Not to Prevent Events of Default. The failure to
----------------------------------------
make a payment on account of principal of or interest on or other amounts
constituting Subordinated Indebtedness by reason of any provision of this
Section 8 shall not be construed as preventing the occurrence of an Event of
Default under Section 7.
16
<PAGE>
9. Definitions. As used in this Note, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Accounting Change" means any change in GAAP after the date hereof
-----------------
occasioned by promulgation of rules, regulations, pronouncements or opinions by
or otherwise required by the Financial Accounting Standards Board (or a
successor thereto), which change results in a decrease in the amount of revenue
recognized by the Company and its Subsidiaries.
"Affiliate" means, as to any Person, any other Person directly or
---------
indirectly controlling, controlled by or under direct or indirect common control
with such Person. For the purposes of this definition, "control," when used
with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise. The terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Applicable Test Date" means either (i) the tenth day of the month in
--------------------
which the Company receives a request for prepayment from the holder of this Note
pursuant to Section 3(d) of this Note, or (ii) if such request is received prior
to the tenth day of any month, the tenth day of the immediately preceding month.
"Bank Line of Credit" means the Company's line of credit of up to
-------------------
$1,000,000.00 with Harris Bank evidenced by a Promissory Note, dated as of
July 17, 1994.
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.
"Capital Expenditures" means, for any period, the aggregate of all
--------------------
expenditures (including that portion of Capital Lease Obligations which is
capitalized on the consolidated balance sheet of the Company and its
Subsidiaries) by the Company or any Subsidiary during such period that, in
conformity with GAAP, are required to be included in the property, plant or
equipment or similar fixed capital or asset accounts reflected in the
consolidated balance sheet of the Company and its Subsidiaries (including
equipment that is purchased simultaneously with the trade-in of existing
equipment owned by the Company or any Subsidiary to the extent of the gross
amount of such purchase price less the trade-in value of the equipment being
traded in at such time), but excluding
17
<PAGE>
expenditures made in connection with the replacement or restoration of assets to
the extent reimbursed or financed from insurance proceeds paid on account of the
loss of or damage to the assets being replaced or restored or from awards of
compensation arising from the taking by condemnation or eminent domain of such
assets being replaced.
"Capital Lease Obligations" means, as to any Person, any obligation of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligation is required to be classified and accounted
for as a capital lease on a balance sheet of such Person under GAAP and, for the
purposes of this Note, the amount of any such obligation at any time shall be
the capitalized amount thereof at such time determined in accordance with GAAP
consistently applied.
"Capital Stock" of any Person means any and all shares, interests,
-------------
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
common stock and preferred stock and any rights, warrants or options to purchase
such Person's capital stock.
"Cash Flow Coverage Ratio" means the ratio, as of the end of any
------------------------
fiscal period, determined by dividing (a) EBITDA for such fiscal period, by
(b) Cash Interest Expense for such period.
"Cash Interest Expense" means Interest Expense less the sum of
---------------------
(a) pay-in-kind Interest Expense, (b) the amortization of debt discounts, if
any, (c) the amortization of all fees payable in connection with the incurrence
of Indebtedness to the extent included in Interest Expense and (d) any other
expense classified under GAAP as Interest Expense which is not paid or payable
in cash.
"Change of Control" shall mean (i) the direct or indirect sale, lease,
-----------------
exchange or other transfer of all or substantially all of the assets of the
Company to any Person or entity or group of Persons or entities acting in
concert as a partnership or other group (a "Group of Persons"), (ii) the merger
----------------
or consolidation of the Company with or into another corporation with the effect
that the then existing stockholders of the Company hold less than 50% of the
combined voting power of the then outstanding securities of the surviving
corporation of such merger or the corporation resulting from such consolidation
ordinarily (and apart from
18
<PAGE>
rights accruing under special circumstances) having the right to vote in the
election of directors, (iii) the replacement of a majority of the Board of
Directors of the Company, over a two-year period, from the directors who
constituted the Board of Directors at the beginning of such period, and such
replacement shall not have been approved by the Board of Directors of the
Company (or its replacements approved by the Board of Directors of the Company)
as constituted at the beginning of such period, (iv) a Person or Group of
Persons shall, as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, have become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of securities of the
Company representing 50% or more of the combined voting power of the then
outstanding securities of the Company ordinarily (and apart from rights accruing
under special circumstances) having the right to vote in the election of
directors.
"Class A Common Stock" means the Company's Class A Common Stock, no
--------------------
par value.
"Class B Common Stock" means the Company's Class B Common Stock, no
--------------------
par value.
"Closing Date" means the date specified in Section 2.5 of the Purchase
------------
Agreement.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Company's Class A Common Stock and Class B
------------
Common Stock.
"Condition of the Company" means the assets, business, properties,
------------------------
prospects, operations or financial condition of the Company and its
Subsidiaries, taken as a whole.
"Contingent Obligation" means, as to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "primary
-------
obligation") of another Person (with respect to a given primary obligation, the
- ----------
"primary obligor"), whether or not contingent, (a) to purchase, repurchase or
---------------
otherwise acquire any such primary obligation or any property constituting
direct or indirect security therefor, or (b) to advance or provide funds (i) for
the payment or discharge of any such primary obligation, or (ii) to maintain
working capital or equity capital of the primary obligor in respect of any such
primary
19
<PAGE>
obligation or otherwise to maintain the net worth or solvency or any balance
sheet item, level of income or financial condition of such primary obligor, or
(c) to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor in respect thereof to make payment of such primary obligation, or
(d) otherwise to assure or hold harmless the owner of any such primary obliga-
tion against loss or failure or inability to perform in respect thereof. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof.
"Contractual Obligations" means, as to any Person, any provision of
-----------------------
any security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Contribution Margin" shall mean for any period the contribution
-------------------
margin of the Company and its Subsidiaries calculated on a basis consistent with
the calculation of the contribution margin in the Projections.
"EBITDA" shall mean, with respect to the Company and its Subsidiaries
------
on a consolidated basis for any period, the sum of (a) Net Income for such
period, (b) Interest Expense for such period, (c) Federal, state and local
income and franchise taxes deducted from revenue in determining such Net Income,
(d) depreciation and amortization deducted from revenue in determining such Net
Income (including any effect from the capitalization, amortization and write-off
of implementation costs) and (e) all non-cash expenses which reduce Net Income,
less (f) interest income and all non-cash items which increase Net Income. For
purposes of calculating (e) and (f) above, all items that would not be
considered operating items in the ordinary course of business or would result in
changes in long-term asset or liability accounts shall be excluded.
"Environmental Laws" means any federal, state, territorial, provincial
------------------
or local law, common law doctrine, rule, order, decree, judgment, injunction,
license, permit or regulation relating to environmental matters, including those
pertaining to land use, air, soil, surface water, ground water (including the
protection, cleanup, removal, remediation or damage thereof), public or employee
health or safety or any other environmental matter, together with any other laws
(federal, state, territorial, provincial or
20
<PAGE>
local) relating to emissions, discharges, releases or threatened releases of any
pollutant or contaminant, including, without limitation, medical, chemical,
biological, biohazardous or radioactive waste and materials, into ambient air,
land, surface water, groundwater, personal property or structures, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transportation, discharge or handling of any contaminant.
"Event of Default" has the meaning assigned such term in Section 7(a).
----------------
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
------------
amended and the rules and regulations of the Commission promulgated thereunder.
"GAAP" means generally accepted United States accounting principles in
----
effect from time to time.
"Governmental Authority" means the government of any nation, state,
----------------------
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative func-
tions of or pertaining to government, and any corporation or other entity owned
or controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Indebtedness" means, as to any Person, (a) all obligations of such
------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any lien (other than
liens in favor of lessors under leases other than leases included in clause
(f)) on any property or
21
<PAGE>
asset owned or held by such Person regardless of whether the indebtedness
secured thereby shall have been assumed by such Person or is non-recourse to the
credit of such Person and (h) all Contingent Obligations of such Person.
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Capital Stock pursuant to a registration
statement on Form S-1 or otherwise under the Securities Act.
"Interest Expense" shall mean, with respect to the Company and its
----------------
Subsidiaries on a consolidated basis for any period, the sum of (a) gross
interest expense of the Company and its Subsidiaries for such period in
accordance with GAAP consistently applied, including (i) the amortization of
debt discounts, (ii) the amortization of all fees payable in connection with the
incurrence of Indebtedness to the extent included in interest expense and
(iii) the portion of any payments or accruals with respect to Capital Lease
Obligations allocable to interest expense, and (b) any other capitalized
interest of the Company and its Subsidiaries determined on a consolidated basis
in accordance with GAAP.
"Investment" means, for any Person (i) the acquisition (whether for
----------
cash, property, services, securities or otherwise) of Capital Stock, bonds,
notes, debentures, partnership or other ownership interests or other securities
of any other Person or any agreement to make any such acquisition; and (ii) the
making of any advance, loan or other extension of credit to, any other Person
(including the purchase of property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such property to
such other Person, but excluding any accounts receivable created in the ordinary
course of business).
"Junior Subordinated Notes" means the Company's Junior Subordinated
-------------------------
Promissory Notes, dated the Closing Date, issued pursuant to the Share
Redemption Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock or equity related preferences),
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, any interest of a
lessor under a capital lease, or any financing lease having substantially the
same economic effect as any of the foregoing.
22
<PAGE>
"Net Cash Proceeds" shall mean, with respect to any Initial Public
-----------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) relating to such Initial Public Offering.
"Net Income" shall mean for any period and prior to accounting for the
----------
payment of any dividends on the Series A Preferred Stock, (a) the net income
(loss) of the Company and its Subsidiaries, determined on a consolidated basis
in accordance with GAAP, minus (b) the aggregate for such period of, without
-----
duplication, (i) the net income (loss) of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition,
determined in accordance with GAAP, and (ii) any other items that are treated as
expenses under GAAP, but excluding from the definition of Net Income any
extraordinary or non-recurring charges, expenses, gains or losses, all computed
in accordance with GAAP.
"Outstanding Shares" shall mean all shares of Class A Common Stock
------------------
issued and outstanding immediately following the closing of a Qualified Public
Offering. For the purposes of any computation of the amount of Outstanding
Shares, all shares of Series A Preferred Stock and Class B Common Stock shall be
deemed to be converted into the maximum number of shares of Class A Common Stock
into which such shares of Series A Preferred Stock and Class B Common Stock were
then convertible as provided in the Amended and Restated Articles of
Incorporation.
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"Prepayment Event" means that at the end of any fiscal year ending
----------------
prior to a Qualified Public Offering, either the revenue or EBITDA of the
Company and its Subsidiaries on a consolidated basis for such fiscal year shall
fall below the revenue or EBITDA amount (as the case may be) set forth below
with respect to such fiscal year (determined on the basis of the audited
consolidated financial statements of the Company and its Subsidiaries for such
fiscal year):
23
<PAGE>
Fiscal Year
Ended December 31: Revenue: EBIDTA:
----------------- ------- ------
1995 $103,228,000.00 $ 3,741,000.00
1996 $180,234,000.00 $11,407,000.00
1997 $198,257,000.00 $12,548,000.00
1998 $218,083,000.00 $13,802,000.00
1999 $239,891,000.00 $15,183,000.00
2000 $263,880,000.00 $16,701,000.00
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Net Cash Proceeds to the Company in excess of $30,000,000.00 and in
respect of which the price per share of Common Stock sold in such Qualified
Public Offering multiplied by the number of Outstanding Shares is at least
$250,000,000.00.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement substantially in the form attached as an exhibit to the Stock Purchase
Agreement.
"Related Transaction Agreements" means all of the agreements executed
------------------------------
and delivered in connection with the Share Redemption.
"Requirements of Law" means, as to any Person, the articles of
-------------------
certificate of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation, right,
privilege, qualification, license or franchise or determination of an arbitrator
or a court or other Governmental Authority, in each case applicable or binding
upon such Person or any of its property or to which such Person or any of its
property is subject or pertaining to any or all of the transactions contemplated
or referred to herein.
"Restricted Payment" means (a) any dividend or other distribution on
------------------
any share of the Company's capital stock (except dividends payable solely in
shares of its capital stock) or (b) any payment by the Company or any Subsidiary
on account of the direct or indirect purchase, redemption, retirement or other
acquisition of (i) any shares of the Company's capital stock (except shares
acquired upon the conversion thereof into other shares of its capital stock),
(ii) any option, warrant or other right to acquire shares of the Company's
capital stock or (iii) any Indebtedness of the Company (other than indebtedness
incurred pursuant to this Note and the other Notes issued
24
<PAGE>
pursuant to the Purchase Agreement), including indebtedness represented by the
Junior Subordinated Notes, prior to any date set forth for mandatory repayment
of principal or interest thereon.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Senior Indebtedness" has the meaning assigned such term in
-------------------
Section 8(a).
"Share Redemption" means the redemption by the Company of shares of
----------------
its common stock from certain of the Company's stockholders pursuant to the
Share Redemption Agreement.
"Share Redemption Agreement" means the Redemption Agreement, dated as
--------------------------
of the date hereof, among the Company, Alan P. Mintz, John E. Adams, Lawrence
Rubinstein, Sheldon Gulinson, Alan H. Spiro and Nancie Blatt.
"Standstill" shall mean that for any fiscal year in which there is a
----------
Prepayment Event, both the Contribution Margin and EBITDA of the Company and its
Subsidiaries on a consolidated basis for such fiscal year shall equal or exceed
the Contribution Margin and EBITDA amounts set forth below with respect to such
fiscal year (determined on the basis of the audited consolidated financial
statements of the Company and its Subsidiaries for such fiscal year):
Fiscal Year Contribution
Ended December 31: Margin: EBIDTA:
----------------- ------------ ------
1995 $14,709,000.00 $ 3,741,000.00
1996 $25,893,000.00 $11,407,000.00
1997 $28,482,000.00 $12,548,000.00
1998 $31,331,000.00 $13,802,000.00
1999 $34,464,000.00 $15,183,000.00
2000 $37,910,000.00 $16,701,000.00
"Stock Purchase Agreement" means the Stock Purchase Agreement, dated
------------------------
as of the date hereof, among the Company, Whitney 1990 Equity Fund, L.P.,
J.H. Whitney & Co., Chemical Venture Capital Associates, L.P. and certain other
parties thereto.
25
<PAGE>
"Stockholders' Agreement" means the Stockholders' Agreement, dated as
-----------------------
of the date hereof, among the Company and the stockholders named therein.
"Subsidiary" means, with respect to any Person, a corporation or other
----------
entity of which 50% or more of the voting power of the voting equity securities
or equity interests is owned, directly or indirectly, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in
this Note shall refer to a Subsidiary or Subsidiaries of the Company.
"Temporary Cash Investment" means any Investment in (i) United States
-------------------------
Government Obligations, (ii) commercial paper rated at least A or the equivalent
thereof by Moody's Investors Services, Inc. or a similar nationally recognized
credit rating agency or (iii) time deposits (including certificates of deposit)
with any bank or trust company which is organized, licensed or otherwise
regulated under the laws of the United States or any state thereof, the long-
term debt securities of which are rated at least A or the equivalent thereof by
Moody's Investors Service, Inc. or a similar nationally recognized credit rating
agency; provided, in each case, that such Investment matures within one (1) year
--------
from the date of acquisition thereof by the Company or a Subsidiary thereof.
"Transaction Agreements" means, collectively, this Note and the other
----------------------
Notes issued pursuant to the Purchase Agreement, the Stockholders' Agreement,
the Registration Rights Agreement, the Purchase Agreement, the Stock Purchase
Agreement and the Guaranty.
"United States Government Obligations" means direct non-callable
------------------------------------
obligations of, or non-callable obligations guaranteed by the United States for
the payment of which obligation the full faith and credit of the United States
is pledged.
10. Expenses due to Default. In case of any default under this Note,
-----------------------
the Company will pay to the holder of this Note such amounts as shall be
sufficient to cover the costs and expenses of such holder due to such default,
including without limitation, costs of collection and reasonable fees,
disbursements and other charges of counsel.
11. Notices. All notices, demands, requests and other communications
-------
provided for or permitted hereunder shall be made in the manner specified in
Section 9.2 of the Purchase Agreement.
26
<PAGE>
12. Successors and Assigns. This Note shall inure to the benefit of
----------------------
and be binding upon the successors and permitted assigns of the parties hereto.
Subject to applicable securities laws, the holder of this Note may assign any of
its rights under this Note to any other Person. The Company may not assign any
of its obligations under this Note without the written consent of the holder of
this Note.
13. Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the holder
of this Note in exercising any right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the holder of this Note at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Note, any waiver of any provision of this Note, and any
consent to any departure by the Company from the terms of any provision of this
Note, shall be effective (i) only if it is made or given in writing and signed
by the Company and Persons holding at least a majority of the aggregate
outstanding principal amount of all of the Indebtedness of the Company issued
pursuant to the Purchase Agreement and initially represented by the Note and the
other Notes issued pursuant to the Purchase Agreement, and (ii) only in the
specific instance and for the specific purpose for which made or given. Except
where notice is specifically required by this Note, no notice to or demand on
the Company in any case shall entitle the Company to any other or further notice
or demand in similar or other circumstances.
(c) Notwithstanding the foregoing, without the written consent
of the holder of this Note, an amendment, supplement or waiver may not:
(i) reduce the percentage of Persons necessary to consent
to an amendment, supplement or waiver pursuant to this Section 13;
(ii) reduce the rate or extend the time for payment of
interest on this Note;
(iii) reduce the principal of, extend the fixed maturity of,
or alter the ranking of, this Note;
27
<PAGE>
(iv) make this Note payable in money other than that stated
in this Note; or
(v) alter or amend Section 3 of this Note.
14. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without regard to the
principles of conflicts of law of such State.
15. Jurisdiction. Each party to this Note hereby irrevocably agrees
------------
that any legal action or proceeding arising out of or relating to this Note or
any agreements or transactions contemplated hereby may be brought in the courts
of the State of New York or of the United States of America for the Southern
District of New York and hereby expressly submits to the personal jurisdiction
and venue of such courts for the purposes thereof and expressly waives any claim
of improper venue and any claim that such courts are an inconvenient forum.
Each party hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the address
set forth in Section 11, such service to become effective 10 days after such
mailing.
16. Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
17. Entire Agreement. This Note, the other Transaction Agreements,
----------------
and the Related Transaction Agreements are intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive state-
ment of the agreement and understanding of the parties hereto in respect of the
subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein. This Note, the other Transaction Agreements and the Related
Transaction Agreements supersede all prior agreements and understandings between
the parties with respect to such subject matter.
28
<PAGE>
18. Certain Expenses. The Company will pay all expenses of the
----------------
holder of this Note (including reasonable fees, charges and disbursements of
counsel) in connection with any amendment, supplement, modification or waiver of
or to any provision of this Note, or any consent to any departure by the Company
from the terms of any provision of this Note.
MEDICON, INC.
By /s/ John E. Adams
--------------------------------
Name: John E. Adams
Title: EVP & COO
<PAGE>
SENIOR SUBORDINATED PROMISSORY NOTE
SCHEDULE 6(b)
TRANSACTIONS WITH AFFILIATES
The only potential conflict of interest which exists is that MEDICON contracts
with Chicago Imaging, Ltd., to provide services for the Humana Contract.
Chicago Imaging, Ltd., is owned 100% by Dr. Alan P. Mintz and provides the
radiology services for a portion of the membership which MEDICON covers for
HUMANA. Chicago Imaging gets no favored or special treatment by MEDICON for
this contract and is treated the same as any other provider.
<PAGE>
SENIOR SUBORDINATED PROMISSORY NOTE
SCHEDULE 6(e)
LIENS
NONE
<PAGE>
SENIOR SUBORDINATED PROMISSORY NOTE
SCHEDULE 6(g)
INVESTMENTS
NONE
<PAGE>
SENIOR SUBORDINATED PROMISSORY NOTE
SCHEDULE 6(b)
TRANSACTIONS WITH AFFILIATES
The only potential conflict of interest whih exists is that MEDICON contracts
with Chicago Imaging, Ltd., to provide services for the Humana Contract.
Chicago Imaging, Ltd., is owned 100% by Dr. Alan P. Mintz and provides the
radiology services for a portion of the membership which MEDICON covers for
Humana. Chicago Imaging gets no favored or special treatment by MEDICON for
this contract and is treated the same as any other provider.
<PAGE>
SENIOR SUBORDINATED PROMISSORY NOTE
SCHEDULE 6(e)
LIENS
NONE
<PAGE>
SENIOR SUBORDINATED PROMISSORY NOTE
SCHEDULE 6(g)
INVESTMENTS
NONE
Exhibit 10.5
GUARANTY
GUARANTY, dated as of November 3, 1994, by Medicon CI, Inc., a New
York corporation (the "Guarantor"), in favor of WHITNEY SUBORDINATED DEBT FUND,
---------
L.P., a Delaware limited partnership ("Whitney Debt Fund") and CHEMICAL VENTURE
-----------------
CAPITAL ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP ("CVCA," and together with
----
Whitney Debt Fund, their successors and the permitted assignees and transferees
of their Notes, the "Purchasers") under the Subordinated Note and Stock Purchase
----------
Agreement (as defined below).
WHEREAS, pursuant to the Subordinated Note and Stock Purchase
Agreement, dated as November 3, 1994, between Whitney Debt Fund, CVCA, MEDICON,
INC., an Illinois corporation and the sole shareholder of the Guarantor (the
"Company"), and certain other parties thereto (the "Purchase Agreement"), the
------- ------------------
Company, among other things, has agreed to issue and sell to the Purchasers its
10.101% Senior Subordinated Promissory Notes due November 3, 2001 (the "Notes"),
-----
upon the terms and subject to the conditions set forth therein;
WHEREAS, the Purchasers have required, as a condition precedent to
purchasing the Notes under the Purchase Agreement, that the Guarantor execute
and deliver this Guaranty; and
WHEREAS, in furtherance of the business purposes of the Guarantor, the
Guarantor desires to irrevocably and unconditionally guaranty all of the
obligations of the Company under the Purchase Agreement and the Notes.
NOW, THEREFORE, based upon the foregoing, the Guarantor hereby agrees
as follows:
1. Definitions. Capitalized terms not otherwise defined in this
-----------
Guaranty shall have the meanings ascribed to them in the Purchase Agreement. As
used in this Guaranty, the following terms have the following meanings unless
the context otherwise requires:
"Bankruptcy Code" means the Bankruptcy Code of 1978, as amended.
---------------
"Fair Saleable Value" of assets of the Guarantor means the amount
-------------------
which may be realized, as of the Guaranty Date, within a reasonable time, either
through collection or sale of the assets of the Guarantor at their regular
market value, understanding the latter as the amount that could be obtained from
the property in question within such period by
<PAGE>
2
a capable and diligent business person from an interested buyer who is willing
to purchase such property under ordinary selling conditions.
"Guarantied Obligations" has the meaning ascribed to such term in
----------------------
Section 2.
"Guaranty" means this Guaranty, as it may be amended, supplemented or
--------
otherwise modified from time to time.
"Guaranty Date" has the meaning ascribed to such term in Section 6.
-------------
"Senior Indebtedness" shall mean the principal of and interest on
-------------------
(including without limitation any interest that accrues after the commencement
of any case, proceeding or other legal action relating to the bankruptcy,
insolvency or reorganization of the Company to the extent such interest
constitutes an allowed claim) any Indebtedness for borrowed money of the Company
that is permitted to be incurred by the Company under Sections 6(d)(ii) and (v)
of the Notes, whether outstanding on the date hereof or thereafter created,
incurred, assumed or guaranteed by the Company, unless the instrument creating
or evidencing the same expressly provides that such Indebtedness is on a parity
with or subordinated in right of payment to the Subordinated Indebtedness.
"Subordinated Indebtedness" shall mean (i) the principal of and
-------------------------
interest on the Notes issued pursuant to the Purchase Agreement; and (ii) any
other obligations of the Company or the Guarantor arising out of or in
connection with the Purchase Agreement, the Notes or the Guaranty.
2. Guaranty. The Guarantor hereby irrevocably guaranties to each
--------
Purchaser (i) the due and punctual payment in full (in immediately available
funds) when due (whether at stated maturity, upon acceleration, demand or
otherwise, including amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, or any successor
provision), of any and all sums, whether of principal, interest (including any
interest payable subsequent to a default), fees, expenses, indemnities and other
amounts (including all fees and disbursements of counsel to the Purchasers),
payable by the Company pursuant to or arising under, out of or in connection
with the Purchase Agreement and the Notes, whether direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter incurred, and
(ii) the prompt and complete performance by the Company of all other terms and
provisions of the Purchase Agreement and
<PAGE>
3
the Notes (the obligations to pay all such sums and perform all such terms and
provisions are hereafter collectively referred to as the "Guarantied
----------
Obligations"). The Guarantor acknowledges that there are no conditions whatso-
- -----------
ever to the effectiveness of this Guaranty.
3. Liability of the Guarantor. The Guarantor agrees that its
--------------------------
obligations hereunder are irrevocable, continuing, absolute, independent and
unconditional and shall not be affected by any circumstance whatsoever (other
than the indefeasible payment in full and the complete performance of the
Guarantied Obligations) which may constitute a defense or a legal or equitable
discharge (whether in whole or in part) of a guarantor or surety, whether
foreseen or unforeseen and whether similar or dissimilar to any circumstance
described in this Guaranty. In furtherance of the foregoing and without
limiting the generality thereof, the Guarantor agrees as follows:
(a) Guaranty of Payment. This Guaranty is a guaranty of payment
-------------------
and performance, and not of collection only. The Guarantor waives any
requirement that the Purchasers, as a condition of payment by the Guarantor,
(i) proceed against the Company, any other guarantor of the Guarantied
Obligations or any other Person, (ii) proceed against or exhaust any security
which may be received from the Company, any other guarantor of the Guarantied
Obligations or any other Person, or (iii) pursue any other remedy whatsoever in
the power of the Purchasers.
(b) Continuing Guaranty. This Guaranty shall remain in full
-------------------
force and effect until all of the Guarantied Obligations have been completely
performed and indefeasibly paid in full, notwithstanding that from time to time
prior thereto the Company may be free from any of the Guarantied Obligations.
The Guarantor's payment of a portion, but not all, of the Guarantied Obligations
shall in no way limit, affect, modify or abridge the Guarantor's liability for
any portion of the Guarantied Obligations that has not been completely performed
or indefeasibly paid in full.
(c) Absolute and Unconditional Guaranty. This Guaranty and the
-----------------------------------
obligations of the Guarantor hereunder are not subject to any reduction,
limitation, impairment, discharge or termination for any reason (other than the
complete performance and the indefeasible payment in full of the Guarantied
Obligations), including, without limitation, the occurrence of any one or more
of the following, whether or not the Guarantor shall have had notice or
knowledge of any of them:
<PAGE>
4
(i) any change in the manner, place or terms of payment
(including the currency thereof) of any of the Guarantied Obligations;
(ii) any settlement, compromise, release or discharge of,
or acceptance or refusal of any offer of performance with respect to, or
substitutions for, the Guarantied Obligations or any agreement relating thereto
or any subordination of the payment of the Guarantied Obligations to the payment
of any other obligations;
(iii) any rescission, waiver, extension, renewal,
alteration, amendment or modification of, or any consent to departure from, any
of the terms or provisions (including without limitation provisions relating to
Events of Default) of the Guarantied Obligations or any agreement relating
thereto, or any other guaranties or security for the Guarantied Obligations, in
each case whether or not in accordance with the terms thereof;
(iv) the Guarantied Obligations, this Guaranty or any
other agreement relating thereto at any time being found to be illegal, invalid
or unenforceable in any respect or any provision of applicable law or regulation
purporting to prohibit the payment by the Company of any of the Guarantied
Obligations;
(v) any request or acceptance of other guaranties of the
Guarantied Obligations or the taking and holding of any security for the payment
of the Guarantied Obligations, this Guaranty, or any other guaranty of the
Guarantied Obligations or any release, impairment, surrender, exchange,
substitution, compromise, settlement, rescission or subordination thereof;
(vi) any failure to perfect or continue perfection of a
security interest in any collateral which may at any time secure any of the
Guarantied Obligations; or any enforcement and application of any security at
any time held by the Purchasers in respect of this Guaranty or the Guarantied
Obligations and any direction of the order or manner of sale thereof, or the
exercise of any other right or remedy that the Purchasers may have with respect
to any such security, as the Purchasers in their sole discretion may determine,
including foreclosure on any such security pursuant to one or more judicial or
nonjudicial sales;
(vii) any failure or omission to exercise, assert or
enforce, or any agreement or election not to assert or enforce, or the stay or
enjoining, by order of court, by operation of law or otherwise, of the exercise
or
<PAGE>
5
enforcement of, any claim or demand or any right, power or remedy (whether
arising hereunder, under the Notes, at law, in equity or otherwise) with respect
to the Guarantied Obligations or any agreement relating thereto, or with respect
to any other guaranties of or any security for the payment of the Guarantied
Obligations;
(viii) any change in or reorganization of the corporate
structure of the Company or any of its Subsidiaries or any dissolution, termina-
tion, consolidation or merger or sale or other disposition, whether or not for
fair consideration, of all or substantially all of the assets of any of the
foregoing or any consent of the Purchasers thereto or to any restructuring of
the Guarantied Obligations;
(ix) the election by the Purchasers in any proceeding
instituted under the Bankruptcy Code of the application of Section 1111(b)(2) of
the Bankruptcy Code; any borrowing or grant of a security interest by the
Company, as debtor-in-possession, under Section 364 of the Bankruptcy Code; or
the disallowance under Section 502 of the Bankruptcy Code of all or any portion
of the claims of the Purchasers for repayment of the Guarantied Obligations; or
(x) any other act or thing or omission, or delay to do
any other act or thing, which may or might in any manner or to any extent vary
the risk of the Guarantor as an obligor in respect of the Guarantied
Obligations.
(d) Waivers of Notices and Defenses. The Guarantor hereby
-------------------------------
waives, for the benefit of the Purchasers:
(i) any defense arising by reason of the incapacity, lack
of authority or any disability of the Company;
(ii) any notice of the creation, renewal, extension or
accrual of any of the Guarantied Obligations and notice of or proof of reliance
by the Purchasers upon this Guaranty or acceptance of this guaranty (the Guaran-
tied Obligations and all dealings between the Company and the Guarantor, on the
one hand, and the Purchasers, on the other hand, being conclusively deemed to
have been created, incurred or conducted in reliance upon this guaranty);
(iii) any setoff or counterclaim, any demand for performance,
notice of nonperformance, diligence, presentment, protest, notice of protest,
notice of dishonor,
<PAGE>
6
notice of defaults or Events of Default under the Purchase Agreement, notice of
any amendment, renewal, extension or modification of the Guarantied Obligations
or any agreement related thereto, notice that any portion of the Guarantied
Obligations is due, notice of any collection proceedings, and notice of any
other fact which might increase the risk of the Guarantor;
(iv) any defense based upon any statute or rule of law that
provides that the obligation of a surety cannot be larger in amount or in other
respects more burdensome than that of the principal;
(v) any benefit of, or any right to participate in, or any
notices of exchange, sale, surrender or other handling of, any security or
collateral which may be given to the Purchasers to secure payment or performance
of the Guarantied Obligations or any other liability of the Company to the
Purchasers; and
(vi) to the fullest extent permitted by law, any other
defenses or benefits that may be derived from or afforded by law which limit the
liability of, or exonerate, guarantors or sureties, or which may conflict with
the terms of this Guaranty, including, without limitation, failure of
consideration, breach of warranty, statute of frauds, statute of limitations,
accord and satisfaction, and usury.
4. Bankruptcy and Related Matters.
------------------------------
(a) No Proceedings Against the Company. So long as any of the
----------------------------------
Guarantied Obligations remain outstanding, the Guarantor shall not, without the
prior written consent of the Purchasers, commence or join with any other Person
in commencing any bankruptcy, liquidation, reorganization or insolvency
proceedings of, or against, the Company.
(b) Guarantor Remains Obligated. The obligations of the
---------------------------
Guarantor hereunder shall not be reduced, limited, impaired, discharged,
deferred, suspended or terminated by any proceeding or action, voluntary or
involuntary, involving the bankruptcy, insolvency, receivership, reorganization,
marshalling of assets, assignment for the benefit of creditors, composition with
creditors, readjustment, liquidation or arrangement of the Company or similar
proceedings or actions or by any defense which the Company may have by reason of
the order, decree or decision of any court or administrative body resulting from
any such proceeding or action. Without limiting the generality of the
foregoing, the Guarantor's liability shall extend to all
<PAGE>
7
amounts and obligations that constitute the Guarantied Obligations and would be
owed by the Company but for the fact that they are unenforceable or not
allowable due to the existence of any such proceeding or action.
(c) Stay of Acceleration. The Guarantor agrees that, notwith-
--------------------
standing anything to the contrary herein, if, after the occurrence and during
the continuance of an Event of Default, the Purchasers are prevented by
applicable law from exercising their rights to accelerate the maturity of the
Guarantied Obligations, to collect any of the Guarantied Obligations or to
enforce or exercise any other right or remedy with respect to the Guarantied
Obligations, the Guarantor shall pay to the Purchasers upon demand therefor the
amount that would otherwise have been due and payable had such rights and
remedies been permitted to be exercised by the Purchasers.
(d) Post-Petition Interest. Pursuant to, and without limiting
----------------------
the foregoing, the Guarantor acknowledges and agrees that any interest on any
portion of the Guarantied Obligations which accrues after the commencement of
any proceeding or action referred to in Section 4(b) (or, if interest on any
portion of the Guarantied Obligations ceases to accrue by operation of law by
reason of the commencement of said proceeding or action, such interest as would
have accrued on such portion of the Guarantied Obligations if said proceedings
or actions had not been commenced) shall be included in the Guarantied
Obligations, it being the intention of the Guarantor and the Purchasers that the
Guarantied Obligations which are guarantied by the Guarantor pursuant to this
Guaranty shall be determined without regard to any rule of law or order which
may relieve the Company of any portion of such Guarantied Obligations. The
Guarantor will permit any trustee in bankruptcy, receiver, debtor in possession,
assignee for the benefit of creditors or similar person to pay the Purchasers,
or allow the claim of the Purchasers, for the benefit of the Purchasers, in
respect of, any such interest accruing after the date on which such proceeding
is commenced.
(e) Reinstatement of Guaranty. Notwithstanding anything to the
-------------------------
contrary contained herein, in the event that all or any portion of the
Guarantied Obligations are paid by the Company, the obligations of the Guarantor
hereunder shall continue and remain in full force and effect or be reinstated,
as the case may be, if all or any part of such payment(s) are rescinded or
recovered, directly or indirectly, from the Purchasers as a preference,
fraudulent transfer or otherwise, and any such payments which are so rescinded
or recovered shall constitute Guarantied Obligations for all purposes under this
Guaranty.
<PAGE>
8
5. No Subrogation. Notwithstanding any payment or payments made by
--------------
the Guarantor hereunder, or any set-off or application of funds of the Guarantor
by the Purchasers, the Guarantor hereby irrevocably waives any claim or other
rights that it may now or hereafter acquire against the Company or any other
insider guarantor that arise from the existence, payment, performance or
enforcement of the Guarantor's obligations under this Guaranty, or the Notes,
including, without limitation, any right of subrogation, reimbursement, exoner-
ation, contribution or indemnification and any right to participate in any claim
or remedy of the Purchasers against the Company or any other insider guarantor
or any collateral security, whether or not such claim, remedy or right arises in
equity or under contract, statute or common law, including, without limitation,
the right to take or receive from the Company or any other insider guarantor,
directly or indirectly, in cash or other property or by set-off or in any other
manner, payment or security on account of such claim, remedy or right. If any
amount shall be paid to the Guarantor in violation of the preceding sentence,
such amount shall be held by the Guarantor in trust for the Purchasers,
segregated from other funds of the Guarantor, and shall, forthwith upon receipt
by the Guarantor, be turned over to the Purchasers in the exact form received by
the Guarantor (duly endorsed by the Guarantor to the Purchasers, if so requested
by the Purchasers), to be applied against the Guarantied Obligations, whether
matured or unmatured, in such order as the Purchasers may determine.
6. Limitation on Subsidiary Guaranty. Notwithstanding Section 2 of
---------------------------------
this Guaranty, the liability of the Guarantor under this Guaranty shall not
exceed the sum of ninety-five percent (95%) of the excess of (a) the aggregate
Fair Saleable Value of the assets of such Guarantor as determined at the earlier
of the commencement of a case under Title 11 of the Bankruptcy Code in which the
Guarantor is a debtor and the date enforcement hereunder is sought (the
"Guaranty Date") over (b) the amount of the debts of such Guarantor on the
-------------
Guaranty Date.
7. Subordination of Other Obligations. The Guarantor hereby agrees
----------------------------------
that any indebtedness of the Company now or hereafter held by the Guarantor is
hereby subordinated in right of payment to the Guarantied Obligations, and any
such indebtedness of the Company to the Guarantor collected or received by the
Guarantor after an Event of Default has occurred and is continuing shall be held
in trust for the Purchasers and shall forthwith be paid over to the Purchasers
to be credited and applied against the Guarantied Obligations without in any way
affecting,
<PAGE>
9
impairing or limiting the liability of the Guarantor under this Guaranty.
8. Subordination of Guaranty. Notwithstanding any other provision
-------------------------
of this Guaranty, the Guaranty set forth herein is subordinate and junior in
right of payment to all Senior Indebtedness to the extent and as provided in
Arti- cle 8 of the Notes.
9. Representations and Warranties. The Guarantor hereby represents
------------------------------
and warrants to the Purchasers as follows:
9.1 Corporate Existence and Power. The Guarantor: (a) is a
-----------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation; (b) has all requisite corporate power
and authority to own and operate its property, to lease the property it operates
as lessee and to conduct the business in which it is currently, or is currently
proposed to be, engaged; (c) is duly qualified as a foreign corporation and
licensed in each jurisdiction in which such qualification or license is required
by law and is in good standing under the laws of each such jurisdiction; and
(d) has the corporate power and authority to execute, deliver and perform its
obligations under this Guaranty.
9.2 Corporate Authorization; No Contravention. The execution,
-----------------------------------------
delivery and performance by the Guarantor of this Guaranty and the consummation
of the transactions contemplated hereby: (a) has been duly authorized by all
necessary corporate, and, if required, stockholder action and (b) does not
contravene the terms of the Guarantor's certificate or articles of incorporation
or by-laws, or any amendment of either thereof. The execution, delivery and
performance by the Guarantor of the Guaranty does not and will not violate,
conflict with or result in any breach or contravention of or the creation of any
Lien under any Contractual Obligation of the Guarantor, or any Requirement of
Law applicable to the Guarantor.
9.3 Governmental Authorization; Third Party Consents. No
------------------------------------------------
approval, consent, compliance, exemption, authorization, or other action by, or
notice to, or filing with, any Governmental Authority or any other Person in
respect of any Requirement of Law, any State Regulatory Law or Contractual
Obligation of the Guarantor, and no lapse of a waiting period under a
Requirement of Law or State Regulatory Law, is necessary or required in
connection with the execution, delivery or performance by, or enforcement
<PAGE>
10
against, the Guarantor of this Guaranty or the consummation of the transactions
contemplated hereby.
9.4 Binding Effect. This Guaranty has been duly executed and
--------------
delivered by the Guarantor and constitutes the legal, valid and binding obliga-
tion of the Guarantor enforceable against the Guarantor in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity relating to enforceability.
9.5 Not an Investment Company or Holding Company. The Guarantor
--------------------------------------------
is not an "investment company" within the meaning of the Investment Company Act
of 1940, as amended, or a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
10. Financial Condition of the Company. The Guarantor agrees that
----------------------------------
Purchasers shall have no obligation to disclose or discuss with the Guarantor
their assessment, or the Guarantor's assessment, of the financial condition of
the Company. The Guarantor represents and warrants that it has adequate means
to obtain information from the Company on a continuing basis concerning the
financial condition of the Company and the Company's ability to perform its
obligations under the Purchase Agreement and the Notes, and the Guarantor
covenants and agrees to keep informed of the financial condition of the Company
and of all circumstances bearing upon the risk of nonpayment of the Guarantied
Obligations. The Guarantor hereby waives and relinquishes any duty on the part
of the Purchasers to disclose any matter, fact or thing relating to the busi-
ness, operations or conditions of the Company, whether now known or hereafter
known by the Purchasers.
11. Miscellaneous.
-------------
(a) Notices. All notices, demands and other communications
-------
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service or personal delivery:
(i) if to Whitney Debt Fund:
J. H. Whitney & Co.
177 Broad Street
Stamford, Connecticut 06901
Telecopier No.: (203) 973-1422
Attention: Jeffrey R. Jay, M.D.
<PAGE>
11
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopier No.: (212) 757-3990
Attention: Toby S. Myerson, Esq.
(ii) if to CVCA:
Chemical Venture Capital Associates,
A California Limited Partnership
c/o Chemical Venture Partners
270 Park Avenue
New York, New York 10017-2070
Telecopier No.: (212) 270-2327
Attention: Mitchell J. Blutt, M.D.
Damion E. Wicker, M.D.
with a copy to:
O'Sullivan Graev & Karabell
30 Rockefeller Plaza
41st Floor
New York, New York 10112
Telecopier No.: (212) 408-2420
Attention: John Suydam, Esq.
(iii) if to the Guarantor:
Medicon, Inc.
40 Skokie Boulevard
Northbrook, Illinois 60062-1618
Telecopier No.: (708) 559-6900
Attention: Lawrence Rubinstein, Esq.
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Telecopier No.: (312) 902-1061
Attention: Herbert S. Wander, Esq.
<PAGE>
12
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
(b) Successors and Assigns. This Guaranty is a continuing
----------------------
guaranty and shall be binding upon the Guarantor and its successors and
permitted assigns. This Guaranty shall inure to the benefit of the Purchasers
and their successors and assigns. The Purchasers may assign any of their rights
under this Guaranty to any person. The Guarantor may not assign this Guaranty
without the written consent of the Purchasers. No Persons other than the
Purchasers and their successors and assigns are intended to be beneficiaries of
this Guaranty.
(c) Determination, Requests or Consents. All determinations,
-----------------------------------
requests, consents, waivers or amendments to be made by the Purchasers in their
opinion or judgment, or with their approval or otherwise, pursuant to this
Guaranty, shall be made by the Persons holding at least a majority of the
aggregate principal amount of all Indebtedness of the Company issued pursuant to
the Purchase Agreement and initially represented by this Note and other Notes
issued pursuant to the Purchase Agreement.
(d) Amendment and Waiver.
--------------------
(i) No failure or delay on the part of the Purchasers in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Purchasers at
law, in equity or otherwise.
(ii) Any amendment, supplement or modification of or to any
provision of this Guaranty, any waiver of any provision of this Guaranty, and
any consent to any departure by the Guarantor from the terms of any provision of
this Guaranty, shall be effective (i) only if it is made or given in writing and
signed by the Purchasers, and (ii) only in the specific instance and for the
specific purpose for which made or given. Except where notice is specifically
required by this Guaranty, no notice to or demand on the Guarantor in any case
shall entitle the Guarantor to any other or further notice or demand in similar
or other circumstances.
<PAGE>
13
(e) Headings. The headings in this Guaranty are for convenience
--------
of reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law. This Guaranty shall be governed by and
-------------
construed in accordance with the laws of the State of New York, without regard
to the principles of conflicts of law of such State.
(g) Jurisdiction. The Guarantor hereby irrevocably agrees that
------------
any legal action or proceeding arising out of or relating to this Guaranty or
any agreements or transactions contemplated hereby may be brought in the courts
of the State of New York or of the United States of America for the Southern
District of New York and hereby expressly submits to the personal jurisdiction
and venue of such courts for the purposes thereof and expressly waives any claim
of improper venue and any claim that such courts are an inconvenient forum. The
Guarantor hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the address
set forth in Section 11(a), such service to become effective 10 days after such
mailing.
(h) Severability. If any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
(i) Rules of Construction. Unless the context otherwise
---------------------
requires, "or" is not exclusive, and references to sections or subsections refer
to sections or subsections of this Guaranty.
(j) Entire Agreement. This Guaranty is intended by the parties
----------------
to be a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Guaranty supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
<PAGE>
14
(k) Certain Expenses. The Guarantor agrees to pay, or cause to
----------------
be paid, on demand, and to save the Purchasers harmless against liability for,
any and all costs and expenses (including, without limitation, fees and
disbursements of counsel and fees, costs and expenses incurred in connection
with any bankruptcy proceeding) incurred or expended by the Purchasers in
connection with the enforcement, amendment, modification or waiver of or
preservation of any rights under this Guaranty and under any other Transaction
Document and the collection of amounts payable hereunder and thereunder and
obtaining advice of counsel in respect hereof or thereof, and until so paid,
such fees, costs, disbursements and expenses shall be added to, and constitute,
Guarantied Obligations.
(l) Further Assurances. The Guarantor shall execute such
------------------
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Guaranty.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed and delivered by its officer hereunto duly authorized as of the date
first above written.
Medicon CI, Inc.
By______________________________
Name:
Title:
<PAGE>
15
(k) Certain Expenses. The Guarantor agrees to pay, or cause to
----------------
be paid, on demand, and to save the Purchasers harmless against liability for,
any and all costs and expenses (including, without limitation, fees and
disbursements of counsel and fees, costs and expenses incurred in connection
with any bankruptcy proceeding) incurred or expended by the Purchasers in
connection with the enforcement, amendment, modification or waiver of or
preservation of any rights under this Guaranty and under any other Transaction
Document and the collection of amounts payable hereunder and thereunder and
obtaining advice of counsel in respect hereof or thereof, and until so paid,
such fees, costs, disbursements and expenses shall be added to, and constitute,
Guarantied Obligations.
(l) Further Assurances. The Guarantor shall execute such
------------------
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Guaranty.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed and delivered by its officer hereunto duly authorized as of the date
first above written.
Medicon CI, Inc.
By /s/ Lawrence Rubenstein
----------------------------
Name:
Title:
Exhibit 10.6
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS
MEDICON, INC.
JUNIOR SUBORDINATED PROMISSORY NOTE
DUE NOVEMBER 3, 2002
$5,000,000.00 New York, New York
November 3, 1994
FOR VALUE RECEIVED, the undersigned, MEDICON, INC., an Illinois
corporation (the "Company"), promises to pay to the order of Alan P. Mintz (the
-------
"Purchaser"), the principal sum of Five Million dollars ($5,000,000.00) on
---------
November 3, 2002 (the "Maturity Date"), with interest thereon from time to time
-------------
as provided herein. The Company is entitled to convert this Junior Subordinated
Note (this "Note"), in whole or in part, subject to the terms and conditions
----
hereinafter set forth, into fully paid and nonassessable shares of the Company's
Class A Common Stock, no par value (the "Class A Common Stock") at a conversion
--------------------
price of $20.971 per share subject to adjustment as provided herein (the
"Conversion Price").
----------------
1. Purchase Agreement. This Note is issued pursuant to the
------------------
Redemption Agreement, dated as of the date hereof, between the Company, the
Purchaser and certain other parties thereto (the "Share Redemption Agreement").
--------------------------
Capitalized terms used herein and not otherwise defined are used herein with the
meanings ascribed to such terms in Section 8 hereof.
2. Interest. The Company promises to pay interest on the principal
--------
amount of this Note at the rate of
<PAGE>
10.0% per annum. The Company shall pay accrued interest quarterly on each
March 31, June 30, September 30 and December 31 of each year or, if any such
date shall not be a Business Day, on the next succeeding Business Day to occur
after such date (each date upon which interest shall be so payable, an "Interest
--------
Payment Date"), beginning on December 31, 1994. Interest on this Note shall be
- ------------
paid by wire transfer of immediately available funds to an account designated by
the holder of this Note. Interest on this Note shall accrue from the date of
issuance until repayment of the principal and payment of all accrued interest in
full. Interest shall be computed on the basis of a 360-day year of twelve 30-
day months.
3. Mandatory Prepayment.
--------------------
(a) Initial Public Offerings. Upon the consummation of an
------------------------
Initial Public Offering by the Company with Net Cash Proceeds to the Company in
excess of $30,000,000.00 and after payment in full of the Senior Subordinated
Notes and any other Senior Indebtedness that becomes due and payable as a result
of or in connection with such Initial Public Offering (collectively the "IPO
---
Priority Payments"), the Company shall prepay this Note (together with interest
- -----------------
accrued thereon), pro rata with the prepayment of all other Notes issued
pursuant to the Share Redemption Agreement, in an amount equal to the lesser of
(i) the excess of (A) the Net Cash Proceeds received from such Initial Public
Offering over (B) the amount of the IPO Priority Payments, or (ii) the outstand-
ing principal amount of this Note (together with interest accrued thereon),
within 5 Business Days after the Company has both received the proceeds of such
Initial Public Offering and paid in full all IPO Priority Payments.
(b) Notice. The Company shall give written notice to the holder
------
of this Note of any mandatory prepayment pursuant to this Section 3 at least 3
Business Days prior to the date of such prepayment. Such notice shall be given
in the manner specified in Section 9 of this Note.
4. Optional Prepayment.
-------------------
(a) Upon notice given to the holder of this Note as provided in
subsection (b) of this Section 4 and after payment in full of the Senior
Subordinated Notes, the Company, at its option, may prepay all or any portion of
this Note, pro rata with the prepayment of all other Notes issued pursuant to
the Share Redemption Agreement, at any time, by paying an amount equal to the
outstanding principal amount of this Note, or the portion of this Note called
for prepayment, together with interest accrued and unpaid
2
<PAGE>
thereon to the date fixed for prepayment, without penalty or premium.
(b) The Company may give written notice of prepayment of this
Note or any portion thereof not less than 10 nor more than 60 days prior to the
date fixed for such prepayment. Such notice of prepayment shall be given in the
manner specified in Section 9 of this Note. Upon notice of prepayment being
given by the Company, the Company covenants and agrees that it shall prepay, on
the date therein fixed for prepayment, this Note or the portion hereof so called
for prepayment, at the outstanding principal amount thereof or the portion
thereof so called for prepayment together with interest accrued and unpaid
thereon to the date fixed for such prepayment.
(c) All optional prepayments under this Section 4 shall include
payment of accrued interest on the principal amount so prepaid and shall be
applied first to payment of accrued interest, and thereafter to principal.
5. Defaults and Remedies.
---------------------
(a) Events of Default. An "Event of Default" shall occur if:
-----------------
(i) the Company shall default in the payment of the
principal of this Note, when and as the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or by acceleration or
otherwise and such default shall continue for a period of ten days; or
(ii) the Company shall default in the payment of any
installment of interest on this Note according to its terms, when and as the
same shall become due and payable and such default shall continue for a period
of 20 days; or
(iii) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(a) relief in respect of the Company, or of a substantial part of its property
or assets, under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (b) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Company, or for
a substantial part of its property or assets, or (c) the winding up or
liquidation of the Company; and such proceeding or petition shall continue
undismissed for 60 days, or an order or decree approving or ordering any of the
foregoing shall be entered; or
3
<PAGE>
(iv) the Company shall (a) voluntarily commence any
proceeding or file any petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law, (b) consent to the
institution of or the entry of an order for relief against it, or fail to
contest in a timely and appropriate manner, any proceeding or the filing of any
petition described in paragraph (iii) of this Section 5(a), (c) apply for or
consent to the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Company, or for a substantial part of
its property or assets, (d) file an answer admitting the material allegations of
a petition filed against it in any such proceeding, (e) make a general
assignment for the benefit of creditors, (f) become unable, admit in writing its
inability or fail generally to pay its debts as they become due or (g) take any
action for the purpose of effecting any of the foregoing.
(b) Acceleration. If an Event of Default occurs under
------------
clauses (a)(iii) or (iv) of this Section 5, then the outstanding principal of
and all accrued interest on this Note shall automatically become immediately due
and payable, without presentment, demand, protest or notice of any kind, all of
which are expressly waived. If any other Event of Default occurs and is
continuing, the holders of at least a majority of the aggregate outstanding
principal amount of this Note and the other Notes issued pursuant to the Share
Redemption Agreement, by written notice to the Company, may declare the
principal of and accrued interest on the Notes issued pursuant to the Share
Redemption Agreement to be due and payable immediately. Upon such declaration,
such principal and interest shall become immediately due and payable. The
holders of a majority of the aggregate outstanding principal amount of this Note
and the other Notes issued pursuant to the Share Redemption Agreement may
rescind an acceleration and its consequences if all existing Events of Default
have been cured or waived, except nonpayment of principal or interest that has
become due solely because of the acceleration, and if the rescission would not
conflict with any judgment or decree. Any notice or rescission shall be given
in the manner specified in Section 9 hereof.
6. Subordination. This Note and the other Notes issued pursuant to
-------------
the Share Redemption Agreement shall at all times be wholly subordinate and
junior in right of payment to all Senior Indebtedness to the extent and in the
manner provided in this Section 6.
4
<PAGE>
(a) As used in this Section 6, the following terms shall have
the following meanings:
"Senior Default" shall mean (i) an Event of Default as defined in and
--------------
pursuant to Article 7 of the Senior Subordinated Notes and (ii) any default in
the payment of principal of or interest on any Senior Indebtedness or default in
the observance or performance of any other agreement or condition relating to
any such Senior Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition, is to
cause, or to permit the holder or holders of such Senior Indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause, with the giving
of notice if required, such Senior Indebtedness to become due prior to its
stated maturity.
"Senior Indebtedness" shall mean (i) the principal of and interest on
-------------------
(including without limitation any interest that accrues after the commencement
of any case, proceeding or other legal action relating to the bankruptcy,
insolvency or reorganization of the Company whether or not such interest
constitutes an allowed claim) the Senior Subordinated Notes, (ii) any other
monetary obligation of the Company arising out of or in connection with the
Senior Subordinated Notes or the Subordinated Note and Stock Purchase Agreement
and (iii) any indebtedness for borrowed money of the Company, whether
outstanding on the date hereof or thereafter created, incurred, assumed or
guaranteed by the Company, unless the instrument creating or evidencing the same
expressly provides that such Indebtedness is on a parity with or subordinated in
right of payment to the Subordinated Indebtedness.
"Subordinated Indebtedness" shall mean (i) the principal of and
-------------------------
interest on this Note and the other Notes issued pursuant to the Share
Redemption Agreement; and (ii) any other monetary obligations of the Company
arising out of or in connection with the Share Redemption Agreement or such
Notes.
(b) General. Upon the maturity of any Senior Indebtedness by
-------
lapse of time, acceleration, required prepayment or otherwise, all Senior
Indebtedness then so due and payable shall first be paid or provided for in full
in cash, before any payment is made on account of the Subordinated Indebtedness
then so due and payable or to acquire this Note or any of the other Notes issued
pursuant to the Share Redemption Agreement.
5
<PAGE>
(c) Limitation on Payment. Unless and until (i) all Senior
---------------------
Defaults shall have been remedied or effectively waived or shall have ceased to
exist or (ii) the Senior Indebtedness in respect of which such Senior Defaults
shall have occurred shall have been paid in full or duly provided for in a
manner satisfactory to the holders of the Senior Indebtedness, as the case may
be, no direct or indirect payment (in cash, property, securities or by set-off
or otherwise) shall be made on account of the principal of or interest on this
Note or the other Notes issued pursuant to the Share Redemption Agreement or as
a sinking fund for such Notes or in respect of any redemption, retirement,
purchase or other acquisition of such Notes.
(d) Limitation on Remedies. As long as any Senior Indebtedness
----------------------
remains outstanding, the holder of this Note shall not declare or join in any
declaration of this Note to be due and payable by reason of any Event of Default
or otherwise take any action against the Company (including, without limitation,
commencing any legal action against the Company or filing or joining in the
filing of any insolvency petition against the Company).
(e) Subordination Upon Certain Events. Upon the occurrence of
---------------------------------
any Event of Default under Sections 5(a)(iii) or (iv) of this Note:
(i) Upon any payment or distribution of assets of the
Company to creditors of the Company, holders of Senior Indebtedness shall be
entitled to receive payment in full in cash before the holders of Subordinated
Indebtedness shall be entitled to receive any payment in respect of the
Subordinated Indebtedness.
(ii) Until all Senior Indebtedness is paid in full in cash,
any distribution to which the holders of Subordinated Indebtedness would be
entitled but for this Section 6 shall be made to holders of Senior Indebtedness,
as their interests may appear.
(iii) For purposes of this Section 6, a distribution may
consist of cash, securities or other property, by set-off or otherwise.
(f) Payments and Distributions Received. If the holders of the
-----------------------------------
Subordinated Indebtedness shall have received any payment from or distribution
of assets of the Company in respect of the Subordinated Indebtedness in
contravention of the terms of this Section 6 before all Senior Indebtedness is
paid in full in cash, then and in such event such payment or distribution shall
be received and held in trust for and shall be paid over or delivered to
6
<PAGE>
the holders of Senior Indebtedness (or their authorized agent) to the extent
necessary to pay all such Senior Indebtedness in full in cash.
(g) Subrogation. After all amounts payable under or in respect
-----------
of Senior Indebtedness are paid in full in cash, the holders of the Subordinated
Indebtedness shall be subrogated to the rights of holders of Senior Indebtedness
to receive payments or distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the holders of the Subordinated
Indebtedness have been applied to the payment of Senior Indebtedness. A
distribution made under this Section 6 to a holder of Senior Indebtedness which
otherwise would have been made to the holders of the Subordinated Indebtedness
is not, as between the Company and the holders of the Subordinated Indebtedness,
a payment by the Company on Senior Indebtedness.
(h) Relative Rights. This Section defines the relative rights
---------------
of the holders of the Subordinated Indebtedness and the holders of Senior
Indebtedness. Nothing in this Section shall: (i) impair, as between the
Company and the holders of the Subordinated Indebtedness, the obligation of the
Company, which is absolute and unconditional, to pay principal of and interest
on Subordinated Indebtedness in accordance with its terms; or (ii) effect the
relative rights of holders of Subordinated Indebtedness and creditors of the
Company other than holders of Senior Indebtedness.
(i) Subordination May Not Be Impaired by the Company. No right
------------------------------------------------
of any holder of any Senior Indebtedness to enforce the subordination of the
Subordinated Indebtedness shall be impaired by any failure by the Company to
comply with this Note.
(j) Payments. A payment with respect to principal of or
--------
interest on the Subordinated Indebtedness shall include, without limitation,
payment of principal of, and interest on the Subordinated Indebtedness, any
depositing of funds for the defeasance of the Subordinated Indebtedness and any
payment on account of mandatory prepayment or optional prepayment provisions.
(k) Subordination Not Impaired; Benefit of Subordination. The
----------------------------------------------------
holder of this Note agrees and consents that without notice to or assent by such
holder, and without affecting the liabilities and obligations of the Company and
such holder and the rights and benefits of the holders of the Senior
Indebtedness set forth herein:
7
<PAGE>
(i) the obligations and liabilities of the Company and
any other party or parties for or upon the Senior Indebtedness may, from time to
time, be increased, renewed, refinanced, extended, modified, amended, restated,
compromised, supplemented, terminated, waived or released;
(ii) the holders of Senior Indebtedness, and any
representative or representatives acting on behalf thereof, may exercise or
refrain from exercising any right, remedy or power granted by or in connection
with any agreements relating to the Senior Indebtedness; and
(iii) any balance or balances of funds with any holder of
Senior Indebtedness at any time outstanding to the credit of the Company may,
from time to time, in whole or in part, be surrendered or released;
all as the holders of the Senior Indebtedness, and any representative or
representatives acting on behalf thereof, may deem advisable, and all without
impairing, abridging, diminishing, releasing or affecting the subordination of
the Subordinated Indebtedness to the Senior Indebtedness provided for herein.
(l) Modification of Subordination Provisions. The subordination
----------------------------------------
provisions of this Note are for the benefit of the holders from time to time of
Senior Indebtedness and, so long as any Senior Indebtedness remains unpaid,
these provisions may not be modified, rescinded or canceled in whole or in part
without the prior written consent thereto of the holders of a majority of the
aggregate principal amount outstanding of Senior Subordinated Notes and the
holders of a majority of the aggregate principal amount outstanding of any other
Senior Indebtedness which the Company may from time to time designate as
entitled to the benefits of this Section 5(l).
(m) Miscellaneous.
-------------
(i) To the extent permitted by applicable law, the holder
of this Note and the Company hereby waive (1) notice of acceptance hereof by the
holders of the Senior Indebtedness and (2) all diligence in the collection or
protection of or realization upon the Senior Indebtedness.
(ii) The Company and the holder of this Note hereby
expressly agree that the holders of Senior Indebtedness may enforce any and all
rights derived herein by suit, either in equity or law, for specific performance
of any agreement contained in these subordination provisions
8
<PAGE>
or for judgment at law and any other relief whatsoever appropriate to such
action or procedure.
(iii) The holder of this Note acknowledges and agrees that
the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of Senior Indebtedness, whether
such Senior Indebtedness was created or acquired before or after the issuance of
this Note, and each holder of Senior Indebtedness shall be deemed conclusively
to have relied upon such subordination provisions in acquiring and continuing to
hold the Senior Indebtedness held by such holder, as the case may be.
7. Conversion.
----------
7.1 Company Right to Require Conversion.
-----------------------------------
(a) Conversion. At any time or from time to time after the
----------
occurrence of a Trigger Event and upon notice given to the holder of this Note
as provided below, the Company may, subject to the terms and conditions of this
Section 7, convert this Note, in whole or in part, into fully paid and
nonassessable shares of Class A Common Stock at the Conversion Price. The
number of shares of Class A Common Stock to be issued upon conversion of this
Note shall be equal to the quotient of (x) the principal amount of this Note
then being converted and (y) the Conversion Price. The Company may convert this
Note (or a portion of the outstanding principal amount of this Note) by giving
written notice (a "Conversion Notice") of such mandatory conversion to the
-----------------
holder of this Note, at least five Business Days prior to the date fixed for
such conversion. Such notice shall be given in the manner specified in Section
9 of this Note.
(b) Payment of Interest. When all or any portion of this
-------------------
Note is converted, all interest accrued and unpaid (whether or not currently
payable) to the date of such conversion on the portion of this Note converted
shall be immediately due and payable in cash, which payment shall accompany the
shares of Class A Common Stock issued upon such conversion.
(c) Delivery of Shares and New Notes. As soon as
--------------------------------
practicable after conversion of this Note (or a portion of the outstanding
principal amount of this Note) pursuant to Section 7.1(a), the Company shall
promptly (x) issue and deliver to the holder of this Note a certificate or
certificates for the number of shares of Class A Common Stock set forth in the
Conversion Notice, in such name or names as may be designated by such holder,
along
9
<PAGE>
with a check for the amount of cash to be paid in accordance with Section 7.1(b)
in respect of accrued and unpaid interest, if any, on the portion of this Note
then being converted, against delivery to the Company of this Note accompanied
by proper instruments of transfer and (y) cancel this Note upon surrender hereof
and, if this Note is being converted in part only, execute and deliver a new
Note in replacement of the Note surrendered. The new Note issued by the Company
pursuant to clause (y) of the preceding sentence shall be the same as the Note
submitted for conversion except that (1) it will be dated the date that the Note
submitted for conversion is cancelled and (2) it will be issued in the principal
amount of the unconverted portion of the Note submitted for conversion.
(d) When Conversion Effective. The conversion of this Note
-------------------------
shall be deemed to have been effective on the date fixed by the Company for such
conversion in the Conversion Notice (the "Conversion Date"), whether or not this
---------------
Note is actually surrendered for conversion, and the Person in whose name any
certificate for shares of Class A Common Stock shall be issuable upon such
conversion, as provided in Section 7.1(c), shall be deemed to be the record
holder of such shares of Class A Common Stock for all purposes on the Conversion
Date. On and after the Conversion Date, all rights of the holder of this Note
with respect to the portion of this Note converted into shares of Class A Common
Stock, shall cease and terminate, except the right to receive a certificate for
shares of Class A Common Stock with respect to the portion of this Note so
converted and the right to receive cash in accordance with Section 7.1(b) in
respect of accrued and unpaid interest, if any, on the portion of this Note so
converted; and the portion of this Note so converted shall no longer be deemed
to be outstanding, whether or not this Note has been surrendered to the Company
for conversion.
7.2 Adjustment of Conversion Price. If the Company shall, at
------------------------------
any time or from time to time, (a) declare a dividend on the Company Stock
payable in shares of its capital stock (including Company Stock), (ii) subdivide
the outstanding Company Stock, (iii) combine the outstanding Company Stock into
a smaller number of shares, or (iv) issue any shares of its capital stock in a
reclassification of the Company Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
corporation), then in each such case, the Conversion Price in effect at the time
of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification shall be adjusted to that price
which will permit the number of shares of Class A Common Stock into which this
Note may be
10
<PAGE>
converted to be increased or reduced in the same proportion as the number of
shares of Company Stock are increased or reduced in connection with such
dividend, subdivision, combination or reclassification. Any such adjustment
shall become effective immediately after the record date of such dividend or the
effective date of such subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur. If a dividend is declared and such dividend is not paid, the Conversion
Price shall again be adjusted to be the Conversion Price in effect immediately
prior to such record date.
7.3 De Minimis Adjustments. No adjustment in the Conversion
----------------------
Price shall be made if the amount of such adjustment would result in a change in
the Conversion Price per share of less than $.02, but in such case any adjust-
ment that would otherwise be required to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment,
which together with any adjustment so carried forward, would result in a change
in the Conversion Price of $.05 per share. If the Company shall, at any time or
from time to time, issue Company Stock by way of dividends on any stock of the
Company or subdivide or combine the outstanding shares of the Company Stock,
such amounts of $.02 and $.05 (as theretofore increased or decreased, if such
amounts shall have been adjusted in accordance with the provisions of this
clause) shall forthwith be proportionately increased in the case of a combina-
tion or decreased in the case of a subdivision or stock dividend so as appro-
priately to reflect the same. Notwithstanding the provisions of the first
sentence of this Section 7.3, any adjustment postponed pursuant to this
Section 7.3 shall be made no later than the earlier of (i) three years from the
date of the transaction that would, but for the provisions of the first sentence
of this Section 7.3, have required such adjustment, (ii) a Conversion Date or
(iii) the Maturity Date.
7.4 Reorganization, Reclassification, Merger and Sale of Assets.
-----------------------------------------------------------
If there occurs any capital reorganization or any reclassification of the
Company Stock, the consolidation or merger of the Company with or into another
Person (other than a merger or consolidation of the Company in which the Company
is the continuing corporation and which does not result in any reclassification
or change of outstanding shares of Company Stock) or the sale or conveyance of
all or substantially all of the assets of the Company to another Person, then
the holder of this Note will thereafter be entitled to receive, upon the
conversion of this Note in accordance with the terms hereof, the same kind and
amounts of securities (including shares of stock) or other assets, or both,
which were issuable or distributable
11
<PAGE>
to the holders of outstanding Company Stock upon such reorganization,
reclassification, consolidation, merger, sale or conveyance, in respect of that
number of shares of Class A Common Stock into which this Note might have been
converted immediately prior to such reorganization, reclassification, consolida-
tion, merger, sale or conveyance; and, in any such case, appropriate adjustments
(as determined in good faith by the Board of Directors of the Company) shall be
made to assure that the provisions hereof (including provisions with respect to
changes in, and other adjustments of, the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be practicable, in relation to any
securities or other assets thereafter deliverable upon conversion of this Note.
7.5 Certificate as to Adjustments. Whenever the Conversion
-----------------------------
Price or the securities or other property deliverable upon the conversion of
this Note shall be adjusted pursuant to the provisions hereof, the Company shall
promptly give written notice thereof to the holder of this Note, in the manner
specified in Section 9 of this Note, stating the adjusted Conversion Price and
the securities or other property deliverable upon conversion of this Note calcu-
lated to the nearest cent or the nearest one-hundredth of a share and setting
forth in reasonable detail the method of calculation and the facts requiring
such adjustment and upon which such calculation is based. Each adjustment shall
remain in effect until a subsequent adjustment is required.
7.6 Fractional Shares. Notwithstanding any other provision of
-----------------
this Note, the Company shall not be required to issue fractions of shares upon
conversion of this Note or to distribute certificates which evidence fractional
shares. In lieu of fractional shares, the Company may make payment to the
holder of this Note, at the time of conversion of this Note as herein provided,
of an amount in cash equal to such fraction multiplied by the Conversion Price.
7.7 No Rights or Liability as a Stockholder. This Note does not
---------------------------------------
entitle the holder hereof to any voting rights or other rights as a stockholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Company to convert this Note into shares of Class A Common Stock, and no
enumeration herein of the rights or privileges of the holder of this Note, shall
give rise to any liability to such holder as a stockholder of the Company.
12
<PAGE>
8. Definitions. As used in this Note, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.
"Capital Lease Obligations" means, as to any Person, any obligation of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligation is required to be classified and accounted
for as a capital lease on a balance sheet of such Person under GAAP and, for the
purposes of this Note, the amount of any such obligation at any time shall be
the capitalized amount thereof at such time determined in accordance with GAAP
consistently applied.
"Capital Stock" of any Person means any and all shares, interests,
-------------
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
common stock and preferred stock and any rights, warrants or options to purchase
such Person's capital stock.
"Class A Common Stock" has the meaning ascribed to such term in the
--------------------
first paragraph of this Note.
"Class B Common Stock" means the Company's Class B Common Stock, no
--------------------
par value.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Company's Class A Common Stock and Class B
------------
Common Stock.
"Company Stock" shall mean collectively the Common Stock and any class
-------------
of common stock of the Company authorized after the date of this Note, or any
other class or series of stock resulting from successive changes or
reclassifications of such Common Stock.
"Contingent Obligation" means, as to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "primary
-------
obligation") of
- ----------
13
<PAGE>
another Person (with respect to a given primary obligation, the "primary
-------
obligor"), whether or not contingent, (a) to purchase, repurchase or otherwise
- -------
acquire any such primary obligation or any property constituting direct or
indirect security therefor, or (b) to advance or provide funds (i) for the
payment or discharge of any such primary obligation, or (ii) to maintain working
capital or equity capital of the primary obligor in respect of any such primary
obligation or otherwise to maintain the net worth or solvency or any balance
sheet item, level of income or financial condition of such primary obligor, or
(c) to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor in respect thereof to make payment of such primary obligation, or
(d) otherwise to assure or hold harmless the owner of any such primary obliga-
tion against loss or failure or inability to perform in respect thereof. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof.
"Conversion Date" has the meaning ascribed to such term in Section
---------------
7.1(d).
"Conversion Notice" has the meaning ascribed to such term in
-----------------
Section 7.1(a).
"Conversion Price" has the meaning ascribed to such term in the first
----------------
paragraph of this Note.
"Event of Default" has the meaning assigned such term in Section 5(a).
----------------
"EBITDA" shall mean, with respect to the Company and its Subsidiaries
------
on a consolidated basis for any period, the sum of (a) Net Income for such
period, (b) Interest Expense for such period, (c) Federal, state and local
income and franchise taxes deducted from revenue in determining such Net Income,
(d) depreciation and amortization deducted from revenue in determining such Net
Income (including any effect from the capitalization, amortization and write-off
of implementation costs) and (e) all non-cash expenses which reduce Net Income,
less (f) interest income and all non-cash items which increase Net Income. For
purposes of calculating (e) and (f) above, all items that would not be
considered operating items in the ordinary course of business or would result in
changes in long-term asset or liability accounts shall be excluded.
14
<PAGE>
"GAAP" means generally accepted United States accounting principles in
----
effect from time to time.
"Indebtedness" means, as to any Person, (a) all obligations of such
------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any lien (other than
liens in favor of lessors under leases other than leases included in clause
(f)) on any property or asset owned or held by such Person regardless of whether
the indebtedness secured thereby shall have been assumed by such Person or is
non-recourse to the credit of such Person and (h) all Contingent Obligations of
such Person.
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Capital Stock pursuant to a registration
statement on Form S-1 or otherwise under the Securities Act.
"Interest Expense" shall mean, with respect to the Company and its
----------------
Subsidiaries on a consolidated basis for any period, the sum of (a) gross
interest expense of the Company and its Subsidiaries for such period in
accordance with GAAP consistently applied, including (i) the amortization of
debt discounts, (ii) the amortization of all fees payable in connection with the
incurrence of Indebtedness to the extent included in interest expense and
(iii) the portion of any payments or accruals with respect to Capital Lease
Obligations allocable to interest expense, and (b) any other capitalized
interest of the Company and its Subsidiaries determined on a consolidated basis
in accordance with GAAP.
"IPO Priority Payments" has the meaning assigned such term in Section
---------------------
3(a).
15
<PAGE>
"Maturity Date" has the meaning assigned to such term in the first
-------------
paragraph of this Note.
"Net Cash Proceeds" shall mean, with respect to any Initial Public
-----------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) relating to such Initial Public Offering.
"Net Income" shall mean for any period and prior to accounting for the
----------
payment of any dividends on the Series A Preferred Stock, (a) the net income
(loss) of the Company and its Subsidiaries, determined on a consolidated basis
in accordance with GAAP, minus (b) the aggregate for such period of, without
-----
duplication, (i) the net income (loss) of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition,
determined in accordance with GAAP, and (ii) any other items that are treated as
expenses under GAAP, but excluding from the definition of Net Income any
extraordinary or non-recurring charges, expenses, gains or losses, all computed
in accordance with GAAP.
"Outstanding Shares" shall mean all shares of Class A Common Stock
------------------
issued and outstanding immediately following the closing of a Qualified Public
Offering. For the purposes of any computation of the amount of Outstanding
Shares, all shares of Series A Preferred Stock and Class B Common Stock shall
be deemed to be converted into the maximum number of shares of Class A Common
Stock into which such shares of Series A Preferred Stock and Class B Common
Stock were then convertible as provided in the Amended and Restated Articles of
Incorporation.
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
governmental authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Net Cash Proceeds to the Company in excess of $30,000,000.00 and in
respect of which the price per share of Common Stock sold in such Qualified
Public Offering multiplied by the number of Outstanding Shares is at least
$250,000,000.00.
16
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Senior Default" has the meaning assigned such term in Section 6(a).
--------------
"Senior Indebtedness" has the meaning assigned such term in
-------------------
Section 6(a).
"Senior Subordinated Notes" means the Company's Senior Subordinated
-------------------------
Promissory Notes, dated the date hereof, in aggregate principal amount of
$10,000,000.00.
"Subordinated Note and Stock Purchase Agreement" means the
----------------------------------------------
Subordinated Note and Stock Purchase Agreement, dated as of the date hereof,
between the Company and certain other parties thereto pursuant to which, among
other things, the Company issued the Senior Subordinated Notes.
"Subsidiary" means, with respect to any Person, a corporation or other
----------
entity of which 50% or more of the voting power of the voting equity securities
or equity interests is owned, directly or indirectly, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in
this Note shall refer to a Subsidiary or Subsidiaries of the Company.
"Trigger Event" shall mean that (i) the Purchaser's employment with
-------------
the Company shall be terminated for any reason, or (ii) at the end of any fiscal
year ending prior to a Qualified Public Offering, either the revenue or the
EBITDA of the Company and its Subsidiaries on a consolidated basis for such
fiscal year shall fall below the revenue or EBITDA amount (as the case may be)
set forth below with respect to such fiscal year (determined on the basis of the
audited consolidated financial statements of the Company and its Subsidiaries
for such fiscal year):
17
<PAGE>
Fiscal year
ended December 31: Revenue: EBITDA:
----------------- ------- ------
1995 $103,288,000.00 $ 3,741,000.00
1996 $180,234,000.00 $11,407,000.00
1997 $198,257,000.00 $12,548,000.00
1998 $218,083,000.00 $13,802,000.00
1999 $239,891,000.00 $15,183,000.00
2000 $263,880,000.00 $16,701,000.00
2001 $290,269,000.00 $18,371,000.00
9. Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in the manner specified in Section 16
of the Share Redemption Agreement.
10. Successors and Assigns. This Note shall inure to the benefit of
----------------------
and be binding upon the successors and permitted assigns of the parties hereto.
The holder of this Note may not assign any of its rights under this Note except
that, subject to applicable securities laws, the holder of this Note may assign
this Note to a member of such holder's immediate family, which shall include her
or his ancestors, spouse, siblings, descendants or spouses (or surviving
spouses) of descendants ("Family Members"), or a trust, corporation, partnership
--------------
or other entity, all of the beneficial interests in which shall be held by such
holder or one or more Family Members of such holder; provided, however, that
-------- -------
during the period any such trust, corporation, partnership or other entity holds
this Note, no Person (other than (i) such holder, (ii) a shareholder in such
holder or other person having an ownership interest in such other entity which
is a holder, (iii) any beneficiary of a trust which is a holder or any Family
Members of a beneficiary of a trust which is a stockholder, (iv) any trust all
of the beneficial interests in which shall be held by Family Members of a
beneficiary of a trust which is a holder or (v) one or more Family Members of
such holder) may be or become beneficiaries, stockholders or limited or general
partners or owners thereof. The Company may not assign any of its obligations
under this Note without the written consent of the holder of this Note.
18
<PAGE>
11. Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the holder
of this Note in exercising any right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the holder of this Note at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Note, any waiver of any provision of this Note, and any
consent to any departure by the Company from the terms of any provision of this
Note, shall be effective (i) only if it is made or given in writing and signed
by the Company and Persons holding at least a majority of the aggregate
outstanding principal amount of this Note and the other Notes issued pursuant to
the Share Redemption Agreement, and (ii) only in the specific instance and for
the specific purpose for which made or given. Except where notice is
specifically required by this Note, no notice to or demand on the Company in any
case shall entitle the Company to any other or further notice or demand in
similar or other circumstances.
(c) Notwithstanding the foregoing, without the written consent
of the holder of this Note, an amendment, supplement or waiver may not:
(i) reduce the percentage of Persons necessary to consent
to an amendment, supplement or waiver pursuant to this Section 11;
(ii) reduce the rate or extend the time for payment of
interest on this Note;
(iii) reduce the principal of, extend the fixed maturity of,
or alter the ranking of, this Note;
(iv) make this Note payable in money other than that stated
in this Note; or
(v) alter or amend Section 3 of this Note.
12. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of Illinois, without regard to the
principles of conflicts of law of such State.
19
<PAGE>
13. Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
14. Entire Agreement. This Note and the Share Redemption Agreement
----------------
are intended by the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Note and the Share Redemption Agreement supersede all prior agreements and
understandings between the parties with respect to such subject matter.
MEDICON, INC.
By /s/ John E. Adams
------------------------------
Name: John E. Adams
Title: EVP & COO
20
Exhibit 10.7
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS
MEDICON, INC.
JUNIOR SUBORDINATED PROMISSORY NOTE
DUE NOVEMBER 3, 2002
$2,500,000.00 New York, New York
November 3, 1994
FOR VALUE RECEIVED, the undersigned, MEDICON, INC., an Illinois
corporation (the "Company"), promises to pay to the order of John Adams (the
-------
"Purchaser"), the principal sum of Two Million Five Hundred Thousand dollars
---------
($2,500,000.00) on November 3, 2002 (the "Maturity Date"), with interest thereon
-------------
from time to time as provided herein. The Company is entitled to convert this
Junior Subordinated Note (this "Note"), in whole or in part, subject to the
----
terms and conditions hereinafter set forth, into fully paid and nonassessable
shares of the Company's Class A Common Stock, no par value (the "Class A Common
--------------
Stock") at a conversion price of $20.971 per share subject to adjustment as
- -----
provided herein (the "Conversion Price").
----------------
1. Purchase Agreement. This Note is issued pursuant to the
------------------
Redemption Agreement, dated as of the date hereof, between the Company, the
Purchaser and certain other parties thereto (the "Share Redemption Agreement").
--------------------------
Capitalized terms used herein and not otherwise defined are used herein with the
meanings ascribed to such terms in Section 8 hereof.
2. Interest. The Company promises to pay interest on the principal
--------
amount of this Note at the rate of 10.0% per annum. The Company shall pay
accrued interest
<PAGE>
quarterly on each March 31, June 30, September 30 and December 31 of each year
or, if any such date shall not be a Business Day, on the next succeeding
Business Day to occur after such date (each date upon which interest shall be so
payable, an "Interest Payment Date"), beginning on December 31, 1994. Interest
---------------------
on this Note shall be paid by wire transfer of immediately available funds to an
account designated by the holder of this Note. Interest on this Note shall
accrue from the date of issuance until repayment of the principal and payment of
all accrued interest in full. Interest shall be computed on the basis of a 360-
day year of twelve 30-day months.
3. Mandatory Prepayment.
--------------------
(a) Initial Public Offerings. Upon the consummation of an
------------------------
Initial Public Offering by the Company with Net Cash Proceeds to the Company in
excess of $30,000,000.00 and after payment in full of the Senior Subordinated
Notes and any other Senior Indebtedness that becomes due and payable as a result
of or in connection with such Initial Public Offering (collectively the "IPO
---
Priority Payments"), the Company shall prepay this Note (together with interest
- -----------------
accrued thereon), pro rata with the prepayment of all other Notes issued
pursuant to the Share Redemption Agreement, in an amount equal to the lesser of
(i) the excess of (A) the Net Cash Proceeds received from such Initial Public
Offering over (B) the amount of the IPO Priority Payments, or (ii) the outstand-
ing principal amount of this Note (together with interest accrued thereon),
within 5 Business Days after the Company has both received the proceeds of such
Initial Public Offering and paid in full all IPO Priority Payments.
(b) Notice. The Company shall give written notice to the holder
------
of this Note of any mandatory prepayment pursuant to this Section 3 at least 3
Business Days prior to the date of such prepayment. Such notice shall be given
in the manner specified in Section 9 of this Note.
4. Optional Prepayment.
-------------------
(a) Upon notice given to the holder of this Note as provided in
subsection (b) of this Section 4 and after payment in full of the Senior
Subordinated Notes, the Company, at its option, may prepay all or any portion of
this Note, pro rata with the prepayment of all other Notes issued pursuant to
the Share Redemption Agreement, at any time, by paying an amount equal to the
outstanding principal amount of this Note, or the portion of this Note called
for prepayment, together with interest accrued and unpaid thereon to the date
fixed for prepayment, without penalty or premium.
2
<PAGE>
(b) The Company may give written notice of prepayment of this
Note or any portion thereof not less than 10 nor more than 60 days prior to the
date fixed for such prepayment. Such notice of prepayment shall be given in the
manner specified in Section 9 of this Note. Upon notice of prepayment being
given by the Company, the Company covenants and agrees that it shall prepay, on
the date therein fixed for prepayment, this Note or the portion hereof so called
for prepayment, at the outstanding principal amount thereof or the portion
thereof so called for prepayment together with interest accrued and unpaid
thereon to the date fixed for such prepayment.
(c) All optional prepayments under this Section 4 shall include
payment of accrued interest on the principal amount so prepaid and shall be
applied first to payment of accrued interest, and thereafter to principal.
5. Defaults and Remedies.
---------------------
(a) Events of Default. An "Event of Default" shall occur if:
-----------------
(i) the Company shall default in the payment of the
principal of this Note, when and as the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or by acceleration or
otherwise and such default shall continue for a period of ten days; or
(ii) the Company shall default in the payment of any
installment of interest on this Note according to its terms, when and as the
same shall become due and payable and such default shall continue for a period
of 20 days; or
(iii) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(a) relief in respect of the Company, or of a substantial part of its property
or assets, under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (b) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Company, or for
a substantial part of its property or assets, or (c) the winding up or
liquidation of the Company; and such proceeding or petition shall continue
undismissed for 60 days, or an order or decree approving or ordering any of the
foregoing shall be entered; or
(iv) the Company shall (a) voluntarily commence any
proceeding or file any petition seeking relief
3
<PAGE>
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (b) consent to the institution of or the entry of an order for
relief against it, or fail to contest in a timely and appropriate manner, any
proceeding or the filing of any petition described in paragraph (iii) of this
Section 5(a), (c) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Company, or for a substantial part of its property or assets, (d) file an answer
admitting the material allegations of a petition filed against it in any such
proceeding, (e) make a general assignment for the benefit of creditors,
(f) become unable, admit in writing its inability or fail generally to pay its
debts as they become due or (g) take any action for the purpose of effecting any
of the foregoing.
(b) Acceleration. If an Event of Default occurs under
------------
clauses (a)(iii) or (iv) of this Section 5, then the outstanding principal of
and all accrued interest on this Note shall automatically become immediately due
and payable, without presentment, demand, protest or notice of any kind, all of
which are expressly waived. If any other Event of Default occurs and is
continuing, the holders of at least a majority of the aggregate outstanding
principal amount of this Note and the other Notes issued pursuant to the Share
Redemption Agreement, by written notice to the Company, may declare the
principal of and accrued interest on the Notes issued pursuant to the Share
Redemption Agreement to be due and payable immediately. Upon such declaration,
such principal and interest shall become immediately due and payable. The
holders of a majority of the aggregate outstanding principal amount of this Note
and the other Notes issued pursuant to the Share Redemption Agreement may
rescind an acceleration and its consequences if all existing Events of Default
have been cured or waived, except nonpayment of principal or interest that has
become due solely because of the acceleration, and if the rescission would not
conflict with any judgment or decree. Any notice or rescission shall be given
in the manner specified in Section 9 hereof.
6. Subordination. This Note and the other Notes issued pursuant to
-------------
the Share Redemption Agreement shall at all times be wholly subordinate and
junior in right of payment to all Senior Indebtedness to the extent and in the
manner provided in this Section 6.
(a) As used in this Section 6, the following terms shall have
the following meanings:
4
<PAGE>
"Senior Default" shall mean (i) an Event of Default as defined in and
--------------
pursuant to Article 7 of the Senior Subordinated Notes and (ii) any default in
the payment of principal of or interest on any Senior Indebtedness or default in
the observance or performance of any other agreement or condition relating to
any such Senior Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition, is to
cause, or to permit the holder or holders of such Senior Indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause, with the giving
of notice if required, such Senior Indebtedness to become due prior to its
stated maturity.
"Senior Indebtedness" shall mean (i) the principal of and interest on
-------------------
(including without limitation any interest that accrues after the commencement
of any case, proceeding or other legal action relating to the bankruptcy,
insolvency or reorganization of the Company whether or not such interest
constitutes an allowed claim) the Senior Subordinated Notes, (ii) any other
monetary obligation of the Company arising out of or in connection with the
Senior Subordinated Notes or the Subordinated Note and Stock Purchase Agreement
and (iii) any indebtedness for borrowed money of the Company, whether
outstanding on the date hereof or thereafter created, incurred, assumed or
guaranteed by the Company, unless the instrument creating or evidencing the same
expressly provides that such Indebtedness is on a parity with or subordinated in
right of payment to the Subordinated Indebtedness.
"Subordinated Indebtedness" shall mean (i) the principal of and
-------------------------
interest on this Note and the other Notes issued pursuant to the Share
Redemption Agreement; and (ii) any other monetary obligations of the Company
arising out of or in connection with the Share Redemption Agreement or such
Notes.
(b) General. Upon the maturity of any Senior Indebtedness by
-------
lapse of time, acceleration, required prepayment or otherwise, all Senior
Indebtedness then so due and payable shall first be paid or provided for in full
in cash, before any payment is made on account of the Subordinated Indebtedness
then so due and payable or to acquire this Note or any of the other Notes issued
pursuant to the Share Redemption Agreement.
(c) Limitation on Payment. Unless and until (i) all Senior
---------------------
Defaults shall have been remedied or effectively waived or shall have ceased to
exist or (ii) the Senior Indebtedness in respect of which such Senior Defaults
5
<PAGE>
shall have occurred shall have been paid in full or duly provided for in a
manner satisfactory to the holders of the Senior Indebtedness, as the case may
be, no direct or indirect payment (in cash, property, securities or by set-off
or otherwise) shall be made on account of the principal of or interest on this
Note or the other Notes issued pursuant to the Share Redemption Agreement or as
a sinking fund for such Notes or in respect of any redemption, retirement,
purchase or other acquisition of such Notes.
(d) Limitation on Remedies. As long as any Senior Indebtedness
----------------------
remains outstanding, the holder of this Note shall not declare or join in any
declaration of this Note to be due and payable by reason of any Event of Default
or otherwise take any action against the Company (including, without limitation,
commencing any legal action against the Company or filing or joining in the
filing of any insolvency petition against the Company).
(e) Subordination Upon Certain Events. Upon the occurrence of
---------------------------------
any Event of Default under Sections 5(a)(iii) or (iv) of this Note:
(i) Upon any payment or distribution of assets of the
Company to creditors of the Company, holders of Senior Indebtedness shall be
entitled to receive payment in full in cash before the holders of Subordinated
Indebtedness shall be entitled to receive any payment in respect of the
Subordinated Indebtedness.
(ii) Until all Senior Indebtedness is paid in full in cash,
any distribution to which the holders of Subordinated Indebtedness would be
entitled but for this Section 6 shall be made to holders of Senior Indebtedness,
as their interests may appear.
(iii) For purposes of this Section 6, a distribution may
consist of cash, securities or other property, by set-off or otherwise.
(f) Payments and Distributions Received. If the holders of the
-----------------------------------
Subordinated Indebtedness shall have received any payment from or distribution
of assets of the Company in respect of the Subordinated Indebtedness in
contravention of the terms of this Section 6 before all Senior Indebtedness is
paid in full in cash, then and in such event such payment or distribution shall
be received and held in trust for and shall be paid over or delivered to the
holders of Senior Indebtedness (or their authorized agent) to the extent
necessary to pay all such Senior Indebtedness in full in cash.
6
<PAGE>
(g) Subrogation. After all amounts payable under or in respect
-----------
of Senior Indebtedness are paid in full in cash, the holders of the Subordinated
Indebtedness shall be subrogated to the rights of holders of Senior Indebtedness
to receive payments or distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the holders of the Subordinated
Indebtedness have been applied to the payment of Senior Indebtedness. A
distribution made under this Section 6 to a holder of Senior Indebtedness which
otherwise would have been made to the holders of the Subordinated Indebtedness
is not, as between the Company and the holders of the Subordinated Indebtedness,
a payment by the Company on Senior Indebtedness.
(h) Relative Rights. This Section defines the relative rights
---------------
of the holders of the Subordinated Indebtedness and the holders of Senior
Indebtedness. Nothing in this Section shall: (i) impair, as between the
Company and the holders of the Subordinated Indebtedness, the obligation of the
Company, which is absolute and unconditional, to pay principal of and interest
on Subordinated Indebtedness in accordance with its terms; or (ii) effect the
relative rights of holders of Subordinated Indebtedness and creditors of the
Company other than holders of Senior Indebtedness.
(i) Subordination May Not Be Impaired by the Company. No right
------------------------------------------------
of any holder of any Senior Indebtedness to enforce the subordination of the
Subordinated Indebtedness shall be impaired by any failure by the Company to
comply with this Note.
(j) Payments. A payment with respect to principal of or
--------
interest on the Subordinated Indebtedness shall include, without limitation,
payment of principal of, and interest on the Subordinated Indebtedness, any
depositing of funds for the defeasance of the Subordinated Indebtedness and any
payment on account of mandatory prepayment or optional prepayment provisions.
(k) Subordination Not Impaired; Benefit of Subordination. The
----------------------------------------------------
holder of this Note agrees and consents that without notice to or assent by such
holder, and without affecting the liabilities and obligations of the Company and
such holder and the rights and benefits of the holders of the Senior
Indebtedness set forth herein:
(i) the obligations and liabilities of the Company and
any other party or parties for or upon the Senior Indebtedness may, from time to
time, be increased, renewed, refinanced, extended, modified, amended,
7
<PAGE>
restated, compromised, supplemented, terminated, waived or released;
(ii) the holders of Senior Indebtedness, and any
representative or representatives acting on behalf thereof, may exercise or
refrain from exercising any right, remedy or power granted by or in connection
with any agreements relating to the Senior Indebtedness; and
(iii) any balance or balances of funds with any holder of
Senior Indebtedness at any time outstanding to the credit of the Company may,
from time to time, in whole or in part, be surrendered or released;
all as the holders of the Senior Indebtedness, and any representative or
representatives acting on behalf thereof, may deem advisable, and all without
impairing, abridging, diminishing, releasing or affecting the subordination of
the Subordinated Indebtedness to the Senior Indebtedness provided for herein.
(l) Modification of Subordination Provisions. The subordination
----------------------------------------
provisions of this Note are for the benefit of the holders from time to time of
Senior Indebtedness and, so long as any Senior Indebtedness remains unpaid,
these provisions may not be modified, rescinded or canceled in whole or in part
without the prior written consent thereto of the holders of a majority of the
aggregate principal amount outstanding of Senior Subordinated Notes and the
holders of a majority of the aggregate principal amount outstanding of any other
Senior Indebtedness which the Company may from time to time designate as
entitled to the benefits of this Section 5(l).
(m) Miscellaneous.
-------------
(i) To the extent permitted by applicable law, the holder
of this Note and the Company hereby waive (1) notice of acceptance hereof by the
holders of the Senior Indebtedness and (2) all diligence in the collection or
protection of or realization upon the Senior Indebtedness.
(ii) The Company and the holder of this Note hereby
expressly agree that the holders of Senior Indebtedness may enforce any and all
rights derived herein by suit, either in equity or law, for specific performance
of any agreement contained in these subordination provisions or for judgment at
law and any other relief whatsoever appropriate to such action or procedure.
8
<PAGE>
(iii) The holder of this Note acknowledges and agrees that
the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of Senior Indebtedness, whether
such Senior Indebtedness was created or acquired before or after the issuance of
this Note, and each holder of Senior Indebtedness shall be deemed conclusively
to have relied upon such subordination provisions in acquiring and continuing to
hold the Senior Indebtedness held by such holder, as the case may be.
7. Conversion.
----------
7.1 Company Right to Require Conversion.
-----------------------------------
(a) Conversion. At any time or from time to time after the
----------
occurrence of a Trigger Event and upon notice given to the holder of this Note
as provided below, the Company may, subject to the terms and conditions of this
Section 7, convert this Note, in whole or in part, into fully paid and
nonassessable shares of Class A Common Stock at the Conversion Price. The
number of shares of Class A Common Stock to be issued upon conversion of this
Note shall be equal to the quotient of (x) the principal amount of this Note
then being converted and (y) the Conversion Price. The Company may convert this
Note (or a portion of the outstanding principal amount of this Note) by giving
written notice (a "Conversion Notice") of such mandatory conversion to the
-----------------
holder of this Note, at least five Business Days prior to the date fixed for
such conversion. Such notice shall be given in the manner specified in Section
9 of this Note.
(b) Payment of Interest. When all or any portion of this
-------------------
Note is converted, all interest accrued and unpaid (whether or not currently
payable) to the date of such conversion on the portion of this Note converted
shall be immediately due and payable in cash, which payment shall accompany the
shares of Class A Common Stock issued upon such conversion.
(c) Delivery of Shares and New Notes. As soon as
--------------------------------
practicable after conversion of this Note (or a portion of the outstanding
principal amount of this Note) pursuant to Section 7.1(a), the Company shall
promptly (x) issue and deliver to the holder of this Note a certificate or
certificates for the number of shares of Class A Common Stock set forth in the
Conversion Notice, in such name or names as may be designated by such holder,
along with a check for the amount of cash to be paid in accordance with
Section 7.1(b) in respect of accrued and unpaid interest, if any, on the portion
of this Note then being
9
<PAGE>
converted, against delivery to the Company of this Note accompanied by proper
instruments of transfer and (y) cancel this Note upon surrender hereof and, if
this Note is being converted in part only, execute and deliver a new Note in
replacement of the Note surrendered. The new Note issued by the Company
pursuant to clause (y) of the preceding sentence shall be the same as the Note
submitted for conversion except that (1) it will be dated the date that the Note
submitted for conversion is cancelled and (2) it will be issued in the principal
amount of the unconverted portion of the Note submitted for conversion.
(d) When Conversion Effective. The conversion of this Note
-------------------------
shall be deemed to have been effective on the date fixed by the Company for such
conversion in the Conversion Notice (the "Conversion Date"), whether or not this
---------------
Note is actually surrendered for conversion, and the Person in whose name any
certificate for shares of Class A Common Stock shall be issuable upon such
conversion, as provided in Section 7.1(c), shall be deemed to be the record
holder of such shares of Class A Common Stock for all purposes on the Conversion
Date. On and after the Conversion Date, all rights of the holder of this Note
with respect to the portion of this Note converted into shares of Class A Common
Stock, shall cease and terminate, except the right to receive a certificate for
shares of Class A Common Stock with respect to the portion of this Note so
converted and the right to receive cash in accordance with Section 7.1(b) in
respect of accrued and unpaid interest, if any, on the portion of this Note so
converted; and the portion of this Note so converted shall no longer be deemed
to be outstanding, whether or not this Note has been surrendered to the Company
for conversion.
7.2 Adjustment of Conversion Price. If the Company shall, at
------------------------------
any time or from time to time, (a) declare a dividend on the Company Stock
payable in shares of its capital stock (including Company Stock), (ii) subdivide
the outstanding Company Stock, (iii) combine the outstanding Company Stock into
a smaller number of shares, or (iv) issue any shares of its capital stock in a
reclassification of the Company Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
corporation), then in each such case, the Conversion Price in effect at the time
of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification shall be adjusted to that price
which will permit the number of shares of Class A Common Stock into which this
Note may be converted to be increased or reduced in the same proportion as the
number of shares of Company Stock are increased or reduced in connection with
such dividend, subdivision,
10
<PAGE>
combination or reclassification. Any such adjustment shall become effective
immediately after the record date of such dividend or the effective date of such
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur. If a dividend is
declared and such dividend is not paid, the Conversion Price shall again be
adjusted to be the Conversion Price in effect immediately prior to such record
date.
7.3 De Minimis Adjustments. No adjustment in the Conversion
----------------------
Price shall be made if the amount of such adjustment would result in a change in
the Conversion Price per share of less than $.02, but in such case any adjust-
ment that would otherwise be required to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment,
which together with any adjustment so carried forward, would result in a change
in the Conversion Price of $.05 per share. If the Company shall, at any time or
from time to time, issue Company Stock by way of dividends on any stock of the
Company or subdivide or combine the outstanding shares of the Company Stock,
such amounts of $.02 and $.05 (as theretofore increased or decreased, if such
amounts shall have been adjusted in accordance with the provisions of this
clause) shall forthwith be proportionately increased in the case of a combina-
tion or decreased in the case of a subdivision or stock dividend so as appro-
priately to reflect the same. Notwithstanding the provisions of the first
sentence of this Section 7.3, any adjustment postponed pursuant to this
Section 7.3 shall be made no later than the earlier of (i) three years from the
date of the transaction that would, but for the provisions of the first sentence
of this Section 7.3, have required such adjustment, (ii) a Conversion Date or
(iii) the Maturity Date.
7.4 Reorganization, Reclassification, Merger and Sale of Assets.
-----------------------------------------------------------
If there occurs any capital reorganization or any reclassification of the
Company Stock, the consolidation or merger of the Company with or into another
Person (other than a merger or consolidation of the Company in which the Company
is the continuing corporation and which does not result in any reclassification
or change of outstanding shares of Company Stock) or the sale or conveyance of
all or substantially all of the assets of the Company to another Person, then
the holder of this Note will thereafter be entitled to receive, upon the
conversion of this Note in accordance with the terms hereof, the same kind and
amounts of securities (including shares of stock) or other assets, or both,
which were issuable or distributable to the holders of outstanding Company Stock
upon such reorganization, reclassification, consolidation, merger, sale or
conveyance, in respect of that number of shares of
11
<PAGE>
Class A Common Stock into which this Note might have been converted immediately
prior to such reorganization, reclassification, consolidation, merger, sale or
conveyance; and, in any such case, appropriate adjustments (as determined in
good faith by the Board of Directors of the Company) shall be made to assure
that the provisions hereof (including provisions with respect to changes in, and
other adjustments of, the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be practicable, in relation to any securities or other
assets thereafter deliverable upon conversion of this Note.
7.5 Certificate as to Adjustments. Whenever the Conversion
-----------------------------
Price or the securities or other property deliverable upon the conversion of
this Note shall be adjusted pursuant to the provisions hereof, the Company shall
promptly give written notice thereof to the holder of this Note, in the manner
specified in Section 9 of this Note, stating the adjusted Conversion Price and
the securities or other property deliverable upon conversion of this Note calcu-
lated to the nearest cent or the nearest one-hundredth of a share and setting
forth in reasonable detail the method of calculation and the facts requiring
such adjustment and upon which such calculation is based. Each adjustment shall
remain in effect until a subsequent adjustment is required.
7.6 Fractional Shares. Notwithstanding any other provision of
-----------------
this Note, the Company shall not be required to issue fractions of shares upon
conversion of this Note or to distribute certificates which evidence fractional
shares. In lieu of fractional shares, the Company may make payment to the
holder of this Note, at the time of conversion of this Note as herein provided,
of an amount in cash equal to such fraction multiplied by the Conversion Price.
7.7 No Rights or Liability as a Stockholder. This Note does not
---------------------------------------
entitle the holder hereof to any voting rights or other rights as a stockholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Company to convert this Note into shares of Class A Common Stock, and no
enumeration herein of the rights or privileges of the holder of this Note, shall
give rise to any liability to such holder as a stockholder of the Company.
8. Definitions. As used in this Note, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
12
<PAGE>
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.
"Capital Lease Obligations" means, as to any Person, any obligation of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligation is required to be classified and accounted
for as a capital lease on a balance sheet of such Person under GAAP and, for the
purposes of this Note, the amount of any such obligation at any time shall be
the capitalized amount thereof at such time determined in accordance with GAAP
consistently applied.
"Capital Stock" of any Person means any and all shares, interests,
-------------
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
common stock and preferred stock and any rights, warrants or options to purchase
such Person's capital stock.
"Class A Common Stock" has the meaning ascribed to such term in the
--------------------
first paragraph of this Note.
"Class B Common Stock" means the Company's Class B Common Stock, no
--------------------
par value.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Company's Class A Common Stock and Class B
------------
Common Stock.
"Company Stock" shall mean collectively the Common Stock and any class
-------------
of common stock of the Company authorized after the date of this Note, or any
other class or series of stock resulting from successive changes or
reclassifications of such Common Stock.
"Contingent Obligation" means, as to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "primary
-------
obligation") of another Person (with respect to a given primary obligation, the
- ----------
"primary obligor"), whether or not contingent, (a) to purchase, repurchase or
---------------
otherwise acquire any such primary obligation or any property constituting
direct or indirect
13
<PAGE>
security therefor, or (b) to advance or provide funds (i) for the payment or
discharge of any such primary obligation, or (ii) to maintain working capital or
equity capital of the primary obligor in respect of any such primary obligation
or otherwise to maintain the net worth or solvency or any balance sheet item,
level of income or financial condition of such primary obligor, or (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
in respect thereof to make payment of such primary obligation, or (d) otherwise
to assure or hold harmless the owner of any such primary obligation against loss
or failure or inability to perform in respect thereof. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof.
"Conversion Date" has the meaning ascribed to such term in Section
---------------
7.1(d).
"Conversion Notice" has the meaning ascribed to such term in
-----------------
Section 7.1(a).
"Conversion Price" has the meaning ascribed to such term in the first
----------------
paragraph of this Note.
"Event of Default" has the meaning assigned such term in Section 5(a).
----------------
"EBITDA" shall mean, with respect to the Company and its Subsidiaries
------
on a consolidated basis for any period, the sum of (a) Net Income for such
period, (b) Interest Expense for such period, (c) Federal, state and local
income and franchise taxes deducted from revenue in determining such Net Income,
(d) depreciation and amortization deducted from revenue in determining such Net
Income (including any effect from the capitalization, amortization and write-off
of implementation costs) and (e) all non-cash expenses which reduce Net Income,
less (f) interest income and all non-cash items which increase Net Income. For
purposes of calculating (e) and (f) above, all items that would not be
considered operating items in the ordinary course of business or would result in
changes in long-term asset or liability accounts shall be excluded.
"GAAP" means generally accepted United States accounting principles in
----
effect from time to time.
14
<PAGE>
"Indebtedness" means, as to any Person, (a) all obligations of such
------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any lien (other than
liens in favor of lessors under leases other than leases included in clause
(f)) on any property or asset owned or held by such Person regardless of whether
the indebtedness secured thereby shall have been assumed by such Person or is
non-recourse to the credit of such Person and (h) all Contingent Obligations of
such Person.
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Capital Stock pursuant to a registration
statement on Form S-1 or otherwise under the Securities Act.
"Interest Expense" shall mean, with respect to the Company and its
----------------
Subsidiaries on a consolidated basis for any period, the sum of (a) gross
interest expense of the Company and its Subsidiaries for such period in
accordance with GAAP consistently applied, including (i) the amortization of
debt discounts, (ii) the amortization of all fees payable in connection with the
incurrence of Indebtedness to the extent included in interest expense and
(iii) the portion of any payments or accruals with respect to Capital Lease
Obligations allocable to interest expense, and (b) any other capitalized
interest of the Company and its Subsidiaries determined on a consolidated basis
in accordance with GAAP.
"IPO Priority Payments" has the meaning assigned such term in Section
---------------------
3(a).
"Maturity Date" has the meaning assigned to such term in the first
-------------
paragraph of this Note.
15
<PAGE>
"Net Cash Proceeds" shall mean, with respect to any Initial Public
-----------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) relating to such Initial Public Offering.
"Net Income" shall mean for any period and prior to accounting for the
----------
payment of any dividends on the Series A Preferred Stock, (a) the net income
(loss) of the Company and its Subsidiaries, determined on a consolidated basis
in accordance with GAAP, minus (b) the aggregate for such period of, without
-----
duplication, (i) the net income (loss) of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition,
determined in accordance with GAAP, and (ii) any other items that are treated as
expenses under GAAP, but excluding from the definition of Net Income any
extraordinary or non-recurring charges, expenses, gains or losses, all computed
in accordance with GAAP.
"Outstanding Shares" shall mean all shares of Class A Common Stock
------------------
issued and outstanding immediately following the closing of a Qualified Public
Offering. For the purposes of any computation of the amount of Outstanding
Shares, all shares of Series A Preferred Stock and Class B Common Stock shall
be deemed to be converted into the maximum number of shares of Class A Common
Stock into which such shares of Series A Preferred Stock and Class B Common
Stock were then convertible as provided in the Amended and Restated Articles of
Incorporation.
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
governmental authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Net Cash Proceeds to the Company in excess of $30,000,000.00 and in
respect of which the price per share of Common Stock sold in such Qualified
Public Offering multiplied by the number of Outstanding Shares is at least
$250,000,000.00.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
16
<PAGE>
"Senior Default" has the meaning assigned such term in Section 6(a).
--------------
"Senior Indebtedness" has the meaning assigned such term in
-------------------
Section 6(a).
"Senior Subordinated Notes" means the Company's Senior Subordinated
-------------------------
Promissory Notes, dated the date hereof, in aggregate principal amount of
$10,000,000.00.
"Subordinated Note and Stock Purchase Agreement" means the
----------------------------------------------
Subordinated Note and Stock Purchase Agreement, dated as of the date hereof,
between the Company and certain other parties thereto pursuant to which, among
other things, the Company issued the Senior Subordinated Notes.
"Subsidiary" means, with respect to any Person, a corporation or other
----------
entity of which 50% or more of the voting power of the voting equity securities
or equity interests is owned, directly or indirectly, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in
this Note shall refer to a Subsidiary or Subsidiaries of the Company.
"Trigger Event" shall mean that (i) the Purchaser's employment with
-------------
the Company shall be terminated for any reason, or (ii) at the end of any fiscal
year ending prior to a Qualified Public Offering, either the revenue or the
EBITDA of the Company and its Subsidiaries on a consolidated basis for such
fiscal year shall fall below the revenue or EBITDA amount (as the case may be)
set forth below with respect to such fiscal year (determined on the basis of the
audited consolidated financial statements of the Company and its Subsidiaries
for such fiscal year):
17
<PAGE>
Fiscal year
ended December 31: Revenue: EBITDA:
----------------- ------- ------
1995 $103,288,000.00 $ 3,741,000.00
1996 $180,234,000.00 $11,407,000.00
1997 $198,257,000.00 $12,548,000.00
1998 $218,083,000.00 $13,802,000.00
1999 $239,891,000.00 $15,183,000.00
2000 $263,880,000.00 $16,701,000.00
2001 $290,269,000.00 $18,371,000.00
9. Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in the manner specified in Section 16
of the Share Redemption Agreement.
10. Successors and Assigns. This Note shall inure to the benefit of
----------------------
and be binding upon the successors and permitted assigns of the parties hereto.
The holder of this Note may not assign any of its rights under this Note except
that, subject to applicable securities laws, the holder of this Note may assign
this Note to a member of such holder's immediate family, which shall include her
or his ancestors, spouse, siblings, descendants or spouses (or surviving
spouses) of descendants ("Family Members"), or a trust, corporation, partnership
--------------
or other entity, all of the beneficial interests in which shall be held by such
holder or one or more Family Members of such holder; provided, however, that
-------- -------
during the period any such trust, corporation, partnership or other entity holds
this Note, no Person (other than (i) such holder, (ii) a shareholder in such
holder or other person having an ownership interest in such other entity which
is a holder, (iii) any beneficiary of a trust which is a holder or any Family
Members of a beneficiary of a trust which is a stockholder, (iv) any trust all
of the beneficial interests in which shall be held by Family Members of a
beneficiary of a trust which is a holder or (v) one or more Family Members of
such holder) may be or become beneficiaries, stockholders or limited or general
partners or owners thereof. The Company may not assign any of its obligations
under this Note without the written consent of the holder of this Note.
18
<PAGE>
11. Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the holder
of this Note in exercising any right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the holder of this Note at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Note, any waiver of any provision of this Note, and any
consent to any departure by the Company from the terms of any provision of this
Note, shall be effective (i) only if it is made or given in writing and signed
by the Company and Persons holding at least a majority of the aggregate
outstanding principal amount of this Note and the other Notes issued pursuant to
the Share Redemption Agreement, and (ii) only in the specific instance and for
the specific purpose for which made or given. Except where notice is
specifically required by this Note, no notice to or demand on the Company in any
case shall entitle the Company to any other or further notice or demand in
similar or other circumstances.
(c) Notwithstanding the foregoing, without the written consent
of the holder of this Note, an amendment, supplement or waiver may not:
(i) reduce the percentage of Persons necessary to consent
to an amendment, supplement or waiver pursuant to this Section 11;
(ii) reduce the rate or extend the time for payment of
interest on this Note;
(iii) reduce the principal of, extend the fixed maturity of,
or alter the ranking of, this Note;
(iv) make this Note payable in money other than that stated
in this Note; or
(v) alter or amend Section 3 of this Note.
12. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of Illinois, without regard to the
principles of conflicts of law of such State.
19
<PAGE>
13. Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
14. Entire Agreement. This Note and the Share Redemption Agreement
----------------
are intended by the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Note and the Share Redemption Agreement supersede all prior agreements and
understandings between the parties with respect to such subject matter.
MEDICON, INC.
By /s/ Lawrence Rubenstein
----------------------------------
Name: Lawrence Rubenstein
Title: SECRETARY
20
Exhibit 10.8
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS
MEDICON, INC.
JUNIOR SUBORDINATED PROMISSORY NOTE
DUE NOVEMBER 3, 2002
$2,500,000.00 New York, New York
November 3, 1994
FOR VALUE RECEIVED, the undersigned, MEDICON, INC., an Illinois
corporation (the "Company"), promises to pay to the order of Lawrence Rubinstein
-------
(the "Purchaser"), the principal sum of Two Million Five Hundred Thousand
---------
dollars ($2,500,000.00) on November 3, 2002 (the "Maturity Date"), with interest
-------------
thereon from time to time as provided herein. The Company is entitled to
convert this Junior Subordinated Note (this "Note"), in whole or in part,
----
subject to the terms and conditions hereinafter set forth, into fully paid and
nonassessable shares of the Company's Class A Common Stock, no par value (the
"Class A Common Stock") at a conversion price of $20.971 per share subject to
--------------------
adjustment as provided herein (the "Conversion Price").
----------------
1. Purchase Agreement. This Note is issued pursuant to the
------------------
Redemption Agreement, dated as of the date hereof, between the Company, the
Purchaser and certain other parties thereto (the "Share Redemption Agreement").
--------------------------
Capitalized terms used herein and not otherwise defined are used herein with the
meanings ascribed to such terms in Section 8 hereof.
2. Interest. The Company promises to pay interest on the principal
--------
amount of this Note at the rate of 10.0% per annum. The Company shall pay
accrued interest
<PAGE>
quarterly on each March 31, June 30, September 30 and December 31 of each year
or, if any such date shall not be a Business Day, on the next succeeding
Business Day to occur after such date (each date upon which interest shall be so
payable, an "Interest Payment Date"), beginning on December 31, 1994. Interest
---------------------
on this Note shall be paid by wire transfer of immediately available funds to an
account designated by the holder of this Note. Interest on this Note shall
accrue from the date of issuance until repayment of the principal and payment of
all accrued interest in full. Interest shall be computed on the basis of a 360-
day year of twelve 30-day months.
3. Mandatory Prepayment.
--------------------
(a) Initial Public Offerings. Upon the consummation of an
------------------------
Initial Public Offering by the Company with Net Cash Proceeds to the Company in
excess of $30,000,000.00 and after payment in full of the Senior Subordinated
Notes and any other Senior Indebtedness that becomes due and payable as a result
of or in connection with such Initial Public Offering (collectively the "IPO
---
Priority Payments"), the Company shall prepay this Note (together with interest
- -----------------
accrued thereon), pro rata with the prepayment of all other Notes issued
pursuant to the Share Redemption Agreement, in an amount equal to the lesser of
(i) the excess of (A) the Net Cash Proceeds received from such Initial Public
Offering over (B) the amount of the IPO Priority Payments, or (ii) the outstand-
ing principal amount of this Note (together with interest accrued thereon),
within 5 Business Days after the Company has both received the proceeds of such
Initial Public Offering and paid in full all IPO Priority Payments.
(b) Notice. The Company shall give written notice to the holder
------
of this Note of any mandatory prepayment pursuant to this Section 3 at least 3
Business Days prior to the date of such prepayment. Such notice shall be given
in the manner specified in Section 9 of this Note.
4. Optional Prepayment.
-------------------
(a) Upon notice given to the holder of this Note as provided in
subsection (b) of this Section 4 and after payment in full of the Senior
Subordinated Notes, the Company, at its option, may prepay all or any portion of
this Note, pro rata with the prepayment of all other Notes issued pursuant to
the Share Redemption Agreement, at any time, by paying an amount equal to the
outstanding principal amount of this Note, or the portion of this Note called
for prepayment, together with interest accrued and unpaid thereon to the date
fixed for prepayment, without penalty or premium.
2
<PAGE>
(b) The Company may give written notice of prepayment of this
Note or any portion thereof not less than 10 nor more than 60 days prior to the
date fixed for such prepayment. Such notice of prepayment shall be given in the
manner specified in Section 9 of this Note. Upon notice of prepayment being
given by the Company, the Company covenants and agrees that it shall prepay, on
the date therein fixed for prepayment, this Note or the portion hereof so called
for prepayment, at the outstanding principal amount thereof or the portion
thereof so called for prepayment together with interest accrued and unpaid
thereon to the date fixed for such prepayment.
(c) All optional prepayments under this Section 4 shall include
payment of accrued interest on the principal amount so prepaid and shall be
applied first to payment of accrued interest, and thereafter to principal.
5. Defaults and Remedies.
---------------------
(a) Events of Default. An "Event of Default" shall occur if:
-----------------
(i) the Company shall default in the payment of the
principal of this Note, when and as the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or by acceleration or
otherwise and such default shall continue for a period of ten days; or
(ii) the Company shall default in the payment of any
installment of interest on this Note according to its terms, when and as the
same shall become due and payable and such default shall continue for a period
of 20 days; or
(iii) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(a) relief in respect of the Company, or of a substantial part of its property
or assets, under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (b) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Company, or for
a substantial part of its property or assets, or (c) the winding up or
liquidation of the Company; and such proceeding or petition shall continue
undismissed for 60 days, or an order or decree approving or ordering any of the
foregoing shall be entered; or
(iv) the Company shall (a) voluntarily commence any
proceeding or file any petition seeking relief
3
<PAGE>
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (b) consent to the institution of or the entry of an order for
relief against it, or fail to contest in a timely and appropriate manner, any
proceeding or the filing of any petition described in paragraph (iii) of this
Section 5(a), (c) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Company, or for a substantial part of its property or assets, (d) file an answer
admitting the material allegations of a petition filed against it in any such
proceeding, (e) make a general assignment for the benefit of creditors,
(f) become unable, admit in writing its inability or fail generally to pay its
debts as they become due or (g) take any action for the purpose of effecting any
of the foregoing.
(b) Acceleration. If an Event of Default occurs under
------------
clauses (a)(iii) or (iv) of this Section 5, then the outstanding principal of
and all accrued interest on this Note shall automatically become immediately due
and payable, without presentment, demand, protest or notice of any kind, all of
which are expressly waived. If any other Event of Default occurs and is
continuing, the holders of at least a majority of the aggregate outstanding
principal amount of this Note and the other Notes issued pursuant to the Share
Redemption Agreement, by written notice to the Company, may declare the
principal of and accrued interest on the Notes issued pursuant to the Share
Redemption Agreement to be due and payable immediately. Upon such declaration,
such principal and interest shall become immediately due and payable. The
holders of a majority of the aggregate outstanding principal amount of this Note
and the other Notes issued pursuant to the Share Redemption Agreement may
rescind an acceleration and its consequences if all existing Events of Default
have been cured or waived, except nonpayment of principal or interest that has
become due solely because of the acceleration, and if the rescission would not
conflict with any judgment or decree. Any notice or rescission shall be given
in the manner specified in Section 9 hereof.
6. Subordination. This Note and the other Notes issued pursuant to
-------------
the Share Redemption Agreement shall at all times be wholly subordinate and
junior in right of payment to all Senior Indebtedness to the extent and in the
manner provided in this Section 6.
(a) As used in this Section 6, the following terms shall have
the following meanings:
4
<PAGE>
"Senior Default" shall mean (i) an Event of Default as defined in and
--------------
pursuant to Article 7 of the Senior Subordinated Notes and (ii) any default in
the payment of principal of or interest on any Senior Indebtedness or default in
the observance or performance of any other agreement or condition relating to
any such Senior Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition, is to
cause, or to permit the holder or holders of such Senior Indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause, with the giving
of notice if required, such Senior Indebtedness to become due prior to its
stated maturity.
"Senior Indebtedness" shall mean (i) the principal of and interest on
-------------------
(including without limitation any interest that accrues after the commencement
of any case, proceeding or other legal action relating to the bankruptcy,
insolvency or reorganization of the Company whether or not such interest
constitutes an allowed claim) the Senior Subordinated Notes, (ii) any other
monetary obligation of the Company arising out of or in connection with the
Senior Subordinated Notes or the Subordinated Note and Stock Purchase Agreement
and (iii) any indebtedness for borrowed money of the Company, whether
outstanding on the date hereof or thereafter created, incurred, assumed or
guaranteed by the Company, unless the instrument creating or evidencing the same
expressly provides that such Indebtedness is on a parity with or subordinated in
right of payment to the Subordinated Indebtedness.
"Subordinated Indebtedness" shall mean (i) the principal of and
-------------------------
interest on this Note and the other Notes issued pursuant to the Share
Redemption Agreement; and (ii) any other monetary obligations of the Company
arising out of or in connection with the Share Redemption Agreement or such
Notes.
(b) General. Upon the maturity of any Senior Indebtedness by
-------
lapse of time, acceleration, required prepayment or otherwise, all Senior
Indebtedness then so due and payable shall first be paid or provided for in full
in cash, before any payment is made on account of the Subordinated Indebtedness
then so due and payable or to acquire this Note or any of the other Notes issued
pursuant to the Share Redemption Agreement.
(c) Limitation on Payment. Unless and until (i) all Senior
---------------------
Defaults shall have been remedied or effectively waived or shall have ceased to
exist or (ii) the Senior Indebtedness in respect of which such Senior Defaults
5
<PAGE>
shall have occurred shall have been paid in full or duly provided for in a
manner satisfactory to the holders of the Senior Indebtedness, as the case may
be, no direct or indirect payment (in cash, property, securities or by set-off
or otherwise) shall be made on account of the principal of or interest on this
Note or the other Notes issued pursuant to the Share Redemption Agreement or as
a sinking fund for such Notes or in respect of any redemption, retirement,
purchase or other acquisition of such Notes.
(d) Limitation on Remedies. As long as any Senior Indebtedness
----------------------
remains outstanding, the holder of this Note shall not declare or join in any
declaration of this Note to be due and payable by reason of any Event of Default
or otherwise take any action against the Company (including, without limitation,
commencing any legal action against the Company or filing or joining in the
filing of any insolvency petition against the Company).
(e) Subordination Upon Certain Events. Upon the occurrence of
---------------------------------
any Event of Default under Sections 5(a)(iii) or (iv) of this Note:
(i) Upon any payment or distribution of assets of the
Company to creditors of the Company, holders of Senior Indebtedness shall be
entitled to receive payment in full in cash before the holders of Subordinated
Indebtedness shall be entitled to receive any payment in respect of the
Subordinated Indebtedness.
(ii) Until all Senior Indebtedness is paid in full in cash,
any distribution to which the holders of Subordinated Indebtedness would be
entitled but for this Section 6 shall be made to holders of Senior Indebtedness,
as their interests may appear.
(iii) For purposes of this Section 6, a distribution may
consist of cash, securities or other property, by set-off or otherwise.
(f) Payments and Distributions Received. If the holders of the
-----------------------------------
Subordinated Indebtedness shall have received any payment from or distribution
of assets of the Company in respect of the Subordinated Indebtedness in
contravention of the terms of this Section 6 before all Senior Indebtedness is
paid in full in cash, then and in such event such payment or distribution shall
be received and held in trust for and shall be paid over or delivered to the
holders of Senior Indebtedness (or their authorized agent) to the extent
necessary to pay all such Senior Indebtedness in full in cash.
6
<PAGE>
(g) Subrogation. After all amounts payable under or in respect
-----------
of Senior Indebtedness are paid in full in cash, the holders of the Subordinated
Indebtedness shall be subrogated to the rights of holders of Senior Indebtedness
to receive payments or distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the holders of the Subordinated
Indebtedness have been applied to the payment of Senior Indebtedness. A
distribution made under this Section 6 to a holder of Senior Indebtedness which
otherwise would have been made to the holders of the Subordinated Indebtedness
is not, as between the Company and the holders of the Subordinated Indebtedness,
a payment by the Company on Senior Indebtedness.
(h) Relative Rights. This Section defines the relative rights
---------------
of the holders of the Subordinated Indebtedness and the holders of Senior
Indebtedness. Nothing in this Section shall: (i) impair, as between the
Company and the holders of the Subordinated Indebtedness, the obligation of the
Company, which is absolute and unconditional, to pay principal of and interest
on Subordinated Indebtedness in accordance with its terms; or (ii) effect the
relative rights of holders of Subordinated Indebtedness and creditors of the
Company other than holders of Senior Indebtedness.
(i) Subordination May Not Be Impaired by the Company. No right
------------------------------------------------
of any holder of any Senior Indebtedness to enforce the subordination of the
Subordinated Indebtedness shall be impaired by any failure by the Company to
comply with this Note.
(j) Payments. A payment with respect to principal of or
--------
interest on the Subordinated Indebtedness shall include, without limitation,
payment of principal of, and interest on the Subordinated Indebtedness, any
depositing of funds for the defeasance of the Subordinated Indebtedness and any
payment on account of mandatory prepayment or optional prepayment provisions.
(k) Subordination Not Impaired; Benefit of Subordination. The
----------------------------------------------------
holder of this Note agrees and consents that without notice to or assent by such
holder, and without affecting the liabilities and obligations of the Company and
such holder and the rights and benefits of the holders of the Senior
Indebtedness set forth herein:
(i) the obligations and liabilities of the Company and
any other party or parties for or upon the Senior Indebtedness may, from time to
time, be increased, renewed, refinanced, extended, modified, amended,
7
<PAGE>
restated, compromised, supplemented, terminated, waived or released;
(ii) the holders of Senior Indebtedness, and any
representative or representatives acting on behalf thereof, may exercise or
refrain from exercising any right, remedy or power granted by or in connection
with any agreements relating to the Senior Indebtedness; and
(iii) any balance or balances of funds with any holder of
Senior Indebtedness at any time outstanding to the credit of the Company may,
from time to time, in whole or in part, be surrendered or released;
all as the holders of the Senior Indebtedness, and any representative or
representatives acting on behalf thereof, may deem advisable, and all without
impairing, abridging, diminishing, releasing or affecting the subordination of
the Subordinated Indebtedness to the Senior Indebtedness provided for herein.
(l) Modification of Subordination Provisions. The subordination
----------------------------------------
provisions of this Note are for the benefit of the holders from time to time of
Senior Indebtedness and, so long as any Senior Indebtedness remains unpaid,
these provisions may not be modified, rescinded or canceled in whole or in part
without the prior written consent thereto of the holders of a majority of the
aggregate principal amount outstanding of Senior Subordinated Notes and the
holders of a majority of the aggregate principal amount outstanding of any other
Senior Indebtedness which the Company may from time to time designate as
entitled to the benefits of this Section 5(l).
(m) Miscellaneous.
-------------
(i) To the extent permitted by applicable law, the holder
of this Note and the Company hereby waive (1) notice of acceptance hereof by the
holders of the Senior Indebtedness and (2) all diligence in the collection or
protection of or realization upon the Senior Indebtedness.
(ii) The Company and the holder of this Note hereby
expressly agree that the holders of Senior Indebtedness may enforce any and all
rights derived herein by suit, either in equity or law, for specific performance
of any agreement contained in these subordination provisions or for judgment at
law and any other relief whatsoever appropriate to such action or procedure.
8
<PAGE>
(iii) The holder of this Note acknowledges and agrees that
the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of Senior Indebtedness, whether
such Senior Indebtedness was created or acquired before or after the issuance of
this Note, and each holder of Senior Indebtedness shall be deemed conclusively
to have relied upon such subordination provisions in acquiring and continuing to
hold the Senior Indebtedness held by such holder, as the case may be.
7. Conversion.
----------
7.1 Company Right to Require Conversion.
-----------------------------------
(a) Conversion. At any time or from time to time after the
----------
occurrence of a Trigger Event and upon notice given to the holder of this Note
as provided below, the Company may, subject to the terms and conditions of this
Section 7, convert this Note, in whole or in part, into fully paid and
nonassessable shares of Class A Common Stock at the Conversion Price. The
number of shares of Class A Common Stock to be issued upon conversion of this
Note shall be equal to the quotient of (x) the principal amount of this Note
then being converted and (y) the Conversion Price. The Company may convert this
Note (or a portion of the outstanding principal amount of this Note) by giving
written notice (a "Conversion Notice") of such mandatory conversion to the
-----------------
holder of this Note, at least five Business Days prior to the date fixed for
such conversion. Such notice shall be given in the manner specified in Section
9 of this Note.
(b) Payment of Interest. When all or any portion of this
-------------------
Note is converted, all interest accrued and unpaid (whether or not currently
payable) to the date of such conversion on the portion of this Note converted
shall be immediately due and payable in cash, which payment shall accompany the
shares of Class A Common Stock issued upon such conversion.
(c) Delivery of Shares and New Notes. As soon as
--------------------------------
practicable after conversion of this Note (or a portion of the outstanding
principal amount of this Note) pursuant to Section 7.1(a), the Company shall
promptly (x) issue and deliver to the holder of this Note a certificate or
certificates for the number of shares of Class A Common Stock set forth in the
Conversion Notice, in such name or names as may be designated by such holder,
along with a check for the amount of cash to be paid in accordance with
Section 7.1(b) in respect of accrued and unpaid interest, if any, on the portion
of this Note then being
9
<PAGE>
converted, against delivery to the Company of this Note accompanied by proper
instruments of transfer and (y) cancel this Note upon surrender hereof and, if
this Note is being converted in part only, execute and deliver a new Note in
replacement of the Note surrendered. The new Note issued by the Company
pursuant to clause (y) of the preceding sentence shall be the same as the Note
submitted for conversion except that (1) it will be dated the date that the Note
submitted for conversion is cancelled and (2) it will be issued in the principal
amount of the unconverted portion of the Note submitted for conversion.
(d) When Conversion Effective. The conversion of this Note
-------------------------
shall be deemed to have been effective on the date fixed by the Company for such
conversion in the Conversion Notice (the "Conversion Date"), whether or not this
---------------
Note is actually surrendered for conversion, and the Person in whose name any
certificate for shares of Class A Common Stock shall be issuable upon such
conversion, as provided in Section 7.1(c), shall be deemed to be the record
holder of such shares of Class A Common Stock for all purposes on the Conversion
Date. On and after the Conversion Date, all rights of the holder of this Note
with respect to the portion of this Note converted into shares of Class A Common
Stock, shall cease and terminate, except the right to receive a certificate for
shares of Class A Common Stock with respect to the portion of this Note so
converted and the right to receive cash in accordance with Section 7.1(b) in
respect of accrued and unpaid interest, if any, on the portion of this Note so
converted; and the portion of this Note so converted shall no longer be deemed
to be outstanding, whether or not this Note has been surrendered to the Company
for conversion.
7.2 Adjustment of Conversion Price. If the Company shall, at
------------------------------
any time or from time to time, (a) declare a dividend on the Company Stock
payable in shares of its capital stock (including Company Stock), (ii) subdivide
the outstanding Company Stock, (iii) combine the outstanding Company Stock into
a smaller number of shares, or (iv) issue any shares of its capital stock in a
reclassification of the Company Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
corporation), then in each such case, the Conversion Price in effect at the time
of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification shall be adjusted to that price
which will permit the number of shares of Class A Common Stock into which this
Note may be converted to be increased or reduced in the same proportion as the
number of shares of Company Stock are increased or reduced in connection with
such dividend, subdivision,
10
<PAGE>
combination or reclassification. Any such adjustment shall become effective
immediately after the record date of such dividend or the effective date of such
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur. If a dividend is
declared and such dividend is not paid, the Conversion Price shall again be
adjusted to be the Conversion Price in effect immediately prior to such record
date.
7.3 De Minimis Adjustments. No adjustment in the Conversion
----------------------
Price shall be made if the amount of such adjustment would result in a change in
the Conversion Price per share of less than $.02, but in such case any adjust-
ment that would otherwise be required to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment,
which together with any adjustment so carried forward, would result in a change
in the Conversion Price of $.05 per share. If the Company shall, at any time or
from time to time, issue Company Stock by way of dividends on any stock of the
Company or subdivide or combine the outstanding shares of the Company Stock,
such amounts of $.02 and $.05 (as theretofore increased or decreased, if such
amounts shall have been adjusted in accordance with the provisions of this
clause) shall forthwith be proportionately increased in the case of a combina-
tion or decreased in the case of a subdivision or stock dividend so as appro-
priately to reflect the same. Notwithstanding the provisions of the first
sentence of this Section 7.3, any adjustment postponed pursuant to this
Section 7.3 shall be made no later than the earlier of (i) three years from the
date of the transaction that would, but for the provisions of the first sentence
of this Section 7.3, have required such adjustment, (ii) a Conversion Date or
(iii) the Maturity Date.
7.4 Reorganization, Reclassification, Merger and Sale of Assets.
-----------------------------------------------------------
If there occurs any capital reorganization or any reclassification of the
Company Stock, the consolidation or merger of the Company with or into another
Person (other than a merger or consolidation of the Company in which the Company
is the continuing corporation and which does not result in any reclassification
or change of outstanding shares of Company Stock) or the sale or conveyance of
all or substantially all of the assets of the Company to another Person, then
the holder of this Note will thereafter be entitled to receive, upon the
conversion of this Note in accordance with the terms hereof, the same kind and
amounts of securities (including shares of stock) or other assets, or both,
which were issuable or distributable to the holders of outstanding Company Stock
upon such reorganization, reclassification, consolidation, merger, sale or
conveyance, in respect of that number of shares of
11
<PAGE>
Class A Common Stock into which this Note might have been converted immediately
prior to such reorganization, reclassification, consolidation, merger, sale or
conveyance; and, in any such case, appropriate adjustments (as determined in
good faith by the Board of Directors of the Company) shall be made to assure
that the provisions hereof (including provisions with respect to changes in, and
other adjustments of, the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be practicable, in relation to any securities or other
assets thereafter deliverable upon conversion of this Note.
7.5 Certificate as to Adjustments. Whenever the Conversion
-----------------------------
Price or the securities or other property deliverable upon the conversion of
this Note shall be adjusted pursuant to the provisions hereof, the Company shall
promptly give written notice thereof to the holder of this Note, in the manner
specified in Section 9 of this Note, stating the adjusted Conversion Price and
the securities or other property deliverable upon conversion of this Note calcu-
lated to the nearest cent or the nearest one-hundredth of a share and setting
forth in reasonable detail the method of calculation and the facts requiring
such adjustment and upon which such calculation is based. Each adjustment shall
remain in effect until a subsequent adjustment is required.
7.6 Fractional Shares. Notwithstanding any other provision of
-----------------
this Note, the Company shall not be required to issue fractions of shares upon
conversion of this Note or to distribute certificates which evidence fractional
shares. In lieu of fractional shares, the Company may make payment to the
holder of this Note, at the time of conversion of this Note as herein provided,
of an amount in cash equal to such fraction multiplied by the Conversion Price.
7.7 No Rights or Liability as a Stockholder. This Note does not
---------------------------------------
entitle the holder hereof to any voting rights or other rights as a stockholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Company to convert this Note into shares of Class A Common Stock, and no
enumeration herein of the rights or privileges of the holder of this Note, shall
give rise to any liability to such holder as a stockholder of the Company.
8. Definitions. As used in this Note, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
12
<PAGE>
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.
"Capital Lease Obligations" means, as to any Person, any obligation of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligation is required to be classified and accounted
for as a capital lease on a balance sheet of such Person under GAAP and, for the
purposes of this Note, the amount of any such obligation at any time shall be
the capitalized amount thereof at such time determined in accordance with GAAP
consistently applied.
"Capital Stock" of any Person means any and all shares, interests,
-------------
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
common stock and preferred stock and any rights, warrants or options to purchase
such Person's capital stock.
"Class A Common Stock" has the meaning ascribed to such term in the
--------------------
first paragraph of this Note.
"Class B Common Stock" means the Company's Class B Common Stock, no
--------------------
par value.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Company's Class A Common Stock and Class B
------------
Common Stock.
"Company Stock" shall mean collectively the Common Stock and any class
-------------
of common stock of the Company authorized after the date of this Note, or any
other class or series of stock resulting from successive changes or
reclassifications of such Common Stock.
"Contingent Obligation" means, as to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "primary
-------
obligation") of another Person (with respect to a given primary obligation, the
- ----------
"primary obligor"), whether or not contingent, (a) to purchase, repurchase or
---------------
otherwise acquire any such primary obligation or any property constituting
direct or indirect
13
<PAGE>
security therefor, or (b) to advance or provide funds (i) for the payment or
discharge of any such primary obligation, or (ii) to maintain working capital or
equity capital of the primary obligor in respect of any such primary obligation
or otherwise to maintain the net worth or solvency or any balance sheet item,
level of income or financial condition of such primary obligor, or (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
in respect thereof to make payment of such primary obligation, or (d) otherwise
to assure or hold harmless the owner of any such primary obligation against loss
or failure or inability to perform in respect thereof. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof.
"Conversion Date" has the meaning ascribed to such term in Section
---------------
7.1(d).
"Conversion Notice" has the meaning ascribed to such term in
-----------------
Section 7.1(a).
"Conversion Price" has the meaning ascribed to such term in the first
----------------
paragraph of this Note.
"Event of Default" has the meaning assigned such term in Section 5(a).
----------------
"EBITDA" shall mean, with respect to the Company and its Subsidiaries
------
on a consolidated basis for any period, the sum of (a) Net Income for such
period, (b) Interest Expense for such period, (c) Federal, state and local
income and franchise taxes deducted from revenue in determining such Net Income,
(d) depreciation and amortization deducted from revenue in determining such Net
Income (including any effect from the capitalization, amortization and write-off
of implementation costs) and (e) all non-cash expenses which reduce Net Income,
less (f) interest income and all non-cash items which increase Net Income. For
purposes of calculating (e) and (f) above, all items that would not be
considered operating items in the ordinary course of business or would result in
changes in long-term asset or liability accounts shall be excluded.
"GAAP" means generally accepted United States accounting principles in
----
effect from time to time.
14
<PAGE>
"Indebtedness" means, as to any Person, (a) all obligations of such
------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any lien (other than
liens in favor of lessors under leases other than leases included in clause
(f)) on any property or asset owned or held by such Person regardless of whether
the indebtedness secured thereby shall have been assumed by such Person or is
non-recourse to the credit of such Person and (h) all Contingent Obligations of
such Person.
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Capital Stock pursuant to a registration
statement on Form S-1 or otherwise under the Securities Act.
"Interest Expense" shall mean, with respect to the Company and its
----------------
Subsidiaries on a consolidated basis for any period, the sum of (a) gross
interest expense of the Company and its Subsidiaries for such period in
accordance with GAAP consistently applied, including (i) the amortization of
debt discounts, (ii) the amortization of all fees payable in connection with the
incurrence of Indebtedness to the extent included in interest expense and
(iii) the portion of any payments or accruals with respect to Capital Lease
Obligations allocable to interest expense, and (b) any other capitalized
interest of the Company and its Subsidiaries determined on a consolidated basis
in accordance with GAAP.
"IPO Priority Payments" has the meaning assigned such term in Section
---------------------
3(a).
"Maturity Date" has the meaning assigned to such term in the first
-------------
paragraph of this Note.
15
<PAGE>
"Net Cash Proceeds" shall mean, with respect to any Initial Public
-----------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) relating to such Initial Public Offering.
"Net Income" shall mean for any period and prior to accounting for the
----------
payment of any dividends on the Series A Preferred Stock, (a) the net income
(loss) of the Company and its Subsidiaries, determined on a consolidated basis
in accordance with GAAP, minus (b) the aggregate for such period of, without
-----
duplication, (i) the net income (loss) of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition,
determined in accordance with GAAP, and (ii) any other items that are treated as
expenses under GAAP, but excluding from the definition of Net Income any
extraordinary or non-recurring charges, expenses, gains or losses, all computed
in accordance with GAAP.
"Outstanding Shares" shall mean all shares of Class A Common Stock
------------------
issued and outstanding immediately following the closing of a Qualified Public
Offering. For the purposes of any computation of the amount of Outstanding
Shares, all shares of Series A Preferred Stock and Class B Common Stock shall
be deemed to be converted into the maximum number of shares of Class A Common
Stock into which such shares of Series A Preferred Stock and Class B Common
Stock were then convertible as provided in the Amended and Restated Articles of
Incorporation.
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
governmental authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Net Cash Proceeds to the Company in excess of $30,000,000.00 and in
respect of which the price per share of Common Stock sold in such Qualified
Public Offering multiplied by the number of Outstanding Shares is at least
$250,000,000.00.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
16
<PAGE>
"Senior Default" has the meaning assigned such term in Section 6(a).
--------------
"Senior Indebtedness" has the meaning assigned such term in
-------------------
Section 6(a).
"Senior Subordinated Notes" means the Company's Senior Subordinated
-------------------------
Promissory Notes, dated the date hereof, in aggregate principal amount of
$10,000,000.00.
"Subordinated Note and Stock Purchase Agreement" means the
----------------------------------------------
Subordinated Note and Stock Purchase Agreement, dated as of the date hereof,
between the Company and certain other parties thereto pursuant to which, among
other things, the Company issued the Senior Subordinated Notes.
"Subsidiary" means, with respect to any Person, a corporation or other
----------
entity of which 50% or more of the voting power of the voting equity securities
or equity interests is owned, directly or indirectly, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in
this Note shall refer to a Subsidiary or Subsidiaries of the Company.
"Trigger Event" shall mean that (i) the Purchaser's employment with
-------------
the Company shall be terminated for any reason, or (ii) at the end of any fiscal
year ending prior to a Qualified Public Offering, either the revenue or the
EBITDA of the Company and its Subsidiaries on a consolidated basis for such
fiscal year shall fall below the revenue or EBITDA amount (as the case may be)
set forth below with respect to such fiscal year (determined on the basis of the
audited consolidated financial statements of the Company and its Subsidiaries
for such fiscal year):
17
<PAGE>
Fiscal year
ended December 31: Revenue: EBITDA:
----------------- ------- ------
1995 $103,288,000.00 $ 3,741,000.00
1996 $180,234,000.00 $11,407,000.00
1997 $198,257,000.00 $12,548,000.00
1998 $218,083,000.00 $13,802,000.00
1999 $239,891,000.00 $15,183,000.00
2000 $263,880,000.00 $16,701,000.00
2001 $290,269,000.00 $18,371,000.00
9. Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in the manner specified in Section 16
of the Share Redemption Agreement.
10. Successors and Assigns. This Note shall inure to the benefit of
----------------------
and be binding upon the successors and permitted assigns of the parties hereto.
The holder of this Note may not assign any of its rights under this Note except
that, subject to applicable securities laws, the holder of this Note may assign
this Note to a member of such holder's immediate family, which shall include her
or his ancestors, spouse, siblings, descendants or spouses (or surviving
spouses) of descendants ("Family Members"), or a trust, corporation, partnership
--------------
or other entity, all of the beneficial interests in which shall be held by such
holder or one or more Family Members of such holder; provided, however, that
-------- -------
during the period any such trust, corporation, partnership or other entity holds
this Note, no Person (other than (i) such holder, (ii) a shareholder in such
holder or other person having an ownership interest in such other entity which
is a holder, (iii) any beneficiary of a trust which is a holder or any Family
Members of a beneficiary of a trust which is a stockholder, (iv) any trust all
of the beneficial interests in which shall be held by Family Members of a
beneficiary of a trust which is a holder or (v) one or more Family Members of
such holder) may be or become beneficiaries, stockholders or limited or general
partners or owners thereof. The Company may not assign any of its obligations
under this Note without the written consent of the holder of this Note.
18
<PAGE>
11. Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the holder
of this Note in exercising any right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the holder of this Note at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Note, any waiver of any provision of this Note, and any
consent to any departure by the Company from the terms of any provision of this
Note, shall be effective (i) only if it is made or given in writing and signed
by the Company and Persons holding at least a majority of the aggregate
outstanding principal amount of this Note and the other Notes issued pursuant to
the Share Redemption Agreement, and (ii) only in the specific instance and for
the specific purpose for which made or given. Except where notice is
specifically required by this Note, no notice to or demand on the Company in any
case shall entitle the Company to any other or further notice or demand in
similar or other circumstances.
(c) Notwithstanding the foregoing, without the written consent
of the holder of this Note, an amendment, supplement or waiver may not:
(i) reduce the percentage of Persons necessary to consent
to an amendment, supplement or waiver pursuant to this Section 11;
(ii) reduce the rate or extend the time for payment of
interest on this Note;
(iii) reduce the principal of, extend the fixed maturity of,
or alter the ranking of, this Note;
(iv) make this Note payable in money other than that stated
in this Note; or
(v) alter or amend Section 3 of this Note.
12. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of Illinois, without regard to the
principles of conflicts of law of such State.
19
<PAGE>
13. Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
14. Entire Agreement. This Note and the Share Redemption Agreement
----------------
are intended by the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Note and the Share Redemption Agreement supersede all prior agreements and
understandings between the parties with respect to such subject matter.
MEDICON, INC.
By /s/ John E. Adams
-----------------------------
Name: John E. Adams
Title: EVP & COO
20
Exhibit 10.9
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS
MEDICON, INC.
JUNIOR SUBORDINATED PROMISSORY NOTE
DUE NOVEMBER 3, 2002
$574,059.00 New York, New York
November 3, 1994
FOR VALUE RECEIVED, the undersigned, MEDICON, INC., an Illinois
corporation (the "Company"), promises to pay to the order of Alan Spiro (the
-------
"Purchaser"), the principal sum of Five Hundred Seventy Four Thousand Fifty Nine
---------
dollars ($574,059.00) on November 3, 2002 (the "Maturity Date"), with interest
-------------
thereon from time to time as provided herein. The Company is entitled to
convert this Junior Subordinated Note (this "Note"), in whole or in part,
----
subject to the terms and conditions hereinafter set forth, into fully paid and
nonassessable shares of the Company's Class A Common Stock, no par value (the
"Class A Common Stock") at a conversion price of $20.971 per share subject to
--------------------
adjustment as provided herein (the "Conversion Price").
----------------
1. Purchase Agreement. This Note is issued pursuant to the
------------------
Redemption Agreement, dated as of the date hereof, between the Company, the
Purchaser and certain other parties thereto (the "Share Redemption Agreement").
--------------------------
Capitalized terms used herein and not otherwise defined are used herein with the
meanings ascribed to such terms in Section 8 hereof.
2. Interest. The Company promises to pay interest on the principal
--------
amount of this Note at the rate of 10.0% per annum. The Company shall pay
accrued interest
<PAGE>
quarterly on each March 31, June 30, September 30 and December 31 of each year
or, if any such date shall not be a Business Day, on the next succeeding
Business Day to occur after such date (each date upon which interest shall be so
payable, an "Interest Payment Date"), beginning on December 31, 1994. Interest
---------------------
on this Note shall be paid by wire transfer of immediately available funds to an
account designated by the holder of this Note. Interest on this Note shall
accrue from the date of issuance until repayment of the principal and payment of
all accrued interest in full. Interest shall be computed on the basis of a 360-
day year of twelve 30-day months.
3. Mandatory Prepayment.
--------------------
(a) Initial Public Offerings. Upon the consummation of an
------------------------
Initial Public Offering by the Company with Net Cash Proceeds to the Company in
excess of $30,000,000.00 and after payment in full of the Senior Subordinated
Notes and any other Senior Indebtedness that becomes due and payable as a result
of or in connection with such Initial Public Offering (collectively the "IPO
---
Priority Payments"), the Company shall prepay this Note (together with interest
- -----------------
accrued thereon), pro rata with the prepayment of all other Notes issued
pursuant to the Share Redemption Agreement, in an amount equal to the lesser of
(i) the excess of (A) the Net Cash Proceeds received from such Initial Public
Offering over (B) the amount of the IPO Priority Payments, or (ii) the outstand-
ing principal amount of this Note (together with interest accrued thereon),
within 5 Business Days after the Company has both received the proceeds of such
Initial Public Offering and paid in full all IPO Priority Payments.
(b) Notice. The Company shall give written notice to the holder
------
of this Note of any mandatory prepayment pursuant to this Section 3 at least 3
Business Days prior to the date of such prepayment. Such notice shall be given
in the manner specified in Section 9 of this Note.
4. Optional Prepayment.
-------------------
(a) Upon notice given to the holder of this Note as provided in
subsection (b) of this Section 4 and after payment in full of the Senior
Subordinated Notes, the Company, at its option, may prepay all or any portion of
this Note, pro rata with the prepayment of all other Notes issued pursuant to
the Share Redemption Agreement, at any time, by paying an amount equal to the
outstanding principal amount of this Note, or the portion of this Note called
for prepayment, together with interest accrued and unpaid thereon to the date
fixed for prepayment, without penalty or premium.
2
<PAGE>
(b) The Company may give written notice of prepayment of this
Note or any portion thereof not less than 10 nor more than 60 days prior to the
date fixed for such prepayment. Such notice of prepayment shall be given in the
manner specified in Section 9 of this Note. Upon notice of prepayment being
given by the Company, the Company covenants and agrees that it shall prepay, on
the date therein fixed for prepayment, this Note or the portion hereof so called
for prepayment, at the outstanding principal amount thereof or the portion
thereof so called for prepayment together with interest accrued and unpaid
thereon to the date fixed for such prepayment.
(c) All optional prepayments under this Section 4 shall include
payment of accrued interest on the principal amount so prepaid and shall be
applied first to payment of accrued interest, and thereafter to principal.
5. Defaults and Remedies.
---------------------
(a) Events of Default. An "Event of Default" shall occur if:
-----------------
(i) the Company shall default in the payment of the
principal of this Note, when and as the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or by acceleration or
otherwise and such default shall continue for a period of ten days; or
(ii) the Company shall default in the payment of any
installment of interest on this Note according to its terms, when and as the
same shall become due and payable and such default shall continue for a period
of 20 days; or
(iii) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(a) relief in respect of the Company, or of a substantial part of its property
or assets, under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (b) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Company, or for
a substantial part of its property or assets, or (c) the winding up or
liquidation of the Company; and such proceeding or petition shall continue
undismissed for 60 days, or an order or decree approving or ordering any of the
foregoing shall be entered; or
(iv) the Company shall (a) voluntarily commence any
proceeding or file any petition seeking relief
3
<PAGE>
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (b) consent to the institution of or the entry of an order for
relief against it, or fail to contest in a timely and appropriate manner, any
proceeding or the filing of any petition described in paragraph (iii) of this
Section 5(a), (c) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Company, or for a substantial part of its property or assets, (d) file an answer
admitting the material allegations of a petition filed against it in any such
proceeding, (e) make a general assignment for the benefit of creditors,
(f) become unable, admit in writing its inability or fail generally to pay its
debts as they become due or (g) take any action for the purpose of effecting any
of the foregoing.
(b) Acceleration. If an Event of Default occurs under
------------
clauses (a)(iii) or (iv) of this Section 5, then the outstanding principal of
and all accrued interest on this Note shall automatically become immediately due
and payable, without presentment, demand, protest or notice of any kind, all of
which are expressly waived. If any other Event of Default occurs and is
continuing, the holders of at least a majority of the aggregate outstanding
principal amount of this Note and the other Notes issued pursuant to the Share
Redemption Agreement, by written notice to the Company, may declare the
principal of and accrued interest on the Notes issued pursuant to the Share
Redemption Agreement to be due and payable immediately. Upon such declaration,
such principal and interest shall become immediately due and payable. The
holders of a majority of the aggregate outstanding principal amount of this Note
and the other Notes issued pursuant to the Share Redemption Agreement may
rescind an acceleration and its consequences if all existing Events of Default
have been cured or waived, except nonpayment of principal or interest that has
become due solely because of the acceleration, and if the rescission would not
conflict with any judgment or decree. Any notice or rescission shall be given
in the manner specified in Section 9 hereof.
6. Subordination. This Note and the other Notes issued pursuant to
-------------
the Share Redemption Agreement shall at all times be wholly subordinate and
junior in right of payment to all Senior Indebtedness to the extent and in the
manner provided in this Section 6.
(a) As used in this Section 6, the following terms shall have
the following meanings:
4
<PAGE>
"Senior Default" shall mean (i) an Event of Default as defined in and
--------------
pursuant to Article 7 of the Senior Subordinated Notes and (ii) any default in
the payment of principal of or interest on any Senior Indebtedness or default in
the observance or performance of any other agreement or condition relating to
any such Senior Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition, is to
cause, or to permit the holder or holders of such Senior Indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause, with the giving
of notice if required, such Senior Indebtedness to become due prior to its
stated maturity.
"Senior Indebtedness" shall mean (i) the principal of and interest on
-------------------
(including without limitation any interest that accrues after the commencement
of any case, proceeding or other legal action relating to the bankruptcy,
insolvency or reorganization of the Company whether or not such interest
constitutes an allowed claim) the Senior Subordinated Notes, (ii) any other
monetary obligation of the Company arising out of or in connection with the
Senior Subordinated Notes or the Subordinated Note and Stock Purchase Agreement
and (iii) any indebtedness for borrowed money of the Company, whether
outstanding on the date hereof or thereafter created, incurred, assumed or
guaranteed by the Company, unless the instrument creating or evidencing the same
expressly provides that such Indebtedness is on a parity with or subordinated in
right of payment to the Subordinated Indebtedness.
"Subordinated Indebtedness" shall mean (i) the principal of and
-------------------------
interest on this Note and the other Notes issued pursuant to the Share
Redemption Agreement; and (ii) any other monetary obligations of the Company
arising out of or in connection with the Share Redemption Agreement or such
Notes.
(b) General. Upon the maturity of any Senior Indebtedness by
-------
lapse of time, acceleration, required prepayment or otherwise, all Senior
Indebtedness then so due and payable shall first be paid or provided for in full
in cash, before any payment is made on account of the Subordinated Indebtedness
then so due and payable or to acquire this Note or any of the other Notes issued
pursuant to the Share Redemption Agreement.
(c) Limitation on Payment. Unless and until (i) all Senior
---------------------
Defaults shall have been remedied or effectively waived or shall have ceased to
exist or (ii) the Senior Indebtedness in respect of which such Senior Defaults
5
<PAGE>
shall have occurred shall have been paid in full or duly provided for in a
manner satisfactory to the holders of the Senior Indebtedness, as the case may
be, no direct or indirect payment (in cash, property, securities or by set-off
or otherwise) shall be made on account of the principal of or interest on this
Note or the other Notes issued pursuant to the Share Redemption Agreement or as
a sinking fund for such Notes or in respect of any redemption, retirement,
purchase or other acquisition of such Notes.
(d) Limitation on Remedies. As long as any Senior Indebtedness
----------------------
remains outstanding, the holder of this Note shall not declare or join in any
declaration of this Note to be due and payable by reason of any Event of Default
or otherwise take any action against the Company (including, without limitation,
commencing any legal action against the Company or filing or joining in the
filing of any insolvency petition against the Company).
(e) Subordination Upon Certain Events. Upon the occurrence of
---------------------------------
any Event of Default under Sections 5(a)(iii) or (iv) of this Note:
(i) Upon any payment or distribution of assets of the
Company to creditors of the Company, holders of Senior Indebtedness shall be
entitled to receive payment in full in cash before the holders of Subordinated
Indebtedness shall be entitled to receive any payment in respect of the
Subordinated Indebtedness.
(ii) Until all Senior Indebtedness is paid in full in cash,
any distribution to which the holders of Subordinated Indebtedness would be
entitled but for this Section 6 shall be made to holders of Senior Indebtedness,
as their interests may appear.
(iii) For purposes of this Section 6, a distribution may
consist of cash, securities or other property, by set-off or otherwise.
(f) Payments and Distributions Received. If the holders of the
-----------------------------------
Subordinated Indebtedness shall have received any payment from or distribution
of assets of the Company in respect of the Subordinated Indebtedness in
contravention of the terms of this Section 6 before all Senior Indebtedness is
paid in full in cash, then and in such event such payment or distribution shall
be received and held in trust for and shall be paid over or delivered to the
holders of Senior Indebtedness (or their authorized agent) to the extent
necessary to pay all such Senior Indebtedness in full in cash.
6
<PAGE>
(g) Subrogation. After all amounts payable under or in respect
-----------
of Senior Indebtedness are paid in full in cash, the holders of the Subordinated
Indebtedness shall be subrogated to the rights of holders of Senior Indebtedness
to receive payments or distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the holders of the Subordinated
Indebtedness have been applied to the payment of Senior Indebtedness. A
distribution made under this Section 6 to a holder of Senior Indebtedness which
otherwise would have been made to the holders of the Subordinated Indebtedness
is not, as between the Company and the holders of the Subordinated Indebtedness,
a payment by the Company on Senior Indebtedness.
(h) Relative Rights. This Section defines the relative rights
---------------
of the holders of the Subordinated Indebtedness and the holders of Senior
Indebtedness. Nothing in this Section shall: (i) impair, as between the
Company and the holders of the Subordinated Indebtedness, the obligation of the
Company, which is absolute and unconditional, to pay principal of and interest
on Subordinated Indebtedness in accordance with its terms; or (ii) effect the
relative rights of holders of Subordinated Indebtedness and creditors of the
Company other than holders of Senior Indebtedness.
(i) Subordination May Not Be Impaired by the Company. No right
------------------------------------------------
of any holder of any Senior Indebtedness to enforce the subordination of the
Subordinated Indebtedness shall be impaired by any failure by the Company to
comply with this Note.
(j) Payments. A payment with respect to principal of or
--------
interest on the Subordinated Indebtedness shall include, without limitation,
payment of principal of, and interest on the Subordinated Indebtedness, any
depositing of funds for the defeasance of the Subordinated Indebtedness and any
payment on account of mandatory prepayment or optional prepayment provisions.
(k) Subordination Not Impaired; Benefit of Subordination. The
----------------------------------------------------
holder of this Note agrees and consents that without notice to or assent by such
holder, and without affecting the liabilities and obligations of the Company and
such holder and the rights and benefits of the holders of the Senior
Indebtedness set forth herein:
(i) the obligations and liabilities of the Company and
any other party or parties for or upon the Senior Indebtedness may, from time to
time, be increased, renewed, refinanced, extended, modified, amended,
7
<PAGE>
restated, compromised, supplemented, terminated, waived or released;
(ii) the holders of Senior Indebtedness, and any
representative or representatives acting on behalf thereof, may exercise or
refrain from exercising any right, remedy or power granted by or in connection
with any agreements relating to the Senior Indebtedness; and
(iii) any balance or balances of funds with any holder of
Senior Indebtedness at any time outstanding to the credit of the Company may,
from time to time, in whole or in part, be surrendered or released;
all as the holders of the Senior Indebtedness, and any representative or
representatives acting on behalf thereof, may deem advisable, and all without
impairing, abridging, diminishing, releasing or affecting the subordination of
the Subordinated Indebtedness to the Senior Indebtedness provided for herein.
(l) Modification of Subordination Provisions. The subordination
----------------------------------------
provisions of this Note are for the benefit of the holders from time to time of
Senior Indebtedness and, so long as any Senior Indebtedness remains unpaid,
these provisions may not be modified, rescinded or canceled in whole or in part
without the prior written consent thereto of the holders of a majority of the
aggregate principal amount outstanding of Senior Subordinated Notes and the
holders of a majority of the aggregate principal amount outstanding of any other
Senior Indebtedness which the Company may from time to time designate as
entitled to the benefits of this Section 5(l).
(m) Miscellaneous.
-------------
(i) To the extent permitted by applicable law, the holder
of this Note and the Company hereby waive (1) notice of acceptance hereof by the
holders of the Senior Indebtedness and (2) all diligence in the collection or
protection of or realization upon the Senior Indebtedness.
(ii) The Company and the holder of this Note hereby
expressly agree that the holders of Senior Indebtedness may enforce any and all
rights derived herein by suit, either in equity or law, for specific performance
of any agreement contained in these subordination provisions or for judgment at
law and any other relief whatsoever appropriate to such action or procedure.
8
<PAGE>
(iii) The holder of this Note acknowledges and agrees that
the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of Senior Indebtedness, whether
such Senior Indebtedness was created or acquired before or after the issuance of
this Note, and each holder of Senior Indebtedness shall be deemed conclusively
to have relied upon such subordination provisions in acquiring and continuing to
hold the Senior Indebtedness held by such holder, as the case may be.
7. Conversion.
----------
7.1 Company Right to Require Conversion.
-----------------------------------
(a) Conversion. At any time or from time to time after the
----------
occurrence of a Trigger Event and upon notice given to the holder of this Note
as provided below, the Company may, subject to the terms and conditions of this
Section 7, convert this Note, in whole or in part, into fully paid and
nonassessable shares of Class A Common Stock at the Conversion Price. The
number of shares of Class A Common Stock to be issued upon conversion of this
Note shall be equal to the quotient of (x) the principal amount of this Note
then being converted and (y) the Conversion Price. The Company may convert this
Note (or a portion of the outstanding principal amount of this Note) by giving
written notice (a "Conversion Notice") of such mandatory conversion to the
-----------------
holder of this Note, at least five Business Days prior to the date fixed for
such conversion. Such notice shall be given in the manner specified in Section
9 of this Note.
(b) Payment of Interest. When all or any portion of this
-------------------
Note is converted, all interest accrued and unpaid (whether or not currently
payable) to the date of such conversion on the portion of this Note converted
shall be immediately due and payable in cash, which payment shall accompany the
shares of Class A Common Stock issued upon such conversion.
(c) Delivery of Shares and New Notes. As soon as
--------------------------------
practicable after conversion of this Note (or a portion of the outstanding
principal amount of this Note) pursuant to Section 7.1(a), the Company shall
promptly (x) issue and deliver to the holder of this Note a certificate or
certificates for the number of shares of Class A Common Stock set forth in the
Conversion Notice, in such name or names as may be designated by such holder,
along with a check for the amount of cash to be paid in accordance with
Section 7.1(b) in respect of accrued and unpaid interest, if any, on the portion
of this Note then being
9
<PAGE>
converted, against delivery to the Company of this Note accompanied by proper
instruments of transfer and (y) cancel this Note upon surrender hereof and, if
this Note is being converted in part only, execute and deliver a new Note in
replacement of the Note surrendered. The new Note issued by the Company
pursuant to clause (y) of the preceding sentence shall be the same as the Note
submitted for conversion except that (1) it will be dated the date that the Note
submitted for conversion is cancelled and (2) it will be issued in the principal
amount of the unconverted portion of the Note submitted for conversion.
(d) When Conversion Effective. The conversion of this Note
-------------------------
shall be deemed to have been effective on the date fixed by the Company for such
conversion in the Conversion Notice (the "Conversion Date"), whether or not this
---------------
Note is actually surrendered for conversion, and the Person in whose name any
certificate for shares of Class A Common Stock shall be issuable upon such
conversion, as provided in Section 7.1(c), shall be deemed to be the record
holder of such shares of Class A Common Stock for all purposes on the Conversion
Date. On and after the Conversion Date, all rights of the holder of this Note
with respect to the portion of this Note converted into shares of Class A Common
Stock, shall cease and terminate, except the right to receive a certificate for
shares of Class A Common Stock with respect to the portion of this Note so
converted and the right to receive cash in accordance with Section 7.1(b) in
respect of accrued and unpaid interest, if any, on the portion of this Note so
converted; and the portion of this Note so converted shall no longer be deemed
to be outstanding, whether or not this Note has been surrendered to the Company
for conversion.
7.2 Adjustment of Conversion Price. If the Company shall, at
------------------------------
any time or from time to time, (a) declare a dividend on the Company Stock
payable in shares of its capital stock (including Company Stock), (ii) subdivide
the outstanding Company Stock, (iii) combine the outstanding Company Stock into
a smaller number of shares, or (iv) issue any shares of its capital stock in a
reclassification of the Company Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
corporation), then in each such case, the Conversion Price in effect at the time
of the record date for such dividend or of the effective date of such
subdivision,
10
<PAGE>
combination or reclassification shall be adjusted to that price which will
permit the number of shares of Class A Common Stock into which this Note may be
converted to be increased or reduced in the same proportion as the number of
shares of Company Stock are increased or reduced in connection with such
dividend, subdivision, combination or reclassification. Any such adjustment
shall become effective immediately after the record date of such dividend or the
effective date of such subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur. If a dividend is declared and such dividend is not paid, the Conversion
Price shall again be adjusted to be the Conversion Price in effect immediately
prior to such record date.
7.3 De Minimis Adjustments. No adjustment in the Conversion
----------------------
Price shall be made if the amount of such adjustment would result in a change in
the Conversion Price per share of less than $.02, but in such case any adjust-
ment that would otherwise be required to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment,
which together with any adjustment so carried forward, would result in a change
in the Conversion Price of $.05 per share. If the Company shall, at any time or
from time to time, issue Company Stock by way of dividends on any stock of the
Company or subdivide or combine the outstanding shares of the Company Stock,
such amounts of $.02 and $.05 (as theretofore increased or decreased, if such
amounts shall have been adjusted in accordance with the provisions of this
clause) shall forthwith be proportionately increased in the case of a combina-
tion or decreased in the case of a subdivision or stock dividend so as appro-
priately to reflect the same. Notwithstanding the provisions of the first
sentence of this Section 7.3, any adjustment postponed pursuant to this
Section 7.3 shall be made no later than the earlier of (i) three years from the
date of the transaction that would, but for the provisions of the first sentence
of this Section 7.3, have required such adjustment, (ii) a Conversion Date or
(iii) the Maturity Date.
7.4 Reorganization, Reclassification, Merger and Sale of Assets.
-----------------------------------------------------------
If there occurs any capital reorganization or any reclassification of the
Company Stock, the consolidation or merger of the Company with or into another
Person (other than a merger or consolidation of the Company in which the Company
is the continuing corporation and which does not result in any reclassification
or change of outstanding shares of Company Stock) or the sale or conveyance of
all or substantially all of the assets of the Company to another Person, then
the holder of this Note will thereafter be entitled to receive, upon the
conversion of this Note in accordance with the terms hereof, the same kind and
amounts of securities (including shares of stock) or other assets, or both,
which were issuable or distributable to the holders of outstanding Company Stock
upon such reorganization, reclassification, consolidation, merger, sale or
conveyance, in respect of that number of shares of
11
<PAGE>
Class A Common Stock into which this Note might have been converted immediately
prior to such reorganization, reclassification, consolidation, merger, sale or
conveyance; and, in any such case, appropriate adjustments (as determined in
good faith by the Board of Directors of the Company) shall be made to assure
that the provisions hereof (including provisions with respect to changes in, and
other adjustments of, the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be practicable, in relation to any securities or other
assets thereafter deliverable upon conversion of this Note.
7.5 Certificate as to Adjustments. Whenever the Conversion
-----------------------------
Price or the securities or other property deliverable upon the conversion of
this Note shall be adjusted pursuant to the provisions hereof, the Company shall
promptly give written notice thereof to the holder of this Note, in the manner
specified in Section 9 of this Note, stating the adjusted Conversion Price and
the securities or other property deliverable upon conversion of this Note calcu-
lated to the nearest cent or the nearest one-hundredth of a share and setting
forth in reasonable detail the method of calculation and the facts requiring
such adjustment and upon which such calculation is based. Each adjustment shall
remain in effect until a subsequent adjustment is required.
7.6 Fractional Shares. Notwithstanding any other provision of
-----------------
this Note, the Company shall not be required to issue fractions of shares upon
conversion of this Note or to distribute certificates which evidence fractional
shares. In lieu of fractional shares, the Company may make payment to the
holder of this Note, at the time of conversion of this Note as herein provided,
of an amount in cash equal to such fraction multiplied by the Conversion Price.
7.7 No Rights or Liability as a Stockholder. This Note does not
---------------------------------------
entitle the holder hereof to any voting rights or other rights as a stockholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Company to convert this Note into shares of Class A Common Stock, and no
enumeration herein of the rights or privileges of the holder of this Note, shall
give rise to any liability to such holder as a stockholder of the Company.
8. Definitions. As used in this Note, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
12
<PAGE>
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.
"Capital Lease Obligations" means, as to any Person, any obligation of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligation is required to be classified and accounted
for as a capital lease on a balance sheet of such Person under GAAP and, for the
purposes of this Note, the amount of any such obligation at any time shall be
the capitalized amount thereof at such time determined in accordance with GAAP
consistently applied.
"Capital Stock" of any Person means any and all shares, interests,
-------------
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
common stock and preferred stock and any rights, warrants or options to purchase
such Person's capital stock.
"Class A Common Stock" has the meaning ascribed to such term in the
--------------------
first paragraph of this Note.
"Class B Common Stock" means the Company's Class B Common Stock, no
--------------------
par value.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Company's Class A Common Stock and Class B
------------
Common Stock.
"Company Stock" shall mean collectively the Common Stock and any class
-------------
of common stock of the Company authorized after the date of this Note, or any
other class or series of stock resulting from successive changes or
reclassifications of such Common Stock.
"Contingent Obligation" means, as to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "primary
-------
obligation") of another Person (with respect to a given primary obligation, the
- ----------
"primary obligor"), whether or not contingent, (a) to purchase, repurchase or
---------------
otherwise acquire any such primary obligation or any property constituting
direct or indirect
13
<PAGE>
security therefor, or (b) to advance or provide funds (i) for the payment or
discharge of any such primary obligation, or (ii) to maintain working capital or
equity capital of the primary obligor in respect of any such primary obligation
or otherwise to maintain the net worth or solvency or any balance sheet item,
level of income or financial condition of such primary obligor, or (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
in respect thereof to make payment of such primary obligation, or (d) otherwise
to assure or hold harmless the owner of any such primary obligation against loss
or failure or inability to perform in respect thereof. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof.
"Conversion Date" has the meaning ascribed to such term in Section
---------------
7.1(d).
"Conversion Notice" has the meaning ascribed to such term in
-----------------
Section 7.1(a).
"Conversion Price" has the meaning ascribed to such term in the first
----------------
paragraph of this Note.
"Event of Default" has the meaning assigned such term in Section 5(a).
----------------
"EBITDA" shall mean, with respect to the Company and its Subsidiaries
------
on a consolidated basis for any period, the sum of (a) Net Income for such
period, (b) Interest Expense for such period, (c) Federal, state and local
income and franchise taxes deducted from revenue in determining such Net Income,
(d) depreciation and amortization deducted from revenue in determining such Net
Income (including any effect from the capitalization, amortization and write-off
of implementation costs) and (e) all non-cash expenses which reduce Net Income,
less (f) interest income and all non-cash items which increase Net Income. For
purposes of calculating (e) and (f) above, all items that would not be
considered operating items in the ordinary course of business or would result in
changes in long-term asset or liability accounts shall be excluded.
"GAAP" means generally accepted United States accounting principles in
----
effect from time to time.
14
<PAGE>
"Indebtedness" means, as to any Person, (a) all obligations of such
------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any lien (other than
liens in favor of lessors under leases other than leases included in clause
(f)) on any property or asset owned or held by such Person regardless of whether
the indebtedness secured thereby shall have been assumed by such Person or is
non-recourse to the credit of such Person and (h) all Contingent Obligations of
such Person.
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Capital Stock pursuant to a registration
statement on Form S-1 or otherwise under the Securities Act.
"Interest Expense" shall mean, with respect to the Company and its
----------------
Subsidiaries on a consolidated basis for any period, the sum of (a) gross
interest expense of the Company and its Subsidiaries for such period in
accordance with GAAP consistently applied, including (i) the amortization of
debt discounts, (ii) the amortization of all fees payable in connection with the
incurrence of Indebtedness to the extent included in interest expense and
(iii) the portion of any payments or accruals with respect to Capital Lease
Obligations allocable to interest expense, and (b) any other capitalized
interest of the Company and its Subsidiaries determined on a consolidated basis
in accordance with GAAP.
"IPO Priority Payments" has the meaning assigned such term in Section
---------------------
3(a).
"Maturity Date" has the meaning assigned to such term in the first
-------------
paragraph of this Note.
15
<PAGE>
"Net Cash Proceeds" shall mean, with respect to any Initial Public
-----------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) relating to such Initial Public Offering.
"Net Income" shall mean for any period and prior to accounting for the
----------
payment of any dividends on the Series A Preferred Stock, (a) the net income
(loss) of the Company and its Subsidiaries, determined on a consolidated basis
in accordance with GAAP, minus (b) the aggregate for such period of, without
-----
duplication, (i) the net income (loss) of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition,
determined in accordance with GAAP, and (ii) any other items that are treated as
expenses under GAAP, but excluding from the definition of Net Income any
extraordinary or non-recurring charges, expenses, gains or losses, all computed
in accordance with GAAP.
"Outstanding Shares" shall mean all shares of Class A Common Stock
------------------
issued and outstanding immediately following the closing of a Qualified Public
Offering. For the purposes of any computation of the amount of Outstanding
Shares, all shares of Series A Preferred Stock and Class B Common Stock shall
be deemed to be converted into the maximum number of shares of Class A Common
Stock into which such shares of Series A Preferred Stock and Class B Common
Stock were then convertible as provided in the Amended and Restated Articles of
Incorporation.
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
governmental authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Net Cash Proceeds to the Company in excess of $30,000,000.00 and in
respect of which the price per share of Common Stock sold in such Qualified
Public Offering multiplied by the number of Outstanding Shares is at least
$250,000,000.00.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
16
<PAGE>
"Senior Default" has the meaning assigned such term in Section 6(a).
--------------
"Senior Indebtedness" has the meaning assigned such term in
-------------------
Section 6(a).
"Senior Subordinated Notes" means the Company's Senior Subordinated
-------------------------
Promissory Notes, dated the date hereof, in aggregate principal amount of
$10,000,000.00.
"Subordinated Note and Stock Purchase Agreement" means the
----------------------------------------------
Subordinated Note and Stock Purchase Agreement, dated as of the date hereof,
between the Company and certain other parties thereto pursuant to which, among
other things, the Company issued the Senior Subordinated Notes.
"Subsidiary" means, with respect to any Person, a corporation or other
----------
entity of which 50% or more of the voting power of the voting equity securities
or equity interests is owned, directly or indirectly, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in
this Note shall refer to a Subsidiary or Subsidiaries of the Company.
"Trigger Event" shall mean that (i) the Purchaser's employment with
-------------
the Company shall be terminated for any reason, or (ii) at the end of any fiscal
year ending prior to a Qualified Public Offering, either the revenue or the
EBITDA of the Company and its Subsidiaries on a consolidated basis for such
fiscal year shall fall below the revenue or EBITDA amount (as the case may be)
set forth below with respect to such fiscal year (determined on the basis of the
audited consolidated financial statements of the Company and its Subsidiaries
for such fiscal year):
17
<PAGE>
Fiscal year
ended December 31: Revenue: EBITDA:
----------------- ------- ------
1995 $103,288,000.00 $ 3,741,000.00
1996 $180,234,000.00 $11,407,000.00
1997 $198,257,000.00 $12,548,000.00
1998 $218,083,000.00 $13,802,000.00
1999 $239,891,000.00 $15,183,000.00
2000 $263,880,000.00 $16,701,000.00
2001 $290,269,000.00 $18,371,000.00
9. Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in the manner specified in Section 16
of the Share Redemption Agreement.
10. Successors and Assigns. This Note shall inure to the benefit of
----------------------
and be binding upon the successors and permitted assigns of the parties hereto.
The holder of this Note may not assign any of its rights under this Note except
that, subject to applicable securities laws, the holder of this Note may assign
this Note to a member of such holder's immediate family, which shall include her
or his ancestors, spouse, siblings, descendants or spouses (or surviving
spouses) of descendants ("Family Members"), or a trust, corporation, partnership
--------------
or other entity, all of the beneficial interests in which shall be held by such
holder or one or more Family Members of such holder; provided, however, that
-------- -------
during the period any such trust, corporation, partnership or other entity holds
this Note, no Person (other than (i) such holder, (ii) a shareholder in such
holder or other person having an ownership interest in such other entity which
is a holder, (iii) any beneficiary of a trust which is a holder or any Family
Members of a beneficiary of a trust which is a stockholder, (iv) any trust all
of the beneficial interests in which shall be held by Family Members of a
beneficiary of a trust which is a holder or (v) one or more Family Members of
such holder) may be or become beneficiaries, stockholders or limited or general
partners or owners thereof. The Company may not assign any of its obligations
under this Note without the written consent of the holder of this Note.
18
<PAGE>
11. Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the holder
of this Note in exercising any right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the holder of this Note at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Note, any waiver of any provision of this Note, and any
consent to any departure by the Company from the terms of any provision of this
Note, shall be effective (i) only if it is made or given in writing and signed
by the Company and Persons holding at least a majority of the aggregate
outstanding principal amount of this Note and the other Notes issued pursuant to
the Share Redemption Agreement, and (ii) only in the specific instance and for
the specific purpose for which made or given. Except where notice is
specifically required by this Note, no notice to or demand on the Company in any
case shall entitle the Company to any other or further notice or demand in
similar or other circumstances.
(c) Notwithstanding the foregoing, without the written consent
of the holder of this Note, an amendment, supplement or waiver may not:
(i) reduce the percentage of Persons necessary to consent
to an amendment, supplement or waiver pursuant to this Section 11;
(ii) reduce the rate or extend the time for payment of
interest on this Note;
(iii) reduce the principal of, extend the fixed maturity of,
or alter the ranking of, this Note;
(iv) make this Note payable in money other than that stated
in this Note; or
(v) alter or amend Section 3 of this Note.
12. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of Illinois, without regard to the
principles of conflicts of law of such State.
19
<PAGE>
13. Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
14. Entire Agreement. This Note and the Share Redemption Agreement
----------------
are intended by the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Note and the Share Redemption Agreement supersede all prior agreements and
understandings between the parties with respect to such subject matter.
MEDICON, INC.
By /s/ John E. Adams
----------------------------------
Name: John E. Adams
Title: EVP & COO
Exhibit 10.10
================================================================================
REGISTRATION RIGHTS AGREEMENT
among
MEDICON, INC.
J.H. WHITNEY & CO.,
WHITNEY 1990 EQUITY FUND, L.P.,
WHITNEY SUBORDINATED DEBT FUND, L.P.,
CHEMICAL VENTURE CAPITAL ASSOCIATES, A
CALIFORNIA LIMITED PARTNERSHIP
ALAN P. MINTZ,
LAWRENCE RUBINSTEIN,
JOHN ADAMS,
NANCIE BLATT,
ALAN SPIRO,
SHELDON GULINSON
and
JAMES E. ZECHMAN
___________________________________
Dated as of November 3, 1994
__________________________________
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Securities Subject to this Agreement . . . . . . . . . . . . . . . . . 4
(a) Registrable Securities . . . . . . . . . . . . . . . . . . . . . 4
(b) Holders of Registrable Securities . . . . . . . . . . . . . . . . 4
3. Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Request for Demand Registration . . . . . . . . . . . . . . . . . 4
(b) Effective Demand Registration . . . . . . . . . . . . . . . . . . 5
(c) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Underwriting Procedures . . . . . . . . . . . . . . . . . . . . . 5
(e) Selection of Underwriters . . . . . . . . . . . . . . . . . . . . 6
4. Piggy-Back Registration . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Piggy-Back Rights . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Priority of Registrations . . . . . . . . . . . . . . . . . . . . 7
(c) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. Holdback Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Restrictions on Public Sale by Holders . . . . . . . . . . . . . 7
(b) Restrictions on Public Sale by the Company . . . . . . . . . . . 7
6. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Obligations of the Company . . . . . . . . . . . . . . . . . . . 8
(b) Seller Information . . . . . . . . . . . . . . . . . . . . . . . 11
(c) Notice to Discontinue . . . . . . . . . . . . . . . . . . . . . . 11
(d) Sale to Underwriter . . . . . . . . . . . . . . . . . . . . . . . 11
7. Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . . 12
8. Indemnification; Contribution . . . . . . . . . . . . . . . . . . . . 12
(a) Indemnification by the Company . . . . . . . . . . . . . . . . . 12
(b) Indemnification by Holders . . . . . . . . . . . . . . . . . . . 13
(c) Conduct of Indemnification Proceedings . . . . . . . . . . . . . 13
(d) Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9. Rule 144; Other Exemptions . . . . . . . . . . . . . . . . . . . . . . 15
10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) Recapitalizations, Exchanges, etc . . . . . . . . . . . . . . . . 15
(b) No Inconsistent Agreements; Other Registration Rights . . . . . . 15
(c) Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(d) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . 16
(e) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(f) Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 17
(g) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(h) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(i) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(j) Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(k) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 18
i
<PAGE>
Page
----
(l) Rules of Construction . . . . . . . . . . . . . . . . . . . . . . 18
(m) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 18
(n) Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 19
ii
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT, dated as of November 3, 1994, among
MEDICON, INC., an Illinois corporation (the "Company"), J.H. WHITNEY & CO., a
-------
New York limited partnership ("Whitney"), WHITNEY 1990 EQUITY FUND, L.P., a
-------
Delaware limited partnership ("Whitney Equity Fund"), WHITNEY SUBORDINATED DEBT
-------------------
FUND, L.P., a Delaware limited partnership ("Whitney Debt Fund"), CHEMICAL
-----------------
VENTURE CAPITAL ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP ("CVCA"), ALAN P.
----
MINTZ ("Mintz"), LAWRENCE RUBINSTEIN ("Rubinstein"), JOHN ADAMS ("Adams"),
----- ---------- -----
NANCIE BLATT ("Blatt"), ALAN SPIRO ("Spiro"), SHELDON GULINSON ("Gulinson") and
----- ----- --------
JAMES E. ZECHMAN ("Zechman," and collectively with Mintz, Rubinstein, Adams,
-------
Blatt, Spiro and Gulinson, the "Management Stockholders").
-----------------------
This Agreement is made in connection with (i) the Stock Purchase
Agreement, dated as of the date hereof, among the Company, Whitney, Whitney
Equity Fund, CVCA, Mintz, Adams, Rubinstein, Spiro, Blatt and Gulinson, relating
to the acquisition by Whitney, Whitney Equity Fund and CVCA of an aggregate of
1,262,000 shares of Series A Convertible Preferred Stock, no par value, of the
Company (the "Series A Preferred Stock"), and 427,328 shares of Class B Common
------------------------
Stock, no par value, of the Company (the "Class B Common Stock") for an
--------------------
aggregate purchase price of $30,000,000.00 (subject to adjustment) and (ii) the
Subordinated Note and Stock Purchase Agreement, dated as of the date hereof,
among the Company, Whitney Debt Fund, CVCA, Mintz, Adams, Rubinstein, Spiro,
Blatt and Gulinson, relating to the acquisition by Whitney Debt Fund and CVCA of
$10,000,000.00 aggregate principal amount senior subordinated promissory notes
(the "Senior Subordinated Notes") and an aggregate of 123,156 shares of Class A
-------------------------
Common Stock, no par value, of the Company (the "Class A Common Stock"). In
--------------------
order to induce Whitney, Whitney Equity Fund and CVCA to acquire the Series A
Preferred Stock, to induce Whitney Debt Fund and CVCA to purchase the Senior
Subordinated Notes and Class A Common Stock, and to induce the Management
Stockholders to terminate their existing stockholders agreement which provided
for registration rights in certain circumstances, the Company has agreed to
provide registration rights with respect to the Registrable Securities (as
hereinafter defined) as set forth in this Agreement.
The parties hereby agree as follows:
1. Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Act" means the Securities Act of 1933, as amended, and the rules
---
and regulations of the SEC promulgated hereunder.
<PAGE>
2
"Approved Underwriter" has the meaning assigned such term in
--------------------
Section 3(e).
"Approved Underwriter Amount" has the meaning assigned such term
---------------------------
in Section 3(d).
"Business Day" means any day other than a Saturday, Sunday or
------------
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
"Class A Common Stock" has the meaning assigned such term in the
--------------------
second paragraph of this Agreement.
"Class B Common Stock" has the meaning assigned such term in the
--------------------
second paragraph of this Agreement.
"Company Underwriter" has the meaning assigned such term in
-------------------
Section 4(a).
"Demand Registration" has the meaning assigned such term in
-------------------
Section 3(a).
"Designated Holder" means Whitney, Whitney Equity Fund, CVCA and
-----------------
any of their respective transferees to whom Registrable Securities have been
transferred other than the transferee to whom such securities have been
transferred pursuant to a registration statement under the Act or Rule 144 under
the Act.
"Exchange Act" means the Securities and Exchange Act of 1934, as
------------
amended, and the rules and regulations of the SEC thereunder.
"Holder" has the meaning assigned such term in Section 2(b).
------
"Holders' Counsel" means (a) with respect to any Demand
----------------
Registration that has been requested pursuant to Section 3, counsel selected by
the Initiating Holders holding a majority of the Registrable Securities held by
all Initiating Holders being registered in such registration, and (b) with
respect to a request for registration of Registrable Securities pursuant to Sec-
tion 4, counsel selected by the Holders holding a majority of the Registrable
Securities being registered in such registration.
"Indemnified Party" has the meaning assigned such term in
-----------------
Section 8(c).
"Indemnifying Party" has the meaning assigned such term in
------------------
Section 8(c).
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its capital stock
<PAGE>
3
pursuant to a registration statement on Form S-1 or otherwise under the Act.
"Initiating Holders" has the meaning assigned to such term in
------------------
Section 3(a).
"Inspector" has the meaning assigned such term in
---------
Section 6(a)(viii).
"Management Stockholders" has the meaning assigned such term in
-----------------------
the first paragraph of this Agreement.
"NASD" has the meaning assigned such term in Section 6(a)(xv).
----
"Person" means any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
any such entity.
"Registrable Securities" means, subject to Section 2(a), any
----------------------
shares of Class A Common Stock held of record from time to time by any of the
parties hereto (including, without limitation, any shares of Class A Common
Stock issued or issuable upon conversion of or in exchange for shares of the
Series A Preferred Stock or the Class B Common Stock).
"Registration Expenses" has the meaning assigned such term in
---------------------
Section 7.
"SEC" means the Securities and Exchange Commission.
---
"Senior Subordinated Notes" has the meaning assigned such term in
-------------------------
the second paragraph of this Agreement.
"Series A Preferred Stock" has the meaning assigned such term in
------------------------
the second paragraph of this Agreement.
"Shares" means the Class A Common Stock, the Class B Common
------
Stock, the Series A Preferred Stock, any class of common stock of the Company
authorized after the date of this Agreement, or any other class of stock
resulting from successive changes or reclassifications of the Shares.
"Total Securities" has the meaning assigned such term in
----------------
Section 4(a).
"Underwriters" has the meaning assigned such term in
------------
Section 6(d).
<PAGE>
4
2. Securities Subject to this Agreement.
------------------------------------
(a) Registrable Securities. For the purposes of this Agreement,
----------------------
Registrable Securities will cease to be Registrable Securities when (i) a
registration statement covering such Registrable Securities has been declared
effective under the Act by the SEC and such Registrable Securities have been
disposed of pursuant to such effective registration statement or (ii) the entire
amount of Registrable Securities proposed to be sold in a single sale are or, in
the opinion of counsel satisfactory to the Company and the Holder, each in their
reasonable judgment, may, be distributed to the public pursuant to Rule 144 (or
any successor provision then in effect) under the Act.
(b) Holders of Registrable Securities. A Person is deemed to be
---------------------------------
a holder of Registrable Securities (a "Holder") whenever such Person (i) is a
------
party to this Agreement (or a permitted transferee thereof) and (ii) owns of
record Registrable Securities, or holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities,
whether or not such purchase or conversion has actually been effected and disre-
garding any legal restrictions upon the exercise of such rights. If the Company
receives conflicting instructions, notices or elections from two or more persons
with respect to the same Registrable Securities, the Company may act upon the
basis of the instructions, notice or election received from the registered owner
of such Registrable Securities. Registrable Securities issuable upon exercise
of an option or upon conversion of another security shall be deemed outstanding
for the purposes of this Agreement.
3. Demand Registration.
-------------------
(a) Request for Demand Registration. At any time after 18
-------------------------------
months from the date of the execution of this Agreement, the Designated Holders
holding at least 25% of the Registrable Securities held by all of the Designated
Holders (the "Initiating Holders") may request the registration of Registrable
------------------
Securities under the Act, and under the securities or blue sky laws of any
jurisdiction designated by such holder or holders (each such registration under
this Section 3(a) that satisfies the requirements set forth in Section 3(b) is
referred to herein as a "Demand Registration"). Notwithstanding the foregoing,
-------------------
(i) the Company will not be required to effect a Demand Registration within the
period beginning on the effective date of a registration statement filed by the
Company on its behalf and ending on the expiration of any lock-up period
reasonably required by the underwriters, if any, in connection therewith,
(ii) in no event shall the Company be required to effect more than four Demand
Registrations and (iii) in no event shall the Company be required to effect a
registration pursuant to this Section 3 within the six-month period occurring
immediately subsequent to the effectiveness (within the meaning of Section 3(b))
of a registration statement filed pursuant to this Section 3(a). For purposes
of clause (ii) of the preceding
<PAGE>
5
sentence, two or more registrations filed in response to one demand shall be
counted as one registration statement. Each such request for a Demand
Registration by the Initiating Holders in respect thereof shall specify the
amount of the Registrable Securities proposed to be sold, the intended method of
disposition thereof and the jurisdictions in which registration is desired.
Upon a request for a Demand Registration, the Company shall promptly take such
steps as are necessary or appropriate to prepare for the registration of the
Registrable Securities to be registered. Within fifteen (15) days after the
receipt of such request, the Company shall give written notice thereof to all
other Designated Holders and include in such registration all Registrable
Securities held by a Designated Holder from whom the Company has received a
written request for inclusion therein within twenty (20) days after delivery of
the foregoing notice, which date shall be no later than ten (10) days prior to
the filing of the registration statement. Each such request will also specify
the number of Registrable Securities to be registered, the intended method of
disposition thereof and the jurisdictions in which registration is desired.
Unless the Initiating Holders holding the majority of the Registerable
Securities held by all Initiating Holders to be included in a requested Demand
Registration consent in writing, (i) no other party, including the Company (but
not including any other Designated Holder), shall be permitted to offer
securities under any such Demand Registration.
(b) Effective Demand Registration. The Company shall use its
-----------------------------
best efforts to cause any such Demand Registration to become effective not later
than ninety (90) days after it receives a request under Section 3(a); provided,
--------
however, that with respect to a Demand Registration that is an Initial Public
- -------
Offering, the Company shall use its best efforts to cause such Demand
Registration to become effective not less than 150 days after it receives a
request under Section 3(a).
(c) Expenses. In any registration initiated as a Demand
--------
Registration, the Company shall pay all Registration Expenses in connection
therewith, whether or not such requested Demand Registration becomes effective,
except that after the first three Demand Registrations become effective in
accordance with Section 3(b), the Company will no longer be obligated to pay the
Registration Expenses for any additional registrations initiated as Demand
Registrations.
(d) Underwriting Procedures. If the Initiating Holders holding
-----------------------
a majority of the Registrable Securities held by all Initiating Holders to which
the requested Demand Registration relates so elect, the offering of such
Registrable Securities pursuant to such requested Demand Registration shall be
in the form of a firm commitment underwritten offering and the managing
underwriter or underwriters selected for such offering shall be the Approved
Underwriter selected in accordance with Section 3(e). In such event, if the
Approved Underwriter advises the Company in writing that, in its opinion, the
aggregate amount
<PAGE>
6
of such Registrable Securities requested to be included in such offering is
sufficiently large to have a material adverse effect on the success of such
offering, then the Company shall include in such registration only the aggregate
amount of Registrable Securities that in the opinion of the Approved Underwriter
may be sold without any such effect on the success of such offering (the
"Approved Underwriter Amount"), and each Designated Holder shall be entitled to
---------------------------
have included in such registration Registrable Securities equal to its pro rata
portion of the Approved Underwriter Amount, as based on the amounts of
Registrable Securities owned by each such Designated Holder.
(e) Selection of Underwriters. If any requested Demand
-------------------------
Registration is in the form of an underwritten offering, the Initiating Holders
holding a majority of the Registrable Securities held by all Initiating Holders
to be included in the requested Demand Registration shall select and obtain an
investment banking firm of national reputation to act as the managing
underwriter of the offering (the "Approved Underwriter"). Notwithstanding the
--------------------
foregoing, however, in any Demand Registration that is an Initial Public
Offering, the Approved Underwriter so selected shall be subject to the approval
of the Company, such approval not to be unreasonably withheld.
4. Piggy-Back Registration.
-----------------------
(a) Piggy-Back Rights. If the Company proposes to file a
-----------------
registration statement under the Act with respect to an offering by the Company
for its own account of any class of security (other than a registration
statement on Form S-4 or S-8 (or any successor form thereto) under the Act, then
the Company shall give written notice of such proposed filing to each of the
Holders at least thirty (30) days before the anticipated filing date, and such
notice shall describe in detail the proposed registration and distribution
(including those jurisdictions where registration under the securities or blue
sky laws is intended) and offer such Holders the opportunity to register the
number of Registrable Securities as each such Holder may request within seven
(7) days after delivery of the foregoing notice. The Company shall use its best
efforts (within ten (10) days of the notice provided for in the preceding
sentence) to cause the managing underwriter or underwriters of an underwritten
offering proposed by the Company (the "Company Underwriter") to permit the
-------------------
Holders who have requested to participate in the registration for such offering
to include such Registrable Securities in such offering on the same terms and
conditions as the securities of the Company included therein. Notwithstanding
the foregoing, if the Company Underwriter delivers a written opinion to the
Holders of Registrable Securities that the total amount of securities which they
and the Company intend to include in such offering (the "Total Securities") is
----------------
sufficiently large so as to have a material adverse effect on the distribution
of the Total Securities, then the securities proposed to be included in such
registration by all Holders (other than Designated Holders) shall be reduced pro
rata based on the amounts of Registrable
<PAGE>
7
Securities owned by such Holders to the extent necessary to reduce the Total
Securities to the amount recommended by the Company Underwriter, and if the
amount of Total Securities is still sufficiently large so as to prevent the
Company from effecting a successful offering of the Total Securities, then the
securities to be included for the account of the Designated Holders shall be
reduced pro rata based on the amounts of Registrable Securities owned by such
Designated Holders to the extent necessary to reduce the Total Securities to the
amount recommended by the Company Underwriter.
(b) Priority of Registrations. If the Company proposes to
-------------------------
register securities pursuant to Section 4(a) hereof on the same day that the
Designated Holders request a registration pursuant to Section 3(a) hereof, then
the Demand Registration requested pursuant to Section 3(a) hereof shall be given
priority.
(c) Expenses. The Company shall bear all Registration Expenses
--------
in connection with any registration pursuant to this Section 4.
5. Holdback Agreements.
-------------------
(a) Restrictions on Public Sale by Holders. To the extent not
--------------------------------------
inconsistent with applicable law, (i) each Holder agrees not to effect any
public sale or distribution of any Registrable Securities being registered or of
any securities convertible into or exchangeable or exercisable for such
Registrable Securities, including a sale pursuant to Rule 144 under the Act,
during the seven (7) days prior to, and during the 180-day period beginning on,
the effective date of such Demand Registration or Piggy-Back Registration or
other underwritten offering (except as part of such registration), if and to the
extent requested by any other Holder, in the case of a non-underwritten public
offering, or if and to the extent requested by the Company Underwriter, in the
case of an underwritten public offering and (ii) unless the prior written
consent of Whitney and CVCA is obtained, Mintz, Adams and Rubinstein agree not
to effect any public sale or distribution, other than pursuant to a registration
statement filed under the Act, of any Registrable Securities of any securities
convertible into or exchangeable or exercisable for such Registrable Securities
during the two years following the effective date of an Initial Public Offering,
including a sale pursuant to Rule 144 under the Act.
(b) Restrictions on Public Sale by the Company. The Company
------------------------------------------
agrees not to effect any public sale or distribution of any of its securities
for its own account (except pursuant to registrations on Form S-4 or S-8 (or any
successor form thereto) under the Act) during the ninety (90) day period
beginning on the later of (i) the effective date of any registration statement
in which the Holders are participating and (ii) the commencement of a public
distribution of Registrable Securities pursuant to such registration statement.
<PAGE>
8
6. Registration Procedures.
-----------------------
(a) Obligations of the Company. Whenever registration of
--------------------------
Registrable Securities has been requested pursuant to Section 3 or 4 of this
Agreement, the Company shall use its best efforts to effect the registration and
sale of such Registrable Securities in accordance with the intended method of
distribution thereof as quickly as practicable, and in connection with any such
request, the Company shall, as expeditiously as possible:
(i) prepare and file with the SEC (in any event not
later than sixty (60) Business Days after receipt of a request to file a
registration statement with respect to Registrable Securities) a registration
statement on any form for which the Company then qualifies, which counsel for
the Company and Holders' Counsel shall deem appropriate and which shall be
available for the sale of such Registrable Securities in accordance with the
intended method of distribution thereof, and use its best efforts to cause such
registration statement to become effective; provided, however, that before
-------- -------
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company shall (A) provide Holders' Counsel and any other Inspector
with an adequate and appropriate opportunity to participate in the preparation
of such registration statement and each prospectus included therein (and each
amendment or supplement thereto) to be filed with the SEC, which documents shall
be subject to the review of Holders' Counsel, and (B) notify Holders' Counsel
and each seller of Registrable Securities pursuant to such registration
statement of any stop order issued or threatened by the SEC and take all
reasonable action required to prevent the entry of such stop order or to remove
it if entered;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than 270 days (or such shorter period that will terminate
when all Registrable Securities covered by such registration statement have been
sold, but not before the expiration of the applicable period referred to in
Section 4(3) of the Act and Rule 174 thereunder, if applicable), and comply with
the provisions of the Act with respect to the disposition of all Registrable
Securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(iii) as soon as reasonably possible, furnish to each
seller of Registrable Securities, prior to filing a registration statement,
copies of such registration statement as it is proposed to be filed, and
thereafter such number of copies of such registration statement, each amendment
and supplement thereto (in each case including all exhibits thereto),
<PAGE>
9
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as each such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
(iv) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller of Registrable Securities may reasonably request,
and to continue such qualification in effect in each such jurisdiction for as
long as is permissible pursuant to the laws of such jurisdiction, or for as long
as any such seller reasonably requests or until all of such Registrable
Securities are sold, whichever is shortest, and do any and all other acts and
things which may be reasonably necessary or advisable to enable any such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller; provided, however, that the Company shall not
-------- -------
be required to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 6(a)(iv),
(B) subject itself to taxation in any such jurisdiction or (C) consent to
general service of process in any such jurisdiction;
(v) use its best efforts to obtain all other approvals,
covenants, exemptions or authorizations from such governmental agencies or
authorities as may be necessary to enable the sellers of such Registrable
Securities to consummate the disposition of such Registrable Securities;
(vi) notify each seller of Registrable Securities at any
time when a prospectus relating thereto is required to be delivered under the
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and the Company shall
promptly prepare a supplement or amendment to such prospectus and furnish to
each such seller a reasonable number of copies of a supplement to or amendment
of such prospectus as may be necessary so that, after delivery to the purchasers
of such Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made;
(vii) enter into and perform customary agreements
(including an underwriting agreement in customary form with the Approved
Underwriter or Company Underwriter, if any, selected as provided in Section 3 or
4) and take such other actions as are reasonably required in order to expedite
or facilitate the disposition of such Registrable Securities;
<PAGE>
10
(viii) make available for inspection by any seller of
Registrable Securities, any managing underwriter participating in any
disposition pursuant to such registration statement, Holders' Counsel and any
attorney, accountant or other agent retained by any such seller or any managing
underwriter (each, an "Inspector" and, collectively, the "Inspectors"), all
--------- ----------
financial and other records, pertinent corporate documents and properties of the
Company and any subsidiaries thereof as may be in existence at such time
(collectively, the "Records") as shall be reasonably necessary to enable them to
-------
exercise their due diligence responsibility, and cause the Company's and any
subsidiaries' officers, directors and employees, and the independent public
accountants of the Company, to supply all information reasonably requested by
any such Inspector in connection with such registration statement.
(ix) if such sale is pursuant to an underwritten
offering, obtain a "cold comfort" letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by "cold comfort" letters, as Holders' Counsel or the managing
underwriter reasonably request;
(x) furnish, at the request of any seller of Registrable
Securities on the date such securities are delivered to the underwriters for
sale pursuant to such registration or, if such securities are not being sold
through underwriters, on the date the registration statement with respect to
such securities becomes effective, an opinion, dated such date, of counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the seller making such request, covering such legal
matters with respect to the registration in respect of which such opinion is
being given as such seller may reasonably request and as are customarily
included in such opinions;
(xi) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable but no later than fifteen (15) months
after the effective date of the registration statement, an earnings statement
covering a period of twelve (12) months beginning after the effective date of
the registration statement, in a manner which satisfies the provisions of
Section 11(a) of the Act;
(xii) cause all such Registrable Securities to be listed
on each securities exchange on which similar securities issued by the Company
are then listed or on which the Initiating Holders reasonably request that such
Registrable Securities be listed, subject to the satisfaction of the applicable
listing requirements of each such exchange;
(xiii) keep each seller of Registrable Securities advised
in writing as to the initiation and progress of any registration under Section 3
or 4 hereunder;
<PAGE>
11
(xiv) provide officers' certificates and other customary
closing documents;
(xv) cooperate with each seller of Registrable Securities
and each underwriter participating in the disposition of such Registrable
Securities and their respective counsel in connection with any filings required
to be made with the National Association of Securities Dealers, Inc. (the
"NASD"); and
----
(xvi) use its best efforts to take all other steps
necessary to effect the registration of the Registrable Securities contemplated
hereby.
(b) Seller Information. The Company may require each seller of
------------------
Registrable Securities as to which any registration is being effected to furnish
to the Company such information regarding such Seller and the distribution of
such securities as the Company may from time to time reasonably request in
writing, and in the case of an underwritten offering, such Seller shall agree to
sell its Registrable Securities to the Underwriters in such offering.
(c) Notice to Discontinue. Each Holder agrees that, upon
---------------------
receipt of any notice from the Company of the happening of any event of the kind
described in Section 6(a)(vi), such Holder shall forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 6(a)(vi) and,
if so directed by the Company, such Holder shall deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Securities
which is current at the time of receipt of such notice. If the Company shall
give any such notice, the Company shall extend the period during which such
registration statement shall be maintained effective pursuant to this Agreement
(including, without limitation, the period referred to in Section 6(a)(ii)) by
the number of days during the period from and including the date of the giving
of such notice pursuant to Section 6(a)(vi) to and including the date when the
Holder shall have received the copies of the supplemented or amended prospectus
contemplated by and meeting the requirements of Section 6(a)(vi).
(d) Sale to Underwriter. Subject to the limitations on
-------------------
inclusion of Registrable Securities in a registration under Sections 3(d) and
4(a), in lieu of converting any shares of Series A Preferred Stock or Class B
Common Stock into Registrable Securities to be included in a registration under
Section 3 or 4 prior to or simultaneously with the filing or the effectiveness
of any registration statement filed pursuant thereto, the holder of such
Series A Preferred Stock or Class B Common Stock may sell such Series A
Preferred Stock or Class B Common Stock to the Approved Underwriter or the
Company Underwriter, as the case may
<PAGE>
12
be, and any other underwriters of the offering being registered (collectively,
the Approved Underwriter or Company Underwriter, as the case may be, and such
other underwriters, the "Underwriters") if the Underwriters consent thereto and
------------
if the Underwriters undertake to convert such shares of Series A Preferred Stock
or Class B Common Stock into Registrable Securities before making any
distribution pursuant to such registration statement and to include such
Registrable Securities among the Registrable Securities being offered pursuant
to such registration statement. Assuming timely delivery by the Holder of the
Series A Preferred Stock certificates or Class B Common Stock certificates to or
for the account of the Underwriters, the Company agrees to cause the relevant
Registrable Securities to be issued so as to permit the Underwriters to make and
complete the distribution (including the distribution of such Registrable
Securities) contemplated by the underwriting.
7. Registration Expenses. The Company shall pay all expenses (other
---------------------
than (i) underwriting discounts and commissions and (ii) the fees, charges and
expenses of any Inspector) arising from or incident to the performance of, or
compliance with, this Agreement, including, without limitation, (a) SEC, stock
exchange and NASD registration and filing fees, (b) all fees and expenses
incurred in complying with securities or blue sky laws (including, without
limitation, reasonable fees, charges and disbursements of counsel in connection
with blue sky qualifications of the Registrable Securities), (c) all printing,
messenger and delivery expenses and (d) the fees, charges and disbursements of
counsel to the Company and of its independent public accountants and any other
accounting and legal fees, charges and expenses incurred by the Company (includ-
ing, without limitation, any expenses arising from any special audits incident
to or required by any registration or qualification) in connection with any
requested Demand Registration or piggy-back registration pursuant to the terms
of this Agreement, regardless of whether the registration statement filed in
connection with such registration is declared effective. In connection with
each registration hereunder, the Company shall reimburse the Holders of Regis-
trable Securities being registered in such registration for the reasonable fees,
charges and disbursements of not more than one Holders' Counsel. All of the
expenses described in this Section 7 are referred to in this Agreement as
"Registration Expenses." Notwithstanding the foregoing provisions of this
---------------------
Section 7, the Company's obligation to pay Registration Expenses shall be
limited as provided in Section 3(c).
8. Indemnification; Contribution.
-----------------------------
(a) Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless each Holder, its directors, officers, partners,
employees, advisors and agents, and each Person who controls (within the meaning
of the Act or the Exchange Act) such Holder, to the extent permitted by law,
from and against any and all losses, claims, damages, expenses (including,
without limitation, reasonable costs of investigation
<PAGE>
13
and fees, disbursements and other charges of counsel) or other liabilities
resulting from or arising out of or based upon any untrue, or alleged untrue,
statement of a material fact contained in any registration statement, prospectus
or preliminary prospectus or notification or offering circular (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same are caused by
or contained in any information furnished in writing to the Company by such
Holder expressly for use therein. The Company shall also indemnify any
underwriters of the Registrable Securities, their officers, directors and
employees, and each Person who controls any such underwriter (within the meaning
of the Act and the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Holders of Registrable Securities.
(b) Indemnification by Holders. In connection with any
--------------------------
registration in which a Holder is participating pursuant to Section 3 or 4
hereof, each such Holder shall furnish to the Company in writing such informa-
tion with respect to such Holder as the Company may reasonably request or as may
be required by law for use in connection with any registration statement or
prospectus to be used in connection with such registration and each Holder
agrees to indemnify and hold harmless the Company, any underwriter retained by
the Company and their respective directors, officers, employees and each Person
who controls (within the meaning of the Act and the Exchange Act) the Company or
such underwriter to the same extent as the foregoing indemnity from the Company
to the Holders (subject to the proviso to this sentence and applicable law), but
only with respect to any such information furnished in writing by such Holder
expressly for use therein; provided, however, that the liability of any Holder
-------- -------
under this Section 8(b) shall be limited to the amount of the net proceeds
received by such Holder in the offering giving rise to such liability.
(c) Conduct of Indemnification Proceedings. Any Person entitled
--------------------------------------
to indemnification hereunder (the "Indemnified Party") agrees to give prompt
-----------------
written notice to the indemnifying party (the "Indemnifying Party") after the
------------------
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement; provided, that, the failure so to notify the
-------- ----
Indemnifying Party shall not relieve the Indemnifying Party of any liability
that it may have to the Indemnified Party hereunder. If notice of commencement
of any such action is given to the Indemnifying Party as above provided, the
Indemnifying Party shall be entitled to participate in and, to the extent it may
wish, jointly with any other Indemnifying Party similarly notified, to assume
the defense of such action at its own expense, with counsel chosen by
<PAGE>
14
it and satisfactory to such Indemnified Party. The Indemnified Party shall have
the right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the Indemnified Party unless
(i) the Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party
fails to assume the defense of such action with counsel satisfactory to the
Indemnified Party in its reasonable judgment, (iii) the named parties to any
such action (including any impleaded parties) have been advised by such counsel
that either (A) representation of such Indemnified Party and the Indemnifying
Party by the same counsel would be inappropriate under applicable standards of
professional conduct or (B) there may be one or more legal defenses available to
it which are different from or additional to those available to the Indemnifying
Party. In either of such cases the Indemnifying Party shall not have the right
to assume the defense of such action on behalf of such Indemnified Party. No
Indemnifying Party shall be liable for any settlement entered into without its
written consent, which consent shall not be unreasonably withheld. The rights
accorded to any Indemnified Party hereunder shall be in addition to any rights
that such Indemnified Party may have at common law, by separate agreement or
otherwise.
(d) Contribution. If the indemnification provided for in
------------
Section 8(a) from the Indemnifying Party is unavailable to an Indemnified Party
in respect of any losses, claims, damages, expenses or other liabilities
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, expenses or other
liabilities in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party and Indemnified Party in connection with the actions
which resulted in such losses, claims, damages, expenses or other liabilities,
as well as any other relevant equitable considerations. The relative faults of
such Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, was made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the Indemnifying Party's and
Indemnified Party's relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable by a
party as a result of the losses, claims, damages, expenses or other liabilities
referred to above shall be deemed to include, subject to the limitations set
forth in Sections 8(a), 8(b) and 8(c), any legal or other fees, charges or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of
<PAGE>
15
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution pursuant to this Section 8(d).
9. Rule 144; Other Exemptions. The Company covenants that it shall
--------------------------
file any reports required to be filed by it under the Exchange Act and the rules
and regulations adopted by the SEC thereunder, and that it shall take such
further action as each Holder may reasonably request (including, but not limited
to, providing any information necessary to comply with Rules 144 and 144A under
the Act), all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Act within the
limitation of the exemptions provided by (a) Rule 144 or Rule 144A under the
Act, as such rules may be amended from time to time, or (b) any other rules or
regulations now existing or hereafter adopted by the SEC. The Company shall,
upon the request of any Holder, deliver to such Holder a written statement as to
whether the Company has complied with such requirements.
10. Miscellaneous.
-------------
(a) Recapitalizations, Exchanges, etc. The provisions of this
---------------------------------
Agreement shall apply, to the full extent set forth herein with respect to the
Shares, to any and all shares of capital stock of the Company or any successor
or assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in exchange for or in substitution
of, the Shares and shall be appropriately adjusted for any stock dividends,
splits, reverse splits, combinations, recapitalizations and the like occurring
after the date hereof.
(b) No Inconsistent Agreements; Other Registration Rights. The
-----------------------------------------------------
Company shall not enter into any agreement with respect to its securities that
is inconsistent with or adversely affects the rights granted to the Holders in
this Agreement. The Company shall not grant any other Person registration
rights without the written consent of the Designated Holders holding at least a
majority of the Registrable Securities held by all of the Designated Holders.
If the Company shall at any time hereafter provide to any holder of any
securities of the Company rights with respect to the registration of such
securities and such rights are provided on terms or conditions more favorable to
such holder than the terms and conditions applicable to the Designated Holders
herein, the Company shall provide (by way of amendment to this Agreement or
otherwise) such more favorable terms or conditions to the Designated Holders
under this Agreement.
(c) Remedies. The Holders, in addition to being entitled to
--------
exercise all rights granted by law, including recovery of damages, shall be
entitled to specific performance of
<PAGE>
16
their rights under this Agreement. The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Agreement and hereby agrees to waive in any
action for specific performance the defense that a remedy at law would be
adequate.
(d) Amendments and Waivers. Except as otherwise provided
----------------------
herein, the provisions of this Agreement may not be amended, modified or supple-
mented, and waivers or consents to departures from the provisions of such
section may not be given unless the Company has obtained the prior written
consent of (i) the Designated Holders holding at least a majority of the
Registrable Securities held by all of the Designated Holders and (ii) the
Holders holding at least a majority of the Registrable Securities.
(e) Notices. All notices, demands and other communications
-------
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service or personal delivery:
(i) if to Whitney or Whitney Equity Fund:
J.H. Whitney & Co.
177 Broad Street
Stamford, Connecticut 06901
Telecopier No.: (203) 973-1422
Attention: Jeffrey R. Jay, M.D.
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopier No.: (212) 757-3990
Attention: Toby S. Myerson, Esq.
<PAGE>
17
(ii) if to CVCA:
Chemical Venture Capital Associates, L.P.
c/o Chemical Venture Partners
270 Park Avenue
New York, New York 10017-2070
Telecopier No.: (212) 270-2327
Attention: Mitchell J. Blutt, M.D.
Damion E. Wicker, M.D.
with a copy to:
O'Sullivan Graev & Karabell
30 Rockefeller Plaza
41st Floor
New York, New York 10012
Telecopier No.: (212) 408-2420
Attention: John Suydam, Esq.
(iii) if to the Company:
Medicon, Inc.
40 Skokie Boulevard
Northbook, Illinois 60062-1618
Telecopier No.: (708) 559-6900
Attention: Lawrence Rubinstein, Esq.
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Telecopier No.: (312) 902-1061
Attention: Herbert S. Wander, Esq.
(iv) if to any Holder, to its, his or her address as it appears
on the record books of the Company.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
(f) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of the parties hereto;
provided, however, that the registration rights and the other obligations of the
- -------- -------
Company contained in this Agreement shall, with respect to any Registrable
Security, be automatically transferred from a Holder to
<PAGE>
18
any subsequent holder of such Registrable Security (including any pledgee).
Notwithstanding any transfer of such rights, all of the obligations of the
Company hereunder shall survive any such transfer and shall continue to inure to
the benefit of all transferees.
(g) Counterparts. This Agreement may be executed in any number
------------
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York, without regard
to the principles of conflicts of law of such State.
(j) Jurisdiction. Each party to this Agreement hereby
------------
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or any agreements or transactions contemplated hereby
may be brought in the courts of the State of New York or of the United States of
America for the Southern District of New York and hereby expressly submits to
the personal jurisdiction and venue of such courts for the purposes thereof and
expressly waives any claim of improper venue and any claim that such courts are
an inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 10(e), such service to
become effective 10 days after such mailing.
(k) Severability. If any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, it being
intended that all of the rights and privileges of the Holders shall be
enforceable to the fullest extent permitted by law.
(l) Rules of Construction. Unless the context otherwise
---------------------
requires, "or" is not exclusive, and references to sections or subsections refer
to sections or subsections of this Agreement.
(m) Entire Agreement. This Agreement is intended by the parties
----------------
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
<PAGE>
19
promises, warranties or undertakings in respect of the subject matter contained
herein, other than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(n) Further Assurances. Each of the parties shall execute such
------------------
documents and perform such further acts as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
MEDICON, INC.
By /s/ John E. Adams
----------------------------
Name: John E. Adams
Title: EVP & COO
J.H. WHITNEY & CO.
By /s/ Jeffrey R. Jay
---------------------------
Name: Jeffrey R. Jay
A General Partner
WHITNEY 1990 EQUITY FUND, L.P.
By /s/ Jeffrey R. Jay
---------------------------
Name: Jeffrey R. Jay
A General Partner
WHITNEY SUBORDINATED DEBT FUND, L.P.
By /s/ Jeffrey R. Jay
---------------------------
Name: Jeffrey R. Jay
A General Partner
CHEMICAL VENTURE CAPITAL ASSOCIATES, A CALIFORNIA
LIMITED PARTNERSHIP
By: CHEMICAL VENTURE PARTNERS,
Its General Partner
By /s/ Mitchell J. Blutt
---------------------------
Name: Mitchell J. Blutt, M.D.
Executive Partner
_____________________________________
Alan P. Mintz
____________________________________
Lawrence Rubinstein
<PAGE>
MEDICON, INC.
By
----------------------------
Name:
Title:
J.H. WHITNEY & CO.
By
---------------------------
Name:
A General Partner
WHITNEY 1990 EQUITY FUND, L.P.
By
---------------------------
Name:
A General Partner
WHITNEY SUBORDINATED DEBT FUND, L.P.
By
---------------------------
Name:
A General Partner
CHEMICAL VENTURE CAPITAL ASSOCIATES, A CALIFORNIA
LIMITED PARTNERSHIP
By: CHEMICAL VENTURE PARTNERS,
Its General Partner
By
---------------------------
Name:
/s/ Alan P. Mintz
---------------------------
Alan P. Mintz
____________________________________
Lawrence Rubinstein
<PAGE>
MEDICON, INC.
By
----------------------------
Name:
Title:
J.H. WHITNEY & CO.
By
---------------------------
Name:
A General Partner
WHITNEY 1990 EQUITY FUND, L.P.
By
---------------------------
Name:
A General Partner
WHITNEY SUBORDINATED DEBT FUND, L.P.
By
---------------------------
Name:
A General Partner
CHEMICAL VENTURE CAPITAL ASSOCIATES, A CALIFORNIA
LIMITED PARTNERSHIP
By: CHEMICAL VENTURE PARTNERS,
Its General Partner
By
---------------------------
Name:
---------------------------
Alan P. Mintz
/s/ Lawrence Rubinstein
---------------------------
Lawrence Rubinstein
<PAGE>
/s/ John Adam
------------------------------------
John Adams
____________________________________
Nancie Blatt
____________________________________
Alan Spiro
____________________________________
Sheldon Gulinson
____________________________________
James E. Zechman
<PAGE>
------------------------------------
John Adams
/s/ Nancie Blatt
------------------------------------
Nancie Blatt
____________________________________
Alan Spiro
____________________________________
Sheldon Gulinson
____________________________________
James E. Zechman
<PAGE>
____________________________________
John Adams
____________________________________
Nancie Blatt
/s/ Alan Spiro
------------------------------------
Alan Spiro
____________________________________
Sheldon Gulinson
____________________________________
James E. Zechman
<PAGE>
____________________________________
John Adams
____________________________________
Nancie Blatt
____________________________________
Alan Spiro
/s/ Sheldon Gulinson
------------------------------------
Sheldon Gulinson
____________________________________
James E. Zechman
<PAGE>
____________________________________
John Adams
____________________________________
Nancie Blatt
____________________________________
Alan Spiro
____________________________________
Sheldon Gulinson
/s/ James E. Zechman
------------------------------------
James E. Zechman
Exhibit 10.11
================================================================================
STOCKHOLDERS' AGREEMENT
among
MEDICON, INC.
and
THE STOCKHOLDERS NAMED HEREIN
_______________________________
Dated as of November 3, 1994
_______________________________
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Restrictions on Transfer of Shares . . . . . . . . . . . . . . . . . . 11
2.1 Limitation on Transfer . . . . . . . . . . . . . . . . . . . . . 11
2.2 Permitted Transfers . . . . . . . . . . . . . . . . . . . . . . 11
2.3 Permitted Transfer Procedures . . . . . . . . . . . . . . . . . 11
3. Right of First Refusal and Tag Along. . . . . . . . . . . . . . . . . 12
3.1 Proposed Voluntary Transfer . . . . . . . . . . . . . . . . . . 12
3.2 Sale of the Company . . . . . . . . . . . . . . . . . . . . . . 16
3.3 Involuntary Transfers . . . . . . . . . . . . . . . . . . . . . 16
3.4 Issuances of Capital Stock by the Company; Preemptive Right . . 18
4. All Transfers in Compliance with Law and Subject to this Agreement;
Substitution of Transferee . . . . . . . . . . . . . . . . . . . . . . 19
5. Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.2 Stockholders' Actions . . . . . . . . . . . . . . . . . . . . . 20
5.3 Election of Directors . . . . . . . . . . . . . . . . . . . . . 20
5.4 Removal and Replacement . . . . . . . . . . . . . . . . . . . . 21
5.5 Special Circumstances . . . . . . . . . . . . . . . . . . . . . 22
5.6 Termination of Sections 5.3 and 5.4 . . . . . . . . . . . . . . 23
5.7 Board Committees . . . . . . . . . . . . . . . . . . . . . . . . 24
5.8 Compensation of Directors . . . . . . . . . . . . . . . . . . . 24
6. Stock Certificate Legend . . . . . . . . . . . . . . . . . . . . . . . 24
7. Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1 Financial Statements and Other Information . . . . . . . . . . . 25
7.2 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . 26
7.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.4 Reservation of Shares . . . . . . . . . . . . . . . . . . . . . 27
7.5 Books and Records . . . . . . . . . . . . . . . . . . . . . . . 27
7.6 Transactions with Affiliates . . . . . . . . . . . . . . . . . . 27
7.7 Conversion of Junior Subordinated Notes . . . . . . . . . . . . 28
7.8 Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . 28
7.9 Key Man Insurance . . . . . . . . . . . . . . . . . . . . . . . 31
8. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . 31
9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.2 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . 33
9.3 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
i
<PAGE>
Page
----
9.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 33
9.7 Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . 34
9.8 Variations in Pronouns . . . . . . . . . . . . . . . . . . . . . 34
9.9 Rules of Construction . . . . . . . . . . . . . . . . . . . . . 34
9.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 34
9.12 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 34
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 35
EXHIBITS
A Amended and Restated Articles of Incorporation
B ByLaws
SCHEDULES
- ---------
I Names of Management Stockholders and Amounts of
Class A Common Stock
7.6 Transactions with Affiliates
ii
<PAGE>
STOCKHOLDERS' AGREEMENT
-----------------------
STOCKHOLDERS' AGREEMENT, dated as of November 3, 1994, among MEDICON,
INC., an Illinois corporation (the "Company"), J.H. WHITNEY & CO., a New York
-------
limited partnership ("Whitney"), WHITNEY 1990 EQUITY FUND, L.P., a Delaware
-------
limited partnership ("Whitney Equity Fund"), WHITNEY SUBORDINATED DEBT FUND,
-------------------
L.P., a Delaware limited partnership ("Whitney Debt Fund"), CHEMICAL VENTURE
-----------------
CAPITAL ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP, ("CVCA," and together with
-----
Whitney, Whitney Equity Fund and Whitney Debt Fund, the "Investors"), Alan P.
---------
Mintz ("Mintz"), Lawrence Rubinstein ("Rubinstein"), John Adams ("Adams"),
----- ---------- -----
Nancie Blatt ("Blatt"), Alan Spiro ("Spiro"), Sheldon Gulinson ("Gulinson") and
----- ----- --------
James Zechman ("Zechman," and collectively with Mintz, Rubinstein, Adams, Blatt,
-------
Spiro and Gulinson, the "Management Stockholders").
-----------------------
WHEREAS, as of the date hereof, (i) Whitney owns 126,200 shares of
Series A Convertible Preferred Stock, no par value, of the Company (the "Series
------
A Preferred Stock") and 42,733 shares of Class B Common Stock, no par value, of
- -----------------
the Company (the "Class B Common Stock"), (ii) Whitney Equity Fund owns 504,800
--------------------
shares of Series A Preferred Stock and 170,931 shares of Class B Common Stock
and (iii) Whitney Debt Fund owns a $5,000,000 principal amount Senior
Subordinated Promissory Note (the "Whitney Subordinated Note") and 61,578 shares
-------------------------
of Class A Common Stock, no par value, of the Company (the "Class A Common
--------------
Stock");
- -----
WHEREAS, as of the date hereof, CVCA owns 631,000 shares of Series A
Preferred Stock, 61,578 shares of Class A Common Stock, 213,664 shares of
Class B Common Stock and a $5,000,000 principal amount Senior Subordinated
Promissory Note (the "CVCA Subordinated Note");
----------------------
WHEREAS, as of the date hereof, each Management Stockholder owns the
number of shares of Class A Common Stock set forth next to his or her name on
Schedule I hereto; and
WHEREAS, the parties hereto wish to restrict the transfer of the
Shares (as hereinafter defined) and to provide for first refusal rights,
preemptive rights and for certain other rights under certain conditions.
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the adequacy of which are hereby acknowledged, the parties
hereto agree as follows:
<PAGE>
2
1. Definitions. As used in this Agreement, the following terms
-----------
shall have the meanings set forth below:
"Affiliate" means, as to any Person, any other Person directly or
---------
indirectly controlling, controlled by or under direct or indirect common control
with such Person. For the purposes of this definition, "control," when used
with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise. The terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Board of Directors" means the Board of Directors of the Company.
------------------
"Business Day" means any day other than a Saturday, Sunday or
------------
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
"Capital Lease Obligations" means, as to any Person, any
-------------------------
obligation of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligation is required to be classified and accounted
for as a capital lease on a balance sheet of such Person under GAAP.
"Charter Documents" means the Amended and Restated Articles of
-----------------
Incorporation and By-laws of the Company as in effect on the date hereof, copies
of which are attached hereto as Exhibits A and B, respectively.
----------------
"Class A Common Stock" means the Class A Common Stock, no par
--------------------
value, of the Company.
"Class B Common Stock" means the Class B Common Stock, no par
--------------------
value, of the Company.
"Closing Date" has the meaning assigned to such term in Section
------------
3.1.1.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Condition of the Company" means the assets, business,
------------------------
properties, prospects, operations or financial condition of the Company and it
subsidiaries taken as a whole.
<PAGE>
3
"Contingent Obligation" means, as to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "primary
-------
obligation") of another Person (with respect to a given primary obligation, the
- ----------
"primary obligor"), whether or not contingent, (a) to purchase, repurchase or
---------------
otherwise acquire any such primary obligation or any property constituting
direct or indirect security therefor, or (b) to advance or provide funds (i) for
the payment or discharge of any such primary obligation, or (ii) to maintain
working capital or equity capital of the primary obligor in respect of any such
primary obligation or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of such primary
obligor, or (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor in respect thereof to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof.
"Contractual Obligations" means, as to any Person, any provision
-----------------------
of any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument to which such
Person is a party or by which it or any of its property is bound.
"CVCA Subordinated Note" has the meaning assigned to such term in
----------------------
the second Whereas clause of the Agreement.
"EBITDA" shall mean, with respect to the Company and its
------
subsidiaries on a consolidated basis for any period, the sum of (a) Net Income
for such period, (b) Interest Expense for such period, (c) Federal, state and
local income and franchise taxes deducted from revenue in determining such Net
Income, (d) depreciation and amortization deducted from revenue in determining
such Net Income (including any effect from the capitalization, amortization and
write-off of implementation costs) and (e) all non-cash expenses which reduce
Net Income, less (f) interest income and all non-cash items which increase Net
Income. For purposes of calculating (e) and (f) above, all items that would not
be considered operating items in
<PAGE>
4
the ordinary course of business or would result in changes in long-term asset or
liability accounts shall be excluded.
"Environmental Laws" means any federal, state, territorial,
------------------
provincial or local law, common law doctrine, rule, order, decree, judgment,
injunction, license, permit or regulation relating to environmental matters,
including those pertaining to land use, air, soil, surface water, ground water
(including the protection, cleanup, removal, remediation or damage thereof),
public or employee health or safety or any other environmental matter, together
with any other laws (federal, state, territorial, provincial or local) relating
to emissions, discharges, releases or threatened releases of any pollutant or
contaminant, including, without limitation, medical, chemical, biological,
biohazardous or radioactive waste and materials, into ambient air, land, surface
water, groundwater, personal property or structures, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, discharge or handling of any contaminant.
"Event of Default" means (a) any default by the Company or the
----------------
Management Stockholders in the due observance or performance of any covenant to
be observed or performed pursuant to Article 8 of the Stock Purchase Agreement
or pursuant to any other Transaction Agreement or any Related Transaction
Agreement or (b) any representation, warranty, certification or statement made
by or on behalf of the Company or the Management Stockholders in the Stock
Purchase Agreement or in any other Transaction Agreement, any Related
Transaction Agreement or in any certificate or other document delivered pursuant
thereto shall have been incorrect in any material respect when made.
"Excess Offered Securities" has the meaning assigned to such term
-------------------------
in Section 3.1.3(a).
"Family Members" has the meaning assigned to such term in
--------------
Section 2.2.
"GAAP" means generally accepted United States accounting
----
principles in effect from time to time.
"Governmental Authority" means the government of any nation,
----------------------
state, city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative func-
tions of or pertaining to government, and any corporation or other entity owned
or controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
<PAGE>
5
"IBCA" means the Business Corporation Act of 1983 of the State of
----
Illinois.
"Indebtedness" means, as to any Person, (a) all obligations of
------------
such Person for borrowed money (including, without limitation, reimbursement and
all other obligations with respect to surety bonds, letters of credit and
bankers' acceptances, whether or not matured), (b) all obligations of such
Person evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any lien (other than
liens in favor of lessors under leases other than leases included in clause
(f)) on any property or asset owned or held by such Person regardless of whether
the indebtedness secured thereby shall have been assumed by such Person or is
non-recourse to the credit of such Person and (h) all Contingent Obligations of
such Person.
"Initial Public Offering" shall mean the sale in any underwritten
-----------------------
offering by the Company of its Class A Common Stock pursuant to a registration
statement on Form S-1 or otherwise under the Securities Act.
"Interest Expense" shall mean, with respect to the Company and
----------------
its subsidiaries on a consolidated basis for any period, the sum of (a) gross
interest expense of the Company and its subsidiaries for such period in
accordance with GAAP consistently applied, including (i) the amortization of
debt discounts, (ii) the amortization of all fees payable in connection with the
incurrence of Indebtedness to the extent included in interest expense and
(iii) the portion of any payments or accruals with respect to Capital Lease
Obligations allocable to interest expense, and (b) any other capitalized
interest of the Company and its subsidiaries determined on a consolidated basis
in accordance with GAAP.
<PAGE>
6
"Investors" has the meaning assigned to such term in the first
---------
paragraph of this Agreement.
"Involuntary Transfer" means any transfer, proceeding or action
--------------------
by or in which a Stockholder shall be deprived or divested of any right, title
or interest in or to any of the Shares, including, without limitation, any
seizure under levy of attachment or execution, any transfer in connection with
bankruptcy (whether pursuant to the filing of a voluntary or an involuntary
petition under the United States Bankruptcy Code of 1978, or any modifications
or revisions thereto) or other court proceeding to a debtor in possession,
trustee in bankruptcy or receiver or other officer or agency, any transfer to a
state or to a public officer or agency pursuant to any statute pertaining to
escheat or abandoned property and any transfer pursuant to a divorce or
separation agreement or a final decree of a court in a divorce action.
"Involuntary Transferee" has the meaning assigned to such term in
----------------------
Section 3.2.1.
"Junior Subordinated Notes" means the Company's Junior
-------------------------
Subordinated Promissory Notes, dated the Closing Date, issued pursuant to the
Share Redemption Agreement.
"Liens" has the meaning assigned to such term in Section 3.1.5.
-----
"Management Stockholders" has the meaning assigned to such term
------------------------
in the first paragraph of this Agreement.
"Net Cash Proceeds" shall mean, with respect to any Initial
-----------------
Public Offering, (i) the cash proceeds received by the Corporation or any
subsidiary of the Corporation, minus (ii) reasonable brokerage commissions or
-----
underwriting fees and other reasonable fees and expenses (including, without
limitation, reasonable fees, charges and disbursements of counsel and reasonable
fees and expenses of investment bankers) relating to such Initial Public
Offering.
"Net Income" shall mean for any period and prior to accounting
----------
for the payment of any dividends on the Series A Preferred Stock, (a) the net
income (loss) of the Company and its subsidiaries, determined on a consolidated
basis in accordance with GAAP, minus (b) the aggregate for such period of,
-----
without duplication, (i) the net income (loss) of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
<PAGE>
7
acquisition, determined in accordance with GAAP, and (ii) any other items that
are treated as expenses under GAAP, but excluding from the definition of Net
Income any extraordinary or non-recurring charges, expenses, gains or losses,
all computed in accordance with GAAP.
"New Issuance" has the meaning assigned to such term in
------------
Section 3.3.
"Offered Securities" has the meaning assigned to such term in
------------------
Section 3.1.1.
"Offering Notice" has the meaning assigned to such term in
---------------
Section 3.1.1.
"Offer Price" has the meaning assigned to such term in Section
-----------
3.1.1.
"Option Period" has the meaning assigned to such term in Section
-------------
3.1.3.
"Outstanding Shares" shall mean all shares of Class A Common
------------------
Stock issued and outstanding immediately following the closing of a Qualified
Public Offering. For the purposes of any computation of the amount of
Outstanding Shares, all shares of Series A Preferred Stock and Class B Common
Stock shall be deemed to be converted into the maximum number of shares of Class
A Common Stock into which such shares of Series A Preferred Stock and Class B
Common Stock are then convertible as provided in the Amended and Restated
Articles of Incorporation.
"Permitted Transferee" has the meaning assigned to such term in
--------------------
Section 2.2.
"Person" means any individual, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"Preferred Stockholder" means any holder of shares of Series A
---------------------
Preferred Stock.
"Primary Trigger Event" shall mean that at the end of any fiscal
---------------------
year ending prior to a Qualified Public Offering, either the revenue or the
EBITDA of the Company and its subsidiaries on a consolidated basis for such
fiscal year shall fall below the revenue or EBITDA amount (as the case may be)
set forth below with respect to such fiscal year (determined on the basis of the
audited
<PAGE>
8
consolidated financial statements of the Company and its subsidiaries for such
fiscal year):
Fiscal Year Ended
December 31: Revenue: EBITDA:
----------------- -------- -------
1995 $103,228,000.00 $ 3,741,000.00
1996 $180,234,000.00 $11,407,000.00
1997 $198,257,000.00 $12,548,000.00
1998 $218,083,000.00 $13,802,000.00
1999 $239,891,000.00 $15,183,000.00
2000 $263,880,000.00 $16,701,000.00
2001 $290,268,000.00 $18,371,000.00
"Purchasing Rightholders" has the meaning assigned to such term
-----------------------
in Section 3.1.3(c).
"Qualified Public Offering" means an Initial Public Offering by
-------------------------
the Company with Net Cash Proceeds to the Company in excess of $30,000,000.00
and in respect of which the price per share of Class A Common Stock sold in such
Qualified Public Offering multiplied by the number of Outstanding Shares is at
least $250,000,000.00.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement, dated as of the date hereof, among the Company, Whitney, Whitney
Equity Fund, Whitney Debt Fund, CVCA and the Management Stockholders.
"Related Transaction Agreements" means each agreement executed
------------------------------
and delivered in connection with the Share Redemption.
"Requirements of Law" means, as to any Person, the articles or
-------------------
certificate of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation, right,
privilege, qualification, license or franchise or determination of an arbitrator
or a court or other Governmental Authority, in each case applicable or binding
upon such Person or any of its property or to which such Person or any of its
property is subject or pertaining to any or all of the transactions contemplated
or referred to herein.
"Rightholders" has the meaning assigned to such term in Section
------------
3.1.1.
<PAGE>
9
"Secondary Trigger Event" shall mean that at the end of any
-----------------------
fiscal year ending prior to a Qualified Public Offering, either the revenue or
the EBITDA of the Company and its subsidiaries on a consolidated basis for such
fiscal year shall fall below the revenue or EBITDA amount (as the case may be)
set forth below with respect to such fiscal year (determined on the basis of the
audited consolidated financial statements of the Company and its subsidiaries
for such fiscal year):
Fiscal Year Ended
December 31: Revenue: EBITDA:
----------------- -------- -------
1995 $ 61,937,000.00 $ 2,245,000.00
1996 $108,140,000.00 $ 6,844,000.00
1997 $118,954,000.00 $ 7,529,000.00
1998 $130,850,000.00 $ 8,281,000.00
1999 $143,934,000.00 $ 9,110,000.00
2000 $158,328,000.00 $10,021,000.00
2001 $174,161,000.00 $11,023,000.00
"Securities Act" means the Securities Act of 1933, as amended,
--------------
and the rules and regulations of the Commission promulgated thereunder.
"Selling Stockholder" has the meaning assigned to such term in
-------------------
Section 3.1.1.
"Series A Preferred Stock" has the meaning assigned to such term
------------------------
in the first Whereas clause of this Agreement.
"Share Redemption" means the redemption by the Company of common
----------------
stock from certain of the Management Stockholders, in each case as contemplated
by the Share Redemption Agreement.
"Share Redemption Agreement" means the Redemption Agreement dated
--------------------------
as of the date hereof, among the Company and certain of the Management
Stockholders.
"Shares" means, with respect to each Stockholder, all shares,
------
whether now owned or hereafter acquired, of Class A Common Stock, Class B Common
Stock and Series A Preferred Stock. For the purposes of any computation of the
amount of Shares either outstanding or held by any Stockholder pursuant to
Sections 3, 5.5 and 5.6, all Class B Common Stock and Series A Preferred Stock
held
<PAGE>
10
by such Stockholder shall be deemed to be converted, exercised or exchanged for
shares of Class A Common Stock whether or not such conversion, exercise or
exchange has actually been effected.
"Stock Purchase Agreement" means the Stock Purchase Agreement,
------------------------
dated as of the date hereof, among the Company, Whitney Equity Fund, Whitney,
CVCA and certain of the Management Stockholders.
"Stockholders" means, collectively, Whitney, Whitney Equity Fund,
------------
Whitney Debt Fund, CVCA, Management Stockholders and any transferee who has
agreed to be bound by the terms and conditions of this Agreement in accordance
with Section 4.
"Stockholders' Meeting" has the meaning assigned to such term in
---------------------
Section 5.1.
"Subordinated Note and Common Stock Purchase Agreement" means the
-----------------------------------------------------
Subordinated Note and Common Stock Purchase Agreement, dated as of the date
hereof, between the Company, Whitney Debt Fund, CVCA and certain of the
Management Stockholders.
"Subscription Agreements" means each of the Subscription
-----------------------
Agreements, dated as of the date hereof, between the Company and certain of its
Stockholders.
"Third Party Offer" has the meaning assigned to such term in
-----------------
Section 3.1.1.
"Third Party Offeror" has the meaning assigned to such term in
-------------------
Section 3.1.1.
"Transaction Agreements" means, collectively, this Agreement, the
----------------------
Stock Purchase Agreement, the Registration Rights Agreement, the Subordinated
Note and Common Stock Purchase Agreement, the Whitney Subordinated Note and the
CVCA Subordinated Note.
"transfer" has the meaning assigned to such term in Section 2.1.
--------
"Transferred Shares" has the meaning assigned to such term in
------------------
Section 3.2.1.
"Whitney Subordinated Note" has the meaning assigned to such term
-------------------------
in the first Whereas clause of this Agreement.
<PAGE>
11
"Written Consent" has the meaning assigned to such term in
---------------
Section 5.1.
2. Restrictions on Transfer of Shares.
----------------------------------
2.1 Limitation on Transfer. No Stockholder shall sell, give,
----------------------
assign, hypothecate, pledge, encumber, grant a security interest in or otherwise
dispose of (whether by operation of law or otherwise) (each a "transfer") any
--------
Shares or any right, title or interest therein or thereto, except in accordance
with the provisions of this Agreement. Any attempt to transfer any Shares or
any rights thereunder in violation of the preceding sentence shall be null and
void ab initio and the Company shall refuse to register any such transfer.
-- ------
2.2 Permitted Transfers. At any time, including upon death, any
-------------------
Stockholder who is an individual may, subject to this Section 2.2 and
Sections 2.3 and 4, transfer Shares to a member of such Stockholder's immediate
family, which shall include her or his ancestors, spouse, siblings, descendants
or spouses (or surviving spouses) of descendants ("Family Members"), or a trust,
--------------
corporation, partnership or other entity, all of the beneficial interests in
which shall be held by such Stockholder or one or more Family Members of such
Stockholder; provided, however, that during the period any such trust,
-------- -------
corporation, partnership or other entity holds any right, title or interest in
any Shares, no Person other than such Stockholder or one or more Family Members
of such Stockholder may be or become beneficiaries, stockholders or limited or
general partners or owners thereof. With respect to a Stockholder that is not
an individual, any such Stockholder may, subject to this Section 2.2 and
Sections 2.3 and 4, transfer Shares to (i) any corporation, partnership or other
entity which is an Affiliate of such Stockholder or (ii) any general or limited
partners of such Stockholder or Affiliate of such Stockholder or (iii) any
shareholder in such Stockholder or other person having an ownership interest in
such other entity which is a Stockholder, or (iv) any beneficiary of a trust
which is a Stockholder or any Family Member of a beneficiary of a trust which is
a Stockholder or any trust all of the beneficial interests in which shall be
held by Family Members of a beneficiary of a trust which is a Stockholder (each
of the Persons referred to in this Section 2.2 is herein referred to as a
"Permitted Transferee").
--------------------
2.3 Permitted Transfer Procedures. If any Stockholder desires
-----------------------------
to transfer all or any portion of its, her or his Shares to a Permitted
Transferee under this Section 2, it shall give notice to the Company of its
<PAGE>
12
intention to make such transfer not less than five (5) days prior to effecting
such transfer, which notice shall state the name and address of each Permitted
Transferee to whom such transfer is proposed and the number of Shares proposed
to be transferred to such Permitted Transferee.
3. Right of First Refusal and Tag Along.
------------------------------------
3.1 Proposed Voluntary Transfer.
---------------------------
3.1.1 Offering Notice. Subject to the last sentence of
---------------
this Section 3.1.1, if any Stockholder (a "Selling Stockholder") desires to
-------------------
transfer all or any portion of its, her or his Shares to any Person (other than
a Permitted Transferee) (a "Third Party Offeror") or has received a bona fide
-------------------
offer to buy all or any portion of its, her or his Shares from any Third Party
Offeror and desires to accept such offer (in each case, a "Third Party Offer"),
-----------------
such Selling Stockholder shall send written notice (the "Offering Notice") to
---------------
the Company and the other Stockholders (the "Rightholders"), which shall state
------------
(a) the number of securities of each class of Shares proposed to be transferred
(the "Offered Securities"), (b) the proposed purchase price per Share to be paid
------------------
by the Third Party Offeror (the "Offer Price"), (c) the name of the Third Party
-----------
Offeror, (d) that the proposed purchase of the Offered Securities shall be
consummated after the expiration or termination of the Option Period but on or
prior to the first Business Day (the "Closing Date") which occurs thirty (30)
------------
days after the expiration of the Option Period and (e) that the Third Party
Offer has been accepted by the Selling Stockholder subject to the rights of the
Rightholders contained in this Section 3.1. The Offering Notice shall also
state any other material terms and conditions of the Third Party Offer and shall
include a copy of all writings between the Third Party Offeror and the Selling
Stockholder necessary to establish the terms of the Third Party Offer.
Notwithstanding anything to the contrary in this Section 3.1.1, no Management
Stockholder may be a Selling Stockholder for a period of eighteen months from
the Closing Date.
3.1.2 Conditions to Effectiveness of Offering Notice. The
----------------------------------------------
Offering Notice shall not be effective unless and until all of the following
conditions are met:
(a) the Offering Notice shall be accompanied by a
certificate of the Third Party Offeror stating that (i) the Third Party
Offer has been approved by its board of directors (or the equivalent if the
Third Party Offeror is not a corporation), if necessary, (ii) the
description of the Third Party Offer contained in the Offering Notice is
complete and
<PAGE>
13
accurate, (iii) it is aware of the rights of the Rightholders contained in
this Section 3.1 and (iv) prior to the purchase of any Offered Securities
by the Third Party Offeror it will become a party to this Agreement and
agree to be bound by the terms and conditions hereof to the same extent and
in the same manner as the Selling Stockholder;
(b) the Third Party Offer shall not be subject to
any conditions, except that it may be conditioned upon the truth as of the
closing of the proposed purchase of customary representations and
warranties and the delivery of stock certificates and a customary legal
opinion;
(c) the Offer Price shall be payable wholly in
cash; and
(d) the Third Party Offeror shall have furnished
evidence satisfactory to the Company in its reasonable judgment as to the
financial ability of such Third Party Offeror to consummate the proposed
purchase.
3.1.3 Rightholders Option. For a period of forty-five (45)
-------------------
days after the effectiveness of the Offering Notice pursuant to Section 3.1.2
(the "Option Period"):
-------------
(a) the Rightholders shall have the right to
purchase all (but not less than all) of the Offered Securities at a
purchase price equal to the Offer Price and upon the terms and conditions
of the Third Party Offer. Each Rightholder shall have the right to pur-
chase that percentage of the Offered Securities determined by dividing (i)
the total number of Shares then owned by such Rightholder by (ii) the total
number of Shares then owned by all Rightholders participating in the
purchase of the Offered Securities (including such Rightholder's Shares).
If any Rightholder does not fully subscribe for the number or amount of
Offered Securities it is entitled to purchase, then each other
participating Rightholder shall have the right to purchase that percentage
of the Offered Securities not so subscribed for (the "Excess Offered
--------------
Securities"), determined by dividing (i) the total number of Shares then
----------
owned by such fully participating Rightholder by (ii) the total number of
Shares then owned by all fully participating Rightholders who elect to
purchase the Excess Offered Securities (including such Rightholder's
Shares);
<PAGE>
14
(b) if the Rightholders do not elect to purchase
all of the Offered Securities pursuant to clause (a) of this Section 3.1.3,
the Investors (excluding any Investor that is a Selling Stockholder) shall
have the right to sell, to the Third Party Offeror upon the terms set forth
in the Third Party Offer, that number of Shares held by such Investor equal
to that percentage of the Offered Securities determined by dividing (i) the
total number of Shares then owned by such Investor by (ii) the total number
of Shares owned by all Stockholders participating in the sale to the Third
Party Offeror (including such Investor's Shares). Shares to be sold to the
Third Party Offeror by an Investor pursuant to this Section 3.1.3(b) shall
be of the same class and series as the Offered Securities. To the extent
any Investor exercises its right to sell Shares pursuant to this
Section 3.1.3(b), the number of shares of the Offered Securities to be sold
to the Third Party Offeror by the Selling Stockholder shall be reduced; or
(c) if any Rightholder or Rightholders (the
"Purchasing Rightholders") elect to purchase all of the Offered Securities
-----------------------
pursuant to clause (a) of this Section 3.1.3, then, prior to the expiration
of the Option Period, each other Rightholder who has declined to be a
Purchasing Rightholder shall have the right to sell to the Purchasing
Rightholders, upon the terms and conditions of the Third Party Offer, that
number of Shares held by such Rightholder equal to that percentage of the
Offered Securities determined by dividing (i) the total number of Shares
then owned by such Rightholder by (ii) the total number of Shares then
owned by all of the Stockholders requesting participation in the sale other
than the Purchasing Rightholders. Shares to be sold to the Purchasing
Rightholders by a Rightholder pursuant to this Section 3.1.3(c) shall be of
the same class and series as the Offered Securities. To the extent any
Rightholder exercises its rights to sell Shares pursuant to this Section
3.1.3(c), the number of shares of the Offered Securities to be sold to the
Purchasing Rightholders by the Selling Stockholder shall be reduced.
3.1.4 Exercise of Options. The options of a Rightholder
-------------------
under Section 3.1.3 shall be exercisable by delivering written notice of the
exercise thereof, prior to the expiration of the Option Period, to the Selling
Stockholder with a copy to the Company and the other Stockholders. Such notice
shall state, as appropriate, (a) the number of Shares held by such Rightholder,
(b) the
<PAGE>
15
number of Shares that such Rightholder desires to purchase pursuant to
Section 3.1.3(a), (c) if such Rightholder is an Investor, the number of Shares
that such Investor desires to sell pursuant to Section 3.1.3(b) and (d) the
number of Shares that such Rightholder desires to sell pursuant to Sec-
tion 3.1.3(c). The failure of a Rightholder to respond within the Option Period
to the Selling Stockholder shall be deemed to be a waiver of its, her or his
rights under Section 3.
3.1.5 Sale to the Purchasing Rightholders. The closing of
-----------------------------------
the purchase of Offered Securities subscribed to by the Purchasing Rightholders
under Section 3.1.3(a) shall be held at the principal office of the Company at
11:00 a.m., local time, on the Closing Date or at such other time and place as
the parties to the transaction may agree. At such closing, the Selling
Stockholder and all Stockholders who elect to participate in the sale of the
Offered Securities to the Purchasing Rightholders pursuant to Section 3.1.3(c)
shall deliver to the Purchasing Rightholders certificates representing the
Offered Securities, duly endorsed with a signature guarantee for transfer and
accompanied by all requisite transfer taxes, if any, and such Offered Securities
shall be free and clear of any liens, claims, options, charges, encumbrances or
rights ("Liens") (other than those arising hereunder), and the Selling Stock-
-----
holder and such Stockholders who elect to participate in such sale pursuant to
Section 3.1.3(c) shall so represent and warrant, and each shall further
represent and warrant that it is the beneficial and record owner of such Offered
Securities. Each Purchasing Rightholder shall, at the closing, deliver to the
Selling Stockholder and all other Stockholders who elect to participate in the
sale of the Offered Securities to the Purchasing Rightholders pursuant to
Section 3.1.3(c) payment in full in immediately available funds for the Offered
Securities purchased by it. At such closing, all of the parties to the
transaction shall execute such additional documents as are otherwise necessary
or appropriate.
3.1.6 Sale to Third Party Offeror. Unless the
---------------------------
Rightholders elect to purchase all of the Offered Securities pursuant to
Section 3.1.3(a), the Selling Stockholder and all Investors who elect to
participate in the Third Party Offer pursuant to Section 3.1.3(b) may sell such
portions of their Shares as can be sold under Section 3.1.3(b) to the Third
Party Offeror on the terms and conditions of the Third Party Offer; provided,
--------
however, that such sale is bona fide and made prior to or on the Closing Date.
- -------
If such sale is not consummated prior to or on the Closing Date for any reason,
then the restrictions provided for herein shall again become effective, and no
transfer of such
<PAGE>
16
Offered Securities may be made thereafter (other than to a Permitted Transferee)
by the Selling Stockholder without again offering the same to the Rightholders
in accordance with this Section 3.1.
3.2 Sale of the Company. If at any time following the
-------------------
occurrence of a Secondary Trigger Event, (i) the Investors receive a Third Party
Offer to purchase all of the Shares of the Company and all of the Investors
approve such Third Party Offer, or (ii) the Company receives a proposal to
effect a business combination with a Third Party Offeror (a "Merger Proposal")
---------------
and the Board of Directors by a majority vote determines to accept such Merger
Proposal, then the Investors or the Board of Directors, as the case may be,
shall be entitled to deliver a written notice (the "Buyout Notice") with respect
-------------
to such Third Party Offer or Merger Proposal, as the case may be, to the other
Stockholders (in the case of any such notice delivered by the Investors) or all
of the Stockholders (in the case of any such notice delivered by the Board of
Directors) which shall state (a) the intention to effectuate such transaction,
(b) the name and address of the person or entity making the Third Party Offer or
Merger Proposal, as the case may be, and (c) the purchase price payable in
connection with such Third Party Offer or Merger Proposal. The Buyout Notice
shall also state any other material terms and conditions of the Third Party
Offer or Merger Proposal and shall include a copy of all writings, if any,
necessary to establish the terms of such Third Party Offer or Merger Proposal.
The Stockholders agree that, upon receipt of the Buyout Notice, they shall be
obligated to sell all of their Shares to the Third Party Offeror upon the terms
and conditions of the Third Party Offer or Merger Proposal, with the proceeds of
any such sale to be divided amongst the Stockholders as if the Company is being
liquidated (and otherwise take all necessary action to cause the Company to
consummate the proposed transaction, including voting their Shares in favor of
such sale transaction).
The closing of any sale pursuant to this Section 3.2 shall be held at
the principal office of the Company no more than ninety (90) and no less than
ten (10) days after delivery of the Buyout Notice or at such other time and
place as the parties to the transaction may agree.
3.3 Involuntary Transfers.
---------------------
3.3.1 Rights of First Refusal upon Involuntary Transfer.
-------------------------------------------------
If an Involuntary Transfer of any Shares (the "Transferred Shares") owned by any
------------------
of the Stockholders shall occur, the Rightholders shall have the same rights as
specified in Section 3.1.3(a) with respect to such
<PAGE>
17
Transferred Shares as if the Involuntary Transfer had been a proposed voluntary
transfer by a Selling Stockholder, except that (a) the Option Period shall run
from the date of receipt by the Company and the Rightholders of notice of the
Involuntary Transfer, (b) the Closing Date shall be ninety (90) days after the
expiration of the Option Period, (c) such rights shall be exercised by notice to
the transferee of such Transferred Shares (the "Involuntary Transferee") rather
----------------------
than to the Stockholder who suffered or will suffer the Involuntary Transfer and
(d) the purchase price per Transferred Share shall be agreed to between the
Involuntary Transferee and the Purchasing Rightholders; provided, however, that
-------- -------
if such parties fail to agree as to such purchase price, the purchase price
shall be the fair market value thereof as determined in accordance with
Section 3.3.2.
3.3.2 Fair Market Value. The fair market value of the
-----------------
Transferred Shares shall be determined by a panel of three independent
appraisers, which shall be recognized investment banking firms or recognized
experts experienced in the valuation of corporations. Within fifteen (15) days
after the notice to the Involuntary Transferee with respect to the exercise of
the right to purchase the Transferred Shares, the Involuntary Transferee and the
Board of Directors shall each designate one such appraiser that is willing and
able to conduct such determination. If either the Involuntary Transferee or the
Board of Directors fails to make such designation within such period, the other
party that has made the designation shall have the right to make the designation
on its behalf. The two appraisers designated shall, within a period of fif-
teen (15) days after the designation of the second appraiser, agree to designate
a third appraiser. The three appraisers shall conduct their determination as
promptly as practicable, and the fair market value of the Transferred Shares
shall be the average of the determination of the two appraisers that are closer
to each other than to the determination of the third appraiser, which third
determination shall be discarded. Such determination shall be final and binding
on the Involuntary Transferee and the Purchasing Rightholders. The Involuntary
Transferee shall be responsible for the fees and expenses of the appraiser
designated by or on behalf of it and the Purchasing Rightholders shall be
responsible for the fees and expenses of the appraiser designated by or on
behalf of the Board. The Involuntary Transferee and the Purchasing Rightholders
shall each share half the fees and expenses of the third appraiser designated by
the other appraisers.
3.3.3 Closing. The closing of any purchase under this
-------
Section 3.3 shall be held at the principal
<PAGE>
18
office of the Company at 11:00 a.m., local time, on the Closing Date or at such
other time and place as the parties to the transaction may agree. At such
closing, the Involuntary Transferee shall deliver to the Purchasing Rightholders
certificates, if applicable, or other instruments or documents representing the
Transferred Shares being purchased under this Section 3.3, duly endorsed with a
signature guarantee for transfer and accompanied by all requisite transfer
taxes, if any, and such Transferred Shares shall be free and clear of any Lien
(other than that arising hereunder), including, without limitation, any Lien
arising through the action or inaction of the Involuntary Transferee, and the
Involuntary Transferee shall so represent and warrant, and shall further
represent and warrant that it is the beneficial owner of such Transferred
Shares. Each Purchasing Rightholder shall deliver to the Selling Stockholder at
the closing payment in full in immediately available funds for such Transferred
Shares. At such closing, all of the parties to the transaction shall execute
such additional documents as are otherwise necessary or appropriate.
3.3.4 General. In the event that the provisions of this
-------
Section 3.3 shall be held to be unenforceable with respect to any particular
Involuntary Transfer, the Rightholders shall have the rights specified in
Section 3.1.3 with respect to any transfer by an Involuntary Transferee subject
to a bona fide offer from a third party for such Shares, and each Stockholder
agrees that any Involuntary Transfer shall be subject to such rights, in which
case the Involuntary Transferee shall be deemed to be the Selling Stockholder
for purposes of Section 3.1 of this Agreement and shall be bound by the
provisions of Section 3.1 and the other provisions of this Agreement.
3.4 Issuances of Capital Stock by the Company; Preemptive Right.
-----------------------------------------------------------
The Company shall give each Stockholder thirty (30) days' prior written notice
of the proposed issuance of any capital stock or any security convertible for or
exchangeable into capital stock (each a "New Issuance") (other than capital
------------
stock to be issued in connection with (i) an employee stock option plan that is
approved by the Company's Board of Directors, (ii) a stock split or stock
dividend, (iii) an issuance of capital stock pursuant to the exercise of any
option, warrant or convertible security outstanding on the date of this
Agreement, (iv) a public offering of the Company's capital stock or (v) an
issuance of capital stock pursuant to the Subscription Agreements). By written
notice to the Company given within fifteen (15) days of being notified of such
New Issuance, each Stockholder shall be entitled to purchase that percentage of
the New Issuance determined by dividing
<PAGE>
19
(a) the total number of Shares owned by such Stockholder by (b) the total number
of Shares then owned by all Stockholders participating in such purchase
(including such Stockholder's Shares). If any Stockholder does not fully
subscribe for the number or amount of shares of capital stock or securities
convertible for or exchangeable into capital stock that it is entitled to
purchase pursuant to this Section 3.4, then each other Stockholder participating
in such purchase to the full extent provided for in the preceding sentence shall
have the right to purchase that percentage of the New Issuance not so subscribed
for, determined by dividing (a) the total number of Shares then owned by such
fully participating Stockholder by (b) the total number of Shares then owned by
all fully participating Stockholders who elect to purchase shares or other
securities pursuant to this Section 3.4 (including such Stockholder's Shares).
The closing of any purchase pursuant to this Section 3.4 shall be held
at the time and place of the closing of, and on the same terms and conditions
as, the New Issuance, or at such other time and place as the parties to the
transaction may agree.
4. All Transfers in Compliance with Law and Subject to this
--------------------------------------------------------
Agreement; Substitution of Transferee. Notwithstanding any other provision of
- -------------------------------------
this Agreement, no transfer may be made under Sections 2.2 or 3 unless (a) each
transferee of Shares has agreed in writing to be bound by the terms and
conditions of this Agreement to the same extent and in the same manner as the
Stockholder transferring such Shares and (b) the transfer complies in all
respects with the applicable provisions of this Agreement and with applicable
federal and state securities laws including, without limitation, the Securities
Act. Upon becoming a party to this Agreement, a transferee shall be substituted
fully for, and shall enjoy the same rights and be subject to the same obli-
gations as its predecessor hereunder, except that only a Permitted Transferee of
the Shares of Whitney shall have the rights of Whitney under Section 5, only a
Permitted Transferee of Whitney Equity Fund shall have the rights of Whitney
Equity Fund under Section 5, only a Permitted Transferee of CVCA shall have the
rights of CVCA under Section 5 and only a Permitted Transferee of a Management
Stockholder shall have the rights of such Management Stockholder under Section
5.
5. Governance.
----------
5.1 General. From and after the execution of this Agreement,
-------
each Stockholder shall vote its Shares, at any regular or special meeting of
stockholders of the
<PAGE>
20
Company (each a "Stockholders' Meeting"), or in any written consent executed in
---------------------
lieu of such a meeting of stockholders (a "Written Consent"), and shall take all
---------------
other actions necessary to give effect to the agreements contained in this
Agreement and to ensure that the Charter Documents do not at any time hereafter
conflict in any respect with the provisions of this Agreement. In addition,
each Stockholder shall vote its Shares at any Stockholders' Meeting, or act by
Written Consent with respect to such Shares, upon any matter submitted for
action by the Company's stockholders, or with respect to which such Stockholder
may vote or act by Written Consent, in conformity with the specific terms and
provisions of this Agreement and the Charter Documents.
5.2 Stockholders' Actions. In order to effectuate the
---------------------
provisions of this Section 5, each Stockholder hereby agrees that, when any
action or vote is required to be taken by such Stockholder pursuant to this
Agreement, such Stockholder shall use its best efforts to call, or cause the
appropriate officer and directors of the Company to call, a Stockholders'
Meeting or to execute or cause to be executed a Written Consent pursuant to Sec-
tion 5/8.45 of the IBCA to effectuate such stockholder action. Further, each
Stockholder shall use its best efforts to cause the Board of Directors to adopt,
either at a meeting of the Board of Directors or by unanimous written consent of
the Board of Directors pursuant to Section 5/7.10 of the IBCA, all the
resolutions necessary to effectuate the provisions of this Agreement. Each
Stockholder shall use its best efforts to cause the Board of Directors to cause
the Secretary of the Company, or if there be no Secretary, such other officer of
the Company as the Board of Directors may appoint to fulfill the duties of
Secretary, to not record any vote or consent contrary to the terms of this
Section 5.
5.3 Election of Directors. Each Stockholder shall vote its
---------------------
Shares at any Stockholders' Meeting, or act by Written Consent with respect to
such Shares, and take all other actions necessary to ensure that the number of
directors constituting the entire Board of Directors shall be eleven, as
provided for below. Each Stockholder shall vote its Shares at any Stockholders'
Meeting called for the purpose of filling the positions on the Board of
Directors, or in any Written Consent executed for such purpose, and take all
other actions necessary to ensure the election to the Board of Directors of the
following individuals:
(a) one individual, who shall be designated by Whitney (the
"J.H. Whitney Director");
---------------------
<PAGE>
21
(b) one individual, who shall be designated by Whitney
Equity Fund (the "Whitney Equity Fund Director" and, collectively with the J.H.
----------------------------
Whitney Director, the "Whitney Directors");
-----------------
(c) two individuals, who shall be designated by CVCA (the
"CVCA Directors");
--------------
(d) four individuals, who shall be designated by the vote
of a majority of the shares of Class A Common Stock held by the Management
Stockholders (the "Management Directors"); and
--------------------
(e) three individuals (the "Independent Directors"), who
---------------------
shall be designated by the vote of a majority of the Whitney Directors, the CVCA
Directors and the Management Directors, in the aggregate, which majority shall
include the vote of at least one Whitney Director and one CVCA Director (the
"Required Vote").
-------------
On the Closing Date, the Whitney Directors shall be Peter M. Castleman and
Dr. Jeffrey R. Jay, the CVCA Directors shall be Dr. Mitchell J. Blutt and
Dr. Damion E. Wicker and two of the Management Directors shall be Mintz and
Adams. The third and fourth Management Directors shall be designated by the
Management Stockholders subject to approval by the Investors, such approval not
to be unreasonably withheld.
5.4 Removal and Replacement. Whitney shall be entitled at any
-----------------------
time and for any reason (or for no reason) to designate the J.H. Whitney
Director for removal, Whitney Equity Fund shall be entitled at any time and for
any reason (or for no reason) to designate the Whitney Equity Fund Director for
removal, CVCA shall be entitled at any time and for any reason (or for no
reason) to designate any or both of the CVCA Directors for removal and the
Management Stockholders shall be entitled at any time and for any reason (or for
no reason) to designate by the vote of a majority of the shares of Class A
Common Stock held by the Management Stockholders any of the Management Directors
for removal. The Whitney Directors, the CVCA Directors and the Management
Directors shall be entitled at any time and for any reason (or for no reason) to
designate, pursuant to a Required Vote, any Independent Director for removal.
If, at any time, a vacancy is created on the Board of Directors by reason of the
death, removal or resignation of the J.H. Whitney Director, the Whitney Equity
Fund Director, either CVCA Director, any Management Director or any Independent
Director, each Stockholder shall, as soon as practicable after the date such
vacancy first occurs and in any event prior to the transaction of any other
business by the Stockholders or the Board of Directors, take action,
<PAGE>
22
including the voting of its Shares, to elect a director or directors designated
to fill such vacancy or vacancies in the following manner:
(a) if a vacancy is created by reason of the death, removal
or resignation of the J.H. Whitney Director, Whitney shall designate a nominee
to be elected to fill such vacancy until the next annual meeting of stockholders
of the Company;
(b) if a vacancy is created by reason of the death, removal
or resignation of the Whitney Equity Fund Director, Whitney Equity Fund shall
designate a nominee to be elected to fill such vacancy until the next annual
meeting of stockholders of the Company;
(c) if a vacancy is created by reason of the death, removal
or resignation of a CVCA Director, CVCA shall designate a nominee to be elected
to fill such vacancy until the next annual meeting of stockholders of the
Company;
(d) if a vacancy is created by reason of the death, removal
or resignation of a Management Director, the Management Stockholders shall
designate by the vote of a majority of the shares of Class A Common Stock held
by the Management Stockholders a nominee, to be elected to fill such vacancy
until the next annual meeting of stockholders of the Company; and
(e) if a vacancy is created by reason of the death, removal
or resignation of an Independent Director, the Whitney Directors, the CVCA
Directors and the Management Directors shall, pursuant to a Required Vote,
designate a nominee to be elected to fill such vacancy until the next annual
meeting of stockholders of the Company.
5.5 Special Circumstances. Notwithstanding anything to the
---------------------
contrary contained in Sections 5.3 and 5.4, upon the occurrence of the first
Primary Trigger Event, the Management Stockholders agree that they will
designate by the vote of a majority of the shares of Class A Common Stock held
by such Management Stockholders, one Management Director who shall immediately
resign from the Company's Board of Directors. Upon the occurrence of the first
Secondary Trigger Event, the Management Stockholders agree that they will
designate by the vote of a majority of the shares of Class A Common Stock held
by such Management Stockholders, one of the three remaining Management Directors
who shall immediately resign from the Company's Board of Directors. When a
vacancy is created on the Board of Directors by resignation of a Management
Director pursuant to this Section 5.5, each Stockholder shall, as
<PAGE>
23
soon as practicable after the occurrence of the vacancy, and in any event prior
to the transaction of any other business by the Stockholders or the Board of
Directors, take action, including the voting of its Shares, to elect a director
or directors designated to fill such vacancy or vacancies as designated by the
vote of a majority of the Whitney Directors and the CVCA Directors. Any
director elected pursuant to this Section 5.5 shall be known as an "Investor
--------
Director." A majority of the Whitney Directors and CVCA Directors shall be
- --------
entitled at any time and for any reason (or for no reason) to designate the
Investor Director for removal. If, at any time, a vacancy is created on the
Board of Directors by reason of the death, removal or resignation of an Investor
Director, each Stockholder shall, as soon as practicable after the date such
vacancy first occurs and in any event prior to the transaction of any other
business by the Stockholders or the Board of Directors, take action, including
the voting of its Shares, to elect a director or directors designated to fill
such vacancy or vacancies as designated by the vote of a majority of the Whitney
Directors and the CVCA Directors.
5.6 Termination of Sections 5.3 and 5.4. Notwithstanding
-----------------------------------
anything herein to the contrary, (i) from and after the date that Whitney,
Whitney Equity Fund and their Permitted Transferees own in the aggregate Shares
representing less than 25% of the Shares owned in the aggregate by them on the
date hereof, Whitney and Whitney Equity Fund shall only be entitled to jointly
designate one director for election or removal pursuant to Section 5.3 or 5.4,
respectively, (ii) from and after the date that CVCA and its Permitted
Transferees own in the aggregate Shares representing less than 25% of the Shares
owned by CVCA on the date hereof, CVCA shall only be entitled to designate one
director for election or removal pursuant to Section 5.3 or 5.4, respectively,
(iii) from and after the date that the Management Stockholders own in the
aggregate Shares representing less than 25% of the Shares owned in the aggregate
by them on the date hereof, the Management Stockholders shall only be entitled
to designate two directors for election or removal pursuant to Section 5.3 or
5.4, respectively; (iv) from and after the date that Whitney, Whitney Equity
Fund and their Permitted Transferees own in the aggregate Shares representing
less than 10% of the Shares owned in the aggregate by them on the date hereof,
Whitney and Whitney Equity Fund shall no longer be entitled to designate any
directors for election or removal pursuant to Section 5.3 or 5.4, respectively,
(v) from and after the date that CVCA and its Permitted Transferees own in the
aggregate Shares representing less than 10% of the Shares owned in the aggregate
by them on the date hereof, CVCA shall no longer be entitled to designate any
directors
<PAGE>
24
for election or removal pursuant to Section 5.3 or 5.4, respectively and (vi)
from and after the date that the Management Stockholders and their Permitted
Transferees own in the aggregate Shares representing less than 10% of the Shares
owned in the aggregate by them on the date hereof, the Management Stockholders
shall no longer be entitled to designate any directors for election or removal
pursuant to Section 5.3 or 5.4, respectively; provided, that, the number of
-------- ----
Shares owned by any Person on the date hereof for purposes of this Section 5.6
shall be adjusted for any dividend, subdivision, combination or reclassification
of the Shares or any merger or consolidation of the Company with or into any
other Person and such Person shall be deemed to own on the date hereof that
number of Shares or other securities which such Person was entitled to receive
as result of such dividend, subdivision, combination, reclassification, merger
or consolidation.
5.7 Board Committees. The Stockholders shall cause the Company
----------------
to amend its By-laws to include, and, thereafter, to maintain therein, a
provision requiring the Board of Directors to have (i) an audit committee, which
shall be composed of three members, one of whom shall be designated jointly by
the Whitney Directors and the CVCA Directors and one of whom shall be designated
jointly by the Independent Directors, and (ii) a compensation committee, which
shall be composed of no less than three and no more than five members, a
majority of whom shall be designated jointly by the Whitney Directors and the
CVCA Directors (two of such initial designess to the compensation committee
shall be Dr. Jeffrey R. Jay and Dr. Mitchell J. Blutt). Each Stockholder agrees
that it will not take, cause to be taken or approve any action (including, but
not limited to, any amendment of the Amended and Restated Articles of
Incorporation of the Company) that would be inconsistent with the first sentence
of this Section 5.7.
5.8 Compensation of Directors. Each of the Whitney Directors
-------------------------
and CVCA Directors, in consideration of his or her service as a director, shall
be entitled to receive from the Company reimbursement for reasonable out-of-
pocket expenses (including travel related expenses), if any, incurred in
connection with the performance of his or her duties as a director. Nothing
contained in this Section 5.8 shall preclude any member of the Board of
Directors from serving the Company or its subsidiaries in any other capacity and
receiving proper compensation therefor.
6. Stock Certificate Legend. A copy of this Agreement shall be
------------------------
filed with the Secretary of the Company and kept with the records of the
Company. Each certificate
<PAGE>
25
representing Shares now held or hereafter acquired by any Stockholder shall, for
as long as this Agreement is effective, bear legends substantially in the
following forms:
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
STOCKHOLDERS' AGREEMENT, DATED AS OF NOVEMBER 3, 1994, AMONG THE
COMPANY AND THE STOCKHOLDERS NAMED THEREIN, A COPY OF WHICH MAY BE
INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE. THE COMPANY WILL NOT
REGISTER THE TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY
UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE
TERMS OF SUCH STOCKHOLDERS' AGREEMENT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS.
7. Other Agreements. Until the date on which all shares of Series A
----------------
Preferred Stock are no longer outstanding due to conversion or otherwise, the
Company hereby covenants and agrees with the Preferred Stockholders as follows:
7.1 Financial Statements and Other Information. The Company
------------------------------------------
shall deliver to the Preferred Stockholders, in form satisfactory to the
Preferred Stockholders:
(a) as soon as available, but not later than ninety (90)
days after the end of each fiscal year of the Company, a copy of the audited
consolidated balance sheet of the Company and its subsidiaries as of the end of
such year and the related consolidated statements of operations and cash flows
for such fiscal year, setting forth in each case in comparative form the figures
for the previous year, all in reasonable detail and accompanied by a management
summary and analysis of the operations of the Company and its subsidiaries for
such fiscal year and by the report of Arthur Andersen & Co. (or any successor
thereto) or another "Big Five" accounting firm, which report shall state that
such consolidated financial statements present fairly the financial position as
of such date and results of
<PAGE>
26
operations and cash flows for the periods indicated in conformity with GAAP
applied on a consistent basis;
(b) commencing with the fiscal quarter ending on March 31,
1995, as soon as available, but in any event not later than forty-five (45) days
after the end of each of the first three fiscal quarters of each fiscal year,
(i) a copy of the unaudited consolidated balance sheet of the Company and its
subsidiaries and the related consolidated statements of operations and cash
flows, in each case for such quarter and for the period commencing on the first
day of the fiscal year and ending on the last day of such quarter, and (ii) such
financial information concerning each office and product line of the Company and
its subsidiaries as any Preferred Stockholder may request, all certified by an
appropriate officer of the Company;
(c) commencing with the month ending on [October 31], 1994,
as soon as available, but in any event not later than thirty (30) days after the
end of each month, (i) the unaudited consolidated balance sheet of the Company
and its subsidiaries and the related consolidated statements of operations and
cash flows for such month and (ii) a statement comparing the material results
for such month to the budgeted results for such month, all certified by an
appropriate officer of the Company;
(d) as soon as available, but not later than sixty (60)
days prior to the end of each fiscal year of the Company, the budget for the
Company and its subsidiaries for each month of the subsequent fiscal year;
provided, however, that the budget for the Company and its subsidiaries for the
- -------- -------
1995 fiscal year shall be delivered by November 30, 1994; and
(e) such other financial and operating data of the Company
as any Preferred Stockholder reasonably may request.
7.2 Compliance with Laws. The Company shall comply, and shall
--------------------
cause its subsidiaries to comply, in all material respects with all Requirements
of Law and with the directions of any Governmental Authority having jurisdiction
over them or their business or the ownership of their property (including all
applicable Environmental Laws).
7.3 Notices. Within five (5) days of obtaining knowledge of any
-------
of the events described below, the Company shall give written notice to the
Preferred Stockholders:
<PAGE>
27
(a) of the occurrence of any Event of Default or any event
that, after notice or lapse of time or both, would become an Event of Default;
and
(b) of any (i) material default or event of default under
any material Contractual Obligation of the Company or any of its subsidiaries or
(ii) material dispute, litigation, investigation, proceeding or suspension which
may exist at any time between the Company or any of its subsidiaries and any
Governmental Authority.
Each notice pursuant to this Section 7.3 shall be accompanied by a
statement by the Chief Executive Officer, President or Chief Financial Officer
of the Company setting forth details of the occurrence referred to therein and
stating what action the Company proposes to take with respect thereto.
7.4 Reservation of Shares. The Company shall at all times
---------------------
reserve and keep available out of its authorized Class A Common Stock, solely
for the purpose of issue or delivery upon conversion of the Series A Preferred
Stock and the Class B Common Stock as provided in the Amended and Restated
Articles of Incorporation of the Company, the maximum number of shares of Class
A Common Stock that may be issuable or deliverable upon such conversion. Such
shares of Class A Common Stock shall, when issued or delivered in accordance
with the provisions of the Amended and Restated Articles of Incorporation of the
Company, be duly and validly issued and fully paid and non-assessable. The
Company shall issue such Class A Common Stock in accordance with the provisions
of the Amended and Restated Articles of Incorporation of the Company and shall
otherwise comply with the terms thereof.
7.5 Books and Records. The Company shall, and shall cause its
-----------------
subsidiaries to, keep proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the assets and
business of the Company and each of its subsidiaries in accordance with GAAP
consistently applied.
7.6 Transactions with Affiliates. The Company shall not, and
----------------------------
shall not permit any subsidiary to, (a) enter into any transaction with any
Affiliate of the Company or any stockholder (or any Affiliate of such
stockholder) of the Company except pursuant to the reasonable requirements of
the business of the Company and on terms no less favorable to the Company than
those that the Company would obtain in a comparable arms'-length transaction
with a Person not an Affiliate or stockholder (or Affiliate of a stockholder) of
the Company, (b) purchase
<PAGE>
28
any selling, general, management or administrative services from an Affiliate or
stockholder (or an Affiliate of such stockholder) of the Company or (c) directly
or indirectly make any sales to or purchases from an Affiliate or stockholder
(or Affiliate of a stockholder) of the Company during any calendar quarter that,
in the aggregate, are in excess of 1% of the Company's total sales or purchases,
respectively, during such quarter; provided, however, that nothing contained in
this Section 7.6 shall prohibit the transactions described on Schedule 7.6.
------------
7.7 Conversion of Junior Subordinated Notes. The Company will
---------------------------------------
not at any time exercise its right to convert any of the Junior Subordinated
Notes into shares of Class A Common Stock without the approval of the holders of
a majority of the outstanding shares of Series A Preferred Stock. If, at any
time the Company is entitled to convert any Junior Subordinated Notes into
shares of Class A Common Stock in accordance with the terms of such Note, the
Company will exercise such right and require such conversion promptly upon the
request of the holders of a majority of the outstanding shares of Series A
Preferred Stock and in exercising such right will fix the date for conversion of
such Note in accordance with the directions of such majority holders.
7.8 Regulatory Matters.
------------------
7.8.1 Regulatory Compliance Cooperation.
---------------------------------
(a) If a Stockholder determines that it has a
Regulatory Problem (as defined below), the Company agrees to take all such
actions as are reasonably requested by such Stockholder (x) to effectuate
and facilitate any transfer by such Stockholder of any Securities (as
defined below) of the Company then held by such Stockholder to any
Affiliate of such Stockholder designated by such Stockholder, (y) to permit
such Stockholder (or any Affiliate of such Stockholder) to exchange all or
any portion of the voting Securities then held by such Person on a share-
for-share basis for shares of a class of nonvoting Securities of the
Company, which nonvoting Securities shall be identical in all respect to
such voting Securities, except that such new Securities shall be nonvoting
and shall be convertible into voting Securities on such terms as are
requested by such Stockholder in light of regulatory considerations then
prevailing, and (z) to continue and preserve the respective allocation of
the voting interests with respect to the
<PAGE>
29
Company provided for in this Agreement and with respect to such
Stockholders' ownership of the Company's voting Securities. Such actions
may include, without limitation, (x) entering into such additional
agreements as are reasonably requested by such Stockholder to permit any
Person(s) designated by such Stockholder to exercise any voting power which
is relinquished by such Stockholder upon any exchange of voting Securities
for nonvoting Securities of the Company; and (y) entering into such
additional agreements, adopting such amendments to the Amended and Restated
Articles of Incorporation and Bylaws of the Company and taking such
additional actions as are reasonably requested by such Stockholder in order
to effectuate the intent of the foregoing.
(b) If a Stockholder has the right or opportunity to
acquire any of the Company's Securities from the Company, any Stockholder
or any other Person (as the result of a preemptive offer, pro rata offer or
--- ----
otherwise), at such Stockholder's request the Company will offer to sell
(or if the Company is not the seller, to cooperate with the seller and such
Stockholder to permit such seller to sell) such non-voting Securities on
the same terms as would have existed had such Stockholder acquired the
Securities so offered and immediately requested their exchange for non-
voting Securities pursuant to paragraph (i) above.
(c) Before the Company redeems, purchases or otherwise
acquires, directly or indirectly, or converts or takes any action with
respect to the voting rights of, any Securities, the Company shall give
written notice of such pending action to each Stockholder. Upon the
written request of any Stockholder made within 10 days after its receipt of
such notice stating that after giving effect to such action such
Stockholder would have a Voting Regulatory Problem (as defined below), the
Company shall defer taking such action for such period (not to extend
beyond 45 days after such Stockholder's receipt of the Company's original
notice) as such Stockholder requests to permit it and its Affiliates to
reduce the quantity of the Company's Securities they own or take other
appropriate action in order to avoid the Voting Regulatory Problem. In
addition, the Company shall not be a party to any merger, consolidation,
recapitalization or other transaction pursuant to which any Stockholder
would be required to take any voting Securities, or any Securities
convertible into, or exchangeable or exercisable for, voting Securities,
<PAGE>
30
which might reasonably be expected to cause such Stockholder to have a
Voting Regulatory Problem.
(d) In the event that any subsidiary of the Company
ever offers to sell any of its Securities, then the Company will cause such
subsidiary to enter into agreements with each Stockholder substantially
similar to this Section 7.8.
7.8.2 Cooperation of Other Stockholders. Each Stockholder
---------------------------------
agrees to cooperate with the Company in complying with Section 7.8.1(a) above,
including without limitation, voting to approve amending the Company's Amended
and Restated Articles of Incorporation in a manner reasonably requested by the
Stockholder requesting such amendment.
7.8.3 Covenant Not to Amend. The Company and each
---------------------
Stockholder agree not to amend or waive the voting or other provisions of this
Agreement or the Company's Amended and Restated Articles of Incorporation if
such amendment or waiver would cause any Stockholder to have a Voting Regulatory
Problem, provided that any such Stockholder notifies the Company that it would
have a Voting Regulatory Problem promptly after it has notice of such amendment
or waiver. No provision of this Section 7.8 may be amended without the consent
of the Investors.
7.8.4 Certain Definitions. As used in this Section 7.8:
-------------------
"Regulatory Problem" means (i) any set of facts or circumstance
------------------
wherein it has been asserted in writing by any Governmental Authority (or there
is a substantial risk of such assertion) that such Stockholder is not entitled
to hold, or exercise any significant right with respect to, the Securities or
(ii) a Voting Regulatory Problem.
"Securities" means with respect to any Person, such Person's capital
----------
stock or any options, warrants or other securities that are directly or
indirectly convertible into, or exercisable or exchangeable for, such Person's
capital stock. Whenever a reference herein to Securities is referring to any
derivative Securities, the rights of a Stockholder shall apply to such
derivative Securities and all underlying Securities directly or indirectly
issuable upon conversion, exchange or exercise of such derivative securities.
"Voting Regulatory Problem" shall exist when a Person and such
-------------------------
Person's Affiliates would own, control or have power over a greater quantity of
Securities of any kind
<PAGE>
31
issued by the Company or any other Person than are permitted under any
requirement of any Governmental Authority.
7.9 Key Man Insurance. The Company shall obtain, maintain and
-----------------
pay for "key-man" life insurance on the life of both Mintz, in the amount of at
least $3,000,000.00, and Adams, in the amount of at least $1,000,000.00.
8. Specific Performance. The parties hereto intend that each of
--------------------
them have the right to seek damages or specific performance in the event that
any other party hereto fails to perform such other party's obligations here-
under. Therefore, if any party shall institute any action or proceeding to
enforce the provisions hereof, any party against whom such action or proceeding
is brought hereby waives any claim or defense therein that the plaintiff party
has an adequate remedy at law.
9. Miscellaneous.
-------------
9.1 Notices. All notices, demands and other communications
-------
provided for or permitted hereunder shall be in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service or personal delivery:
(a) if to Whitney, Whitney Equity Fund or Whitney Debt Fund:
J.H. Whitney & Co.
177 Broad Street
Stamford, CT 06901
Telecopier No.: (203) 973-1422
Attention: Jeffrey R. Jay, M.D.
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopier No.: (212) 757-3990
Attention: Toby S. Myerson, Esq.
<PAGE>
32
(b) if to CVCA:
Chemical Venture Capital Associates, A California Limited
Partnership
c/o Chemical Venture Partners
270 Park Avenue
New York, New York 10017-2070
Telecopier No.: (212) 270-2327
Attention: Mitchell J. Blutt, M.D.
Damion E. Wicker, M.D.
with a copy to:
O'Sullivan Graev & Karabell
30 Rockefeller Plaza
41st Floor
New York, NY 10112
Telecopier No.: (212) 408-2420
Attention: John Suydam, Esq.
(c) if to the Company:
Medicon, Inc.
40 Skokie Boulevard
Northbrook, Illinois 60062-1618
Telecopier No.: (708) 559-6900
Attention: Lawrence Rubinstein, Esq.
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Telecopier No.: (312) 902-1061
Attention: Herbert S. Wander, Esq.
(d) if to any Management Stockholder or any other Stockholder,
at its, his or her address as it appears on the record books
of the Company.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
<PAGE>
33
9.2 Amendment and Waiver.
--------------------
(a) No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the parties
hereto at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by any party hereto from the terms of any provision
of this Agreement, shall be effective (i) only if it is made or given in writing
and signed by all of the Investors and a majority of the Management Stockholders
and (ii) only in the specific instance and for the specific purpose for which
made or given.
9.3 Ownership. Each Management Stockholder represents and
---------
warrants that at the Closing he or she, as the case may be, owns the number of
Shares of Class A Common Stock set for next to his or her name on Schedule I
hereto and does not own any other capital stock of the Company or securities
convertible into or exchangeable for capital stock of the Company or options,
warrants or other rights to purchase or subscribe to capital stock of the
Company, and is not a party to any contract, commitment, agreement,
understanding or arrangement of any kind relating to the issuance of any capital
stock of the Company, any such convertible or exchangeable securities or any
such options, warrants or rights.
9.4 Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
9.5 Severability. If any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
9.6 Entire Agreement. This Agreement, together with the
----------------
exhibits hereto, is intended by the parties
<PAGE>
34
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits
hereto, supersedes all prior agreements and understandings on the subject matter
hereof, including, without limitation, the Shareholders Agreement dated
January 1, 1994 among the Company and the Management Stockholders, which the
Management Stockholders hereby agree to terminate.
9.7 Term of Agreement. This Agreement shall become effective
-----------------
upon the execution hereof and shall continue in effect until the earlier to
occur of (a) the closing of a Qualified Public Offering and (b) the termination
of this Agreement by all of the parties hereto; provided, however, that
-------- -------
Sections 5.3 and 5.4 of this Agreement shall survive any such termination and
shall only be terminated in accordance with Section 5.5.
9.8 Variations in Pronouns. All pronouns and any variations
----------------------
thereof refer to the masculine, feminine or neuter, singular or plural, as the
context may require.
9.9 Rules of Construction. Unless the context otherwise
---------------------
requires, "or" is not exclusive, and references to sections or subsections refer
to sections or subsections of this Agreement.
9.10 Governing Law. This Agreement shall be governed and
-------------
construed in accordance with the laws of the State of Illinois applicable to
agreements made and to be performed entirely within such State.
9.11 Further Assurances. Each of the parties shall, and shall
------------------
cause their respective Affiliates to, execute such documents and perform such
further acts as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
9.12 Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and permitted assigns of the
parties hereto (including, without limitation, in the case of any party hereto
that is an individual, the heirs, estate and personal representatives of such
party). This Agreement is not assignable except by operation of law or in
compliance with Section 4.
<PAGE>
35
9.13 Counterparts. This Agreement may be executed in any number
------------
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first written above.
MEDICON, INC.
By: /s/ John E. Adams
-------------------------------
Name: John E. Adams
Title: EVP & COO
J.H. WHITNEY & CO.
By: /s/ Jeffrey R. Jay
------------------------------
Name: Jeffrey R. Jay
A General Partner
WHITNEY 1990 EQUITY FUND, L.P.
By: /s/ Jeffrey R. Jay
------------------------------
Name: Jeffrey R. Jay
A General Partner
WHITNEY SUBORDINATED DEBT FUND, L.P.
By: /s/ Jeffrey R. Jay
------------------------------
Name: Jeffrey R. Jay
A General Partner
CHEMICAL VENTURE CAPITAL
ASSOCIATES, A CALIFORNIA LIMITED
PARTNERSHIP
By: CHEMICAL VENTURE PARTNERS,
Its General Partner
By: /s/ Mitchell J. Blutt
------------------------------
Name: Mitchell J. Blutt
Executive Partner
__________________________________
Alan P. Mintz
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first written above.
MEDICON, INC.
By:_______________________________
Name:
Title:
J.H. WHITNEY & CO.
By:_______________________________
Name:
A General Partner
WHITNEY 1990 EQUITY FUND, L.P.
By:_______________________________
Name:
A General Partner
WHITNEY SUBORDINATED DEBT FUND, L.P.
By:_______________________________
Name:
A General Partner
CHEMICAL VENTURE CAPITAL
ASSOCIATES, A CALIFORNIA LIMITED
PARTNERSHIP
By: CHEMICAL VENTURE PARTNERS,
Its General Partner
By:_______________________________
Name:
/s/ Alan P. Mintz
-------------------------------
Alan P. Mintz
<PAGE>
/s/ Lawrence Rubinstein
----------------------------------
Lawrence Rubinstein
__________________________________
John Adams
__________________________________
Nancie Blatt
__________________________________
Alan Spiro
__________________________________
Sheldon Gulinson
__________________________________
James Zechman
<PAGE>
__________________________________
Lawrence Rubinstein
/s/ John Adams
----------------------------------
John Adams
__________________________________
Nancie Blatt
__________________________________
Alan Spiro
__________________________________
Sheldon Gulinson
__________________________________
James Zechman
<PAGE>
__________________________________
Lawrence Rubinstein
__________________________________
John Adams
/s/ Nancie Blatt
----------------------------------
Nancie Blatt
__________________________________
Alan Spiro
__________________________________
Sheldon Gulinson
__________________________________
James Zechman
<PAGE>
__________________________________
Lawrence Rubinstein
__________________________________
John Adams
__________________________________
Nancie Blatt
/s/ Alan Spiro
----------------------------------
Alan Spiro
__________________________________
Sheldon Gulinson
__________________________________
James Zechman
<PAGE>
__________________________________
Lawrence Rubinstein
__________________________________
John Adams
__________________________________
Nancie Blatt
__________________________________
Alan Spiro
/s/ Sheldon Gulinson
----------------------------------
Sheldon Gulinson
__________________________________
James Zechman
<PAGE>
__________________________________
Lawrence Rubinstein
__________________________________
John Adams
__________________________________
Nancie Blatt
__________________________________
Alan Spiro
__________________________________
Sheldon Gulinson
/s/ James Zechman
----------------------------------
James Zechman
Exhibit 10.12
================================================================================
AMENDMENT NO. 1 TO THE
STOCKHOLDERS' AGREEMENT
among
MEDICON, INC.
and
THE STOCKHOLDERS NAMED HEREIN
_______________________________
Dated as of September 6, 1995
_______________________________
================================================================================
<PAGE>
AMENDMENT NO. 1 TO THE
STOCKHOLDERS' AGREEMENT
AMENDMENT NO. 1 TO THE STOCKHOLDERS' AGREEMENT (this "Amendment"),
---------
dated as of September 6, 1995, among MEDICON, INC., an Illinois corporation (the
"Company"), J.H. WHITNEY & CO., a New York limited partnership ("Whitney"),
------- -------
WHITNEY 1990 EQUITY FUND, L.P., a Delaware limited partnership ("Whitney Equity
--------------
Fund"), WHITNEY SUBORDINATED DEBT FUND, L.P., a Delaware limited partnership
- ----
("Whitney Debt Fund"), CHEMICAL VENTURE CAPITAL ASSOCIATES, a California limited
-----------------
partnership ("CVCA," and together with Whitney, Whitney Equity Fund and Whitney
----
Debt Fund, the "Investors"), ALAN P. MINTZ ("Mintz"), LAWRENCE RUBINSTEIN
--------- -----
("Rubinstein"), JOHN E. ADAMS ("Adams"), NANCIE BLATT ("Blatt"), ALAN SPIRO
---------- ----- -----
("Spiro"), SHELDON GULINSON ("Gulinson), JAMES ZECHMAN ("Zechman," and
----- -------- -------
collectively with Mintz, Rubinstein, Adams, Blatt, Spiro and Gulinson, the
"Original Stockholders"), Steven Hillel Mintz Irrevocable Trust (12/19/94) (SHM
--------------------- ---
Trust"), ARI DAVID MINTZ IRREVOCABLE TRUST (12/19/94) ("ADM Trust"), JEFFREY
- ----- ----------
ADAM MINTZ IRREVOCABLE TRUST (12/19/94) ("JAM Trust"), JONATHAN EPHRAIM MINTZ
---------
IRREVOCABLE TRUST ("JEM Trust"), ADAM M. RUBINSTEIN IRREVOCABLE TRUST (12/19/94)
---------
("AMR Trust"), ADINA R. HERMAN IRREVOCABLE TRUST (12/19/94) ("ARH Trust)and
--------- ---------
ELANA B. RUBINSTEIN IRREVOCABLE TRUST ("EBR Trust," and collectively with SHM
---------
Trust, ADM Trust, JAM Trust, JEM Trust, AMR Trust and ARH Trust, the
"Transferees"). The Transferees, together with the Original
-----------
<PAGE>
2
Stockholders, are referred to herein as the "Management Stockholders."
-----------------------
WHEREAS, on November 3, 1994, the Investors and the Original
Stockholders entered into certain agreements, including the Stockholders'
Agreement that is being amended hereby (the Initial Agreement"), and consummated
-----------------
certain transactions that effectuated a recapitalization of the Company, a
partial redemption of the equity in the Company owned by the Original
Stockholders (except Zechman) and the investment by the Investors in the
Company;
WHEREAS, on September 1, 1995, the Transferees became parties to the
Stockholders' Agreement and thereafter have been deemed to be Management
Stockholders for purposes thereof;
WHEREAS, on the date hereof, the parties hereto entered into an
agreement (the "Restructuring Agreement") to restructure the economic interests
-----------------------
of the Management Stockholders and the Investors in the Company and to grant a
release of liability from claims; and
WHEREAS, the Restructuring Agreement contemplates an amendment to the
Stockholders' Agreement.
NOW, THEREFORE, the parties hereto mutually agree to amend the
Stockholders' Agreement as follows:
1. The provisions of Section 5 of the Stockholders' Agreement are
hereby terminated and replaced with the following amended provisions:
<PAGE>
3
5. Governance.
----------
5.1 General. From and after the execution of this Agreement,
-------
each Stockholder shall vote its Shares, at any regular or special meeting
of stockholders of the Company (each a "Stockholders' Meeting"), or in any
---------------------
written consent executed in lieu of such a meeting of stockholders (a
"Written Consent"), and shall take all other actions necessary to give
---------------
effect to the agreements contained in this Agreement and to ensure that the
Charter Documents do not at any time hereafter conflict in any respect with
the provisions of this Agreement. In addition, each Stockholder shall vote
its Shares at any Stockholders' Meeting, or act by Written Consent with
respect to such Shares, upon any matter submitted for action by the
Company's stockholders, or with respect to which such Stockholder may vote
or act by Written Consent, in conformity with the specific terms and provi-
sions of this Agreement and the Charter Documents.
5.2 Stockholders' Actions. In order to effectuate the
---------------------
provisions of this Section 5, each Stockholder hereby agrees that, when any
action or vote is required to be taken by such Stockholder pursuant to this
Agreement, such Stockholder shall use its best efforts to call, or cause
the appropriate officer and directors of the Company to call, a
Stockholders' Meeting or to execute or cause to be executed a Written
Consent pursuant to Section 5/8.45 of the IBCA to effectuate such
stockholder action. Further, each Stockholder shall use its best efforts
to cause the Board of Directors to adopt, either at a meeting of the Board
of Directors or by unanimous written consent of the Board of Directors
pursuant to Section 5/7.10 of the IBCA, all the resolutions necessary to
effectuate the provisions of this Agreement. Each Stockholder shall use
its best efforts to cause the Board of Directors to cause the Secretary of
the Company, or if there be no Secretary, such other officer of the Company
as the Board of Directors may appoint to fulfill the duties of Secretary,
to not record any vote or consent contrary to the terms of this Section 5.
5.3 Election of Directors. Each Stockholder shall vote its
---------------------
Shares at any Stockholders' Meeting, or act by Written Consent with respect
to such Shares, and take all other actions necessary to ensure that the
number of directors constituting the entire Board of Directors shall be
eleven, as provided for below. Each Stockholder shall vote its Shares at
any Stockholders' Meeting called for the purpose of filling the positions
on the Board of Directors, or in any Written Consent
<PAGE>
4
executed for such purpose, and take all other actions necessary to ensure
the election to the Board of Directors of the following individuals:
(a) one individual, who shall be designated by Whitney (the
"J.H. Whitney Director");
---------------------
(b) two individuals, who shall be designated by Whitney
Equity Fund (the "Whitney Equity Fund Directors" and, collectively with the
-----------------------------
J.H. Whitney Director, the "Whitney Directors");
-----------------
(c) three individuals, who shall be designated by CVCA (the
"CVCA Directors");
--------------
(d) two individuals, who shall be designated by the vote of
a majority of the shares of Class A Common Stock held by the Management
Stockholders (the "Management Directors"); and
--------------------
(e) three individuals (the "Independent Directors"), who
---------------------
shall be designated by the vote of a majority of the Whitney Directors, the
CVCA Directors and the Management Directors, in the aggregate(the "Required
--------
Vote").
----
On the date of this Amendment, the Whitney Directors shall be Peter M.
Castleman, Dr. Jeffrey R. Jay and Cheryl Lippert, the CVCA Directors shall
be Dr. Mitchell J. Blutt, Dr. Damion E. Wicker and Spiro and the Management
Directors shall be Mintz and Dr. Carl R. Adkins.
5.4 Removal and Replacement. Whitney shall be entitled at any
-----------------------
time and for any reason (or for no reason) to designate the J.H. Whitney
Director for removal, Whitney Equity Fund shall be entitled at any time and
for any reason (or for no reason) to designate any or all of the Whitney
Equity Fund Directors for removal, CVCA shall be entitled at any time and
for any reason (or for no reason) to designate any or all of the CVCA
Directors for removal and the Management Stockholders shall be entitled at
any time and for any reason (or for no reason) to designate by the vote of
a majority of the shares of Class A Common Stock held by the Management
Stockholders either or both of the Management Directors for removal. The
Whitney Directors, the CVCA Directors and the Management Directors shall be
entitled at any time and for any reason (or for no reason) to designate,
pursuant to a Required Vote, any Independent Director for removal. If, at
any time, a vacancy is created on the Board of Directors by reason of the
death, removal or resignation
<PAGE>
5
of the J.H. Whitney Director, the Whitney Equity Fund Directors, the
CVCA Directors, either Management Director or any Independent Director,
each Stockholder shall, as soon as practicable after the date such vacancy
first occurs and in any event prior to the transaction of any other
business by the Stockholders or the Board of Directors, take action,
including the voting of its Shares, to elect a director or directors
designated to fill such vacancy or vacancies in the following manner:
(a) if a vacancy is created by reason of the death,
removal or resignation of the J.H. Whitney Director, Whitney shall
designate a nominee to be elected to fill such vacancy until the next
annual meeting of stockholders of the Company;
(b) if a vacancy is created by reason of the death, removal
or resignation of a Whitney Equity Fund Director, Whitney Equity Fund shall
designate a nominee to be elected to fill such vacancy until the next
annual meeting of stockholders of the Company;
(c) if a vacancy is created by reason of the death, removal
or resignation of a CVCA Director, CVCA shall designate a nominee to be
elected to fill such vacancy until the next annual meeting of stockholders
of the Company;
(d) if a vacancy is created by reason of the death, removal
or resignation of a Management Director, the Management Stockholders shall
designate by the vote of a majority of the shares of Class A Common Stock
held by the Management Stockholders a nominee, to be elected to fill such
vacancy until the next annual meeting of stockholders of the Company; and
(e) if a vacancy is created by reason of the death, removal
or resignation of an Independent Director, the Whitney Directors, the CVCA
Directors and the Management Directors shall, pursuant to a Required Vote,
designate a nominee to be elected to fill such vacancy until the next
annual meeting of stockholders of the Company.
5.5 Termination of Sections 5.3 and 5.4. Notwithstanding
-----------------------------------
anything herein to the contrary, (i) from and after the date that Whitney,
Whitney Equity Fund and their Permitted Transferees own in the aggregate
Shares representing less than 25% of the Shares owned in the aggregate by
them on the date of this Amendment, Whitney Equity Fund shall only be
<PAGE>
6
entitled to designate one director for election or removal pursuant to
Section 5.3 or 5.4, respectively, (ii) from and after the date that CVCA
and its Permitted Transferees own in the aggregate Shares representing less
than 25% of the Shares owned by CVCA on the date of this Amendment, CVCA
shall only be entitled to designate two directors for election or removal
pursuant to Section 5.3 or 5.4, respectively, (iii) from and after the date
that the Management Stockholders own in the aggregate Shares representing
less than 25% of the Shares owned in the aggregate by them on the date of
this Amendment, the Management Stockholders shall only be entitled to
designate one director for election or removal pursuant to Section 5.3 or
5.4, respectively; (iv) from and after the date that Whitney, Whitney
Equity Fund and their Permitted Transferees own in the aggregate Shares
representing less than 10% of the Shares owned in the aggregate by them on
the date of this Amendment, Whitney and Whitney Equity Fund shall no longer
be entitled to designate any directors for election or removal pursuant to
Section 5.3 or 5.4, respectively, (v) from and after the date that CVCA and
its Permitted Transferees own in the aggregate Shares representing less
than 10% of the Shares owned in the aggregate by them on the date of this
Amendment, CVCA shall no longer be entitled to designate any directors for
election or removal pursuant to Section 5.3 or 5.4, respectively and
(vi) from and after the date that the Management Stockholders and their
Permitted Transferees own in the aggregate Shares representing less than
10% of the Shares owned in the aggregate by them on the date of this
Amendment, the Management Stockholders shall no longer be entitled to
designate a director for election or removal pursuant to Section 5.3 or
5.4, respectively; provided, that, the number of Shares owned by any Person
-------- ----
on the date of this Amendment for purposes of this Section 5.5 shall be
adjusted for any dividend, subdivision, combination or reclassification of
the Shares or any merger or consolidation of the Company with or into any
other Person and such Person shall be deemed to own on the date hereof that
number of Shares or other securities which such Person was entitled to
receive as result of such dividend, subdivision, combination,
reclassification, merger or consolidation.
5.6 Board Committees. The Stockholders shall cause the Company
----------------
to amend its By-laws to (i) provide that the Audit Committee, as
established under Article III, Section 13 of the Amended By-laws shall be
composed of three members, one of whom shall be designated by the Whitney
Directors, one of whom
<PAGE>
7
shall be designated by the CVCA Directors and one of whom shall be
designated jointly by the Whitney Directors and the CVCA Directors, and
(ii) provide that the Compensation Committee, as established under
Article III, Section 14 of the Amended By-laws shall be composed of three
members, one of whom shall be designated by the Whitney Directors, one of
whom shall be designated by the CVCA Directors and one of whom shall be
designated jointly by the Whitney Directors and the CVCA Directors. Each
Stockholder agrees that it will not take, cause to be taken or approve any
action (including, but not limited to, any amendment of the Amended and
Restated Articles of Incorporation of the Company) that would be inconsis-
tent with the first sentence of this Section 5.6.
5.7 Compensation of Directors. Each of the Whitney Directors
-------------------------
and CVCA Directors, in consideration of his or her service as a director,
shall be entitled to receive from the Company reimbursement for reasonable
out-of-pocket expenses (including travel related expenses), if any,
incurred in connection with the performance of his or her duties as a
director. Nothing contained in this Section 5.7 shall preclude any member
of the Board of Directors from serving the Company or its subsidiaries in
any other capacity and receiving proper compensation therefor.
2. The definitions of the terms "Primary Trigger Event" and
---------------------
"Investor Director" are hereby deleted from Section 1 of the Initial Agreement.
-----------------
The definitions of the following terms are hereby amended or
added to Section 1 of the Initial Agreement:
"Charter Documents" means the Amended and Restated Articles of
-----------------
Incorporation and By-laws of the Company in effect on the date hereof, each as
may be amended from time to time.
"Outstanding Shares" shall mean all shares of Class A Common
------------------
stock issued and outstanding immediately following the closing of a Qualified
Public Offering. For the purposes of any computation of the amount of
Outstanding Shares, all shares of Series A Preferred Stock and Class B Common
Stock and shall be deemed to be converted into the maximum number of shares of
Class A Common Stock into which
<PAGE>
8
such shares of Series A Preferred Stock and Class B Common Stock and are then
convertible as provided in the [Amended and Restated Articles of Incorporation].
"Restructuring Agreement" means the Restructuring Agreement,
-----------------------
dated September 6, 1995, among the Company and the parties hereto.
"Shares" means, with respect to each Stockholder, all shares,
------
whether now owned or hereafter acquired, of Class A Common Stock, Class B Common
Stock and Series A Preferred Stock. For the purposes of any computation of the
amount of Shares either outstanding or held by any Stockholder pursuant to
Sections 3 and 5.5, all Class B Common Stock and Series A Preferred Stock held
by such Stockholder shall be deemed to be converted, exercised or exchanged for
shares of Class A Common Stock whether or not such conversion, exercise or
exchange has actually been effected.
3. The parenthetical in the first sentence of Section 3.4 is hereby
amended and replaced with the following provision: "(i) an employee stock
option plan or any issuance of stock to an employee that is approved by the
Company's Board of Directors, (ii) a stock split or stock dividend, (iii) an
issuance of capital stock pursuant to the exercise of any option, warrant or
convertible security, (iv) a public offering of the Company's capital stock or
(v) an issuance of capital stock pursuant to the Subscription Agreements or the
Restructuring Agreement)."
4. The following paragraph is hereby added to the provisions of
Section 3.4 immediately following the first paragraph of such section:
The Company will not issue shares of capital stock to any
employee of the Company or its subsidiaries unless such employee
agrees to be
<PAGE>
9
bound by the terms and provisions of this Agreement as a Management
Stockholder.
5. This Agreement shall be governed and construed in accordance with
the laws of the State of Illinois applicable to agreements made and to be
performed entirely within such State.
6. This Agreement may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall consti-
tute one and the same agreement.
7. Except as expressly amended by this Amendment, the Initial
Agreement shall continue in full force and effect in accordance with the terms
thereof on the date hereof.
8. Capitalized terms used herein and not otherwise defined shall have
the same meanings attributed to them in the Initial Agreement.
<PAGE>
10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first written above.
MEDICON, INC.
By: /s/ Mitchell J. Blutt, M.D.
-------------------------------
Name: Mitchell J. Blutt, M.D.
Title: Executive Partner
J.H. WHITNEY & CO.
By: /s/ Jeffrey R. Jay
-------------------------------
Name: Jeffrey R. Jay
A General Partner
WHITNEY 1990 EQUITY FUND, L.P.
By: /s/ Jeffrey R. Jay
-------------------------------
Name: Jeffrey R. Jay
A General Partner
WHITNEY SUBORDINATED DEBT FUND, L.P.
By: /s/ Jeffrey R. Jay
-------------------------------
Name: Jeffrey R. Jay
A General Partner
<PAGE>
11
CHEMICAL VENTURE CAPITAL
ASSOCIATES, A CALIFORNIA LIMITED
PARTNERSHIP
By: CHEMICAL VENTURE PARTNERS,
Its General Partner
By:_______________________________
Name:
__________________________________
Alan P. Mintz
/s/ Lawrence Rubinstein
----------------------------------
Lawrence Rubinstein
/s/ John Adams
----------------------------------
John Adams
_________________________________
Nancie Blatt
/s/ Alan Spiro
---------------------------------
Alan Spiro
__________________________________
Sheldon Gulinson
__________________________________
James Zechman
/s/ Steven Hillel Mintz
----------------------------------
Steven Hillel Mintz Irrevocable
Trust 12/19/94
By: John E. Adams
Its: Trustee
<PAGE>
12
CHEMICAL VENTURE CAPITAL
ASSOCIATES, A CALIFORNIA LIMITED
PARTNERSHIP
By: CHEMICAL VENTURE PARTNERS,
Its General Partner
By: /s/ Mitchell J. Blutt, M.D.
----------------------------
Name: Mitchell J. Blutt, M.D.
/s/ Alan P. Mintz
-----------------------------
Alan P. Mintz
__________________________________
Lawrence Rubinstein
__________________________________
John Adams
_________________________________
Nancie Blatt
__________________________________
Alan Spiro
/s/ Sheldon Gulinson
----------------------------------
Sheldon Gulinson
__________________________________
James Zechman
---------------------------------
Steven Hillel Mintz Irrevocable
Trust 12/19/94
By: John E. Adams
Its: Trustee
<PAGE>
13
CHEMICAL VENTURE CAPITAL
ASSOCIATES, A CALIFORNIA LIMITED
PARTNERSHIP
By: CHEMICAL VENTURE PARTNERS,
Its General Partner
By:_______________________________
Name:
__________________________________
Alan P. Mintz
/s/ Lawrence Rubinstein
----------------------------------
Lawrence Rubinstein
/s/ John Adams
----------------------------------
John Adams
_________________________________
Nancie Blatt
__________________________________
Alan Spiro
__________________________________
Sheldon Gulinson
/s/ James Zechman
----------------------------------
James Zechman
/s/ Steven Hillel Mintz
----------------------------------
Steven Hillel Mintz Irrevocable
Trust 12/19/94
By: John E. Adams
Its: Trustee
<PAGE>
14
/s/ Ari David Mintz
--------------------------------
Ari David Mintz Irrevocable
Trust 12/19/94
By: John E. Adams
Its: Trustee
/s/ Jeffrey Adam Mintz
--------------------------------
Jeffrey Adam Mintz Irrevocable
Trust 12/19/94
By: John E. Adams
Its: Trustee
/s/ Jonathon Ephraim Mintz
--------------------------------
Jonathon Ephraim Mintz Irrevocable
Trust 12/19/94
By: John E. Adams
Its: Trustee
/s/ Adam M. Rubinstein
--------------------------------
Adam M. Rubinstein Irrevocable
Trust 12/19/94
By: Edward S. Salomon
Its: Trustee
/s/ Adina R. Herman
--------------------------------
Adina R. Herman Irrevocable
Trust 12/19/94
By: Edward S. Salomon
Its: Trustee
/s/ Elana B. Rubinstein
--------------------------------
Elana B. Rubinstein Irrevocable
Trust 12/19/94
By: Edward S. Salomon
Its: Trustee
Exhibit 10.13
-------------------------------------------------------------------------
AMENDMENT NO. 2 TO THE
STOCKHOLDERS' AGREEMENT
among
MEDICON, INC.
and
THE STOCKHOLDERS NAMED HEREIN
_______________________________
Dated as of September 28, 1995
_______________________________
---------------------------------------------------------------------
<PAGE>
AMENDMENT NO. 2 TO THE
STOCKHOLDERS' AGREEMENT
AMENDMENT NO. 2 TO THE STOCKHOLDERS' AGREEMENT (this "Amendment"),
---------
dated as of September 28, 1995, among MEDICON, INC., an Illinois corporation
(the "Company"), J.H. WHITNEY & CO., a New York limited partnership ("Whitney"),
------- -------
WHITNEY 1990 EQUITY FUND, L.P., a Delaware limited partnership ("Whitney Equity
--------------
Fund"), WHITNEY SUBORDINATED DEBT FUND, L.P., a Delaware limited partnership
- ----
("Whitney Debt Fund"), CHEMICAL VENTURE CAPITAL ASSOCIATES, a California limited
-----------------
partnership ("CVCA," and together with Whitney, Whitney Equity Fund and Whitney
----
Debt Fund, the "Investors"), ALAN P. MINTZ ("Mintz"), LAWRENCE RUBINSTEIN
--------- -----
("Rubinstein"), JOHN E. ADAMS ("Adams"), NANCIE BLATT ("Blatt"), ALAN SPIRO
---------- ----- -----
("Spiro"), SHELDON GULINSON ("Gulinson), JAMES ZECHMAN ("Zechman," and
----- -------- -------
collectively with Mintz, Rubinstein, Adams, Blatt, Spiro and Gulinson, the
"Original Stockholders"), Steven Hillel Mintz Irrevocable Trust (12/19/94) (SHM
--------------------- ---
Trust"), ARI DAVID MINTZ IRREVOCABLE TRUST (12/19/94) ("ADM Trust"), JEFFREY
- ----- ----------
ADAM MINTZ IRREVOCABLE TRUST (12/19/94) ("JAM Trust"), JONATHAN EPHRAIM MINTZ
---------
IRREVOCABLE TRUST ("JEM Trust"), ADAM M. RUBINSTEIN IRREVOCABLE TRUST (12/19/94)
---------
("AMR Trust"), ADINA R. HERMAN IRREVOCABLE TRUST (12/19/94) ("ARH Trust)and
--------- ---------
ELANA B. RUBINSTEIN IRREVOCABLE TRUST ("EBR Trust," and collectively with SHM
---------
Trust, ADM Trust, JAM Trust, JEM Trust, AMR Trust and ARH Trust, the
"Transferees"). The Transferees, together with the Original
-----------
<PAGE>
2
Stockholders, are referred to herein as the "Management Stockholders."
-----------------------
WHEREAS, on November 3, 1994, the Investors and the Original
Stockholders entered into certain agreements, including the Stockholders'
Agreement that is being amended hereby (the Initial Agreement"), and consummated
-----------------
certain transactions that effectuated a recapitalization of the Company, a
partial redemption of the equity in the Company owned by the Original
Stockholders (except Zechman) and the investment by the Investors in the
Company;
WHEREAS, on September 1, 1995, the Transferees became parties to the
Stockholders' Agreement and thereafter have been deemed to be Management
Stockholders for purposes thereof;
WHEREAS, on September 6, 1995, the parties hereto entered into an
agreement (the "Restructuring Agreement") to restructure the economic interests
-----------------------
of the Management Stockholders and the Investors in the Company, to grant a
release of liability from claims and to amend certain agreements, including the
Stockholders' Agreement; and
WHEREAS, the parties hereto intend to further amend the Stockholders'
Agreement.
NOW, THEREFORE, the parties hereto mutually agree to amend the
Stockholders' Agreement as follows:
1. The provisions of Section 7.9 of the Stockholders' Agreement are
hereby terminated.
<PAGE>
3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first written above.
MEDICON, INC.
By: /s/ Lawrence Rubinstein
-----------------------------
Name: Lawrence Rubinstein
Title:
J.H. WHITNEY & CO.
By:_______________________________
Name:
A General Partner
WHITNEY 1990 EQUITY FUND, L.P.
By:_______________________________
Name:
A General Partner
WHITNEY SUBORDINATED DEBT FUND, L.P.
By:_______________________________
Name:
A General Partner
<PAGE>
4
CHEMICAL VENTURE CAPITAL
ASSOCIATES, A CALIFORNIA LIMITED
PARTNERSHIP
By: CHEMICAL VENTURE PARTNERS,
Its General Partner
By:_______________________________
Name:
/s/ Alan P. Mintz
----------------------------------
Alan P. Mintz
/s/ Lawrence Rubinstein
----------------------------------
Lawrence Rubinstein
/s/ John Adams
----------------------------------
John Adams
/s/ Nancie Blatt
----------------------------------
Nancie Blatt
/s/ Alan Spiro
----------------------------------
Alan Spiro
/s/ Sheldon Gulinson
----------------------------------
Sheldon Gulinson
/s/ James Zechman
----------------------------------
James Zechman
/s/ Steven Hillel
----------------------------------
Steven Hillel Mintz Irrevocable
Trust 12/19/94
By: John E. Adams
Its: Trustee
<PAGE>
5
/s/ John E. Adams
----------------------------------
Ari David Mintz Irrevocable
Trust 12/19/94
By: John E. Adams
Its: Trustee
/s/ John E. Adams
----------------------------------
Jeffrey Adam Mintz Irrevocable
Trust 12/19/94
By: John E. Adams
Its: Trustee
/s/ John E. Adams
----------------------------------
Jonathon Ephraim Mintz Irrevocable
Trust 12/19/94
By: John E. Adams
Its: Trustee
/s/ Edward S. Salomon
----------------------------------
Adam M. Rubinstein Irrevocable
Trust 12/19/94
By: Edward S. Salomon
Its: Trustee
/s/ Edward S. Salomon
----------------------------------
Adina R. Herman Irrevocable
Trust 12/19/94
By: Edward S. Salomon
Its: Trustee
/s/ Edward S. Salomon
----------------------------------
Elana B. Rubinstein Irrevocable
Trust 12/19/94
By: Edward S. Salomon
Its: Trustee
Exhibit 10.14
To: The Persons Listed Below
From: The Board of Directors of Medicon, Inc.
Re: Initial Public Offering
As you may already be aware, Medicon has engaged Morgan Stanley & Co.
Incorporated as lead underwriter in connection with the process of preparing a
registration statement in contemplation of an initial public offering. Certain
documentation relating thereto, such as shareholder resolutions to amend
Medicon's articles of incorporation, will be forwarded to you for signature in
due course.
In addition, to ensure the successful completion of Medicon's initial
public offering, you are hereby requested, if applicable, to:
(i) agree that the Stockholders' Agreement, dated as of November 3,
1994 and amended on September 6, 1995, among Medicon and the
stockholders named therein, including any provisions relating to
the election of directors and the composition of the board, shall
terminate concurrently with the consummation of an initial public
offering; and
(ii) agree, solely in connection with Medicon's initial public
offering, to waive any rights under Section 4(a) of the
Registration Rights Agreement, dated as of November 3, 1994,
among Medicon and the stockholders named therein.
<PAGE>
2
Please indicate your agreement with the foregoing by signing and
returning one copy of this letter as to the attention of Jeffrey Marell at Paul,
Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York,
NY 10019-6064. Please also execute the form of Morgan Stanley "lock-up"
agreement that is attached hereto and return it to the attention of Jeffrey
Marell.
WHITNEY SUBORDINATED DEBT FUND, L.P.
________________________________
Name:
A General Partner
WHITNEY 1990 EQUITY FUND, L.P. STEVEN HILLEL MINTZ
IRREVOCABLE TRUST 12/19/94
________________________________ _________________________
Name: By:
A General Partner Its: Trustee
J.H. WHITNEY & CO. ARI DAVID MINTZ IRREVOCABLE
TRUST 12/19/94
_________________________________ ____________________________
Name: By:
A General Partner Its: Trustee
CHASE VENTURE CAPITAL ASSOCIATES, JEFFREY ADAM MINTZ
L.P. IRREVOCABLE TRUST 12/19/94
By: CHASE CAPITAL PARTNERS,
Its General Partner ____________________________
By:
_______________________________ Its: Trustee
Name:
Title:
<PAGE>
3
JONATHAN EPHRAIM MINTZ
IRREVOCABLE TRUST 12/19/94
________________________________
Alan P. Mintz, M.D.
____________________________
By:
_______________________________ Its: Trustee
Lawrence Rubinstein
ADAM M. RUBINSTEIN
_______________________________ IRREVOCABLE TRUST 12/19/94
John E. Adams
____________________________
______________________________ By:
Nancie Blatt Its: Trustee
______________________________ ADINA R. HERMAN IRREVOCABLE
Alan H. Spiro, M.D. TRUST 12/19/94
______________________________ ____________________________
Sheldon H. Gulinson By:
Its: Trustee
______________________________ ELANA B. RUBINSTEIN
James E. Zechman IRREVOCABLE TRUST 12/19/94
______________________________ ____________________________
Maria McAfee By:
Its: Trustee
______________________________
Jack M. Korsower, M.D.
Exhibit 10.15
PWRW&G DRAFT 9/5/95
===========================================================================
RESTRUCTURING AGREEMENT
among
MEDICON, INC.,
J.H. WHITNEY & CO.,
WHITNEY 1990 EQUITY FUND, L.P.,
WHITNEY SUBORDINATED DEBT FUND, L.P.,
CHEMICAL VENTURE CAPITAL ASSOCIATES,
a California Limited Partnership,
ALAN P. MINTZ,
JOHN E. ADAMS,
LAWRENCE RUBINSTEIN,
ALAN SPIRO,
NANCIE BLATT,
JAMES ZECHMAN,
SHELDON K. GULINSON,
and the Other Parties Named Herein
----------------------------------
Dated as of September 6, 1995
----------------------------------
===========================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 ADJUSTMENT TO THE REDEMPTION PRICE . . . . . . . . . . . . . 2
1.1 Adjustment to the Redemption Price. . . . . . . . . . . . . . 2
ARTICLE 2 RESTRUCTURING . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Waiver of Interest on Junior
Subordinated Note . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Class A Common Stock Share Exchange . . . . . . . . . . . . . 3
2.3 Company Approval; Charter Amendment; Bylaws Amendment . . . . 3
2.4 Stockholders' Agreement . . . . . . . . . . . . . . . . . . . 4
2.5 Earnback Warrants . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Employment Agreements . . . . . . . . . . . . . . . . . . . . 4
2.7 Senior Subordinated Notes . . . . . . . . . . . . . . . . . . 5
2.8 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . 5
2.9 Stock Option Plans . . . . . . . . . . . . . . . . . . . . . 5
2.10 Grants of Restricted Stock . . . . . . . . . . . . . . . . . 5
2.11 Mintz Payable Deferral . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4 MUTUAL RELEASE AND COVENANT NOT TO SUE . . . . . . . . . . . 6
ARTICLE 5 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 6 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Binding upon Successors . . . . . . . . . . . . . . . . . . 10
6.2 Costs and Expenses . . . . . . . . . . . . . . . . . . . . 10
6.3 Representation by Counsel . . . . . . . . . . . . . . . . . 10
6.4 Understanding of Agreements . . . . . . . . . . . . . . . . 10
6.5 Publicity; Announcements . . . . . . . . . . . . . . . . . 10
6.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.7 Entire Agreement; Modifications . . . . . . . . . . . . . . 11
6.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 11
6.10 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . 11
6.11 Representations . . . . . . . . . . . . . . . . . . . . . . 12
6.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
SCHEDULES
- ---------
Schedule 1.1 Names of Redeemed Stockholders, Number of Shares of Class C
Common Stock and Purchase Prices Thereof
Schedule 2.2 Class A Common Stock Exchange
Schedule 2.5 Earnback Warrants
Schedule 2.8 Stock Options
Schedule 2.10 Restricted Stock
Schedule 6.11 Ownership of Capital Stock
EXHIBITS
- --------
Exhibit A - Form of Alan Spiro Promissory Note
Exhibit B - Form of Alan Spiro Pledge Agreement
Exhibit C-1 - Form of Letter of Credit on Behalf of Mintz and Adams
Exhibit C-2 - Form of Letter of Credit on Behalf of Rubinstein
Exhibit C-3 - Form of Letter of Credit on Behalf of Blatt
Exhibit C-4 - Form of Letter of Credit on Behalf of Gulinson
Exhibit D - Certified Resolutions of the Board of Directors
Exhibit E - Certified Resolutions of the Stockholders
Exhibit F - Form of Amendment to Amended and Restated Articles of
Incorporation
Exhibit G - Form of Amendment to Bylaws
Exhibit H - Form of Amendment of Stockholders' Agreement
Exhibit I - Form of Earnback Warrant
Exhibit J-1 - Form of Employment Agreement of Alan Mintz
Exhibit J-2 - Form of Employment Agreement of Nancie Blatt
Exhibit J-3 - Form of Employment Agreement Amendment of Alan H. Spiro
Exhibit J-4 - Form of Employment Agreement Amendment of James E. Zechman
Exhibit J-5 - Form of Employment Agreement Amendment of Sheldon Gulinson
Exhibit J-6 - Form of Employment Agreement Amendment of Lawrence
Rubinstein
Exhibit K - Form of Legal Opinion
<PAGE>
Exhibit L-1 - Form of Amendment to Medicon, Inc. Time Accelerated
Restricted Stock Option Plan for Certain Employees
Exhibit L-2 - Form of Amendment to Medicon, Inc. Stock Option Plan
for Non-Employee Directors
Exhibit M-1 - Form of Spiro Restricted Stock Agreement
Exhibit M-2 - Form of Zechman Restricted Stock Agreement
Exhibit N - Form of Alan Mintz Letter Agreement
<PAGE>
RESTRUCTURING AGREEMENT
-----------------------
RESTRUCTURING AGREEMENT, dated as of September 6, 1995, among
MEDICON, INC., an Illinois corporation (the "Company"), J.H. WHITNEY &
---------
CO., a New York limited partnership ("JHW"), WHITNEY 1990 EQUITY FUND,
---
L.P., a Delaware limited partnership ("Whitney Equity Fund"), WHITNEY
---------------------
SUBORDINATED DEBT FUND, L.P., a Delaware limited partnership ("Whitney
-------
Debt Fund"), CHEMICAL VENTURE CAPITAL ASSOCIATES, a California limited
- ---------
partnership ("CVCA," and together with JHW, Whitney Equity Fund and
----
Whitney Debt Fund, the "Investors"), ALAN P. MINTZ ("Mintz"), LAWRENCE
--------- -----
RUBINSTEIN ("Rubinstein"), JOHN E. ADAMS ("Adams"), NANCIE BLATT
---------- -----
("Blatt"), ALAN SPIRO ("Spiro"), SHELDON GULINSON ("Gulinson," and
----- ----- --------
together with Mintz, Rubinstein, Adams, Blatt and Spiro, the "Redeemed
--------
Stockholders"), JAMES ZECHMAN ("Zechman," and collectively with the
- ------------ -------
Redeemed Stockholders, the "Management Stockholders"), the STEVEN HILLEL
-----------------------
MINTZ IRREVOCABLE TRUST (12/19/94) ("SHM Trust"), the ARI DAVID MINTZ
---------
IRREVOCABLE TRUST (12/19/94) ("ADM Trust"), the JEFFREY ADAM MINTZ
---------
IRREVOCABLE TRUST (12/19/94) ("JAM Trust"), the JONATHAN EPHRAIM MINTZ
---------
IRREVOCABLE TRUST (12/19/94) ("JEM Trust"), the ADAM M. RUBINSTEIN
---------
IRREVOCABLE TRUST (12/19/94) ("AMR Trust"), the ADINA R. HERMAN
---------
IRREVOCABLE TRUST (12/19/94) ("ARH Trust") and the ELANA B. RUBINSTEIN
---------
IRREVOCABLE TRUST (12/19/94) ("EBR Trust," and together with SHM Trust,
---------
ADM Trust, JAM Trust, JEM Trust, AMR Trust and ARH Trust, the
"Transferees").
-----------
WHEREAS, on November 3, 1994, the Investors and the Management
Stockholders entered into certain agreements and consummated certain
transactions that effectuated a recapitalization of the Company, a
partial redemption of the equity in the Company owned by the Redeemed
Stockholders and the investment by the Investors in the Company (the
"Original Transaction");
--------------------
WHEREAS, both the Investors and the Management Stockholders
agree that the Company needed additional capital at the time of the
Original Transaction, and it is the intention of the parties hereto to
(i) amend the Original Transaction by adjusting the redemption price paid
by the Company to the Redeemed Stockholders, (ii) restructure the
economic interests of the Management Stockholders and the Investors in
the Company as they relate back to the Original Transaction in accordance
with an accurate valuation of the Company and (iii) grant a release of
liability from claims in accordance with the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and
<PAGE>
2
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
ADJUSTMENT TO THE REDEMPTION PRICE
----------------------------------
1.1 Adjustment to the Redemption Price.
----------------------------------
(a) The Redeemed Stockholders agree to reduce the
aggregate redemption price paid by the Company in the Original
Transaction by $7,500,000.00 (the "Redemption Price Adjustment Amount"),
----------------------------------
payable as provided in Sections 1.1(b) and 1.1(c) and allocated amongst
the Redeemed Stockholders in accordance with the amounts set forth next
to each such Redeemed Stockholders' name on Schedule 1.1 hereto.
------------
(b) $5,124,874.98 of the Redemption Price Adjustment
Amount is being paid concurrently with the execution and delivery of this
Agreement by (i) wire transfer by the Redeemed Stockholders (except
Spiro) of $4,750,249.98 of immediately available funds to bank account
number [ ] of the Company maintained with The Northern Trust
Company and (ii) delivery by Spiro to the Company of a promissory note in
the form of Exhibit A in the aggregate principal amount of $374,625.00
---------
(the "Spiro Note"). The Spiro Note will be secured by a pledge
----------
agreement, executed and delivered concurrently with this Agreement, in
the form of Exhibit B hereto.
---------
(c) The remaining $2,375,125.02 of the Redemption Price
Adjustment Amount is being paid by delivery concurrently with the
execution and delivery of this Agreement to the Company by the Redeemed
Stockholders (excluding Spiro) of irrevocable letters of
credit(collectively, the "Letters of Credit"), with the Letter of Credit
-----------------
on behalf of Mintz and Adams in the form of Exhibit C-1 hereto, the
-----------
Letter of Credit on behalf of Rubinstein in the form of Exhibit C-2
-----------
hereto, the Letter of Credit on behalf of Blatt in the form of
Exhibit C-3 hereto and the Letter of Credit on behalf of Gulinson in the
- -----------
form of Exhibit C-4 hereto. Such Letters of Credit may be drawn down
-----------
from time to time by the Company in accordance with Section 1.1(d).
(d) The Chief Financial Officer of the Company shall
prepare and deliver to the Board of Directors of the Company (with a copy
to each of the Redeemed Stockholders) on a weekly basis through March 31,
1996 a statement certifying the aggregate amount of Temporary Cash
Investments (as defined in Article 5) of the Company. The
<PAGE>
3
certified amount of Temporary Cash Investments is hereinafter referred to
as the "Certified Cash Amount." If the Certified Cash Amount in any
---------------------
weekly report does not equal or exceed $4,000,000.00, then to the extent
that the relevant Certified Cash Amount is less than $4,000,000.00 (the
"Shortfall Amount"), the Company may make a demand under each of the
----------------
Letters of Credit for payment to the Company in immediately available
funds of a pro rata portion of the Shortfall Amount. On and after March
31, 1996 the Company may make a demand under each Letter of Credit for
payment to the Company in immediately available funds of the balance of
any amounts which have not previously been drawn under such Letters of
Credit.
ARTICLE 2
RESTRUCTURING
-------------
2.1 Waiver of Interest on Junior Subordinated Notes. Mintz,
-----------------------------------------------
Adams, Rubinstein and Spiro, in their individual capacities as holders of
an aggregate of $10,574,059.00 of Junior Subordinated Promissory Notes of
the Company, each dated as of November 3, 1994 (collectively, the "Junior
------
Subordinated Notes"), hereby irrevocably waive their right to receive any
- ------------------
and all accrued but unpaid interest and agree that no interest will
accrue on the Junior Subordinated Notes from June 30, 1995 (the date of
the last interest payment date) through June 30, 1996.
2.2 Class A Common Stock Share Exchange. Concurrently with
-----------------------------------
the execution and delivery of this Agreement, the 123,156 shares (the
"Class A Shares") of Class A Common Stock of the Company previously
--------------
issued and sold to the Whitney Debt Fund and CVCA pursuant to the
Subordinated Note Purchase Agreement (as defined in Article 5) are being
surrendered to the Company by the Whitney Debt Fund and CVCA in exchange
for the issuance by the Company of the number of shares of Series A
Preferred Stock and Class B Common Stock set forth next to the names of
the Whitney Debt Fund and CVCA on Schedule 2.2 hereto.
------------
2.3 Company Approval; Charter Amendment; Bylaws Amendment.
-----------------------------------------------------
(a) Prior to the execution and delivery of this
Agreement, the Board of Directors and stockholders of the Company have,
by written consent, each approved this Agreement and the transactions
contemplated hereby, and certified copies of such resolutions are
attached hereto as Exhibit D and Exhibit E, respectively.
--------- ---------
<PAGE>
4
(b) Concurrently with the execution and delivery of this
Agreement, an amendment to the Amended and Restated Articles of
Incorporation of the Company, in accordance with the form of Exhibit F
---------
hereto, is being filed by the Company with the Secretary of State of the
State of Illinois.
(c) Concurrently with the execution and delivery of this
Agreement, an amendment to the Bylaws of the Company, in accordance with
the form of Exhibit G hereto, is being adopted by the Board of Directors
---------
of the Company.
2.4 Stockholders' Agreement.
-----------------------
(a) The Management Stockholders, the Investors and the
Transferees (as defined in Article 5) hereby irrevocably waive their
rights under Section 3.4 of the Stockholders' Agreement in connection
with the issuance of any Capital Stock pursuant to this Agreement or the
transactions contemplated hereby.
(b) Concurrently with the execution and delivery of this
Agreement, the Company, the Investors, the Management Stockholders and
the Transferees are entering into an amendment to the Stockholders'
Agreement in the form of Exhibit H hereto.
---------
2.5 Earnback Warrants. Concurrently with the execution and
-----------------
delivery of this Agreement, the Company is issuing Earnback Warrants (as
defined in Article 5) exercisable for an aggregate of 3,438,212 shares of
Class A Common Stock to each of the Persons and in the amounts set forth
on Schedule 2.5 hereto.
------------
2.6 Employment Agreements.
---------------------
(a) Concurrently with the execution and delivery of this
Agreement, the Company and Mintz are executing and delivering a new
employment agreement in the form of Exhibit J-1, such employment
-----------
agreement to replace and supersede that certain employment agreement
between the Company and Mintz, dated as of January 1, 1994, and amended
as of November 3, 1994.
(b) Concurrently with the execution and delivery of this
Agreement, the Company and Blatt are executing and delivering an
employment agreement in the form of Exhibit J-2 hereto.
-----------
(c) Concurrently with the execution and delivery of this
Agreement, the Company and Spiro, Zechman, Gulinson and Rubinstein are
executing amendments to each of
<PAGE>
5
their employment agreements in the form of Exhibit J-3, Exhibit J-4,
----------- -----------
Exhibit J-5 and Exhibit J-6, respectively.
- ----------- -----------
2.7 Senior Subordinated Notes. The Investors, as the holders
-------------------------
of Senior Subordinated Promissory Notes due November 3, 2001 in the
aggregate principal amount of $10,000,000.00 (the "Senior Subordinated
-------------------
Notes"), hereby each irrevocably waive any "Event of Default" (as defined
- -----
in the Senior Subordinated Notes) under Section 7(a)(vii) of the Senior
Subordinated Notes. Except as expressly provided in this Section 2.7,
this Section 2.7 shall not constitute consent to any departure from any
provision of the Senior Subordinated Notes and shall not be construed as
an amendment, waiver or consent to any action on the part of the
Investors that would require a waiver or consent of the Investors except
as expressly stated herein. Except as expressly waived herein, the
provisions of the Senior Subordinated Notes are and shall remain in full
force and effect.
2.8 Legal Opinion. Concurrently with the execution and
-------------
delivery of this Agreement, Katten, Muchin & Zavis, counsel to the
Company, is delivering an opinion, dated the date hereof, in the form of
Exhibit K hereto.
- ---------
2.9 Stock Option Plans. Prior to the execution and delivery
------------------
of this Agreement, the Board of Directors and stockholders of the Company
have, by written consent, each approved an amendment to the Medicon, Inc.
Time Accelerated Restricted Stock Option Plan for Certain Employees (the
"Medicon Option Plan") in accordance with the form of Exhibit L hereto.
------------------- ---------
2.10 Grants of Restricted Stock. Concurrently with the
--------------------------
execution and delivery of this Agreement, the Company and each of Spiro
and Zechman are executing and delivering a restricted stock agreement in
the form of Exhibit M-1 and Exhibit M-2, respectively, pursuant to which
----------- -----------
the Company will issue and sell to each of Spiro and Zechman the number
of shares of Class A Common Stock set forth next to their respective
names on Schedule 2.10 hereto.
-------------
2.11 Mintz Payable Deferral. Concurrently with the execution
----------------------
and delivery of this Agreement, Mintz is deferring receipt of a
$198,539.60 account payable from the Company, such deferral to be
evidenced by a letter agreement duly executed by Mintz and in the form of
Exhibit N hereto.
- ---------
<PAGE>
6
ARTICLE 3
FURTHER ASSURANCES
------------------
The parties hereto shall use their respective best efforts to
consummate the transactions contemplated hereby, subject to the terms
hereof, as expeditiously as practicable. Each party hereto shall
execute, or cause to be executed, such documents and other instruments
and take, or cause to be taken, such further actions as may be requested
to carry out the provisions hereof and the transactions contemplated
hereby. Without limiting the generality of the foregoing, the parties
hereto agree to cooperate with one another and shall, and shall cause
their respective affiliates to, use their respective best efforts to
obtain all governmental, third-party and corporate consents and
approvals, if any, necessary to complete the transactions contemplated by
this Agreement.
ARTICLE 4
MUTUAL RELEASE AND COVENANT NOT TO SUE
--------------------------------------
The parties hereto hereby fully, finally and forever waive,
release and discharge, as applicable, each other, and each other's
predecessors, subsidiaries, parent companies, divisions, affiliated
corporations, heirs, executors, administrators, past and present
officers, directors, agents, shareholders, employees, attorneys,
successors and assigns and any or all of them from any and all claims,
causes of action, demands, suits, costs, expenses and damages (including
with respect to fraud relating to or arising out of the Stock Purchase
Agreement, the Subordinated Note Purchase Agreement and the agreements
related thereto), that they now have or hereafter may have of whatsoever
nature and kind, whether known or unknown, whether now existing or
hereafter arising, whether at law or in equity, arising out of or
relating to (i) any breach or violation of the Share Redemption Agreement
(excluding the provisions of Section 5 thereof) or (ii) the Stock
Purchase Agreement or the Subordinated Note Purchase Agreement, including
but not limited to any breach or violation of the representations,
warranties or covenants contained in the Stock Purchase Agreement or the
Subordinated Note Purchase Agreement; provided, however, that with
-------- -------
respect to the covenants contained in the Share Redemption Agreement, the
Stock Purchase Agreement and the Subordinated Note Purchase Agreement
this Article 4 shall be applicable only to the extent such covenants were
required
<PAGE>
7
to be performed on or prior to November 3, 1994. Nothing contained in
this Article 4 shall be deemed to extinguish or restrict any of the
rights, duties or obligations created by, continued by, or confirmed by
the other provisions of this Agreement or any agreements related hereto.
The parties hereto hereby covenant that he, she or it, as the
case may be, will not commence, maintain, participate in or be a party to
any lawsuit, action, claim or cause of action against one another
(including with respect to fraud relating to or arising out of the Stock
Purchase Agreement, the Subordinated Note Purchase Agreement and the
agreements related thereto), in connection with, arising out of or
relating to (i) any breach or violation of the Share Redemption Agreement
(excluding the provisions of Section 5 thereof) or (ii) the Stock
Purchase Agreement or the Subordinated Note Purchase Agreement, including
but not limited to any breach or violation of the representations,
warranties or covenants contained in the Stock Purchase Agreement or the
Subordinated Note Purchase Agreement; provided, however, that with
-------- -------
respect to the covenants contained in the Share Redemption Agreement, the
Stock Purchase Agreement and the Subordinated Note Purchase Agreement
this Article 4 shall be applicable only to the extent such covenants were
required to be performed on or prior to November 3, 1994. Nothing in
this paragraph, however, shall preclude any action to enforce this
Agreement, Section 5 of the Share Redemption Agreement or any covenants
in the Stock Purchase Agreement or Subordinated Note Purchase Agreement
which covenants are required to be performed after November 3, 1994.
ARTICLE 5
DEFINITIONS
-----------
As used in this Agreement, and unless the context requires a
different meaning, the following terms have the meanings indicated:
"Capital Stock" of any Person means any and all shares,
---------------
interests, participations, or other equivalents (however designated) of
such Person's capital stock (or equivalent ownership interests in a
Person, not a corporation) whether now outstanding or hereafter issued,
including, without limitation, all common stock and preferred stock and
any rights, warrants or options to purchase such Person's capital stock.
<PAGE>
8
"Certified Cash Amount" has the meaning assigned such term in
---------------------
Section 1.1(d).
"Class A Common Stock" means the Class A Common Stock, no par
--------------------
value, of the Company, or any other capital stock of the Company into
which such stock is reclassified or reconstituted.
"Class A Shares" has the meaning assigned such term in Section
--------------
2.2.
"Class B Common Stock" means the Class B Common Stock, no par
--------------------
value, of the Company, or any other capital stock of the Company into
which such stock is reclassified.
"Earnback Warrants" means the Warrants substantially in the
-----------------
form attached hereto as Exhibit I.
---------
"Investment" means, for any Person (i) the acquisition (whether
----------
for cash, property, services, securities or otherwise) of Capital Stock,
bonds, notes, debentures, partnership or other ownership interests for
other securities of any other Person or any agreement to make any such
acquisition; and (ii) the making of any advance, loan or other extension
of credit to, any other Person (including the purchase of property from
another Person subject to an understanding or agreement, contingent or
otherwise, to resell such property to such other Person, excluding any
accounts receivable created in the ordinary course of business).
"Junior Subordinated Notes" has the meaning assigned such term
-------------------------
in Section 2.1.
"Letters of Credit" has the meaning assigned such term in
-----------------
Section 1.1(c).
"Medicon Option Plan" has the meaning assigned such term in
-------------------
Section 2.9.
"Original Transaction" has the meaning assigned such term in
--------------------
the first Whereas clause hereof.
"Person" means any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint
stock company, governmental authority or other entity of any kind, and
shall include any successor (by merger or otherwise) of any such entity.
"Redemption Price Adjustment Amount" has the meaning assigned
----------------------------------
such term in Section 1.1(a).
"Senior Subordinated Notes" has the meaning assigned such term
-------------------------
in Section 2.7.
<PAGE>
9
"Series A Preferred Stock" means the Series A Convertible
------------------------
Preferred Stock, no par value, of the Company, or any other capital stock
into which such stock is reclassified or reconstituted.
"Share Redemption Agreement" means the Redemption Agreement,
--------------------------
dated as of November 3, 1994, among the Company and the Redeemed
Stockholders.
"Shortfall Amount" has the meaning assigned such term in
----------------
Section 1.1(d).
"Spiro Note" has the meaning assigned such term in
----------
Section 1.1(b).
"Stockholders' Agreement" means the Stockholders' Agreement,
-----------------------
dated as of November 3, 1994, among the Company, the Investors and the
Management Stockholders, as amended.
"Stock Purchase Agreement" means the Stock Purchase Agreement,
------------------------
dated as of November 3, 1994, among the Company, Whitney 1990 Equity
Fund, Whitney, CVCA and the Redeemed Stockholders.
"Subordinated Note Purchase Agreement" means the Subordinated
------------------------------------
Note and Stock Purchase Agreement, dated as of November 3, 1994, among
the Company, Whitney Debt Fund, CVCA and the Redeemed Stockholders.
"Subsidiary" means, with respect to any Person, a corporation
----------
or other entity of which fifty percent or more of the voting power of the
voting equity securities or equity interests is owned, directly or
indirectly, by such Person. Unless otherwise qualified, all references
to a "Subsidiary" or "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Company.
"Temporary Cash Investment" means any Investment in (i) United
-------------------------
States Government Obligations, (ii) commercial paper rated at least A or
the equivalent thereof by Moody's Investors Service, Inc. or a similar
nationally recognized credit agency or (iii) time deposits (including
certificates of deposit) with any bank or trust company which is
organized, licensed or otherwise regulated under the laws of the United
States or any State thereof, the long-term securities of which are rated
at least A or the equivalent thereof by Moody's Investors Service, Inc.
or a similar nationally recognized credit rating agency; provided, in
--------
each case that such Investment matures within one (1) year from the date
of acquisition thereof by the Company or a Subsidiary thereof.
<PAGE>
10
"United States Government Obligations" means direct non-
------------------------------------
callable obligations of, or non-callable obligations guaranteed by, the
United States for the payment of which obligation the full faith and
credit of the United States is pledged.
ARTICLE 6
MISCELLANEOUS
-------------
6.1 Binding upon Successors. This Agreement shall inure to
-----------------------
the benefit of and be binding upon the successors and assigns of the
parties hereto.
6.2 Costs and Expenses. The Company shall bear the costs,
------------------
expenses and attorneys' fees of the Investors in connection with the
preparation of this Agreement and the carrying out of the matters
contemplated herein. Each of the parties to this Agreement (other than
the Investors) shall bear their own costs, expenses and attorneys' fees.
6.3 Representation by Counsel. Each party acknowledges that
-------------------------
it has been represented by independent legal counsel of its own choice
through all of the negotiations which preceded the execution of this
Agreement and that it has executed this Agreement with the consent and
upon the advice of such independent legal counsel.
6.4 Understanding of Agreements. Each party acknowledges that
---------------------------
it has read this Agreement and assents to all of the terms and conditions
contained herein without any reservation whatsoever and that it has had
the same explained by counsel, who have answered any and all questions
which have been asked with regard to the meaning of any of the provisions
hereof.
6.5 Publicity; Announcements. Except to the extent required
------------------------
by law, without the prior written consent of the other parties hereto,
(i) all publicity related to this Agreement and the agreements related
hereto, the terms hereof and thereof and the transactions contemplated
hereby and thereby shall be subject to the mutual approval of all the
parties hereto, and (ii) none of the parties hereto nor anyone acting on
their behalf shall issue or make any public announcement or public
communication related to this Agreement or any agreement related hereto,
the terms hereof or thereof or the transactions contemplated hereby or
thereby. To the extent any party is required by applicable law to
disclose publicly or make any public announcement of the terms of this
Agreement or any agreement related hereto and the transactions
contemplated hereby or thereby, such party shall, to the extent
practicable, give the other parties reasonable, actual prior notice of
such disclosure.
<PAGE>
11
6.6 Notices. All notices and other communications hereunder
-------
shall be given in accordance with Section 9.2 of the Stock Purchase
Agreement.
6.7 Entire Agreement; Modifications. This Agreement and the
-------------------------------
agreements related hereto (including the letter, dated the date hereof,
among Blatt, the Company and the Investors) contain the entire agreement
among the parties with respect to the subject matter hereof, and such
agreements supersede all prior agreements, written or oral, whether
binding or non-binding, among any of the parties hereto, with respect to
the subject matter hereof. No representations, warranties or inducements
have been made to the parties hereto or their counsel concerning this
Agreement and the agreements related hereto other than those
representations, warranties and covenants contained herein and in the
agreements related hereto. No waiver, modification or amendment of the
terms of this Agreement shall be valid unless in writing signed by the
party to be charged and only to the extent therein set forth. Any
failure by any party to insist upon the strict performance by any other
party of any of the provisions of this Agreement shall not be deemed a
waiver of any of the provisions hereof, and such party, notwithstanding
such failure shall have the right thereafter to insist upon the strict
performance of any and all of the provisions of this Agreement to be
performed by such other party.
6.8 Headings. The headings contained in this Agreement are
--------
inserted only as a matter of convenience and in no way define, limit,
extend or describe the scope of this Agreement or the intent of any
provision hereof.
6.9 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York, without
regard to the principles of conflicts of law of such State.
6.10 Jurisdiction. Each party to this Agreement hereby
------------
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or any agreements or transactions contemplated
hereby may be brought in the courts of the State of New York or of the
United States of America for the Southern District of New York and hereby
expressly submits to the personal jurisdiction and venue of such courts
for the purposes thereof and expressly waives any claim of improper venue
and any claim that such courts are an inconvenient forum. Each party
hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the
mailing of copies thereof by registered or certified mail, postage
prepaid, to the address set forth or
<PAGE>
12
referred to in Section 9.2 of the Stock Purchase Agreement, such service
to become effective 10 days after such mailing.
6.11 Representations.
---------------
(a) Each of the Management Stockholders and the
Investors, severally and not jointly, hereby represents and warrants that
immediately prior to the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, (i) such person
owns such number of shares of Class A Common Stock, Class B Common Stock
and Series A Preferred Stock and such options to purchase shares of Class
A Common Stock set forth next to their name on Schedule 6.11 hereto, and
-------------
(ii) such Person does not own other capital stock of the Company or
securities convertible into or exchangeable for capital stock of the
Company or options, warrants or other rights to purchase or subscribe to
capital stock of the Company.
(b) Each party hereto represents and warrants that (i) it
is authorized to execute and deliver this Agreement and (ii) assuming
this Agreement has been duly authorized, executed and delivered by the
other parties hereto, this Agreement is a valid, binding and enforceable
agreement against such party in accordance with its terms.
6.12 Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which when so executed shall be deemed to
be an original and all of which, when taken together, shall constitute
one and the same agreement.
<PAGE>
13
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first written
above.
MEDICON, INC.
By: /s/ Lawrence Rubinstein
------------------------------
Name: Lawrence Rubinstein
Title:
WHITNEY 1990 EQUITY FUND, L.P.
By: /s/ Jeffrey R. Jay
------------------------------
Name: Jeffrey R. Jay
Title:
J.H. WHITNEY & CO.
By: /s/ Jeffrey R. Jay
------------------------------
Name: Jeffrey R. Jay
Title:
WHITNEY SUBORDINATED DEBT FUND, L.P.
By: /s/ Jeffrey R. Jay
------------------------------
Name: Jeffrey R. Jay
Title:
<PAGE>
14
CHEMICAL VENTURE CAPITAL ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
By: CHEMICAL VENTURE PARTNERS
Its General Partner
By: /s/ Mitchell J. Blutt
-------------------------
Name: Mitchell J. Blutt, M.D.
Title: Executive Partner
/s/ Alan P. Mintz
-----------------------------
Alan P. Mintz
_______________________________
John E. Adams
_______________________________
Lawrence Rubinstein
_______________________________
Alan Spiro
/s/ Sheldon K. Gulinson
-------------------------------
Sheldon K. Gulinson
_______________________________
Nancie Blatt
<PAGE>
15
CHEMICAL VENTURE CAPITAL ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
By: CHEMICAL VENTURE PARTNERS
Its General Partner
By:__________________________
Name:
Title:
_______________________________
Alan P. Mintz
_______________________________
John E. Adams
_______________________________
Lawrence Rubinstein
/s/ Alan Spiro
-------------------------------
Alan Spiro
_______________________________
Sheldon K. Gulinson
/s/ Nancie Blatt
-------------------------------
Nancie Blatt
<PAGE>
16
CHEMICAL VENTURE CAPITAL ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
By: CHEMICAL VENTURE PARTNERS
Its General Partner
By:__________________________
Name:
Title:
_______________________________
Alan P. Mintz
/s/ John E. Adams
-------------------------------
John E. Adams
/s/ Lawrence Rubinstein
-------------------------------
Lawrence Rubinstein
_______________________________
Alan Spiro
_______________________________
Sheldon K. Gulinson
_______________________________
Nancie Blatt
<PAGE>
17
CHEMICAL VENTURE CAPITAL ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
By: CHEMICAL VENTURE PARTNERS
Its General Partner
By:__________________________
Name:
Title:
_______________________________
Alan P. Mintz
_______________________________
John E. Adams
_______________________________
Lawrence Rubinstein
_______________________________
Alan Spiro
_______________________________
Sheldon K. Gulinson
/s/ Nancie Blatt
-------------------------------
Nancie Blatt
<PAGE>
18
/s/ James E. Zechman
-------------------------------
James Zechman
/s/ John E. Adams
------------------------------------------------
Steven Hillel Mintz Irrevocable Trust 12/19/94
By: John E. Adams
Its: Trustee
/s/ John E. Adams
------------------------------------------------
Ari David Mintz Irrevocable Trust 12/19/94
By: John E. Adams
Its: Trustee
/s/ John E. Adams
------------------------------------------------
Jeffrey Adam Mintz Irrevocable Trust 12/19/94
By: John E. Adams
Its: Trustee
/s/ John E. Adams
------------------------------------------------
Jonathon Ephraim Mintz Irrevocable Trust 12/19/94
By: John E. Adams
Its: Trustee
<PAGE>
19
/s/ Edward S. Salomon
-------------------------------------------------
Adam M. Rubinstein Irrevocable Trust 12/19/94
By: Edward S. Salomon
Its: Trustee
/s/ Edward S. Salomon
-------------------------------------------------
Adina R. Herman Irrevocable Trust 12/19/94
By: Edward S. Salomon
Its: Trustee
/s/ Edward S. Salomon
-------------------------------------------------
Elana B. Rubinstein Irrevocable Trust
12/19/94
By: Edward S. Salomon
Its: Trustee
Exhibit 10.16
September 6, 1995
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAW OF ANY STATE
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS.
No. A-1 Warrant to Purchase 986,894
Shares of Class A Common Stock
MEDICON, INC.
CLASS A COMMON STOCK PURCHASE WARRANT
MEDICON, INC., an Illinois corporation (the "Company"), hereby
-------
certifies that for value received, Alan P. Mintz (the "Holder") is entitled to
------
purchase, at any time specified in Section 2(a) hereof, subject to the terms and
conditions hereinafter set forth, an aggregate of 986,894 fully paid and
nonassessable shares of Class A Common Stock of the Company, at an exercise
price of $.01 per share (the "Purchase Price").
--------------
This Warrant is issued in connection with the Restructuring Agreement,
dated as of the date hereof, among the Company, Whitney Subordinated Debt Fund,
L.P. ("Whitney Debt Fund"), Whitney 1990 Equity Fund, L.P., a Delaware limited
-----------------
partnership ("Whitney Equity Fund"), J.H. Whitney & Co., a New York limited
-------------------
partnership ("Whitney"), Chemical Venture Capital Associates, a California
-------
limited partnership ("CVCA," and together with Whitney Debt Fund, Whitney Equity
-----
Fund and Whitney, the "Investors"), Alan P. Mintz ("Mintz"), John E. Adams
--------- -----
("Adams"), Lawrence Rubinstein ("Rubinstein"), Alan Spiro ("Spiro"), Nancie
----- ---------- -----
Blatt ("Blatt"), James Zechman ("Zechman"), Sheldon Gulinson ("Gulinson") and
----- ------- --------
certain other parties thereto.
1. Definitions. For the purposes of this Warrant, the following
-----------
terms have the meanings indicated:
"Business Day" shall mean any day other than a Saturday, Sunday or
------------
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
<PAGE>
"Class A Common Stock" means the Class A Common Stock, no par value,
--------------------
of the Company.
"Class B Common Stock" means the Class B Common Stock, no par value,
--------------------
of the Company.
"Closing Price" shall mean, with respect to each share of Class A
-------------
Common Stock for any day, (a) the last reported sale price regular way or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case as reported on the principal national
securities exchange on which the Class A Common Stock is listed or admitted for
trading or (b) if the Class A Common Stock is not listed or admitted for trading
on any national securities exchange, the last reported sale price or, in case no
such sale takes place on such day, the average of the highest reported bid and
the lowest reported asked quotation for the Class A Common Stock, in either case
as reported on the Automatic Quotation System of Nasdaq or a similar service if
Nasdaq is no longer reporting such information.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" shall mean collectively the Class A Common Stock, the
------------
Class B Common Stock and any class or series of common stock of the Company
authorized after the date of this Warrant, or any other class of stock resulting
from successive changes or reclassifications of such Common Stock.
"Company" has the meaning ascribed to such term in the first paragraph
-------
of this Warrant.
"Current Market Price" shall mean, with respect to the Class A Common
--------------------
Stock on any date, the average of the daily Closing Prices per share of Class A
Common Stock for the ten consecutive trading days commencing 15 trading days
before such date. If on any such date the shares of Class A Common Stock are
not listed or admitted for trading on any national securities exchange or quoted
by Nasdaq or a similar service, the Current Market Price for such shares shall
be the fair market value of such shares on such date as determined in good faith
by a committee of disinterested members of the Board of Directors of the
Company.
"Exercise Date" has the meaning ascribed to such term in Section 2(d).
-------------
"Holder" has the meaning ascribed to such term in the first paragraph
------
of this Warrant.
-2-
<PAGE>
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Common Stock pursuant to a registration statement
on Form S-1 or otherwise under the Securities Act.
"Nasdaq" shall mean the National Association of Securities Dealers,
------
Inc.
"Net Cash Proceeds" shall mean, with respect to (x) any Initial Public
-----------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) related to such Initial Public Offering or (y) any Sale
Transaction, (i) the cash proceeds received by the Investors, minus
-----
(ii) brokerage commissions or underwriting fees and all other costs, fees and
expenses of the Investors associated with such Sale Transaction (including,
without limitation, fees, charges and disbursements of counsel and reasonable
fees and expenses of investment bankers or other third party financial experts).
"Person" shall mean any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Purchase Price" has the meaning ascribed to such term in the first
--------------
paragraph of this Warrant.
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Net Cash Proceeds to the Company in excess of $30,000,000.00 and in
respect of which the price per share of Common Stock sold in such Qualified
Public Offering is at least $4.6441025 (subject to appropriate adjustment for
any dividends, subdivisions, combinations or reclassifications of Common Stock).
This implies, for example, that the aggregate value of the Investors' original
equity investment will be at least $75,000,000.00 upon the closing of a
Qualified Public Offering.
"Qualified Sale Transaction" means a Sale Transaction in which (i) the
--------------------------
senior subordinated promissory notes in the aggregate principal amount of
$10,000,000.00 payable to Whitney Debt Fund and CVCA, together with all accrued
and unpaid interest thereon, are repaid and (ii) the Investors receive Net Cash
Proceeds in excess of $75,000,000.00 for the Series A Preferred Stock and Common
Stock of the Investors.
-3-
<PAGE>
"Sale Transaction" shall mean (i) any sale of the capital stock of the
----------------
Company owned by the Investors or (ii) any merger, consolidation, sale or other
business combination involving the Company, in each case in one transaction or a
series of transactions occurring prior to the consummation of an Initial Public
Offering.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Series A Preferred Stock" means the Series A Convertible Preferred
------------------------
Stock, no par value, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Stockholders' Agreement" means the Stockholders' Agreement, dated as
-----------------------
of November 3, 1994, among the Company and its stockholders, as amended from
time to time in accordance with the terms thereof.
2. Exercise of Warrant.
-------------------
(a) Exercise. This Warrant may be exercised, in whole or in
--------
part, by surrendering to the Company at its principal office this Warrant, with
the form of Election to Purchase Shares attached hereto as Exhibit A duly
---------
executed by the Holder and accompanied by payment of the Purchase Price for the
number of shares of Class A Common Stock specified in such form, but only on (i)
the date of the consummation of a Qualified Public Offering and only if (x) the
Company has consummated a Qualified Public Offering on or before June 30, 1997
or (y) the Company has filed a registration for an Initial Public Offering with
the Commission on or prior to June 30, 1997, such Initial Public Offering is
consummated on or before September 30, 1997 and such Initial Public Offering is
a Qualified Public Offering or (ii) the date of the consummation of a Qualified
Sale Transaction and only if (A) such Qualified Sale Transaction is consummated
on or before June 30, 1997 or (B) definitive documentation for a Qualified Sale
Transaction has been executed on or prior to June 30, 1997 and such Qualified
Sale Transaction is consummated on or before September 30, 1997.
(b) Delivery of Shares; Payment of Purchase Price. As soon as
---------------------------------------------
practicable after surrender of this Warrant and receipt of payment the Company
shall promptly issue and deliver to the Holder a certificate or certificates for
the number of shares of Class A Common Stock set forth in the Election to
Purchase Shares, in such name or names as may be designated by such Holder,
along with a check for the amount of cash to be paid in lieu of issuance of
fractional shares, if any. Payment of the Purchase Price shall be made in
United States currency by cash or delivery of a certified check, bank draft or
-4-
<PAGE>
postal or express money order payable to the order of the Company.
(c) Partial Exercise. If this Warrant is exercised for less
----------------
than all of the shares of Class A Common Stock purchasable under this Warrant,
the Company shall cancel this Warrant upon surrender hereof and shall execute
and deliver to the Holder a new Warrant of like tenor for the balance of the
shares of Class A Common Stock purchasable hereunder.
(d) When Exercise Effective. The exercise of this Warrant shall
-----------------------
be deemed to have been effective immediately prior to the close of business on
the Business Day on which this Warrant is surrendered to and the Purchase Price
is received by the Company as provided in this Section 2 (the "Exercise Date"),
-------------
and the Person in whose name any certificate for shares of Class A Common Stock
shall be issuable upon such exercise, as provided in Section 2(b), shall be
deemed to be the record holder of such shares of Class A Common Stock for all
purposes on the Exercise Date.
3. Adjustment of Purchase Price and Number of Shares. The Purchase
-------------------------------------------------
Price and the number of shares of Class A Common Stock issuable upon exercise of
this Warrant shall be adjusted from time to time upon the occurrence of the
following events:
(a) Dividend, Subdivision, Combination or Reclassification of
---------------------------------------------------------
Common Stock. If the Company shall, at any time or from time to time, (i)
- ------------
declare a dividend on the Common Stock payable in shares of its capital stock
(including Common Stock), (ii) subdivide the outstanding Common Stock,
(iii) combine the outstanding Common Stock into a smaller number of shares, or
(iv) issue any shares of its capital stock in a reclassification of the Common
Stock (excluding any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), then in each such
case, the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable on
such date shall be proportionately adjusted so that the Holder of any Warrant
exercised after such date shall be entitled to receive, upon payment of the same
aggregate amount as would have been payable before such date, the aggregate
number and kind of shares of capital stock which, if such Warrant had been
exercised immediately prior to such date, such Holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. Any such adjustment shall become effective
immediately after the record date of such dividend or the effective date of such
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur. If a dividend is
declared and such dividend is not paid, the Purchase Price shall
-5-
<PAGE>
again be adjusted to be the Purchase Price in effect immediately prior to such
record date.
(b) De Minimis Adjustments. No adjustment in the Purchase Price
----------------------
shall be made if the amount of such adjustment would result in a change in the
Purchase Price per share of less than $.01, but in such case any adjustment that
would otherwise be required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment, which
together with any adjustment so carried forward, would result in a change in the
Purchase Price of $.01 per share. If the Company shall, at any time or from
time to time, issue Common Stock by way of dividends on any stock of the Company
or subdivide or combine the outstanding shares of the Common Stock, such amount
of $.01 (as theretofore increased or decreased, if such amounts shall have been
adjusted in accordance with the provisions of this clause) shall forthwith be
proportionately increased in the case of a combination or decreased in the case
of a subdivision or stock dividend so as appropriately to reflect the same.
Notwithstanding the provisions of the first sentence of this Section 3(b), any
adjustment postponed pursuant to this Section 3(b) shall be made no later than
the earlier of (i) six months from the date of the transaction that would, but
for the provisions of the first sentence of this Section 3(b), have required
such adjustment or (ii) an Exercise Date.
4. Reorganization, Reclassification, Merger and Sale of Assets. If
-----------------------------------------------------------
there occurs any capital reorganization or any reclassification of the Common
Stock of the Company, the consolidation or merger of the Company with or into
another Person (other than a merger or consolidation of the Company in which the
Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of its Common Stock) or the
sale or conveyance of all or substantially all of the assets of the Company to
another Person, then the Holder will thereafter be entitled to receive, upon the
exercise of this Warrant in accordance with the terms hereof, the same kind and
amounts of securities (including shares of stock) or other assets, or both,
which were issuable or distributable to the holders of outstanding Common Stock
of the Company upon such reorganization, reclassification, consolidation,
merger, sale or conveyance, in respect of that number of shares of Class A
Common Stock then deliverable upon the exercise of this Warrant if this Warrant
had been exercised immediately prior to such reorganization, reclassification,
consolidation, merger, sale or conveyance.
5. Certificate as to Adjustments. Whenever the Purchase Price and
-----------------------------
the number of shares of Class A Common Stock issuable, or the securities or
other property deliverable, upon the exercise of this Warrant shall be adjusted
pursuant to the provisions hereof, the Company shall promptly give written
notice thereof to the Holder, in accordance with Section 14, in the form
-6-
<PAGE>
of a certificate signed by the Chairman of the Board, President or one of the
Vice Presidents of the Company, and by the Chief Financial Officer, Treasurer or
one of the Assistant Treasurers of the Company, stating the adjusted Purchase
Price, the number of shares of Class A Common Stock issuable, or the securities
or other property deliverable, upon exercise of the Warrant calculated to the
nearest cent or the nearest one one-hundredth of a share and setting forth in
reasonable detail the method of calculation and the facts requiring such
adjustment and upon which such calculation is based. Each adjustment shall
remain in effect until a subsequent adjustment is required.
6. Fractional Shares. Notwithstanding an adjustment in the number
-----------------
of shares of Class A Common Stock covered by this Warrant or any other provision
of this Warrant, the Company shall not be required to issue fractions of shares
upon exercise of this Warrant or to distribute certificates which evidence frac-
tional shares. In lieu of fractional shares, the Company may make payment to
the Holder, at the time of exercise of this Warrant as herein provided, of an
amount in cash equal to such fraction multiplied by the Current Market Price of
a share of Class A Common Stock on the Exercise Date.
7. Notice of Proposed Actions. In case the Company shall propose at
--------------------------
any time or from time to time (a) to declare or pay any dividend payable in
stock of any class to the holders of Common Stock or to make any other
distribution to the holders of Common Stock (other than a regularly scheduled
cash dividend), (b) to offer to the holders of Common Stock rights or warrants
to subscribe for or to purchase any additional shares of Common Stock or shares
of stock of any class or any other securities, rights or options, to effect any
reclassification of its Common Stock, (d) to effect any consolidation, merger or
sale, transfer or other disposition of all or substantially all of the property,
assets or business of the Company which would, if consummated, adjust the
Purchase Price or the securities issuable upon exercise of the Warrants, or (e)
to effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to the Holder, in accordance with Section
14, a written notice of such proposed action, which shall specify (i) the record
date for the purposes of such stock dividend, distribution of rights or
warrants, or if a record is not to be taken, the date as of which the holders of
shares of Common Stock of record to be entitled to such dividend, distribution
of rights or warrants is to be determined, or (ii) the date on which such
reclassification, consolidation, merger, sale, transfer, disposition, liquida-
tion, dissolution or winding up is expected to become effective, and such notice
shall be so given as promptly as possible but in any event at least five (5)
Business Days prior to the applicable record, determination or effective date
specified in such notice.
-7-
<PAGE>
8. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its Amended and Restated Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the exercise of this Warrant above the
amount payable therefor on such exercise, (b) will at all times reserve and keep
available the maximum number of its authorized shares of Class A Common Stock,
free from all preemptive rights therein, which will be sufficient to permit the
full exercise of this Warrant, and will take all such action as may be necessary
or appropriate in order that all shares of Class A Common Stock as may be issued
pursuant to the exercise of this Warrant will, upon issuance, be duly and
validly issued, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof.
9. Replacement of Warrants. On receipt by the Company of an
-----------------------
affidavit of an authorized representative of the Holder stating the
circumstances of the loss, theft, destruction or mutilation of this Warrant (and
in the case of any such mutilation, on surrender and cancellation of such
Warrant), the Company at its expense will promptly execute and deliver, in lieu
thereof, a new Warrant of like tenor; provided, however, that in the case of
loss, destruction or theft, the Board of Directors of the Company may in its
discretion require the Holder to indemnify the Company and give the Company a
bond, in such sum and in such form and with such surety or sureties as it may
direct.
10. Transfer. Subject to the transfer conditions referred to in the
--------
legend endorsed hereon and the transfer restrictions set forth in the
Stockholders' Agreement, this Warrant and all rights hereunder are
transferrable, in whole or in part, without charge to the Holder hereof upon
surrender of this Warrant with a properly executed Form of Assignment attached
hereto as Exhibit B at the principal office of the Company. Upon any partial
---------
transfer the Company will, at its expense, issue and deliver to the Holder a
Warrant of like tenor in the name of the Holder, which shall be exercisable for
such number of shares of Class A Common Stock with respect to which rights under
this Warrant were not so transferred.
11. No Rights or Liability as a Stockholder. This Warrant does not
---------------------------------------
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder hereof to purchase Class A Common Stock, and no enumeration herein of
-8-
<PAGE>
the rights or privileges of the Holder shall give rise to any liability to such
Holder as a stockholder of the Company.
12. Charges, Taxes and Expenses. Issuance of certificates for shares
---------------------------
of Class A Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer tax, or other incidental
expense, in respect of the issuance or delivery of such certificates or the
securities represented thereby, all of which taxes and expenses shall be paid by
the Company.
13. Amendment or Waiver. This Warrant and any term hereof may be
-------------------
amended, waived, discharged or terminated only by and with the written consent
of the Company and the Holder.
14. Notices. Any notice or other communication (or delivery)
-------
required or permitted hereunder shall be made in writing and shall be by
registered mail, return receipt requested, telecopier, courier service or
personal delivery to the Company at its principal office at 40 Skokie Boulevard,
Northbrook, Illinois 60062-1618, and to the Holder at its address as it appears
on the transfer books of the Company. All such notices and communications (and
deliveries) shall be deemed to have been duly given: when delivered by hand, if
personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; five Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is acknowledged, if telecopied.
15. Certain Remedies. The Holder shall be entitled to an injunction
----------------
or injunctions to prevent breaches of the provisions of this Warrant and to
enforce specifically the terms and provisions of this Warrant in any court of
the United States or any state thereof having jurisdiction, this being in
addition to any other remedy to which such Holder may be entitled at law or in
equity.
16. Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of the state of Illinois, without regard to the
principles of conflicts of law of such State.
-9-
<PAGE>
17. Headings. The headings in this Warrant are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
MEDICON, INC.
By /s/
--------------------------------
Name:
Title:
-10-
Exhibit 10.17
September 6, 1995
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAW OF ANY STATE
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS.
No. A-2 Warrant to Purchase 690,883
Shares of Class A Common Stock
MEDICON, INC.
CLASS A COMMON STOCK PURCHASE WARRANT
MEDICON, INC., an Illinois corporation (the "Company"), hereby
-------
certifies that for value received, Lawrence Rubinstein (the "Holder") is
------
entitled to purchase, at any time specified in Section 2(a) hereof, subject to
the terms and conditions hereinafter set forth, an aggregate of 690,883 fully
paid and nonassessable shares of Class A Common Stock of the Company, at an
exercise price of $.01 per share (the "Purchase Price").
--------------
This Warrant is issued in connection with the Restructuring Agreement,
dated as of the date hereof, among the Company, Whitney Subordinated Debt Fund,
L.P. ("Whitney Debt Fund"), Whitney 1990 Equity Fund, L.P., a Delaware limited
-----------------
partnership ("Whitney Equity Fund"), J.H. Whitney & Co., a New York limited
-------------------
partnership ("Whitney"), Chemical Venture Capital Associates, a California
-------
limited partnership ("CVCA," and together with Whitney Debt Fund, Whitney Equity
-----
Fund and Whitney, the "Investors"), Alan P. Mintz ("Mintz"), John E. Adams
--------- -----
("Adams"), Lawrence Rubinstein ("Rubinstein"), Alan Spiro ("Spiro"), Nancie
----- ---------- -----
Blatt ("Blatt"), James Zechman ("Zechman"), Sheldon Gulinson ("Gulinson") and
----- ------- --------
certain other parties thereto.
1. Definitions. For the purposes of this Warrant, the following
-----------
terms have the meanings indicated:
"Business Day" shall mean any day other than a Saturday, Sunday or
------------
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
<PAGE>
"Class A Common Stock" means the Class A Common Stock, no par value,
--------------------
of the Company.
"Class B Common Stock" means the Class B Common Stock, no par value,
--------------------
of the Company.
"Closing Price" shall mean, with respect to each share of Class A
-------------
Common Stock for any day, (a) the last reported sale price regular way or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case as reported on the principal national
securities exchange on which the Class A Common Stock is listed or admitted for
trading or (b) if the Class A Common Stock is not listed or admitted for trading
on any national securities exchange, the last reported sale price or, in case no
such sale takes place on such day, the average of the highest reported bid and
the lowest reported asked quotation for the Class A Common Stock, in either case
as reported on the Automatic Quotation System of Nasdaq or a similar service if
Nasdaq is no longer reporting such information.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" shall mean collectively the Class A Common Stock, the
------------
Class B Common Stock and any class or series of common stock of the Company
authorized after the date of this Warrant, or any other class of stock resulting
from successive changes or reclassifications of such Common Stock.
"Company" has the meaning ascribed to such term in the first paragraph
-------
of this Warrant.
"Current Market Price" shall mean, with respect to the Class A Common
--------------------
Stock on any date, the average of the daily Closing Prices per share of Class A
Common Stock for the ten consecutive trading days commencing 15 trading days
before such date. If on any such date the shares of Class A Common Stock are
not listed or admitted for trading on any national securities exchange or quoted
by Nasdaq or a similar service, the Current Market Price for such shares shall
be the fair market value of such shares on such date as determined in good faith
by a committee of disinterested members of the Board of Directors of the
Company.
"Exercise Date" has the meaning ascribed to such term in Section 2(d).
-------------
"Holder" has the meaning ascribed to such term in the first paragraph
------
of this Warrant.
-2-
<PAGE>
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Common Stock pursuant to a registration statement
on Form S-1 or otherwise under the Securities Act.
"Nasdaq" shall mean the National Association of Securities Dealers,
------
Inc.
"Net Cash Proceeds" shall mean, with respect to (x) any Initial Public
-----------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) related to such Initial Public Offering or (y) any Sale
Transaction, (i) the cash proceeds received by the Investors, minus
-----
(ii) brokerage commissions or underwriting fees and all other costs, fees and
expenses of the Investors associated with such Sale Transaction (including,
without limitation, fees, charges and disbursements of counsel and reasonable
fees and expenses of investment bankers or other third party financial experts).
"Person" shall mean any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Purchase Price" has the meaning ascribed to such term in the first
--------------
paragraph of this Warrant.
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Net Cash Proceeds to the Company in excess of $30,000,000.00 and in
respect of which the price per share of Common Stock sold in such Qualified
Public Offering is at least $4.6441025 (subject to appropriate adjustment for
any dividends, subdivisions, combinations or reclassifications of Common Stock).
This implies, for example, that the aggregate value of the Investors' original
equity investment will be at least $75,000,000.00 upon the closing of a
Qualified Public Offering.
"Qualified Sale Transaction" means a Sale Transaction in which (i) the
--------------------------
senior subordinated promissory notes in the aggregate principal amount of
$10,000,000.00 payable to Whitney Debt Fund and CVCA, together with all accrued
and unpaid interest thereon, are repaid and (ii) the Investors receive Net Cash
Proceeds in excess of $75,000,000.00 for the Series A Preferred Stock and Common
Stock of the Investors.
-3-
<PAGE>
"Sale Transaction" shall mean (i) any sale of the capital stock of the
----------------
Company owned by the Investors or (ii) any merger, consolidation, sale or other
business combination involving the Company, in each case in one transaction or a
series of transactions occurring prior to the consummation of an Initial Public
Offering.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Series A Preferred Stock" means the Series A Convertible Preferred
------------------------
Stock, no par value, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Stockholders' Agreement" means the Stockholders' Agreement, dated as
-----------------------
of November 3, 1994, among the Company and its stockholders, as amended from
time to time in accordance with the terms thereof.
2. Exercise of Warrant.
-------------------
(a) Exercise. This Warrant may be exercised, in whole or in
--------
part, by surrendering to the Company at its principal office this Warrant, with
the form of Election to Purchase Shares attached hereto as Exhibit A duly
---------
executed by the Holder and accompanied by payment of the Purchase Price for the
number of shares of Class A Common Stock specified in such form, but only on (i)
the date of the consummation of a Qualified Public Offering and only if (x) the
Company has consummated a Qualified Public Offering on or before June 30, 1997
or (y) the Company has filed a registration for an Initial Public Offering with
the Commission on or prior to June 30, 1997, such Initial Public Offering is
consummated on or before September 30, 1997 and such Initial Public Offering is
a Qualified Public Offering or (ii) the date of the consummation of a Qualified
Sale Transaction and only if (A) such Qualified Sale Transaction is consummated
on or before June 30, 1997 or (B) definitive documentation for a Qualified Sale
Transaction has been executed on or prior to June 30, 1997 and such Qualified
Sale Transaction is consummated on or before September 30, 1997.
(b) Delivery of Shares; Payment of Purchase Price. As soon as
---------------------------------------------
practicable after surrender of this Warrant and receipt of payment the Company
shall promptly issue and deliver to the Holder a certificate or certificates for
the number of shares of Class A Common Stock set forth in the Election to
Purchase Shares, in such name or names as may be designated by such Holder,
along with a check for the amount of cash to be paid in lieu of issuance of
fractional shares, if any. Payment of the Purchase Price shall be made in
United States currency by cash or delivery of a certified check, bank draft or
-4-
<PAGE>
postal or express money order payable to the order of the Company.
(c) Partial Exercise. If this Warrant is exercised for less
----------------
than all of the shares of Class A Common Stock purchasable under this Warrant,
the Company shall cancel this Warrant upon surrender hereof and shall execute
and deliver to the Holder a new Warrant of like tenor for the balance of the
shares of Class A Common Stock purchasable hereunder.
(d) When Exercise Effective. The exercise of this Warrant shall
-----------------------
be deemed to have been effective immediately prior to the close of business on
the Business Day on which this Warrant is surrendered to and the Purchase Price
is received by the Company as provided in this Section 2 (the "Exercise Date"),
-------------
and the Person in whose name any certificate for shares of Class A Common Stock
shall be issuable upon such exercise, as provided in Section 2(b), shall be
deemed to be the record holder of such shares of Class A Common Stock for all
purposes on the Exercise Date.
3. Adjustment of Purchase Price and Number of Shares. The Purchase
-------------------------------------------------
Price and the number of shares of Class A Common Stock issuable upon exercise of
this Warrant shall be adjusted from time to time upon the occurrence of the
following events:
(a) Dividend, Subdivision, Combination or Reclassification of
---------------------------------------------------------
Common Stock. If the Company shall, at any time or from time to time, (i)
- ------------
declare a dividend on the Common Stock payable in shares of its capital stock
(including Common Stock), (ii) subdivide the outstanding Common Stock,
(iii) combine the outstanding Common Stock into a smaller number of shares, or
(iv) issue any shares of its capital stock in a reclassification of the Common
Stock (excluding any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), then in each such
case, the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable on
such date shall be proportionately adjusted so that the Holder of any Warrant
exercised after such date shall be entitled to receive, upon payment of the same
aggregate amount as would have been payable before such date, the aggregate
number and kind of shares of capital stock which, if such Warrant had been
exercised immediately prior to such date, such Holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. Any such adjustment shall become effective
immediately after the record date of such dividend or the effective date of such
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur. If a dividend is
declared and such dividend is not paid, the Purchase Price shall
-5-
<PAGE>
again be adjusted to be the Purchase Price in effect immediately prior to such
record date.
(b) De Minimis Adjustments. No adjustment in the Purchase Price
----------------------
shall be made if the amount of such adjustment would result in a change in the
Purchase Price per share of less than $.01, but in such case any adjustment that
would otherwise be required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment, which
together with any adjustment so carried forward, would result in a change in the
Purchase Price of $.01 per share. If the Company shall, at any time or from
time to time, issue Common Stock by way of dividends on any stock of the Company
or subdivide or combine the outstanding shares of the Common Stock, such amount
of $.01 (as theretofore increased or decreased, if such amounts shall have been
adjusted in accordance with the provisions of this clause) shall forthwith be
proportionately increased in the case of a combination or decreased in the case
of a subdivision or stock dividend so as appropriately to reflect the same.
Notwithstanding the provisions of the first sentence of this Section 3(b), any
adjustment postponed pursuant to this Section 3(b) shall be made no later than
the earlier of (i) six months from the date of the transaction that would, but
for the provisions of the first sentence of this Section 3(b), have required
such adjustment or (ii) an Exercise Date.
4. Reorganization, Reclassification, Merger and Sale of Assets. If
-----------------------------------------------------------
there occurs any capital reorganization or any reclassification of the Common
Stock of the Company, the consolidation or merger of the Company with or into
another Person (other than a merger or consolidation of the Company in which the
Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of its Common Stock) or the
sale or conveyance of all or substantially all of the assets of the Company to
another Person, then the Holder will thereafter be entitled to receive, upon the
exercise of this Warrant in accordance with the terms hereof, the same kind and
amounts of securities (including shares of stock) or other assets, or both,
which were issuable or distributable to the holders of outstanding Common Stock
of the Company upon such reorganization, reclassification, consolidation,
merger, sale or conveyance, in respect of that number of shares of Class A
Common Stock then deliverable upon the exercise of this Warrant if this Warrant
had been exercised immediately prior to such reorganization, reclassification,
consolidation, merger, sale or conveyance.
5. Certificate as to Adjustments. Whenever the Purchase Price and
-----------------------------
the number of shares of Class A Common Stock issuable, or the securities or
other property deliverable, upon the exercise of this Warrant shall be adjusted
pursuant to the provisions hereof, the Company shall promptly give written
notice thereof to the Holder, in accordance with Section 14, in the form
-6-
<PAGE>
of a certificate signed by the Chairman of the Board, President or one of the
Vice Presidents of the Company, and by the Chief Financial Officer, Treasurer or
one of the Assistant Treasurers of the Company, stating the adjusted Purchase
Price, the number of shares of Class A Common Stock issuable, or the securities
or other property deliverable, upon exercise of the Warrant calculated to the
nearest cent or the nearest one one-hundredth of a share and setting forth in
reasonable detail the method of calculation and the facts requiring such
adjustment and upon which such calculation is based. Each adjustment shall
remain in effect until a subsequent adjustment is required.
6. Fractional Shares. Notwithstanding an adjustment in the number
-----------------
of shares of Class A Common Stock covered by this Warrant or any other provision
of this Warrant, the Company shall not be required to issue fractions of shares
upon exercise of this Warrant or to distribute certificates which evidence frac-
tional shares. In lieu of fractional shares, the Company may make payment to
the Holder, at the time of exercise of this Warrant as herein provided, of an
amount in cash equal to such fraction multiplied by the Current Market Price of
a share of Class A Common Stock on the Exercise Date.
7. Notice of Proposed Actions. In case the Company shall propose at
--------------------------
any time or from time to time (a) to declare or pay any dividend payable in
stock of any class to the holders of Common Stock or to make any other
distribution to the holders of Common Stock (other than a regularly scheduled
cash dividend), (b) to offer to the holders of Common Stock rights or warrants
to subscribe for or to purchase any additional shares of Common Stock or shares
of stock of any class or any other securities, rights or options, to effect any
reclassification of its Common Stock, (d) to effect any consolidation, merger or
sale, transfer or other disposition of all or substantially all of the property,
assets or business of the Company which would, if consummated, adjust the
Purchase Price or the securities issuable upon exercise of the Warrants, or (e)
to effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to the Holder, in accordance with Section
14, a written notice of such proposed action, which shall specify (i) the record
date for the purposes of such stock dividend, distribution of rights or
warrants, or if a record is not to be taken, the date as of which the holders of
shares of Common Stock of record to be entitled to such dividend, distribution
of rights or warrants is to be determined, or (ii) the date on which such
reclassification, consolidation, merger, sale, transfer, disposition, liquida-
tion, dissolution or winding up is expected to become effective, and such notice
shall be so given as promptly as possible but in any event at least five (5)
Business Days prior to the applicable record, determination or effective date
specified in such notice.
-7-
<PAGE>
8. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its Amended and Restated Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the exercise of this Warrant above the
amount payable therefor on such exercise, (b) will at all times reserve and keep
available the maximum number of its authorized shares of Class A Common Stock,
free from all preemptive rights therein, which will be sufficient to permit the
full exercise of this Warrant, and will take all such action as may be necessary
or appropriate in order that all shares of Class A Common Stock as may be issued
pursuant to the exercise of this Warrant will, upon issuance, be duly and
validly issued, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof.
9. Replacement of Warrants. On receipt by the Company of an
-----------------------
affidavit of an authorized representative of the Holder stating the
circumstances of the loss, theft, destruction or mutilation of this Warrant (and
in the case of any such mutilation, on surrender and cancellation of such
Warrant), the Company at its expense will promptly execute and deliver, in lieu
thereof, a new Warrant of like tenor; provided, however, that in the case of
loss, destruction or theft, the Board of Directors of the Company may in its
discretion require the Holder to indemnify the Company and give the Company a
bond, in such sum and in such form and with such surety or sureties as it may
direct.
10. Transfer. Subject to the transfer conditions referred to in the
--------
legend endorsed hereon and the transfer restrictions set forth in the
Stockholders' Agreement, this Warrant and all rights hereunder are
transferrable, in whole or in part, without charge to the Holder hereof upon
surrender of this Warrant with a properly executed Form of Assignment attached
hereto as Exhibit B at the principal office of the Company. Upon any partial
---------
transfer the Company will, at its expense, issue and deliver to the Holder a
Warrant of like tenor in the name of the Holder, which shall be exercisable for
such number of shares of Class A Common Stock with respect to which rights under
this Warrant were not so transferred.
11. No Rights or Liability as a Stockholder. This Warrant does not
---------------------------------------
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder hereof to purchase Class A Common Stock, and no enumeration herein of
-8-
<PAGE>
the rights or privileges of the Holder shall give rise to any liability to such
Holder as a stockholder of the Company.
12. Charges, Taxes and Expenses. Issuance of certificates for shares
---------------------------
of Class A Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer tax, or other incidental
expense, in respect of the issuance or delivery of such certificates or the
securities represented thereby, all of which taxes and expenses shall be paid by
the Company.
13. Amendment or Waiver. This Warrant and any term hereof may be
-------------------
amended, waived, discharged or terminated only by and with the written consent
of the Company and the Holder.
14. Notices. Any notice or other communication (or delivery)
-------
required or permitted hereunder shall be made in writing and shall be by
registered mail, return receipt requested, telecopier, courier service or
personal delivery to the Company at its principal office at 40 Skokie Boulevard,
Northbrook, Illinois 60062-1618, and to the Holder at its address as it appears
on the transfer books of the Company. All such notices and communications (and
deliveries) shall be deemed to have been duly given: when delivered by hand, if
personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; five Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is acknowledged, if telecopied.
15. Certain Remedies. The Holder shall be entitled to an injunction
----------------
or injunctions to prevent breaches of the provisions of this Warrant and to
enforce specifically the terms and provisions of this Warrant in any court of
the United States or any state thereof having jurisdiction, this being in
addition to any other remedy to which such Holder may be entitled at law or in
equity.
16. Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of the state of Illinois, without regard to the
principles of conflicts of law of such State.
-9-
<PAGE>
17. Headings. The headings in this Warrant are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
MEDICON, INC.
By _________________________________
Name:
Title:
Exhibit 10.18
September 6, 1995
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAW OF ANY STATE
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS.
No. A-3 Warrant to Purchase 394,872
Shares of Class A Common Stock
MEDICON, INC.
CLASS A COMMON STOCK PURCHASE WARRANT
MEDICON, INC., an Illinois corporation (the "Company"), hereby
-------
certifies that for value received, John E. Adams (the "Holder") is entitled to
------
purchase, at any time specified in Section 2(a) hereof, subject to the terms and
conditions hereinafter set forth, an aggregate of 394,872 fully paid and nonas-
sessable shares of Class A Common Stock of the Company, at an exercise price of
$.01 per share (the "Purchase Price").
--------------
This Warrant is issued in connection with the Restructuring Agreement,
dated as of the date hereof, among the Company, Whitney Subordinated Debt Fund,
L.P. ("Whitney Debt Fund"), Whitney 1990 Equity Fund, L.P., a Delaware limited
-----------------
partnership ("Whitney Equity Fund"), J.H. Whitney & Co., a New York limited
-------------------
partnership ("Whitney"), Chemical Venture Capital Associates, a California
-------
limited partnership ("CVCA," and together with Whitney Debt Fund, Whitney Equity
-----
Fund and Whitney, the "Investors"), Alan P. Mintz ("Mintz"), John E. Adams
--------- -----
("Adams"), Lawrence Rubinstein ("Rubinstein"), Alan Spiro ("Spiro"), Nancie
----- ---------- -----
Blatt ("Blatt"), James Zechman ("Zechman"), Sheldon Gulinson ("Gulinson") and
----- ------- --------
certain other parties thereto.
1. Definitions. For the purposes of this Warrant, the following
-----------
terms have the meanings indicated:
"Business Day" shall mean any day other than a Saturday, Sunday or
------------
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
<PAGE>
"Class A Common Stock" means the Class A Common Stock, no par value,
--------------------
of the Company.
"Class B Common Stock" means the Class B Common Stock, no par value,
--------------------
of the Company.
"Closing Price" shall mean, with respect to each share of Class A
-------------
Common Stock for any day, (a) the last reported sale price regular way or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case as reported on the principal national
securities exchange on which the Class A Common Stock is listed or admitted for
trading or (b) if the Class A Common Stock is not listed or admitted for trading
on any national securities exchange, the last reported sale price or, in case no
such sale takes place on such day, the average of the highest reported bid and
the lowest reported asked quotation for the Class A Common Stock, in either case
as reported on the Automatic Quotation System of Nasdaq or a similar service if
Nasdaq is no longer reporting such information.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" shall mean collectively the Class A Common Stock, the
------------
Class B Common Stock and any class or series of common stock of the Company
authorized after the date of this Warrant, or any other class of stock resulting
from successive changes or reclassifications of such Common Stock.
"Company" has the meaning ascribed to such term in the first paragraph
-------
of this Warrant.
"Current Market Price" shall mean, with respect to the Class A Common
--------------------
Stock on any date, the average of the daily Closing Prices per share of Class A
Common Stock for the ten consecutive trading days commencing 15 trading days
before such date. If on any such date the shares of Class A Common Stock are
not listed or admitted for trading on any national securities exchange or quoted
by Nasdaq or a similar service, the Current Market Price for such shares shall
be the fair market value of such shares on such date as determined in good faith
by a committee of disinterested members of the Board of Directors of the
Company.
"Exercise Date" has the meaning ascribed to such term in Section 2(d).
-------------
"Holder" has the meaning ascribed to such term in the first paragraph
------
of this Warrant.
-2-
<PAGE>
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Common Stock pursuant to a registration statement
on Form S-1 or otherwise under the Securities Act.
"Nasdaq" shall mean the National Association of Securities Dealers,
------
Inc.
"Net Cash Proceeds" shall mean, with respect to (x) any Initial Public
-----------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) related to such Initial Public Offering or (y) any Sale
Transaction, (i) the cash proceeds received by the Investors, minus
-----
(ii) brokerage commissions or underwriting fees and all other costs, fees and
expenses of the Investors associated with such Sale Transaction (including,
without limitation, fees, charges and disbursements of counsel and reasonable
fees and expenses of investment bankers or other third party financial experts).
"Person" shall mean any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Purchase Price" has the meaning ascribed to such term in the first
--------------
paragraph of this Warrant.
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Net Cash Proceeds to the Company in excess of $30,000,000.00 and in
respect of which the price per share of Common Stock sold in such Qualified
Public Offering is at least $4.6441025 subject to appropriate adjustment for any
dividends, subdivisions, combinations or reclassifications of Common Stock).
This implies, for example, that the aggregate value of the Investors' original
equity investment will be at least $75,000,000.00 upon the closing of a
Qualified Public Offering.
"Qualified Sale Transaction" means a Sale Transaction in which (i) the
--------------------------
senior subordinated promissory notes in the aggregate principal amount of
$10,000,000.00 payable to Whitney Debt Fund and CVCA, together with all accrued
and unpaid interest thereon, are repaid and (ii) the Investors receive Net Cash
Proceeds in excess of $75,000,000.00 for the Series A Preferred Stock and Common
Stock of the Investors.
-3-
<PAGE>
"Sale Transaction" shall mean (i) any sale of the capital stock of the
----------------
Company owned by the Investors or (ii) any merger, consolidation, sale or other
business combination involving the Company, in each case in one transaction or a
series of transactions occurring prior to the consummation of an Initial Public
Offering.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Series A Preferred Stock" means the Series A Convertible Preferred
------------------------
Stock, no par value, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Stockholders' Agreement" means the Stockholders' Agreement, dated as
-----------------------
of November 3, 1994, among the Company and its stockholders, as amended from
time to time in accordance with the terms thereof.
2. Exercise of Warrant.
-------------------
(a) Exercise. This Warrant may be exercised, in whole or in
--------
part, by surrendering to the Company at its principal office this Warrant, with
the form of Election to Purchase Shares attached hereto as Exhibit A duly
---------
executed by the Holder and accompanied by payment of the Purchase Price for the
number of shares of Class A Common Stock specified in such form, but only on (i)
the date of the consummation of a Qualified Public Offering and only if (x) the
Company has consummated a Qualified Public Offering on or before June 30, 1997
or (y) the Company has filed a registration for an Initial Public Offering with
the Commission on or prior to June 30, 1997, such Initial Public Offering is
consummated on or before September 30, 1997 and such Initial Public Offering is
a Qualified Public Offering or (ii) the date of the consummation of a Qualified
Sale Transaction and only if (A) such Qualified Sale Transaction is consummated
on or before June 30, 1997 or (B) definitive documentation for a Qualified Sale
Transaction has been executed on or prior to June 30, 1997 and such Qualified
Sale Transaction is consummated on or before September 30, 1997.
(b) Delivery of Shares; Payment of Purchase Price. As soon as
---------------------------------------------
practicable after surrender of this Warrant and receipt of payment the Company
shall promptly issue and deliver to the Holder a certificate or certificates for
the number of shares of Class A Common Stock set forth in the Election to
Purchase Shares, in such name or names as may be designated by such Holder,
along with a check for the amount of cash to be paid in lieu of issuance of
fractional shares, if any. Payment of the Purchase Price shall be made in
United States currency by cash or delivery of a certified check, bank draft or
-4-
<PAGE>
postal or express money order payable to the order of the Company.
(c) Partial Exercise. If this Warrant is exercised for less
----------------
than all of the shares of Class A Common Stock purchasable under this Warrant,
the Company shall cancel this Warrant upon surrender hereof and shall execute
and deliver to the Holder a new Warrant of like tenor for the balance of the
shares of Class A Common Stock purchasable hereunder.
(d) When Exercise Effective. The exercise of this Warrant shall
-----------------------
be deemed to have been effective immediately prior to the close of business on
the Business Day on which this Warrant is surrendered to and the Purchase Price
is received by the Company as provided in this Section 2 (the "Exercise Date"),
-------------
and the Person in whose name any certificate for shares of Class A Common Stock
shall be issuable upon such exercise, as provided in Section 2(b), shall be
deemed to be the record holder of such shares of Class A Common Stock for all
purposes on the Exercise Date.
3. Adjustment of Purchase Price and Number of Shares. The Purchase
-------------------------------------------------
Price and the number of shares of Class A Common Stock issuable upon exercise of
this Warrant shall be adjusted from time to time upon the occurrence of the
following events:
(a) Dividend, Subdivision, Combination or Reclassification of
---------------------------------------------------------
Common Stock. If the Company shall, at any time or from time to time, (i)
- ------------
declare a dividend on the Common Stock payable in shares of its capital stock
(including Common Stock), (ii) subdivide the outstanding Common Stock,
(iii) combine the outstanding Common Stock into a smaller number of shares, or
(iv) issue any shares of its capital stock in a reclassification of the Common
Stock (excluding any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), then in each such
case, the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable on
such date shall be proportionately adjusted so that the Holder of any Warrant
exercised after such date shall be entitled to receive, upon payment of the same
aggregate amount as would have been payable before such date, the aggregate
number and kind of shares of capital stock which, if such Warrant had been
exercised immediately prior to such date, such Holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. Any such adjustment shall become effective
immediately after the record date of such dividend or the effective date of such
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur. If a dividend is
declared and such dividend is not paid, the Purchase Price shall
-5-
<PAGE>
again be adjusted to be the Purchase Price in effect immediately prior to such
record date.
(b) De Minimis Adjustments. No adjustment in the Purchase Price
----------------------
shall be made if the amount of such adjustment would result in a change in the
Purchase Price per share of less than $.01, but in such case any adjustment that
would otherwise be required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment, which
together with any adjustment so carried forward, would result in a change in the
Purchase Price of $.01 per share. If the Company shall, at any time or from
time to time, issue Common Stock by way of dividends on any stock of the Company
or subdivide or combine the outstanding shares of the Common Stock, such amount
of $.01 (as theretofore increased or decreased, if such amounts shall have been
adjusted in accordance with the provisions of this clause) shall forthwith be
proportionately increased in the case of a combination or decreased in the case
of a subdivision or stock dividend so as appropriately to reflect the same.
Notwithstanding the provisions of the first sentence of this Section 3(b), any
adjustment postponed pursuant to this Section 3(b) shall be made no later than
the earlier of (i) six months from the date of the transaction that would, but
for the provisions of the first sentence of this Section 3(b), have required
such adjustment or (ii) an Exercise Date.
4. Reorganization, Reclassification, Merger and Sale of Assets. If
-----------------------------------------------------------
there occurs any capital reorganization or any reclassification of the Common
Stock of the Company, the consolidation or merger of the Company with or into
another Person (other than a merger or consolidation of the Company in which the
Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of its Common Stock) or the
sale or conveyance of all or substantially all of the assets of the Company to
another Person, then the Holder will thereafter be entitled to receive, upon the
exercise of this Warrant in accordance with the terms hereof, the same kind and
amounts of securities (including shares of stock) or other assets, or both,
which were issuable or distributable to the holders of outstanding Common Stock
of the Company upon such reorganization, reclassification, consolidation,
merger, sale or conveyance, in respect of that number of shares of Class A
Common Stock then deliverable upon the exercise of this Warrant if this Warrant
had been exercised immediately prior to such reorganization, reclassification,
consolidation, merger, sale or conveyance.
5. Certificate as to Adjustments. Whenever the Purchase Price and
-----------------------------
the number of shares of Class A Common Stock issuable, or the securities or
other property deliverable, upon the exercise of this Warrant shall be adjusted
pursuant to the provisions hereof, the Company shall promptly give written
notice thereof to the Holder, in accordance with Section 14, in the form
-6-
<PAGE>
of a certificate signed by the Chairman of the Board, President or one of the
Vice Presidents of the Company, and by the Chief Financial Officer, Treasurer or
one of the Assistant Treasurers of the Company, stating the adjusted Purchase
Price, the number of shares of Class A Common Stock issuable, or the securities
or other property deliverable, upon exercise of the Warrant calculated to the
nearest cent or the nearest one one-hundredth of a share and setting forth in
reasonable detail the method of calculation and the facts requiring such
adjustment and upon which such calculation is based. Each adjustment shall
remain in effect until a subsequent adjustment is required.
6. Fractional Shares. Notwithstanding an adjustment in the number
-----------------
of shares of Class A Common Stock covered by this Warrant or any other provision
of this Warrant, the Company shall not be required to issue fractions of shares
upon exercise of this Warrant or to distribute certificates which evidence frac-
tional shares. In lieu of fractional shares, the Company may make payment to
the Holder, at the time of exercise of this Warrant as herein provided, of an
amount in cash equal to such fraction multiplied by the Current Market Price of
a share of Class A Common Stock on the Exercise Date.
7. Notice of Proposed Actions. In case the Company shall propose at
--------------------------
any time or from time to time (a) to declare or pay any dividend payable in
stock of any class to the holders of Common Stock or to make any other
distribution to the holders of Common Stock (other than a regularly scheduled
cash dividend), (b) to offer to the holders of Common Stock rights or warrants
to subscribe for or to purchase any additional shares of Common Stock or shares
of stock of any class or any other securities, rights or options, to effect any
reclassification of its Common Stock, (d) to effect any consolidation, merger or
sale, transfer or other disposition of all or substantially all of the property,
assets or business of the Company which would, if consummated, adjust the
Purchase Price or the securities issuable upon exercise of the Warrants, or (e)
to effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to the Holder, in accordance with Section
14, a written notice of such proposed action, which shall specify (i) the record
date for the purposes of such stock dividend, distribution of rights or
warrants, or if a record is not to be taken, the date as of which the holders of
shares of Common Stock of record to be entitled to such dividend, distribution
of rights or warrants is to be determined, or (ii) the date on which such
reclassification, consolidation, merger, sale, transfer, disposition, liquida-
tion, dissolution or winding up is expected to become effective, and such notice
shall be so given as promptly as possible but in any event at least five (5)
Business Days prior to the applicable record, determination or effective date
specified in such notice.
-7-
<PAGE>
8. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its Amended and Restated Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the exercise of this Warrant above the
amount payable therefor on such exercise, (b) will at all times reserve and keep
available the maximum number of its authorized shares of Class A Common Stock,
free from all preemptive rights therein, which will be sufficient to permit the
full exercise of this Warrant, and will take all such action as may be necessary
or appropriate in order that all shares of Class A Common Stock as may be issued
pursuant to the exercise of this Warrant will, upon issuance, be duly and
validly issued, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof.
9. Replacement of Warrants. On receipt by the Company of an
-----------------------
affidavit of an authorized representative of the Holder stating the
circumstances of the loss, theft, destruction or mutilation of this Warrant (and
in the case of any such mutilation, on surrender and cancellation of such
Warrant), the Company at its expense will promptly execute and deliver, in lieu
thereof, a new Warrant of like tenor; provided, however, that in the case of
loss, destruction or theft, the Board of Directors of the Company may in its
discretion require the Holder to indemnify the Company and give the Company a
bond, in such sum and in such form and with such surety or sureties as it may
direct.
10. Transfer. Subject to the transfer conditions referred to in the
--------
legend endorsed hereon and the transfer restrictions set forth in the
Stockholders' Agreement, this Warrant and all rights hereunder are
transferrable, in whole or in part, without charge to the Holder hereof upon
surrender of this Warrant with a properly executed Form of Assignment attached
hereto as Exhibit B at the principal office of the Company. Upon any partial
---------
transfer the Company will, at its expense, issue and deliver to the Holder a
Warrant of like tenor in the name of the Holder, which shall be exercisable for
such number of shares of Class A Common Stock with respect to which rights under
this Warrant were not so transferred.
11. No Rights or Liability as a Stockholder. This Warrant does not
---------------------------------------
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder hereof to purchase Class A Common Stock, and no enumeration herein of
-8-
<PAGE>
the rights or privileges of the Holder shall give rise to any liability to such
Holder as a stockholder of the Company.
12. Charges, Taxes and Expenses. Issuance of certificates for shares
---------------------------
of Class A Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer tax, or other incidental
expense, in respect of the issuance or delivery of such certificates or the
securities represented thereby, all of which taxes and expenses shall be paid by
the Company.
13. Amendment or Waiver. This Warrant and any term hereof may be
-------------------
amended, waived, discharged or terminated only by and with the written consent
of the Company and the Holder.
14. Notices. Any notice or other communication (or delivery)
-------
required or permitted hereunder shall be made in writing and shall be by
registered mail, return receipt requested, telecopier, courier service or
personal delivery to the Company at its principal office at 40 Skokie Boulevard,
Northbrook, Illinois 60062-1618, and to the Holder at its address as it appears
on the transfer books of the Company. All such notices and communications (and
deliveries) shall be deemed to have been duly given: when delivered by hand, if
personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; five Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is acknowledged, if telecopied.
15. Certain Remedies. The Holder shall be entitled to an injunction
----------------
or injunctions to prevent breaches of the provisions of this Warrant and to
enforce specifically the terms and provisions of this Warrant in any court of
the United States or any state thereof having jurisdiction, this being in
addition to any other remedy to which such Holder may be entitled at law or in
equity.
16. Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of the state of Illinois, without regard to the
principles of conflicts of law of such State.
-9-
<PAGE>
17. Headings. The headings in this Warrant are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
MEDICON, INC.
By _________________________________
Name:
Title:
Exhibit 10.19
September 6, 1995
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAW OF ANY STATE
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS.
No. A-4 Warrant to Purchase 434,683
Shares of Class A Common Stock
MEDICON, INC.
CLASS A COMMON STOCK PURCHASE WARRANT
MEDICON, INC., an Illinois corporation (the "Company"), hereby
-------
certifies that for value received, Alan H. Spiro (the "Holder") is entitled to
------
purchase, at any time specified in Section 2(a) hereof, subject to the terms and
conditions hereinafter set forth, an aggregate of 434,683 fully paid and nonas-
sessable shares of Class A Common Stock of the Company, at an exercise price of
$.01 per share (the "Purchase Price").
--------------
This Warrant is issued in connection with the Restructuring Agreement,
dated as of the date hereof, among the Company, Whitney Subordinated Debt Fund,
L.P. ("Whitney Debt Fund"), Whitney 1990 Equity Fund, L.P., a Delaware limited
-----------------
partnership ("Whitney Equity Fund"), J.H. Whitney & Co., a New York limited
-------------------
partnership ("Whitney"), Chemical Venture Capital Associates, a California
-------
limited partnership ("CVCA," and together with Whitney Debt Fund, Whitney Equity
-----
Fund and Whitney, the "Investors"), Alan P. Mintz ("Mintz"), John E. Adams
--------- -----
("Adams"), Lawrence Rubinstein ("Rubinstein"), Alan Spiro ("Spiro"), Nancie
----- ---------- -----
Blatt ("Blatt"), James Zechman ("Zechman"), Sheldon Gulinson ("Gulinson") and
----- ------- --------
certain other parties thereto.
1. Definitions. For the purposes of this Warrant, the following
-----------
terms have the meanings indicated:
"Business Day" shall mean any day other than a Saturday, Sunday or
------------
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
<PAGE>
"Class A Common Stock" means the Class A Common Stock, no par value,
--------------------
of the Company.
"Class B Common Stock" means the Class B Common Stock, no par value,
--------------------
of the Company.
"Closing Price" shall mean, with respect to each share of Class A
-------------
Common Stock for any day, (a) the last reported sale price regular way or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case as reported on the principal national
securities exchange on which the Class A Common Stock is listed or admitted for
trading or (b) if the Class A Common Stock is not listed or admitted for trading
on any national securities exchange, the last reported sale price or, in case no
such sale takes place on such day, the average of the highest reported bid and
the lowest reported asked quotation for the Class A Common Stock, in either case
as reported on the Automatic Quotation System of Nasdaq or a similar service if
Nasdaq is no longer reporting such information.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" shall mean collectively the Class A Common Stock, the
------------
Class B Common Stock and any class or series of common stock of the Company
authorized after the date of this Warrant, or any other class of stock resulting
from successive changes or reclassifications of such Common Stock.
"Company" has the meaning ascribed to such term in the first paragraph
-------
of this Warrant.
"Current Market Price" shall mean, with respect to the Class A Common
--------------------
Stock on any date, the average of the daily Closing Prices per share of Class A
Common Stock for the ten consecutive trading days commencing 15 trading days
before such date. If on any such date the shares of Class A Common Stock are
not listed or admitted for trading on any national securities exchange or quoted
by Nasdaq or a similar service, the Current Market Price for such shares shall
be the fair market value of such shares on such date as determined in good faith
by a committee of disinterested members of the Board of Directors of the
Company.
"Exercise Date" has the meaning ascribed to such term in Section 2(d).
-------------
"Holder" has the meaning ascribed to such term in the first paragraph
------
of this Warrant.
-2-
<PAGE>
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Common Stock pursuant to a registration statement
on Form S-1 or otherwise under the Securities Act.
"Nasdaq" shall mean the National Association of Securities Dealers,
------
Inc.
"Net Cash Proceeds" shall mean, with respect to (x) any Initial Public
-----------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) related to such Initial Public Offering or (y) any Sale
Transaction, (i) the cash proceeds received by the Investors, minus
-----
(ii) brokerage commissions or underwriting fees and all other costs, fees and
expenses of the Investors associated with such Sale Transaction (including,
without limitation, fees, charges and disbursements of counsel and reasonable
fees and expenses of investment bankers or other third party financial experts).
"Person" shall mean any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Purchase Price" has the meaning ascribed to such term in the first
--------------
paragraph of this Warrant.
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Net Cash Proceeds to the Company in excess of $30,000,000.00 and in
respect of which the price per share of Common Stock sold in such Qualified
Public Offering is at least $4.6441025 (subject to appropriate adjustment for
any dividends, subdivisions, combinations or reclassifications of Common Stock).
This implies, for example, that the aggregate value of the Investors' original
equity investment will be at least $75,000,000.00 upon the closing of a
Qualified Public Offering.
"Qualified Sale Transaction" means a Sale Transaction in which (i) the
--------------------------
senior subordinated promissory notes in the aggregate principal amount of
$10,000,000.00 payable to Whitney Debt Fund and CVCA, together with all accrued
and unpaid interest thereon, are repaid and (ii) the Investors receive Net Cash
Proceeds in excess of $75,000,000.00 for the Series A Preferred Stock and Common
Stock of the Investors.
-3-
<PAGE>
"Sale Transaction" shall mean (i) any sale of the capital stock of the
----------------
Company owned by the Investors or (ii) any merger, consolidation, sale or other
business combination involving the Company, in each case in one transaction or a
series of transactions occurring prior to the consummation of an Initial Public
Offering.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Series A Preferred Stock" means the Series A Convertible Preferred
------------------------
Stock, no par value, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Stockholders' Agreement" means the Stockholders' Agreement, dated as
-----------------------
of November 3, 1994, among the Company and its stockholders, as amended from
time to time in accordance with the terms thereof.
2. Exercise of Warrant.
-------------------
(a) Exercise. This Warrant may be exercised, in whole or in
--------
part, by surrendering to the Company at its principal office this Warrant, with
the form of Election to Purchase Shares attached hereto as Exhibit A duly
---------
executed by the Holder and accompanied by payment of the Purchase Price for the
number of shares of Class A Common Stock specified in such form, but only on (i)
the date of the consummation of a Qualified Public Offering and only if (x) the
Company has consummated a Qualified Public Offering on or before June 30, 1997
or (y) the Company has filed a registration for an Initial Public Offering with
the Commission on or prior to June 30, 1997, such Initial Public Offering is
consummated on or before September 30, 1997 and such Initial Public Offering is
a Qualified Public Offering or (ii) the date of the consummation of a Qualified
Sale Transaction and only if (A) such Qualified Sale Transaction is consummated
on or before June 30, 1997 or (B) definitive documentation for a Qualified Sale
Transaction has been executed on or prior to June 30, 1997 and such Qualified
Sale Transaction is consummated on or before September 30, 1997.
(b) Delivery of Shares; Payment of Purchase Price. As soon as
---------------------------------------------
practicable after surrender of this Warrant and receipt of payment the Company
shall promptly issue and deliver to the Holder a certificate or certificates for
the number of shares of Class A Common Stock set forth in the Election to
Purchase Shares, in such name or names as may be designated by such Holder,
along with a check for the amount of cash to be paid in lieu of issuance of
fractional shares, if any. Payment of the Purchase Price shall be made in
United States currency by cash or delivery of a certified check, bank draft or
-4-
<PAGE>
postal or express money order payable to the order of the Company.
(c) Partial Exercise. If this Warrant is exercised for less
----------------
than all of the shares of Class A Common Stock purchasable under this Warrant,
the Company shall cancel this Warrant upon surrender hereof and shall execute
and deliver to the Holder a new Warrant of like tenor for the balance of the
shares of Class A Common Stock purchasable hereunder.
(d) When Exercise Effective. The exercise of this Warrant shall
-----------------------
be deemed to have been effective immediately prior to the close of business on
the Business Day on which this Warrant is surrendered to and the Purchase Price
is received by the Company as provided in this Section 2 (the "Exercise Date"),
-------------
and the Person in whose name any certificate for shares of Class A Common Stock
shall be issuable upon such exercise, as provided in Section 2(b), shall be
deemed to be the record holder of such shares of Class A Common Stock for all
purposes on the Exercise Date.
3. Adjustment of Purchase Price and Number of Shares. The Purchase
-------------------------------------------------
Price and the number of shares of Class A Common Stock issuable upon exercise of
this Warrant shall be adjusted from time to time upon the occurrence of the
following events:
(a) Dividend, Subdivision, Combination or Reclassification of
---------------------------------------------------------
Common Stock. If the Company shall, at any time or from time to time, (i)
- ------------
declare a dividend on the Common Stock payable in shares of its capital stock
(including Common Stock), (ii) subdivide the outstanding Common Stock,
(iii) combine the outstanding Common Stock into a smaller number of shares, or
(iv) issue any shares of its capital stock in a reclassification of the Common
Stock (excluding any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), then in each such
case, the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable on
such date shall be proportionately adjusted so that the Holder of any Warrant
exercised after such date shall be entitled to receive, upon payment of the same
aggregate amount as would have been payable before such date, the aggregate
number and kind of shares of capital stock which, if such Warrant had been
exercised immediately prior to such date, such Holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. Any such adjustment shall become effective
immediately after the record date of such dividend or the effective date of such
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur. If a dividend is
declared and such dividend is not paid, the Purchase Price shall
-5-
<PAGE>
again be adjusted to be the Purchase Price in effect immediately prior to such
record date.
(b) De Minimis Adjustments. No adjustment in the Purchase Price
----------------------
shall be made if the amount of such adjustment would result in a change in the
Purchase Price per share of less than $.01, but in such case any adjustment that
would otherwise be required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment, which
together with any adjustment so carried forward, would result in a change in the
Purchase Price of $.01 per share. If the Company shall, at any time or from
time to time, issue Common Stock by way of dividends on any stock of the Company
or subdivide or combine the outstanding shares of the Common Stock, such amount
of $.01 (as theretofore increased or decreased, if such amounts shall have been
adjusted in accordance with the provisions of this clause) shall forthwith be
proportionately increased in the case of a combination or decreased in the case
of a subdivision or stock dividend so as appropriately to reflect the same.
Notwithstanding the provisions of the first sentence of this Section 3(b), any
adjustment postponed pursuant to this Section 3(b) shall be made no later than
the earlier of (i) six months from the date of the transaction that would, but
for the provisions of the first sentence of this Section 3(b), have required
such adjustment or (ii) an Exercise Date.
4. Reorganization, Reclassification, Merger and Sale of Assets. If
-----------------------------------------------------------
there occurs any capital reorganization or any reclassification of the Common
Stock of the Company, the consolidation or merger of the Company with or into
another Person (other than a merger or consolidation of the Company in which the
Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of its Common Stock) or the
sale or conveyance of all or substantially all of the assets of the Company to
another Person, then the Holder will thereafter be entitled to receive, upon the
exercise of this Warrant in accordance with the terms hereof, the same kind and
amounts of securities (including shares of stock) or other assets, or both,
which were issuable or distributable to the holders of outstanding Common Stock
of the Company upon such reorganization, reclassification, consolidation,
merger, sale or conveyance, in respect of that number of shares of Class A
Common Stock then deliverable upon the exercise of this Warrant if this Warrant
had been exercised immediately prior to such reorganization, reclassification,
consolidation, merger, sale or conveyance.
5. Certificate as to Adjustments. Whenever the Purchase Price and
-----------------------------
the number of shares of Class A Common Stock issuable, or the securities or
other property deliverable, upon the exercise of this Warrant shall be adjusted
pursuant to the provisions hereof, the Company shall promptly give written
notice thereof to the Holder, in accordance with Section 14, in the form
-6-
<PAGE>
of a certificate signed by the Chairman of the Board, President or one of the
Vice Presidents of the Company, and by the Chief Financial Officer, Treasurer or
one of the Assistant Treasurers of the Company, stating the adjusted Purchase
Price, the number of shares of Class A Common Stock issuable, or the securities
or other property deliverable, upon exercise of the Warrant calculated to the
nearest cent or the nearest one one-hundredth of a share and setting forth in
reasonable detail the method of calculation and the facts requiring such
adjustment and upon which such calculation is based. Each adjustment shall
remain in effect until a subsequent adjustment is required.
6. Fractional Shares. Notwithstanding an adjustment in the number
-----------------
of shares of Class A Common Stock covered by this Warrant or any other provision
of this Warrant, the Company shall not be required to issue fractions of shares
upon exercise of this Warrant or to distribute certificates which evidence frac-
tional shares. In lieu of fractional shares, the Company may make payment to
the Holder, at the time of exercise of this Warrant as herein provided, of an
amount in cash equal to such fraction multiplied by the Current Market Price of
a share of Class A Common Stock on the Exercise Date.
7. Notice of Proposed Actions. In case the Company shall propose at
--------------------------
any time or from time to time (a) to declare or pay any dividend payable in
stock of any class to the holders of Common Stock or to make any other
distribution to the holders of Common Stock (other than a regularly scheduled
cash dividend), (b) to offer to the holders of Common Stock rights or warrants
to subscribe for or to purchase any additional shares of Common Stock or shares
of stock of any class or any other securities, rights or options, to effect any
reclassification of its Common Stock, (d) to effect any consolidation, merger or
sale, transfer or other disposition of all or substantially all of the property,
assets or business of the Company which would, if consummated, adjust the
Purchase Price or the securities issuable upon exercise of the Warrants, or (e)
to effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to the Holder, in accordance with Section
14, a written notice of such proposed action, which shall specify (i) the record
date for the purposes of such stock dividend, distribution of rights or
warrants, or if a record is not to be taken, the date as of which the holders of
shares of Common Stock of record to be entitled to such dividend, distribution
of rights or warrants is to be determined, or (ii) the date on which such
reclassification, consolidation, merger, sale, transfer, disposition, liquida-
tion, dissolution or winding up is expected to become effective, and such notice
shall be so given as promptly as possible but in any event at least five (5)
Business Days prior to the applicable record, determination or effective date
specified in such notice.
-7-
<PAGE>
8. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its Amended and Restated Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the exercise of this Warrant above the
amount payable therefor on such exercise, (b) will at all times reserve and keep
available the maximum number of its authorized shares of Class A Common Stock,
free from all preemptive rights therein, which will be sufficient to permit the
full exercise of this Warrant, and will take all such action as may be necessary
or appropriate in order that all shares of Class A Common Stock as may be issued
pursuant to the exercise of this Warrant will, upon issuance, be duly and
validly issued, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof.
9. Replacement of Warrants. On receipt by the Company of an
-----------------------
affidavit of an authorized representative of the Holder stating the
circumstances of the loss, theft, destruction or mutilation of this Warrant (and
in the case of any such mutilation, on surrender and cancellation of such
Warrant), the Company at its expense will promptly execute and deliver, in lieu
thereof, a new Warrant of like tenor; provided, however, that in the case of
loss, destruction or theft, the Board of Directors of the Company may in its
discretion require the Holder to indemnify the Company and give the Company a
bond, in such sum and in such form and with such surety or sureties as it may
direct.
10. Transfer. Subject to the transfer conditions referred to in the
--------
legend endorsed hereon and the transfer restrictions set forth in the
Stockholders' Agreement, this Warrant and all rights hereunder are
transferrable, in whole or in part, without charge to the Holder hereof upon
surrender of this Warrant with a properly executed Form of Assignment attached
hereto as Exhibit B at the principal office of the Company. Upon any partial
---------
transfer the Company will, at its expense, issue and deliver to the Holder a
Warrant of like tenor in the name of the Holder, which shall be exercisable for
such number of shares of Class A Common Stock with respect to which rights under
this Warrant were not so transferred.
11. No Rights or Liability as a Stockholder. This Warrant does not
---------------------------------------
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder hereof to purchase Class A Common Stock, and no enumeration herein of
-8-
<PAGE>
the rights or privileges of the Holder shall give rise to any liability to such
Holder as a stockholder of the Company.
12. Charges, Taxes and Expenses. Issuance of certificates for shares
---------------------------
of Class A Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer tax, or other incidental
expense, in respect of the issuance or delivery of such certificates or the
securities represented thereby, all of which taxes and expenses shall be paid by
the Company.
13. Amendment or Waiver. This Warrant and any term hereof may be
-------------------
amended, waived, discharged or terminated only by and with the written consent
of the Company and the Holder.
14. Notices. Any notice or other communication (or delivery)
-------
required or permitted hereunder shall be made in writing and shall be by
registered mail, return receipt requested, telecopier, courier service or
personal delivery to the Company at its principal office at 40 Skokie Boulevard,
Northbrook, Illinois 60062-1618, and to the Holder at its address as it appears
on the transfer books of the Company. All such notices and communications (and
deliveries) shall be deemed to have been duly given: when delivered by hand, if
personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; five Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is acknowledged, if telecopied.
15. Certain Remedies. The Holder shall be entitled to an injunction
----------------
or injunctions to prevent breaches of the provisions of this Warrant and to
enforce specifically the terms and provisions of this Warrant in any court of
the United States or any state thereof having jurisdiction, this being in
addition to any other remedy to which such Holder may be entitled at law or in
equity.
16. Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of the state of Illinois, without regard to the
principles of conflicts of law of such State.
-9-
<PAGE>
17. Headings. The headings in this Warrant are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
MEDICON, INC.
By _________________________________
Name:
Title:
Exhibit 10.20
September 6, 1995
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAW OF ANY STATE
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS.
No. A-5 Warrant to Purchase 428,102
Shares of Class A Common Stock
MEDICON, INC.
CLASS A COMMON STOCK PURCHASE WARRANT
MEDICON, INC., an Illinois corporation (the "Company"), hereby
-------
certifies that for value received, James E. Zechman (the "Holder") is entitled
------
to purchase, at any time specified in Section 2(a) hereof, subject to the terms
and conditions hereinafter set forth, an aggregate of 428,102 fully paid and
nonassessable shares of Class A Common Stock of the Company, at an exercise
price of $.01 per share (the "Purchase Price").
--------------
This Warrant is issued in connection with the Restructuring Agreement,
dated as of the date hereof, among the Company, Whitney Subordinated Debt Fund,
L.P. ("Whitney Debt Fund"), Whitney 1990 Equity Fund, L.P., a Delaware limited
-----------------
partnership ("Whitney Equity Fund"), J.H. Whitney & Co., a New York limited
-------------------
partnership ("Whitney"), Chemical Venture Capital Associates, a California
-------
limited partnership ("CVCA," and together with Whitney Debt Fund, Whitney Equity
-----
Fund and Whitney, the "Investors"), Alan P. Mintz ("Mintz"), John E. Adams
--------- -----
("Adams"), Lawrence Rubinstein ("Rubinstein"), Alan Spiro ("Spiro"), Nancie
----- ---------- -----
Blatt ("Blatt"), James Zechman ("Zechman"), Sheldon Gulinson ("Gulinson") and
----- ------- --------
certain other parties thereto.
1. Definitions. For the purposes of this Warrant, the following
-----------
terms have the meanings indicated:
"Business Day" shall mean any day other than a Saturday, Sunday or
------------
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
<PAGE>
"Class A Common Stock" means the Class A Common Stock, no par value,
--------------------
of the Company.
"Class B Common Stock" means the Class B Common Stock, no par value,
--------------------
of the Company.
"Closing Price" shall mean, with respect to each share of Class A
-------------
Common Stock for any day, (a) the last reported sale price regular way or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case as reported on the principal national
securities exchange on which the Class A Common Stock is listed or admitted for
trading or (b) if the Class A Common Stock is not listed or admitted for trading
on any national securities exchange, the last reported sale price or, in case no
such sale takes place on such day, the average of the highest reported bid and
the lowest reported asked quotation for the Class A Common Stock, in either case
as reported on the Automatic Quotation System of Nasdaq or a similar service if
Nasdaq is no longer reporting such information.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" shall mean collectively the Class A Common Stock, the
------------
Class B Common Stock and any class or series of common stock of the Company
authorized after the date of this Warrant, or any other class of stock resulting
from successive changes or reclassifications of such Common Stock.
"Company" has the meaning ascribed to such term in the first paragraph
-------
of this Warrant.
"Current Market Price" shall mean, with respect to the Class A Common
--------------------
Stock on any date, the average of the daily Closing Prices per share of Class A
Common Stock for the ten consecutive trading days commencing 15 trading days
before such date. If on any such date the shares of Class A Common Stock are
not listed or admitted for trading on any national securities exchange or quoted
by Nasdaq or a similar service, the Current Market Price for such shares shall
be the fair market value of such shares on such date as determined in good faith
by a committee of disinterested members of the Board of Directors of the
Company.
"Exercise Date" has the meaning ascribed to such term in Section 2(d).
-------------
"Holder" has the meaning ascribed to such term in the first paragraph
------
of this Warrant.
-2-
<PAGE>
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Common Stock pursuant to a registration statement
on Form S-1 or otherwise under the Securities Act.
"Nasdaq" shall mean the National Association of Securities Dealers,
------
Inc.
"Net Cash Proceeds" shall mean, with respect to (x) any Initial Public
-----------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) related to such Initial Public Offering or (y) any Sale
Transaction, (i) the cash proceeds received by the Investors, minus
-----
(ii) brokerage commissions or underwriting fees and all other costs, fees and
expenses of the Investors associated with such Sale Transaction (including,
without limitation, fees, charges and disbursements of counsel and reasonable
fees and expenses of investment bankers or other third party financial experts).
"Person" shall mean any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Purchase Price" has the meaning ascribed to such term in the first
--------------
paragraph of this Warrant.
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Net Cash Proceeds to the Company in excess of $30,000,000.00 and in
respect of which the price per share of Common Stock sold in such Qualified
Public Offering is at least $4.6441025 (subject to appropriate adjustment for
any dividends, subdivisions, combinations or reclassifications of Common Stock).
This implies, for example, that the aggregate value of the Investors' original
equity investment will be at least $75,000,000.00 upon the closing of a
Qualified Public Offering.
"Qualified Sale Transaction" means a Sale Transaction in which (i) the
--------------------------
senior subordinated promissory notes in the aggregate principal amount of
$10,000,000.00 payable to Whitney Debt Fund and CVCA, together with all accrued
and unpaid interest thereon, are repaid and (ii) the Investors receive Net Cash
Proceeds in excess of $75,000,000.00 for the Series A Preferred Stock and Common
Stock of the Investors.
-3-
<PAGE>
"Sale Transaction" shall mean (i) any sale of the capital stock of the
----------------
Company owned by the Investors or (ii) any merger, consolidation, sale or other
business combination involving the Company, in each case in one transaction or a
series of transactions occurring prior to the consummation of an Initial Public
Offering.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Series A Preferred Stock" means the Series A Convertible Preferred
------------------------
Stock, no par value, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Stockholders' Agreement" means the Stockholders' Agreement, dated as
-----------------------
of November 3, 1994, among the Company and its stockholders, as amended from
time to time in accordance with the terms thereof.
2. Exercise of Warrant.
-------------------
(a) Exercise. This Warrant may be exercised, in whole or in
--------
part, by surrendering to the Company at its principal office this Warrant, with
the form of Election to Purchase Shares attached hereto as Exhibit A duly
---------
executed by the Holder and accompanied by payment of the Purchase Price for the
number of shares of Class A Common Stock specified in such form, but only on (i)
the date of the consummation of a Qualified Public Offering and only if (x) the
Company has consummated a Qualified Public Offering on or before June 30, 1997
or (y) the Company has filed a registration for an Initial Public Offering with
the Commission on or prior to June 30, 1997, such Initial Public Offering is
consummated on or before September 30, 1997 and such Initial Public Offering is
a Qualified Public Offering or (ii) the date of the consummation of a Qualified
Sale Transaction and only if (A) such Qualified Sale Transaction is consummated
on or before June 30, 1997 or (B) definitive documentation for a Qualified Sale
Transaction has been executed on or prior to June 30, 1997 and such Qualified
Sale Transaction is consummated on or before September 30, 1997.
(b) Delivery of Shares; Payment of Purchase Price. As soon as
---------------------------------------------
practicable after surrender of this Warrant and receipt of payment the Company
shall promptly issue and deliver to the Holder a certificate or certificates for
the number of shares of Class A Common Stock set forth in the Election to
Purchase Shares, in such name or names as may be designated by such Holder,
along with a check for the amount of cash to be paid in lieu of issuance of
fractional shares, if any. Payment of the Purchase Price shall be made in
United States currency by cash or delivery of a certified check, bank draft or
-4-
<PAGE>
postal or express money order payable to the order of the Company.
(c) Partial Exercise. If this Warrant is exercised for less
----------------
than all of the shares of Class A Common Stock purchasable under this Warrant,
the Company shall cancel this Warrant upon surrender hereof and shall execute
and deliver to the Holder a new Warrant of like tenor for the balance of the
shares of Class A Common Stock purchasable hereunder.
(d) When Exercise Effective. The exercise of this Warrant shall
-----------------------
be deemed to have been effective immediately prior to the close of business on
the Business Day on which this Warrant is surrendered to and the Purchase Price
is received by the Company as provided in this Section 2 (the "Exercise Date"),
-------------
and the Person in whose name any certificate for shares of Class A Common Stock
shall be issuable upon such exercise, as provided in Section 2(b), shall be
deemed to be the record holder of such shares of Class A Common Stock for all
purposes on the Exercise Date.
3. Adjustment of Purchase Price and Number of Shares. The Purchase
-------------------------------------------------
Price and the number of shares of Class A Common Stock issuable upon exercise of
this Warrant shall be adjusted from time to time upon the occurrence of the
following events:
(a) Dividend, Subdivision, Combination or Reclassification of
---------------------------------------------------------
Common Stock. If the Company shall, at any time or from time to time, (i)
- ------------
declare a dividend on the Common Stock payable in shares of its capital stock
(including Common Stock), (ii) subdivide the outstanding Common Stock,
(iii) combine the outstanding Common Stock into a smaller number of shares, or
(iv) issue any shares of its capital stock in a reclassification of the Common
Stock (excluding any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), then in each such
case, the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable on
such date shall be proportionately adjusted so that the Holder of any Warrant
exercised after such date shall be entitled to receive, upon payment of the same
aggregate amount as would have been payable before such date, the aggregate
number and kind of shares of capital stock which, if such Warrant had been
exercised immediately prior to such date, such Holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. Any such adjustment shall become effective
immediately after the record date of such dividend or the effective date of such
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur. If a dividend is
declared and such dividend is not paid, the Purchase Price shall
-5-
<PAGE>
again be adjusted to be the Purchase Price in effect immediately prior to such
record date.
(b) De Minimis Adjustments. No adjustment in the Purchase Price
----------------------
shall be made if the amount of such adjustment would result in a change in the
Purchase Price per share of less than $.01, but in such case any adjustment that
would otherwise be required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment, which
together with any adjustment so carried forward, would result in a change in the
Purchase Price of $.01 per share. If the Company shall, at any time or from
time to time, issue Common Stock by way of dividends on any stock of the Company
or subdivide or combine the outstanding shares of the Common Stock, such amount
of $.01 (as theretofore increased or decreased, if such amounts shall have been
adjusted in accordance with the provisions of this clause) shall forthwith be
proportionately increased in the case of a combination or decreased in the case
of a subdivision or stock dividend so as appropriately to reflect the same.
Notwithstanding the provisions of the first sentence of this Section 3(b), any
adjustment postponed pursuant to this Section 3(b) shall be made no later than
the earlier of (i) six months from the date of the transaction that would, but
for the provisions of the first sentence of this Section 3(b), have required
such adjustment or (ii) an Exercise Date.
4. Reorganization, Reclassification, Merger and Sale of Assets. If
-----------------------------------------------------------
there occurs any capital reorganization or any reclassification of the Common
Stock of the Company, the consolidation or merger of the Company with or into
another Person (other than a merger or consolidation of the Company in which the
Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of its Common Stock) or the
sale or conveyance of all or substantially all of the assets of the Company to
another Person, then the Holder will thereafter be entitled to receive, upon the
exercise of this Warrant in accordance with the terms hereof, the same kind and
amounts of securities (including shares of stock) or other assets, or both,
which were issuable or distributable to the holders of outstanding Common Stock
of the Company upon such reorganization, reclassification, consolidation,
merger, sale or conveyance, in respect of that number of shares of Class A
Common Stock then deliverable upon the exercise of this Warrant if this Warrant
had been exercised immediately prior to such reorganization, reclassification,
consolidation, merger, sale or conveyance.
5. Certificate as to Adjustments. Whenever the Purchase Price and
-----------------------------
the number of shares of Class A Common Stock issuable, or the securities or
other property deliverable, upon the exercise of this Warrant shall be adjusted
pursuant to the provisions hereof, the Company shall promptly give written
notice thereof to the Holder, in accordance with Section 14, in the form
-6-
<PAGE>
of a certificate signed by the Chairman of the Board, President or one of the
Vice Presidents of the Company, and by the Chief Financial Officer, Treasurer or
one of the Assistant Treasurers of the Company, stating the adjusted Purchase
Price, the number of shares of Class A Common Stock issuable, or the securities
or other property deliverable, upon exercise of the Warrant calculated to the
nearest cent or the nearest one one-hundredth of a share and setting forth in
reasonable detail the method of calculation and the facts requiring such
adjustment and upon which such calculation is based. Each adjustment shall
remain in effect until a subsequent adjustment is required.
6. Fractional Shares. Notwithstanding an adjustment in the number
-----------------
of shares of Class A Common Stock covered by this Warrant or any other provision
of this Warrant, the Company shall not be required to issue fractions of shares
upon exercise of this Warrant or to distribute certificates which evidence frac-
tional shares. In lieu of fractional shares, the Company may make payment to
the Holder, at the time of exercise of this Warrant as herein provided, of an
amount in cash equal to such fraction multiplied by the Current Market Price of
a share of Class A Common Stock on the Exercise Date.
7. Notice of Proposed Actions. In case the Company shall propose at
--------------------------
any time or from time to time (a) to declare or pay any dividend payable in
stock of any class to the holders of Common Stock or to make any other
distribution to the holders of Common Stock (other than a regularly scheduled
cash dividend), (b) to offer to the holders of Common Stock rights or warrants
to subscribe for or to purchase any additional shares of Common Stock or shares
of stock of any class or any other securities, rights or options, to effect any
reclassification of its Common Stock, (d) to effect any consolidation, merger or
sale, transfer or other disposition of all or substantially all of the property,
assets or business of the Company which would, if consummated, adjust the
Purchase Price or the securities issuable upon exercise of the Warrants, or (e)
to effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to the Holder, in accordance with Section
14, a written notice of such proposed action, which shall specify (i) the record
date for the purposes of such stock dividend, distribution of rights or
warrants, or if a record is not to be taken, the date as of which the holders of
shares of Common Stock of record to be entitled to such dividend, distribution
of rights or warrants is to be determined, or (ii) the date on which such
reclassification, consolidation, merger, sale, transfer, disposition, liquida-
tion, dissolution or winding up is expected to become effective, and such notice
shall be so given as promptly as possible but in any event at least five (5)
Business Days prior to the applicable record, determination or effective date
specified in such notice.
-7-
<PAGE>
8. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its Amended and Restated Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the exercise of this Warrant above the
amount payable therefor on such exercise, (b) will at all times reserve and keep
available the maximum number of its authorized shares of Class A Common Stock,
free from all preemptive rights therein, which will be sufficient to permit the
full exercise of this Warrant, and will take all such action as may be necessary
or appropriate in order that all shares of Class A Common Stock as may be issued
pursuant to the exercise of this Warrant will, upon issuance, be duly and
validly issued, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof.
9. Replacement of Warrants. On receipt by the Company of an
-----------------------
affidavit of an authorized representative of the Holder stating the
circumstances of the loss, theft, destruction or mutilation of this Warrant (and
in the case of any such mutilation, on surrender and cancellation of such
Warrant), the Company at its expense will promptly execute and deliver, in lieu
thereof, a new Warrant of like tenor; provided, however, that in the case of
loss, destruction or theft, the Board of Directors of the Company may in its
discretion require the Holder to indemnify the Company and give the Company a
bond, in such sum and in such form and with such surety or sureties as it may
direct.
10. Transfer. Subject to the transfer conditions referred to in the
--------
legend endorsed hereon and the transfer restrictions set forth in the
Stockholders' Agreement, this Warrant and all rights hereunder are
transferrable, in whole or in part, without charge to the Holder hereof upon
surrender of this Warrant with a properly executed Form of Assignment attached
hereto as Exhibit B at the principal office of the Company. Upon any partial
---------
transfer the Company will, at its expense, issue and deliver to the Holder a
Warrant of like tenor in the name of the Holder, which shall be exercisable for
such number of shares of Class A Common Stock with respect to which rights under
this Warrant were not so transferred.
11. No Rights or Liability as a Stockholder. This Warrant does not
---------------------------------------
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder hereof to purchase Class A Common Stock, and no enumeration herein of
-8-
<PAGE>
the rights or privileges of the Holder shall give rise to any liability to such
Holder as a stockholder of the Company.
12. Charges, Taxes and Expenses. Issuance of certificates for shares
---------------------------
of Class A Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer tax, or other incidental
expense, in respect of the issuance or delivery of such certificates or the
securities represented thereby, all of which taxes and expenses shall be paid by
the Company.
13. Amendment or Waiver. This Warrant and any term hereof may be
-------------------
amended, waived, discharged or terminated only by and with the written consent
of the Company and the Holder.
14. Notices. Any notice or other communication (or delivery)
-------
required or permitted hereunder shall be made in writing and shall be by
registered mail, return receipt requested, telecopier, courier service or
personal delivery to the Company at its principal office at 40 Skokie Boulevard,
Northbrook, Illinois 60062-1618, and to the Holder at its address as it appears
on the transfer books of the Company. All such notices and communications (and
deliveries) shall be deemed to have been duly given: when delivered by hand, if
personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; five Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is acknowledged, if telecopied.
15. Certain Remedies. The Holder shall be entitled to an injunction
----------------
or injunctions to prevent breaches of the provisions of this Warrant and to
enforce specifically the terms and provisions of this Warrant in any court of
the United States or any state thereof having jurisdiction, this being in
addition to any other remedy to which such Holder may be entitled at law or in
equity.
16. Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of the state of Illinois, without regard to the
principles of conflicts of law of such State.
-9-
<PAGE>
17. Headings. The headings in this Warrant are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
MEDICON, INC.
By _________________________________
Name:
Title:
Exhibit 10.21
September 6, 1995
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAW OF ANY STATE
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS.
No. A-6 Warrant to Purchase 73,510
Shares of Class A Common Stock
MEDICON, INC.
CLASS A COMMON STOCK PURCHASE WARRANT
MEDICON, INC., an Illinois corporation (the "Company"), hereby
-------
certifies that for value received, Nancie Blatt (the "Holder") is entitled to
------
purchase, at any time specified in Section 2(a) hereof, subject to the terms and
conditions hereinafter set forth, an aggregate of 73,510 fully paid and nonas-
sessable shares of Class A Common Stock of the Company, at an exercise price of
$.01 per share (the "Purchase Price").
--------------
This Warrant is issued in connection with the Restructuring Agreement,
dated as of the date hereof, among the Company, Whitney Subordinated Debt Fund,
L.P. ("Whitney Debt Fund"), Whitney 1990 Equity Fund, L.P., a Delaware limited
-----------------
partnership ("Whitney Equity Fund"), J.H. Whitney & Co., a New York limited
-------------------
partnership ("Whitney"), Chemical Venture Capital Associates, a California
-------
limited partnership ("CVCA," and together with Whitney Debt Fund, Whitney Equity
-----
Fund and Whitney, the "Investors"), Alan P. Mintz ("Mintz"), John E. Adams
--------- -----
("Adams"), Lawrence Rubinstein ("Rubinstein"), Alan Spiro ("Spiro"), Nancie
----- ---------- -----
Blatt ("Blatt"), James Zechman ("Zechman"), Sheldon Gulinson ("Gulinson") and
----- ------- --------
certain other parties thereto.
1. Definitions. For the purposes of this Warrant, the following
-----------
terms have the meanings indicated:
"Business Day" shall mean any day other than a Saturday, Sunday or
------------
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
<PAGE>
"Class A Common Stock" means the Class A Common Stock, no par value,
--------------------
of the Company.
"Class B Common Stock" means the Class B Common Stock, no par value,
--------------------
of the Company.
"Closing Price" shall mean, with respect to each share of Class A
-------------
Common Stock for any day, (a) the last reported sale price regular way or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case as reported on the principal national
securities exchange on which the Class A Common Stock is listed or admitted for
trading or (b) if the Class A Common Stock is not listed or admitted for trading
on any national securities exchange, the last reported sale price or, in case no
such sale takes place on such day, the average of the highest reported bid and
the lowest reported asked quotation for the Class A Common Stock, in either case
as reported on the Automatic Quotation System of Nasdaq or a similar service if
Nasdaq is no longer reporting such information.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" shall mean collectively the Class A Common Stock, the
------------
Class B Common Stock and any class or series of common stock of the Company
authorized after the date of this Warrant, or any other class of stock resulting
from successive changes or reclassifications of such Common Stock.
"Company" has the meaning ascribed to such term in the first paragraph
-------
of this Warrant.
"Current Market Price" shall mean, with respect to the Class A Common
--------------------
Stock on any date, the average of the daily Closing Prices per share of Class A
Common Stock for the ten consecutive trading days commencing 15 trading days
before such date. If on any such date the shares of Class A Common Stock are
not listed or admitted for trading on any national securities exchange or quoted
by Nasdaq or a similar service, the Current Market Price for such shares shall
be the fair market value of such shares on such date as determined in good faith
by a committee of disinterested members of the Board of Directors of the
Company.
"Exercise Date" has the meaning ascribed to such term in Section 2(d).
-------------
"Holder" has the meaning ascribed to such term in the first paragraph
------
of this Warrant.
-2-
<PAGE>
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Common Stock pursuant to a registration statement
on Form S-1 or otherwise under the Securities Act.
"Nasdaq" shall mean the National Association of Securities Dealers,
------
Inc.
"Net Cash Proceeds" shall mean, with respect to (x) any Initial Public
-----------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) related to such Initial Public Offering or (y) any Sale
Transaction, (i) the cash proceeds received by the Investors, minus
-----
(ii) brokerage commissions or underwriting fees and all other costs, fees and
expenses of the Investors associated with such Sale Transaction (including,
without limitation, fees, charges and disbursements of counsel and reasonable
fees and expenses of investment bankers or other third party financial experts).
"Person" shall mean any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Purchase Price" has the meaning ascribed to such term in the first
--------------
paragraph of this Warrant.
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Net Cash Proceeds to the Company in excess of $30,000,000.00 and in
respect of which the price per share of Common Stock sold in such Qualified
Public Offering is at least $4.6441025 (subject to appropriate adjustment for
any dividends, subdivisions, combinations or reclassifications of Common Stock).
This implies, for example, that the aggregate value of the Investors' original
equity investment will be at least $75,000,000.00 upon the closing of a
Qualified Public Offering.
"Qualified Sale Transaction" means a Sale Transaction in which (i) the
--------------------------
senior subordinated promissory notes in the aggregate principal amount of
$10,000,000.00 payable to Whitney Debt Fund and CVCA, together with all accrued
and unpaid interest thereon, are repaid and (ii) the Investors receive Net Cash
Proceeds in excess of $75,000,000.00 for the Series A Preferred Stock and Common
Stock of the Investors.
-3-
<PAGE>
"Sale Transaction" shall mean (i) any sale of the capital stock of the
----------------
Company owned by the Investors or (ii) any merger, consolidation, sale or other
business combination involving the Company, in each case in one transaction or a
series of transactions occurring prior to the consummation of an Initial Public
Offering.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Series A Preferred Stock" means the Series A Convertible Preferred
------------------------
Stock, no par value, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Stockholders' Agreement" means the Stockholders' Agreement, dated as
-----------------------
of November 3, 1994, among the Company and its stockholders, as amended from
time to time in accordance with the terms thereof.
2. Exercise of Warrant.
-------------------
(a) Exercise. This Warrant may be exercised, in whole or in
--------
part, by surrendering to the Company at its principal office this Warrant, with
the form of Election to Purchase Shares attached hereto as Exhibit A duly
---------
executed by the Holder and accompanied by payment of the Purchase Price for the
number of shares of Class A Common Stock specified in such form, but only on (i)
the date of the consummation of a Qualified Public Offering and only if (x) the
Company has consummated a Qualified Public Offering on or before June 30, 1997
or (y) the Company has filed a registration for an Initial Public Offering with
the Commission on or prior to June 30, 1997, such Initial Public Offering is
consummated on or before September 30, 1997 and such Initial Public Offering is
a Qualified Public Offering or (ii) the date of the consummation of a Qualified
Sale Transaction and only if (A) such Qualified Sale Transaction is consummated
on or before June 30, 1997 or (B) definitive documentation for a Qualified Sale
Transaction has been executed on or prior to June 30, 1997 and such Qualified
Sale Transaction is consummated on or before September 30, 1997.
(b) Delivery of Shares; Payment of Purchase Price. As soon as
---------------------------------------------
practicable after surrender of this Warrant and receipt of payment the Company
shall promptly issue and deliver to the Holder a certificate or certificates for
the number of shares of Class A Common Stock set forth in the Election to
Purchase Shares, in such name or names as may be designated by such Holder,
along with a check for the amount of cash to be paid in lieu of issuance of
fractional shares, if any. Payment of the Purchase Price shall be made in
United States currency by cash or delivery of a certified check, bank draft or
-4-
<PAGE>
postal or express money order payable to the order of the Company.
(c) Partial Exercise. If this Warrant is exercised for less
----------------
than all of the shares of Class A Common Stock purchasable under this Warrant,
the Company shall cancel this Warrant upon surrender hereof and shall execute
and deliver to the Holder a new Warrant of like tenor for the balance of the
shares of Class A Common Stock purchasable hereunder.
(d) When Exercise Effective. The exercise of this Warrant shall
-----------------------
be deemed to have been effective immediately prior to the close of business on
the Business Day on which this Warrant is surrendered to and the Purchase Price
is received by the Company as provided in this Section 2 (the "Exercise Date"),
-------------
and the Person in whose name any certificate for shares of Class A Common Stock
shall be issuable upon such exercise, as provided in Section 2(b), shall be
deemed to be the record holder of such shares of Class A Common Stock for all
purposes on the Exercise Date.
3. Adjustment of Purchase Price and Number of Shares. The Purchase
-------------------------------------------------
Price and the number of shares of Class A Common Stock issuable upon exercise of
this Warrant shall be adjusted from time to time upon the occurrence of the
following events:
(a) Dividend, Subdivision, Combination or Reclassification of
---------------------------------------------------------
Common Stock. If the Company shall, at any time or from time to time, (i)
- ------------
declare a dividend on the Common Stock payable in shares of its capital stock
(including Common Stock), (ii) subdivide the outstanding Common Stock,
(iii) combine the outstanding Common Stock into a smaller number of shares, or
(iv) issue any shares of its capital stock in a reclassification of the Common
Stock (excluding any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), then in each such
case, the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable on
such date shall be proportionately adjusted so that the Holder of any Warrant
exercised after such date shall be entitled to receive, upon payment of the same
aggregate amount as would have been payable before such date, the aggregate
number and kind of shares of capital stock which, if such Warrant had been
exercised immediately prior to such date, such Holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. Any such adjustment shall become effective
immediately after the record date of such dividend or the effective date of such
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur. If a dividend is
declared and such dividend is not paid, the Purchase Price shall
-5-
<PAGE>
again be adjusted to be the Purchase Price in effect immediately prior to such
record date.
(b) De Minimis Adjustments. No adjustment in the Purchase Price
----------------------
shall be made if the amount of such adjustment would result in a change in the
Purchase Price per share of less than $.01, but in such case any adjustment that
would otherwise be required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment, which
together with any adjustment so carried forward, would result in a change in the
Purchase Price of $.01 per share. If the Company shall, at any time or from
time to time, issue Common Stock by way of dividends on any stock of the Company
or subdivide or combine the outstanding shares of the Common Stock, such amount
of $.01 (as theretofore increased or decreased, if such amounts shall have been
adjusted in accordance with the provisions of this clause) shall forthwith be
proportionately increased in the case of a combination or decreased in the case
of a subdivision or stock dividend so as appropriately to reflect the same.
Notwithstanding the provisions of the first sentence of this Section 3(b), any
adjustment postponed pursuant to this Section 3(b) shall be made no later than
the earlier of (i) six months from the date of the transaction that would, but
for the provisions of the first sentence of this Section 3(b), have required
such adjustment or (ii) an Exercise Date.
4. Reorganization, Reclassification, Merger and Sale of Assets. If
-----------------------------------------------------------
there occurs any capital reorganization or any reclassification of the Common
Stock of the Company, the consolidation or merger of the Company with or into
another Person (other than a merger or consolidation of the Company in which the
Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of its Common Stock) or the
sale or conveyance of all or substantially all of the assets of the Company to
another Person, then the Holder will thereafter be entitled to receive, upon the
exercise of this Warrant in accordance with the terms hereof, the same kind and
amounts of securities (including shares of stock) or other assets, or both,
which were issuable or distributable to the holders of outstanding Common Stock
of the Company upon such reorganization, reclassification, consolidation,
merger, sale or conveyance, in respect of that number of shares of Class A
Common Stock then deliverable upon the exercise of this Warrant if this Warrant
had been exercised immediately prior to such reorganization, reclassification,
consolidation, merger, sale or conveyance.
5. Certificate as to Adjustments. Whenever the Purchase Price and
-----------------------------
the number of shares of Class A Common Stock issuable, or the securities or
other property deliverable, upon the exercise of this Warrant shall be adjusted
pursuant to the provisions hereof, the Company shall promptly give written
notice thereof to the Holder, in accordance with Section 14, in the form
-6-
<PAGE>
of a certificate signed by the Chairman of the Board, President or one of the
Vice Presidents of the Company, and by the Chief Financial Officer, Treasurer or
one of the Assistant Treasurers of the Company, stating the adjusted Purchase
Price, the number of shares of Class A Common Stock issuable, or the securities
or other property deliverable, upon exercise of the Warrant calculated to the
nearest cent or the nearest one one-hundredth of a share and setting forth in
reasonable detail the method of calculation and the facts requiring such
adjustment and upon which such calculation is based. Each adjustment shall
remain in effect until a subsequent adjustment is required.
6. Fractional Shares. Notwithstanding an adjustment in the number
-----------------
of shares of Class A Common Stock covered by this Warrant or any other provision
of this Warrant, the Company shall not be required to issue fractions of shares
upon exercise of this Warrant or to distribute certificates which evidence frac-
tional shares. In lieu of fractional shares, the Company may make payment to
the Holder, at the time of exercise of this Warrant as herein provided, of an
amount in cash equal to such fraction multiplied by the Current Market Price of
a share of Class A Common Stock on the Exercise Date.
7. Notice of Proposed Actions. In case the Company shall propose at
--------------------------
any time or from time to time (a) to declare or pay any dividend payable in
stock of any class to the holders of Common Stock or to make any other
distribution to the holders of Common Stock (other than a regularly scheduled
cash dividend), (b) to offer to the holders of Common Stock rights or warrants
to subscribe for or to purchase any additional shares of Common Stock or shares
of stock of any class or any other securities, rights or options, to effect any
reclassification of its Common Stock, (d) to effect any consolidation, merger or
sale, transfer or other disposition of all or substantially all of the property,
assets or business of the Company which would, if consummated, adjust the
Purchase Price or the securities issuable upon exercise of the Warrants, or (e)
to effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to the Holder, in accordance with Section
14, a written notice of such proposed action, which shall specify (i) the record
date for the purposes of such stock dividend, distribution of rights or
warrants, or if a record is not to be taken, the date as of which the holders of
shares of Common Stock of record to be entitled to such dividend, distribution
of rights or warrants is to be determined, or (ii) the date on which such
reclassification, consolidation, merger, sale, transfer, disposition, liquida-
tion, dissolution or winding up is expected to become effective, and such notice
shall be so given as promptly as possible but in any event at least five (5)
Business Days prior to the applicable record, determination or effective date
specified in such notice.
-7-
<PAGE>
8. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its Amended and Restated Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the exercise of this Warrant above the
amount payable therefor on such exercise, (b) will at all times reserve and keep
available the maximum number of its authorized shares of Class A Common Stock,
free from all preemptive rights therein, which will be sufficient to permit the
full exercise of this Warrant, and will take all such action as may be necessary
or appropriate in order that all shares of Class A Common Stock as may be issued
pursuant to the exercise of this Warrant will, upon issuance, be duly and
validly issued, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof.
9. Replacement of Warrants. On receipt by the Company of an
-----------------------
affidavit of an authorized representative of the Holder stating the
circumstances of the loss, theft, destruction or mutilation of this Warrant (and
in the case of any such mutilation, on surrender and cancellation of such
Warrant), the Company at its expense will promptly execute and deliver, in lieu
thereof, a new Warrant of like tenor; provided, however, that in the case of
loss, destruction or theft, the Board of Directors of the Company may in its
discretion require the Holder to indemnify the Company and give the Company a
bond, in such sum and in such form and with such surety or sureties as it may
direct.
10. Transfer. Subject to the transfer conditions referred to in the
--------
legend endorsed hereon and the transfer restrictions set forth in the
Stockholders' Agreement, this Warrant and all rights hereunder are
transferrable, in whole or in part, without charge to the Holder hereof upon
surrender of this Warrant with a properly executed Form of Assignment attached
hereto as Exhibit B at the principal office of the Company. Upon any partial
---------
transfer the Company will, at its expense, issue and deliver to the Holder a
Warrant of like tenor in the name of the Holder, which shall be exercisable for
such number of shares of Class A Common Stock with respect to which rights under
this Warrant were not so transferred.
11. No Rights or Liability as a Stockholder. This Warrant does not
---------------------------------------
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder hereof to purchase Class A Common Stock, and no enumeration herein of
-8-
<PAGE>
the rights or privileges of the Holder shall give rise to any liability to such
Holder as a stockholder of the Company.
12. Charges, Taxes and Expenses. Issuance of certificates for shares
---------------------------
of Class A Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer tax, or other incidental
expense, in respect of the issuance or delivery of such certificates or the
securities represented thereby, all of which taxes and expenses shall be paid by
the Company.
13. Amendment or Waiver. This Warrant and any term hereof may be
-------------------
amended, waived, discharged or terminated only by and with the written consent
of the Company and the Holder.
14. Notices. Any notice or other communication (or delivery)
-------
required or permitted hereunder shall be made in writing and shall be by
registered mail, return receipt requested, telecopier, courier service or
personal delivery to the Company at its principal office at 40 Skokie Boulevard,
Northbrook, Illinois 60062-1618, and to the Holder at its address as it appears
on the transfer books of the Company. All such notices and communications (and
deliveries) shall be deemed to have been duly given: when delivered by hand, if
personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; five Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is acknowledged, if telecopied.
15. Certain Remedies. The Holder shall be entitled to an injunction
----------------
or injunctions to prevent breaches of the provisions of this Warrant and to
enforce specifically the terms and provisions of this Warrant in any court of
the United States or any state thereof having jurisdiction, this being in
addition to any other remedy to which such Holder may be entitled at law or in
equity.
16. Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of the state of Illinois, without regard to the
principles of conflicts of law of such State.
-9-
<PAGE>
17. Headings. The headings in this Warrant are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
MEDICON, INC.
By _________________________________
Name:
Title:
Exhibit 10.22
September 6, 1995
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAW OF ANY STATE
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS.
No. A-7 Warrant to Purchase 73,470
Shares of Class A Common Stock
MEDICON, INC.
CLASS A COMMON STOCK PURCHASE WARRANT
MEDICON, INC., an Illinois corporation (the "Company"), hereby
-------
certifies that for value received, Sheldon K. Gulinson (the "Holder") is
------
entitled to purchase, at any time specified in Section 2(a) hereof, subject to
the terms and conditions hereinafter set forth, an aggregate of 73,470 fully
paid and nonassessable shares of Class A Common Stock of the Company, at an
exercise price of $.01 per share (the "Purchase Price").
--------------
This Warrant is issued in connection with the Restructuring Agreement,
dated as of the date hereof, among the Company, Whitney Subordinated Debt Fund,
L.P. ("Whitney Debt Fund"), Whitney 1990 Equity Fund, L.P., a Delaware limited
-----------------
partnership ("Whitney Equity Fund"), J.H. Whitney & Co., a New York limited
-------------------
partnership ("Whitney"), Chemical Venture Capital Associates, a California
-------
limited partnership ("CVCA," and together with Whitney Debt Fund, Whitney Equity
-----
Fund and Whitney, the "Investors"), Alan P. Mintz ("Mintz"), John E. Adams
--------- -----
("Adams"), Lawrence Rubinstein ("Rubinstein"), Alan Spiro ("Spiro"), Nancie
----- ---------- -----
Blatt ("Blatt"), James Zechman ("Zechman"), Sheldon Gulinson ("Gulinson") and
----- ------- --------
certain other parties thereto.
1. Definitions. For the purposes of this Warrant, the following
-----------
terms have the meanings indicated:
"Business Day" shall mean any day other than a Saturday, Sunday or
------------
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
<PAGE>
"Class A Common Stock" means the Class A Common Stock, no par value,
--------------------
of the Company.
"Class B Common Stock" means the Class B Common Stock, no par value,
--------------------
of the Company.
"Closing Price" shall mean, with respect to each share of Class A
-------------
Common Stock for any day, (a) the last reported sale price regular way or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case as reported on the principal national
securities exchange on which the Class A Common Stock is listed or admitted for
trading or (b) if the Class A Common Stock is not listed or admitted for trading
on any national securities exchange, the last reported sale price or, in case no
such sale takes place on such day, the average of the highest reported bid and
the lowest reported asked quotation for the Class A Common Stock, in either case
as reported on the Automatic Quotation System of Nasdaq or a similar service if
Nasdaq is no longer reporting such information.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" shall mean collectively the Class A Common Stock, the
------------
Class B Common Stock and any class or series of common stock of the Company
authorized after the date of this Warrant, or any other class of stock resulting
from successive changes or reclassifications of such Common Stock.
"Company" has the meaning ascribed to such term in the first paragraph
-------
of this Warrant.
"Current Market Price" shall mean, with respect to the Class A Common
--------------------
Stock on any date, the average of the daily Closing Prices per share of Class A
Common Stock for the ten consecutive trading days commencing 15 trading days
before such date. If on any such date the shares of Class A Common Stock are
not listed or admitted for trading on any national securities exchange or quoted
by Nasdaq or a similar service, the Current Market Price for such shares shall
be the fair market value of such shares on such date as determined in good faith
by a committee of disinterested members of the Board of Directors of the
Company.
"Exercise Date" has the meaning ascribed to such term in Section 2(d).
-------------
"Holder" has the meaning ascribed to such term in the first paragraph
------
of this Warrant.
-2-
<PAGE>
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Common Stock pursuant to a registration statement
on Form S-1 or otherwise under the Securities Act.
"Nasdaq" shall mean the National Association of Securities Dealers,
------
Inc.
"Net Cash Proceeds" shall mean, with respect to (x) any Initial Public
-----------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) related to such Initial Public Offering or (y) any Sale
Transaction, (i) the cash proceeds received by the Investors, minus
-----
(ii) brokerage commissions or underwriting fees and all other costs, fees and
expenses of the Investors associated with such Sale Transaction (including,
without limitation, fees, charges and disbursements of counsel and reasonable
fees and expenses of investment bankers or other third party financial experts).
"Person" shall mean any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Purchase Price" has the meaning ascribed to such term in the first
--------------
paragraph of this Warrant.
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Net Cash Proceeds to the Company in excess of $30,000,000.00 and in
respect of which the price per share of Common Stock sold in such Qualified
Public Offering is at least $4.6441025 (subject to appropriate adjustment for
any dividends, subdivisions, combinations or reclassifications of Common Stock).
This implies, for example, that the aggregate value of the Investors' original
equity investment will be at least $75,000,000.00 upon the closing of a
Qualified Public Offering.
"Qualified Sale Transaction" means a Sale Transaction in which (i) the
--------------------------
senior subordinated promissory notes in the aggregate principal amount of
$10,000,000.00 payable to Whitney Debt Fund and CVCA, together with all accrued
and unpaid interest thereon, are repaid and (ii) the Investors receive Net Cash
Proceeds in excess of $75,000,000.00 for the Series A Preferred Stock and Common
Stock of the Investors.
-3-
<PAGE>
"Sale Transaction" shall mean (i) any sale of the capital stock of the
----------------
Company owned by the Investors or (ii) any merger, consolidation, sale or other
business combination involving the Company, in each case in one transaction or a
series of transactions occurring prior to the consummation of an Initial Public
Offering.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Series A Preferred Stock" means the Series A Convertible Preferred
------------------------
Stock, no par value, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Stockholders' Agreement" means the Stockholders' Agreement, dated as
-----------------------
of November 3, 1994, among the Company and its stockholders, as amended from
time to time in accordance with the terms thereof.
2. Exercise of Warrant.
-------------------
(a) Exercise. This Warrant may be exercised, in whole or in
--------
part, by surrendering to the Company at its principal office this Warrant, with
the form of Election to Purchase Shares attached hereto as Exhibit A duly
---------
executed by the Holder and accompanied by payment of the Purchase Price for the
number of shares of Class A Common Stock specified in such form, but only on (i)
the date of the consummation of a Qualified Public Offering and only if (x) the
Company has consummated a Qualified Public Offering on or before June 30, 1997
or (y) the Company has filed a registration for an Initial Public Offering with
the Commission on or prior to June 30, 1997, such Initial Public Offering is
consummated on or before September 30, 1997 and such Initial Public Offering is
a Qualified Public Offering or (ii) the date of the consummation of a Qualified
Sale Transaction and only if (A) such Qualified Sale Transaction is consummated
on or before June 30, 1997 or (B) definitive documentation for a Qualified Sale
Transaction has been executed on or prior to June 30, 1997 and such Qualified
Sale Transaction is consummated on or before September 30, 1997.
(b) Delivery of Shares; Payment of Purchase Price. As soon as
---------------------------------------------
practicable after surrender of this Warrant and receipt of payment the Company
shall promptly issue and deliver to the Holder a certificate or certificates for
the number of shares of Class A Common Stock set forth in the Election to
Purchase Shares, in such name or names as may be designated by such Holder,
along with a check for the amount of cash to be paid in lieu of issuance of
fractional shares, if any. Payment of the Purchase Price shall be made in
United States currency by cash or delivery of a certified check, bank draft or
-4-
<PAGE>
postal or express money order payable to the order of the Company.
(c) Partial Exercise. If this Warrant is exercised for less
----------------
than all of the shares of Class A Common Stock purchasable under this Warrant,
the Company shall cancel this Warrant upon surrender hereof and shall execute
and deliver to the Holder a new Warrant of like tenor for the balance of the
shares of Class A Common Stock purchasable hereunder.
(d) When Exercise Effective. The exercise of this Warrant shall
-----------------------
be deemed to have been effective immediately prior to the close of business on
the Business Day on which this Warrant is surrendered to and the Purchase Price
is received by the Company as provided in this Section 2 (the "Exercise Date"),
-------------
and the Person in whose name any certificate for shares of Class A Common Stock
shall be issuable upon such exercise, as provided in Section 2(b), shall be
deemed to be the record holder of such shares of Class A Common Stock for all
purposes on the Exercise Date.
3. Adjustment of Purchase Price and Number of Shares. The Purchase
-------------------------------------------------
Price and the number of shares of Class A Common Stock issuable upon exercise of
this Warrant shall be adjusted from time to time upon the occurrence of the
following events:
(a) Dividend, Subdivision, Combination or Reclassification of
---------------------------------------------------------
Common Stock. If the Company shall, at any time or from time to time, (i)
- ------------
declare a dividend on the Common Stock payable in shares of its capital stock
(including Common Stock), (ii) subdivide the outstanding Common Stock,
(iii) combine the outstanding Common Stock into a smaller number of shares, or
(iv) issue any shares of its capital stock in a reclassification of the Common
Stock (excluding any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), then in each such
case, the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable on
such date shall be proportionately adjusted so that the Holder of any Warrant
exercised after such date shall be entitled to receive, upon payment of the same
aggregate amount as would have been payable before such date, the aggregate
number and kind of shares of capital stock which, if such Warrant had been
exercised immediately prior to such date, such Holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. Any such adjustment shall become effective
immediately after the record date of such dividend or the effective date of such
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur. If a dividend is
declared and such dividend is not paid, the Purchase Price shall
-5-
<PAGE>
again be adjusted to be the Purchase Price in effect immediately prior to such
record date.
(b) De Minimis Adjustments. No adjustment in the Purchase Price
----------------------
shall be made if the amount of such adjustment would result in a change in the
Purchase Price per share of less than $.01, but in such case any adjustment that
would otherwise be required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment, which
together with any adjustment so carried forward, would result in a change in the
Purchase Price of $.01 per share. If the Company shall, at any time or from
time to time, issue Common Stock by way of dividends on any stock of the Company
or subdivide or combine the outstanding shares of the Common Stock, such amount
of $.01 (as theretofore increased or decreased, if such amounts shall have been
adjusted in accordance with the provisions of this clause) shall forthwith be
proportionately increased in the case of a combination or decreased in the case
of a subdivision or stock dividend so as appropriately to reflect the same.
Notwithstanding the provisions of the first sentence of this Section 3(b), any
adjustment postponed pursuant to this Section 3(b) shall be made no later than
the earlier of (i) six months from the date of the transaction that would, but
for the provisions of the first sentence of this Section 3(b), have required
such adjustment or (ii) an Exercise Date.
4. Reorganization, Reclassification, Merger and Sale of Assets. If
-----------------------------------------------------------
there occurs any capital reorganization or any reclassification of the Common
Stock of the Company, the consolidation or merger of the Company with or into
another Person (other than a merger or consolidation of the Company in which the
Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of its Common Stock) or the
sale or conveyance of all or substantially all of the assets of the Company to
another Person, then the Holder will thereafter be entitled to receive, upon the
exercise of this Warrant in accordance with the terms hereof, the same kind and
amounts of securities (including shares of stock) or other assets, or both,
which were issuable or distributable to the holders of outstanding Common Stock
of the Company upon such reorganization, reclassification, consolidation,
merger, sale or conveyance, in respect of that number of shares of Class A
Common Stock then deliverable upon the exercise of this Warrant if this Warrant
had been exercised immediately prior to such reorganization, reclassification,
consolidation, merger, sale or conveyance.
5. Certificate as to Adjustments. Whenever the Purchase Price and
-----------------------------
the number of shares of Class A Common Stock issuable, or the securities or
other property deliverable, upon the exercise of this Warrant shall be adjusted
pursuant to the provisions hereof, the Company shall promptly give written
notice thereof to the Holder, in accordance with Section 14, in the form
-6-
<PAGE>
of a certificate signed by the Chairman of the Board, President or one of the
Vice Presidents of the Company, and by the Chief Financial Officer, Treasurer or
one of the Assistant Treasurers of the Company, stating the adjusted Purchase
Price, the number of shares of Class A Common Stock issuable, or the securities
or other property deliverable, upon exercise of the Warrant calculated to the
nearest cent or the nearest one one-hundredth of a share and setting forth in
reasonable detail the method of calculation and the facts requiring such
adjustment and upon which such calculation is based. Each adjustment shall
remain in effect until a subsequent adjustment is required.
6. Fractional Shares. Notwithstanding an adjustment in the number
-----------------
of shares of Class A Common Stock covered by this Warrant or any other provision
of this Warrant, the Company shall not be required to issue fractions of shares
upon exercise of this Warrant or to distribute certificates which evidence frac-
tional shares. In lieu of fractional shares, the Company may make payment to
the Holder, at the time of exercise of this Warrant as herein provided, of an
amount in cash equal to such fraction multiplied by the Current Market Price of
a share of Class A Common Stock on the Exercise Date.
7. Notice of Proposed Actions. In case the Company shall propose at
--------------------------
any time or from time to time (a) to declare or pay any dividend payable in
stock of any class to the holders of Common Stock or to make any other
distribution to the holders of Common Stock (other than a regularly scheduled
cash dividend), (b) to offer to the holders of Common Stock rights or warrants
to subscribe for or to purchase any additional shares of Common Stock or shares
of stock of any class or any other securities, rights or options, to effect any
reclassification of its Common Stock, (d) to effect any consolidation, merger or
sale, transfer or other disposition of all or substantially all of the property,
assets or business of the Company which would, if consummated, adjust the
Purchase Price or the securities issuable upon exercise of the Warrants, or (e)
to effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to the Holder, in accordance with Section
14, a written notice of such proposed action, which shall specify (i) the record
date for the purposes of such stock dividend, distribution of rights or
warrants, or if a record is not to be taken, the date as of which the holders of
shares of Common Stock of record to be entitled to such dividend, distribution
of rights or warrants is to be determined, or (ii) the date on which such
reclassification, consolidation, merger, sale, transfer, disposition, liquida-
tion, dissolution or winding up is expected to become effective, and such notice
shall be so given as promptly as possible but in any event at least five (5)
Business Days prior to the applicable record, determination or effective date
specified in such notice.
-7-
<PAGE>
8. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its Amended and Restated Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the exercise of this Warrant above the
amount payable therefor on such exercise, (b) will at all times reserve and keep
available the maximum number of its authorized shares of Class A Common Stock,
free from all preemptive rights therein, which will be sufficient to permit the
full exercise of this Warrant, and will take all such action as may be necessary
or appropriate in order that all shares of Class A Common Stock as may be issued
pursuant to the exercise of this Warrant will, upon issuance, be duly and
validly issued, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof.
9. Replacement of Warrants. On receipt by the Company of an
-----------------------
affidavit of an authorized representative of the Holder stating the
circumstances of the loss, theft, destruction or mutilation of this Warrant (and
in the case of any such mutilation, on surrender and cancellation of such
Warrant), the Company at its expense will promptly execute and deliver, in lieu
thereof, a new Warrant of like tenor; provided, however, that in the case of
loss, destruction or theft, the Board of Directors of the Company may in its
discretion require the Holder to indemnify the Company and give the Company a
bond, in such sum and in such form and with such surety or sureties as it may
direct.
10. Transfer. Subject to the transfer conditions referred to in the
--------
legend endorsed hereon and the transfer restrictions set forth in the
Stockholders' Agreement, this Warrant and all rights hereunder are
transferrable, in whole or in part, without charge to the Holder hereof upon
surrender of this Warrant with a properly executed Form of Assignment attached
hereto as Exhibit B at the principal office of the Company. Upon any partial
---------
transfer the Company will, at its expense, issue and deliver to the Holder a
Warrant of like tenor in the name of the Holder, which shall be exercisable for
such number of shares of Class A Common Stock with respect to which rights under
this Warrant were not so transferred.
11. No Rights or Liability as a Stockholder. This Warrant does not
---------------------------------------
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder hereof to purchase Class A Common Stock, and no enumeration herein of
-8-
<PAGE>
the rights or privileges of the Holder shall give rise to any liability to such
Holder as a stockholder of the Company.
12. Charges, Taxes and Expenses. Issuance of certificates for shares
---------------------------
of Class A Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer tax, or other incidental
expense, in respect of the issuance or delivery of such certificates or the
securities represented thereby, all of which taxes and expenses shall be paid by
the Company.
13. Amendment or Waiver. This Warrant and any term hereof may be
-------------------
amended, waived, discharged or terminated only by and with the written consent
of the Company and the Holder.
14. Notices. Any notice or other communication (or delivery)
-------
required or permitted hereunder shall be made in writing and shall be by
registered mail, return receipt requested, telecopier, courier service or
personal delivery to the Company at its principal office at 40 Skokie Boulevard,
Northbrook, Illinois 60062-1618, and to the Holder at its address as it appears
on the transfer books of the Company. All such notices and communications (and
deliveries) shall be deemed to have been duly given: when delivered by hand, if
personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; five Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is acknowledged, if telecopied.
15. Certain Remedies. The Holder shall be entitled to an injunction
----------------
or injunctions to prevent breaches of the provisions of this Warrant and to
enforce specifically the terms and provisions of this Warrant in any court of
the United States or any state thereof having jurisdiction, this being in
addition to any other remedy to which such Holder may be entitled at law or in
equity.
16. Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of the state of Illinois, without regard to the
principles of conflicts of law of such State.
-9-
<PAGE>
17. Headings. The headings in this Warrant are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
MEDICON, INC.
By _________________________________
Name:
Title:
-10-
<PAGE>
Exhibit A to Class A Common
Stock Purchase Warrant
---------------------------
[FORM OF]
ELECTION TO PURCHASE SHARES
The undersigned hereby irrevocably elects to exercise the Warrant to
purchase ____ shares of Class A Common Stock, no par value ("Common Stock"), of
------------
MEDICON, INC. (the "Company") and hereby makes payment of $______ therefor. The
-------
undersigned hereby requests that certificates for such shares be issued and
delivered as follows:
ISSUE TO:___________________________________________________
(NAME)
____________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
____________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:_________________________________________________
(NAME)
____________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
If the number of shares of Common Stock purchased hereby is less than
the number of shares of Common Stock covered by the Warrant, the undersigned
requests that a new Warrant representing the number of shares of Common Stock
not purchased be issued and delivered as follows:
ISSUE TO:___________________________________________________
(NAME OF HOLDER1/)
-
____________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
DELIVER TO:_________________________________________________
(NAME OF HOLDER1
/)
-------
____________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
Dated: ___________________ [NAME OF HOLDER1
/]
-------
By _______________________
Name:
Title:
1/ Name of Holder must conform in all respects to name of
-
Holder as specified on the face of the Warrant.
<PAGE>
Exhibit B to Class A Common
Stock Purchase Warrant
---------------------------
[FORM OF] ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned to
purchase Class A Common Stock, no par value ("Common Stock"), of MEDICON, INC.
------------
represented by the Warrant, with respect to the number of shares of Common Stock
set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint ______ Attorney to make such
transfer on the books of MEDICON, INC. maintained for that purpose, with full
power of substitution in the premises.
Dated: __________________ [NAME OF HOLDER1/]
-
By _____________________
Name:
Title:
- --------------------------------
1/ Name of Holder must conform in all respects to name of
Holder as specified on the face of the Warrant.
Exhibit 10.23
September 6, 1995
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAW OF ANY STATE
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS.
No. A-9 Warrant to Purchase 156,838
Shares of Class A Common Stock
MEDICON, INC.
CLASS A COMMON STOCK PURCHASE WARRANT
MEDICON, INC., an Illinois corporation (the "Company"), hereby
-------
certifies that for value received, Cheryl Lippert (the "Holder") is entitled to
------
purchase, at any time specified in Section 2(a) hereof, subject to the terms and
conditions hereinafter set forth, an aggregate of 156,838 fully paid and nonas-
sessable shares of Class A Common Stock of the Company, at an exercise price of
$.01 per share (the "Purchase Price").
--------------
This Warrant is issued in connection with the Restructuring Agreement,
dated as of the date hereof, among the Company, Whitney Subordinated Debt Fund,
L.P. ("Whitney Debt Fund"), Whitney 1990 Equity Fund, L.P., a Delaware limited
-----------------
partnership ("Whitney Equity Fund"), J.H. Whitney & Co., a New York limited
-------------------
partnership ("Whitney"), Chemical Venture Capital Associates, a California
-------
limited partnership ("CVCA," and together with Whitney Debt Fund, Whitney Equity
-----
Fund and Whitney, the "Investors"), Alan P. Mintz ("Mintz"), John E. Adams
--------- -----
("Adams"), Lawrence Rubinstein ("Rubinstein"), Alan Spiro ("Spiro"), Nancie
----- ---------- -----
Blatt ("Blatt"), James Zechman ("Zechman"), Sheldon Gulinson ("Gulinson") and
----- ------- --------
certain other parties thereto.
1. Definitions. For the purposes of this Warrant, the following
-----------
terms have the meanings indicated:
"Business Day" shall mean any day other than a Saturday, Sunday or
------------
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
<PAGE>
"Class A Common Stock" means the Class A Common Stock, no par value,
--------------------
of the Company.
"Class B Common Stock" means the Class B Common Stock, no par value,
--------------------
of the Company.
"Closing Price" shall mean, with respect to each share of Class A
-------------
Common Stock for any day, (a) the last reported sale price regular way or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case as reported on the principal national
securities exchange on which the Class A Common Stock is listed or admitted for
trading or (b) if the Class A Common Stock is not listed or admitted for trading
on any national securities exchange, the last reported sale price or, in case no
such sale takes place on such day, the average of the highest reported bid and
the lowest reported asked quotation for the Class A Common Stock, in either case
as reported on the Automatic Quotation System of Nasdaq or a similar service if
Nasdaq is no longer reporting such information.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" shall mean collectively the Class A Common Stock, the
------------
Class B Common Stock and any class or series of common stock of the Company
authorized after the date of this Warrant, or any other class of stock resulting
from successive changes or reclassifications of such Common Stock.
"Company" has the meaning ascribed to such term in the first paragraph
-------
of this Warrant.
"Current Market Price" shall mean, with respect to the Class A Common
--------------------
Stock on any date, the average of the daily Closing Prices per share of Class A
Common Stock for the ten consecutive trading days commencing 15 trading days
before such date. If on any such date the shares of Class A Common Stock are
not listed or admitted for trading on any national securities exchange or quoted
by Nasdaq or a similar service, the Current Market Price for such shares shall
be the fair market value of such shares on such date as determined in good faith
by a committee of disinterested members of the Board of Directors of the
Company.
"Exercise Date" has the meaning ascribed to such term in Section 2(d).
-------------
"Holder" has the meaning ascribed to such term in the first paragraph
------
of this Warrant.
-2-
<PAGE>
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Common Stock pursuant to a registration statement
on Form S-1 or otherwise under the Securities Act.
"Nasdaq" shall mean the National Association of Securities Dealers,
------
Inc.
"Net Cash Proceeds" shall mean, with respect to (x) any Initial Public
-----------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) related to such Initial Public Offering or (y) any Sale
Transaction, (i) the cash proceeds received by the Investors, minus
-----
(ii) brokerage commissions or underwriting fees and all other costs, fees and
expenses of the Investors associated with such Sale Transaction (including,
without limitation, fees, charges and disbursements of counsel and reasonable
fees and expenses of investment bankers or other third party financial experts).
"Person" shall mean any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Purchase Price" has the meaning ascribed to such term in the first
--------------
paragraph of this Warrant.
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Net Cash Proceeds to the Company in excess of $30,000,000.00 and in
respect of which the price per share of Common Stock sold in such Qualified
Public Offering is at least $4.6441025 (subject to appropriate adjustment for
any dividends, subdivisions, combinations or reclassifications of Common Stock).
This implies, for example, that the aggregate value of the Investors' original
equity investment will be at least $75,000,000.00 upon the closing of a
Qualified Public Offering.
"Qualified Sale Transaction" means a Sale Transaction in which (i) the
--------------------------
senior subordinated promissory notes in the aggregate principal amount of
$10,000,000.00 payable to Whitney Debt Fund and CVCA, together with all accrued
and unpaid interest thereon, are repaid and (ii) the Investors receive Net Cash
Proceeds in excess of $75,000,000.00 for the Series A Preferred Stock and Common
Stock of the Investors.
-3-
<PAGE>
"Sale Transaction" shall mean (i) any sale of the capital stock of the
----------------
Company owned by the Investors or (ii) any merger, consolidation, sale or other
business combination involving the Company, in each case in one transaction or a
series of transactions occurring prior to the consummation of an Initial Public
Offering.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Series A Preferred Stock" means the Series A Convertible Preferred
------------------------
Stock, no par value, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Stockholders' Agreement" means the Stockholders' Agreement, dated as
-----------------------
of November 3, 1994, among the Company and its stockholders, as amended from
time to time in accordance with the terms thereof.
2. Exercise of Warrant.
-------------------
(a) Exercise. This Warrant may be exercised, in whole or in
--------
part, by surrendering to the Company at its principal office this Warrant, with
the form of Election to Purchase Shares attached hereto as Exhibit A duly
---------
executed by the Holder and accompanied by payment of the Purchase Price for the
number of shares of Class A Common Stock specified in such form, but only on (i)
the date of the consummation of a Qualified Public Offering and only if (x) the
Company has consummated a Qualified Public Offering on or before June 30, 1997
or (y) the Company has filed a registration for an Initial Public Offering with
the Commission on or prior to June 30, 1997, such Initial Public Offering is
consummated on or before September 30, 1997 and such Initial Public Offering is
a Qualified Public Offering or (ii) the date of the consummation of a Qualified
Sale Transaction and only if (A) such Qualified Sale Transaction is consummated
on or before June 30, 1997 or (B) definitive documentation for a Qualified Sale
Transaction has been executed on or prior to June 30, 1997 and such Qualified
Sale Transaction is consummated on or before September 30, 1997.
(b) Delivery of Shares; Payment of Purchase Price. As soon as
---------------------------------------------
practicable after surrender of this Warrant and receipt of payment the Company
shall promptly issue and deliver to the Holder a certificate or certificates for
the number of shares of Class A Common Stock set forth in the Election to
Purchase Shares, in such name or names as may be designated by such Holder,
along with a check for the amount of cash to be paid in lieu of issuance of
fractional shares, if any. Payment of the Purchase Price shall be made in
United States currency by cash or delivery of a certified check, bank draft or
-4-
<PAGE>
postal or express money order payable to the order of the Company.
(c) Partial Exercise. If this Warrant is exercised for less
----------------
than all of the shares of Class A Common Stock purchasable under this Warrant,
the Company shall cancel this Warrant upon surrender hereof and shall execute
and deliver to the Holder a new Warrant of like tenor for the balance of the
shares of Class A Common Stock purchasable hereunder.
(d) When Exercise Effective. The exercise of this Warrant shall
-----------------------
be deemed to have been effective immediately prior to the close of business on
the Business Day on which this Warrant is surrendered to and the Purchase Price
is received by the Company as provided in this Section 2 (the "Exercise Date"),
-------------
and the Person in whose name any certificate for shares of Class A Common Stock
shall be issuable upon such exercise, as provided in Section 2(b), shall be
deemed to be the record holder of such shares of Class A Common Stock for all
purposes on the Exercise Date.
3. Adjustment of Purchase Price and Number of Shares. The Purchase
-------------------------------------------------
Price and the number of shares of Class A Common Stock issuable upon exercise of
this Warrant shall be adjusted from time to time upon the occurrence of the
following events:
(a) Dividend, Subdivision, Combination or Reclassification of
---------------------------------------------------------
Common Stock. If the Company shall, at any time or from time to time, (i)
- ------------
declare a dividend on the Common Stock payable in shares of its capital stock
(including Common Stock), (ii) subdivide the outstanding Common Stock,
(iii) combine the outstanding Common Stock into a smaller number of shares, or
(iv) issue any shares of its capital stock in a reclassification of the Common
Stock (excluding any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), then in each such
case, the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable on
such date shall be proportionately adjusted so that the Holder of any Warrant
exercised after such date shall be entitled to receive, upon payment of the same
aggregate amount as would have been payable before such date, the aggregate
number and kind of shares of capital stock which, if such Warrant had been
exercised immediately prior to such date, such Holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. Any such adjustment shall become effective
immediately after the record date of such dividend or the effective date of such
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur. If a dividend is
declared and such dividend is not paid, the Purchase Price shall
-5-
<PAGE>
again be adjusted to be the Purchase Price in effect immediately prior to such
record date.
(b) De Minimis Adjustments. No adjustment in the Purchase Price
----------------------
shall be made if the amount of such adjustment would result in a change in the
Purchase Price per share of less than $.01, but in such case any adjustment that
would otherwise be required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment, which
together with any adjustment so carried forward, would result in a change in the
Purchase Price of $.01 per share. If the Company shall, at any time or from
time to time, issue Common Stock by way of dividends on any stock of the Company
or subdivide or combine the outstanding shares of the Common Stock, such amount
of $.01 (as theretofore increased or decreased, if such amounts shall have been
adjusted in accordance with the provisions of this clause) shall forthwith be
proportionately increased in the case of a combination or decreased in the case
of a subdivision or stock dividend so as appropriately to reflect the same.
Notwithstanding the provisions of the first sentence of this Section 3(b), any
adjustment postponed pursuant to this Section 3(b) shall be made no later than
the earlier of (i) six months from the date of the transaction that would, but
for the provisions of the first sentence of this Section 3(b), have required
such adjustment or (ii) an Exercise Date.
4. Reorganization, Reclassification, Merger and Sale of Assets. If
-----------------------------------------------------------
there occurs any capital reorganization or any reclassification of the Common
Stock of the Company, the consolidation or merger of the Company with or into
another Person (other than a merger or consolidation of the Company in which the
Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of its Common Stock) or the
sale or conveyance of all or substantially all of the assets of the Company to
another Person, then the Holder will thereafter be entitled to receive, upon the
exercise of this Warrant in accordance with the terms hereof, the same kind and
amounts of securities (including shares of stock) or other assets, or both,
which were issuable or distributable to the holders of outstanding Common Stock
of the Company upon such reorganization, reclassification, consolidation,
merger, sale or conveyance, in respect of that number of shares of Class A
Common Stock then deliverable upon the exercise of this Warrant if this Warrant
had been exercised immediately prior to such reorganization, reclassification,
consolidation, merger, sale or conveyance.
5. Certificate as to Adjustments. Whenever the Purchase Price and
-----------------------------
the number of shares of Class A Common Stock issuable, or the securities or
other property deliverable, upon the exercise of this Warrant shall be adjusted
pursuant to the provisions hereof, the Company shall promptly give written
notice thereof to the Holder, in accordance with Section 14, in the form
-6-
<PAGE>
of a certificate signed by the Chairman of the Board, President or one of the
Vice Presidents of the Company, and by the Chief Financial Officer, Treasurer or
one of the Assistant Treasurers of the Company, stating the adjusted Purchase
Price, the number of shares of Class A Common Stock issuable, or the securities
or other property deliverable, upon exercise of the Warrant calculated to the
nearest cent or the nearest one one-hundredth of a share and setting forth in
reasonable detail the method of calculation and the facts requiring such
adjustment and upon which such calculation is based. Each adjustment shall
remain in effect until a subsequent adjustment is required.
6. Fractional Shares. Notwithstanding an adjustment in the number
-----------------
of shares of Class A Common Stock covered by this Warrant or any other provision
of this Warrant, the Company shall not be required to issue fractions of shares
upon exercise of this Warrant or to distribute certificates which evidence frac-
tional shares. In lieu of fractional shares, the Company may make payment to
the Holder, at the time of exercise of this Warrant as herein provided, of an
amount in cash equal to such fraction multiplied by the Current Market Price of
a share of Class A Common Stock on the Exercise Date.
7. Notice of Proposed Actions. In case the Company shall propose at
--------------------------
any time or from time to time (a) to declare or pay any dividend payable in
stock of any class to the holders of Common Stock or to make any other
distribution to the holders of Common Stock (other than a regularly scheduled
cash dividend), (b) to offer to the holders of Common Stock rights or warrants
to subscribe for or to purchase any additional shares of Common Stock or shares
of stock of any class or any other securities, rights or options, to effect any
reclassification of its Common Stock, (d) to effect any consolidation, merger or
sale, transfer or other disposition of all or substantially all of the property,
assets or business of the Company which would, if consummated, adjust the
Purchase Price or the securities issuable upon exercise of the Warrants, or (e)
to effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to the Holder, in accordance with Section
14, a written notice of such proposed action, which shall specify (i) the record
date for the purposes of such stock dividend, distribution of rights or
warrants, or if a record is not to be taken, the date as of which the holders of
shares of Common Stock of record to be entitled to such dividend, distribution
of rights or warrants is to be determined, or (ii) the date on which such
reclassification, consolidation, merger, sale, transfer, disposition, liquida-
tion, dissolution or winding up is expected to become effective, and such notice
shall be so given as promptly as possible but in any event at least five (5)
Business Days prior to the applicable record, determination or effective date
specified in such notice.
-7-
<PAGE>
8. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its Amended and Restated Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the exercise of this Warrant above the
amount payable therefor on such exercise, (b) will at all times reserve and keep
available the maximum number of its authorized shares of Class A Common Stock,
free from all preemptive rights therein, which will be sufficient to permit the
full exercise of this Warrant, and will take all such action as may be necessary
or appropriate in order that all shares of Class A Common Stock as may be issued
pursuant to the exercise of this Warrant will, upon issuance, be duly and
validly issued, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof.
9. Replacement of Warrants. On receipt by the Company of an
-----------------------
affidavit of an authorized representative of the Holder stating the
circumstances of the loss, theft, destruction or mutilation of this Warrant (and
in the case of any such mutilation, on surrender and cancellation of such
Warrant), the Company at its expense will promptly execute and deliver, in lieu
thereof, a new Warrant of like tenor; provided, however, that in the case of
loss, destruction or theft, the Board of Directors of the Company may in its
discretion require the Holder to indemnify the Company and give the Company a
bond, in such sum and in such form and with such surety or sureties as it may
direct.
10. Transfer. Subject to the transfer conditions referred to in the
--------
legend endorsed hereon and the transfer restrictions set forth in the
Stockholders' Agreement, this Warrant and all rights hereunder are
transferrable, in whole or in part, without charge to the Holder hereof upon
surrender of this Warrant with a properly executed Form of Assignment attached
hereto as Exhibit B at the principal office of the Company. Upon any partial
---------
transfer the Company will, at its expense, issue and deliver to the Holder a
Warrant of like tenor in the name of the Holder, which shall be exercisable for
such number of shares of Class A Common Stock with respect to which rights under
this Warrant were not so transferred.
11. No Rights or Liability as a Stockholder. This Warrant does not
---------------------------------------
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder hereof to purchase Class A Common Stock, and no enumeration herein of
-8-
<PAGE>
the rights or privileges of the Holder shall give rise to any liability to such
Holder as a stockholder of the Company.
12. Charges, Taxes and Expenses. Issuance of certificates for shares
---------------------------
of Class A Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer tax, or other incidental
expense, in respect of the issuance or delivery of such certificates or the
securities represented thereby, all of which taxes and expenses shall be paid by
the Company.
13. Amendment or Waiver. This Warrant and any term hereof may be
-------------------
amended, waived, discharged or terminated only by and with the written consent
of the Company and the Holder.
14. Notices. Any notice or other communication (or delivery)
-------
required or permitted hereunder shall be made in writing and shall be by
registered mail, return receipt requested, telecopier, courier service or
personal delivery to the Company at its principal office at 40 Skokie Boulevard,
Northbrook, Illinois 60062-1618, and to the Holder at its address as it appears
on the transfer books of the Company. All such notices and communications (and
deliveries) shall be deemed to have been duly given: when delivered by hand, if
personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; five Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is acknowledged, if telecopied.
15. Certain Remedies. The Holder shall be entitled to an injunction
----------------
or injunctions to prevent breaches of the provisions of this Warrant and to
enforce specifically the terms and provisions of this Warrant in any court of
the United States or any state thereof having jurisdiction, this being in
addition to any other remedy to which such Holder may be entitled at law or in
equity.
16. Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of the state of Illinois, without regard to the
principles of conflicts of law of such State.
-9-
<PAGE>
17. Headings. The headings in this Warrant are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
MEDICON, INC.
By _________________________________
Name:
Title:
Exhibit 10.24
September 6, 1995
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAW OF ANY STATE
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS.
No. A-10 Warrant to Purchase 19,717
Shares of Class A Common Stock
MEDICON, INC.
CLASS A COMMON STOCK PURCHASE WARRANT
MEDICON, INC., an Illinois corporation (the "Company"), hereby
-------
certifies that for value received, Patrick Sager (the "Holder") is entitled to
------
purchase, at any time specified in Section 2(a) hereof, subject to the terms and
conditions hereinafter set forth, an aggregate of 19,717 fully paid and nonas-
sessable shares of Class A Common Stock of the Company, at an exercise price of
$.01 per share (the "Purchase Price").
--------------
This Warrant is issued in connection with the Restructuring Agreement,
dated as of the date hereof, among the Company, Whitney Subordinated Debt Fund,
L.P. ("Whitney Debt Fund"), Whitney 1990 Equity Fund, L.P., a Delaware limited
-----------------
partnership ("Whitney Equity Fund"), J.H. Whitney & Co., a New York limited
-------------------
partnership ("Whitney"), Chemical Venture Capital Associates, a California
-------
limited partnership ("CVCA," and together with Whitney Debt Fund, Whitney Equity
-----
Fund and Whitney, the "Investors"), Alan P. Mintz ("Mintz"), John E. Adams
--------- -----
("Adams"), Lawrence Rubinstein ("Rubinstein"), Alan Spiro ("Spiro"), Nancie
----- ---------- -----
Blatt ("Blatt"), James Zechman ("Zechman"), Sheldon Gulinson ("Gulinson") and
----- ------- --------
certain other parties thereto.
1. Definitions. For the purposes of this Warrant, the following
-----------
terms have the meanings indicated:
"Business Day" shall mean any day other than a Saturday, Sunday or
------------
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
<PAGE>
"Class A Common Stock" means the Class A Common Stock, no par value,
--------------------
of the Company.
"Class B Common Stock" means the Class B Common Stock, no par value,
--------------------
of the Company.
"Closing Price" shall mean, with respect to each share of Class A
-------------
Common Stock for any day, (a) the last reported sale price regular way or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case as reported on the principal national
securities exchange on which the Class A Common Stock is listed or admitted for
trading or (b) if the Class A Common Stock is not listed or admitted for trading
on any national securities exchange, the last reported sale price or, in case no
such sale takes place on such day, the average of the highest reported bid and
the lowest reported asked quotation for the Class A Common Stock, in either case
as reported on the Automatic Quotation System of Nasdaq or a similar service if
Nasdaq is no longer reporting such information.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" shall mean collectively the Class A Common Stock, the
------------
Class B Common Stock and any class or series of common stock of the Company
authorized after the date of this Warrant, or any other class of stock resulting
from successive changes or reclassifications of such Common Stock.
"Company" has the meaning ascribed to such term in the first paragraph
-------
of this Warrant.
"Current Market Price" shall mean, with respect to the Class A Common
--------------------
Stock on any date, the average of the daily Closing Prices per share of Class A
Common Stock for the ten consecutive trading days commencing 15 trading days
before such date. If on any such date the shares of Class A Common Stock are
not listed or admitted for trading on any national securities exchange or quoted
by Nasdaq or a similar service, the Current Market Price for such shares shall
be the fair market value of such shares on such date as determined in good faith
by a committee of disinterested members of the Board of Directors of the
Company.
"Exercise Date" has the meaning ascribed to such term in Section 2(d).
-------------
"Holder" has the meaning ascribed to such term in the first paragraph
------
of this Warrant.
-2-
<PAGE>
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Common Stock pursuant to a registration statement
on Form S-1 or otherwise under the Securities Act.
"Nasdaq" shall mean the National Association of Securities Dealers,
------
Inc.
"Net Cash Proceeds" shall mean, with respect to (x) any Initial Public
-----------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) related to such Initial Public Offering or (y) any Sale
Transaction, (i) the cash proceeds received by the Investors, minus
-----
(ii) brokerage commissions or underwriting fees and all other costs, fees and
expenses of the Investors associated with such Sale Transaction (including,
without limitation, fees, charges and disbursements of counsel and reasonable
fees and expenses of investment bankers or other third party financial experts).
"Person" shall mean any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Purchase Price" has the meaning ascribed to such term in the first
--------------
paragraph of this Warrant.
"Qualified Public Offering" means an Initial Public Offering by the
-------------------------
Company with Net Cash Proceeds to the Company in excess of $30,000,000.00 and in
respect of which the price per share of Common Stock sold in such Qualified
Public Offering is at least $4.6441025 (subject to appropriate adjustment for
any dividends, subdivisions, combinations or reclassifications of Common Stock).
This implies, for example, that the aggregate value of the Investors' original
equity investment will be at least $75,000,000.00 upon the closing of a
Qualified Public Offering.
"Qualified Sale Transaction" means a Sale Transaction in which (i) the
--------------------------
senior subordinated promissory notes in the aggregate principal amount of
$10,000,000.00 payable to Whitney Debt Fund and CVCA, together with all accrued
and unpaid interest thereon, are repaid and (ii) the Investors receive Net Cash
Proceeds in excess of $75,000,000.00 for the Series A Preferred Stock and Common
Stock of the Investors.
-3-
<PAGE>
"Sale Transaction" shall mean (i) any sale of the capital stock of the
----------------
Company owned by the Investors or (ii) any merger, consolidation, sale or other
business combination involving the Company, in each case in one transaction or a
series of transactions occurring prior to the consummation of an Initial Public
Offering.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Series A Preferred Stock" means the Series A Convertible Preferred
------------------------
Stock, no par value, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Stockholders' Agreement" means the Stockholders' Agreement, dated as
-----------------------
of November 3, 1994, among the Company and its stockholders, as amended from
time to time in accordance with the terms thereof.
2. Exercise of Warrant.
-------------------
(a) Exercise. This Warrant may be exercised, in whole or in
--------
part, by surrendering to the Company at its principal office this Warrant, with
the form of Election to Purchase Shares attached hereto as Exhibit A duly
---------
executed by the Holder and accompanied by payment of the Purchase Price for the
number of shares of Class A Common Stock specified in such form, but only on (i)
the date of the consummation of a Qualified Public Offering and only if (x) the
Company has consummated a Qualified Public Offering on or before June 30, 1997
or (y) the Company has filed a registration for an Initial Public Offering with
the Commission on or prior to June 30, 1997, such Initial Public Offering is
consummated on or before September 30, 1997 and such Initial Public Offering is
a Qualified Public Offering or (ii) the date of the consummation of a Qualified
Sale Transaction and only if (A) such Qualified Sale Transaction is consummated
on or before June 30, 1997 or (B) definitive documentation for a Qualified Sale
Transaction has been executed on or prior to June 30, 1997 and such Qualified
Sale Transaction is consummated on or before September 30, 1997.
(b) Delivery of Shares; Payment of Purchase Price. As soon as
---------------------------------------------
practicable after surrender of this Warrant and receipt of payment the Company
shall promptly issue and deliver to the Holder a certificate or certificates for
the number of shares of Class A Common Stock set forth in the Election to
Purchase Shares, in such name or names as may be designated by such Holder,
along with a check for the amount of cash to be paid in lieu of issuance of
fractional shares, if any. Payment of the Purchase Price shall be made in
United States currency by cash or delivery of a certified check, bank draft or
-4-
<PAGE>
postal or express money order payable to the order of the Company.
(c) Partial Exercise. If this Warrant is exercised for less
----------------
than all of the shares of Class A Common Stock purchasable under this Warrant,
the Company shall cancel this Warrant upon surrender hereof and shall execute
and deliver to the Holder a new Warrant of like tenor for the balance of the
shares of Class A Common Stock purchasable hereunder.
(d) When Exercise Effective. The exercise of this Warrant shall
-----------------------
be deemed to have been effective immediately prior to the close of business on
the Business Day on which this Warrant is surrendered to and the Purchase Price
is received by the Company as provided in this Section 2 (the "Exercise Date"),
-------------
and the Person in whose name any certificate for shares of Class A Common Stock
shall be issuable upon such exercise, as provided in Section 2(b), shall be
deemed to be the record holder of such shares of Class A Common Stock for all
purposes on the Exercise Date.
3. Adjustment of Purchase Price and Number of Shares. The Purchase
-------------------------------------------------
Price and the number of shares of Class A Common Stock issuable upon exercise of
this Warrant shall be adjusted from time to time upon the occurrence of the
following events:
(a) Dividend, Subdivision, Combination or Reclassification of
---------------------------------------------------------
Common Stock. If the Company shall, at any time or from time to time, (i)
- ------------
declare a dividend on the Common Stock payable in shares of its capital stock
(including Common Stock), (ii) subdivide the outstanding Common Stock,
(iii) combine the outstanding Common Stock into a smaller number of shares, or
(iv) issue any shares of its capital stock in a reclassification of the Common
Stock (excluding any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), then in each such
case, the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable on
such date shall be proportionately adjusted so that the Holder of any Warrant
exercised after such date shall be entitled to receive, upon payment of the same
aggregate amount as would have been payable before such date, the aggregate
number and kind of shares of capital stock which, if such Warrant had been
exercised immediately prior to such date, such Holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. Any such adjustment shall become effective
immediately after the record date of such dividend or the effective date of such
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur. If a dividend is
declared and such dividend is not paid, the Purchase Price shall
-5-
<PAGE>
again be adjusted to be the Purchase Price in effect immediately prior to such
record date.
(b) De Minimis Adjustments. No adjustment in the Purchase Price
----------------------
shall be made if the amount of such adjustment would result in a change in the
Purchase Price per share of less than $.01, but in such case any adjustment that
would otherwise be required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment, which
together with any adjustment so carried forward, would result in a change in the
Purchase Price of $.01 per share. If the Company shall, at any time or from
time to time, issue Common Stock by way of dividends on any stock of the Company
or subdivide or combine the outstanding shares of the Common Stock, such amount
of $.01 (as theretofore increased or decreased, if such amounts shall have been
adjusted in accordance with the provisions of this clause) shall forthwith be
proportionately increased in the case of a combination or decreased in the case
of a subdivision or stock dividend so as appropriately to reflect the same.
Notwithstanding the provisions of the first sentence of this Section 3(b), any
adjustment postponed pursuant to this Section 3(b) shall be made no later than
the earlier of (i) six months from the date of the transaction that would, but
for the provisions of the first sentence of this Section 3(b), have required
such adjustment or (ii) an Exercise Date.
4. Reorganization, Reclassification, Merger and Sale of Assets. If
-----------------------------------------------------------
there occurs any capital reorganization or any reclassification of the Common
Stock of the Company, the consolidation or merger of the Company with or into
another Person (other than a merger or consolidation of the Company in which the
Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of its Common Stock) or the
sale or conveyance of all or substantially all of the assets of the Company to
another Person, then the Holder will thereafter be entitled to receive, upon the
exercise of this Warrant in accordance with the terms hereof, the same kind and
amounts of securities (including shares of stock) or other assets, or both,
which were issuable or distributable to the holders of outstanding Common Stock
of the Company upon such reorganization, reclassification, consolidation,
merger, sale or conveyance, in respect of that number of shares of Class A
Common Stock then deliverable upon the exercise of this Warrant if this Warrant
had been exercised immediately prior to such reorganization, reclassification,
consolidation, merger, sale or conveyance.
5. Certificate as to Adjustments. Whenever the Purchase Price and
-----------------------------
the number of shares of Class A Common Stock issuable, or the securities or
other property deliverable, upon the exercise of this Warrant shall be adjusted
pursuant to the provisions hereof, the Company shall promptly give written
notice thereof to the Holder, in accordance with Section 14, in the form
-6-
<PAGE>
of a certificate signed by the Chairman of the Board, President or one of the
Vice Presidents of the Company, and by the Chief Financial Officer, Treasurer or
one of the Assistant Treasurers of the Company, stating the adjusted Purchase
Price, the number of shares of Class A Common Stock issuable, or the securities
or other property deliverable, upon exercise of the Warrant calculated to the
nearest cent or the nearest one one-hundredth of a share and setting forth in
reasonable detail the method of calculation and the facts requiring such
adjustment and upon which such calculation is based. Each adjustment shall
remain in effect until a subsequent adjustment is required.
6. Fractional Shares. Notwithstanding an adjustment in the number
-----------------
of shares of Class A Common Stock covered by this Warrant or any other provision
of this Warrant, the Company shall not be required to issue fractions of shares
upon exercise of this Warrant or to distribute certificates which evidence frac-
tional shares. In lieu of fractional shares, the Company may make payment to
the Holder, at the time of exercise of this Warrant as herein provided, of an
amount in cash equal to such fraction multiplied by the Current Market Price of
a share of Class A Common Stock on the Exercise Date.
7. Notice of Proposed Actions. In case the Company shall propose at
--------------------------
any time or from time to time (a) to declare or pay any dividend payable in
stock of any class to the holders of Common Stock or to make any other
distribution to the holders of Common Stock (other than a regularly scheduled
cash dividend), (b) to offer to the holders of Common Stock rights or warrants
to subscribe for or to purchase any additional shares of Common Stock or shares
of stock of any class or any other securities, rights or options, to effect any
reclassification of its Common Stock, (d) to effect any consolidation, merger or
sale, transfer or other disposition of all or substantially all of the property,
assets or business of the Company which would, if consummated, adjust the
Purchase Price or the securities issuable upon exercise of the Warrants, or (e)
to effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to the Holder, in accordance with Section
14, a written notice of such proposed action, which shall specify (i) the record
date for the purposes of such stock dividend, distribution of rights or
warrants, or if a record is not to be taken, the date as of which the holders of
shares of Common Stock of record to be entitled to such dividend, distribution
of rights or warrants is to be determined, or (ii) the date on which such
reclassification, consolidation, merger, sale, transfer, disposition, liquida-
tion, dissolution or winding up is expected to become effective, and such notice
shall be so given as promptly as possible but in any event at least five (5)
Business Days prior to the applicable record, determination or effective date
specified in such notice.
-7-
<PAGE>
8. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its Amended and Restated Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the exercise of this Warrant above the
amount payable therefor on such exercise, (b) will at all times reserve and keep
available the maximum number of its authorized shares of Class A Common Stock,
free from all preemptive rights therein, which will be sufficient to permit the
full exercise of this Warrant, and will take all such action as may be necessary
or appropriate in order that all shares of Class A Common Stock as may be issued
pursuant to the exercise of this Warrant will, upon issuance, be duly and
validly issued, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof.
9. Replacement of Warrants. On receipt by the Company of an
-----------------------
affidavit of an authorized representative of the Holder stating the
circumstances of the loss, theft, destruction or mutilation of this Warrant (and
in the case of any such mutilation, on surrender and cancellation of such
Warrant), the Company at its expense will promptly execute and deliver, in lieu
thereof, a new Warrant of like tenor; provided, however, that in the case of
loss, destruction or theft, the Board of Directors of the Company may in its
discretion require the Holder to indemnify the Company and give the Company a
bond, in such sum and in such form and with such surety or sureties as it may
direct.
10. Transfer. Subject to the transfer conditions referred to in the
--------
legend endorsed hereon and the transfer restrictions set forth in the
Stockholders' Agreement, this Warrant and all rights hereunder are
transferrable, in whole or in part, without charge to the Holder hereof upon
surrender of this Warrant with a properly executed Form of Assignment attached
hereto as Exhibit B at the principal office of the Company. Upon any partial
---------
transfer the Company will, at its expense, issue and deliver to the Holder a
Warrant of like tenor in the name of the Holder, which shall be exercisable for
such number of shares of Class A Common Stock with respect to which rights under
this Warrant were not so transferred.
11. No Rights or Liability as a Stockholder. This Warrant does not
---------------------------------------
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder hereof to purchase Class A Common Stock, and no enumeration herein of
-8-
<PAGE>
the rights or privileges of the Holder shall give rise to any liability to such
Holder as a stockholder of the Company.
12. Charges, Taxes and Expenses. Issuance of certificates for shares
---------------------------
of Class A Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer tax, or other incidental
expense, in respect of the issuance or delivery of such certificates or the
securities represented thereby, all of which taxes and expenses shall be paid by
the Company.
13. Amendment or Waiver. This Warrant and any term hereof may be
-------------------
amended, waived, discharged or terminated only by and with the written consent
of the Company and the Holder.
14. Notices. Any notice or other communication (or delivery)
-------
required or permitted hereunder shall be made in writing and shall be by
registered mail, return receipt requested, telecopier, courier service or
personal delivery to the Company at its principal office at 40 Skokie Boulevard,
Northbrook, Illinois 60062-1618, and to the Holder at its address as it appears
on the transfer books of the Company. All such notices and communications (and
deliveries) shall be deemed to have been duly given: when delivered by hand, if
personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; five Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is acknowledged, if telecopied.
15. Certain Remedies. The Holder shall be entitled to an injunction
----------------
or injunctions to prevent breaches of the provisions of this Warrant and to
enforce specifically the terms and provisions of this Warrant in any court of
the United States or any state thereof having jurisdiction, this being in
addition to any other remedy to which such Holder may be entitled at law or in
equity.
16. Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of the state of Illinois, without regard to the
principles of conflicts of law of such State.
-9-
<PAGE>
17. Headings. The headings in this Warrant are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
MEDICON, INC.
By _________________________________
Name:
Title:
-10-
Exhibit 10.25
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS
MEDICON, INC.
SENIOR PROMISSORY NOTE
DUE MARCH 6, 1997
$3,000,000.00 New York, New York
March 6, 1996
1. General. FOR VALUE RECEIVED, the undersigned, MEDICON, INC., an
-------
Illinois corporation (the "Company"), promises to pay to the order of CHEMICAL
-------
VENTURE CAPITAL ASSOCIATES, L.P. (the "Purchaser"), pursuant to this Senior
---------
Promissory Note (this "Note"), the principal sum of three million dollars
----
($3,000,000.00) on March 6, 1997, together with interest thereon from time to
time as provided herein. This Note is issued on the date hereof along with a
second senior promissory note issued to J.H. Whitney & Co. in like principal
amount and ranking on a parity with this Note.
2. Interest. The Company promises to pay interest on the principal
--------
amount of this Note at the rate of 14% per annum from the date hereof until
September 6, 1996. The interest rate shall be increased on September 7, 1996 to
16% per annum. The Company shall pay accrued interest quarterly on each
March 31, June 30, September 30 and December 31 of each year or, if any such
date shall not be a Business Day, on the next succeeding Business Day to occur
<PAGE>
after such date (each date upon which interest shall be so payable, an "Interest
--------
Payment Date"), beginning on March 31, 1996. Interest on this Note shall be
- -------------
paid by wire transfer of immediately available funds to an account designated by
the holder of this Note. Interest on this Note shall accrue from the date of
issuance until repayment of the principal and payment of all accrued interest in
full. Interest shall be computed on the basis of a 360-day year of twelve 30-
day months. Notwithstanding the foregoing provisions of this Section 2, but
subject to applicable law, any overdue principal of and overdue interest on this
Note shall bear interest, payable on demand in immediately available funds, for
each day from the date payment thereof was due to the date of actual payment, at
the rate of interest in effect on each such day (as determined in accordance
with the first two sentences of this Section 2) plus 2% per annum, and, upon and
during the continuance of an Event of Default, this Note shall bear interest,
from the date of the occurrence of such Event of Default until such Event of
Default is cured or waived, payable on demand in immediately available funds, at
the rate of interest in effect on each such day (as determined in accordance
with the first two sentences of this Section 2) plus 2% per annum. Subject to
applicable law, any interest that shall accrue on overdue interest on this Note
as provided in the preceding sentence and shall not have been paid in full on or
before the next Interest Payment Date to occur after the Interest Payment Date
on which the overdue interest became due and payable shall itself be deemed to
be overdue interest on this Note to which the preceding sentence shall apply.
3. Mandatory Prepayment.
--------------------
(a) Initial Public Offering. Upon the consummation of an
------------------------
Initial Public Offering, the Company shall prepay this Note (together with
interest accrued thereon) pro rata with the prepayment of all other Notes issued
on the date hereof and ranking on a parity with this Note, in an amount equal to
the lesser of (i) the Net Cash Proceeds received from the Initial Public Offer-
ing, or (ii) the outstanding principal amount of this Note (together with
interest accrued thereon), within 5 Business Days after receipt by the Company
of the proceeds of such Initial Public Offering.
(b) Change of Control. Upon the occurrence of a Change of
------------------
Control, the Company shall prepay this Note pro rata with the prepayment of all
other Notes issued on the date hereof and ranking on a parity with this Note, in
an amount equal to the outstanding principal amount of this Note (together with
interest accrued thereon).
(c) Notice. The Company shall give written notice to the holder
------
of this Note of any mandatory prepayment pursuant to Section 3(a) or (b) at
least 3 Business Days prior to the date of such prepayment. Such notice shall
be given in the manner specified in Section 9 of this Note.
2
<PAGE>
4. Optional Prepayment.
-------------------
(a) Upon notice given to the holder of this Note as provided in
subsection (b) of this Section 4, the Company, at its option, may prepay all or
any portion of this Note, pro rata with the prepayment of all other Notes issued
on the date hereof and ranking on a parity with this Note, at any time, by
paying an amount equal to the outstanding principal amount of this Note, or the
portion of this Note called for prepayment, together with interest accrued and
unpaid thereon to the date fixed for prepayment, without penalty or premium.
(b) The Company may give written notice of prepayment of this
Note or any portion thereof not less than 10 nor more than 60 days prior to the
date fixed for such prepayment. Such notice of prepayment shall be given in the
manner specified in Section 9 of this Note. Upon notice of prepayment being
given by the Company, the Company covenants and agrees that it shall prepay, on
the date therein fixed for prepayment, this Note or the portion hereof so called
for prepayment, at the outstanding principal amount thereof or the portion
thereof so called for prepayment together with interest accrued and unpaid
thereon to the date fixed for such prepayment.
(c) All optional prepayments under this Section 4 shall include
payment of accrued interest on the principal amount so prepaid and shall be
applied first to payment of default interest, if any, then to payment of accrued
interest, and thereafter to principal.
5. Defaults and Remedies.
---------------------
(a) Events of Default. An "Event of Default" shall occur if:
-----------------
(i) the Company shall default in the payment of the
principal of this Note, when and as the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or by acceleration or
otherwise; or
(ii) the Company shall default in the payment of any
installment of interest on this Note according to its terms, when and as the
same shall become due and payable and such default shall continue for a period
of three days; or
(iii) any (A) default in any payment of principal of or
interest of any Indebtedness of the Company or any Subsidiary, in an aggregate
amount outstanding at any one time equal to or exceeding $100,000.00; or (B)
default in the observance or performance of any other agreement or condition
relating to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition
3
<PAGE>
exist, the effect of which default or other event or condition, is to cause, or
to permit the holder or holders of such Indebtedness (or a trustee or agent on
behalf of such holder or holders) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity; or
(iv) the Company shall, prior to the repayment in full of
its obligations under this Note, prepay all or any portion of the Subordinated
Indebtedness of the Company; or
(v) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(a) relief in respect of the Company or any Subsidiary thereof, or of a substan-
tial part of its property or assets, under Title 11 of the United States Code,
as now constituted or hereafter amended, or any other Federal or state bank-
ruptcy, insolvency, receivership or similar law, (b) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Company or any Subsidiary thereof, or for a substantial part of its property
or assets, or (c) the winding up or liquidation of the Company or any Subsidiary
thereof; and such proceeding or petition shall continue undismissed for 60 days,
or an order or decree approving or ordering any of the foregoing shall be
entered; or
(vi) the Company or any Subsidiary thereof shall
(a) voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (b) consent to the institution of or the entry of an order for
relief against it, or fail to contest in a timely and appropriate manner, any
proceeding or the filing of any petition described in paragraph (v) of this
Section 5(a), (c) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Company or any such Subsidiary, or for a substantial part of its property or
assets, (d) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (e) make a general assignment for the
benefit of creditors, (f) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (g) take any action for the
purpose of effecting any of the foregoing; or
(vii) one or more judgments for the payment of money in
an aggregate amount in excess of $100,000.00 (to the extent not covered by
insurance) shall be rendered against the Company or any Subsidiary thereof and
the same shall remain undischarged for a period of 30 days during which
execution shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to levy upon assets or properties of the Company to
enforce any such judgment.
4
<PAGE>
(b) Acceleration. If an Event of Default occurs under
------------
clauses (a)(v) or (vi) of this Section 5, then the outstanding principal of and
all accrued interest on this Note shall automatically become immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which are expressly waived. If any other Event of Default occurs and is
continuing, the holders of at least 25% of the aggregate outstanding principal
amount of all of the Indebtedness of the Company represented by this Note and
the other Notes issued on the date hereof and ranking on a parity with this
Note, by written notice to the Company, may declare the principal of and accrued
interest on such Notes to be due and payable immediately. Upon such
declaration, such principal and interest shall become immediately due and
payable. The holders of more than 50% of the aggregate outstanding principal
amount of all of the Indebtedness of the Company initially represented by this
Note and the other Notes initially issued on the date hereof and ranking on a
parity with this Note may rescind an acceleration and its consequences if all
existing Events of Default have been cured or waived, except nonpayment of
principal or interest that has become due solely because of the acceleration,
and if the rescission would not conflict with any judgment or decree. Any
notice or rescission shall be given in the manner specified in Section 9 hereof.
6. Ranking. This Note and the other Notes issued on the date hereof
-------
and ranking on a parity with this Note shall at all times be senior in right of
payment to all Subordinated Indebtedness of the Company. The Company hereby
acknowledges that the indebtedness created pursuant to this Note and all other
Notes issued on date hereof and ranking on a parity with this Note are entitled
to share in the rights, benefits, priorities and protections accorded "Senior
Indebtedness" in Section 8 of the Senior Subordinated Notes, Section 6 of the
Junior Subordinated Notes and Section 4 of the Korsower Subordinated Note.
7. Definitions. As used in this Note, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Business Day" means any day other than a Saturday, Sunday or other
-------------
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.
"Capital Stock" of any Person means any and all shares, interests,
-------------
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
common stock and preferred stock and any rights, warrants or options to purchase
such Person's capital stock.
"Change of Control" shall mean (i) the direct or indirect sale, lease,
-----------------
exchange or other transfer of all or substantially all of the assets of the
Company to any Person or entity or group of Persons or entities acting in
concert as a
5
<PAGE>
partnership or other group (a "Group of Persons"), (ii) the merger or
------------------
consolidation of the Company with or into another corporation with the effect
that the then existing stockholders of the Company hold less than 50% of the
combined voting power of the then outstanding securities of the surviving
corporation of such merger or the corporation resulting from such consolidation
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote in the election of directors, (iii) the replacement of a
majority of the Board of Directors of the Company, over a two-year period, from
the directors who constituted the Board of Directors at the beginning of such
period, and such replacement shall not have been approved by the Board of
Directors of the Company (or its replacements approved by the Board of Directors
of the Company) as constituted at the beginning of such period, (iv) a Person or
Group of Persons shall, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company representing 50% or more of the combined voting power
of the then outstanding securities of the Company ordinarily (and apart from
rights accruing under special circumstances) having the right to vote in the
election of directors.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Contingent Obligation" means, as to any Person, any direct or
----------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "primary
-------
obligation") of another Person (with respect to a given primary obligation, the
- ----------
"primary obligor"), whether or not contingent, (a) to purchase, repurchase or
---------------
otherwise acquire any such primary obligation or any property constituting
direct or indirect security therefor, or (b) to advance or provide funds (i) for
the payment or discharge of any such primary obligation, or (ii) to maintain
working capital or equity capital of the primary obligor in respect of any such
primary obligation or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of such primary
obligor, or (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor in respect thereof to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof.
"Event of Default" has the meaning assigned such term in Section 5(a).
----------------
6
<PAGE>
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
------------
amended and the rules and regulations of the Commission promulgated thereunder.
"GAAP" means generally accepted United States accounting principles in
----
effect from time to time.
"Governmental Authority" means the government of any nation, state,
-----------------------
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative func-
tions of or pertaining to government, and any corporation or other entity owned
or controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Indebtedness" means, as to any Person, (a) all obligations of such
------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any lien (other than
liens in favor of lessors under leases other than leases included in clause
(f)) on any property or asset owned or held by such Person regardless of whether
the indebtedness secured thereby shall have been assumed by such Person or is
non-recourse to the credit of such Person and (h) all Contingent Obligations of
such Person.
"Initial Public Offering" shall mean the sale in an underwritten
------------------------
offering by the Company of its Capital Stock pursuant to a registration
statement on Form S-1 or otherwise under the Securities Act.
"Interest Payment Date" has the meaning assigned such term in
-----------------------
Section 2.
"Junior Subordinated Notes" means the Company's Junior Subordinated
--------------------------
Promissory Notes, dated November 3, 1994, issued pursuant to the Share
Redemption Agreement.
7
<PAGE>
"Korsower Subordinated Note" means the Company's Junior Subordinated
--------------------------
Promissory Note, dated as of February 15, 1996, issued to Jack M. Korsower, M.D.
"Net Cash Proceeds" shall mean, with respect to any Initial Public
------------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) relating to such Initial Public Offering.
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"Purchase Agreement" means the Subordinated Note and Stock Purchase
-------------------
Agreement, dated as of November 3, 1994, among the Company, Whitney Subordinated
Debt Fund, L.P., Chemical Venture Capital Associates, Alan P. Mintz, John E.
Adams, Lawrence Rubinstein, Alan Spiro, Nancie Blatt and Sheldon K. Gulinson.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Senior Subordinated Notes" means the Company's Senior Subordinated
--------------------------
Promissory Notes, dated November 3, 1994, issued pursuant to the Purchase
Agreement.
"Share Redemption Agreement" means the Redemption Agreement, dated as
---------------------------
of November 3, 1994, among the Company, Alan P. Mintz, John E. Adams, Lawrence
Rubinstein, Sheldon Gulinson, Alan H. Spiro and Nancie Blatt.
"Subordinated Indebtedness" shall mean (i) any or all of the principal
-------------------------
of and interest on the Senior Subordinated Notes, the Junior Subordinated Notes
or the Korsower Subordinated Note; and (ii) any other Indebtedness for borrowed
money of the Company, whether outstanding on the date hereof or thereafter
created, incurred, assumed or guaranteed by the Company, unless the instrument
creating or evidencing the same expressly provides that such Indebtedness is on
a parity with or senior in right of payment to this Note.
"Subsidiary" means, with respect to any Person, a corporation or other
----------
entity of which 50% or more of the voting power of the voting equity securities
or equity interests is owned, directly or indirectly, by such Person. Unless
otherwise
8
<PAGE>
qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Note
shall refer to a Subsidiary or Subsidiaries of the Company.
8. Expenses due to Default. In case of any default under this Note,
-----------------------
the Company will pay to the holder of this Note such amounts as shall be
sufficient to cover the costs and expenses of such holder due to such default,
including without limitation, costs of collection and reasonable fees,
disbursements and other charges of counsel.
9. Notices. All notices, demands, requests and other communications
-------
provided for or permitted hereunder shall be made in writing and shall be by
telecopier, courier service or personal delivery:
(a) If to the Company:
Medicon, Inc.
40 Skokie Boulevard
Northbrook, Illinois 60062-1618
Telecopier No.: 708-559-6900
Attention: Lawrence Rubinstein, Esq.
(b) If to Chemical Venture Capital Associates, L.P.:
Chemical Venture Partners
270 Park Avenue
New York, New York 10017-20670
Telecopier No.: 212-270-2327
Attention: Mitchell J. Blutt, M.D.
10. Successors and Assigns. This Note shall inure to the benefit of
-----------------------
and be binding upon the successors and permitted assigns of the parties hereto.
Subject to applicable securities laws, the holder of this Note may assign any of
its rights under this Note to any other Person. The Company may not assign any
of its obligations under this Note without the written consent of the holder of
this Note.
11. Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the holder
of this Note in exercising any right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the holder of this Note at law, in equity or otherwise.
9
<PAGE>
(b) Any amendment, supplement or modification of or to any
provision of this Note, any waiver of any provision of this Note, and any
consent to any departure by the Company from the terms of any provision of this
Note, shall be effective (i) only if it is made or given in writing and signed
by the Company and Persons holding at least a majority of the aggregate
outstanding principal amount of all of the Indebtedness of the Company initially
represented by this Note and the other Notes issued on the date hereof and
ranking on a parity with this Note, and (ii) only in the specific instance and
for the specific purpose for which made or given. Except where notice is
specifically required by this Note, no notice to or demand on the Company in any
case shall entitle the Company to any other or further notice or demand in
similar or other circumstances.
(c) Notwithstanding the foregoing, without the written consent
of the holder of this Note, an amendment, supplement or waiver may not:
(i) reduce the percentage of Persons necessary to consent
to an amendment, supplement or waiver pursuant to this Section 11;
(ii) reduce the rate or extend the time for payment of
interest on this Note;
(iii) reduce the principal of, extend the fixed maturity
of, or alter the ranking of, this Note;
(iv) make this Note payable in money other than that
stated in this Note; or
(v) alter or amend Section 3 of this Note.
12. Governing Law. This Note shall be governed by and construed in
--------------
accordance with the laws of the State of New York, without regard to the
principles of conflicts of law of such State.
13. Jurisdiction. Each party to this Note hereby irrevocably agrees
------------
that any legal action or proceeding arising out of or relating to this Note or
any agreements or transactions contemplated hereby may be brought in the courts
of the State of New York or of the United States of America for the Southern
District of New York and hereby expressly submits to the personal jurisdiction
and venue of such courts for the purposes thereof and expressly waives any claim
of improper venue and any claim that such courts are an inconvenient forum.
Each party hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the address
set forth in Section 11, such service to become effective 10 days after such
mailing.
10
<PAGE>
14. Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
15. Entire Agreement. This Note is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein.
This Note supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
11
<PAGE>
16. Certain Expenses. The Company will pay all expenses of the
-----------------
holder of this Note (including reasonable fees, charges and disbursements of
counsel) in connection with any amendment, supplement, modification or waiver of
or to any provision of this Note, or any consent to any departure by the Company
from the terms of any provision of this Note.
MEDICON, INC.
By /s/ Carl R. Adkins, M.D.
----------------------------
Name: Carl R. Adkins, M.D.
Title: Chief Executive Officer
12
Exhibit 10.26
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS
MEDICON, INC.
SENIOR PROMISSORY NOTE
DUE MARCH 6, 1997
$3,000,000.00 New York, New York
March 6, 1996
1. General. FOR VALUE RECEIVED, the undersigned, MEDICON, INC., an
-------
Illinois corporation (the "Company"), promises to pay to the order of
-------
J.H. WHITNEY & CO. (the "Purchaser"), pursuant to this Senior Promissory Note
---------
(this "Note"), the principal sum of three million dollars ($3,000,000.00) on
----
March 6, 1997, together with interest thereon from time to time as provided
herein. This Note is issued on the date hereof along with a second senior
promissory note issued to Chemical Venture Capital Associates, L.P. in like
principal amount and ranking on a parity with this Note.
2. Interest. The Company promises to pay interest on the principal
--------
amount of this Note at the rate of 14% per annum from the date hereof until
September 6, 1996. The interest rate shall be increased on September 7, 1996 to
16% per annum. The Company shall pay accrued interest quarterly on each
1
<PAGE>
March 31, June 30, September 30 and December 31 of each year or, if any such
date shall not be a Business Day, on the next succeeding Business Day to occur
after such date (each date upon which interest shall be so payable, an "Interest
--------
Payment Date"), beginning on March 31, 1996. Interest on this Note shall be
- ------------
paid by wire transfer of immediately available funds to an account designated by
the holder of this Note. Interest on this Note shall accrue from the date of
issuance until repayment of the principal and payment of all accrued interest in
full. Interest shall be computed on the basis of a 360-day year of twelve 30-
day months. Notwithstanding the foregoing provisions of this Section 2, but
subject to applicable law, any overdue principal of and overdue interest on this
Note shall bear interest, payable on demand in immediately available funds, for
each day from the date payment thereof was due to the date of actual payment, at
the rate of interest in effect on each such day (as determined in accordance
with the first two sentences of this Section 2) plus 2% per annum, and, upon and
during the continuance of an Event of Default, this Note shall bear interest,
from the date of the occurrence of such Event of Default until such Event of
Default is cured or waived, payable on demand in immediately available funds, at
the rate of interest in effect on each such day (as determined in accordance
with the first two sentences of this Section 2) plus 2% per annum. Subject to
applicable law, any interest that shall accrue on overdue interest on this Note
as provided in the preceding sentence and shall not have been paid in full on or
before the next Interest Payment Date to occur after the Interest Payment Date
on which the overdue interest became due and payable shall itself be deemed to
be overdue interest on this Note to which the preceding sentence shall apply.
3. Mandatory Prepayment.
--------------------
(a) Initial Public Offering. Upon the consummation of an
------------------------
Initial Public Offering, the Company shall prepay this Note (together with
interest accrued thereon) pro rata with the prepayment of all other Notes issued
on the date hereof and ranking on a parity with this Note, in an amount equal to
the lesser of (i) the Net Cash Proceeds received from the Initial Public Offer-
ing, or (ii) the outstanding principal amount of this Note (together with
interest accrued thereon), within 5 Business Days after receipt by the Company
of the proceeds of such Initial Public Offering.
(b) Change of Control. Upon the occurrence of a Change of
------------------
Control, the Company shall prepay this Note pro rata with the prepayment of all
other Notes issued on the date hereof and ranking on a parity with this Note, in
an amount equal to the outstanding principal amount of this Note (together with
interest accrued thereon).
(c) Notice. The Company shall give written notice to the holder
------
of this Note of any mandatory prepayment pursuant to Section 3(a) or (b) at
least 3 Business Days prior to the date of such prepayment. Such notice shall
be given in the manner specified in Section 9 of this Note.
2
<PAGE>
4. Optional Prepayment.
-------------------
(a) Upon notice given to the holder of this Note as provided in
subsection (b) of this Section 4, the Company, at its option, may prepay all or
any portion of this Note, pro rata with the prepayment of all other Notes issued
on the date hereof and ranking on a parity with this Note, at any time, by
paying an amount equal to the outstanding principal amount of this Note, or the
portion of this Note called for prepayment, together with interest accrued and
unpaid thereon to the date fixed for prepayment, without penalty or premium.
(b) The Company may give written notice of prepayment of this
Note or any portion thereof not less than 10 nor more than 60 days prior to the
date fixed for such prepayment. Such notice of prepayment shall be given in the
manner specified in Section 9 of this Note. Upon notice of prepayment being
given by the Company, the Company covenants and agrees that it shall prepay, on
the date therein fixed for prepayment, this Note or the portion hereof so called
for prepayment, at the outstanding principal amount thereof or the portion
thereof so called for prepayment together with interest accrued and unpaid
thereon to the date fixed for such prepayment.
(c) All optional prepayments under this Section 4 shall include
payment of accrued interest on the principal amount so prepaid and shall be
applied first to payment of default interest, if any, then to payment of accrued
interest, and thereafter to principal.
5. Defaults and Remedies.
---------------------
(a) Events of Default. An "Event of Default" shall occur if:
-----------------
(i) the Company shall default in the payment of the
principal of this Note, when and as the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or by acceleration or
otherwise; or
(ii) the Company shall default in the payment of any
installment of interest on this Note according to its terms, when and as the
same shall become due and payable and such default shall continue for a period
of three days; or
(iii) any (A) default in any payment of principal of or
interest of any Indebtedness of the Company or any Subsidiary, in an aggregate
amount outstanding at any one time equal to or exceeding $100,000.00; or (B)
default in the observance or performance of any other agreement or condition
relating to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition
3
<PAGE>
exist, the effect of which default or other event or condition, is to cause, or
to permit the holder or holders of such Indebtedness (or a trustee or agent on
behalf of such holder or holders) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity; or
(iv) the Company shall, prior to the repayment in full of
its obligations under this Note, prepay all or any portion of the Subordinated
Indebtedness of the Company; or
(v) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(a) relief in respect of the Company or any Subsidiary thereof, or of a substan-
tial part of its property or assets, under Title 11 of the United States Code,
as now constituted or hereafter amended, or any other Federal or state bank-
ruptcy, insolvency, receivership or similar law, (b) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Company or any Subsidiary thereof, or for a substantial part of its property
or assets, or (c) the winding up or liquidation of the Company or any Subsidiary
thereof; and such proceeding or petition shall continue undismissed for 60 days,
or an order or decree approving or ordering any of the foregoing shall be
entered; or
(vi) the Company or any Subsidiary thereof shall
(a) voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (b) consent to the institution of or the entry of an order for
relief against it, or fail to contest in a timely and appropriate manner, any
proceeding or the filing of any petition described in paragraph (v) of this
Section 5(a), (c) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Company or any such Subsidiary, or for a substantial part of its property or
assets, (d) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (e) make a general assignment for the
benefit of creditors, (f) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (g) take any action for the
purpose of effecting any of the foregoing; or
(vii) one or more judgments for the payment of money in
an aggregate amount in excess of $100,000.00 (to the extent not covered by
insurance) shall be rendered against the Company or any Subsidiary thereof and
the same shall remain undischarged for a period of 30 days during which
execution shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to levy upon assets or properties of the Company to
enforce any such judgment.
4
<PAGE>
(b) Acceleration. If an Event of Default occurs under
------------
clauses (a)(v) or (vi) of this Section 5, then the outstanding principal of and
all accrued interest on this Note shall automatically become immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which are expressly waived. If any other Event of Default occurs and is
continuing, the holders of at least 25% of the aggregate outstanding principal
amount of all of the Indebtedness of the Company represented by this Note and
the other Notes issued on the date hereof and ranking on a parity with this
Note, by written notice to the Company, may declare the principal of and accrued
interest on such Notes to be due and payable immediately. Upon such
declaration, such principal and interest shall become immediately due and
payable. The holders of more than 50% of the aggregate outstanding principal
amount of all of the Indebtedness of the Company initially represented by this
Note and the other Notes initially issued on the date hereof and ranking on a
parity with this Note may rescind an acceleration and its consequences if all
existing Events of Default have been cured or waived, except nonpayment of
principal or interest that has become due solely because of the acceleration,
and if the rescission would not conflict with any judgment or decree. Any
notice or rescission shall be given in the manner specified in Section 9 hereof.
6. Ranking. This Note and the other Notes issued on the date hereof
-------
and ranking on a parity with this Note shall at all times be senior in right of
payment to all Subordinated Indebtedness of the Company. The Company hereby
acknowledges that the indebtedness created pursuant to this Note and all other
Notes issued on date hereof and ranking on a parity with this Note are entitled
to share in the rights, benefits, priorities and protections accorded "Senior
Indebtedness" in Section 8 of the Senior Subordinated Notes, Section 6 of the
Junior Subordinated Notes and Section 4 of the Korsower Subordinated Note.
7. Definitions. As used in this Note, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Business Day" means any day other than a Saturday, Sunday or other
-------------
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.
"Capital Stock" of any Person means any and all shares, interests,
-------------
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
common stock and preferred stock and any rights, warrants or options to purchase
such Person's capital stock.
"Change of Control" shall mean (i) the direct or indirect sale, lease,
-----------------
exchange or other transfer of all or substantially all of the assets of the
Company to any Person or entity or group of Persons or entities acting in
concert as a
5
<PAGE>
partnership or other group (a "Group of Persons"), (ii) the merger or
------------------
consolidation of the Company with or into another corporation with the effect
that the then existing stockholders of the Company hold less than 50% of the
combined voting power of the then outstanding securities of the surviving
corporation of such merger or the corporation resulting from such consolidation
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote in the election of directors, (iii) the replacement of a
majority of the Board of Directors of the Company, over a two-year period, from
the directors who constituted the Board of Directors at the beginning of such
period, and such replacement shall not have been approved by the Board of
Directors of the Company (or its replacements approved by the Board of Directors
of the Company) as constituted at the beginning of such period, (iv) a Person or
Group of Persons shall, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company representing 50% or more of the combined voting power
of the then outstanding securities of the Company ordinarily (and apart from
rights accruing under special circumstances) having the right to vote in the
election of directors.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Contingent Obligation" means, as to any Person, any direct or
----------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "primary
-------
obligation") of another Person (with respect to a given primary obligation, the
- ----------
"primary obligor"), whether or not contingent, (a) to purchase, repurchase or
---------------
otherwise acquire any such primary obligation or any property constituting
direct or indirect security therefor, or (b) to advance or provide funds (i) for
the payment or discharge of any such primary obligation, or (ii) to maintain
working capital or equity capital of the primary obligor in respect of any such
primary obligation or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of such primary
obligor, or (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor in respect thereof to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof.
"Event of Default" has the meaning assigned such term in Section 5(a).
----------------
6
<PAGE>
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
------------
amended and the rules and regulations of the Commission promulgated thereunder.
"GAAP" means generally accepted United States accounting principles in
----
effect from time to time.
"Governmental Authority" means the government of any nation, state,
-----------------------
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative func-
tions of or pertaining to government, and any corporation or other entity owned
or controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Indebtedness" means, as to any Person, (a) all obligations of such
------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any lien (other than
liens in favor of lessors under leases other than leases included in clause
(f)) on any property or asset owned or held by such Person regardless of whether
the indebtedness secured thereby shall have been assumed by such Person or is
non-recourse to the credit of such Person and (h) all Contingent Obligations of
such Person.
"Initial Public Offering" shall mean the sale in an underwritten
------------------------
offering by the Company of its Capital Stock pursuant to a registration
statement on Form S-1 or otherwise under the Securities Act.
"Interest Payment Date" has the meaning assigned such term in
-----------------------
Section 2.
"Junior Subordinated Notes" means the Company's Junior Subordinated
--------------------------
Promissory Notes, dated November 3, 1994, issued pursuant to the Share
Redemption Agreement.
7
<PAGE>
"Korsower Subordinated Note" means the Company's Junior Subordinated
--------------------------
Promissory Note, dated as of February 15, 1996, issued to Jack M. Korsower, M.D.
"Net Cash Proceeds" shall mean, with respect to any Initial Public
------------------
Offering, (i) the cash proceeds received by the Company or any subsidiary of the
Company, minus (ii) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses of
investment bankers) relating to such Initial Public Offering.
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"Purchase Agreement" means the Subordinated Note and Stock Purchase
-------------------
Agreement, dated as of November 3, 1994, among the Company, Whitney Subordinated
Debt Fund, L.P., Chemical Venture Capital Associates, Alan P. Mintz, John E.
Adams, Lawrence Rubinstein, Alan Spiro, Nancie Blatt and Sheldon K. Gulinson.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Senior Subordinated Notes" means the Company's Senior Subordinated
--------------------------
Promissory Notes, dated November 3, 1994, issued pursuant to the Purchase
Agreement.
"Share Redemption Agreement" means the Redemption Agreement, dated as
---------------------------
of November 3, 1994, among the Company, Alan P. Mintz, John E. Adams, Lawrence
Rubinstein, Sheldon Gulinson, Alan H. Spiro and Nancie Blatt.
"Subordinated Indebtedness" shall mean (i) any or all of the principal
-------------------------
of and interest on the Senior Subordinated Notes, the Junior Subordinated Notes
or the Korsower Subordinated Note; and (ii) any other Indebtedness for borrowed
money of the Company, whether outstanding on the date hereof or thereafter
created, incurred, assumed or guaranteed by the Company, unless the instrument
creating or evidencing the same expressly provides that such Indebtedness is on
a parity with or senior in right of payment to this Note.
"Subsidiary" means, with respect to any Person, a corporation or other
----------
entity of which 50% or more of the voting power of the voting equity securities
or equity interests is owned, directly or indirectly, by such Person. Unless
otherwise
8
<PAGE>
qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Note
shall refer to a Subsidiary or Subsidiaries of the Company.
8. Expenses due to Default. In case of any default under this Note,
-----------------------
the Company will pay to the holder of this Note such amounts as shall be
sufficient to cover the costs and expenses of such holder due to such default,
including without limitation, costs of collection and reasonable fees,
disbursements and other charges of counsel.
9. Notices. All notices, demands, requests and other communications
-------
provided for or permitted hereunder shall be made in writing and shall be by
telecopier, courier service or personal delivery:
(a) If to the Company:
Medicon, Inc.
40 Skokie Boulevard
Northbrook, Illinois 60062-1618
Telecopier No.: 708-559-6900
Attention: Lawrence Rubinstein, Esq.
(b) If to J.H. Whitney & Co.:
J.H. Whitney & Co.:
177 Broad Street
Stamford, Connecticut 06901
Telecopier No.: 203-973-1422
Attention: Jeffrey R. Jay, M.D.
10. Successors and Assigns. This Note shall inure to the benefit of
-----------------------
and be binding upon the successors and permitted assigns of the parties hereto.
Subject to applicable securities laws, the holder of this Note may assign any of
its rights under this Note to any other Person. The Company may not assign any
of its obligations under this Note without the written consent of the holder of
this Note.
11. Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the holder
of this Note in exercising any right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the holder of this Note at law, in equity or otherwise.
9
<PAGE>
(b) Any amendment, supplement or modification of or to any
provision of this Note, any waiver of any provision of this Note, and any
consent to any departure by the Company from the terms of any provision of this
Note, shall be effective (i) only if it is made or given in writing and signed
by the Company and Persons holding at least a majority of the aggregate
outstanding principal amount of all of the Indebtedness of the Company initially
represented by this Note and the other Notes issued on the date hereof and
ranking on a parity with this Note, and (ii) only in the specific instance and
for the specific purpose for which made or given. Except where notice is
specifically required by this Note, no notice to or demand on the Company in any
case shall entitle the Company to any other or further notice or demand in
similar or other circumstances.
(c) Notwithstanding the foregoing, without the written consent
of the holder of this Note, an amendment, supplement or waiver may not:
(i) reduce the percentage of Persons necessary to consent
to an amendment, supplement or waiver pursuant to this Section 11;
(ii) reduce the rate or extend the time for payment of
interest on this Note;
(iii) reduce the principal of, extend the fixed maturity
of, or alter the ranking of, this Note;
(iv) make this Note payable in money other than that
stated in this Note; or
(v) alter or amend Section 3 of this Note.
12. Governing Law. This Note shall be governed by and construed in
--------------
accordance with the laws of the State of New York, without regard to the
principles of conflicts of law of such State.
13. Jurisdiction. Each party to this Note hereby irrevocably agrees
------------
that any legal action or proceeding arising out of or relating to this Note or
any agreements or transactions contemplated hereby may be brought in the courts
of the State of New York or of the United States of America for the Southern
District of New York and hereby expressly submits to the personal jurisdiction
and venue of such courts for the purposes thereof and expressly waives any claim
of improper venue and any claim that such courts are an inconvenient forum.
Each party hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the address
set forth in Section 11, such service to become effective 10 days after such
mailing.
10
<PAGE>
14. Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
15. Entire Agreement. This Note is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein.
This Note supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
11
<PAGE>
16. Certain Expenses. The Company will pay all expenses of the
-----------------
holder of this Note (including reasonable fees, charges and disbursements of
counsel) in connection with any amendment, supplement, modification or waiver of
or to any provision of this Note, or any consent to any departure by the Company
from the terms of any provision of this Note.
MEDICON, INC.
By /s/ Carl R. Adkins, M.D.
-----------------------------
Name: Carl R. Adkins, M.D.
Title: Chief Executive Officer
12
Exhibit 10.27
MEDICON, INC.
March 6, 1996
J.H. Whitney & Co.
177 Broad Street
Stamford, Connecticut 06901
Attention: Jeffrey R. Jay, M.D.
Chemical Venture Capital Associates, L.P.
c/o Chemical Venture Partners
270 Park Avenue
New York, New York 10017-20670
Attention: Mitchell J. Blutt, M.D.
Gentlemen:
In consideration of the decision of J.H. Whitney & Co. ("JHW") and
Chemical Venture Capital Associates, L.P. ("CVCA"), to make a loan (the "Senior
Note Loan") to Medicon, Inc. in the aggregate principal amount of $6,000,000.00
pursuant to the terms and conditions specified in the Senior Promissory Note
(the form of which is attached hereto as Exhibit A), Medicon, Inc. hereby agrees
to pay to each of JHW and CVCA the sum of $200,000.00, which is comprised of a
$30,000.00 processing fee, a $60,000.00 closing fee and a $110,000.00 deferred
debt placement fee, upon the repayment of the Senior Note Loan, whether at
maturity or upon acceleration, mandatory prepayment, optional prepayment or
otherwise.
MEDICON, INC.
By: /s/ Carl R. Adkins, M.D.
----------------------------------
Name: Carl R. Adkins, M.D.
<PAGE>
2
Confirmed and agreed to as of
the date written above
J.H. WHITNEY & CO.
By: /s/ Jeffrey R. Jay
---------------------------------
Name: Jeffrey R. Jay, M.D.
A General Partner
CHEMICAL VENTURE CAPITAL
ASSOCIATES, L.P.
By: CHEMICAL VENTURE
PARTNERS, Its General Partner
By:
----------------------------------
Name: Mitchell J. Blutt, M.D.
Title: Executive Partner
<PAGE>
3
Confirmed and agreed to as of
the date written above
J.H. WHITNEY & CO.
By:
---------------------------------
Name: Jeffrey R. Jay, M.D.
A General Partner
CHEMICAL VENTURE CAPITAL
ASSOCIATES, L.P.
By: CHEMICAL VENTURE
PARTNERS, Its General Partner
By: /s/ Mitchell J. Blutt
----------------------------------
Name: Mitchell J. Blutt, M.D.
Title: Executive Partner
Exhibit 10.28
SETTLEMENT AGREEMENT
--------------------
THIS SETTLEMENT AGREEMENT ("Agreement) made and entered into this 20th day
of December 1995, by and between Medicon, Inc. ("Medicon") and Affiliated
Radiologists S.C. ("Affiliated") (collectively, the "Parties").
WITNESSETH
----------
WHEREAS, Affiliated has submitted certain claims to Medicon for payment by
it, in the approximate amount of $75,000, for services rendered by it pursuant
to its agreement with Medicon dated July 31, 1992 (the "1992 Agreement");
WHEREAS, Medicon has asserted certain defenses to these claims, including
but not limited to their untimeliness, and may have other defenses or claims
with respect to Affiliated arising out of or based upon the 1992 Agreement;
WHEREAS, Affiliated has disputed Medicon's defenses, including that any of
these claims were untimely; and
WHEREAS, the Parties wish to avoid future costs of dispute resolution,
arbitration or litigation, and wish to resolve all claims or disputes between
them arising out of or based upon the 1992 agreement;
NOW, THEREFORE, in consideration of the mutual convenants contained in this
Agreement and the consideration set forth below, the receipt and sufficiency of
which are hereby acknowledged by Affiliated and Medicon, the Parties hereby
agree and covenant as follows:
1. Contemporaneous with the mutual exchange of executed copies of this
Agreement by the Parties, Medicon shall pay to Affiliated, and
Affiliated agrees to accept as full payment of the remaining amounts
it claims to be due from Medicon for services rendered pursuant to the
1992 Agreement, the total sum of Fifty-Five Thousand Nine Hundred
Forty-Five Dollars ($55,945.00), in a certified or cashier's check.
2. In consideration of Medicon executing this Agreement and paying to
Affiliated the sum of $55,945.00 in accordance with paragraph 1
hereof, Affiliated does hereby release, acquit and forever discharge
Medicon, and each and all of its sister corporations, affiliates,
agents, attorneys, experts, employees, officers, directors,
shareholders, principals, administrators, subsidiaries, related
companies, successors and assigns, from any and all actions, causes of
action, claims, demands, costs, penalties, losses, expenses and claims
for attorneys' fees and costs, whether past or present, known or
unknown, relating to the claims that have been made or could have been
<PAGE>
made by Affiliated against any or all of them, arising out of or
based upon the 1992 Agreement.
3. In consideration of Affiliated executing this Agreement and accepting
the payment from Medicon of $55,945.00 in full satisfaction of
Affiliated's claims for payment under the 1992 Agreement, Medicon does
hereby release, acquit and forever discharge Affiliated, and each and
all of its sister corporations, affiliates, agents, experts,
employees, officers, directors, shareholders, principals,
administrators, subsidiaries, related companies, successors and
assigns, from any and all actions, causes of action, claims, demands,
costs, penalties, losses, expenses and claims for attorneys' fees and
costs, whether past or present, known or unknown, relating to any and
all claims that have been made or could have been made by Medicon
against any or all of them, arising out of or based upon the 1992
Agreement.
4. The Parties understand and agree that this Agreement is a compromise
of disputed claims, and that the payment and compromise provided for
herein is not to be construed as an admission of liability by Medicon
with respect to the claims of Affiliated or an admission by Affiliated
of the validity or merit of any claim or defense of Medicon.
5. This agreement is binding on the Parties and on each and all of their
respective assigns and successors in interest.
6. The Parties declare and represent that, in entering into this
Agreement, they each have relied wholly upon their own judgment,
belief and knowledge of the nature, extent and duration of the claims
of Affiliated, and of the claims and defenses of Medicon, and that
they have not been influenced to any extent whatsoever in entering
into this Agreement by any representations or statements regarding
said claims or defenses, or regarding any other matters made by the
persons, firms, or corporations who are hereby released, or by any
person or persons representing them.
7. Affiliated and Medicon each warrant that it is the owner of any claims
or defenses that are released herein, and represents that it has not
assigned or transferred any such claims or defenses to any other party
or person.
8. Affiliated and Medicon each acknowledge that it has carefully read
this Agreement and knows the contents hereof, and it signs the
Agreement as its free act and intends to be legally bound hereby.
9. This Agreement constitutes the entire understanding of the parties
with respect to the satisfaction, compromise and release of any and
all claims
<PAGE>
between them arising out of or based upon the 1992 Agreement. This
Agreement may not be altered or amended except in writing signed by
each Party.
10. This Agreement shall be governed and interpreted in accordance with
the laws of the State of Illinois. Notwithstanding any provision of
the 1992 Agreement to the contrary, any legal action, suit or claim to
enforce this Agreement shall be filed only in a federal or state court
in Cook County, Illinois, or as a claim or defense in any action or
suit brought in any court against a Party, or against any other person
or entity with respect to which claims are released herein.
11. If any term, provision, covenant, condition, or paragraph of this
Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remaining terms of this Agreement shall be
deemed severable therefrom, and shall remain in full force and effect
and shall in no way be affected, impaired, or invalidated thereby.
12. Each person signing this Agreement represents and warrants that he or
she is authorized to act on behalf of the Party on whose behalf he or
she is signing the Agreement, and has the authority to bind that Party
to terms hereof.
13. This Agreement may be signed in counterparts, with the same legal
effect as though each Party executed a single document. Facsimile
transmission of a signature shall be treated as an original signature.
AFFILIATED RADIOLOGISTS S.C. MEDICON, INC.
By: By: /s/ Carl R. Adkins
-------------------------- ---------------------------
Its Duly Authorized Agent Its Duly Authorized Agent
<PAGE>
between them arising out of or based upon the 1992 Agreement. This
Agreement may not be altered or amended except in writing signed by
each Party.
10. This Agreement shall be governed and interpreted in accordance with
the laws of the State of Illinois. Notwithstanding any provision of
the 1992 Agreement to the contrary, any legal action, suit or claim to
enforce this Agreement shall be filed only in a federal or state court
in Cook County, Illinois, or as a claim or defense in any action or
suit brought in any court against a Party, or against any other person
or entity with respect to which claims are released herein.
11. If any term, provision, covenant, condition, or paragraph of this
Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remaining terms of this Agreement shall be
deemed severable therefrom, and shall remain in full force and effect
and shall in no way be affected, impaired, or invalidated thereby.
12. Each person signing this Agreement represents and warrants that he or
she is authorized to act on behalf of the Party on whose behalf he or
she is signing the Agreement, and has the authority to bind that Party
to terms hereof.
13. This Agreement may be signed in counterparts, with the same legal
effect as though each Party executed a single document. Facsimile
transmission of a signature shall be treated as an original signature.
AFFILIATED RADIOLOGISTS S.C. MEDICON, INC.
By:__________________________ By: _______________________
Its Duly Authorized Agent Its Duly Authorized Agent
EXHIBIT 10.29
SETTLEMENT AGREEMENT
--------------------
THIS SETTLEMENT AGREEMENT ("Agreement") is made and entered into by and
between Unimed, Ltd. ("Unimed") and Michael P. Grossman, M.D. ("Grossman"), on
the one hand, and Medicon, Inc ("Medicon"), on the other hand, effective as of
January 31, 1996.
WHEREAS, by agreement dated August 1, 1991,
Grossman's interest in Medicon was redeemeed by Medicon (the "Sale");
WHEREAS, on or about February 7, 1992 Grossman and Unimed commenced an
action against Alan P. Mintz, M.D. ("Mintz") in the Circuit Court of Cook
County, Illinois, County Department, entitled Unimed, Ltd. and Michael P.
---------------------------
Grossman, M.D. vs. Alan P. Mintz, M.D., No 92 CH 1385 (the "Lawsuit"), in which
- --------------------------------------
Grossman and Unimed have asserted certain causes of action including a claim to
rescind the Sale;
WHEREAS, Grossman and Unimed have advised Medicon that they would seek to
join Medicon as a defendant in the Lawsuit in the event they were unable to
otherwise resolve their disputes;
WHEREAS, Unimed and Grossman have agreed to fully and finally settle and
compromise their disputes with Mintz pursuant to the terms and conditions stated
in the Transcript of Proceedings for January 17, 1996, a copy of which has been
provided to Medicon (the "Grossman/Mintz Settlement");
WHEREAS, Unimed and Grossman and Medicon have agreed to fully and finally
settle and compromise their disputes according to the terms and conditions set
forth herein.
<PAGE>
NOW THEREFORE, in consideration of the foregoing, and the mutual covenants
and undertakings set forth herein, the receipt, adequacy and sufficiency of
which are hereby acknowledged, the parties hereto agree:
1. In full and complete satisfaction, settlement and compromise of any and
all claims which could have been or were asserted in the Lawsuit or related to
the Sale, Medicon shall pay Grossman the sum of $100,000 upon the execution of
this Agreement.
2. Unimed and Grossman for themselves and, to the extent they are
authorized, for their past and present officers, directors, agents,
shareholders, employees, attorneys, successors and assigns, do hereby
absolutely, unconditionally and irrevocably, forever release and discharge
Medicon, Medicon's past and present officers, directors, agents, shareholders,
employees, attorneys, successors and assigns and any or all of them, except
Mintz, of and from any and all liability, claims, actions, damages, debts,
obligations, covenants, warranties, undertakings, promises, agreements, demands,
etc., of any kind, nature or description whatsoever, whether in law or in
equity, known or unknown, liquidated or unliquidated, direct or indirect, due or
to become due, contingent or otherwise, that they, or any of them, ever had, may
have had, now have, may have, or can, shall or may ever have in the future for,
based upon, arising from, contained in or by reason of the Sale or any matters
which were alleged or which could have been alleged in the Lawsuit;
2
<PAGE>
provided, however, that nothing contained herein shall be deemed a release of
- -------- -------
Mintz.
3. Medicon shall keep the terms of the Grossman/Mintz Settlement strictly
confidential.
4. The parties hereto acknowledge that they each have been represented by
and consulted with their respective attorneys in connection herewith and that
they have read, understand and intend to be bound by this Agreement and all
terms and conditions herein contained.
5. Each of the parties hereto has cooperated in the drafting and
preparation of this Agreement. Hence, in any construction to be made of this
Agreement, the same shall not be construed against any party.
6. The parties hereto expressly represent and warrant that they are the
sole and complete owners of the claims that they have asserted or would assert
and have released herein, and that they have not assigned, conveyed, transferred
or encumbered in any manner whatsoever any of such claims.
7. Each person executing this Agreement on behalf of a party hereto, for
himself and on behalf of the party for which he is executing, represents and
warrants that he has received all necessary power and authority to do so.
8. Nothing herein contained or contemplated to be done hereunder is or
should be construed as an admission or acknowledgement by either party hereto of
any liability or responsibility for, or the existence or validity of, any
claims,
3
<PAGE>
rights, causes of action, demands or defenses of the other party hereto in
connection with the matters described hereinabove, the subject matter hereof or
otherwise.
9. The validity, interpretation, effect and enforceability of this
Agreement shall be governed by the laws of the State of Illinois.
10. This Agreement may be executed in one or more counterparts, any one of
which need not contain the signature of more than one party and all of which
taken together shall constitute one and the same agreement. This Agreement
shall become effective when fully executed and delivered by both parties hereto,
whether in one or more counterparts.
11. The parties hereto acknowledge that, except as expressly set forth
herein, no representations or promises, whether express, implied or otherwise,
of any kind, nature or description whatsoever have been made to them, as an
inducement to entering into this Agreement or otherwise, by any other party or
director, officer, shareholder, employee, agent or attorney of any other party.
12. No waiver, modification or amendment of the terms of this Agreement
shall be valid unless in writing signed by the party to be charged and only to
the extent therein set forth.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of, although not necessarily on, January 30, 1996.
MEDICON, INC.,
By: /s/ Carl K. Adkins, MD
-----------------------------
Title: President / CEO
--------------------
Date: January 30, 1996
UNIMED, LTD.
By:_____________________________
Title:____________________
Date: January __, 1996
MICHAEL P. GROSSMAN, M.D.
By:_____________________________
Date: January __, 1996
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of, although not necessarily on, January 31, 1996.
MEDICON, INC.,
By:
-----------------------------
Title:
--------------------
Date: January __, 1996
UNIMED, LTD.
By: /s/ MICHAEL P. GROSSMAN, M.D.
--------------------------------
Title: President
-----------------------
Date: January 31, 1996
MICHAEL P. GROSSMAN, M.D.
By: /s/ MICHAEL P. GROSSMAN, M.D.
--------------------------------
Date: January 31, 1996
EXHIBIT 10.30
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION (DAYTON)
MEDECON SERVICES, INC. ) CIVIL ACTION NO.
)
Plaintiff ) C-3-96-73
)
vs. ) THE HON. WALTER HERBERT
) RICE
MEDICON, INC. )
)
Defendant )
)
)
CONSENT DEGREE AND ORDER OF DISMISSAL
-------------------------------------
By agreement of the Parties, and it appearing that the Parties have entered
into a compromise in settlement of this matter including the terms set forth
herein, and the Court otherwise being sufficiently advised,
IT IS HEREBY ORDERED:
1. Commencing June 16, 1996, defendant Medicon, Inc. ("Medicon"), and its
officers, agents, servants, employees, parent or subsidiary corporations,
successors, and any other persons or entities in active concert or participation
with them, are enjoined from making any use, or reference to any prior use, of
the term MEDICON or any other designation confusingly similar to MEDECON, shall
place no advertisements in the publications of others using the MEDICON name,
and shall not use "MEDICON" or "formerly MEDICON" in direct mail or other
advertising pieces or on sales calls.
2. Medicon shall no later than June 15, 1996 remove, replace or obscure
any reference to MEDICON or any other confusingly similar designation from its
facilities, marketing materials, advertising or other publications, and other
documents.
3. Medicon shall commence utilization of a new name, which shall not be
confusingly similar to MEDECON, no later than June 15, 1996.
4. Notwithstanding the foregoing, Medicon may make the following limited
use of the MEDICON name after June 15, 1996:
a. Medicon may inform its currently existing customers, service
providers, banks, insurance companies, and other entities with
which Medicon currently does business, that the newly named
company was "formerly Medicon, Inc." to and including December
15, 1996;
b. Medicon may at any time identify itself as "formerly Medicon,
Inc." when doing so is legally necessary, but only to the limited
extent so necessary, to allow Medicon to
<PAGE>
conduct its business, such as where such use is required for
Medicon's dealings with Medicare, Medicaid, state and federal
regulatory agencies, health departments, or state insurance
departments; and
c. Medicon may continue to use existing printed materials bearing
the MEDICON mark to such and including September 15, 1996, but
after June 15, 1996 shall use materials only with existing
customers and service providers with which Medicon currently
does business.
5. This action is dismissed with prejudice without costs to either of the
parties; however, the Court shall retain jurisdiction to monitor performance of
this Consent Decree and to adjudicate any disputes arising hereunder or under
the Settlement Agreement between MedEcon and Medicon dated May 14, 1996.
_____________________
JUDGE
Date:_______________
<PAGE>
AGREED TO:
_________________________ Date: May 7, 1996
Jack A. Wheat
John W. Scruton
WHEAT, CAMORIANO, SMITH & BERES
Suite 800, The Republic Building
429 W. Muhammad Ali Boulevard
Louisville, Kentucky 40202-2346
502/585-2040
Of counsel:
Thomas P. Whelley, II, Ohio Reg. No. 0010493
Chernesky, Heyman & Kress
10 Courthouse Plaza SW, Suite 1100
Dayton, Ohio 45401-3808
(513) 449-2800
Attorneys for Plaintiff MedEcon Services, Inc.
_________________________ Date: May 9, 1996
Charles A. Laff
Larry L. Saret
Laff, Whitesel, Conte & Saret, Ltd.
401 North Michigan Avenue
Chicago, Illinois 60611-4212
(312) 661-2100
Of counsel:
Taylor Jones, Jr.
Jones & Washington Co., L.P.A.
1308 Talbott Tower
118 West First Street
Dayton, Ohio 45402
(513) 222 2841
Attorneys for Defendant Medicon Inc.
Exhibit 10.32
EARMARKING LETTER AGREEMENT
EARMARKING LETTER AGREEMENT, dated as of March 12, 1996, between
Medicon, Inc. ("Medicon") and ChoiceCare Health Plans, Inc. ("ChoiceCare").
WHEREAS, Medicon and ChoiceCare are parties to that certain Diagnostic
Imaging Services Agreement for HMO, effective as of April 1, 1995 (the
"ChoiceCare Agreement"), pursuant to which Medicon receives monthly payments in
exchange for providing the services described in the ChoiceCare Agreement;
WHEREAS, pursuant to the ChoiceCare Agreement, Medicon is responsible
for utilizing the monthly payments to make payments to (i) PRP's (as defined in
the ChoiceCare Agreement) for imaging services rendered to persons enrolled in
ChoiceCare's prepaid health care plans and healthcare plans administered by
ChoiceCare, (ii) ChoiceCare and (iii) ChoiceCare self-funded customers
(collectively, "Provider Payments"); and
WHEREAS, J.H. Whitney, & Co. ("JHW") and Chemical Venture Capital
Associates, L.P. ("CVCA," and together with JHW, the "Lenders") have made an
earmarking loan (the "Provider Payment Loan") in the aggregate principal amount
of $6,000,000 to Medicon that has been earmarked so that Medicon may pay a
liability owing to ChoiceCare for Provider Payments arising under the ChoiceCare
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
1. Medicon hereby warrants and represents to ChoiceCare that Medicon
has taken appropriate steps to segregate the proceeds of the Provider Payment
Loan from the Lenders in a separate account pending execution of this Agreement
and that Medicon has no control, nor has it ever had control, except to the
extent of segregation of the proceeds, over the funds made available through the
Provider Payment Loan.
2. Concurrently with the execution and delivery hereof, Medicon
shall, by wire transfer of immediately available funds and as directed by the
Lenders, transfer the proceeds of the Provider Payment Loan to ChoiceCare, all
of which funds shall be the exclusive property of ChoiceCare and shall be under
the exclusive dominion and control of ChoiceCare (such funds, together with the
portion of the payment retained by ChoiceCare, as described in paragraph 3
hereof, shall, as adjusted from time to time pursuant to paragraph 4 hereof, be
referred to herein as the "ChoiceCare Payment"). Upon receipt of the ChoiceCare
Payment, ChoiceCare agrees that Medicon's financial liability under the
ChoiceCare Agreement for the Provider Payments shall be reduced by the amount of
the ChoiceCare Payment, as adjusted from time to time. It is hereby
<PAGE>
2
acknowledged and agreed that the amount of the ChoiceCare Payment shall
fluctuate as it is reduced by the amount of the Yearly Reconciliation (as
defined herein) for the contract year ended March 31, 1995 and subsequent
contract years, and adjusted from time to time pursuant to paragraph 4
hereof. Medicon hereby waives its right to seek to avoid and recover from
ChoiceCare the ChoiceCare Payment under chapter 5 of title 11 of the United
States Code in the event that Medicon voluntarily commences a case under
chapter 7 or chapter 11 of the Bankruptcy Code or an involuntary case is
commenced against Medicon under chapter 7 or chapter 11 of the Bankruptcy Code.
3. Immediately following receipt of the ChoiceCare Payment,
ChoiceCare shall, by wire transfer of immediately available funds, deposit into
an account designated by Medicon $2,964,908.90 (which equals the amount required
to be paid to Medicon for February, 1996 ($1,550,005.90) and March, 1996
($1,614,903.00), in each case under the ChoiceCare Agreement), less $200,000
which is being retained by ChoiceCare to reduce Medicon's financial liability
under the ChoiceCare Agreement for the Provider Payments. It is further agreed
that ChoiceCare shall continue to make payments to Medicon in accordance with
the terms of the ChoiceCare Agreement or any successor agreement thereto.
ChoiceCare and Medicon specifically agree that the payment referred to in this
paragraph 3 and any other subsequent payment made by ChoiceCare to Medicon under
this Agreement, the ChoiceCare Agreement or any subsequent agreements, shall
constitute new value to Medicon.
4. Within 45 days after each March 31, June 30, September 30 and
December 31 during the term of the ChoiceCare Agreement or any successor
thereto, Medicon shall use its best efforts to prepare in good faith and provide
to ChoiceCare a statement, the form of which is attached hereto as Exhibit A
(the "Statement"), containing reasonable detail and setting forth a calculation
of the amount (the "Payout Amount") necessary to make the payment of funds for
the settlement and reconciliation of reserves on a once per contract year basis
(the "Yearly Reconciliation"), if any, and the Provider Payments as if the
contractual relationship between Medicon and ChoiceCare were terminated as of
such March 31, June 30, September 30 or December 31. ChoiceCare shall be
entitled, for a period of 10 days following delivery of the Statement, to reject
such Statement if it is acting reasonably and in good faith. If ChoiceCare,
acting in accordance with the previous sentence, rejects the Statement delivered
by Medicon, the parties shall cooperate and work together to prepare a Statement
that is mutually agreeable.
Within 10 days after delivery of a Statement that is prepared and
agreed to in accordance with the preceding paragraph:
(a) if the Payout Amount is less than the amount of the
ChoiceCare Payment, as adjusted from time to time, ChoiceCare shall transfer the
amount by which the ChoiceCare Payment exceeds the Payout Amount to an account
designated by Medicon; or
<PAGE>
3
(b) if the Payout Amount is greater than the ChoiceCare Payment,
as adjusted from time to time, Medicon shall pay to ChoiceCare the amount by
which the Payout Amount exceeds the ChoiceCare Payment.
It is further agreed that if following termination of the contractual
relationship between Medicon and ChoiceCare, the amount of the ChoiceCare
Payment, as adjusted from time to time, (i) exceeds the amount necessary to make
final payment of all Yearly Reconciliations and all Provider Payments, the
excess of such ChoiceCare Payment which is due and payable to Medicon shall be
transferred by ChoiceCare to an account designated by Medicon or (ii) is less
than the amount necessary to make final payment of all Yearly Reconcilations and
all Provider Payments, the deficit of such ChoiceCare Payment which is due and
payable to ChoiceCare or ChoiceCare self funded customers or PRPs shall be
transferred by Medicon to an account designated by ChoiceCare.
In the event that it is determined pursuant to an audit, whether
performed by ChoiceCare or a third party, that the amount of the ChoiceCare
Payment, as adjusted, and the Payout Amount differ by more than $10,000, the
parties agree to pay the difference, through the mechanisms set forth in
paragraph 4 of this Agreement, within ten (10) business days of receipt of
written notice of such difference.
5. Except with respect to Medicon's obligation to fund adjustments
to the ChoiceCare Payment pursuant to paragraph 4(b) hereof or in the event of
(i) a Termination Event and compliance by ChoiceCare with paragraph 6(a) or
(ii) termination of the ChoiceCare Agreement or any successor agreement thereto
and non-compliance by Medicon with the terms and provisions of paragraph 7
hereof, ChoiceCare hereby fully, finally and forever waives, releases and
discharges Medicon and its predecessors, subsidiaries, parent companies,
divisions, affiliated corporations, successors and assigns and any or all of
them from any and all financial liability for Provider Payments under the
ChoiceCare Agreement or any successor agreement, to the full extent of the
amount of the ChoiceCare Payment, as adjusted. Notwithstanding the foregoing,
ChoiceCare shall not release Medicon and its predecessors, subsidiaries, parent
companies, divisions, affiliated corporations, successors or assigns from any
obligations or liabilities to process or make Provider Payments under the
ChoiceCare Agreement or any successor agreement, or from the financial liability
for Provider Payments to the extent such financial liability exceeds the amount
of the ChoiceCare Payment.
6. Upon a Termination Event:
(a) ChoiceCare shall promptly pay the amount of the ChoiceCare
Payment, as adjusted, to Medicon; and
(b) Following the payment by ChoiceCare specified in
paragraph 6(a), Medicon shall re-assume financial liability for and remain
responsible for (I) the making of Provider Payments and (II) Yearly
Reconciliations.
<PAGE>
4
7.
Upon the later of and in the event that a Termination Event has
not occurred, (a) the termination of the ChoiceCare Agreement or (b) if a
successor agreement to the ChoiceCare Agreement is entered into, upon the
termination of such successor agreement, ChoiceCare shall promptly pay to
Medicon the amounts due under such agreement for the dates of service through
the termination of such agreement as said amounts become payable to the
ChoiceCare PRP's. In connection therewith, Medicon shall provide to ChoiceCare
the explanations of payment, or a summary thereof ("EOPs") identifying the
ChoiceCare PRP's to receive payment and the amount(s) to be paid to each
ChoiceCare PRP. In addition, prior to the disbursement of any additional funds
to Medicon to be paid to the ChoiceCare PRP's, Medicon shall provide ChoiceCare
with written certification that any and all prior funds advanced by ChoiceCare
to Medicon pursuant to this paragraph 7 have been paid by Medicon to the
ChoiceCare PRP's in accordance with the EOPs previously provided to ChoiceCare.
Medicon agrees that it shall be solely responsible for the making of the
Provider Payments pursuant to this paragraph 7 and shall indemnify ChoiceCare
for any use of said funds not in accordance with the EOPs provided to
ChoiceCare.
8. Upon execution and delivery hereof, the parties acknowledge that
they will enter into good faith negotiations relating to terminating the
ChoiceCare Agreement and replacing it with a successor agreement. The parties
agree that if they have not mutually terminated the ChoiceCare Agreement and
entered into a successor agreement thereto or amended the ChoiceCare Agreement
upon mutually agreeable terms on or before ten days after receipt of the
ChoiceCare Payment by ChoiceCare, or such other time as may be agreed to by the
parties, each of ChoiceCare and Medicon shall have the right, with five days'
written notice, to terminate the ChoiceCare Agreement; provided, however, that
Medicon and ChoiceCare shall promptly commence discussions to agree upon an
appropriate wind-up period following termination of the ChoiceCare Agreement.
9.
As used in this Agreement, the following terms have the following
meanings unless the context otherwise requires:
"Current Liabilities" shall mean, at any date, the aggregate of the
-------------------
current liabilities of Medicon and its subsidiaries on a consolidated basis as
of such date, as determined in accordance with Generally Accepted Accounting
Principles.
"Generally Accepted Accounting Principles" shall mean generally
----------------------------------------
accepted accounting principles, as recognized by the American Institute of
Certified Public Accountants, consistently applied and maintained on a
consistent basis for Medicon and its subsidiaries on a consolidated basis
throughout the period indicated.
"Quick Ratio" shall mean, at a quarter-end date, the ratio of the
------------
cash and cash equivalents of Medicon to the Current Liabilities of Medicon, as
computed from amounts as filed by Medicon with the Securities and Exchange
Commission (such as on Form 10-Q or 10-K) or on internally prepared financial
statements of Medicon.
<PAGE>
5
"Termination Event" shall mean a certification by Medicon's Chief
-----------------
Financial Officer to ChoiceCare that, as of the date of such certification, the
Quick Ratio of Medicon has been in excess of 1:1 for two consecutive fiscal
quarters.
10. This Agreement and the ChoiceCare Agreement contain the entire
agreement among the parties with respect to the subject matter hereof, and such
agreement supersedes all prior agreements, written or oral, whether binding or
non-binding, among any of the parties hereto, with respect to the subject matter
hereof. No representations, warranties or inducements have been made to the
parties hereto or their counsel concerning this Agreement and the agreements
related hereto other than those representations, warranties and covenants
contained herein and in the agreements related hereto. No waiver, modification
or amendment of the terms of this Agreement shall be valid unless in writing
signed by the party to be charged and only to the extent therein set forth. Any
failure by any party to insist upon the strict performance by any other party of
any of the provisions of this Agreement shall not be deemed a waiver of any of
the provisions hereof or thereof, and such party, notwithstanding such failure
shall have the right thereafter to insist upon the strict performance of any and
all of the provisions hereof or thereof to be performed by such other party.
11. ChoiceCare covenants and agrees that, after the date of this
Agreement, it shall not, and ChoiceCare will take reasonable steps to cause each
of its affiliates not to, take any action or make any statement, whether or not
in writing, that disparages or denigrates Medicon or its affiliates, agents,
employees, officers or directors (including, without limitation, by way of news
interview or the expression of personal views, opinions or judgments to the news
media); and Medicon covenants and agrees that, after the date of this Agreement,
it shall not, and Medicon will take reasonable steps to cause each, of its
agents, employees, officers or directors and all affiliates of Medicon not to
take any action or make any statement, whether or not in writing, that
disparages or denigrates ChoiceCare (including, without limitation, by way of
news interview or the expression of personal views, opinions or judgments to the
news media); provided, however, that if ChoiceCare or Medicon violates any
-------- -------
provision of this paragraph 11, the other shall be relieved of his or its
obligations under this paragraph 11 to the extent necessary to respond to such
violation. Notwithstanding the foregoing, however, nothing contained in this
paragraph 11 shall prohibit either party (the "Disclosing Party") from
disclosing the facts and circumstances surrounding the transactions contemplated
by this Agreement and the ChoiceCare Agreement, or any subsequent agreement
thereto, if required by law, the Securities and Exchange Commission or any other
administrative, governmental or regulatory agency or if the Disclosing Party
considers it necessary to include in any Securities and Exchange Commission or
other regulatory filings in order not to omit to state a material fact (the
determination of what constitutes a material fact to be made by the Disclosing
Party in its good faith judgement and in its sole discretion) or to cause a fact
stated not to be misleading (the determination of what will cause a stated fact
to be misleading to be made by the Disclosing Party in its good faith judgement
and in its sole discretion).
<PAGE>
6
12. In making decisions with respect to the Provider Payment Loan,
the ChoiceCare Payment and in making the decision to enter into this Agreement,
or in taking any other actions related to or in connection with this Agreement,
and/or the ChoiceCare Agreement, ChoiceCare shall not be deemed to be in control
of the operations of Medicon or to be acting as a "responsible person" with
respect to the operation(s) and/or management of Medicon and shall have no
liability as a controlling or responsible person with respect to the
operation(s) and/or management of Medicon.
13. Medicon agrees to promptly provide to ChoiceCare audited
financial statements for the calendar year ended December 31, 1995, but in no
event later than 5 days after delivery thereof by Medicon's auditors.
14. Medicon agrees to provide to ChoiceCare, on or before March 31,
1996, a statement for the settlement of the ChoiceCare Agreement for the
contract year ending March 31, 1995. It is acknowledged and agreed that an
estimate of the settlement amount has been included in the ChoiceCare Payment.
15. As further consideration for the parties entering into this
Agreement and as an additional fee under the ChoiceCare Agreement, or any
subsequent agreement thereto, until there occurs a Termination Event or the
amount of the ChoiceCare Payment has been reduced to zero in accordance with the
provisions of paragraphs 4 and 7 hereof, ChoiceCare agrees to pay to Medicon, on
a quarterly basis, an amount equal to interest on the amount of the ChoiceCare
Payment, as adjusted, calculated using the 30-day rate (as published in the Wall
Street Journal) on high grade commercial paper in effect on the first day of
each quarter for which interest is to be paid.
16. All notices and other communications hereunder shall be made in
writing and shall be by telecopier, courier service or personal delivery in
accordance with the notice provisions of the ChoiceCare Agreement or any
successor agreement thereto.
17.This Agreement shall be governed by and construed in accordance with the
laws of the State of Ohio, without regard to the principles of the conflicts of
law of such State.
<PAGE>
7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first written above.
MEDICON, INC.
By: /s/ Carl R. Adkins, M.D.
_________________________________
Name: Carl R. Adkins, M.D.
Title: Chief Executive
Officer
CHOICECARE HEALTH PLANS, INC.
By:_________________________________
Name:
Title:
EXHIBIT 10.39
*************************
Lease
Boulevard 40
Northbrook, Illinois
***************************
Between
Medicon, Inc.
-------------
(Tenant)
and
Teachers Realty Corporation
(Landlord)
<PAGE>
Lease
Boulevard 40
Northbrook, Illinois
Page
----
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. LEASING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
A. Kinds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
B. Payments of Operating Cost . . . . . . . . . . . . . . . . . . . .
Share Rent and Tax Share Rent . . . . . . . . . . . . . . . . . . . 2
C. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
D. Rules of Interpretation and
Computation of Base Rent and Rent Adjustments . . . . . . . . . . . 6
3. PREPARATION AND CONDITION OF PREMISES,
POSSESSION AND SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . 8
4. PROJECT SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
A. Heat and Air Conditioning . . . . . . . . . . . . . . . . . . . . . 9
B. Elevators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
C. Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
D. Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
E. Janitorial Service . . . . . . . . . . . . . . . . . . . . . . . . 11
F. Window Washing . . . . . . . . . . . . . . . . . . . . . . . . . . 11
G. Interruption of Service . . . . . . . . . . . . . . . . . . . . . . 11
5. ALTERATIONS AND REPAIRS . . . . . . . . . . . . . . . . . . . . . . . . 11
6. USES OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7. BUILDING RULES AND GOVERNMENTAL
REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. CLAIMS; INSURANCE; LIABILITY . . . . . . . . . . . . . . . . . . . . . . 14
9. FIRE AND OTHER CASUALTY . . . . . . . . . . . . . . . . . . . . . . . . 16
10. RIGHTS RESERVED TO THE LANDLORD . . . . . . . . . . . . . . . . . . . . 17
A. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
B. Signs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
C. Windows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
D. Service Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 17
E. Keys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
F. Access for Repairs, etc. . . . . . . . . . . . . . . . . . . . . . 18
G. Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
H. Rights to Conduct Businesses . . . . . . . . . . . . . . . . . . . 18
I. Heavy Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 18
J. Show Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
K. Close Project . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
L. Substitution of Space . . . . . . . . . . . . . . . . . . . . . . . 18
M. Use of Lock Box by Landlord . . . . . . . . . . . . . . . . . . . . 19
N. Repairs and Alterations . . . . . . . . . . . . . . . . . . . . . . 19
O. Mail Chutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
P. Other Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11. DEFAULT AND LANDLORD'S REMEDIES . . . . . . . . . . . . . . . . . . . . 20
A. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
B. Landlord's Remedies . . . . . . . . . . . . . . . . . . . . . . . . 21
12. HOLDOVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13. SUBORDINATION TO MORTGAGES,
TRUST DEEDS AND GROUND LEASES . . . . . . . . . . . . . . . . . . . . . 25
A. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
B. Termination of Ground Lease or
Foreclosure of Mortgage . . . . . . . . . . . . . . . . . . . . . 25
C. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . 26
D. Notice and Right to Cure . . . . . . . . . . . . . . . . . . . . . 26
14. ASSIGNMENT AND SUBLETTING BY TENANT . . . . . . . . . . . . . . . . . . 27
-i-
<PAGE>
15. SALE BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
16. ESTOPPEL CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . 29
17. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
18. EXCUSE BY LANDLORD'S
INABILITY TO PERFORM; LANDLORD'S DEFAULT . . . . . . . . . . . . . . . 30
19. PERSONAL PROPERTY AND TENANT FIXTURES . . . . . . . . . . . . . . . . . 30
20. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
21. QUIET POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
22. REAL ESTATE BROKER . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
23. CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
24. SPRINKLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
25. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
A. Covenants Binding on Successors . . . . . . . . . . . . . . . . . . 32
B. Date Payments Are Due . . . . . . . . . . . . . . . . . . . . . . . 32
C. Meaning of "Re-entry"
and "Landlord" . . . . . . . . . . . . . . . . . . . . . . . . . . 32
D. Time is of the Essence . . . . . . . . . . . . . . . . . . . . . . 32
E. No Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
F. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
G. Governing Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 32
H. Lease Modification . . . . . . . . . . . . . . . . . . . . . . . . 32
I. No Oral Modification . . . . . . . . . . . . . . . . . . . . . . . 33
J. Litigation and Arbitration Costs . . . . . . . . . . . . . . . . . 33
K. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
L. Remedies and Rights May Be Exercised by Landlord In
Its Own Name; Authority to Execute This Lease . . . . . . . . . . 33
M. Payments to Affiliates . . . . . . . . . . . . . . . . . . . . . . 33
N. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 33
O. Landlord's Title . . . . . . . . . . . . . . . . . . . . . . . . . 34
P. Light and Air Rights . . . . . . . . . . . . . . . . . . . . . . . 34
Q. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
R. Landlord's Agents . . . . . . . . . . . . . . . . . . . . . . . . . 34
S. Terms "Landlord" and "Tenant" . . . . . . . . . . . . . . . . . . . 34
T. Rent Not Based on Income . . . . . . . . . . . . . . . . . . . . . 34
U. Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
V. No Recording by Tenant . . . . . . . . . . . . . . . . . . . . . . 34
26. UNRELATED BUSINESS INCOME . . . . . . . . . . . . . . . . . . . . . . . 34
27. EXCULPATORY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . 35
28. Extension Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 36A
29. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36D
30. Right of First Offer . . . . . . . . . . . . . . . . . . . . . . . . . 36D
31. Tenant Construction Allowance . . . . . . . . . . . . . . . . . . . . 36F
32. Building Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36F
33. Signage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36F
34. Expansion Options . . . . . . . . . . . . . . . . . . . . . . . . . . 36G
-ii-
<PAGE>
APPENDIX A - PLAN OF THE PREMISES
APPENDIX B - CLEANING SCHEDULE
APPENDIX C - RULES AND REGULATIONS
APPENDIX D. - TENANT IMPROVEMENT WORK AGREEMENT
1. LANDLORD'S WORK
2. ADDITIONAL WORK
3. COMMENCEMENT OF RENT
4. ACCESS BY TENANT PRIOR TO COMMENCEMENT OF TERM
5. MISCELLANEOUS
EXHIBIT A TO TENANT IMPROVEMENT WORK AGREEMENT - BUILDING STANDARDS
APPENDIX E - MORTGAGES CURRENTLY AFFECTING THE PROJECT
-iii-
<PAGE>
DEFINITIONS
Term Section in which
- ----
Term is Defined
---------------
1. Acceptable Contractors 1 (Appendix D)
2. Additional Rent 2A (4)
3. Additional Work 1 (Appendix D)
4. Architectural Plans 1 (Appendix D)
5. Base Rent 2A (1)
6. Build-Out 1 (Appendix D)
7. Building Preamble
8. business hours 4A
9. Cessation Period 2 (A) 1
10. Commencement Date 1
11. Completion Date 3 (Appendix D)
12. Corporate Base Rate 2D (3)
13. Engineering Plans 2 (Appendix D)
14. Excess Construction Allowance 30
15. First 2D (3)
16. First Abatement Period 2 (A) 1
17. fiscal year 2C (3)
18. Force Majeure 18
19. Ground Lease(s) 2C (2)
20. Holidays 4A
21. Included Capital Items 2C (2)
22. Land Preamble
23. Landlord Preamble (see also 25C)
24. Landlord's Charge 1 (Appendix D)
25. Landlord's Contractor 1 (Appendix D)
26. Landlord's ROFO Notice 30
27. Landlord's Work 1 (Appendix D)
28. Lease Preamble
29. Lease Year 2 (A) 1
30. Market Rate 28
31. mortgage 13B (3)
32. mortgagee 13B (3)
33. new premises 10 (L)
34. Operating Cost Share Rent 2A (2)
35. Operating Costs 2C (2)
36. Operating Cost Report 2B (2)
37. Premises Preamble
38. Prior Tenant 30
39. Project Preamble
40. Qualified Appraiser 28
41. Reconstruction Delays 9C
42. Renewal Term 28
43. re-enter, re-entry 25C
44. Rent Tax 2C (1)
45. Rental Agents 2A
46. Representations 25N
47. Required Improvements 9B
48. ROFO Space 30
49. Schedule Preamble
50. Second Abatement Period 2 (A) 1
51. Subject ROFO Space 30
52. Taxes 2C (1)
53. Tax Report 2B (3)
54. Tax Share Rent 2A (3)
55. Tenant Preamble
56. Tenant Construction Allowance 31
<PAGE>
57. Tenant's Proportionate Share 2 (C) (4)
58. Term 1
59. Termination Date 1
60. trust deed 13B (3)
61. Unmatured Event of Default 28
62. Work 5A
<PAGE>
LEASE
Boulevard 40
Northbrook, Illinois
THIS INDENTURE (this "Lease") is made as of the 10th day of August, 1992
---- ------- --
between Teachers Realty Corporation, an Ohio corporation (the "Landlord") and
the tenant named in Item 1 of the Schedule (the "Tenant"). The term "Project"
when used herein refers to the land (the "Land") and the building (the
"Building") currently known as "Boulevard 40" (including, without limitation,
any and all easements adjacent thereto) situated at 40 Skokie Boulevard,
Northbrook, Illinois, together with the vehicular drives and all other
structures and improvements now or hereafter located on the Land. "Premises"
when used herein refers to that part of the Project leased to Tenant.
The following Schedule (the "Schedule") is an integral part of this Lease.
SCHEDULE
1. Name of Tenant: MEDICON, INC.
------------------------------------
2. Floor(s) or room(s) of Premises: the entire fifth (5th) floor
---------------------------------
3. Net Rentable Square Feet: 19,025 square feet
-------------
4. Tenant's Use of Premises: general office
---------------------------------------
5. Base Rent for the first and second Lease Years: $68,680.25
-------------------
($3.61 per rentable square foot) see Page 2A for continuation
-----------
6. Monthly installments of Base Rent for the first and second Lease Years:
$5,723.35
---------
7. Tenant's Proportionate Share: 17,961
-----------------------------------------
8. Rent Abatement: see page 2B
---------------------------------------------------
9. Security Deposit: $ See Section 17
---------------------------------------------------
10. Tenant's address for notices before
possession date: 1500 Skokie Boulevard, Northbrook, Illinois, 60062
----------------------------------------------------
11. Tenant's Real Estate Broker used for this
Lease: The Palmer Group
---------------------------------------------------------------
12. Tenant Improvements, if any: see Appendix D
-------------------------------------------
13. Date Tenant Plans are due from Tenant
including special work, if any:
--------------------------------------
14. Commencement Date: September 1, 1992
-----------------------------------------------------
15. Term/Termination Date: seven (7) years/ending 8/31/99 ,
---------------------- -------------
eighty-four (84) calendar months after the Commencement Date, provided
------------------
that if the Commencement Date is not the first day of a calendar month, the
Term shall end eighty-four (84) calendar months after the first day of
--------------------
the calendar month immediately succeeding the calendar month in which the
Commencement Date occurs, unless extended as herein provided.
*Subject to expiration of the Tenant's entitlements pursuant to the First
Abatement Period and the Second Abatement Period described in Section 2A (1).
- 1 -
<PAGE>
1. LEASING AGREEMENT. Landlord leases to Tenant, and Tenant leases from
Landlord, for the term (the "Term") set forth on the Schedule, commencing on the
commencement date (the "Commencement Date") set forth on the Schedule and ending
on the termination date (the "Termination Date") set forth on the Schedule,
unless sooner terminated or extended as herein provided, the Premises described
on the Schedule and outlined on the plan attached hereto and made a part hereof
as Appendix A. The Premises constitute a portion of the Building located on the
Land. As provisions of said Lease, Landlord and Tenant covenant and agree as
follows:
2. RENT.
A. KINDS. Tenant agrees to pay rent to Landlord's building manager at its
------
office located at 181 West Madison Street, Chicago, Illinois 60602 or to such
other person or at such other place as Landlord from time to time designates in
a written notice to Tenant, with Tenant's check, or in coin or currency which at
the time of payment is legal tender for the payment of public and private debts
in the United States of America, the aggregate of the following, all of which
are rent reserved under this Lease:
(1) Base Rent to be paid in monthly installments in advance on or
---------
before the first day of each month of the Term of this Lease in the amount
set forth on the Schedule.
(2) Operating Cost Share Rent in an amount equal to the Tenant's
-------------------------
Proportionate Share of the Operating Costs for the applicable fiscal year
of the Lease. Operating Cost Share Rent shall be paid monthly in advance
in an estimated amount, as adjusted by Landlord from time to time.
Definitions of Operating Costs, Tenant's Proportionate Share and the method
for billing and payment of Operating Cost Share Rent are set forth in
Sections 2B and 2D.
(3). Tax Share Rent in an amount equal to the Tenant's Proportionate
---------------
Share of the Taxes for the applicable fiscal year of the Lease. Tax Share
Rent shall be paid monthly in advance in an estimated amount, as adjusted
by Landlord from time to time. Definitions of Taxes, Tenant's Proportionate
Share and the method for billing and payment of Tax Share Rent are set
forth in Sections 2B and 2D.
(4). Additional Rent consisting of all of the sums, liabilities,
---------------
obligations, and other amounts (excepting Base Rent, Operating Cost Share
Rent and Tax Share Rent) which Tenant is required to pay or discharge
pursuant to this Lease (including, without limitation, any amounts which
this Lease provides shall be Tenant's cost or expense), together with
interest for late payment thereon, all as hereafter provided.
B. Payment of Operating Cost Share Rent and Tax Share Rent.
--------------------------------------------------------
(1) Payment of Estimated Operating Cost Share Rent and Tax Share
------------------------------------------------------------
Rent. Landlord shall estimate the Operating Costs and Taxes of the Project
-----
from time to time each year. Such estimates may be revised by Landlord
whenever it obtains information relevant to making such estimates more
accurate. Such estimates
-2-
<PAGE>
-2A-
CONTINUATION OF SECTION 2A(1).
- -----------------------------
The Base Rent applicable to the third through seventh Lease Years shall be
paid in monthly installments in advance on or before the first day of each month
during such period as follows:
Annual Monthly Installment
Period Base Rent of Base Rent
------ --------- -------------------
Third Lease Year $87,705.25 $7,308.77
through ($4.61 x 19,025
Seventh Lease Year rentable square feet
For purposes of this Lease, "Lease Year" shall mean each consecutive
twelve-month period beginning with the Commencement Date, except that if the
Commencement Date is other than the first day of a calendar month, then the
first Lease Year shall be the period from the Commencement Date through the date
twelve months after the last day of the calendar month in which the Commencement
Date occurs, and each subsequent Lease Year shall be the period of twelve months
following the last day of the prior Lease Year.
Notwithstanding the provisions contained in this Section 2A (1) of the
Lease, and subject to the conditions set forth in the immediately succeeding
paragraph, Tenant shall be entitled to the following:
(i) the right to occupy the entire Premises for the first twelve
consecutive calendar months of the Term of the Lease beginning on the
Commencement Date (the "First Abatement Period") without the payment or
------------------------
accrual of liability for the monthly installments of Base Rent, Operating
Cost Share Rent, or Tax Share Rent provided for in this Section 2A (1)
falling due during the First Abatement Period, but with the accrual of and
full liability for all other obligations and payments required during the
First Abatement Period, if any; and
(ii) the right to occupy 7,025 rentable square feet of the Premises
for the first six consecutive calendar months of the Term of the Lease
beginning on the last day of the First Abatement Period (the "Second
------
Abatement Period") without the payment or accrual of liability for the
-----------------
monthly installments of Base Rent, Operating Cost Share Rent, or Tax Share
Rent provided for in this Section 2A(1) falling due
<PAGE>
-2B-
CONTINUATION OF SECTION 2A(1).
- -----------------------------
during the Second Abatement Period, but with the accrual of and full
liability for: (a) Base Rent, Operating Share Rent, and Tax Share Rent with
respect to the remaining 12,000 rentable square feet of the Premises; and
(b) all other obligations and payments with respect to the entire Premises
required during the Second Abatement Period, if any.
Tenant's obligation to make payments of Base Rent after the end of each of the
First Abatement Period and the Second Abatement Period shall commence
immediately after the respective termination of each of the First Abatement
Period and the Second Abatement Period, and such appropriate amounts shall be
due and payable on the first day after the end of each of the First Abatement
Period and the Second Abatement Period. In the event that the Commencement Date
Is other than the first day of a calendar month, then the First Abatement
Period shall be deemed to consist of the initial partial calendar month, plus
the next twelve consecutive calendar months, provided that only the following
portion of the twelfth full calendar month shall be included: there shall be
included with respect to such twelfth full calendar month, the number of days
in such month so that the sum of such number plus the number of days in the
first partial calendar month of the First Abatement Period shall equal 31 days,
and Tenant's obligation to make payments of Base Rent, Operating Cost Share
Rent, and Tax Share Rent after the First Abatement Period shall commence
immediately thereafter and the amounts payable after the end of the First
Abatement Period shall be prorated for the number of days remaining in the
twelfth full calendar month of the First Abatement Period and said prorated
amount shall be due and payable on the first day after the end of the First
Abatement Period; and the Second abatement Period shall be deemed to consist
of the initial partial calendar month, plus the next six consecutive calendar
months, provided that only the following portion of the sixth full calendar
month shall be included: there shall be included with respect to such sixth
full calendar month, the number of days in such month so that the sum of such
number plus the number of days in the first partial calendar month of the Second
Abatement Period shall equal 31 days, and Tenant's obligation to make payments
of Base Rent, Operating Share Cost Rent, and Tax Share Rent after the Second
Abatement Period shall commence immediately thereafter and the amounts payable
after the end of the Second Abatement Period shall be prorated for the number
of days remaining in the sixth full calendar month of the Second Abatement
Period and said prorated amount shall be due and payable on the first day
after the end of the Second Abatement Period.
<PAGE>
-2C-
CONTINUATION OF SECTION 2A(1).
- -----------------------------
If, at any time during either of the First Abatement Period or the Second
Abatement Period, Tenant shall be in default under the Lease, which default is
not cured within the applicable cure period set forth in Section 11A below, any
rights granted to Tenant under this Section 2A (1) of the Lease shall cease
during the period during which such default continues and shall not recommence
until such default is cured (the "Cessation Period"), and Tenant shall be
-------------------
obligated to pay and shall be liable for any and all portions of Base Rent
falling due or accruing during such Cessation Period, together with any other
amounts due under this Lease. Any cessation of rights pursuant too this Section
2A (1) shall not in any way extend the length of either of the First Abatement
Period or the Second Abatement Period in the event that such cessation is caused
by a material default. On the other hand, if a cessation is caused by a non-
material default and Tenant timely cures such default, then the affected
Abatement Period shall be extended on a per diem basis for the number of days of
such Cessation Period.
<PAGE>
will generally (but need not) be issued after the beginning of a fiscal year and
revised upon the determination of the final real estate tax assessment or final
real estate tax rate for the Project.
Within ten (10) days after notice from Landlord setting forth an estimate
of Operating Costs for a particular fiscal year, Tenant shall pay Landlord an
amount equal to one-twelfth (1/12th) of Tenant's Proportionate Share of such
estimated costs multiplied by the number of months that have elapsed in such
fiscal year to the date of such payment, minus payments of estimated Operating
Cost Share Rent previously paid for said period. Thereafter on the first day of
each month, Tenant shall pay monthly until a new estimate of Operating Costs is
applicable, one-twelfth (1/12th) of Tenant's Proportionate Share of the
estimated Operating Costs.
Within ten (10) days after notice from Landlord setting forth an estimate
of Taxes for a particular fiscal year, Tenant shall pay Landlord an amount equal
to one-twelfth (1/12th) of Tenant's Proportionate Share of such estimated Taxes
multiplied by the number of months that have elapsed in such fiscal year to the
date of such payment, minus payments of estimated Tax Share Rent previously paid
for said period. Thereafter on the first day of each month, Tenant shall pay
monthly until a new estimate of Taxes is applicable, one-twelfth (1/12th) of
Tenant's Proportionate Share of the estimated Taxes.
(2) Correction of Operating Cost Share Rent. As soon as reasonably
-------------------------------------------
possible after the end of each fiscal year, Landlord shall deliver to Tenant a
report (the "Operating Cost Report") setting forth (a) the actual Operating
Costs for the preceding fiscal year, (b) the amount of Operating Cost Share Rent
due to Landlord for such preceding fiscal year, and (c) the amount of Operating
Cost Share Rent paid by the Tenant in and allocable to such fiscal year. On or
before twenty (20) days after receipt of such report, Tenant shall pay to
Landlord the amount of Operating Cost Share Rent due for the preceding fiscal
year (or a portion thereof if this Lease was not in effect for the entire fiscal
year) minus any payments made by Tenant for such fiscal year. If Tenant's
estimated payments of Operating Cost Share Rent exceed the amount due Landlord
for the fiscal year in question, Landlord shall apply any such amount as a
credit against Tenant's other obligations under this Lease, or if the Term has
expired or this Lease has been terminated and Tenant has no further obligations
under this Lease (including any obligations which survive the expiration or
termination of this Lease), then Landlord shall refund any such amount to
Tenant.
(3) Correction of Tax Share Rent. At any time during any fiscal year when
-----------------------------
such information becomes available, Landlord shall deliver to Tenant a report
(the "Tax Report") setting forth (a) the actual Taxes for the preceding fiscal
year, (b) the amount of Tax Share Rent due to Landlord for such preceding fiscal
year, and (c) the amount of Tax Share Rent paid by the Tenant in and allocable
to such fiscal year. On or before twenty (20) days after receipt of such report,
Tenant shall pay to Landlord the amount of Tax Share Rent due for the preceding
fiscal year (or a portion thereof if this Lease was not in effect for the entire
fiscal year) minus any payments made for such fiscal year. If Tenant's estimated
payments of Tax Share Rent
-3-
<PAGE>
exceed the amount due Landlord for the fiscal year in question, Landlord shall
apply any such amount as a credit against Tenant's other obligations under this
Lease, or if the Term has expired or this Lease has been terminated and Tenant
has no further obligations under this Lease (including any obligations which
survive the expiration or termination of this Lease), then Landlord shall
refund any such amount to Tenant.
C. Definitions:
-----------
(1) Taxes. "Taxes" shall mean any and all federal, state and local
-----
governmental taxes, assessments and charges of any kind or nature, whether
general, special, ordinary or extraordinary, which Landlord shall pay or become
obligated to pay because of or in connection with the ownership, leasing,
renting, management, control or operation of the Project or of the personal
property, fixtures, machinery, equipment, systems and apparatus located therein
or used in connection therewith. Taxes shall include, without limitation, real
estate taxes, personal property taxes, sewer rents, water rents, assessments,
(special or otherwise), transit taxes and ad valorem taxes. Taxes shall also
include all fees, costs and expenses (including, without limitation, legal fees
and court costs) paid by Landlord in connection with protesting or contesting,
or seeking a refund or reduction of, any of the aforesaid Taxes, regardless of
whether the Landlord is ultimately successful. If at any time during the term
hereof, a tax or excise on rents or income or other tax however described (the
"Rent Tax") is levied or assessed by the United States or the State of Illinois,
or any political subdivision thereof, on account of the rents hereunder or the
interest of Landlord under this Lease, such Rent Tax shall constitute and be
included in Taxes, provided, however, that in no event shall Tenant be obligated
(a) to pay for any year any greater amount as a result of such Rent Tax than
would have been payable by Tenant had the rentals paid to Landlord under all
Project leases (being the rentals upon which such taxes are imposed) been the
sole taxable income of Landlord for the year in question or (b) to pay or to
reimburse Landlord for any tax of any kind assessed against Landlord on account
of any such Rent Tax having been reimbursed to Landlord by Tenant or any third
party.
For the purpose of determining Taxes for any given fiscal year, the amount
to be included for such fiscal year (a) from special taxes or assessments
payable in installments, shall be the amount of the installments (and any
interest) due and payable during such fiscal year, (b) from all other Taxes,
shall be the amount accrued, assessed or otherwise imposed for such fiscal year
without regard to when any such Taxes are payable, and (c) from any adjustment
(including, without limitation, a refund) to any Taxes by the taxing authority,
when such adjustment has resulted in a corresponding adjustment payment by or to
Landlord, shall constitute an adjustment to Taxes for the fiscal year during
which such adjustment is made or received by Landlord, as the case may be.
Taxes shall not include any net income (except Rent Tax as hereinabove
provided), capital, stock, succession, transfer, franchise, gift, estate or
inheritance taxes, unless the same shall be imposed in lieu of all or any
portion of Taxes.
-4-
<PAGE>
(2) Operating Costs. "Operating Costs" shall mean any expenses, costs
---------------
and disbursements (other than Taxes) of every kind and nature, paid or incurred
by Landlord in connection with the ownership, leasing, management, maintenance,
operation and repair of all or any part of the Project (adjusted for vacancy as
hereafter provided) and of the personal property, fixtures, machinery,
equipment, systems and apparatus located in the Project or used in connection
therewith. Operating Costs shall not include (a) costs of alterations of tenant
premises; (b) costs of capital improvements, except for any capital improvements
which are intended to reduce Operating Costs, and any capital improvements which
Landlord is required to make pursuant to, or which Landlord shall deem necessary
to keep the Project in compliance with, all applicable governmental rules and
regulations applicable from time to time to the Project (the foregoing capital
improvements that are included within Operating Costs are collectively referred
to herein as the "Included Capital Items"); (c) depreciation (except on any
Included Capital Items); (d) interest and principal payments on mortgages or
any rental payments on any ground or other underlying leases subject to which
Landlord holds its interest in the Project (hereinafter, referred to
individually as a "Ground Lease" and collectively as "Ground Leases"), and other
debt costs, if any; (e) real estate brokers' leasing commissions or
compensations; (f) any cost or expenditure (or portion thereof) for which
Landlord is reimbursed, whether by insurance proceeds or otherwise (Operating
Cost Share Rent and Tax Share Rent provided for in any tenant leases are not
reimbursements); (g) the cost of any kind of service furnished to any other
office tenant of the Project which Landlord does not make available to Tenant
hereunder*.
If during all or any portion of any fiscal year the Project is not fully
rented and occupied by tenants, Landlord may elect to make an appropriate
adjustment of Operating Costs for such fiscal year, employing sound accounting
and management principles, to determine the Operating Costs that would have been
paid or incurred by Landlord had the Project been fully rented and occupied for
the entire fiscal year, and the amount so determined shall be deemed to have
been the Operating Costs for such fiscal year. If Landlord is not furnishing any
particular work or service (the cost of which if performed by Landlord would
constitute an Operating Cost) to a tenant who has undertaken to perform such
work or service in lieu of the performance thereof by Landlord for all or any
portion of a fiscal year, Operating Costs for such fiscal year shall be deemed
to be increased by an amount equal to the additional Operating Costs which
reasonably would have been incurred during such fiscal year by Landlord if it
had, at its own expense, furnished such work or service to such tenant.
Notwithstanding anything contained herein to the contrary, the provisions of
this paragraph with respect to adjustment of Operating Costs for vacancy, or as
a result of the performance by tenants of certain services, shall apply only to
Operating Costs which are variable and which increase as occupancy in the
Project increases and shall not apply to any Operating Costs which do not
vary with the amount of occupancy in the Project.
(3) Fiscal Year. The term "fiscal year" shall mean any 12-month period
-----------
(including, without limitation, the calendar year) which Landlord may from time
to time select as the fiscal year of the Project, provided that the first fiscal
year and the
* See page 5a for continuation.
-5-
<PAGE>
last fiscal year of the Term may contain less than twelve (12) months.
(4) Tenant's Proportionate Share. "Tenant's Proportionate Share" shall
------------------------------
mean the percentage set forth as Item 7 on the Schedule.
D. Rules of Interpretation and Computation of Base Rent and Rent Adjustments:
-------------------------------------------------------------------------
(1) If this Lease commences on other than the first day of a month,
the Base Rent, Operating Cost Share Rent and Tax Share Rent for the month
in which this Lease so begins shall be prorated based upon the number of
days of the Term falling within such month. If the Term of this Lease
commences on any day other than the first day of the designated fiscal
year, or if the Term of the Lease ends on any day other than the last day
of the designated fiscal year, any Operating Cost Share Rent, Tax Share
Rent due to the Landlord with respect to such fiscal year shall be prorated
based on the number of days in the Term falling within such fiscal year.
(2) All rent shall be paid to Landlord without deduction or offset.
The Tenant's covenants to pay rent shall be independent of every other
covenant set forth in this Lease.
(3) Any sum due from Tenant to Landlord not paid when due after the
applicable cure period has expired shall bear interest from the date due
after the applicable cure period has expired until the date paid at the
annual rate equal to the lesser of: (i) the highest lawful rate, or (ii) a
rate of interest equal to the sum of three percent (3%) plus the "Corporate
Base Rate". The phrase "Corporate Base Rate" means that rate of interest
most recently announced by the First National Bank of Chicago, or its
successor (collectively, the "First") as the corporate base rate, changing
automatically and simultaneously with each announced change by the First in
the Corporate Base Rate, such change to be effective as of and on the date
announced by the First as the effective date for the change in the
Corporate Base Rate. A certificate made by an officer of the First stating
the Corporate Base Rate in effect on a certain day, or Corporate Base Rates
in effect during a certain period, shall, for the purposes of this Lease,
be conclusive evidence of the First's Corporate Base Rate or Rates on said
day or during such period. In the event that the First ceases to use the
term Corporate Base Rate in setting a base rate of interest for commercial
loans, then the Corporate Base Rate herein shall be determined by
reference to the rate used by the First as a base rate of interest for
commercial loans as the same shall be designated by the First to the
Landlord. The payment of such interest shall not excuse or cure any
default of Tenant under this Lease.
(4) If Tenant is in default of any of its obligations under this
Lease, Tenant shall not be entitled to any refund of any sum which may
otherwise be due it by application of any provision of this Lease until any
and all of Tenant's defaults under this Lease are cured by Tenant*.
(5) If changes are made to this Lease or to the Project changing the
number of rentable square feet contained in the Premises or in the Project,
Tenant's Proportionate Share shall be appropriately adjusted and the
computations of rent shall be
-6-
* , provided, however, that if the amount of a refund owed to Tenant exceeds
the amount required to cure all such Tenant defaults, then Tenant shall be
entitled to such excess amount.
<PAGE>
-5A-
CONTINUATION OF SECTION 2C(2)
- -----------------------------
(h) cost of repairs or replacements incurred by reason of fire or other
casualty, or caused by the exercise of the right of eminent domain to the extent
such costs are covered by Landlord's insurance; (i) legal and auditing fees
which are for the benefit of Landlord such as collecting delinquent rents,
preparing organizational returns and other financial statements, and audits
other than those incurred in connection with the preparation of statements
required pursuant to Section 2B above; (j) costs incurred in renovating or
otherwise improving, decorating or painting space for tenants or other occupants
or vacant space which is not part of the public areas of the Building; (k)
Landlord's costs of the electricity and other services sold to tenants and for
which Landlord is entitled or would ordinarily be entitled to be reimbursed by
tenants as an additional charge or rental over and above the base rent payable
under the lease with such tenant; (1) costs incurred by Landlord in connection
with the enforcement of any other lease in the Building; (m) overhead and profit
increment paid to subsidiaries or affiliates of Landlord for services on or to
the Project, to the extent only that the costs of such services exceed the
competitive costs of such services were they not so rendered by a subsidiary or
affiliate; (n) Landlord's corporate overhead and general administrative
expenses; (o) any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord, if any; (p) advertising and
promotional expenses incurred with regard to leasing the Building or portions
thereof; (q) fines, penalties and interest; (r) costs of or related to
paintings, sculptures and other art work over $ 5,000.00 per year, except for
costs of insuring and maintaining any paintings, sculptures or other art work
owned by Landlord and located in the public areas of the Building; (s) wages,
salaries or other compensation paid to any executive employees above the grade
of building manager; (t) costs of correcting defects in construction of the
Building (as opposed to the cost of normal repair, maintenance and replacement
expected with the construction materials and equipment installed in the Building
in light of their specifications); (u) repairs and replacements of any equipment
or component of the Project caused by deficient design, selection of materials,
construction or improper maintenance, but only to the extent that such costs are
covered by warranties, guaranties or service contracts and to the extent
recovered by Landlord thereunder; or (v) interest or penalties due to delayed
payments of taxes,
<PAGE>
-5B-
utilities bills and other costs, unless such delay is caused by Tenant's failure
to timely pay its Proportionate Share of Taxes and Operating Costs.
<PAGE>
appropriately adjusted so as to take into account the different Tenant's
Proportionate Share figures applicable during each portion of the applicable
fiscal year. Tenant's Proportionate Share is based upon a total of 105,924
rentable square feet in the Building and a total of 19,025 rentable square feet
------
in the Premises initially demised hereunder.
(6) Landlord shall maintain books and records in accordance with generally
accepted accounting principles, consistently applied, as customarily modified
for income producing real estate reflecting the Operating Costs and Taxes. In
the event of any dispute as to any Operating Cost Share Rent or Tax Share Rent,
Tenant shall have the right to inspect Landlord's accounting records relative to
Operating Costs and Taxes at Landlord's accounting office upon reasonable prior
notice during normal business hours during the thirty (30) days following the
furnishing by Landlord to Tenant of either of the Operating Cost Report and the
Tax Report. Unless Tenant shall take written exception to any item in any such
report within said thirty (30) day period, such report shall be considered as
final and accepted by Tenant. Any payment due to the Landlord as shown on the
Operating Cost Report or the Tax Report, whether or not written exception is
taken thereto, shall be made by the Tenant within twenty (20) days after the
Landlord shall have submitted the Operating Cost Report or the Tax Report (as
the case may be) without prejudice to any such written exception. If Tenant
makes such timely written exception, a certification as to the proper amount of
Operating Cost Share Rent and Tax Share Rent shall be made by Landlord's
independent certified public accountant (which shall be a "Big Six" accounting
firm), which shall be final and conclusive. Tenant agrees to pay the cost of
such certification unless it is determined that Landlord's original
determination of the aggregate of Taxes and Operating Costs was in error by more
than five percent (5%) of said amounts.
(7) In the event of the termination of this Lease by expiration of the
stated Term or for any other cause or reason whatsoever prior to the
determination of Operating Cost Share Rent, Tax Share Rent or Additional Rent,
Tenant's agreement to pay any such sum shall survive termination of the Lease
and Tenant shall pay any such amount due to Landlord within fifteen (15) days
after being billed therefor. Tenant's obligation to pay Base Rent shall also
survive the expiration or termination of this Lease. In the event of the
termination of this Lease by expiration of the stated Term or for any other
cause or reason whatsoever, except the default by Tenant under any of the terms
or provisions of this Lease, prior to the determination of Operating Cost Share
Rent or Tax Share Rent as hereinabove set forth, Landlord's agreement to refund
any excess in the amount of the estimated payments made by Tenant on account of
Operating Cost Share Rent or Tax Share Rent over the actual amount thereof
accruing or payable up to the time of the termination or expiration shall
survive termination of the Lease and Landlord shall pay the amount due to
Tenant within fifteen (15) days of Landlord's determination of such amount.
(8) No calculation, determination or payment of Operating Cost Share Rent
or Tax Share Rent, by virtue of the operation of the rent adjustment provisions
under this Section 2 shall result in the payment by Tenant in any fiscal year
during the Term of less than the Base Rent shown on the Schedule.
-7-
<PAGE>
(9) If any Operating Cost though paid in one fiscal year, relates to more
than one fiscal year, at the option of the Landlord, such Operating Cost may be
proportionately allocated among such related fiscal years. If any Operating Cost
relates to more than once parcel of property, at the option of the Landlord,
such Operating Cost may be proportionately allocated among all parcels of
property to which it relates.
(10) All payments made with respect to Operating Cost Share Rent or Tax
Share Rent (including any monthly payments made on the basis of Landlord's
estimates thereof) may be commingled and need not be segregated by the Landlord
and may be held and utilized by the Landlord without payment to the Tenant of
interest or any sums for the use of any of said amounts.
3. PREPARATION AND CONDITION OF PREMISES, POSSESSION AND SURRENDER OF
PREMISES.
A. Except to the extent expressly indicated in the Tenant Improvements
item on the Schedule, Landlord is leasing the Premises to Tenant "as is",
without any representations or warranties of any kind (including, without
limitation, any express or implied warranties of merchantability, fitness or
habitability) and without any obligation on the part of the Landlord to alter,
remodel, improve, repair, decorate or clean the Premises or any part thereof. If
so indicated in the Tenant Improvements item on the Schedule, Landlord shall
cause the Premises to be completed in accordance with the plans, specifications,
and agreements and on the terms, conditions and provisions as provided in the
Tenant Improvement Work Agreement (Appendix D) and Exhibit A thereto (Building
Standards) both of which are attached hereto and made a part of this Lease.
B. During the term of this Lease, Tenant shall maintain the Premises in
as good condition as when Tenant took possession, or as when completed
after possession in the event that Tenant takes possession prior to the
Completion Date (loss or damage caused by action of the elements, Acts of
God and the public enemy, ordinary wear and fire and other casualty insured
against by Landlord excepted), failing which Landlord may but need not restore
the Premises to such good condition and Tenant shall pay the cost thereof. At
the termination of this Lease or at the termination of Tenant's right to
possession without termination of the Lease, Tenant shall, subject to Sections
3C and 3D below, return the Premises to Landlord broom clean and in good
condition as described in the immediately preceding sentence* or Landlord may,
but need not, restore the Premises to such good condition and Tenant shall
pay the cost thereof.
C. Unless otherwise provided by written agreement, signed by Landlord,
all Work (hereinafter defined), partitions, hardware, light fixtures, and other
fixtures (except trade fixtures and movable furniture and equipment belonging to
Tenant) in or upon the Premises, whether placed there by Landlord or Tenant,
shall be surrendered with the Premises at the termination of this Lease, by
lapse of time or otherwise, or at the termination of Tenant's right to
possession without termination of this Lease, and shall become Landlord's
property without compensation to Tenant; provided, however, that if prior to any
such termination of the Lease, or of the right to possession, or within ten (10)
days thereafter, Landlord so directs by written notice, Tenant shall promptly
remove any Work, partitions, hardware, light fixtures or other fixtures placed
in or upon the Premises by Tenant and designated in such notice and repair any
damage to the Premises caused
-8-
* (loss or damage caused by action of the elements, Acts of God and the
public enemy, ordinary wear and fire and other casualty insured against by
Landlord excepted)
<PAGE>
by such removal, failing which Landlord may remove the same and repair the
Premises and Tenant shall pay the cost thereof to Landlord upon demand.
D. Tenant shall also remove its furniture, movable equipment, trade
fixtures and all other items of personal property from the Premises prior to the
end of the Term or any extension thereof, or within thirty (30) days after the
early termination of this Lease for any reason, or of the termination of
Tenant's right of possession; and if Tenant does not remove such property, at
Landlord's election: (i) Tenant shall be conclusively presumed to have conveyed
the same to Landlord under this Lease as a bill of sale without further payment
or credit by Landlord to Tenant, (ii) Tenant shall be conclusively presumed to
have forever abandoned such property, and without accepting title thereto,
Landlord may (provided Landlord exercises reasonable care), at Tenant's expense,
remove, store, destroy, discard or otherwise dispose of all or any part thereof
in any manner that Landlord shall choose without incurring liability to Tenant
or to any other person except in the case of Landlord's negligence and
intentional misconduct, and Tenant shall pay to Landlord, upon demand, any and
all reasonable expenses incurred in taking any of such actions. In no event
shall Landlord ever become or accept or be charged with the duties of a bailee
(either voluntary or involuntary) of any personal property; and the failure of
Tenant to remove all such property from the Premises and the Project shall
forever bar Tenant from bringing any action or asserting any liability against
Landlord with respect to any such property which Tenant fails to remove.
E. All obligations of the Tenant and the Landlord under this Lease shall
survive the expiration of the Term or sooner termination of this Lease.
F. Tenant's taking possession of the Premises or any portion thereof
shall be conclusive evidence that the Premises or such portion were then in good
order, repair and satisfactory condition. Landlord may authorize Tenant to take
possession of all or any part of the Premises prior to the Commencement Date.
If tenant does take possession pursuant to such authorization, all of the
covenants and conditions of this Lease shall apply to and shall control such
pre-term occupancy. Rent for such pre-term occupancy shall be paid upon
occupancy and on the first day of each calendar month thereafter at the rate set
forth in Section 2A hereof. If the Premises are occupied for a fractional
month, such rent shall be prorated on a per diem basis.
4. PROJECT SERVICES.
So long as Tenant is not in default hereunder and such default has not been
cured within the applicable cure period, Landlord agrees to furnish services to
the Tenant without charge except for Operating Cost Share Rent, electricity and
as otherwise specifically provided herein, as follows:
A. Heat and Air Conditioning. Landlord shall furnish heat and air
-------------------------
conditioning to provide a temperature condition required, in Landlord's
reasonable judgment, for comfortable occupancy of the Premises under normal
business operations in the absence of machines or equipment which may affect the
temperature otherwise maintained in the Premises. Such heat and air
conditioning shall be provided daily during business hours (8:00 a.m. to 6:00
p.m. Monday through Friday and 8:00 a.m. to 1:00 p.m. Saturday), Sundays and
Holidays (hereinafter defined) excepted. Tenant agrees to keep and cause to be
kept closed all windows in the Premises and at all times to cooperate fully with
the Landlord in the operation of the heating and air conditioning systems and to
abide by all reasonable regulations and requirements which Landlord may
prescribe to permit the proper functioning and protection
-9-
<PAGE>
of the heating and air conditioning systems. Landlord reserves the right to
stop the heating and air conditioning systems when necessary by reason of
accident or emergency or for repairs, alterations, replacements or improvements,
which in the judgment of the Landlord are desirable or necessary, until said
repairs, alterations, replacements or improvements shall have been completed.
For purposes of this Lease "Holidays" shall mean any Legal Holiday as defined in
Ill. Rev. Stat. 1985, Ch. 17, pars. 2201, 2202, as amended from time to time.
Landlord agrees to make any repairs to the heating system promptly and with due
diligence.*
Whenever heavy concentration of personnel, motors, machines or equipment,
including telephone equipment, used in the Premises adversely affects the
temperature otherwise maintained by the air conditioning system, Landlord
reserves the right to install supplementary air conditioning units in the
Premises and the cost thereof, including all of the costs relating to the
installation and the cost of operation and maintenance thereof, shall be
Additional Rent hereunder and shall be paid by Tenant to Landlord upon demand.
Landlord shall also furnish heat and air conditioning after business hours,
on the condition that Tenant gives Landlord not less than forty-eight (48)
hours' prior notice of Tenant's needs for such additional heating or air
conditioning, and provided that Tenant pays to Landlord its then current charges
(not to exceed Landlord's actual costs) for such additional heating or air
conditioning. Such charges will be prorated by Landlord between requesting
user-tenants if more than one tenant requests such additional heating or air
conditioning at the same time and the proration shall be based on the area of
the Project leased to such tenants and their respective periods of use.
B. Elevators. Landlord shall provide passenger elevator service in
---------
common with the Landlord and the other tenants, daily, during business hours,
Sundays and Holidays excepted. Tenant may request additional freight elevator
service provided that such service shall be at Tenant's sole cost and expense.
Elevator service for other than passenger service shall at all times be subject
to reasonable scheduling by the Landlord. Notwithstanding the foregoing,
Landlord shall provide limited passenger elevator service at all times including
Sundays, (except in the case of an emergency) during which normal passenger
elevator service is not furnished.
C. Electricity. All the electricity used in the Premises shall be
-----------
supplied by Commonwealth Edison Company or any other electricity company serving
the Project, and such electricity shall be supplied through a separate meter and
be paid for by Tenant, provided that Landlord shall pay for the electricity
required for the operation of the Building's shared heating, ventilating and air
conditioning systems at the times specified in Section 4A above. The meter
shall be installed at the expense of Tenant or the electricity company.
Landlord shall not in any way be liable to Tenant for any loss or damage or
expense Tenant may sustain or incur if either the amount or quality of electric
service is changed or is no longer available or suitable for Tenant's
requirements. If such service shall be discontinued, such discontinuance shall
not in any way affect this Lease. Tenant covenants and agrees that its use of
electric current shall never exceed the capacity of the existing feeders to the
Building or the risers or the wiring installed thereon when reviewed in
conjunction with the electrical usage of the other tenants in the Project.
Tenant shall make no alterations or additions to the electric equipment and/or
appliances without the prior written consent of Landlord in each instance.
Landlord shall maintain the light fixtures
-10-
* See page 10A for continuation.
<PAGE>
-10A-
CONTINUATION OF SECTION 4A
- --------------------------
Landlord shall furnish air conditioning such that the average temperature
condition of the Premises is 75 F +/- 2 F dry bulb with 50% +/- 5% relative
humidity when the outdoor conditions are not above 90 F dry bulb, and Landlord
shall furnish heat such that the average temperature condition of the Premises
is 68 +/- 2 F dry bulb when the outdoor conditions are not below 5 F dry bulb.
The above temperatures are based on an occupancy density of not more than one
(1) person per one hundred (100) square feet of usable area and an average
electrical load of eight (8) watts per rentable square foot.
<PAGE>
in the Premises and install any lamps, bulbs, ballasts or starters to be used by
Tenant in the Premises, all at Tenant's sole cost and expense.*
Tenant shall pay for all electricity required during janitorial service and
alterations and repairs to the Premises and Tenant shall pay for all electricity
required for the operation of any special air conditioning or ventilating system
for its office machinery or equipment requiring special or extra current.
D. Water. Landlord shall furnish cold water from City of Northbrook
-----
mains from regular Building outlets for drinking, lavatory and toilet purposes,
drawn through fixtures installed by Landlord or by Tenant with Landlord's prior
written consent, and hot water for public lavatory purposes from the regular
supply of the Building. Tenant shall pay Landlord at rates fixed by Landlord
(not to exceed Landlord's actual costs) for water furnished for any other
purpose as Additional Rent hereunder. Tenant shall not waste or permit the
waste of water.
E. Janitorial Service. Landlord shall also furnish janitorial and
------------------
cleaning services as set forth in Appendix B, on Monday through Friday, Holidays
excepted. Tenant shall not provide janitorial services in the Premises without
the prior written consent of Landlord and then only at Tenant's sole
responsibility, cost and expense, by contractors or employees at all times
satisfactory to Landlord in its sole discretion.
F. Window Washing. Landlord shall furnish window washing of all
--------------
exterior windows, weather permitting, at intervals to be determined by Landlord,
but not less than three times during each calendar year.
G. Interruption of Service. Landlord does not warrant that any service
-----------------------
will be free from interruption caused by labor controversies, accidents,
inability to obtain fuel, steam, water or supplies, governmental regulations, or
other causes beyond the reasonable control of the Landlord, or repairs,
alterations, replacements or improvements to such systems. No such interruption
of service shall be deemed an eviction or disturbance of Tenant's use and
possession of the Premises or any part thereof, or render Landlord liable to
Tenant for damages, by abatement of rent or otherwise, or relieve Tenant from
performance of Tenant's obligations under this Lease.**
Tenant shall make arrangements directly with the telephone company
servicing the Building for such telephone service in the Premises as may be
desired by Tenant. Tenant shall pay the entire cost of all telephone charges,
electricity consumed within the Premises, maintenance of light fixtures and
replacement of lamps, bulbs, tubes, ballasts and starters.
5. ALTERATIONS AND REPAIRS.
A. Tenant shall not make any improvements or alterations in or additions,
changes or installations to the Premises (collectively, the "Work") without
submitting plans and specifications therefor to Landlord, and in the cause of
such work affecting the structure or mechanical systems of the Building,
obtaining Landlord's prior written consent in each instance. Landlord may
withhold such consent in its sole discretion. All Work shall be performed (a)
at the sole cost and expense of Tenant by employees of or contractors employed
by Landlord, or, provided Tenant's use of labor does not create any disharmony
with trades in the Building, by contractors employed by Tenant under a written
contract previously
-11-
* Landlord represents that the Building is capable of supplying 8 watts per
rentable square foot to the Premises.
** See page 11A for continuation.
<PAGE>
-11A-
CONTINUATION OF SECTION 4G.
- --------------------------
Notwithstanding anything to the contrary contained in this Section 4G, if
(i) Landlord ceases to furnish any service in the Building as a result of a
condition which affects only the Building (and does not affect office buildings
in general in the north suburban Chicago area), and Tenant notifies Landlord in
writing within one (1) business day after such cessation, (ii) such cessation is
within Landlord's reasonable control (that is, is not caused by Force Majeure
[hereinafter defined], (iii) such cessation does not arise as a result of an act
or omission of Tenant, and (iv) as a result of such cessation the Premises or a
material portion thereof, is rendered untenantable (meaning that Tenant is
unable to use such space in the normal course of its business) and Tenant in
fact so ceases to use such space, or material portion thereof, in the manner
used prior to such cessation, then, Tenant's remedy for such cessation shall be
as follows: on the third business day after the affected space becomes
untenantable, Tenant ceases to use such space, and Tenant so notifies Landlord
in writing thereof, the rent payable hereunder shall be equitably abated based
upon the percentage of the space in the Premises so rendered untenantable and
not being so used by Tenant, and such abatement shall continue until the date
the Premises become tenantable again.
<PAGE>
approved in writing by Landlord, and (b) on such terms and under such conditions
as Landlord, in its sole discretion, shall determine as will protect the
Premises, the Building and the Project from improper contractors' work and
against the imposition of any lien resulting from Work; without limiting the
foregoing, if Landlord consents to any Work, it shall be performed subject to
the following requirements:
(1) If the Work is to be done by Tenant's contractors, Tenant shall
furnish to Landlord prior to commencement thereof, building permits and
certificates of appropriate insurance and bonds satisfactory in all
respects to Landlord. Tenant shall also furnish to Landlord, if Landlord
so requests, security for the payment of all costs to be incurred in
connection with the Work.
(2) Upon completion of any Work, Tenant shall furnish Landlord with
contractors' affidavits and full and final waivers of lien, each conforming
to the applicable Illinois statutory requirements, as-built plans of any
Work and receipted bills covering all labor and materials expended and
used. Insofar as applicable to the work or material for which payment is
requested or notice or lien claim is made, Landlord in its sole discretion
shall make available for partial or final payment or release thereof such
funds as may have been deposited with it by Tenant for the estimated cost
of such Work.
(3) Any Work permitted to be undertaken by Tenant's contractors shall
be performed in such a fashion and by such means as necessarily to maintain
peace and harmony among the other contractors serving the Project and the
other tenants and so as not to cause interference with the continuance of
work to be performed or services to be rendered to the Project or the other
tenants.
(4) All Work shall comply with all insurance requirements and with
all applicable laws, ordinances and regulations. All Work shall be
constructed in a good and workmanlike manner, and only good grades of
material shall be used with a quality equal to or better than that used in
the Project.
(5) Tenant shall permit Landlord to supervise all Work within the
Premises. Landlord shall charge a supervisory fee not to exceed (a)
fifteen percent (15%) of the total cost of the Work, including, without
limitation, all labor and material costs, if Landlord's employees or
contractors perform the Work, and (b) ten percent (10%) of the total cost
of the Work, including, without limitation, all labor and material costs,
if Tenant's employees or contractors perform the Work.
B. If Tenant desires telegraphic, telephonic, burglar alarm, computer
installations or signal service (all of which shall be at Tenant's sole cost and
expense), Landlord shall, upon request, direct where and how all connections and
wiring for such service shall be introduced and run. In the absence of any such
directions, Tenant shall make no borings, cutting or install any wires or cable
in or about the Premises.
C. Tenant agrees to protect, defend and indemnify Landlord, its agents
(including, without limitation, the building manager) and employees, the
Premises, the Building and the Project from and against any and all liabilities
of every kind and description (except for Landlord's negligence or intentional
misconduct) which may arise
-12-
<PAGE>
out of or be connected in any way with any Work, whether performed by or under
the direction of Landlord and at the cost of Tenant or performed by Tenant and
whether performed in compliance with this Section 5.
D. Any mechanic's lien filed against the Premises or the Project or any
notice which is received by either Landlord or Tenant or filed for work or
materials furnished or claimed to be furnished and deriving from Work or for
materials or work claimed to have been furnished to Tenant or the Premises shall
be released and discharged of record by Tenant, in either case, within thirty
(30) days after such filing or receipt, whichever is applicable, at Tenant's
expense. If Tenant chooses to contest such claim, notice or lien, Tenant may do
so in place of causing the release and discharge thereof, provided that within
said thirty (30) day period: (i) Tenant provides Landlord with a title indemnity
or bond or other adequate security covering any possible lien or claim that may
arise from the failure to release and discharge such claim, notice or lien; (ii)
Tenant contests such claim, notice or lien in good faith by appropriate
proceedings that operate to stay enforcement thereof; and (iii) Tenant promptly
pays and discharges any final adverse judgment entered in any such proceeding.
If Tenant has not caused the release or discharge or begun appropriate
proceedings to contest such claim, notice or lien, within said thirty (30) days,
Landlord may, but shall not be obligated to, pay the amount necessary to remove
the same without being responsible for making an investigation as to the
validity or accuracy thereof, and the amount so paid, together with all costs
and expenses (including, without limitation, reasonable attorneys' fees)
incurred by Landlord in connection therewith, shall be deemed Additional Rent
hereunder, payable upon demand. Tenant has no power or authority to cause or
permit any lien or encumbrance of any kind whatsoever, whether created by act of
Tenant, operation of law or otherwise, to attach to or be placed upon Landlord's
title or interest in the Premises or the Project, and any and all liens and
encumbrances created by Tenant shall attach to Tenant's interest only.
E. Except for ordinary wear and as otherwise provided in this Lease,
Tenant shall, at all times during the Term hereof, at its sole expense, keep all
Tenant's movable and removable fixtures located in or appurtenant to the
Premises in good order, repair and condition, and Tenant shall promptly arrange
with the Landlord to have Landlord or Landlord's agent make repairs of all other
damages to the Premises and the replacement or repair of all damaged or broken
glass (including signs thereon), fixtures and appurtenances (including hardware
and heating, cooling, ventilating, electrical, plumbing and other mechanical
facilities in the Premises), with materials equal in quality and class to the
original materials damaged or broken, within any reasonable period of time
specified by Landlord. Upon reasonable advance oral notice, Landlord may, but
shall not be required to do so, enter the Premises during normal business hours
(except in the case of an emergency) to make any repairs, alterations,
improvements or additions, as Landlord shall desire or deem necessary for the
safety, protection, preservation or improvement of the Project, or as Landlord
may be required to do by any governmental department or agency, or by the order
or decree of any court or by any other proper authority. The cost of all
repairs made by Landlord to the Premises (except those necessitated by the
negligence or intentional misconduct of Landlord or its employees, contractors
or agents) shall be immediately paid as Additional Rent by Tenant to Landlord
upon being billed for same. Similarly, the cost of all repairs made by Landlord
to the Project (other than the Premises) which are made necessary as a result of
misuse or neglect by Tenant or Tenant's employees, invitees, servants,
contractors or agents shall be immediately paid as Additional Rent by Tenant to
Landlord upon being billed for the same.
-13-
<PAGE>
The cost of all other repairs and replacements (except those caused by Tenant's
misuse or negligence and those relating to Tenant's movable and removable
fixtures) shall be paid for by the Landlord and deemed an item of Operating
Costs.
6. USES OF PREMISES. The Premises shall be occupied and used by Tenant
only for general office purposes, and for no other purpose. Without limiting
the generality of the foregoing, no use shall be made of the Premises nor acts
done which will increase the existing rate of insurance upon the Project or
cause cancellation of any insurance policy covering the Project or any part
thereof or require additional insurance coverage. Tenant shall not permit to be
kept, used or sold in or about the Premises any article which may be prohibited
by Landlord's insurance policies.
7. BUILDING RULES AND GOVERNMENTAL REGULATIONS. Tenant shall abide by all
applicable laws or governmental regulations concerning its use of the Premises.
Tenant shall also abide by all uniform reasonable rules and regulations adopted
or to be adopted from time to time by Landlord pertaining to the operation and
management of the Project. If any rules and regulations are contrary to the
terms of the Lease, the terms of this Lease shall prevail. The present rules
are contained in Appendix C. The violation of the Project rules or the laws or
regulations governing Tenant's use of the Premises shall be a default under this
Lease allowing Landlord all remedies for default set forth under Section 11 of
this Lease.* Landlord shall not be responsible to Tenant for violation of rules
or regulations or terms of this Lease or any other lease in the Project by
another tenant, nor shall failure to obey the same by others or lack of
enforcement by Landlord relieve Tenant from its obligations to comply therewith.
8. CLAIMS; INSURANCE; LIABILITY.
A. To the extent permitted by law, Tenant waives all claims it may have
against Landlord, its officers, directors, servants, agents or employees for
damage to person or property sustained by Tenant or by any occupant of the
Premises or the Project, or any other person, occurring in or about the Premises
or the Project, resulting from the Premises or the Project or any part of said
Premises or Project becoming out of repair or resulting from any existing or
future condition, defect, matter or thing in the Premises, the Project or any
existing or future part of it, or from equipment or appurtenances therein, or
from the action of the elements, or any accident within or adjacent to the
Premises or Project or resulting directly or indirectly from any act or
omission of Landlord or any occupant of the Premises or Project or any other
person while on the Premises or the Project. If any such damage to the Premises
or the Project or any equipment or appurtenances therein, or to tenants
thereof, or their agents, employees, contractors or invitees, results from any
act, omission or negligence of Tenant, its agents, employees, servants,
contractors or invitees, Landlord may, at Landlord's option, after giving
Tenant notice and an opportunity to cure during the applicable cure period,
except in the event (i) of an emergency or (ii) that to wait for such period
before repairing such damages would cause further detriment to Landlord or
any other tenant, repair such damage and Tenant shall upon demand by Landlord
reimburse Landlord for all costs of such repairs and damages. All property
on the Project or in the Premises belonging to the Tenant, its agents,
employees, servants, contractors or invitees or to any occupant of the
Premises shall be there at the risk of the Tenant or such other person only
and Landlord shall not be liable for damage thereto or theft, misappropriation
or loss thereof. Notwithstanding anything contained in this Section 8 to the
contrary, no agreement of Tenant in this Section 8 shall be deemed to exempt
Landlord from liability for injury to persons or damage to property caused
by or resulting from the negligence or intentional misconduct of Landlord or its
employees, contractors or agents, its agents or
-14-
* Landlord agrees that such rules and regulations will apply to all tenants,
and Landlord shall use reasonable efforts to enforce such rules and
regulations, provided that
<PAGE>
employees in the operation or maintenance of the Premises or the Project.
B. Landlord and Tenant agree to have all property insurance policies
which may be carried by either of them endorsed with a clause providing that any
release from liability of or waiver of claim for recovery from the other party
entered into in writing by the insured thereunder prior to any loss or damage
shall not affect the validity of said policy or the right of the insured to
recover thereunder. Without limiting any release or waiver of liability or
recovery contained in any other section of this Lease but rather in confirmation
and furtherance thereof, Landlord and Tenant each hereby waive any and every
claim for recovery from the other for any and all loss of or damage to the
Project or the Premises or to the contents thereof, which loss or damage is
covered by valid and collectible fire and extended coverage insurance policies,
to the extent that such loss or damage is recoverable under said insurance
policies. Inasmuch as this mutual waiver will preclude the assignment of any
such claim by subrogation (or otherwise) to an insurance company (or any other
person), Landlord and Tenant each agree to give to each insurance company which
has issued, or in the future may issue, its policies of fire and extended
coverage insurance, written notice of the terms of this mutual waiver, and to
have said insurance policies properly endorsed, if necessary to prevent the
invalidation of said insurance coverage by reason of said waiver.
C. At all times during the Term of this Lease, Tenant shall at its sole
cost and expense maintain in full force and effect insurance protecting Tenant
and Landlord and their respective agents and employees, and any other parties
designated by Landlord from time to time, with terms, coverages and in companies
at all times satisfactory to Landlord and with such increases in limits as
Landlord may, from time to time, request. Initially, such coverage shall
be in the following amounts:
(1) Comprehensive or Commercial General Liability Insurance,
including Contractual Liability insuring the indemnification provisions
contained in this Lease, with limits of not less than One Million Dollars
($1,000,000.00) combined single limit per occurrence for Bodily Injury,
Death and Property Damage, and umbrella coverage of not less than Three
Million Dollars ($3,000,000.00). The Comprehensive or Commercial General
Liability policy shall include the Landlord and Landlord's building manager
as additional insureds, with a severability of interest endorsement.
(2) Insurance against (a) "All Risks" of physical loss covering the
tenant improvements (if any) described in Item 12 of the Schedule, the
Work, movable fixtures, office equipment, furniture, trade fixtures,
merchandise and all other items of Tenant's property on the Premises, and
(b) loss of use of the Premises.
D. Tenant hereby agrees to, prior to the commencement of the Term hereof
and prior to the expiration of any policy, furnish Landlord certificates
evidencing that all required insurance is in force and providing that such
insurance may not be cancelled or changed without at least thirty (30) days'
prior written notice to Landlord and Tenant (unless such cancellation is due to
nonpayment of premiums, in which event ten (10) days' prior written notice
shall be provided).
-15-
<PAGE>
E. Tenant hereby agrees to indemnify, defend and hold harmless Landlord
and its officers, directors, servants, agents and employees against any claims
or liability for damage to person or property (or for loss or misappropriation
of property) occurring in the Premises or Project arising from any breach or
default on the part of Tenant during the Term of this Lease or from any act or
omission of Tenant or of any employee, agent, servant, invitee or contractor of
Tenant, and from any costs relating thereto (including, without limitation,
attorneys' fees).
*
9. FIRE AND OTHER CASUALTY.
A. In the event that (i) the Premises are made substantially untenantable
by fire or other casualty, including damage or casualties of war, and Landlord
shall decide not to restore or repair the same, or (ii) the Building is so
damaged by fire or other casualty that Landlord shall decide to demolish or not
rebuild the same, then, in either of such events, either Landlord or Tenant
shall have the right to terminate this Lease by notice to the other within
ninety (90) days after the date of such fire or other casualty.
B. If the Premises or the Building are made untenantable by fire or other
casualty, and this Lease is not terminated pursuant to Section 9A above,
Landlord shall, to the extent permitted by any mortgages or Ground Leases with
respect to the Premises and the Project, immediately take such action as is
necessary to make applicable insurance proceeds available and to use the same to
reconstruct, repair and restore the Building and the Premises, subject to zoning
laws and building codes then in effect, and including only Building Standard
Tenant Improvements (as provided in Exhibit A of Appendix D) or, if any portion
of the Premises has been leased on an "as is" basis, including only improvements
similar to those located in such portion of the Premises on the Commencement
Date or the date on which such portion was added to the Premises, if later than
the Commencement Date (herein, the improvements Landlord is required to make are
called the "Required Improvements"), and at Landlord's option Tenant may be
permitted or required to devote the proceeds of its insurance described in
Section 8C(2)(a) to cause restoration of tenant improvements over and above the
Required Improvements, and pay for the same to Landlord or through Landlord as
if newly done pursuant to Section 5 of this Lease. In the event a fire or other
casualty occurs and both Landlord and Tenant are insured, it is agreed that the
coverage of the Landlord shall be primary and that Landlord's recovery in no
event shall be reduced by any insurance recovery to Tenant.
C. Notwithstanding anything in this Section 9 to the contrary (except
that in the event of an inconsistency, Section 9A shall supersede this Section
9C), if all or any portion of the Premises shall be made untenantable by a fire
or other casualty, Landlord shall with reasonable promptness, cause a registered
architect selected by Landlord and licensed to do business in Illinois to
estimate the amount of time required to substantially complete repair and
restoration of the Premises and make the Premises tenantable again, using
standard working methods. If the estimate indicates that the Premises cannot be
made tenantable within nine (9) months from the date the repair and restoration
is started, either party shall have the right to terminate this Lease by giving
to the other notice of such election within ten (10) days after its receipt of
the architect's certificate. If the estimate of the registered architect
indicates that the Premises can be made tenantable within nine (9) months from
the date the repair and restoration is started, or if neither party terminates
this Lease pursuant to this Section 9C, Landlord shall proceed with reasonable
promptness to repair
-16-
* See page 16A for continuation.
<PAGE>
-16A-
CONTINUATION OF SECTION 8E.
- --------------------------
Landlord hereby agrees to indemnify, defend and hold harmless Tenant and its
officers, directors, servants, agents and employees against any claims or
liability for injury to person, including death, or damage to property (or for
loss or misappropriation of property occurring in the Premises or the Building),
proximately caused by the intentional misconduct or sole negligence of Landlord
or of any employee, agent, servant, invitee or contractor of Landlord, and from
any costs relating thereto (including, without limitation, attorneys' fees);
provided, however, that such indemnification shall be effective only to the
extent of the sum of (i) amounts of Landlord's deductibles under the insurance
policy obtained by Landlord, and (ii) amounts of insurance proceeds recoverable
and recovered under such insurance policy.
<PAGE>
-36H-
On January 1, 1995 (the "Third Availability Date"), Tenant shall have the
-----------------------
right to expand into 5,376 rentable square feet (the "Third Expansion Space") on
---------------------
the fourth floor of the Building.
The initial Base Rent for the Expansion Space shall be at Market Rate
(defined in Section 28A).
B. Tenant's options to expand shall be exercised as follows: Tenant
shall deliver an initial non-binding written notice to Landlord of its intent to
exercise its option to expand not less than six (6) full calendar months prior
to the First or Second Availability Date, and not less than twelve (12) full
calendar months prior to the Third Availability Date. Tenant shall give final
binding written notice of its intent to exercise its option to expand no later
than five (5) full calendar months prior to the First or Second Availability
Date, and no later than nine (9) full calendar months prior to the Third
Availability Date. If Tenant fails to give its initial non-binding written
notice or its final binding written notice of intent to exercise its option to
expand when due as hereinabove provided, Tenant will be deemed to have waived
such option to expand. Promptly after Tenant's exercise of its expansion
option pursuant to this Section 34, Landlord shall prepare an amendment to the
Lease to reflect changes in the size of the Premises, Base Rent, Tenant's
Proportionate Share and any other appropriate terms, due to the addition of the
Expansion Space. Tenant shall execute and return such an amendment to the Lease
within fifteen (15) days after its submission to Tenant.
C. Tenant's right to exercise its option to expand pursuant to this
Section 34, is subject to the condition that on the date that Tenant delivers
its final binding written notice of its election to exercise its option to
expand, Tenant is not in default under any of the terms, covenants or conditions
of this Lease after having been given notice and an opportunity to cure within
the applicable cure period.
-18-
<PAGE>
and restore the Premises, provided that if the estimate of the registered
architect indicates that the Premises can be made tenantable within nine (9)
months from the date repair and restoration is started, and if Landlord does not
repair and restore the Premises within two (2) months after the expiration of
said nine (9) month period, which nine (9) month period shall be extended to the
extent of any Reconstruction Delays, then Tenant may terminate this Lease upon
fifteen (15) days prior written notice to Landlord. For purposes of this Lease,
the term "Reconstruction Delays" shall mean: (i) any delays caused by the
insurance adjustment process; (ii) any delays caused by Tenant; and (iii) any
delays caused by events beyond Landlord's reasonable control.
D. In the event that this Lease is terminated pursuant to Section 9A or
Section 9C above, rent shall be apportioned on a per diem basis and be paid to
the date of the fire or other casualty. In the event that such fire or casualty
renders all or any portion of the Premises untenantable and this Lease is not
terminated pursuant to Section 9A or Section 9C, then subject to the last
sentence of this Section 9D, the rent provided for in this Lease shall abate on
a per diem basis during the period of repair and restoration until the Premises
are tenantable again, and the abatement shall be in an amount bearing the same
ratio to the total amount of rent due for such period as the untenantable
portion of the Premises from time to time bears to the entire Premises**. Any
provision hereof notwithstanding, Tenant' rent shall not abate if its negligence
was the cause of the fire or other casualty; and whether or not the Lease is
terminated, Tenant's recovery shall be limited to the amount necessary to cause
restoration of the tenant improvements as described in this Section 9.
10. RIGHTS RESERVED TO THE LANDLORD. Landlord reserves the following
rights, exercisable without notice to Tenant except as otherwise expressly
provided herein, and without liability to Tenant for damage or injury to
property, person or business (all such claims being hereby released, except to
the extent they are caused by Landlord's negligence), and without effecting
an eviction or disturbance of Tenant's use or possession or giving rise to any
claim for offsets, or abatements of rent or affecting any of Tenant's
obligations under this Lease. Specification of the rights reserved to Landlord
herein shall not exclude any right accruing to Landlord by operation of law or
reserved specifically or by inference from any provision contained in this
Lease:
A. Name: To change the Project's name or street address*.
----
B. Signs: To install, affix and maintain any and all signs on the
-----
exterior and interior of the Building. No signs visible from the exterior of
the Building or from within its lobbies or common corridors shall be permitted
to be installed in the Premises by Tenant without Landlord's approval of the
sign and the location thereof, which may be withheld in Landlord's sole
discretion. Landlord reserves the right to remove at Tenant's expense any such
sign not so approved by Landlord.
C. Windows: To designate and approve, prior to installation, all types
-------
of window shades, blinds, drapes, awnings, window ventilators and other similar
equipment and to control all the internal lighting that may be visible from the
exterior of the Building.
D. Service Contracts: To designate all sources furnishing sign painting
-----------------
and lettering, ice and drinking water, towels, toilet
-17-
* , provided that if Landlord does so voluntarily, Landlord shall
reimburse Tenant for its reasonable costs incurred as a result thereof,
including, without limitation, stationary expenses
** See page 17A for continuation.
<PAGE>
-17A-
CONTINUATION OF SECTION 9D
- --------------------------
, provided, however, that if at least 20% of the Premises is rendered
untenantable and as a consequence thereof Tenant is not able to operate its
business, then Tenant shall be entitled to total abatement of Rent for such
period of inoperation of Tenant's business.
<PAGE>
supplies, beverages, food service, shoe shining or other services on the
Premises, provided that the rates for such services as are designated by
Landlord are reasonably competitive with rates charged therefor in the
Northbrook area. No vending or dispensing machines of any kind shall be placed
in or about the Premises without the prior written consent of Landlord.
E. Keys: To retain at all times and to use passkeys to the Premises and
----
keys to all door locks within and into the Premises. No locks or bolts shall be
altered, changed or added without the prior written consent of Landlord.*
F. Access for Repairs, etc.: To have access to the Premises to perform
------------------------
its duties and obligations under this Lease and to inspect the Premises, make
repairs, alterations, additions or improvements, whether structural or
otherwise, in and about the Premises, the Project or any part thereof as set
forth in various sections of this Lease including, without limitation, Section 5
and Section 10N.*
G. Occupancy: To decorate, remodel, repair, alter or otherwise prepare
---------
the Premises for reoccupancy at any time after Tenant vacates or abandons the
Premises. Such acts of Landlord shall not relieve Tenant of its obligation to
pay rent to the Termination Date.
H. Rights to Conduct Businesses: To grant to anyone the exclusive right
----------------------------
to conduct any business or render any service in the Project provided such
exclusive right shall not operate to exclude Tenant from the use permitted by
this Lease.
I. Heavy Equipment: To approve the weight, size or location of safes and
---------------
other heavy equipment and articles in and about the Premises and the Project and
to require all such items and furniture to be moved into and out of the Building
or anywhere else in the Project and the Premises only at such times and in such
manner as Landlord shall direct in writing. Movement of Tenant's property into
or out of the Project and within the Project is entirely at the risk and
responsibility of Tenant. Any furniture, equipment, curtains and similar
articles desired to be removed from the Premises or the Building shall be listed
in a written notice from Tenant to Landlord and a removal permit therefor shall
be obtained from Landlord prior to removal thereof.
J. Show Premises: To show the Premises to prospective tenants or brokers
-------------
during the last year of the Term of this Lease or the last year of any extension
thereof or to show the Premises to prospective purchasers at all reasonable
times, provided prior notice is given to Tenant in each case and Tenant's use
and occupancy of the Premises shall not materially be inconvenienced by any such
action of Landlord.
K. Close Project: To close or restrict access to the Project during such
-------------
hours as Landlord shall from time to time reasonably determine, and on Holidays
subject, however, to Tenant's right to admittance at all times under such
regulations as Landlord may prescribe from time to time which may include, by
way of example but not of limitation, that persons entering or leaving the
Project identify themselves to a security guard by registration or otherwise and
that said persons establish their right to enter or leave the Project.
-18-
* Landlord shall exercise its right of access during normal hours and upon
reasonable advance oral notice, except (i) in the case of an emergency and
(ii) in connection with providing janitorial services.
<PAGE>
M. Use of Lock Box by Landlord: Landlord may from time to time elect to
----------------------------
designate a lock box collection agent (independent agent, bank or other
financial institution) to act as Landlord's agent for the collection of amounts
due Landlord. In such event the date of payment of rent or other sums paid
Landlord through such agent shall be the date of agent's receipt of such payment
(or the date of collection of any such sum if payment is made in the form of a
negotiable instrument thereafter dishonored upon presentment); however, for
purposes of this Lease, no such payment or collection shall be deemed "accepted"
by Landlord if Landlord issues a check payable to the order of the Tenant in the
amount sent to the lock box and if Landlord mails the check to the Tenant
addressed to the place designated in this Lease for notice to Tenant within
twenty-one (21) days after the amount sent by the Tenant is received by the lock
box collection agent or if the Landlord returns a dishonored instrument within
twenty-one (21) days of its dishonor. Return of any such sum to Tenant by so
sending such a check of the Landlord or by so sending a dishonored instrument to
the Tenant within the appropriate twenty-one (21) day period shall be deemed to
be rejection of Tenant's tender of such payment for all purposes as of the date
of Landlord's lock box collection agent's receipt of such payment (or
collection). The return of Tenant's payment in the manner described in this
Section 10M shall be deemed not to be a waiver of any breach by Tenant of any
term, covenant or condition of this Lease nor a waiver of any of Landlord's
rights or remedies granted in this Lease. The possession of Tenant's funds or
negotiation of Tenant's negotiable instrument by Landlord's agent or Landlord
during the applicable twenty-one (21) day period shall be deemed not to be a
waiver of any defaults of Tenant or any rights of Landlord theretofore accrued
nor shall any such possession or negotiation be considered an acceptance of
Tenant's tender.
N. Repairs and Alterations: At any time, Landlord may decorate, make
------------------------
alterations, additions or improvements, structural or otherwise, in or to the
Project or any part thereof, including the Premises, and perform any acts
required or permitted hereunder, or related to the safety, protection,
preservation or improvement of the Project or the Premises, and during such
operations Landlord shall have
-19-
<PAGE>
the right to take into and through the Premises or any part of the Project all
material and equipment required and to close and temporarily suspend operation
of entrances, doors, corridors, elevators and other facilities, and to have
access to and open all ceilings, without liability to Tenant by reason of
interference, inconvenience, annoyance or loss of business; provided, however,
that Landlord shall cause as little inconvenience or annoyance to Tenant as is
reasonably possible under the circumstances, shall not do any act which would
permanently reduce the size of the Premises*. Landlord shall do any such work
during ordinary business hours, and Tenant shall pay Landlord for overtime and
for any other expenses incurred if such work is done during other hours at
Tenant's request. Landlord may do or permit any work to be done upon or along,
and any use of, any adjacent or nearby building, land, street, alley or way.
O. Mail Chutes: To have access for Landlord and other occupants of the
-----------
Building to any mail chutes according to the rules of the United States Postal
Service.
P. Other Rights: All other rights reserved by the Landlord pursuant to
------------
the provisions of this Lease.
11. DEFAULT AND LANDLORD'S REMEDIES.
A. Defaults. The occurrence of any of the following shall constitute a
--------
default hereunder:
(1) If Tenant defaults in the payment of rent (whether Base Rent,
Operating Cost Share Rent, Tax Share Rent or Additional Rent), or any other
sum required to be paid by this Lease; provided, however, that Landlord
shall not be entitled to exercise its remedies set forth herein or at law
or in equity with respect to such default, unless such default is not
remedied within five (5) business days after written notice thereof by
Landlord to Tenant;
(2) If Tenant defaults in the prompt and full performance or
observance of any term, covenant, agreement or provision of this Lease
(except those specified in Subsections (1), (3), (4), (5), (6), (7), (8)
and (9) of this Section 11A); provided, however, that Landlord shall not be
entitled to exercise its remedies set forth herein or at law or in equity
with respect to such default, (i) if such default is remedied within thirty
(30) days after written notice thereof by the Landlord, (or if such default
involves a hazardous condition and it is not cured by Tenant immediately
upon written notice to Tenant), or (ii) with respect to a default which
cannot reasonably be cured within thirty (30) days, if Tenant immediately
commences to cure and diligently proceeds to complete the cure of such
default within a reasonable time period which shall in no event extend
beyond ninety (90) days after Tenant receives written notice of such
default;
(3) If Tenant abandons or vacates the Premises during the Term
hereof;
(4) If the leasehold interest of Tenant is levied upon under
execution or is attached under process of law, which levy or attachment
continues for a period of thirty (30) days;
-20-
* , and shall not unreasonably interfere with Tenant's normal business
operations, except in the case of an emergency.
<PAGE>
(5) If Tenant becomes insolvent or bankrupt or shall generally not
pay its debts as they become due or shall admit in writing its inability to
pay its debts or shall make a general assignment for the benefit of
creditors;
(6) If Tenant shall commence any case, proceeding or other action
seeking reorganization, arrangement, adjustment, liquidation, dissolution
or composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, or seeking appointment of
a receiver, trustee, custodian, or other similar official for it or for all
or any substantial part of its property;
(7) If Tenant shall take any corporate or other action to authorize
any of the actions set forth above in Subsections (5) and (6) of this
Section 11A;
(8) If any case, proceeding or other action against Tenant shall be
commenced seeking to have an order for relief entered against it as debtor,
or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking
appointment of a receiver, trustee, custodian or other similar official for
it or for all or any substantial part of its property, and such case,
proceeding or other action (i) results in the entry of an order for relief
against it which is not fully stayed within seven (7) business days after
the entry thereof or (ii) remains undismissed for a period of sixty (60)
days; or
(9) If Tenant does any act, or other circumstance occurs, which this
Lease provides is a default hereunder.
B. Landlord's Remedies.
-------------------
(1) Upon the occurrence of any one or more defaults by Tenant,
Landlord may elect, by written notice to Tenant, to terminate this Lease
and Tenant's right to the Premises as of the date set forth in the notice
or, without terminating this Lease, to terminate Tenant's right to
possession of the Premises as of the date set forth in the notice. Upon
any termination of this Lease, whether by lapse of time or otherwise, or
upon any termination of Tenant's right to possession without termination of
the Lease, Tenant shall surrender possession and vacate the Premises and
deliver possession thereof to Landlord, and Tenant hereby grants to
Landlord full and free license to enter into and upon the Premises with
process of law and upon notice, and to repossess Landlord of the Premises
as of Landlord's former estate and to expel or remove Tenant and any others
who may be occupying or be within the Premises and to remove any and all
property therefrom using such force as may be necessary without being
deemed in any manner guilty of trespass, eviction or forcible entry or
detainer, and without relinquishing Landlord's rights to rent or any other
right given to Landlord hereunder or by law or in equity.
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<PAGE>
(2) If Tenant voluntarily abandons the Premises or otherwise entitles
Landlord to elect to terminate Tenant's right to possession only without
terminating the Lease, and Landlord does so elect, Landlord may at
Landlord's option enter into the Premises, remove Tenant's signs and other
evidences of tenancy, and take and hold possession thereof as set forth in
subsection B(1) of this Section 11, without such entry and possession
terminating the Lease or releasing Tenant, in whole or in part, from
Tenant's obligation to pay the rent hereunder for the full Term, and, at
Landlord's option, the present value of the aggregate amount of the Base
Rent, Operating Cost Share Rent and Tax Share Rent (based upon the amount
thereof for the calendar month immediately preceding the month in which the
default has occurred) for the period from the date stated in the written
notice terminating possession to the stated end of the Term (such present
value to be computed on the basis of a per annum discount rate equal to
three (3) percentage points below the Corporate Base Rate at the time of
the default) shall be immediately due and payable by Tenant to Landlord,
together with any other monies due hereunder, and Landlord shall have right
to immediate recovery of all such amounts.* In the alternative, Landlord
shall have the right from time to time, to recover from Tenant, and Tenant
shall remain liable for, all rent not theretofore accelerated and paid
pursuant to the foregoing sentence and any other sums thereafter accruing
as they become due under this Lease during the period from the date stated
in the notice terminating possession to the stated end of the Term. Upon
and after entry into possession without termination of the Lease, subject
to Landlord's right to first rent other vacant areas in the Building,
Landlord may relet the Premises or any part thereof to any person, firm or
corporation other than Tenant for such rent, for such time (which may be a
period extending beyond the stated Term of this Lease) and upon such terms
as Landlord in Landlord's sole discretion shall determine, and Landlord
shall not be required to accept any tenant offered by Tenant or to observe
any instructions by Tenant relating to such reletting. In any such case,
Landlord may make repairs, alterations and additions in or to the Premises
and redecorate the same to the extent deemed necessary or desirable by
Landlord, and in connection therewith Landlord may change the locks to the
Premises, and Tenant shall upon written demand pay the cost thereof,
together with Landlord's expenses of reletting. Any proceeds from the
reletting of the Premises by Landlord shall be collected by Landlord and
shall first be applied against the cost and expenses of reentry and of
reletting the Premises including, but not limited to, all brokerage,
advertising, legal, alteration, redecoration, repair and other reasonably
necessary costs and expenses incurred to secure a new tenant for the
Premises, and second to the payment of rent herein provided to be paid by
the Tenant. If the consideration collected by Landlord upon any such
reletting, after payment of the expenses of reletting the Premises, is not
sufficient to pay monthly the full amount of the rent reserved in this
Lease, Tenant shall pay to Landlord the amount of each monthly deficiency
as it becomes due (as the case may be). If the consideration collected by
Landlord upon any such reletting for Tenant's account after payment of the
expenses of reletting the Premises is greater than
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* Provided Landlord recovers all such amounts from Tenant and subsequently
relets the Premises, the Tenant shall be entitled to a refund from
Landlord, but only to the extent that Landlord has mitigated Tenant's
damages.
<PAGE>
the amount necessary to pay the full amount of Rent reserved in this Lease,
the full amount of such excess shall be retained by Landlord and in no
event shall be payable to Tenant. No such reentry, repossession, repairs,
alterations, additions or reletting shall be construed as an eviction or
ouster of Tenant or as an election on Landlord's part to terminate this
Lease, unless written notice of such intention is given to Tenant, or shall
operate to release Tenant in whole or in part from any of Tenant's
obligations hereunder.*
(3) If Landlord shall decide to terminate this Lease, Landlord shall
be entitled to recover from Tenant all of the amounts of rent accrued and
unpaid for the period up to and including the date of the termination, as
well as all other additional sums for which Tenant is liable, or in respect
of which Tenant has agreed to indemnify Landlord under any of the
provisions of this Lease, which may then be owing and unpaid, and all costs
and expenses including without limitation, court costs and attorneys' fees
incurred by Landlord in the enforcement of its rights and remedies
hereunder, and in addition, Landlord, at its sole option, shall be entitled
to recover from Tenant, in lieu of any amounts due under Section 11B(2)
hereof, and Tenant shall pay to Landlord, on demand, as final and
liquidated damages (and not as a penalty), a sum equal to the amount of
Landlord's reasonable estimate of the aggregate amount of Base Rent,
Operating Cost Share Rent, Tax Share Rent and Additional Rent that would be
payable for the period from the date of such termination through the
Termination Date, reduced by the then reasonable rental value of the
Premises for the same period, both discounted to present value at the rate
per annum equal to three (3) percentage points below the Corporate Base
Rate at the time of the default. If, before presentation of proof of such
liquidated damages to any court, commission or tribunal, the Premises, or
any part thereof, shall have been relet by Landlord for such period, or any
part thereof, the amount of rent payable upon such reletting shall be
deemed to be the reasonable rental value for the part or the whole of the
Premises relet during the term of the reletting.
(4) Landlord may but shall not be obligated to cure any default by
Tenant hereunder, but, if Landlord so elects, all costs and expenses paid
by Landlord in curing such default and legal fees in connection therewith
shall be Additional Rent due on demand by Landlord.**
(5) Notwithstanding anything in the Lease to the contrary, any and
all remedies set forth in this Lease (i) shall be in addition to any and
all other remedies Landlord may have at law or in equity, and (ii) shall be
cumulative. The waiver by Landlord of any breach of any term, covenant or
condition herein contained shall only be effective if it is in writing and
shall not be deemed to be a waiver of a continuing or subsequent breach of
the same, or of any other term, covenant or condition herein contained.
The acceptance of rent or any other amounts due hereunder shall not be
construed to be a waiver of any breach by Tenant of any term, covenant or
condition of this Lease, and if the same shall be accepted after the
termination of this Lease, by lapse of time or otherwise, or of the
Tenant's right of possession hereunder, or after the giving of any notice,
such acceptance shall not reinstate, continue or extend the Term of this
Lease or affect any notice given to Tenant prior to the
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* Notwithstanding anything to the contrary herein, Landlord shall make a
reasonable effort to mitigate any damages incurred by Tenant, including,
without limitation, reletting the Premises.
** Landlord agrees that in the event that Tenant succeeds in obtaining a
judgment against Landlord based on a default by Landlord under this Lease,
such judgment may include Tenant's reasonable attorneys' fees.
<PAGE>
receipt of such amounts, it being agreed that after the service of notice
or the commencement of a suit or after final judgment for possession of the
Premises, Landlord may receive and collect any rent and other sums due, and
the payment of the same shall not waive or affect said notice, suit or
judgment.
(6) Notwithstanding any provision in this Lease prohibiting Landlord
from exercising its rights hereunder or at law or in equity if Tenant cures
a default within a specified period of time, if Tenant shall default (i) in
the timely payment of rent (whether any or all of Base Rent, Operating Cost
Share Rent, Tax Share Rent or Additional Rent) three or more times in any
period of 12 consecutive months, or (ii) in the performance of any
particular term, condition or covenant of this Lease three or more times in
any period of six consecutive months, then, notwithstanding that such
defaults shall have each been cured within any applicable cure period after
notice, if any, as provided in this Lease, any further similar default
(including, without limitation, with respect to non-payment of rent, the
further non-payment of any kind of rent payable under this Lease) shall not
be curable by Tenant and Landlord shall have the right to exercise all of
the remedies provided in this Lease (including, without limitation, any and
all remedies at law and in equity) immediately after the occurrence of such
similar default.
(7) If the term of any lease, other than this Lease, made by the
Tenant for any demised premises in the Building or any other building owned
by Landlord or an affiliate of Landlord in the Chicago Metropolitan area
shall be terminated or terminable after the making of this Lease because of
any default by the Tenant under such other lease, such fact shall empower
the Landlord, at Landlord's sole option, to terminate this Lease by written
notice to the Tenant.
(8) In the event that Tenant shall file for protection under the
Bankruptcy Code now or hereinafter in effect, or a trustee in bankruptcy
shall be appointed for Tenant, Landlord and Tenant agree to the extent
permitted by law, to request that the debtor-in-possession or trustee-in-
bankruptcy, if one shall have been appointed, assume or reject this Lease
within sixty (60) days thereafter.
12. HOLDOVER. If Tenant retains possession of the Premises or any part
thereof after the termination of the Term or any extension thereof, by lapse of
time or otherwise, Tenant shall become a tenant from month-to-month only upon
each and all of the terms herein provided as may be applicable to such month-to-
month tenancy and any such holding over shall not constitute an extension of
this Lease; provided, however, that during such holding over, Tenant shall
pay Base Rent, Operating Cost Share Rent and Tax Share Rent at 150% of the rate
payable for the fiscal year, or portion thereof, immediately preceding
said holding over, computed on a monthly basis for the time Tenant thus remains
in possession and, in addition, Tenant shall pay Landlord all damages,
consequential as well as direct, sustained by reason of Tenant's holding over.
Alternatively, after ninety (90) days after expiration of this Lease, at the
election of Landlord expressed in a written notice to Tenant and not otherwise,
such retention of possession shall constitute a renewal of this Lease for one
(1) year; provided, however, that Tenant shall pay Base Rent in an amount
equal to the greater of 150% of the rate payable for the immediately preceding
fiscal year, or portion thereof or 150% of the then current market rate as
determined by Landlord, and Tenant shall continue to make all other payments
required under this Lease,
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<PAGE>
including, without limitation, Operating Cost Share Rent and Tax Share Rent.
Neither the acceptance of rent by the Landlord after termination, nor the
provisions of this Section: (i) shall be construed as, or operate as, a renewal
or as a waiver of Landlord's right of re-entry or right to regain possession by
actions at law or in equity or by any other right or remedy hereunder; or (ii)
shall be construed as, or operate as, a waiver of any other right or remedy of
Landlord.
13. SUBORDINATION TO MORTGAGES, TRUST DEEDS AND GROUND LEASES.
A. Subordination. This Lease shall be subordinated to any and all Ground
-------------
Leases now or hereafter in force with respect to the Project at the election of
the ground lessor under any such Ground Lease, provided that so long as Tenant
is not in default under this Lease its tenancy will not be disturbed. This
Lease shall be subject to all of the terms and conditions of such Ground Leases,
which are hereby incorporated in this Lease by this reference, and in the event
of any conflict between the terms hereof and the terms of any such Ground
Leases, the terms of such Ground Leases shall control. This Lease shall be
subordinated to the lien of any and all mortgages now or hereafter in force
against (a) the Project and (b) any and all Ground Leases with respect to the
Project, at the election of the mortgagee under any such mortgage, provided that
so long as Tenant is not in default under this Lease its tenancy will not be
disturbed. Landlord hereby represents that as of the date hereof there are no
Ground Leases with respect to the Project.
The respective rights to so subordinate this Lease at the election of any
such ground lessor or mortgagee shall continue during any amendment, renewal,
modification, consolidation, replacement or extension of each such Ground Lease
or mortgage, and shall apply to any and all advances made or hereafter made on
the security of each such mortgage.
Subordination shall be effective at election of any such ground lessor or
mortgagee. Election shall not be dependent on receipt of notice by Tenant of
the election to subordinate. Without limiting the foregoing, notice of the
election to subordinate may be given as provided for notices pursuant to this
Lease.
Any subordination at the election of any such ground lessor or mortgagee
shall be self-operating. Nevertheless, Tenant or its successors in interest
upon request of Landlord shall promptly execute and deliver (within ten (10)
days after a request therefor) at any time and from time to time upon the
request of Landlord, such instruments as are reasonably necessary or appropriate
in Landlord's judgment to evidence such subordination.
B. Termination of Ground Lease or Foreclosure of Mortgage. Should any
--------------------------------------------------------
mortgage on the Project or on any Ground Lease be foreclosed or if any Ground
Lease be terminated and this Lease be continued:
(1) The liability of the mortgagee, ground lessor or purchaser at
such foreclosure sale shall exist only during the time such mortgagee,
ground lessor or purchaser is the owner of the Project.
(2) Tenant shall attorn, as Tenant under this Lease, without any
deductions or setoffs whatsoever, to the purchaser at the foreclosure sale
(or the mortgagee if the mortgagee becomes owner of the fee estate or
lessor under any Ground Lease) or, if any Ground Lease be terminated for
any reason, Tenant shall be deemed to have attorned as Tenant under this
Lease to
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<PAGE>
the ground lessor under the Ground Lease, and this Lease shall continue in
full force and effect as a direct lease between and binding upon Tenant and
such mortgagee or ground lessor, as the case may be. Likewise, Tenant will
attorn to a leasehold mortgagee in the event a leasehold mortgagee should
ever become the owner of the leasehold estate covered by its mortgage or
should become the owner of any new lease in replacement or substitution of
such leasehold estate. Tenant agrees to promptly execute and deliver
(within ten (10) days after a request therefor) at any time and from time
to time upon the request of Landlord, or of any ground lessor under any
such Ground Lease, or of any holder of any such mortgage or leasehold
mortgage, or of any such purchaser, any instrument which, in the sole
judgment of such requesting party, may be necessary or appropriate in any
such foreclosure or termination proceeding or otherwise to evidence
such attornment.
(3) As used in this Section 13, "mortgage" shall include "trust deed"
and "mortgagee" shall include "trustee" and successors and assigns of such
party (whether immediate or remote), the purchaser of any mortgage, whether
at foreclosure or otherwise and the successors, assigns and mortgagees of
such purchaser (whether immediate or remote).
C. Security Deposit. The mortgagee under a mortgage and the lessor
----------------
under any Ground Lease shall have no responsibility for the return of the
security deposit, if any, except to the extent the security deposit is held by
such mortgagee or ground lessor in which case such mortgagee or ground lessee
shall be obligated to return the security deposit.
D. Notice and Right to Cure. Landlord hereby notifies Tenant that the
-------------------------
Project is subject to the mortgages, if any, set forth on Appendix E attached
hereto (Mortgages Currently Affecting the Project), and Landlord agrees promptly
to notify Tenant of the placing of any additional Ground Leases, mortgages or
trust deeds against the real property or leasehold estate of which the Premises
form a part.
Tenant agrees to give the mortgagees shown on Appendix E and any other
mortgagee or holder of a deed of trust or lessor of any Ground Lease, by
registered mail, a copy of any notice of default served upon the Landlord,
simultaneously with Tenant's delivery of notice to Landlord, provided that prior
to such notice Tenant has been notified, in writing (by way of notice of
Assignment of Rents and Leases, or otherwise), of the address of such mortgagee,
holder of a deed of trust or lessor under any Ground Lease. Tenant further
agrees that if Landlord shall have failed to cure such default within the time
provided for in this Lease, then such mortgagee, holder of a deed of trust or
lessor under any Ground Lease shall have an additional ten (10) days within
which to cure such default, or if such default cannot be cured within that
time, such mortgagee, holder of a deed of trust or lessor under any Ground
Lease shall have such additional time as may be necessary to cure such
default, provided that within such ten (10) days, any mortgagee, holder of a
deed of trust or lessor under any Ground Lease, as the case may be, has
commenced and is diligently pursuing the cure of such default (including but
not limited to commencement of foreclosure or lease forfeiture proceedings, if
necessary to effect such cure), and Tenant shall not pursue any of the remedies
it may have for such default and this Lease shall not be terminated, while such
cure is being diligently pursued, so long as the default is completely cured
within a reasonable time thereafter. During the period between the giving
of such notice and the remedying of Landlord's default, the rent herein
recited shall be abated and
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<PAGE>
apportioned to the extent that any part of the Premises shall be untenantable.
14. ASSIGNMENT AND SUBLETTING BY TENANT.
A. Tenant shall not, without the prior written consent of Landlord in
each instance, (i) assign, transfer, mortgage, pledge, hypothecate or encumber
or subject to or permit to exist upon or be subjected to any lien or charge,
this Lease or any interest under it, (ii) allow to exist or occur any transfer
of or lien upon this Lease or the Tenant's interest herein by operation of law,
(iii) sublet the Premises or any part thereof, or (iv) permit the use or
occupancy of the Premises or any part thereof for any purpose not provided for
under Section 6 of this Lease or by anyone other than the Tenant and Tenant's
employees. In no event shall this Lease or any interest herein be assigned or
assignable by voluntary or involuntary bankruptcy proceedings or by operation of
law or otherwise, and in no event shall this Lease or any rights or privileges
hereunder be an asset of Tenant under any bankruptcy, insolvency or
reorganization proceedings, except to the extent provided by law.
B. Consent by Landlord to any assignment, subletting, use, occupancy,
transfer or encumbrance shall not operate to relieve Tenant from any covenant,
liability or obligation hereunder (whether past, present or future), including,
without limitation, the obligation to pay rent, except to the extent, if any,
expressly provided for in such consent, nor shall such consent be deemed to be a
consent to any subsequent assignment, subletting, use, occupancy, transfer or
encumbrance. Tenant shall pay all of Landlord's costs, charges and expenses
(including, without limitation, reasonable attorneys' fees) not to exceed $1,000
incurred in connection with any assignment, subletting, use, occupancy, transfer
or encumbrance made or requested by Tenant.
C. Tenant shall, by notice in writing, advise Landlord of its intention
from, on and after a stated date (which shall not be less than sixty (60) days
after the date of Tenant's notice) to assign this Lease or sublet any part or
all of the Premises for the balance or any part of the Term, and, in such event,
Landlord shall (except in the event that the proposed assignee or sublessee is
affiliated with Tenant such that at least 20% of the interest in such assignee
or sublessee is held by Tenant, the owners of Tenant, or those controlling
Tenant) have the right, to be exercised by giving written notice to Tenant
within thirty (30) days after receipt of Tenant's notice, to terminate this
Lease with respect to the space described in Tenant's notice as of the date
stated in Tenant's notice for the commencement of the proposed assignment or
sublease.* Tenant's notice shall include the name and address of the proposed
assignee or subtenant, a true and complete copy of the proposed assignment or
sublease and sufficient information as Landlord deems necessary to permit
Landlord to determine the financial responsibility and character of the proposed
assignee or subtenant. If Tenant's notice covers all of the Premises and if
Landlord exercises its right to terminate this Lease as to such space, then the
Term of this Lease shall expire and end on the commencement date stated in
Tenant's notice as fully and completely as if that date had been the Termination
Date. If, however, Tenant's notice covers less than all of the Premises, and if
Landlord exercises its right to terminate this Lease with respect to such space
described in Tenant's notice, then as of the commencement date stated in
Tenant's notice, the rent reserved herein shall be adjusted on the basis of the
number of rentable square feet retained by Tenant, and this Lease as so amended,
shall continue thereafter in full force and effect. If Landlord, upon receiving
Tenant's notice, does not exercise its right to terminate as aforesaid, Landlord
will not unreasonably withhold its consent to Tenant's assignment of this Lease
or subletting the space covered by its notice.
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* If Landlord does not elect to exercise Landlord's right to terminate with
respect to such space, then Tenant may market such space thereafter without
providing Landlord further notice or opportunity to terminate, provided
Tenant has been continuously marketing such space.
<PAGE>
Without limitation, it shall be deemed reasonable for Landlord to withhold its
consent to Tenant's assignment of this Lease or subletting the space covered by
its notice if the proposed assignee or sublessee is a tenant or occupant of the
Building or an affiliate (a person controlling, controlled by or under common
control with) of a tenant or occupant of the Building, unless there is no
comparable space available in the Building for such tenant, occupant or
affiliate.
D. If Tenant, having first obtained Landlord's consent to any assignment
or sublease, or if Tenant or a trustee in bankruptcy for Tenant pursuant to the
Bankruptcy Code, shall assign this Lease or sublet the Premises, or any part
thereof, at a rental or for other consideration in excess of the aggregate of
the Base Rent, Operating Cost Share Rent and Tax Share Rent due and payable by
Tenant under this Lease, then Tenant shall pay to Landlord as Additional Rent
40% of such excess rent or other consideration within ten (10) days after
receipt thereof from time to time.
E. If Tenant shall assign this Lease as permitted herein, the assignee
shall expressly assume all of the obligations of Tenant hereunder and agree to
comply with and be bound by all of the terms, provisions and conditions of this
Lease, in a written instrument satisfactory to Landlord and furnished to
Landlord not later than fifteen (15) days prior to the effective date of the
assignment. If Tenant shall sublease the Premises as permitted herein, Tenant
shall obtain and furnish to Landlord, not later than fifteen (15) days prior to
the effective date of such sublease and in form satisfactory to Landlord, the
written agreement of such subtenant that it shall comply with and be bound by
all of the terms, provisions and conditions of this Lease and that it will
attorn to Landlord, at Landlord's option and written request, in the event this
Lease terminates before the expiration of the sublease.
F. If Tenant is a corporation whose stock is not publicly traded, any
transaction or series of transactions (including, without limitation, any
dissolution, merger, consolidation or other reorganization of Tenant, or any
issuance, sale, gift, transfer or redemption of any capital stock of Tenant,
whether voluntary, involuntary or by operation of law, or any combination of any
of the foregoing transactions) resulting in the transfer of control of Tenant,
other than by reason of death or to a descendant or spouse of such transferor
for estate planning purposes, shall be deemed to be a voluntary assignment of
this Lease by Tenant subject to the provisions of this Section 14. If Tenant is
a partnership, any transaction or series of transactions (including without
limitation any withdrawal or admittance of a partner or any change in any
partner's interest in Tenant, whether voluntary, involuntary or by operation of
law, or any combination of any of the foregoing transactions) resulting in the
transfer of control of Tenant, other than by reason of death, shall be deemed to
be a voluntary assignment of this Lease by Tenant subject to the provisions of
this Section 14. The term "control" as used in this Section 14F means the power
to directly or indirectly direct or cause the direction of the management or
policies of Tenant. If Tenant is a corporation, a change or series of changes
in ownership of stock which would result in direct or indirect change in
ownership of less than fifty percent (50%) of the outstanding stock of Tenant
as of the date of the execution and delivery of this Lease shall not be
considered a change of control.*
G. Any assignment, subletting, use, occupancy, transfer or encumbrance of
this Lease or the Premises without Landlord's prior written consent shall be of
no effect and shall, at the option of Landlord, constitute a default under this
Lease.**
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* See page 28A for continuation.
** See page 28A for continuation.
<PAGE>
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CONTINUATION OF SECTION 14F
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Notwithstanding the foregoing, an initial public offering by Tenant shall not be
deemed an assignment of this Lease.
CONTINUATION OF SECTION 14:
- --------------------------
H. Upon delivery to Landlord by any assignee to whom this Lease may be
assigned (and who has been approved by Landlord in accordance with this Section
14), of a written agreement of such assignee to assume all the terms, covenants
and conditions of this Lease to be performed by Tenant and to be bound thereby,
the Tenant so assigning this Lease shall thereafter be released and discharged
from any obligations thereafter arising under this Lease.
I. Landlord agrees that it shall be deemed unreasonable for Landlord to
withhold its consent to a proposed assignment or sublease based on the
creditworthiness of the proposed assignee or sublessee where such proposed
assignee or sublessee has a net equity (meaning total assets less total
liabilities) equal to or greater than $2,000,000.00
<PAGE>
15. SALE BY LANDLORD. In the event of sale or conveyance or transfer by
Landlord of its interest in the Project or in the Building or in this Lease, the
same shall operate to release Landlord (subject to the second paragraph of
Section 17 hereof) from any future obligations and any future liability for or
under any of the covenants or conditions, express or implied, herein contained
in favor of Tenant, and in such event, and with respect to such obligations,
covenants and conditions, Tenant agrees to look solely to the successor in
interest of Landlord in and to this Lease which successor Landlord shall, from
and after the date of transfer, become liable for Landlord's obligations and
covenants hereunder. This Lease shall not be affected by any such sale,
conveyance or transfer.
16. ESTOPPEL CERTIFICATE. Landlord shall, at the request of Tenant, and
Tenant shall, at the request of Landlord at any time and from time to time upon
not less than ten (10) days' prior written notice, execute, acknowledge in
recordable form, and deliver to the other (or for the Tenant to its auditor or a
prospective purchaser of its business or assets, or to its assignee or subtenant
if acceptable to Landlord, or for the Landlord to Landlord's mortgagee, the
lessor under any Ground Lease, auditors or a prospective purchaser of the
Project or any part thereof) a certificate stating that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect), and the dates to which the rent and other charges are paid, and
that Tenant is paying rent on a current basis with no offsets or claims, and
there are not, to Tenant's or Landlord's knowledge, as the case may be, any
uncured defaults on the part of Landlord or of Tenant (or specifying such
offsets, claims or defaults, if any are claimed). Such certificate may require
the party giving it to specify the date of commencement of rent, the
Commencement Date, the Termination Date, the Base Rent, current Operating Cost
Share Rent and Tax Share Rent estimates, the date to which rent has been
paid, whether or not Landlord has completed any improvements required to be
made to the Premises and such other matters as may be required. It is
expressly understood and agreed that any such statement may be relied upon
by any prospective purchaser or encumbrancer of all or any portion of the
Project or by any ground lessor, or by a purchaser or assignee or lender to
Tenant or to auditors of either party hereto or by any other person to whom
it is delivered. The failure to deliver such statement within the time
required hereunder shall, at the option of the requesting party, be a default
under this Lease, or be conclusive evidence, binding upon the nonperforming
party that this Lease is in full force and effect, without modification
except as may be represented by the requesting party, that there are no
uncured defaults by the requesting party and that not more than one (1) month's
rent has been paid in advance, and the nonperforming party shall be estopped
from asserting any defaults known to it at that time.
17. SECURITY DEPOSIT. Tenant has deposited with Landlord security for the
full and faithful performance of every provision of this Lease to be performed
by Tenant in the amount, if any, set forth as Item 9 in the Schedule. If Tenant
defaults with respect to any provision of this Lease, Landlord may use all or
any part of this security deposit for the payment of any rent and any other
sum due or in default, or for the payment of any other amount which Landlord
may spend or become obligated to spend by reason of Tenant's default, or to
compensate Landlord for any loss or damage which Landlord may suffer by
reason of Tenant's default. If any portion of such deposit is to be used,
Tenant shall within five (5) days after written demand therefor deposit cash
with Landlord in an amount sufficient to restore the security deposit to its
original amount and Tenant's failure to do so shall be a material breach of this
Lease. Landlord shall not be
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<PAGE>
required to keep this security deposit separate from its general funds Tenant
shall not be entitled to interest on such deposit. If Tenant shall fully and
faithfully perform every provision of this Lease to be performed by it, the
security deposit or any balance thereof shall be returned to Tenant (or, at
Landlord's option, to the last assignee of Tenant's interest hereunder) at the
expiration of this Lease and upon vacation of the Premises in accordance with
the provisions hereof. Said security deposit shall not be deemed an advance
payment of rent or a measure of Landlord's damages for any default hereunder by
Tenant.*
Tenant acknowledges that Landlord has the right to transfer all or any part
of its interest in the Project or this Lease, and Tenant agrees that in the
event of any such transfer, Landlord shall have the right to transfer such
security deposit to the transferee. Upon delivery by Landlord to Tenant of such
transferee's written acknowledgment of its receipt of such security deposit,
Landlord shall thereby be released by Tenant from all liability or obligation
for the return of such deposit and Tenant agrees to look solely to such
transferee for the return of the security deposit.
18. EXCUSE OF PARTY'S INABILITY TO PERFORM; PARTY'S DEFAULT. Except as
specifically provided to the contrary in this Lease, this Lease and the
obligation of Tenant to pay rent hereunder and perform all of Tenant's covenants
and agreements hereunder shall not be impaired nor shall Landlord or Tenant be
in default hereunder because Landlord or Tenant, as the case may be, is unable
to fulfill any of its obligations under this Lease, if Landlord or Tenant, as
the case may be, is prevented or delayed from so doing by any of the following
(which shall be referred to herein as a "Force Majeure"): any accident,
breakage, repairs, alterations, improvements, strike or labor troubles, or any
other cause whatsoever beyond the reasonable control of Landlord, including, but
not limited to, energy shortages or governmental preemption in connection with a
national emergency, or by reason of government laws or any rule, order or
regulation of any department of subdivision thereof of any governmental agency,
or by reason of the conditions of supply and demand which have been or are
affected by war or other emergency.
20. NOTICES. All notices and approvals are to be given by one party to
the other party under this Lease shall be given in writing, mailed or delivered
as follows:
-30-
* See page 30A for continuation.
<PAGE>
-30A-
CONTINUATION OF SECTION 17.
- --------------------------
This security deposit shall be in the form of an irrevocable, unconditional
letter of credit (the "Letter of Credit"), which Letter of Credit shall (a) be
----------------
in the amount of $19,025.00, (b) be in form and substance satisfactory to
Landlord, (c) name Landlord as its beneficiary, (d) expressly allow Landlord to
draw upon it at any time or from time to time by delivering to the issuer
written notice that Landlord is entitled to draw thereunder pursuant to the
terms of Section 17 of this Lease, (e) expire no earlier than the Termination
Date of this Lease, and (g) be drawn on an FDIC-insured financial institution
satisfactory to Landlord. If Landlord is not provided with a substitute Letter
of Credit complying with all of the requirements hereof at least ten (10) days
before the stated expiration date hereof, then Landlord shall have the right to
draw under such Letter of Credit then held by Landlord and hold such funds as a
security deposit in accordance with the terms of this Section 17. The Letter of
Credit shall be delivered by Tenant to Landlord upon receipt of a fully executed
Lease from Landlord.
<PAGE>
A. To Landlord as follows:
Teachers Realty Corporation Teachers Realty Corporation
c/o Office of the Building 730 Third Avenue
Manager New York, New York 10017
200 North LaSalle Street Attn: Vice President
Chicago, Illinois 60601
Attn: Building Manager
or to such other person at such other address designated by notice to Tenant.
B. To Tenant at the place set forth as Item 10 on the Schedule until
Tenant takes possession of the Premises, and thereafter at the Premises or at
such other address designated by notice to Landlord.
Mailed notices shall be sent by United States Certified or Registered Mail,
postage prepaid. Mailed notices shall be deemed to have been given three (3)
business days after posting in the United States mails, and notices delivered
personally shall be deemed to have been given upon delivery or attempted
delivery.
21. QUIET POSSESSION. So long as Tenant shall observe and perform the
covenants and agreements binding on it hereunder, Tenant shall at all times
during the Term herein granted and subject to the provisions of this Lease
peacefully and quietly have and enjoy the possession of the Premises without any
encumbrance or hinderance by, from or through Landlord, its successors or
assigns.
22. REAL ESTATE BROKER. Tenant represents that it has not dealt with any
real estate broker except for Miglin-Beitler Management Corporation and that
broker listed, if any, in Item 11 in the Schedule, with respect to this Lease
and, to its knowledge no other broker initiated or participated in the
negotiation of this Lease, submitted or showed the Premises to Tenant or is
entitled to any commission in connection with this Lease. Tenant agrees to
indemnify and hold Landlord harmless from all claims from any other real estate
broker for commission or fees in connection with this Lease.
23. CONDEMNATION. If all or any portion of the Project or Premises are
taken by eminent domain so that the Premises cannot be reasonably used by Tenant
for the purposes for which they are demised, then at the option of either party
this Lease may be terminated effective as to the date of such taking. The
entire award for any total or partial taking shall be paid to and retained by
Landlord. If any condemnation proceeding shall be instituted in which it is
sought to take or damage any part of the Project, or if the grade of any street
or alley adjacent to the project is changed by any competent authority and such
change of grade makes it necessary or desirable to remodel the Project to
conform to the changed grade, Landlord shall have the right to terminate this
Lease upon not less than ninety (90) days' notice prior to the date of
termination designated in the notice. No money or other consideration shall be
payable by Landlord to Tenant for said termination. *
24. SPRINKLERS. If the sprinkler system installed at the Project or any
of its appliances shall be damaged or injured or not in proper working order by
reason of any act or omission of Tenant, Tenant's agents, servants, employees,
licensees or invitees, Tenant shall forthwith restore the same to good working
condition at its own expense. Tenant shall not do or permit anything to be done
upon the Premises, or bring or keep anything thereon which is in violation of
-31-
<PAGE>
-31A-
CONTINUATION OF SECTION 23:
- --------------------------
Nothing contained in this Section 23 shall prohibit Tenant from instituting
separate proceedings to pursue a separate award compensating it for relocation,
business loss and other costs incurred by Tenant in connection with a
condemnation or taking (including, but not limited to, rent differentials,
brokerage and attorney fees, and unamortized improvements in the Premises), as
long as such award in no way reduces the award otherwise payable to Landlord.
<PAGE>
rules, regulations and requirements of the Illinois Inspection and Rating
Bureau, Fire Insurance Rating Organization or any similar authority having
jurisdiction over the Building, and if the Board of Fire Underwriters or Fire
Insurance Exchange or any bureau, department or official of the state or city
government, requires or recommends that any changes, modifications, alterations
or additional sprinkler heads or other equipment be made or supplied by reason
of Tenant's business or acts or the location of partitions, trade fixtures, or
other contents of the Premises, or if any such changes, modifications,
alterations, additional sprinkler heads or other equipment, become necessary
to prevent the imposition of a penalty or charge against the full allowance for
a sprinkler system in the fire insurance rate as fixed by said Exchange, or by
any fire insurance company, Tenant shall, at Tenant's expense, promptly make
and supply such changes, modifications, alterations, additional sprinkler heads
or other equipment.
25. MISCELLANEOUS.
A. Covenants Binding on Successors. Subject to the terms and provisions
-------------------------------
of Section 14 of this Lease, each provision of this Lease shall extend to and
shall, as the case may require, bind and inure to the benefit of Landlord and
Tenant and their respective heirs, legal representatives and successors and
assigns.
B. Date Payments Are Due. All amounts owed to Landlord hereunder, for
---------------------
which the date of payment is not expressly fixed herein, shall be paid within
thirty (30) days from the date Landlord renders statements of account therefor
and shall bear interest at the rate provided in Section 2D(3) from the date due
until paid.
C. Meaning of "Re-entry" and "Landlord". The words "re-enter" and "re-
------------------------------------
entry" as used in this Lease are not restricted to their technical legal
meaning. The term "Landlord," as used in this lease, means only the landlord
from time to time, and upon conveying or transferring its interest, such
conveying or transferring landlord shall be relieved from any further obligation
or liability pursuant to Section 13B(1), 13C, 15 and 17 of this Lease.
D. Time is of the Essence. Time is of the essence of this Lease and each
----------------------
and all of its provisions.
E. No Option. Submission of this instrument for examination or signature
---------
by Tenant does not constitute a reservation of or option for lease, and it is
not effective as a lease or otherwise until execution and delivery by both
Landlord and Tenant.
F. Severability. The invalidity or unenforceability of any provision
------------
hereof shall not affect or impair any other provisions.
G. Governing Laws. This Lease shall be governed by and construed
--------------
pursuant to the laws of the State of Illinois.
H. Lease Modification. Should any mortgage require a modification of
------------------
this Lease, which modification will not bring about any increased cost or
expense to Tenant or in any other way substantially change the rights and
obligations of Tenant hereunder, Tenant agrees that this Lease may be so
modified.
-32-
<PAGE>
I. No Oral Modification. No subsequent alteration, amendment, change or
--------------------
addition to this Lease shall be binding upon Landlord or Tenant unless in
writing signed by both parties.
J. Litigation and Arbitration Costs. In the event of any litigation or
--------------------------------
arbitration between the parties hereto with respect to the enforcement or
interpretation of this Lease, the nonprevailing party shall pay the attorney's
fees, court costs and other costs of the prevailing party, provided that Tenant
shall notify Landlord of any alleged breach of Landlord's obligations under this
Lease and shall take no action with respect to such breach as long as Landlord
immediately commences to cure and diligently proceeds to complete the cure of
said breach within a reasonable time period. Each party hereto shall pay the
attorney's fees, court costs (if any) and other costs incurred by the other
party in any litigation, negotiation or transaction in which such party causes
the other party, without the other party's fault, to become involved or
concerned (including, without limitation, any request for Landlord's consent to
a sublet or assignment).
K. Captions. The marginal headings and titles to the paragraphs of this
--------
Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
L. Remedies and Rights May be Exercised by Landlord In Its Own Name;
-----------------------------------------------------------------
Authority to Execute This Lease. All rights and remedies of Landlord under this
- -------------------------------
Lease, or that may be provided by law, may be exercised by Landlord in its own
name individually, or in its name by any agent thereof, and all legal
proceedings for the enforcement of any such rights or remedies may be commended
and prosecuted to final judgment and executed by Landlord in its own name
individually or in its name by any agent thereof. Landlord and Tenant each
represents to the other that each has full power and authority to execute this
Lease and to make and perform the agreements herein contained.
M. Payments to Affiliates. Nothing in this Lease shall be construed to
----------------------
prevent Landlord from paying for services rendered or materials delivered with
respect to the Project or to the Premises (including, without limitation,
management services and contracting out capital improvements or other capital
repairs or construction items) by affiliates of Landlord provided that the fees
or costs of such services and materials are at market rates in the Northbrook
area. All such fees or costs paid by Landlord to such affiliates shall be
deemed to constitute Operating Costs on the same terms and conditions as if such
fees and costs were paid to non-affiliates of Landlord.
N. Entire Agreement. This Lease (including, without limitation, any
----------------
Rider attached hereto and signed by both parties and Appendices A through E, all
-
of which are incorporated herein by this reference) constitutes the entire
agreement between the Landlord and the Tenant. Tenant acknowledges that it has
not been induced to enter this Lease by any promises, assurances, agreements,
statements or representations (collectively, "Representations") which are not
set forth in this Lease (including without limitation any Representations
concerning Operating Costs or Taxes). Tenant acknowledges that it has not
relied on any such Representations, agrees that no such Representations shall
be used in the construction or interpretation of this Lease and agrees that
Landlord shall have no liability for any consequences arising as a result of
any such Representations.
-33-
<PAGE>
O. Landlord's Title. Landlord's title is and always shall be paramount
----------------
to the interest of Tenant, and nothing herein contained shall empower Tenant to
do any act which can, shall or may encumber Landlord's title.
P. Light and Air Rights. This Lease does not grant any rights to light
--------------------
or air over or about the Project. Landlord specifically excepts and reserves to
itself the use of any roofs, the exterior portions of the Premises, all rights
to and the land and improvements below the improved floor level of the Premises,
the improvements and air rights above the Premises and the improvements and air
rights located outside the demising walls of the Premises, and such areas within
the Premises as were required for installation of utility lines and other
installations required to serve any occupants of the Building and the right to
maintain and repair the same, and no rights with respect thereto are conferred
upon Tenant unless otherwise specifically provided herein.
Q. Consents. Except as otherwise expressly set forth herein (including,
--------
without limitation, Sections 4E, 5B, 10B and 11B(2)), wherever the consent or
approval of either Landlord or Tenant is required by the provisions of this
Lease, such party shall not unreasonably withhold or delay such consent or
approval.
R. Landlord's Agents. Any rights reserved or granted to Landlord
-----------------
hereunder may be exercised by Landlord or any of its agents, employees,
contractors or designees.
S. Terms "Landlord" and "Tenant". The terms "Landlord" and "Tenant"
-----------------------------
whenever used in this Lease shall be construed to mean the plural where
necessary, and the necessary grammatical changes required to make the provisions
hereof apply either to entities or individuals, or men or women, shall in all
cases be assumed as though in each case fully expressed.
T. Rent Not Based on Income. It is agreed by Landlord and Tenant that no
------------------------
rental or other payment for the use, occupancy or utilization of the Premises
demised hereunder shall be, or is, based in whole or in part on the net income
or profits derived by any person from the Building or the Premises so leased,
used, occupied, or utilized, and Tenant further agrees that it will not enter
into any sublease, license, concession or other agreements for any
use, occupancy or utilization of the Premises which provides for a rental or
other payment for such use, occupancy or utilization based in whole or in part
on the net income or profits derived by any person from the Premises so leased,
used, occupied or utilized.
U. Exclusivity. Tenant is not granted by this Lease and shall not be
-----------
entitled to have any exclusive rights in the Building other than the rights of
its occupancy.
V. No Recording by Tenant. Tenant shall not record or file in any public
----------------------
records this Lease or any portion thereof.
26. UNRELATED BUSINESS INCOME.
A. Landlord shall have the right at any time and from time to time to
unilaterally amend the provisions of this Lease, if Landlord is advised by its
counsel that all or any portion of the monies paid by Tenant to Landlord
hereunder are, or may be deemed to be, unrelated business income within the
meaning of the United States Internal Revenue Code or regulations issued
thereunder, and Tenant agrees that
-34-
<PAGE>
it will execute all documents or instruments necessary to effect such amendment
or amendments, provided that no such amendment shall result in Tenant having to
pay in the aggregate more money on account of its occupancy of the Premises
under the terms of this Lease, as so amended, and provided further that no such
amendment shall result in Tenant receiving fewer services or services of a
lesser quality than it is presently entitled to receive under this Lease.
B. Any services which Landlord is required to furnish pursuant to the
provisions of this Lease may, at Landlord's option, be furnished from time to
time, in whole or in part, by employees of Landlord or the building manager of
the Project or its employees or by one or more third persons hired by landlord
or the building manager of the Project. Tenant agrees that upon Landlord's
written request it will enter into direct agreements with the building manager
of the Project or other parties designated by Landlord for the furnishing of any
such services required to be furnished by Landlord hereunder, in form and
content approved by Landlord, provided, however, that no such contract shall
result in Tenant having to pay in the aggregate more money on account of its
occupancy of the Premises under the terms of this Lease, and provided further,
that no such contract shall result in (i) Tenant receiving fewer services or
services of a lesser quality than it is presently entitled to receive under this
Lease or (ii) a material adverse change to the benefits for which Tenant has
bargained.
27. EXCULPATORY PROVISIONS. It is expressly understood and agreed by and
between the parties hereto, anything herein to the contrary notwithstanding,
that each and all of the representations, warranties, covenants, undertakings
and agreements herein made on the part of any Landlord while in form purporting
to be the representations, warranties, covenants, undertakings and agreements of
such Landlord are nevertheless each and every one of them made and intended, not
as personal representations, warranties, covenants, undertakings and agreements
by such Landlord, or for the purpose or with the intention of binding such
Landlord personally, but are made and intended for the purpose only of
subjecting such Landlord's interest in the Premises and the Project to the terms
of this Lease and for no other purpose whatsoever, and in case of default
hereunder by such Landlord (or default through, under or by any of the
beneficiaries of any Landlord which is a land trust, or any of the agents,
servants, employees or representatives of such Landlord or said beneficiaries),
Tenant shall look solely to the interests of such Landlord in the Premises and
the Project; that no Landlord nor any of the beneficiaries of any Landlord which
is a land trust shall have any personal liability to pay any indebtedness
accruing hereunder or to perform any covenant, either express or implied, herein
contained and no liability or duty shall rest upon any Landlord which is a land
trust to sequester the trust estate or the rents, issues and profits arising
therefrom, or the proceeds arising from any sale or other disposition thereof;
that no personal liability or personal responsibility of any sort is assumed by,
nor shall at any time be asserted or enforceable against, any Landlord, or
against any of the beneficiaries of any Landlord which is a land trust, on
account of this Lease or on account of any representation, warranty, covenant,
undertaking or agreement of Landlord in this Lease contained, either express or
implied, all such personal liability, if any being expressly waived and released
by Tenant and by all persons claiming by, through or under Tenant; that this
Lease, if executed by any Landlord which is a land trust, is executed and
delivered solely in the exercise of the powers conferred upon it as such
Trustee; and that as to any partnership which is a Landlord or the beneficiary
of a Landlord which is a land trust, a
-35-
<PAGE>
deficit capital account of any partner of such partnership shall not be deemed
to be an asset or property of such partnership.
IN WITNESS WHEREOF, the parties hereto have executed this Lease on the date
first above written.
LANDLORD:
TEACHERS REALTY CORPORATION,
an Ohio corporation
By: /s/ S. Marc Flannery
--------------------------------
Print Name: S. Marc Flannery
-------------------------
Print Title: Assistant Secretary
------------------------
TENANT:
MEDICON, INC.
------------------------------------
an Illinois corporation
By: /s/ Lawrence Rubenstein
-------------------------------
Print Name: Lawrence Rubenstein
-------------------------
Print Title: Exec. V.P. & Sec'y
-----------------------
-36-
<PAGE>
-36A-
28. EXTENSION OPTION. Subject to Section 28c below, the Term of this
----------------
Lease may be extended, at the option of Tenant, for two (2) successive periods
of five (5) years each, each such period is sometimes called a "Renewal Term",
------------
and the first such five (5) year period (if any) is sometimes called the "First
Renewal Term" and the second such five (5) year period (if any) is sometimes
called the "Second Renewal Term". Each Renewal Term shall be upon the same
terms, covenants and conditions contained in this Lease, excluding the
provisions of Sections 28, 30, 31 and Appendix D of this Lease and except for
the payment of Base Rent during the Renewal Term; and any reference in the Lease
to the "Term" of the Lease shall be deemed to include any Renewal Term and apply
thereto unless it is expressly provided otherwise. Tenant shall have no
extension options beyond the aforesaid two consecutive five year extension
options. Any termination of this Lease during the initial Term of this Lease,
or during a Renewal Term shall terminate all rights under this section 28.
A. The Base Rent during a Renewal Term for any spaces then constituting a
portion of the Premises shall be at a rate equal to the greater of (i) the Base
Rent existing on the date Tenant delivers its initial non-binding notice, and
(ii) the Market Rate (defined hereinafter) for such space. For purposes of this
Lease, "Market Rate" shall mean the fair net rental per annum (which shall be
-----------
net of all taxes and operating expenses) for a period commending when the fair
net rental being determined would first be payable, assuming no rent abatements
of any kind, per rentable square foot for comparable space for a term equal to
the number of years remaining in the Term (including any Renewal Term with
respect to which Tenant has delivered its final binding written notice pursuant
to Section 28C), for a new tenant. The calculation of Market Rate shall take
into account (and the fair net rental shall be decreased by) the present value
of any then market brokers' commission and of any then market tenant
improvement, free rent other concession which would be available to a new
tenant, and shall also take into account (and the fair net rental shall be
increased by) the present value of the cost of any actual brokers' commission or
actual tenant improvement or other concession agreed by the Landlord and Tenant
to be payable or to be granted to Tenant in connection with the particular
option with respect to which Tenant has given an initial non-binding notice.
The calculation of Market Rate shall also take into account that Tenant pays
Tenant's Proportionate Share of the Operating Costs
<PAGE>
-36B-
and Taxes in each fiscal year. The calculation of Market Rate shall be made by
reference to comparable space in the Building, primarily, and in other buildings
within a two-mile radius of the Building which are comparable to the Building in
age and quality, secondarily, but excluding those leases where Tenant has an
equity interest in the property.
B. For purposes of this Lease, "Market Rate", as defined above, shall be
determined as follows:
(i) On or before five (5) days after the time at which Tenant must
provide the Landlord with initial non-binding written notice under this
Lease of its intent to exercise any of its rights to extend the Term of
this Lease under this Section 28 or, on or before five (5) days after
either Landlord or Tenant requests in writing a determination of Market
Rate, which determination is required for purposes of enforcing any
provision of this Lease, Landlord and Tenant shall commence negotiations to
agree upon the Market Rate (to be multiplied by the rentable square feet in
the Premises) applicable thereto. If the Landlord and Tenant are unable to
reach agreement on the Market Rate within twenty-one (21) days after the
date negotiations commenced, then the Market Rate shall be determined in
accordance with Section 28B(ii) below.
(ii) If the Landlord and Tenant are unable to reach agreement on the
Market Rate within said twenty-one (21) day period, then within seven (7)
days, the Landlord and Tenant shall each simultaneously submit to other in
a sealed envelope its good faith estimate of the Market Rate. If the
higher of such estimates is not more than one hundred ten percent (110%) of
the lower of such estimates then the Market Rate shall be the average of
the two estimates. Otherwise, within five (5) days either the Landlord or
Tenant may submit the question to arbitration in accordance with Section
28B (iii) below.
(iii) If the Landlord and Tenant are unable to agree upon the Market
Rate by exchange of estimates, then either may, by written notice of the
other within five (5) days after the exchange of good faith estimate
pursuant to Section 28B(ii) above, request to resolve the dispute by
arbitration. Within seven (7) days after the receipt of such request, the
parties shall select, as an arbitrator, a mutually acceptable independent
MAI appraiser with
<PAGE>
-36C-
experience in real estate activities, including at least five (5) years
experience in appraising office space in the North Suburban Chicago area (a
"Qualified Appraiser"). If the parties cannot agree on a Qualified
-------------------
Appraiser, then within a second period of seven (7) days, each shall elect
a Qualified Appraiser and within ten (10) days thereafter the two appointed
Qualified Appraisers shall select a third Qualified Appraiser and the third
Qualified Appraiser shall be the arbitrator and shall determine the Market
Rate. If one party shall fail to make such appointment within said second
seven (7) day period, then the Qualified Appraiser chosen by the other
party shall be the sole arbitrator.
(iv) Once the arbitrator has been selected as provided in Section
28B(iii) above, then, as soon thereafter as practicable but in any case
within twenty-one (21) days, the arbitrator shall select one of the two
estimates of Market Rate submitted by the Landlord and Tenant pursuant to
Section 29B(ii), which shall be the one that is closer to the fair market
net rental value as determined by the arbitrator. The value so selected
shall be the Market Rate. The decision of the arbitrator as to the Market
Rate shall be submitted in writing to, and the final and binding on, the
Landlord and Tenant. If the arbitrator believes that expert advice would
materially assist him, he may retain one or more qualified persons,
including but not limited to, legal counsel, brokers, architects or
engineers, to provide such expert advice. The party whose estimate is not
chosen by the arbitrator shall pay the costs of the arbitrator and of any
experts retained by the arbitrator. Any fees of any counsel or expert
engaged directly by the Landlord or Tenant, however, shall be borne by the
party obtaining such counsel or expert.
(v) The Landlord and Tenant may, by agreement, submit any other
number or amount in dispute under the Lease to determination by means of
the arbitration procedure set forth in this section 28B.
C. Each option to extend shall be exercised by Tenant delivering an
initial non-binding written notice to Landlord not less than thirteen (13) full
calendar months prior to the expiration of the initial Term of this Lease, or
the first Renewal Term, as the case may be. Thereafter, the Market Rate for the
particular Renewal Term shall be calculated pursuant to Section 28B. Such
calculation shall reflect the Market Rate that would be payable per annum for a
term commencing on the first day of the particular Renewal Term with respect to
which the calculation is being made, provided that such calculations shall
<PAGE>
-36D-
be final and shall not be recalculated at the actual commencement of such
Renewal Term (if any). Tenant shall give Landlord final binding written notice
of intent to exercise an option to extend no later than six (6) months prior to
the expiration of the initial Term of the First Renewal Term of this Lease, as
the case may be.
D. Tenant's right to exercise a particular option to extend this Lease
pursuant to this Section 28, is subject to the following condition: that on the
date that Tenant delivers its written notice of its election to exercise an
option to extend, Tenant is not in default under this Lease after having been
given notice and an opportunity to cure within the applicable cure period.
E. If Tenant fails to give its initial non-binding written notice of
intent or its final binding written notice of intent to exercise an option to
extend when due as provided in this Section 28, Tenant will be deemed to have
waived such option to extend.
29. PARKING. Landlord shall provide Tenant with eight reserved parking
-------
spaces in the parking lot adjacent to the Building. Such parking spaces shall
be provided at no additional cost to Tenant.
30. RIGHT OF FIRST OFFER. Subject to Section 30B below, and subject to
--------------------
any expansion, renewal, right of first offer, or right of first refusal options
or other agreements pertaining to use or occupancy of any current tenant or
tenants in the Building (individually, the "Prior Tenant"), during the Term of
------------
this Lease, Tenant shall have and is hereby granted a right of first offer with
respect to the entire 3rd, 4th and 6th floors of the Building or any portion
thereof, (collectively the "ROFO Space"), which right shall be exercised in
----------
accordance with the procedures set forth in Section 30A below. Notwithstanding
the foregoing, with respect to all of the Expansion Space (defined in Section
34), such right of first offer shall be preempted by the Expansion Option
provided for in Section 34 and shall not be granted on any of the Availability
Dates (as set forth in Section 34), but shall subsequently be granted in the
event any Expansion Space is subsequently relet to a third party (such third
party shall be deemed a Prior Tenant for purposes of this Section 30)
<PAGE>
-36E-
and such third party's lease (including any renewal or other options) expires
prior to the expiration of Tenant's Term of this Lease.
A. If at any time during the Term of this Lease any ROFO Space becomes
available for lease to anyone other than a Prior Tenant, Landlord shall give
written notice thereof to Tenant (the "Landlord's ROFO Notice") identifying that
----------------------
portion of the ROFO Space that is available (the "Subject ROFO Space").
------------------
Landlord's ROFO Notice may be given at any time up to eight (8) months in
advance of such availability and shall contain the terms upon which Landlord
intends to offer the Subject ROFO Space for lease to the market. Tenant shall
notify Landlord within thirty (30) days of receipt of Landlord's ROFO Notice
whether it desires to lease the Subject ROFO Space on the terms set forth in
Landlord's ROFO Notice; provided, however, the failure to notify Landlord within
said 30-day period shall be deemed a refusal by Tenant. After any such refusal
or deemed refusal, Tenant shall have no further rights to such Subject ROFO
Space and Landlord shall be free to lease such space to any person or entity for
any term. If Tenant exercises its right of first offer with respect to such
Subject ROFO Space, such space shall be added to the Premises for the remaining
Term of the Lease (including the Renewal Term, if any) on (a) all the terms,
covenants and conditions specified in the Landlord's ROFO Notice, and (b) the
terms, covenants and conditions of this Lease to the extent that such terms,
covenants and conditions of this Lease do not conflict with the terms, covenants
and conditions specified in the Landlord's ROFO Notice; provided, however, that
notwithstanding anything herein to the contrary, during the Renewal Term, if
any, Base Rent, Operating Cost Share Rent, Tax Share Rent and Additional Rent
and all other economic terms applicable to any ROFO Space shall be adjusted in
the manner provided in Section 28 hereof, and the rent and other economic terms
described in the Landlord's ROFO Notice shall not apply during any such Renewal
Term, but shall be in accordance with Section 28 above. Any ROFO Space added to
the Premises pursuant to this Section 30 shall become a part of the Premises for
all purposes of this Lease, and any reference in this Lease to the term
"Premises" shall be deemed to refer to and include such portion of the ROFO
Space, except as expressly provided otherwise in this lease.
B. Tenant's right to exercise its right of first offer with respect to
any portion of the ROFO Space pursuant to this Section 30, is subject to the
following condition: that on the date that Tenant delivers its binding written
notice of its election to exercise its right of first offer, Tenant is not in
default under any of the terms, covenants or conditions of the
<PAGE>
-36F-
Lease after having been given notice and an opportunity to cure within the
applicable cure period.
C. Promptly after Tenant's exercise of its right of first offer pursuant
to this Section 30, Landlord shall prepare an amendment to the Lease to reflect
changes in the size of the Premises, Base Rent, Tenant's Proportionate Share and
any other appropriate terms, due to the addition of the ROFO Space. Landlord
and Tenant shall execute and return such an amendment to the Lease within
fifteen (15) days after its submission to Tenant.
31. TENANT CONSTRUCTION ALLOWANCE. Landlord hereby agrees to provide
-----------------------------
Tenant with an amount equal to Thirty-Five Thousand and NO/100 Dollars ($35,000)
(the "Tenant Construction Allowance") to be applied to the cost of the
-----------------------------
Build-Out (defined herein as defined in Appendix D) to be performed by Tenant.
If the total cost incurred by Tenant in connection with that portion of the
Build-Out approved by Landlord and Tenant as of the Commencement Date is less
than the Tenant Construction Allowance (the "Excess Construction Allowance"),
-----------------------------
Landlord hereby agrees that, at Tenant's option, Excess Construction Allowance
may be used as a credit against the first installments of Base Rent falling due
during the Term of the Lease. If the total costs incurred by Tenant in
connection with the Build-Out exceed the Tenant Construction Allowance, Tenant
hereby agrees to pay the excess costs.
32. BUILDING NAME. Landlord hereby agrees that Tenant may have the
-------------
Building names after Tenant, subject to Landlord's reasonable approval of the
precise name and signage, provided that Tenant (i) is leasing at 38,050 rentable
square feet in the Building and (ii) has received all necessary approvals from
all relevant governmental, zoning and regulatory bodies (including, without
limitation, the Village of Northbrook) to do so, and provided further that
Landlord shall have no obligation to take any action in connection therewith or
to participate in any proceedings, applications or requests.
33. SIGNAGE. The parties hereby acknowledge that there is existing
-------
exterior signage on a monument located on the east side of the Project.
Provided that Tenant shall not have sublet all or any portion of its Premises or
assigned this Lease, upon full execution of this Lease by both parties, Tenant
shall have the right to put its signage on the existing monument, and the cost
of such sign and the installation thereof shall be paid by Landlord. The
materials, size, shape, character, content and
<PAGE>
-36G-
method of installation of such signage shall be subject to Landlord's prior
written approval, which approval will not be unreasonably withheld. Upon
termination of this Lease, by lapse of time or otherwise, Tenant shall, at its
own cost, remove such signage and restore the monument to the condition that
existed prior to Tenant erecting its signage thereon pursuant to this Section
33. Landlord and Tenant hereby agree that there shall be no monthly charge for
the rights granted to Tenant pursuant to this Section 33.
34. EXPANSION OPTIONS. Subject to Section 34C below, Tenant shall have
-----------------
and is hereby granted the options described in Section 34A below to add the
Premises the Expansion Space (hereinafter defined) for the remaining Term of
this Lease (including any Renewal Term) upon the same terms, covenants and
conditions contained in this Lease except Sections 29 and 31 of this Lease,
except for the abatement of Operating Cost Share Rent and Tax Share Rent
provided in Sections 2A(2) and 2A(3) which shall not be applicable to the
Expansion Space (with Tenant paying the full amount of Operating Cost Share Rent
and Tax Share Rent payable from time to time under this Lease with respect to
Expansion Space), and except for the payment of Base Rent (which shall be
payable in the amounts described hereinbelow); and provided that any space added
to the Premises pursuant to this Section 34 shall be delivered as is, and
Landlord shall have no obligation to contribute to the cost of any construction
or remodeling by Tenant, nor shall any work allowance be applicable to any such
space, nor shall Landlord be obligated to perform any construction in connection
with such space. Tenant's obligations to pay Operating Cost Share Rent, Tax
Share Rent and Base Rent for any particular Expansion Space shall commence on
the date such space is actually made available to Tenant to be added to the
Premises. In the event that Tenant exercises its expansion option pursuant to
this Section 34A, the Expansion Space thereby added to the Premises shall
become a part of the Premises for all purposes of this Lease, and any reference
in this Lease to the term "Premises" shall be deemed to refer to and include any
such Expansion Space, except as expressly provided otherwise in this Lease.
A., On April 1, 1993 (the "First Availability Date"), Tenant shall have
-----------------------
the right to expand into 3,016 rentable square feet (the "First Expansion
---------------
Space") on the sixth floor of the Building.
- -----
On May 1, 1993 (the "Second Availability Date"), Tenant shall have the
------------------------
right to expand into 8,227 rentable square feet (the "Second Expansion Space")
----------------------
on the third floor of the Building.
<PAGE>
APPENDIX A
[BLUEPRINT]
BOULEVARD 40 LEVEL 5
<PAGE>
APPENDIX B
CLEANING SCHEDULE
Landlord shall furnish janitorial service as described below:
DAILY
-----
Sweep, dry mop (using treated mops), or vacuum all floor areas (moving
light furniture) of resilient wood or carpet, remove matter such as gum and tar
which had adhered to the floor.
Empty and damp wipe all ashtrays and waste baskets and remove all trash.
Dust all horizontal surfaces with treated dust cloth, including furniture,
files, equipment, blinds, and louvers that can be reached without a ladder.
Damp wipe all telephones, including dials and crevices.
Spot wash to remove smudges, marks and fingerprints from such areas as
walls, equipment, doors, partitions and light switches within reach.
Wash and disinfect water fountains and water coolers.
Damp mop all non-resilient floors such as concrete, terrazzo and ceramic
tile.
Empty all waste containers.
Dust and rub down elevator doors, walls, and metal work in elevator cabs.
TOILET ROOMS
------------
Clean mirrors, soap dispensers, shelves, wash basins, exposed plumbing,
dispenser and disposal container exteriors using detergent disinfectant and
water. Damp wipe all ledges, toilet stalls and doors, spot clean light
switchers, doors and walls.
Clean toilets and urinals with detergent disinfectant, beginning with seats
and working down. Pour one ounce of bowl cleaner into urinal after cleaning and
do not flush.
Furnish and refill all soap, toilet, sanitary napkin and towel dispensers.
Clean all baseboards.
Damp mop floors using detergent disinfectant.
WEEKLY
------
Wash all directory board, display, entry door and side light glass, as
necessary.
Spot clean carpet stains.
APPENDIX B
Page 1 of 2
<PAGE>
Spot wash interior partition glass and door glass to remove smudge marks,
and all smudge marks and finger marks from doors, partitions, woodwork, window
ledges and window mullions.
MONTHLY
-------
Sweep stairwells and landings.
Wash all uncarpeted areas.
High dust all horizontal and vertical surfaces not reached in nightly
cleaning, such as pipes, light fixtures, door frames, picture frames and other
wall hangings.
QUARTERLY
---------
Vacuum all ceilings and wall air supply and exhaust difusers or grills.
Wash all stairwell landings and treads.
Exterior windows of the building will be cleaned, weather permitting.
All tile areas to be scrubbed, waxed and buffed.
APPENDIX B
Page 2 of 2
<PAGE>
APPENDIX C
RULES AND REGULATIONS
1. Tenant shall not place anything, or allow anything to be placed near
the glass of any window, door partition or wall which may, in Landlord's
judgment, appear unsightly from outside of the Project.
2. The Project directory shall be available to Tenant solely to display
name and their location in the Project, which display shall be as directed by
Landlord.
3. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used by Tenant for any purposes
other than for ingress to and egress from the Premises. Tenant shall lend its
full cooperation to keep such areas free from all obstruction and in a clean and
sightly condition and shall move all supplies, furniture and equipment as soon
as received directly to he Premises and move all such items and waste, being
taken from the Premises (other than waste customarily removed by employees of
the Building) directly to the shipping platform at or about the time arranged
for removal therefrom. The halls, passages, exits, entrances, elevators,
stairways, balconies and roof are not for the use of the general public and
Landlord shall, in all cases, retain the right to control and prevent access
thereto by all persons whose presence in the judgement of Landlord, reasonably
exercised, shall be prejudicial to the safety, character, reputation and
interests of the Project. Neither Tenant nor any employee or invitee of Tenant
shall go upon the roof of the Project.
4. The toilet rooms, urinals, wash bowls and other apparatuses shall not
be used for any purposes other than that for which they were constructed, and no
foreign substances of any kind whatever shall be thrown therein, and to the
extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.
5. Tenant shall not cause any unnecessary janitorial labor or services by
reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness.
6. Tenant shall not install or operate any refrigerating, heating or air
conditioning apparatus or carry on any mechanical business without the prior
written consent of Landlord; use the Premises for housing, lodging or sleeping
purposes; or permit preparation or warming of food in the Premises (warming of
coffee and individual meals with employees and guests excepted). Tenant shall
not occupy or use the Premised or permit the Premises to be occupied or used for
any purpose, act or thing which is in violation of any public law, ordinance or
governmental regulation or which may be dangerous to persons or property.
7. Tenant shall not bring upon, use or keep in the Premises or the
Project any kerosene, gasoline or inflammable or combustible fluid or material,
or any other articles deemed hazardous to persons on property, or use any method
of heating of air conditioning other than that supplied by Landlord.
8. Landlord shall have sole power to direct electricians to where and how
telephone and other wires are to be introduced. No boring or cutting for wires
is to allowed without the consent of
APPENDIX C
Page 1 of 4
<PAGE>
Landlord. The location of telephones, call boxes and other office equipment
affixed to the Premises shall be subject to the approval of Landlord.
9. No additional locks shall be placed upon any doors, windows or
transoms in or to the Premises. Tenant shall not change existing locks or the
mechanism thereof. Upon termination of the lease, Tenant shall deliver to
Landlord all keys and passes for offices, rooms, parking lot and toilet rooms
which shall have been furnished Tenant. In the event of the loss of keys so
furnished, Tenant shall pay Landlord therefor. Tenant shall not make, or cause
to be made, any such keys and shall order all such keys solely from Landlord and
shall pay Landlord for any keys in addition to the two sets of keys originally
furnished by Landlord for each lock.
10. Tenant shall not install linoleum, tile, carpet or other floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord.
11. No furniture, packages, supplies, equipment or Merchandise will be
received in the Project or carried up or down in the elevator, except between
such hours and in such elevator as shall be designated by Landlord. Tenant
shall not take a permit to be taken in or out of other entrances of the Building
or take or permit on other elevators, any item normally taken in or out through
the trucking concourse or service doors or in or on elevators.
12. Tenant shall cause all doors to the Premises to be closed and securely
locked and shall turn off all utilities, lights and machines, before leaving the
Project at the end of the day.
13. Without the prior written consent of Landlord, Tenant shall not use
the name of the Project or any picture of the Project in connection with, or in
promoting or advertising the business of Tenant, except Tenant may use the
address of the Project as the address of its business.
14. Tenant shall cooperate fully with Landlord to assure the most
effective operation of the Premises or the Project's heating and air
conditioning, and shall refrain from attempting to adjust any controls, other
than room thermostats installed for Tenant's use. Tenant shall keep corridor
doors closed.
15. Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage, which may arise from a cause other than Landlord's
negligence, which includes keeping doors locked and other means of entry to the
Premises closed and secured.
16. Peddlers, solicitors and beggars shall be reported to the office of
the Project or as Landlord otherwise requests.
17. Tenant shall not advertise the business, profession or activities of
Tenant conducted in the Project in any manner which violates the letter or
spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business, profession or activities.
18. No bicycle or other vehicle and no animals or pets shall be allowed in
the Premises, halls, freight docks, or any other parts of the Building except
that blind persons may be accompanied by "seeing eye" dogs. Tenant shall not
make or permit any noise, vibration or
APPENDIX C
Page 2 of 4
<PAGE>
odor to emanate from the Premises, or do anything therein tending to create, or
maintain, a nuisance, or do any act tending to injure the reputation of the
Building.
19. Tenant acknowledges that Building security problems may occur which
may require the employment of extreme security measures in the day-to-day
operation of the Project.
Accordingly:
(a) Landlord may, at any time, or from time to time, or for regularly
scheduled time periods, as deemed advisable by Landlord and/or its agents, in
their sole discretion, require that persons entering or leaving the Project or
the Property identify themselves to watchmen or other employees designated by
Landlord, by registration, identification or otherwise.
(b) Tenant agrees that it and its employees will cooperate fully with
Project employees in the implementation of any and all security procedures.
(c) Such security measures shall be he sole responsibility of
Landlord, and Tenant shall have no liability for any action taken by Landlord in
connection therewith.
20. Tenant shall not do or permit the manufacture, sale, purchase, use or
gift of any fermented, intoxicating or alcoholic beverages without obtaining
written consent of Landlord.
21. Tenant shall not disturb the quiet enjoyment of any other tenant.
22. Tenant shall not provide any janitorial services or cleaning without
Landlord's written consent and then only subject to supervision of Landlord and
at Tenant's sole responsibility and by janitor or cleaning contractor or
employees at all times satisfactory to Landlord.
23. Landlord may retain a pass key to the Premises and be allowed
admittance thereto at all times to enable its representatives to examine the
Premises from time to time and to exhibit the same and Landlord may place and
keep on the windows and doors of the Premises at any time signs advertising the
Premises for rent.
24. No equipment, mechanical ventilators, awnings, special shades or other
forms of window covering shall be permitted either inside or outside the windows
of the Premises without the prior written consent of Landlord, and then only at
the expense and risk of Tenant, and they shall be of such shape, color,
material, quality, design and make as may be approved by Landlord.
25. Tenant shall not during the term of this Lease canvas or solicit other
tenants of the Building for any purposes.
26. Tenant shall not install or operate any phonograph, musical or sound
producing instrument or device, radio receiver or transmitter, TV receiver or
transmitter, or similar device in the Building, nor install or operate any
antenna, aerial, wires or other equipment inside or outside the Building, nor
operate any electrical device from which may emanate electrical waves which may
interfere with or impair radio or television broadcasting or reception from or
in the Building or
APPENDIX C
Page 3 of 4
<PAGE>
elsewhere, without in each instance the prior written approval of Landlord. The
use thereof, if permitted, shall be subject to control by Landlord to the end
that others shall not be disturbed.
27. Tenant shall promptly remove all rubbish and waste from the Premises.
28. Tenant shall not exhibit, sell or offer for sale, rent or exchange in
the Premises or at the Project any article, thing or service except those
ordinarily embraced within the use of the Premises specified in Section 6 of
this Lease, without the prior written consent of Landlord.
29. Tenant shall list all furniture, equipment and similar articles Tenant
desires to remove from the Premises or the Building and deliver a copy of such
list to Landlord and procure a removal permit from the Office of the Building
authorizing Building employees to permit such articles to be removed.
30. Tenant shall not overload any floors in the Premises or any public
corridors or elevators in the Building.
31. Tenant shall not do any painting in the Premises, or mark, paint, cut
or drill into, drive nails of screws into, or in any way deface any part of the
Premises or the Building, outside or inside, without the prior written consent
of Landlord.
32. Whenever Landlord's consent, approval or satisfaction is required
under these Rules, then unless otherwise stated any such consent, approval or
satisfaction must be obtained in advance, such consent or approval may be
granted or withheld in Landlord's sole discretion, and Landlord's satisfaction
shall be determined in its sole judgment.
33. Tenant and its employees shall cooperate in all fire drills conducted
by Landlord in the Building.
APPENDIX C
Page 4 of 4
<PAGE>
APPENDIX D
TENANT IMPROVEMENT WORK AGREEMENT
1. TENANT'S WORK. An Acceptable Contractor (hereinafter defined) shall
improve the Premises pursuant to the architectural plans and specifications
prepared by ___________________ dated ________________ ( the "Architectural
Plans") at Tenant's sole cost and expense. An Acceptable Contractor's
(hereinafter defined) improvement of the Premises in accordance with the
Architectural Plans is sometimes referred to herein as the "Tenant's Work". If,
pursuant to the terms of this Appendix D, any changes are made to the
Architectural Plans, any additional work resulting therefrom, (the "Additional
Work"), shall be at Tenant's sole cost and expense. For purposes of this Lease,
Tenant's Work and any Additional Work are sometimes collectively referred to
herein as the "Build-Out".
Tenant shall have the Build-out performed by a contractor of Tenant's
choice whom shall be acceptable to Landlord provided Landlord is given a copy of
its insurance certificate (the "Acceptable Contractors").
Such Acceptable Contractor shall perform such work subject to, and in
accordance with the requirements of subsections (1) - (5) of Section 5A of this
Lease.
APPENDIX D
Page 1 of 4
<PAGE>
2. ADDITIONAL WORK. Landlord has no obligation to do or pay for any work
to the Premises (or any plans or specifications relating thereto).
If Tenant shall require Additional Work in the Premises in addition to or
in substitution for Tenant's Work, Tenant shall deliver to Landlord for its
approval final Architectural Plans for such Additional Work. If Landlord does
not approve of the Architectural Plans for the Additional Work, as delivered by
Tenant, Landlord shall advise Tenant generally of the changes required in such
Plans so that they will meet with Landlord's approval. Tenant shall cause the
Architectural Plans for the Additional Work to be revised and delivered to
Landlord for its final review and approval within five (5) business days after
Tenant's receipt of such advice or Tenant shall be deemed to have abandoned its
request for such Additional Work. All Architectural Plans and Engineering Plans
(as hereinafter defined) for the Additional Work (together with any changes to
the Architectural Plans for Tenant's Work which may be required as a result
thereof) shall be prepared and completed at Tenant's sole cost and expense.
If no additional work is required to be performed pursuant to and in
accordance with the foregoing provisions of this Section 2, the alterations and
improvement to be made to the Premises shall be limited to Tenant's Work and any
additional alterations and improvements to the Premises desired by Tenant shall
be made after the commencement of the term of said Lease and shall be subject to
the provisions of Section 5 of the Lease
All designs for public areas must conform to Building Standard and be
approved by the Landlord.
3. COMMENCEMENT OF RENT.
APPENDIX D
Page 2 of 4
<PAGE>
4. ACCESS BY TENANT PRIOR TO COMMENCEMENT OF TERM. Landlord, at
Landlord's discretion may permit Tenant and Tenant's agents to enter to premises
prior to the date specified as the commencement date of the Lease in order that
Tenant may make the Premises ready for tenant's use and occupancy. If Landlord
permits such entry prior to the commencement of the Term, such permission shall
constitute a license only and not a lease and such license shall be conditioned
upon: (a) Tenant working in harmony and not interfering with Landlord and
Landlord's agents, contractors, workmen, mechanics and suppliers in doing
Tenant's Work, "special work" or Additional work, if any, or Landlord's work in
the Building or with other tenants and occupants of the Building; (b) except for
an Acceptable Contractor who shall be governed by Section 1 of this Appendix D,
Tenant obtaining in advance Landlord's approval of the contractors proposed to
be used by Tenant and depositing with Landlord in advance of any work (i)
security satisfactory to Landlord for the completion thereof (ii) general
contractor's affidavit for proposed work and waiver of lien from general
contractor, all subcontractors and suppliers of material; and (c) Tenant
furnishing Landlord with such insurance and other security as Landlord may
require against liabilities which may arise out of such entry. Landlord shall
have the right to withdraw such license for any reason upon twenty-four (24)
hours' written notice to Tenant. Tenant agrees that Landlord shall not be
liable in any way for any injury, loss or damage which may occur to any of
Tenant's property placed or installations made in the Premises prior to the
commencement of the term of the Lease, the same being at Tenant's sole risk and
Tenant agrees to protect, defend, indemnify and save harmless Landlord from all
liabilities, costs, damages, fees and expenses arising out of or connected with
the activities of Tenant or its agents, contractors, suppliers or workmen in or
about the Premises or the Building. Tenant further agrees that any entry and
occupation permitted under this paragraph shall be governed by Section 5 of the
Lease and all other terms of the Lease.
APPENDIX D
Page 3 of 4
<PAGE>
5. MISCELLANEOUS.
(a) Except to the extent otherwise indicated herein, the initially
capitalized terms used in this Appendix D shall have the meanings assigned
to them in the Lease.
(b) The terms and provisions of this Appendix D are intended to
supplement and are specifically subject to all the terms and provisions of
the Lease.
(c) This Appendix D may not be amended or modified other than by
supplemental written agreement executed by authorized representatives of
the parties hereto.
APPENDIX D
Page 4 of 4
<PAGE>
EXHIBIT A TO APPENDIX D
SPECIFICATIONS FOR
BUILDING STANDARD TENANT IMPROVEMENTS
The following work shall be performed for or by the Landlord in accordance
with Building Standard Specifications:
1. DOORS
-----
(a) Primarily Entrance - one per tenant space. Prefinished metal
frame with glass sidelight and 3' -0" x 8' -4" x 1' -3/4" wood
door faced with solid color plastic laminate and with aluminum
latch set, hinges and closer.
(b) Secondary Entrance - one per tenant space in excess of 2,000
rentable square feet. Prefinished metal frame with 3' -0" x 8' -
4" x 1' -3/4" wood door faced with solid color plastic laminate
and with aluminum lockset, hinges and closer.
(c) Interior - one door per 450 square feet of tenant area.
Prefinished metal frame with 3' -0" x 8' -4" x 1' -3/4" wood door
faced with solid color plastic laminate and with aluminum latch
set, hinges and stop.
2. PARTITIONS
----------
(a) Demising, as required - fire related wall with gypsum board
surface and with full height sound conditioning insulation from
floor to 6" below slab above (return air plenum ceiling).
(b) Interior - one lineal foot of partition per 15 square feet of
tenant area. Metal studs at 24" O.C. with gypsum board and vinyl
base on each side.
3. FLOORS
------
Carpeting at allowance of $1.00 per square foot of tenant area.
4. CEILINGS
--------
2' x 4' suspended lay-in-acoustical tile at 8' -6" height by U.S. Gypsum
Co. or equivalent manufacturer.
5. WALL FINISH
-----------
Two coats of Building Standard paint in Landlord's color to be selected by
Tenant.
6. ELECTRICAL
----------
(a) Lighting Fixtures - 2' x 4' Building Standard recessed fluorescent
fixtures. One fixture per 100 square feet of tenant space. One light
switch per 300 square feet of tenant area.
(b) Duplex Wall Receptacles - one per 250 square feet of tenant area.
EXHIBIT A to APPENDIX D
Page 1 of 2
<PAGE>
(c) Telephone wall outlet - one per 300 square foot of tenant area
(d) All conduit and boxes will be plenum approved.
7. HVAC
----
Air conditioning system which shall, within tolerance normal in first class
office buildings, be capable of maintaining 75 degrees during the cooling
season and 72 degrees during the heating season. This is based upon an
occupancy density of not more than 1 person per 100 square feet of floor
area, and a maximum electrical lighting and office machine load of 3.0
watts per square foot of floor area.
8. FIRE CONTROL SYSTEM
-------------------
One semi-recessed chrome finished sprinkler head per 225 square feet of
tenant area, 7'6" off any wall.
9. WINDOWS
-------
Window Covering - 1" horizontal metal blinds in Building Standard color at
all perimeter windows.
EXHIBIT A to APPENDIX D
Page 2 of 2
<PAGE>
APPENDIX E
MORTGAGES CURRENTLY AFFECTING THE PROJECT
-----------------------------------------
None.
Exhibit 10.40
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST AMENDMENT TO LEASE (this ""Amendment") is made and entered into
as of this 11th day of August, 1993 by and between TEACHERS REALTY CORPORATION
("Landlord"), an Ohio corporation and MEDICON, INC., an Illinois Corporation
("Tenant").
W I T N E S S E T H
-------------------
WHEREAS, Landlord and Tenant entered into that certain lease commencing
September 1, 1992 (such lease as it may be modified or amended hereafter is
called the "Lease") pursuant to which Landlord leased to Tenant certain premises
(the "Premises") on the fifth (5th) floor in a building commonly known as
Boulevard 40 situated at 40 Skokie Boulevard in Northbrook, Illinois (the
"Building"), as more particularly set forth in the Lease;
WHEREAS, Tenant desires to lease additional space in the Building and
Landlord agrees to allow Tenant to lease such additional space on all of the
terms and conditions of the Lease, except as the same are expressly modified or
amended hereby;
WHEREAS, Landlord and Tenant desire to amend the Lease according to the
terms hereof in order to document the leasing of additional space in the
Building;
NOW THEREFORE, for and in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. Controlling Language. Insofar as the specific terms and
--------------------
provisions and exhibits of this Amendment purport to amend or modify
or are in conflict with the specific terms, provisions and exhibits of
the Lease, the terms, provisions and exhibits of this Amendment shall
govern and control; in all other respects, the terms, provisions and
exhibits of the Lease shall remain unmodified and in full force and
effect.
2. Additional Space.
----------------
A. First Additional Space. Landlord and Tenant hereby agree that
----------------------
commencing September 1, 1993 the following 7,095 rentable square feet
of space, as more particularly described on Exhibits A, B and C
attached hereto, shall be added to the Premises initially
<PAGE>
demised under the Lease for a period of three years, ending on August
31, 1996 (the "First Additional Space Term"):
1. 1,940 rentable square feet on the sixth (6th)
floor of the Building (Suite 640) as described on
Exhibit A;
2. 3,016 rentable square feet on the sixth (6th)
floor of the Building (Suite 615) as described on
Exhibit B; and
3. 2,139 rentable square feet on the third (3rd)
floor of the Building (Suite 320) as described on
Exhibit C.
B. Second Additional Space. Landlord and Tenant hereby agree that
-----------------------
commencing May 1, 1994 the following 4,596 rentable square feet of
space, as more particularly described on Exhibit D and E attached
hereto shall be added to the Premises then demised under the Lease
for a period of twenty-eight (28) months, ending August 31, 1996
(the "Second Additional Space Term"):
1. 2,135 rentable square feet on the fourth (4th)
floor of the Building (Suites 405 and 410) as described on
Exhibit D; and
2. 2,461 rentable square feet on the third (3rd)
floor of the Building (Suite 340) as described on
Exhibit E.
C. Third Additional Space. Landlord and Tenant hereby agree that
----------------------
commencing January 1, 1995 the following 5,376 rentable square feet
of space, as more particularly described on Exhibit F
attached hereto shall be added to the Premises then demised under the
Lease for a period of twenty (20) months ending August 31, 1996 (the
"Third Additional Space Term").
1. 5,376 rentable space feet on the fourth (4th)
floor of the Building (Suite 430) as described on
Exhibit F.
Except to the extent expressly modified hereby, and except for
Sections 28, 31 and 34 and Appendix D of the Lease, the First, Second and Third
Additional Space shall be subject to all the terms and conditions of the Lease.
-2-
<PAGE>
3. First, Second and Third Additional Space Rent.
---------------------------------------------
A. Base Rent.
---------
1. Tenant shall pay to Landlord Base Rent for the First Additional
Space (in the manner set forth in the Lease) in the amount of
$2,140.33 per month ($3.62 X 7,095 rentable square feet/12)
during the First Additional Space Term.
2. Tenant shall pay to Landlord Base Rent for the Second Additional
Space (in the manner set forth in the Lease) in the amount of
$1,386.46 per month ($3.62 x 4,596 rentable square feet/12)
during the Second Additional Space Term.
3. Tenant shall pay to Landlord Base Rent for the Third Additional
Space (in the manner set forth in the Lease) in the amount of
$1,621.76 per month ($3.62 x 5,376 rentable square feet/12)
during the Third Additional Space Term.
B. Operating Cost Share Rent and Tax Share Rent.
--------------------------------------------
Throughout the First, Second and Third Additional Space Terms, Tenant
shall pay Operating Cost Share Rent and Tax Share Rent (in the manner
set forth in the Lease) based on the Tenant's First, Second and Third
Additional Space Proportionate Share, as defined below.
4. First, Second and Third Additional Space Proportionate Share.
------------------------------------------------------------
Tenant's First Additional Space Proportionate Share equals 6.6982%
(7,095/105,924), Tenant's Second Additional Space Proportionate Share equals
4.3390% (4,596/105,924) and Tenant's Third Additional Space Proportionate Share
equals 5.0753% (5,376/105,924).
5. First, Second and Third Additional Security Deposit. Prior to
---------------------------------------------------
occupying (i) the First Additional Space, Tenant shall deposit with Landlord
SIXTEEN THOUSAND SIX HUNDRED AND SIXTY DOLLARS ($16,660.00), (ii) the Second
Additional Space, Tenant shall deposit with Landlord TWELVE THOUSAND SIX HUNDRED
DOLLARS ($12,600.00) and (iii) the Third Additional Space, Tenant shall deposit
with Landlord EIGHT THOUSAND NINE HUNDRED DOLLARS ($8,900.00), each as security
(the "Additional Security Deposit") for the full and faithful performance of
every provision of the Lease and this Amendment relating to the First, Second
and Third Additional Space, as applicable. If Tenant shall fully and faithfully
perform every provision of this Amendment to be
-3-
<PAGE>
performed by it, the security deposit or any balance thereof shall be turned
to Tenant at the expiration of the applicable Term. All other rights and
obligations of Landlord and Tenant established pursuant to Section 17 of the
Lease, Security Deposit, shall apply to the Additional Security Deposit.
----------------
6. Condition of Additional Space. Landlord is leasing the First, Second
-----------------------------
and Third Additional Space to Tenant "as is", without any representations or
warranties of any kind (including, without limitation, any express or implied
warranties of merchantability, fitness or habitability) and without any
obligation on the part of Landlord to alter, remodel, improve, repair or
decorate the First, Second and Third Additional Space or any part thereof.
7. Miscellaneous.
-------------
A. Landlord and Tenant hereby agree that (i) this
Amendment is incorporated into and made a part of the Lease, (ii) any
and all references to the Lease hereinafter shall include this
Amendment and (iii) the Lease and all terms, conditions and provisions
of the Lease are in full force and effect as of the date hereof,
except as expressly modified and amended hereinabove;
B. All terms capitalized but not defined herein shall have the same
meaning ascribed to such terms in the Lease.
C. This Amendment shall be governed by and construed under the laws of
the State of Illinois.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
LANDLORD: TENANT:
TEACHERS REALTY CORPORATION, MEDICON, INC., an Illinois
an Ohio corporation corporation
By: /s/ S. Marc Flannery By: /s/ George Roe
--------------------------- --------------------------
S. Marc Flannery V.P./Counsel
Assistant Secretary
-4-
<PAGE>
EXHIBIT A
[FLOOR PLAN OF LEVEL 6]
<PAGE>
EXHIBIT B
[FLOOR PLAN OF LEVEL 6]
<PAGE>
EXHIBIT C
[FLOOR PLAN OF LEVEL 3]
<PAGE>
EXHIBIT D
[FLOOR PLAN OF LEVEL 4]
<PAGE>
EXHIBIT E
[FLOOR PLAN OF LEVEL 3]
<PAGE>
EXHIBIT F
[FLOOR PLAN OF LEVEL 4]
Exhibit 10.41
SECOND AMENDMENT TO LEASE
-------------------------
THIS SECOND AMENDMENT TO LEASE (this "Amendment") is made and entered into
as of this 24th day of April, 1995, by and between TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA (successor-in-interest to Teachers Realty
Corporation), a New York corporation ("Landlord") and MEDICON, INC., an Illinois
corporation ("Tenant").
RECITALS:
--------
A. Tenant is currently occupying space in the building commonly known as
"Boulevard 40" situated at 40 Skokie Boulevard in Northbrook, Illinois (the
"Building") pursuant to that certain lease by and between Landlord and Tenant
commencing September 1, 1992, as amended by a First Amendment to Lease dated as
of August 11, 1993 (such lease as heretofore modified or amended from time to
time hereafter is called the "Lease"). Pursuant to the Lease, Landlord leased
to Tenant certain premises (the "Premises") on the third (3rd), fourth (4th),
fifth (5th), and sixth (6th) floors of the Building, as more particularly set
forth in the Lease.
B. Landlord and Tenant desires to lease certain additional space on the
fourth (4th) floor of the Building, comprising approximately 2,572 rentable
square feet and commonly known as Suite 445 ("Suite 445") as more particularly
depicted on the space plan attached hereto as Exhibit A.
---------
C. Landlord and Tenant desire to amend the Lease according to the terms
hereof in order to document the leasing of Suite 445.
NOW THEREFORE, for and in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. Controlling Language. Insofar as the specific terms and provisions
--------------------
and exhibits of this Amendment purport to amend or modify or are in conflict
with the specific terms, provisions and exhibits of the Lease, the terms,
provisions and exhibits of this Amendment shall govern and control; in all
other respects, the terms provisions and exhibits of the Lease shall remain
unmodified and in full force and effect.
2. Suite 445 Term. Landlord leases to Tenant, and Tenant leases from
--------------
Landlord, Suite 445 for a term (the "Suite 445 Term") commencing upon the
Suite 445 Commencement Date and ending on August 31, 1996. The
"Suite 445 Commencement Date" shall be the date which is thirty (30) calendar
days after Landlord has tendered Suite 445 to Tenant in broom-clean condition.
Except to the extent expressly modified by this Amendment, and except for
Sections 28,
<PAGE>
31 and 34 and Appendix D of the Lease, the leasing of Suite 445 shall be subject
to all the terms and conditions of the Lease, and from and after the date
hereof, Suite 445 shall constitute a part of the "Premises," as such term is
defined in the Lease, for all purposes thereof.
3. Suite 445 Rent. In addition to the rent otherwise reserved and payable
--------------
under the Lease, Tenant agrees to pay the following with respect to Suite 445
throughout the Suite 445 Term:
a. Base Rent. Base Rent in the amount of $2,036.17 per month ($9.50
---------
x 2,572 rentable square feet/12). If the Suite 445 Commencement Date is
other than the first day of a month, the Base Rent for the month in which
the Suite 445 Commencement Date occurs shall be adjusted on a pro rata
basis. The payment of Base Rent shall otherwise occur in the manner set
forth in the Lease.
b. Operating Cost Share Rent and Tax Share Rent; Tenant's Suite 445
----------------------------------------------------------------
Expansion Space Proportionate Share. The term "Tenant's Suite 445
-----------------------------------
Proportionate Share" shall mean 2.4282% (2,572 rentable square feet in
Suite 445 over 105,924 rentable square feet in the Building). Tenant shall
pay Operating Cost Share Rent and Tax Share Rent based on the Tenant's
Suite 445 Proportionate Share, but otherwise in the manner set forth in the
Lease.
c. Additional Rent. Additional rent shall be payable in the manner
---------------
set forth in the Lease.
d. Abatement of Rent. Notwithstanding the foregoing, no base or
-----------------
additional rent shall be payable with respect to Suite 445 until the Suite
445 Commencement Date.
4. Condition of Suite 445 Expansion Space. Suite 445 will be tendered to
---------------------------------------
Tenant in broom-clean condition upon the Suite 445 Commencement Date, but in all
other respects Landlord is leasing Suite 445 to Tenant "AS IS", without any
representations or warranties of any kind (including, without limitation, any
express or implied warranties of merchantability, fitness or habitability) and
without any obligation on the part of Landlord to alter, remodel, improve,
repair or decorate Suite 445 or any part thereof. Tenant may alter or improve
Suite 445 at its cost and expense in accordance with the provisions of Section 5
of the Lease.
5. Condition Precedent to Effectiveness. This amendment shall not be
------------------------------------
effective unless and until the current tenant of Suite 445 agrees to vacate and
actually vacates that space, and the space is tendered to Tenant as set forth in
paragraph 4 above.
-2-
<PAGE>
6. Miscellaneous.
-------------
a. Incorporation. Landlord and Tenant hereby agree that (i) this
-------------
Amendment is incorporated into and made a part of the Lease, (ii) any and
all references to the Lease hereinafter shall include this Amendment and
(iii) the Lease and all terms, conditions and provisions of the Lease are
in full force and effect as of the date hereof, except as expressly
modified and amended hereinabove;
b. Defined Terms. All terms capitalized but not defined herein shall
-------------
have the same meaning ascribed to such terms in the Lease.
c. Governing Law. This Amendment shall be governed by and construed
-------------
under the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
LANDLORD: TENANT:
TEACHERS INSURANCE AND ANNUITY MEDICON, INC., an Illinois
ASSOCIATION OF AMERICA, a New corporation
York corporation
By: /s/ S. Marc Flannery By: /s/ Lawrence Rubinstein
---------------------------- ------------------------------
Name: S. Marc Flannery Name: Lawrence Rubinstein
Title: Assistant Secretary Title: Exec. V.P. & Gen'l Counsel
-3-
<PAGE>
EXHIBIT A
[FLOOR PLAN OF LEVEL 4]
EXHIBIT 10.42
MEDICON, INC.
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of November 17, 1995, by and between
Medicon, Inc., an Illinois corporation (the "Company"), and Carl R. Adkins, M.D.
(the "Executive").
The Company desires to employ the Executive and the Executive desires
to accept employment with the Company, on the terms and conditions of this
Agreement. Accordingly, the parties agree as follows:
1. Employment and Acceptance.
-------------------------
The Company hereby employs the Executive and the Executive hereby
accepts employment from the Company, upon the terms and conditions set forth in
this Agreement, for the period beginning on September 5, 1995 (the "Effective
Date") and ending as provided in Section 5 hereof (the "Employment Period").
2. Duties and Authority.
--------------------
2.1 Duties. The Executive agrees to use his best efforts, skill
------
and abilities to promote the Company's interest in his capacity as President and
Chief Executive Officer of the Company. The Executive will report directly to
the Board of Directors (the "Board") of the Company.
2.2 Titles. The Executive shall be the President and Chief
------
Executive Officer of the Company.
3. Place of Employment.
-------------------
The duties to be performed by the Executive hereunder shall be
performed primarily at the executive headquarters of the Company, subject to
reasonable travel requirements on behalf of the Company.
4. Compensation and Benefits.
-------------------------
4.1 Compensation. As compensation for services to be rendered
------------
pursuant to this Agreement, during the Employment Period, the Company shall pay
the Executive an initial salary at the annual rate of no less than $275,000.00
(the "Base Salary"), payable in accordance with the payroll policy of the
Company, less such deductions or amounts to be withheld as shall be required by
applicable law and regulations.
<PAGE>
2
4.2 Bonuses.
-------
4.2.1 Short-Term Incentive Bonuses. The Executive is
----------------------------
eligible to receive one of two potential cash bonuses based on the following
(which are in addition to the Annual Bonus described in Section 4.2.2 below):
(a) If the Company (1) achieves positive quarterly net
income in either the first or second quarter of fiscal 1996 and (2) does not
---
require additional capital before December 31, 1996 (excluding an initial public
offering ("IPO") or Board-approved investment by a non-affiliated corporate
partner) beyond the pending $7.5 million contribution of capital by the
principal selling shareholders of the 1994 recapitalization (the "Principals'
Contribution"), the Executive will receive a short-term incentive bonus ("Short-
Term Bonus Option One") equal to 100% of his Base Salary. Such bonus will be
payable at the end of the fiscal year, but only if the Company has remained
profitable for the balance of the year.
(b) If the Company does not satisfy 4.2.1(a) above but
instead (1) achieves positive quarterly net income in either the third or fourth
quarter of fiscal 1996 and (2) does not require additional capital before
---
December 31, 1996 (excluding an IPO or Board-approved investment by a non-
affiliated corporate partner) beyond the Principals' Contribution, the Executive
will receive a short-term incentive bonus ("Short-term Bonus Option Two") equal
to 50% of his Base Salary. Such bonus will be payable at the end of the fiscal
year, but only if the Company has remained profitable for the balance of the
year.
4.2.2 Annual Bonus. For fiscal year ending December 31,
------------
1996 and each fiscal year thereafter ending during the Employment Period, the
Employee will be eligible for a performance based annual bonus (the "Annual
Bonus," and together with Short-Term Bonus Option One and Short-Term Bonus
Option Two, the "Bonuses"). The Executive and the Compensation Committee will
meet during the fourth quarter of each fiscal year (beginning in the fourth
quarter of 1995) to agree upon and set appropriate performance targets for the
following year based on revenue growth, profitability per share and capital
required (the "Plan Targets"). These Plan Targets will be linked to the
Company's annual plan as approved by the Board (the "Annual Plan"). At the end
of each fiscal year the Executive's Annual Bonus payment will be as follows:
(a) If the Company achieves the applicable Plan Targets,
the Executive will receive an Annual Bonus equal to 50% of his Base Salary.
<PAGE>
3
(b) If the Company exceeds the applicable Plan Targets, the
Executive's Annual Bonus payment may be increased up to an amount which equals
100% of his Base Salary according to a sliding scale based on extraordinary
performance. This sliding scale will be determined each year by the
Compensation Committee based on the specific Annual Plan and Plan Targets for
that year, with the payment of an Annual Bonus equal to 100% Of Base Salary
occurring with achievement of extraordinary performance.
The parties acknowledge that the Annual Bonus plan may have to be
revised in the event of an IPO.
4.3 Benefits.
--------
4.3.1 Group Benefits. Except as provided in the following
--------------
sentence, the Company agrees to provide the Executive during the Employment
Period all health programs (including, without limitation, medical and dental
programs), 401-K programs, similar benefit plans, and other so-called "fringe
benefits" of the Company (collectively, "Fringe Benefits"); provided, however,
-------- -------
that the Executive will not be eligible to participate in the Company's 401-K
programs until the first fiscal quarter following the one-year anniversary of
the Effective Date. The Company agrees that each of the Fringe Benefits in
effect on the date hereof or at any time during the Employment Period shall not
be terminated, modified or replaced in any manner that materially reduces the
benefits to the Executive without the written consent of the Executive, unless
such termination or modification relates to a Fringe Benefit that is available
generally to employees of the Company or to executive employees of the Company
and such termination or modification affects all employees covered by such
Fringe Benefit.
4.3.2 Relocation Expenses.
-------------------
(a) The Company shall, through a relocation firm, effectively
purchase the Executive's current residence, located at 8519 Eagle Ridge Road,
Springboro, Ohio 450066 (the "Current Residence"), at a price (the "Appraisal
Price") equal to the average of two independent appraisals received by such
relocation firm. In connection with the foregoing, the Company shall (i) pay
the costs of the relocation firm (including costs such as the appraisals and any
commission on the sale of the Executive's current residence), (ii) any closing
costs, including costs associated with inspection and the transfer of title
and (iii) the difference, if any, between the Appraisal Price of the Current
Residence and the $525,000 price paid for the Current Residence by the
Executive.
<PAGE>
4
(b) The Company shall pay the following relocation expenses of
the Executive in connection with the Executive's initial relocation to Illinois:
(i) temporary housing expenses for a period of up to 90 days in an amount not to
exceed $30,000.00, (ii) reasonable travel, hotel and related expenses for the
Executive and his family to make round trips between Dayton, Ohio and Chicago,
Illinois to locate a new residence, expected not to exceed $10,000.00, (iii)
legal costs incurred in connection with the Executive's purchase of his new
residence, (iv) points on the Executive's new mortgage, (v) expenses incurred in
connection with the relocation of household effects; provided, however, that the
-------- -------
Executive shall obtain estimates from two moving companies for the cost of such
relocation and the Company, following consultation with the Executive, will
select a moving company and pay the costs of such moving company directly on the
Executive's behalf, and (vi) an amount sufficient on an after-tax basis to
reimburse the Executive for any tax expenses incurred as a result of any of the
above items not being deductible for income tax purposes.
4.4 Restricted Stock. The Executive shall receive 1,314,451
----------------
shares of the Company's Class A Common Stock that will be subject to forfeiture
provisions and such other terms nd conditions as are set forth in the restricted
stock agreement (the "Restricted Stock Agreement") being entered into
concurrently herewith by the Company and Executive, which agreement is attached
hereto as Exhibit A and which is incorporated herein by reference.
4.5 Vacations. The Executive shall be entitled to reasonable
---------
non-accruing annual periods of vacation (not less than an aggregate of four
weeks in any calendar year) with full pay.
5. Termination; Payment Upon Certain Termination Events.
----------------------------------------------------
(a) The Employment Period shall end on December 31, 1996 (the
"Original Period"), provided that (i) the Employment Period shall terminate
prior to such date (a) upon the Executive's resignation or death or (b) upon
the permanent disability or incapacity of the Executive that causes the
Executive to be unable to perform his duties under this Agreement (as determined
by the Board in its good faith judgment) and (ii) the Employment Period may be
terminated by the Company at any time prior to such date for Cause (as defined
below) or, upon 90 days' written notice to the Executive, without Cause.
Notwithstanding the foregoing, the Company, subject to termination pursuant to
clause (i) or (ii) of the immediately preceding sentence,
<PAGE>
5
will extend the Employment Period for successive periods of one year each (each,
a "Successive Period") unless the Board of Directors delivers a written notice
at least 90, but no more than 120, days prior to the end of the Original Period
or each Successive Period of its decision not to extend the Employment Period.
(b) If the Employment period is terminated by the Company
without Cause, then the Executive shall be entitled to receive his Base Salary
for a period of one year following such termination; provided, however, that
-------- -------
the Company will cease paying such severance if the Executive materially
breaches any provisions of paragraphs 6 or 7 hereof; provided further, however,
-------- ------- -------
that if the Executive becomes employed within such time period and (i) if the
Executive's compensation equals or exceeds his Base Salary, the Company shall
cease paying such severance or (ii) if the Executive's compensation is less than
his Base Salary, the Company shall continue paying such severance but only to
the extent that his Base Salary exceeds his current compensation.
(c) If the Employment Period is terminated by the Company for
Cause or is terminated pursuant to clause (a)(i) above, the Executive shall be
entitled to receive his Base Salary through the date of termination.
(d) All of Executive's rights to Fringe Benefits and Bonuses
hereunder (if any) accruing after the termination of the Employment Period shall
cease upon such termination.
(e) For purposes of this Agreement, "Cause" shall mean (i) the
commission of a felony or a crime involving moral turpitude or the commission of
any other act involving dishonesty, disloyalty or fraud with respect to the
Company or any of its subsidiaries, (ii) conduct tending to bring the Company or
any of its subsidiaries into substantial public disgrace or disrepute, (iii)
substantial and repeated failure, which is not cured within 15 days after
written notice thereof to the Executive, to perform duties as reasonably and
lawfully directed by the Board which are consistent with the Executive's role as
Chief Executive Officer of the Company, (iv) gross negligence or willful
misconduct with respect to the Company or any of its subsidiaries or (v) any
material breach of the provisions of Sections 6 or 7 of this Agreement which are
not cured within 15 days after written notice thereof to the Executive, in each
case as determined in the good faith judgment of the Board.
<PAGE>
6
6. Confidential Information.
------------------------
The Executive acknowledges that the information, observations and data
obtained by him while employed by the Company concerning the business or affairs
of the Company or any subsidiary of the Company ("Confidential Information") are
the property of the Company or such subsidiary. Therefore, the Executive agrees
that he shall not disclose to any unauthorized person or use for his own account
any Confidential Information without the prior written consent of the Company,
unless and to the extent that the aforementioned matters are or become generally
known to and available for use by the members of the industry in which the
Company operates other than as a result of Executive's acts or omissions to act.
The Executive shall deliver to the Company any time the Company may request, all
memoranda, notes, plans, records, reports and other documents and data (and
copies thereof) relating to the Confidential Information or the business of the
Company or any subsidiary which he may then possess or have under his control.
7. Non-Compete, Non-Solicitation.
-----------------------------
(a) The Executive acknowledges that in the course of his
employment with the Company and its subsidiaries he will become familiar with
the Company's and its subsidiaries' trade secrets and with other confidential
information concerning the Company and its subsidiaries and that his services
have been and will be of special, unique and extraordinary value to the
Company and its subsidiaries. Therefore, the Executive agrees that, during
the Employment Period and for a period (the "Noncompete Period") of three years
following the termination of his employment with the Company, or five years if
the Company terminates the Executive for Cause or if the Executive resigns, he
shall not directly or indirectly own, manage, control, participate in, consult
with, render services for, or in any manner engage in any business competing
with the businesses of the Company or its subsidiaries as such businesses exist
(including, without limitation, diagnostic imaging management care services,
diagnostic imaging practice management services, building or acquiring networks
of radiology providers or utilization review services) or are in process on the
date of the termination of the Executive's employment, within the United States.
Nothing herein shall prohibit the Executive from being a passive owner of not
more than 2.5% of the outstanding stock of any class of a corporation which is
publicly traded, so long as the Executive has no active participation in the
business of such corporation.
<PAGE>
7
(b) During the Noncompete Period, the Executive shall not
directly or indirectly through another entity (i) induce or attempt to induce
any employee of the Company or any subsidiary to leave the employ of the Company
or such subsidiary, or in any way interfere with the relationship between the
Company or any subsidiary and any employee thereof, (ii) hire any person who was
an employee of the Company or any subsidiary at any time during the Employment
Period, or (iii) induce or attempt to induce any customer, supplier, licensee,
vendor or other business relation of the Company or any subsidiary to cease
doing business with Company or such subsidiary, or in any way interfere with the
relationship between any such customer, supplier, licensee, vendor or business
relation and the Company or any subsidiary.
(c) If, at the time of enforcement of this Section 7, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(d) In the event of the breach or a threatened breach by
Executive of any of the provisions of this Section 7, the Company, in addition
and supplementary to other rights and remedies existing in its favor, may apply
to any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security).
8. Business Expenses. the Executive shall be entitled to prompt
-----------------
reimbursement for all reasonable business expenses incurred by the Executive in
the performance of his duties.
9. Legal Costs. The Executive shall be entitled to prompt
-----------
reimbursement for all reasonable legal costs and expenses incurred by the
Executive in connection with the negotiation and documentation of this
Agreement, the Restricted Stock Agreement and any other agreements related
hereto and thereto.
10. Other Provisions.
----------------
10.1 Notices. Any notice or communication required or permitted
-------
hereunder shall be in writing and shall be delivered in person or by certified,
registered or
<PAGE>
8
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered, as follows:
(i) If to the Company, to:
Medicon, Inc.
Jeffrey R. Jay, M.d.
Chairman of the Compensation Committee
c/o J.H. Whitney & Co.
177 Broad Street
Stamford Connecticut 06901
(ii) If to the Executive, to the Executive in care of the Company
at the above address, with a copy to the Executive at his then-current
residence.
Any party may change its address for notice hereunder by notice to the
other parties in accordance with this Section 10.1.
10.2 Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Illinois applicable to
agreements made and to be performed entirely within such State.
10.3 Entire Agreement; Amendment and Waivers. This instrument
---------------------------------------
is the entire agreement of the parties with respect to the subject matter hereof
and may not be amended, supplemented, canceled or discharged except by written
instrument executed by both parties hereto. The parties do not intend to confer
any benefit hereunder on any third person, and, without limiting the generality
of the foregoing, the parties may, in writing, without notice to or consent of
any third person, at any time waive any rights hereunder or amend this Agreement
in any respect or terminate this Agreement. If either party should waive any
breach of any provision of this Agreement, such party will not thereby be deemed
to have waived any preceding or succeeding breach of the same provision or any
breach of any other provision of this Agreement.
10.4 Restricted Stock Agreement Provisions to Prevail. In the
------------------------------------------------
event of any inconsistency between any provision of this Agreement and the
Restricted Stock Agreement the Restricted Stock Agreement shall govern.
10.5 Validity. The invalidity or unenforceability of any
--------
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
<PAGE>
9
10.6 Assignment. This Agreement, and any rights and obligations
----------
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party.
10.7 Headings. Section heading are inserted herein for
--------
convenience only and do not constitute a part, and shall not affect the
interpretation, of this Agreement.
10.8 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
10.9 Survival. Sections 6, 7, 9 and 10 shall survive and
--------
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Period.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
MEDICON, INC.
By: /s/ Jeffrey R. Jay
--------------------------------
Name: Jeffrey R. Jay, M.D.
Title: Chairman of the
Compensation Committee
AGREED AND ACCEPTED
/s/ Carl R. Adkins
- --------------------------
Carl R. Adkins, M.D.
EXHIBIT 10.43
RESTRICTED SHARES AGREEMENT
---------------------------
RESTRICTED SHARES AGREEMENT dated as of November 17, 1995 by and
between MEDICON, INC., a Delaware corporation (the "Company") and CARL R.
ADKINS, M.D. (the "Holder").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and the Holder have entered into an Employment
Agreement made the date hereof (the "Employment Agreement"); and
WHEREAS, the Employment Agreement provides for the grant of restricted
shares, such terms to be set forth in a restricted shares agreement (the
"Agreement") by and between the Company and the Holder; and
WHEREAS, the parties now desire to enter into the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Purchase of Restricted Shares. Subject to the restrictions, terms
-----------------------------
and conditions of this Agreement, the Company hereby issues and sells to the
Holder an aggregate of 1,314,451 shares of Class A Common Stock, no par value
per share, of the Company (the "Common Stock"), at a purchase price of $.01 per
share of Common Stock. 262,890 shares of Common Stock shall constitute the
"Tranche A Grant" and 1,051,561 shares of Common Stock shall constitute the
"Tranche B Grant." Such shares are hereinafter referred to collectively as the
"Restricted Shares" until such shares vest in accordance with the terms hereof.
2. Vesting of Restricted Shares. Subject to paragraphs 6 and 7 of
----------------------------
this Agreement, Restricted Shares shall become "vested" as follows:
(a) Tranche A Grant. Restricted Shares comprising the Tranche A
---------------
Grant shall become fully vested on December 31, 1996.
(b) Tranche B Grant. Restricted Shares comprising the Tranche B
---------------
Grant shall become vested at the rate of 20% a year on a cumulative basis
commencing on December 31, 1996 and each anniversary date thereafter.
<PAGE>
2
3. Limitations on Rights of Holder.
-------------------------------
(a) Shares to Bear Restrictive Legend. The Restricted Shares
---------------------------------
will be represented by a stock certificate or certificates registered in the
name of the Holder. From and after the date of original issuance, stock
certificates representing the Restricted Shares shall bear a legend in
substantially the following form:
"THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE,
ENCUMBRANCE OR OTHER DISPOSITION (EACH A "TRANSFER") AND
VOTING OF ANY OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE STOCKHOLDERS'
AGREEMENT, DATED AS OF NOVEMBER 3, 1994, AND AMENDED AS OF
NOVEMBER 17, 1995, AMONG THE COMPANY AND THE STOCKHOLDERS
NAMED THEREIN, AND A RESTRICTED SHARES AGREEMENT, DATED AS
OF SEPTEMBER 6, 1995, BETWEEN THE REGISTERED HOLDER HEREOF
AND THE COMPANY, COPIES OF WHICH MAY BE INSPECTED AT THE
COMPANY'S PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER
THE TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY
UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE
WITH THE TERMS OF SUCH STOCKHOLDERS' AGREEMENT AND
RESTRICTED SHARES AGREEMENT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE. SUCH
SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
SUCH LAWS."
(b) Company to Retain Custody of Stock. Promptly after the date
----------------------------------
of this Agreement, the Company will issue to the Holder, and the Holder will
deposit with and deliver to the Company, the stock certificate or certificates
referred to in subparagraph (a) of this paragraph 3, each duly endorsed in blank
or accompanied by stock powers duly executed in blank.
(c) Power of Attorney. The Company is hereby appointed the
-----------------
attorney-in-fact, with full power of substitution of the Holder for the sole
purpose of carrying out the provisions of this Agreement and taking any action
and executing any instrument which such attorney-in-fact may deem necessary or
advisable to accomplish the purposes hereof, which appointment as attorney-in-
fact is irrevocable and coupled with an interest. The Company as attorney-in-
fact for the Holder may, in the name and stead of the Holder, make and execute
all conveyances, assignments and transfers of the Restricted Shares, and the
Holder hereby
<PAGE>
3
ratifies and confirms all that the Company, as said attorney-in-fact, shall do
by virtue hereof, provided that the foregoing shall be solely for the purpose of
carrying out the provisions of this Agreement. Nevertheless, the Holder shall,
if so requested by the Company, execute and deliver to the Company all such
instruments as may, in the reasonable judgment of the Company, be advisable for
the purpose hereof.
(d) Certain Rights of Holder. The Restricted Shares, when
------------------------
issued pursuant to the provisions hereof, shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. From and after
the date of original issuance, the Holder will have the right to vote the
Restricted Shares and to exercise all other rights powers and privileges of a
holder of Common Stock with respect to the Restricted Shares, with the exception
that, until the Restricted Shares shall have become vested pursuant to the terms
hereof (i) the Holder will not be entitled to delivery of the stock certificate
or certificates representing the Restricted Shares; (ii) the Company will retain
custody of the Restricted Shares; (iii) the Holder may, except as provided in
Section 2.2 of the Stockholders' Agreement, dated as of November 3, 1994, and
amended as of September 6, 1995, among the Company and the Stockholders named
therein (the "Stockholders' Agreement") not sell, assign, transfer, pledge,
exchange, encumber or dispose of the Restricted Shares. A material breach of
any of the foregoing restrictions or a material breach of any of the other
restrictions, terms and conditions of this Agreement with respect to any of the
Restricted Shares, except as waived by the Company, will cause a forfeiture of
such Restricted Shares; and (iv) the Company will retain custody of all
distributions ("Retained Distributions") made or declared with respect to the
Restricted Shares (and such Retained Distributions will be subject to the same
restrictions, terms and conditions as are applicable to the Restricted Shares)
until such time, if ever, as the Restricted Shares with respect to which such
Retained Distributions shall have been made, paid or declared shall have become
vested, and such Retained Distributions shall not bear interest or be segregated
in separate accounts.
(e) Stockholders' Agreement. Concurrently with the execution of
-----------------------
this Agreement, the Holder agrees, as a condition to the receipt of the
Restricted Shares hereunder, to execute and become a party to the Stockholders'
Agreement.
4. Delivery of Vested Securities. Subject to paragraph 9 hereof,
-----------------------------
when any Restricted Shares shall have become vested pursuant to the provisions
of this Agreement,
<PAGE>
4
the Company shall promptly issue and deliver to the Holder new stock
certificates or instruments representing the vested shares, registered in the
name of the Holder or, if deceased, his legatees, personal representatives or
distributees, which do contain the legend set forth in subparagraph (a) of
paragraph 3 hereof.
5. No Right to Employment. Nothing in this Agreement shall be
----------------------
construed to give the Holder any right to be awarded any additional Restricted
Shares or to confer on the Holder any right to continue in the employ of the
Employer or to be evidence of any agreement or understanding, express or
implied, that the Company or any of its subsidiaries will employ the Holder in
any particular position or at any particular rate of remuneration, or for any
particular period of time or to interfere in any way with the right of the
Employer (or the right of the Holder) to terminate the employment of the Holder
at any time, with or without Cause (as determined under the Employment
Agreement), notwithstanding the consequences of such termination pursuant to
paragraph 7 of this Agreement.
6. Acceleration of Vesting.
-----------------------
(a) Death or Disability. If the Holder's employment with the
-------------------
Company terminates by reason of death or disability (as determined under the
Employment Agreement), 50% of the Restricted Shares that have yet to become
vested shall become immediately vested.
(b) Without Cause. If the Holder's employment is terminated by
-------------
the Company without Cause prior to December 431, 1996, the Restricted Shares
that will otherwise have vested on December 31, 1996, shall become immediately
vested.
(c) Short Term Incentive. If the Company (A) achieves positive
--------------------
quarterly net income in either the first or second quarter of fiscal year 1996
and (B) does not require additional capital before June 30, 1996 (excluding an
IPO (as defined in Section 8) or board-approved investment by a non-affiliated
corporate partner) beyond the pending Principals' Contribution (as defined in
the Employment Agreement), Restricted Shares comprising the Tranche A grant
shall become vested on June 30, 1996.
(d) Initial Public Offering.
-----------------------
(i) If the Company (A) has consummated a Qualified Public
Offering (as defined in Section 8) on or before December 31, 1996 or (B) has
filed a registration statement for an Initial Public Offering with the
Securities
<PAGE>
5
and Exchange Commission on or prior to December 31, 1996 and such Initial Public
Offering is (x) consummated on or before March 31, 1997 and (y) is a Qualified
Public Offering, all Restricted Shares shall become immediately vested.
(ii) Except as provided in Section 6(d)(i)(B), if the Company
consummates a Qualified Public Offering after December 31, 1996, 50% of the
Restricted Shares shall become immediately vested.
(e) 3X Qualified Sale Transaction.
-----------------------------
(i) If (A) the Company has consummated a 3X Qualified Sale
Transaction (as defined in Section 8) on or before December 31, 1996 or (B)
definitive documentation for a 3X Qualified Sale Transaction has been executed
on or prior to December 31, 1996 and such 3X Qualified Sale Transaction is
consummated on or before March 31, 1997, all Restricted Shares shall become
immediately vested.
(ii) Except as provided in Section 6(e)(i)(B) if a 3X
Qualified Sale Transaction is consummated after December 31, 1996, 50% of the
Restricted Sha res shall become immediately vested.
(f) Sale of the Company. If the Holder's employment is
-------------------
terminated by the Company without Cause in connection with a Qualified Sale
Transaction (as defined in Section 8), all Restricted Shares shall become
immediately vested.
7. Termination of Employment.
-------------------------
(a) If the Holder's employment with the Company terminates for
any reason prior to the date the shares of Common Stock issued and sold
hereunder vest, the Holder shall forfeit all Restricted Shares that have not so
vested hereunder and the Holder shall not be entitled to receive any
consideration or compensation therefor. The Holder shall cooperate with the
Company to effectuate the purpose of this provision.
(b) If the Holder's employment is terminated by the Company for
Cause, the shares of Common Stock issued and sold hereunder (whether or not
vested) shall be irrevocably forfeited by the Holder (or any subsequent
permitted transferee thereof).
8. Definitions. As used this Agreement, and unless the
-----------
context requires a different meaning, the following terms have the meanings
indicated:
<PAGE>
6
"Investors" means the Whitney Subordinated Debt Fund, L.P., Whitney
---------
1990 Equity Fund, L.P., a Delaware limited partnership, J.H. Whitney & Co., a
New York limited partnership and Chemical Venture Capital Associates, a
California limited partnership.
"IPO" means the sale in an underwritten offering by the Company
---
of its Common Stock pursuant to a registration statement on Form S-1 or
otherwise under the Securities Act of 1933, as amended.
"Net Cash Proceeds" means, with respect to (A) any IPO, (I) the
------------------
cash proceeds received by the Company or any subsidiary of the Company, minus
-----
(II) reasonable brokerage commissions or underwriting fees and other reasonable
fees and expenses (including, without limitation, reasonable fees, changes and
disbursements of counsel and reasonable fees and expenses of investment bankers)
related to such IPO or (B) any Sale Transaction, (I) the cash proceeds received
by the Investors, minus (II) brokerage commissions or
-----
underwriting fees and all other costs, fees and expenses of the Investors
associated with such Sale Transaction (including, without limitation, fees,
charges and disbursements of counsel and reasonable fees and expenses of
investment bankers or other third party financial experts).
"Qualified Public Offering" means an IPO by the Company with Net
---------------------------
Cash Proceeds to the Company in excess of $30,000,000 and in respect of which
the price per share of Common Stock sold in such Qualified Public Offering is at
least $5.572923 (subject to appropriate adjustment for any dividends,
subdivisions, combinations or reclassifications of Common Stock). This implies
, for example, that the aggregate value of the Investors' original equity
investment will be at least $90,000,000.00 upon the closing of a Qualified
Public Offering.
"Qualified Sale Transaction" means a Sale Transaction in which
----------------------------
(A) the senior subordinated promissory notes in the aggregate principal amount
of $10,000,000.00 payable to Whitney Subordinated Debt Fund, L.P. and Chemical
Ventures Capital Associates, together with all accrued and unpaid interest
thereon, are repaid and (B) the Investors receive Net Cash Proceeds equal to or
in excess of $30,000,000.00 for the Series A Preferred Stock and Common Stock of
the Investors.
"3X Qualified Sale Transaction" means a Sale Transaction in which
-------------------------------
(A) the senior subordinated promissory notes in the aggregate principal amount
of $10,000,000.00 payable to Whitney Subordinated Debt Fund, L.P and Chemical
Venture Capital Associates, together with all accrued and unpaid interest
thereon, are repaid and (B) the Investors
<PAGE>
7
receive Net cash Proceeds equal to or excess of $90,000,000.00 for the Series A
Preferred Stock and Common Stock of the Investors.
"Sale Transaction" means (A) any sale of the capital stock of the
------------------
Company owned by the Investors or (B) any merger, consolidation, sale or other
business combination involving the Company, in each case in one transaction or a
series of transactions occurring prior to the consummation of an IPO.
9. Compliance with Law. The delivery of any certificate
--------------------
representing Restricted Shares may be postponed by the Company for such period
as may be required for it with reasonable diligence to comply with any
applicable registration requirements under the Securities Act of 1933, any
applicable listing requirement of any national securities exchange and
requirements under any other law or regulation applicable to the issuance or
transfer of securities.
10. No Transfer or Assignment. No right or benefit under this
--------------------------
Agreement shall be subject to anticipation, alienation, sale, assignment,
hypothecation, pledge, exchange, transfer, encumbrance or charge, and any
attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange,
transfer, encumber or charge the same shall be void. No right or benefit under
this Agreement shall in any manner be liable for or subject to the debts,
contracts, liabilities or torts of the person entitled to such benefit. If the
Holder or any beneficiary under this Agreement should become bankrupt or attempt
to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer,
encumber or charge any right or benefit under this Agreement, then such right or
benefit shall, in the discretion of the Company, cease and terminate, and in
such event, the Company in its discretion may hold or apply the same or any part
thereof for the benefit of the Holder or his beneficiary, spouse, children or
other dependents, or any of them, in such manner and in such proportion as the
Company may deem proper.
11. Amounts Not Salary or Bonus. The Holder agrees that the
---------------------------
award of the Restricted Shares hereunder is special incentive compensation and
that it will not be taken into account as "salary" or "compensation" or "bonus"
in determining the amount of any payment under any pension, retirement, profit-
sharing, savings or stock ownership plan of the Company or any of its
subsidiaries, unless expressly provided pursuant to the terms of such plan.
12. Section 83(b) Election. The Holder shall elect within
----------------------
30 days after the date hereof to include in gross income for Federal income tax
purposes an amount equal
<PAGE>
8
to the fair market value of the Restricted Shares as of the date hereof and
shall pay to the Employer or make arrangements satisfactory to the Company to
pay to the Employer in the year of award of such Restricted Shares, any Federal,
state or local taxes required to be withheld with respect to such Restricted
Shares. If the Holder shall fail to make such payment, the Employer shall, to
the extent permitted by law, have the right to deduct from any payment of any
kind otherwise due to him any Federal, state or local taxes of any kind required
by law to be withheld with respect to such Restricted Shares.
13. Fees and Expenses. The Company shall pay all reasonable
------------------
fees and expenses necessarily incurred by the Company and the Holder in
connection with this Agreement and will from time to time use its reasonable
efforts to comply with all laws and regulations which, in the opinion of counsel
for the Company, are applicable thereto.
14. Notices. Any notice which either party hereto may be
-------
required or permitted to give the other shall be made in accordance with the
provisions of Section 10.2 of the Employment Agreement.
15. Amendments. This Agreement may only be amended or
-----------
modified by written agreement of the Company and the Holder.
16. Successor and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the Company and its successors and assigns, and
shall be binding upon and inure to the benefit of the Holder and his legatees,
distributees and personal representatives.
17. Governing Law. The validity, interpretation, construction
--------------
and performance of this Agreement shall be governed by the laws of the State of
Illinois applicable to agreements made and to be performed entirely in Illinois,
without regard to the conflict of laws principles of such state.
<PAGE>
9
IN WITNESS WHEREOF, the Company has caused this Agreement to be
duly executed by its agent thereunto duly authorized, and the Holder has
hereunto set his hand, all as of the date first above written.
MEDICON, INC.
By: /s/ Jeffrey R. Jay
--------------------------------------
Name: Jeffrey R. Jay, M.D.
Title: Chairman of the
Compensation Committee
/s/ Carl R. Adkins, M.D.
--------------------------------------
CARL R. ADKINS, M.D
EXHIBIT 10.44
AMENDMENT NO. 1 TO
RESTRICTED SHARES AGREEMENT
AMENDMENT TO RESTRICTED SHARES AGREEMENT, dated as of January 26,
1996, by and between Medicon, Inc., a Delaware corporation (the "Company"), and
Carl R. Adkins, M.D. (the "Holder").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and the Holder entered into that certain
Restricted Shares Agreement, dated as of November 17, 1995 (the "Original
Agreement"), which agreement set forth the terms and conditions for the sale to
the Holder of an aggregate of 1,314,451 shares of Class A Common Stock, no par
value, of the Company.
WHEREAS, the Company and the Holder desire to amend the Original
Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto do agree to amend the
Original Agreement as follows:
1. Amendment.
---------
(a) Section 2 of the Original Agreement is hereby amended and
restated in its entirety to read as follows:
Subject to paragraphs 6 and 7 of this Agreement, Restricted Shares shall
become "vested" as follows:
(a) Tranche A Grant. Restricted Shares comprising the
---------------
Tranche A Grant shall become fully vested on December 31, 1995.
(b) Tranche B Grant. Restricted Shares comprising the
---------------
Tranche B Grant shall become vested at the rate of 20% a year on a cumulative
basis commencing on December 31, 1995 and each anniversary date thereof.
(b) The first paragraph of the restrictive legend contained in
Section 3(a) is hereby amended and restated in its entirety to read as follows:
<PAGE>
"THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE,
ENCUMBRANCE OR OTHER DISPOSITION (EACH A
"TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY
THE TERMS OF THE STOCKHOLDERS' AGREEMENT, DATED AS
OF NOVEMBER 3, 1994, AND AMENDED AS OF SEPTEMBER
6, 1995, AMONG THE COMPANY AND THE STOCKHOLDERS
NAMED THEREIN, AND A RESTRICTED SHARES AGREEMENT,
DATED AS OF SEPTEMBER 6, 1995, AND AMENDED AS OF
JANUARY [24], 1996 BETWEEN THE REGISTERED HOLDER
HEREOF AND THE COMPANY, COPIES OF WHICH MAY BE
INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE. THE
COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH
SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND
UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE
WITH THE TERMS OF SUCH STOCKHOLDERS' AGREEMENT AND
RESTRICTED SHARES AGREEMENT.
(c) Section 6(c) of the Original Agreement is hereby amended and
restated in its entirety to read as follows:
(c) Short Term Incentive. If the Company (A)
--------------------
achieves positive quarterly net income in either the first
or second quarter of fiscal year 1996 and (B) does not
require additional capital before June 30, 1996 (excluding
an IPO (as defined in Section 8) or board-approved
investment by a non-affiliated corporate partner) beyond the
pending Principals' Contribution (as defined in the
Employment Agreement), the Restricted Shares that will
otherwise have vested on December 31, 1996, shall become
immediately vested.
2. Original Agreement. As amended hereby, the Original
------------------
Agreement shall remain in full force and effect.
<PAGE>
IN WITNESS HEREOF, the parties have caused this Amendment No. 1 to be
executed as of the date first written above.
MEDICON, INC.
By: __________________________
Name: Jeffrey R. Jay, M.D.
Title: Chairman of the
Compensation Committee
______________________________
CARL R. ADKINS, M.D.
EXHIBIT 10.45
RESTRICTED SHARES AGREEMENT
---------------------------
RESTRICTED SHARES AGREEMENT dated as of January 15, 1996 by and
between MEDICON, INC., an Illinois corporation (the "Company"), and BRAD KELLER
(the "Holder").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Board of Directors of the Company (the "Board") has
authorized the grant of restricted shares to the Holder; and
WHEREAS, such resolution authorizing the grant provides that the terms
of such grant shall be set forth in a restricted shares agreement (the
"Agreement") by and between the Company and the Holder; and
WHEREAS, the parties now desire to enter into the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Award of Restricted Shares. Subject to the restrictions, terms and
--------------------------
conditions of this Agreement, the Company hereby issues and sells to the Holder
179,243 shares of Class A Common Stock, no par value per share, of the Company
("Common Stock"), at a purchase price of $.01 per share of Common Stock. Such
shares are hereinafter referred to as the "Restricted Shares" until such shares
vest in accordance with the terms hereof.
2. Vesting of Restricted Shares. Subject to paragraphs 6 and 7 of
----------------------------
this Agreement, Restricted Shares shall become "vested" at the rate of 20% a
year on a cumulative basis commencing on December 31, 1996 and each anniversary
date thereafter.
3. Limitations on Rights of Holder.
-------------------------------
(a) Shares to Bear Restrictive Legend. The Restricted Shares
---------------------------------
will be represented by a stock certificate or certificates registered in the
name of the Holder. From and after the date of original issuance, stock
certificates representing the Restricted Shares shall bear a legend in
substantially the following form:
<PAGE>
"THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
STOCKHOLDERS' AGREEMENT, DATED AS OF NOVEMBER 3, 1994, AND AMENDED AS OF
SEPTEMBER 6, 1995, AMONG THE COMPANY AND THE STOCKHOLDERS NAMED THEREIN,
AND A RESTRICTED SHARES AGREEMENT, DATED AS OF NOVEMBER 15, 1995, BETWEEN
THE REGISTERED HOLDER HEREOF AND THE COMPANY, COPIES OF WHICH MAY BE
INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER
THE TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND
UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF SUCH
STOCKHOLDERS' AGREEMENT AND RESTRICTED SHARES AGREEMENT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 19933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS."
(b) Company to Retain Custody of Stock. Promptly after the date
----------------------------------
of this Agreement, the Company will issue to the Holder, and the Holder will
deposit with and deliver to the Company, the stock certificate or certificates
referred to in subparagraph (a) of this paragraph 3, each duly endorsed in blank
or accompanied by stock powers duly executed in blank.
(c) Power of Attorney. The Company is hereby appointed the
-----------------
attorney-in-fact, with full power of substitution of the Holder for the sole
purpose of carrying out the provisions of this Agreement and taking any action
and executing any instrument which such attorney-in-fact may deem necessary or
advisable to accomplish the purposes hereof, which appointment as attorney-in-
fact is irrevocable and coupled with an interest. The Company as attorney-in-
fact for the Holder may, in the name and stead of the Holder, make and execute
all conveyances, assignments and transfers of the Restricted Shares, and the
Holder hereby ratifies and confirms all that the Company,a s said attorney-in-
fact, shall do by virtue hereof, provided that the foregoing shall be solely for
the purpose of carrying out the provisions of this Agreement. Nevertheless, the
Holder shall, if so requested by the Company, execute and deliver to the Company
all such instruments as may, in the reasonable judgment of the Company, be
advisable for the purpose hereof.
<PAGE>
(d) Certain Rights of Holder. The Restricted shares, when
------------------------
issued pursuant to the provisions hereof, shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. From and after
the date of original issuance, the Holder will have the right to vote the
Restricted Shares and to exercise all other rights, powers and privileges of a
holder of Common Stock with respect to the Restricted Shares, with the exception
that, until the Restricted Shares shall have become vested pursuant to the terms
hereof (i) the Holder will not be entitled to delivery of the stock certificate
or certificates representing the Restricted Shares; (ii) the Company will retain
custody of the Restricted Shares; (iii) the Holder may not sell, assign,
transfer, pledge, exchange, encumber or dispose of the Restricted Shares. A
material breach of any of the foregoing restrictions or a material breach of any
of the other restrictions, terms and conditions of this Agreement with respect
to any of the Restricted Shares, except as waived by the Company, will cause a
forfeiture of such Restricted Shares; and (iv) the Company will retain custody
of all distributions ("Retained Distributions") made or declared with respect to
the Restricted Shares (and such Retained Distributions will be subject to the
same restrictions, terms and conditions as are applicable to the Restricted
Shares) until such time, if ever, as the Restricted Shares with respect to which
such Retained Distributions shall have been made, paid or declared shall have
become vested, and such Retained Distributions shall not bear interest or be
segregated in separate accounts.
(e) Stockholders' Agreement. Concurrently with the execution of
-----------------------
this Agreement, the Holder agrees, as a condition to the receipt of the
Restricted Shares hereunder, to execute and become a party to the Stockholders'
Agreement, dated as of November 3, 1994, and amended as of September 6, 1995,
among the Company and the stockholders named therein.
4. Delivery of Vested Securities. Subject to paragraph 8 hereof,
-----------------------------
when any Restricted Shares shall have become vested pursuant to the provisions
of this Agreement, the Company shall promptly issue and deliver to the Holder
new stock certificates or instruments representing the vested shares, registered
in the name of the Holder or, if deceased, his legatees, personal
representatives or distributees, which do contain the legend set forth in
subparagraph (a) of paragraph 3 hereof.
5. No Right to Employment. Nothing in this Agreement shall be
----------------------
construed to give the Holder any right to be awarded any additional Restricted
Shares or to confer on
<PAGE>
the Holder any right to continue in the employ of the Employer or to be evidence
of any agreement or understanding, express or implied, that the Company or any
of its subsidiaries will employ the Holder in any particular position or at any
particular rate of remuneration, or for any particular period of time or to
interfere in any way with the right of the Employer (or the right of the Holder)
to terminate the employment of the Holder at any time, with or without Cause (as
defined in the Employment Agreement dated June 10, 1994, as amended, between the
Company and the Holder), notwithstanding the consequences of such termination
pursuant to paragraph 7 of this Agreement.
6. Acceleration of Vesting.
-----------------------
(a) Death or Disability. If the Holder's employment with the
-------------------
Company terminates by reason of death or permanent disability or incapacity of
the Holder that causes the Holder to be able to perform his duties (as
determined by the Board of Directors in its good faith judgement), 50% of the
Restricted Shares that have yet to become vested shall become immediately
vested.
(b) Initial Public Offering.
-----------------------
(i) If the Company completes a Qualified Public Offering
(as defined in Section 17) on or before December 31, 1996, all Restricted Shares
shall become immediately vested.
(ii) If the Company completes a Qualified Public Offering
after December 31, 1996, 50% of the Restricted Shares shall become immediately
vested.
(c) Sale of the Company. If the Holder's employment is
-------------------
terminated by the Company without Cause in connection with a Qualified Sale
Transaction (as defined in Section 17), all Restricted Shares shall become
immediately vested.
7. Termination of Employment.
-------------------------
(a) General. If the Holder's employment with the Company
-------
terminates for any reason prior to the date the shares of Common Stock issued
and sold hereunder vest, the Holder shall forfeit all Restricted Shares that
have not so vested hereunder and the Holder shall not be entitled to receive any
consideration or compensation therefor. The Holder shall cooperate with the
Company to effectuate the purpose of this provision.
(b) Cause. If the Holder's employment is terminated by the
-----
Company for Cause (as defined in Section
<PAGE>
17), the shares of Common Stock issued and sold hereunder (whether or not
vested) shall be irrevocably forfeited by the Holder or any subsequent permitted
transferee thereof.
8. Compliance with Law. The delivery of any certificate representing
-------------------
Restricted Shares may be postponed by the Company for such period as may be
required for it with reasonable diligence to comply with any applicable
registration requirements under the Securities Act of 1933, any applicable
listing requirement of any national securities exchange and requirements under
any other law or regulation applicable to the issuance or transfer of
securities.
9. No Transfer or Assignment. No right or benefit under this
-------------------------
Agreement shall be subject to anticipation, alienation, sale, assignment,
hypothecation, pledge, exchange, transfer, encumbrance or charge, and any
attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange,
transfer, encumber or charge the same shall be void. No right or benefit under
this Agreement shall in any manner be liable for or subject to the debts,
contracts, liabilities or torts of the person entitled to such benefit. If the
Holder or any beneficiary under this Agreement should become bankrupt or attempt
to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer,
encumber or charge any right or benefit under this Agreement, then such right or
benefit shall, in the discretion of the Company, cease and terminate, and in
such event, the Company in its discretion may hold or apply the same or any part
thereof for the benefit of the Holder or his beneficiary, spouse, children or
other dependents, or any of them, in such manner and in such proportion as the
Company may deem proper.
10. Amounts Not Salary or Bonus. The Holder agrees that the award of
---------------------------
the Restricted Shares hereunder is special incentive compensation and that it
will not be taken into account as "salary" or "compensation" or "bonus" in
determining the amount of any payment under any pension, retirement, profit-
sharing, savings or stock ownership plan of the Company or any of its
subsidiaries, unless expressly provided pursuant to the terms of such plan.
11. Section 83(b) Election. The Holder shall elect within 30 days
----------------------
after the date hereof to include in gross income for Federal income tax purposes
an amount equal to the fair market value of the Restricted Shares as of the date
hereof and shall pay to the Employer or make arrangements satisfactory to the
Company to pay to the Employer in the year of award of such Restricted Shares,
any Federal, state or local taxes required to be withheld with respect to such
Restricted Shares. If the Holder shall fail to make such payment, the Employer
shall, to the extent permitted by
<PAGE>
law, have the right to deduct from any payment of any kind otherwise due to him
any Federal, state or local taxes of any kind required by law to be withheld
with respect to such Restricted Shares.
12. Fees and Expenses. The Company shall pay all fees and expenses
-----------------
necessarily incurred by the Company in connection with this Agreement and will
from time to time use its reasonable efforts to comply with all laws and
regulations which, in the opinion of counsel for the Company, are applicable
thereto.
13. Notices. Any notice or other communication which either party
-------
hereto may be required or permitted to give the other shall be made in writing
and shall be by registered mail, return receipt requested, telecopier courier
service or personal delivery to the Company at 40 Skokie Boulevard, Northbrook,
Illinois 60062-1618 and to the Holder at its address as it appears on the
transfer books of the Company. All such notices and communications shall be
deemed to have been duly given: when delivered by hand, if personally
delivered; when delivered by courier, if delivered by commercial overnight
courier service; five business days after being deposited in the mail, postage
prepaid, if mailed; and when receipt is acknowledged, if telecopied.
14. Amendments. This Agreement may only be amended or modified by
----------
written agreement of the Company and the Holder.
15. Successor and Assigns. This Agreement shall be binding upon and
---------------------
inure to the benefit of the Company and its successors and assigns, and shall be
binding upon and inure to the befit of the Holder and his legatees, distributees
and personal representatives.
16. Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
Illinois applicable to agreements made and to be performed entirely in Illinois,
without regard to the conflict of laws principles of such state.
17. Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Cause" means (i) the commission of a felony or a crime involving
-----
moral turpitude or the commission of any other act involving dishonesty,
disloyalty or fraud with respect to the Company or any of its subsidiaries, (ii)
<PAGE>
conduct tending the Company or any of its subsidiaries into substantial public
disgrace and disrepute, (iii) substantial and repeated failure, which is not
cured within 15 days after written notice thereof to the Holder, to perform
duties as reasonably and lawfully directed by the Board of Directors which are
consistent with the Holder's role as Director of Client Services of the Company
or (iv) gross negligence or willful misconduct with respect to the Company or
any of its subsidiaries.
"Investors" means the Whitney Subordinated Debt Fund, L.P., Whitney
---------
1990 Equity Fund, L.P., a Delaware limited partnership, J.H. Whitney & Co., a
New York limited partnership and Chemical Venture Capital Associates, a
California limited partnership.
"IPO" means the sale in an underwritten offering by the Company of its
---
Common Stock pursuant to a registration statement on Form S-1 or otherwise under
the Securities Act of 1933, as amended.
"Net Cash Proceeds" means, with respect to (A) any IPO, (I) the cash
-----------------
proceeds received by the Company or any subsidiary of the Company, minus (II)
-----
reasonable brokerage commissions or underwriting fees and other reasonable fees
and expenses (including, without limitation, reasonable fees, charges and
disbursements of counsel and reasonable fees and expenses of investment bankers)
related to such IPO or (B) any Sale Transaction, (I) the cash proceeds received
by the Investors, minus (II) brokerage commissions or underwriting fees and all
-----
other costs, fees and expenses of the INVestors associated with such Sale
Transaction (including, without limitation, fees, charges and disbursements of
counsel and reasonable fees and expenses of investment bankers or other third
party financial experts).
"Qualified Public Offering" means an IPO by the Company with Net Cash
-------------------------
Proceeds to the Company in excess of $30,000,000 and in respect of which the
price per share of Common Stock sold in such Qualified Public Offering is at
least $5.572923 (subject to appropriate adjustment for any dividends,
subdivisions, combinations or reclassifications of Common Stock). This implies,
for example, that the aggregate value of the Investors' original equity
investment will be at least $90,000,000.00 upon the closing of a Qualified
Public Offering.
"Qualified Sale Transaction" means a Sale Transaction in which (A) the
9 --------------------------
senior subordinated promissory notes in the aggregate principal amount of
$10,000,000.00 payable to Whitney Subordinated Debt Fund, L.P. and Chemical
Ventures Capital Associates, together with all accrued and unpaid interest
thereon, are repaid and (B) the Investors
<PAGE>
receive Net Cash Proceeds equal to or in excess of $30,000,000.00 for the Series
A Preferred Stock and Common Stock of the Investors.
"Sale Transaction" means (A) any sale of the capital stock of the
----------------
Company owned by the Investors or (B) any merger, consolidation, sale or other
business combination involving the Company, in each case in one transaction or a
series of transactions occurring prior to the consummation of an IPO.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its agent thereunto duly authorized, and the Holder has hereunto set
his hand, all as of the date first above written.
MEDICON, INC.
By: __________________________
Name: Carl D. Adkins, M.D.
Title: Chief Executive Officer
_______________________________
BRAD KELLER
Exhibit 10.46
SEVERANCE AGREEMENT
-------------------
SEVERANCE AGREEMENT, dated as of February 15, 1996, and effective as
of December 31, 1995, among Medicon, Inc., an Illinois corporation (the
"Company"), and Jack M. Korsower, M.D. ("Korsower");
WHEREAS, Korsower was employed by the Company as a Senior Vice
President of its Physician Alliance Team pursuant to that certain employment
agreement (the "Employment Agreement"), dated effective as of May 1, 1995,
between the Company and Korsower;
WHEREAS, Korsower and the Company entered into a stock option
agreement (the "Original Option Agreement"), dated as of November 26, 1994;
WHEREAS, Korsower, pursuant to the letter attached hereto as Exhibit
A, resigned as a Senior Vice President of the Company's Physician Alliance Team
on February 15, 1996, effective as of December 31, 1995;
WHEREAS, each of the Company and Korsower acknowledge that Korsower
has received all salary and fringe benefits to which he is entitled through the
date hereof; and
WHEREAS, Korsower and the Company agree that Korsower' resignation is
in the best interests of both the Company and Korsower and, in consideration
thereof, the parties hereto desire to enter into this Severance Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
EMPLOYMENT AGREEMENT
AND STOCK OPTION AGREEMENT
--------------------------
The parties hereto agree that the Employment Agreement, the Original
Option Agreement, the confidentiality agreement, the non-competition agreement
and any and all other agreements (other than this Agreement, the New Option
Agreement and the Note) between the parties hereto are terminated and that the
provisions thereof shall be of no further force and effect. Concurrently
herewith, Korsower is surrendering the Original Option Agreement for
cancellation and the Company is issuing to Korsower stock options to purchase
35,000 shares of the Company's Class A Common Stock, no par value, at an
exercise price of $.01 per share, pursuant to a new stock option agreement in
the form of Exhibit B hereto (the "New Option Agreement").
<PAGE>
2
ARTICLE 2
SEVERANCE PAYMENTS
------------------
(a) Concurrently with the execution and delivery of this Agreement,
the Company shall pay to Korsower the sum of $32,604.17 by wire transfer of
immediately available funds to an account designated by Korsower. Thereafter,
on May 15, 1996 or, if not a business day, the next succeeding business day, the
Company shall pay to Korsower the sum of $25,000.00 and on August 15, 1996 or,
if not a business day, the next succeeding business day, the Company shall pay
to Korsower the sum of $15,000.00, in each case by wire transfer of immediately
available funds to an account designated by Korsower.
(b) Concurrently with the execution and delivery of this Agreement,
the Company will deliver to Korsower a junior subordinated promissory note in
the aggregate principal amount of $400,000.00 in the form of Exhibit C hereto
(the "Note").
(c) Korsower acknowledges and agrees that he shall be exclusively
liable for the payment of all Federal, state, local and foreign income taxes
that may be payable by him as a result of the payments to be made to him under
this Agreement, and Medicon shall be entitled to withhold from any amounts
payable under this Agreement such amounts that it determines in its sole
discretion is required by law or by regulation to withhold in respect of any
such payment or such greater amounts as Korsower may request. If Medicon or any
of its affiliates are required at any time to pay any monies in payment of
Korsower's tax obligations, including interest, penalties, and other additions,
in respect of the payments made under this Agreement, Korsower agrees to
indemnify and hold harmless Medicon and its affiliates for payment of any such
taxes or other amounts.
ARTICLE 3
NONCOMPETITION/NONSOLICITATION COVENANT
---------------------------------------
Korsower acknowledges that during his employment with the Company he
became familiar with the Company's and its subsidiaries' trade secrets, and with
other confidential information of the Company and its subsidiaries. Korsower
further acknowledges that the Company would not enter into this Agreement and
pay the sums specified in Article 2 hereof but for the agreements and covenants
contained in this Article 3.
(a) Therefore, Korsower agrees that during the period (the
"Noncompete Period") of one year following February 15, 1996, he shall not
directly or indirectly own, manage, control, participate in, consult with,
render services for, or in
<PAGE>
3
any manner engage in any business specializing in or deriving twenty (20)
percent of its revenues (but in any event not greater than $7,500,000.00) from
the business of the Company or its subsidiaries, such business being diagnostic
imaging management care services, diagnostic imaging practice management
services, building or acquiring networks of radiology providers or radiology
utilization review services, in each case within the United States.
(b) During the Noncompete Period, Korsower shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any of its subsidiaries to leave the employ thereof, or in any
way interfere with the relationship between the Company or any of its
subsidiaries and any employee thereof, (ii) hire any person who was an employee
of the Company or any of its subsidiaries at any time during the period he was
employed by the Company, other than an employee whose employment with such
entity was terminated by such entity, or (iii) induce or attempt to induce any
customer, client, supplier, licensee, vendor, physician practice group,
physician or other business relation of the Company or any of its subsidiaries
to cease doing business with the Company or such subsidiary, or in any way
interfere with the relationship between any such customer, client, supplier,
licensee, vendor, physician practice group, physician or other business relation
of the Company or any of its subsidiaries provided; however,
-------- -------
that any action by a company (other than National Imaging Affiliates, Inc.,
Pennsylvania Radiology M.S.O. (d/b/a PARAD MS), Future Diagnostics, Inc.,
Radcom, Inc., Medical Imaging Network, Corning Life Sciences or any affiliates
of any of the foregoing) or its agents, servants and employees that employs
Korsower or in which Korsower, directly or indirectly, owns less than 5% of the
equity shall not be deemed a breach of this Section 3(b) by Korsower.
(c) If, at the time of enforcement of this Article 3 a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(d) In the event of a breach or a threatened breach by Korsower of
any of the provisions of this Article 3, the Company, in addition and
supplementary to other rights and remedies existing in its favor, may apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security).
<PAGE>
4
ARTICLE 4
CONFIDENTIALITY
---------------
Korsower acknowledges that the information, observations and data
obtained by him while employed by the Company concerning the policies,
procedures, current or projected financial condition, operating systems,
computer software, client names, client data or business plans of the Company or
any of its subsidiaries, to the extent not in the public domain ("Confidential
Information"), are the property of the Company or such subsidiary. Therefore,
Korsower agrees that, for a period of three (3) years from the date hereof, he
shall not disclose to any unauthorized person or use for his own account any
Confidential Information without the prior written consent of the board of
directors of the Company, unless and to the extent that the aforementioned
matters are or become generally known to and available for use by the members of
the industry in which the Company operates other than as a result of his acts or
omissions to act. Korsower shall deliver to the Company all memoranda, notes,
plans, records, reports and other documents and data (and any copies thereof)
relating to the Confidential Information or the business of the Company or any
of its subsidiaries which he possesses or has under his control.
Notwithstanding anything herein to the contrary, (i) Confidential Information
shall not include any information which at the time of disclosure and thereafter
is, other than as a result of any authorized disclosure by Korsower, generally
available to the public and (ii) client names shall cease to constitute
Confidential Information upon the expiration of the Noncompete Period.
ARTICLE 5
MUTUAL RELEASE AND COVENANT NOT TO SUE
--------------------------------------
The parties hereto hereby fully, finally and forever waive, release
and discharge, as applicable, each other, and each other's predecessors,
subsidiaries, parent companies, divisions, affiliated corporations, heirs,
executors, administrators, past and present officers, directors, agents,
shareholders, employees, attorneys, successors and assigns and any or all of
them from any and all claims, causes of action, demands, suits, costs, expenses
and damages whatsoever, that they now have or hereafter may have of whatsoever
nature and kind, whether known or unknown, whether now existing or hereafter
arising, whether at law or in equity, arising out of or relating to the
Employment Agreement, the employment by the Company of Korsower or the
resignation or termination of such employment. Nothing contained in this
Article 5 shall be deemed to extinguish or restrict any of the rights, duties or
obligations created by, continued by, or confirmed by the other provisions of
this Agreement, the New Option Agreement or the Note.
The parties hereto covenant that he or it, as the case may be, will
not commence, maintain, participate in or be a party to any lawsuit, action,
claim or cause
<PAGE>
5
of action against one another in connection with, arising out of or relating to
the Employment Agreement, the employment by the Company of Korsower or the
resignation or termination of such employment. Nothing in this paragraph,
however, shall preclude any action to enforce this Agreement, the New Option
Agreement or the Note.
ARTICLE 6
MISCELLANEOUS
-------------
(a) Binding upon Successors. This Agreement shall inure to the
-----------------------
benefit of and be binding upon the successors and assigns of the parties hereto.
(b) Representation by Counsel. Each party acknowledges that it
-------------------------
has been represented by independent legal counsel of its own choice through all
of the negotiations which preceded the execution of this Agreement and that it
has executed this Agreement with the consent and upon the advice of such
independent legal counsel.
(c) Understanding of Agreements. Each party acknowledges that
---------------------------
it has read this Agreement and assents to all of the terms and conditions
contained herein without any reservation whatsoever and that it has had the same
explained by counsel, who have answered any and all questions which have been
asked with regard to the meaning of any of the provisions hereof.
(d) Publicity; Announcements. Except to the extent required by
------------------------
law, without the prior written consent of the other parties hereto, (i) all
publicity related to this Agreement and the agreements related hereto, the terms
hereof and thereof and the transactions contemplated hereby and thereby shall be
subject to the mutual approval of all the parties hereto, and (ii) none of the
parties hereto nor anyone acting on their behalf shall issue or make any public
announcement or public communication related to this Agreement or any agreement
related hereto, the terms hereof or thereof or the transactions contemplated
hereby or thereby. To the extent any party is required by applicable law or
regulation to disclose publicly or make any public announcement of the terms
of this Agreement or any agreement related hereto and the transactions
contemplated hereby or thereby, such party shall, to the extent practicable,
give the other parties reasonable, actual prior notice of such disclosure.
(e) Notices. All notices and other communications hereunder
-------
shall be made in writing and shall be by telecopier, courier service or personal
delivery:
<PAGE>
6
(i) If to the Company:
Medicon, Inc.
40 Skokie Boulevard
Northbrook, Illinois 60062-1618
Telecopier No.: 708-559-6900
Attention: Chief Executive Officer
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopier No.: 212-757-3990
Attention: Bruce A. Gutenplan, Esq.
(ii) If to Korsower:
Jack M. Korsower, M.D.
10812 South Glen Road
Potomac, Maryland 20854
Telecopier No.:
With a copy to:
Siskind, Grady, Rosen & Hoover, P.A.
Jefferson Building
Two East Fayette Street
Baltimore, Maryland 21202
Telecopier No.: 410-332-0269
Attention: Arvin E. Rosen, Esq.
(f) Entire Agreement; Modifications. This Agreement, the Note
-------------------------------
and the New Option Agreement contain the entire agreement among the parties with
respect to the subject matter hereof, and such agreements supersede all prior
agreements, written or oral, whether binding or non-binding, among any of the
parties hereto, with respect to the subject matter hereof. No representations,
warranties or inducements have been made to the parties hereto or their counsel
concerning this Agreement and the agreements related hereto other than those
representations, warranties and covenants contained herein and in the agreements
related hereto. No waiver, modification or amendment of the terms of this
Agreement shall be valid unless in writing signed by the party to be charged and
only to the extent therein set forth. Any failure by any party to insist upon
the strict performance by any other party of any of the provisions of this
Agreement shall not be deemed a waiver of any of the provisions hereof or
thereof, and such party,
<PAGE>
7
notwithstanding such failure shall have the right thereafter to insist upon the
strict performance of any and all of the provisions hereof or thereof to be
performed by such other party.
(g) No Disparagement or Denigration. Korsower covenants and
-------------------------------
agrees that, after the date of this Agreement, he shall not, and will take
reasonable steps to cause each of his affiliates not to, take any action or make
any statement, whether or not in writing, that disparages or denigrates the
Company or its affiliates, agents, employees, officers or directors (including,
without limitation, by way of news interview or the expression of personal
views, opinions or judgments to the news media); and Medicon covenants and
agrees that, after the date of this Agreement, it shall not, and Medicon will
take reasonable steps to cause each, of its agents, employees, officers or
directors and all affiliates of Medicon not to take any action or make any
statement, whether or not in writing, that disparages or denigrates Korsower
(including, without limitation, by way of news interview or the expression of
personal views, opinions or judgments to the news media); provided; however,
-------- -------
that if Korsower or Medicon violates any provision of this Section (g), the
other shall be relieved of his or its obligations under this Section 6(g) to the
extent necessary to respond to such violation.
(h) Office Equipment and Credit Cards. On the date hereof,
---------------------------------
Korsower shall return the fax machine, computer and all other office equipment
and property of the Company. On the date hereof, all telephone and other
accounts being paid by the Company on Korsower's behalf, shall be terminated and
all company credits cards shall be returned to the Company and shall be
canceled. To the extent any charges are made by Korsower using company accounts
or credit cards after the date hereof, such charges will be solely Korsower's
responsibility.
(i) Headings. The headings contained in this Agreement are
--------
inserted only as a matter of convenience and in no way define, limit, extend or
describe the scope of this Agreement or the intent of any provision hereof.
(j) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Illinois, without regard
to the principles of the conflicts of law of such State.
(k) Remedies. Unless Korsower is alleged to have breached the
--------
terms of this Agreement by reason of involvement or affiliation with any of the
entities referred to in the proviso to Article 3(b), the Company shall not be
entitled to a cessation of payments or offset of payments due under the Note or
pursuant to Article 2(a).
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first written above.
_______________________________
Jack M. Korsower, M.D.
MEDICON, INC.
By: __________________________
Name: Carl R. Adkins, M.D.
Title: Chief Executive Officer
EXHIBIT 10.47
MEDICON, INC.
STOCK OPTION AGREEMENT
----------------------
AGREEMENT made and entered into as of February 15, 1996, by and
between MEDICON, INC., an Illinois corporation (the "Company"), and JACK M.
KORSOWER, M.D. (the "Optionee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company previously employed the Optionee as an employee
of the Company; and
WHEREAS, the Company and the Optionee entered into a Severance
Agreement, dated the date hereof, pursuant to which, among other things, the
Company and the Optionee agreed to terminate any options previously granted to
the Optionee in exchange for the options newly issued hereunder; and
NOW, THEREFORE, in consideration of the foregoing promises and of the
mutual covenants and agreements herein contained, the parties hereby agree as
follows:
1. Grant of Option. Subject to the terms and conditions set forth
---------------
herein, the Company grants to the Optionee an option (the "Option") to purchase
from the Company all or any part of an aggregate of 35,000 shares (the "Optioned
Shares") of Class A Common Stock, no par value (the "Common Stock").
2. Cancellation of Old Options. As a condition to the granting of
---------------------------
this Option, the Optionee hereby consents to the cancellation and surrender of
the options previously granted to him and referred to in the second Whereas
clause above.
3. Exercise Price. The purchase price for the Optioned Shares shall
--------------
be $0.01 per share (the "Option Price").
4. Term of Option. This Option shall be vested immediately and shall
--------------
be exercisable, either in whole or in part, at any time after the date of this
Agreement, but in any event prior to February 15, 1999 (the "Expiration Date").
5. Method of Option Exercise. The Option or any part thereof may be
-------------------------
exercised only by giving to the Company written notice of exercise addressed and
delivered to the Company (Attention: Chief Financial Officer) specifying the
number of shares of Common Stock to be purchased. Full
<PAGE>
2
payment of the purchase price shall be made on the option exercise date by
certified or official bank check or, in the Company's discretion, by personal
check (subject to collection), payable to the Company, by delivery of shares of
Common Stock already owned by the Optionee, or by a combination thereof. The
Optionee shall have no right to pay the option exercise price, or to receive
shares of Common Stock with respect to an Option exercise, prior to the option
exercise date. For purposes of this option agreement, the "option exercise
date" shall be deemed to be the first business day immediately following the
date written notice of exercise is received by the Company.
6. Termination. This Option may not be exercised after the
-----------
Expiration Date.
7. Shares for Investment. The certificate representing the shares of
---------------------
Common Stock purchased upon exercise of any Option shall be issued as of the
exercise date and delivered by the Company to the Optionee free and clear of all
claims, liens and encumbrances, within five days following the exercise date or
as soon thereafter as practicable. As a condition to the exercise of any
Option, the Company may require the Optionee to represent and warrant at the
time of any such exercise that the shares of Common Stock are being purchased
for investment purposes only, for the account of the Optionee and without any
intention to distribute such shares. If the shares of Common Stock issuable
upon exercise of any Option have not previously been registered under the
Securities Act of 1933, as amended, each certificate evidencing shares of Common
Stock acquired upon exercise of the Option shall contain on its face, or on the
reverse side thereof, in addition to any other legends required pursuant to
applicable law or contractual agreements between the Company and the Optionee,
the following legend:
"These shares have not been registered under the Securities Act of 1933 or
under any applicable state law. They may not be offered for sale, sold,
transferred, or pledged without (1) registration under the Securities Act
of 1933 and any applicable state law, or (2) an opinion (satisfactory to
the corporation) that registration is not required."
8. Adjustment Upon Changes in Capitalization. Subject to the
-----------------------------------------
following provisions of this Section, in the event of any change in the number
of issued shares of Common Stock resulting from the subdivision or combination
of shares of Common Stock or other capital adjustment or the payment of a stock
dividend after the effective date of this Agreement, or other change in such
shares of Common Stock effective without receipt of consideration by the
Company, an appropriate and proportionate adjustment shall be made in
<PAGE>
3
the number of shares of Common Stock subject to the Option and the exercise
price of the Option granted under this Agreement and the amount payable by an
Optionee in respect of an Option. Adjustments under this Section shall be made
by the Board of Directors or a Committee thereof whose determination as to what
adjustment shall be made, and the extent thereof, shall be final, binding and
conclusive.
9. Withholding Obligations. In the event that the Company is
-----------------------
required to satisfy withholding obligations under the Internal Revenue Code as a
result of the exercise of any Option, the Optionee may request that, in lieu of
requiring that the Optionee deliver a check in the amount of the withholding
obligation, the Company withhold that number of shares of Common Stock which
have a fair market value on the exercise date equal to the amount required to be
withheld.
10. Nontransferability. All Options contained herein are not
------------------
transferable or assignable by the Optionee other than by will or by the laws of
descent and distribution and are exercisable during the lifetime of the Optionee
only by the Optionee.
11. Execution of Agreement. Notwithstanding anything contained in
----------------------
this Agreement to the contrary, no option may be exercised until the Optionee
has returned an executed copy of this option agreement to the Company.
12. Compliance with Law. By accepting any Option, the Optionee
-------------------
agrees for Optionee and Optionee's legal representative that the Company shall
not be required to deliver any shares of Common Stock upon the exercise of any
Option until such shares have been qualified for delivery under applicable
securities laws and regulations as determined by the Company or its legal
counsel. The Company will comply with applicable securities laws and
regulations to effectuate the terms of this provision.
13. Rights as a Stockholder. The Optionee shall have no rights as a
-----------------------
stockholder of the Company with respect to shares of Common Stock subject to the
Option until the Option has been exercised and payment made as herein provided
and certificates representing the shares as to which the Option has been
exercised have been delivered to the Optionee.
14. Notices. Any notice to be given to the Company hereunder shall
-------
be in writing and shall be addressed to Chief Financial Officer, Medicon, Inc.,
40 Skokie Boulevard, Northbrook, IL 60062, or at such other address as the
Company may hereafter designate to the Optionee by notice as provided herein.
Any notice to be given to the Optionee
<PAGE>
4
hereunder shall be addressed to the Optionee at the address set forth below or
at such other address as the Optionee may hereafter designate to the Company by
notice as provided herein. Notices hereunder shall be deemed to have been duly
given when received by personal delivery or by registered or certified mail to
the party entitled to receive the same.
15. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and the successors and assigns of the
Company and, to the extent set forth in the Plan, the heirs and personal
representatives of the Optionee.
16. Governing Law. This Agreement shall be governed by the laws of
-------------
the State of Illinois applicable to agreements made and to be performed entirely
within such State.
17. Modifications to Agreement. This option agreement may not be
--------------------------
altered, modified, changed or discharged, except by a writing signed by or on
behalf of both the Company and the Optionee.
18. Optionee's Acknowledgment. By entering into this Agreement the
-------------------------
Optionee agrees and acknowledges that no officer or board member of the Company
shall be liable for any action or determination made with respect to this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
MEDICON, INC.
By: /s/ Carl R. Adkins, M.D.
-------------------------------
Name: Carl R. Adkins, M.D.
Title: Chief Executive Officer
/s/ Jack M. Korsower, M.D.
_______________________________
Jack M. Korsower, M.D.
10812 South Green Rd.
Potoma, MD 20854
_______________________________
(Address)
Exhibit 10.48
MEDICON, INC.
JUNIOR SUBORDINATED PROMISSORY NOTE
$400,000.00 New York, New York
February 15, 1996
FOR VALUE RECEIVED, and in accordance with that certain Severance
Agreement (the "Severance Agreement"), dated the date hereof, between the
-------------------
Company and Jack M. Korsower, M.D. (the "Holder"), the undersigned, MEDICON,
------
INC., an Illinois corporation (the "Company"), promises to pay to the order of
-------
the Holder, the principal sum of four hundred thousand dollars ($400,000.00) on
the earlier of an Initial Public Offering, Sale Transaction or August 15, 1998
(the "Maturity Date"), with interest thereon as provided herein.
-------------
1. Interest. The Company promises to pay interest on the principal
--------
amount of this Note at the rate of 8-1/2% per annum. Interest on this Note shall
accrue from the date of issuance and shall be payable in full on the Maturity
Date. Interest shall be computed on the basis of a 365-day year.
2. Optional Prepayment.
-------------------
(a) Upon notice given to the Holder of this Note as provided in
Section 5 of hereof, the Company, at its option, may prepay all or any portion
of this Note, at any time, by paying an amount equal to the outstanding
principal amount of this Note, or the portion of this Note called for
prepayment, together with interest accrued and unpaid thereon to the date fixed
for prepayment, without penalty or premium.
(b) The Company may give written notice of prepayment of this
Note or any portion thereof not less than 10 nor more than 60 days prior to the
date fixed for such prepayment. Such notice of prepayment shall be given in the
manner specified in Section 5 of this Note. Upon notice of prepayment being
given by the Company, the Company covenants and agrees that is shall prepay, on
the date therein fixed for prepayment, this Note or the portion hereof so called
for prepayment, at the outstanding principal amount thereof or the portion
thereof so called for prepayment together with interest accrued and unpaid
thereon to the date fixed for such prepayment.
(c) All optional prepayments under this Section 2 shall include
payment of accrued interest on the principal amount so prepaid.
3. Defaults and Remedies.
---------------------
(a) Events of Default. An "Event of Default' shall occur if:
-----------------
<PAGE>
2
(i) the Company shall default in the payment of the
principal of and interest on this Note, when and as the same shall become due
and payable in accordance with the terms of this Note, and such default shall
continue for a period of five days;
(ii) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(a) relief in respect of the Company, or of a substantial part of its property
or assets, under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (b) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Company, or for
a substantial part of its property or assets, or (c) the winding up or
liquidation of the Company; and such proceeding or petition shall continue
undismissed for 60 days, or an order or decree approving or ordering any of the
foregoing shall be entered; or
(iii) the Company shall (a) voluntarily commence any
proceeding or file any petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law, (b) consent to the
institution of or the entry of an order for relief against it, or fail to
contest in a timely and appropriate manner, any proceeding or the filing of any
petition described in paragraph (ii) of this Section 3(a), (c) apply for or
consent to the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Company, or for a substantial part of
its property or assets, (d) file an answer admitting the material allegations of
a petition filed against it in any such proceeding, (e) make a general
assignment for the benefit of creditors, (f) become unable, admit in writing its
inability or fail generally to pay its debts as they become due or (g) take any
action for the purpose of effecting any of the foregoing.
(b) Acceleration. If an Event of Default occurs under this
------------
Section 3, then the outstanding principal of and all accrued interest on this
Note shall automatically become immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which are expressly
waived.
4. Subordination. This Note shall at all times be wholly subordinate
-------------
and junior in right of payment to all Senior Indebtedness to the extent and in
the manner provided in this Section 4.
(a) As used in this Section 4, the following terms shall have
the following meanings:
"Senior Default" shall mean (i) an Event of Default as defined in and
--------------
pursuant to Article 7 of the Senior Subordinated Notes and (ii) any default in
the payment of principal of or interest on any Senior Indebtedness or default in
the observance or performance of any other agreement or condition relating to
any such Senior Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition, is to
cause, or to permit the holder or holders of such Senior Indebtedness (or a
<PAGE>
3
trustee or agent on behalf of such holder or holders) to cause, with the giving
of notice if required, such Senior Indebtedness to become due prior to its
stated maturity.
"Senior Indebtedness" shall mean (i) the principal of and interest on
-------------------
(including without limitation any interest that accrues after the commencement
of any case, proceeding or other legal action relating to the bankruptcy,
insolvency or reorganization of the Company whether or not such interest
constitutes an allowed claim) the Senior Subordinated Notes, (ii) any other
monetary obligation of the Company arising out of or in connection with the
Senior Subordinated Notes or the Subordinated Note and Stock Purchase Agreement
and (iii) any indebtedness for borrowed money of the Company, whether
outstanding on the date hereof or thereafter created, incurred, assumed or
guaranteed by the Company, unless the instrument creating or evidencing the same
expressly provides that such Indebtedness is on a parity with or subordinated in
right of payment to the Subordinated Indebtedness.
"Subordinated Indebtedness" shall mean the principal of and interest
-------------------------
on this Note.
(b) General. Upon the maturity of any Senior Indebtedness by
-------
lapse of time, acceleration, required prepayment or otherwise, all Senior
Indebtedness then so due and payable shall first be paid or provided for in full
in cash, before any payment is made on account of the Subordinated Indebtedness
then so due and payable.
(c) Limitation on Payment. Unless and until (i) all Senior
---------------------
Defaults shall have been remedied or effectively waived or shall have ceased to
exist or (ii) the Senior Indebtedness in respect of which such Senior Defaults
shall have occurred shall have been paid in full or duly provided for in a
manner satisfactory to the holders of the Senior Indebtedness, as the case may
be, no direct or indirect payment (in cash, property, securities or by set-off
or otherwise) shall be made on account of the principal of or interest on this
Note or as a sinking fund for such Note or in respect of any redemption,
retirement, purchase or other acquisition of such Note; provided, however, that
-------- -------
after the earlier to occur of (i) the Maturity Date or (ii) the acceleration of
this Note pursuant to Section 3(a)(ii) or 3(a)(iii), the restrictions on payment
set forth in this Section 4(c) will not be effective at any time there exists a
Senior Default unless the Senior Indebtedness in respect of which such Senior
Default exists has been accelerated and all remedies are being exercised..
(d) Limitation on Remedies. Prior to the earlier to occur of
----------------------
(i) the Maturity Date, (ii) the payment in full of the Senior Indebtedness or
(iii) acceleration of this Note pursuant to Section 3(a)(ii) or 3(a)(iii), the
Holder shall not declare this Note to be due and payable by reason of any Event
of Default or otherwise take any action against the Company in connection with
this Note (including, without limitation, commencing any legal action against
the Company or filing or joining in the filing of any insolvency petition
against the Company).
(e) Subordination Upon Certain Events. Upon the occurrence of
---------------------------------
any Event of Default under Sections 3(a)(ii) or (iii) of this Note:
<PAGE>
4
(i) Upon any payment or distribution of assets of the
Company to creditors of the Company, holders of Senior Indebtedness shall be
entitled to receive payment in full in cash before the holder of Subordinated
Indebtedness shall be entitled to receive any payment in respect of the
Subordinated Indebtedness.
(ii) Until all Senior Indebtedness is paid in full in cash,
any distribution to which the holders of Subordinated Indebtedness would be
entitled but for this Section 4 shall be made to holders of Senior Indebtedness,
as their interests may appear.
(iii) For purposes of this Section 4, a distribution may
consist of cash, securities or other property, by set-off or otherwise.
(f) Payments and Distributions Received. If the Holder shall
-----------------------------------
have received any payment from or distribution of assets of the Company in
respect of the Subordinated Indebtedness in contravention of the terms of this
Section 4 before all Senior Indebtedness is paid in full in cash, then and in
such event such payment or distribution shall be received and held in trust for
and shall be paid over or delivered to the holders of Senior Indebtedness (or
their authorized agent) to the extent necessary to pay all such Senior
Indebtedness in full in cash.
(g) Subrogation. After all amounts payable under or in respect
-----------
of Senior Indebtedness are paid in full in cash, the Holder shall be subrogated
to the rights of holder of Senior Indebtedness to receive payments or
distributions applicable to Senior Indebtedness to the extent that distributions
otherwise payable to the holder of the Subordinated Indebtedness have been
applied to the payment of Senior Indebtedness.
(h) Relative Rights. This Section defines the relative rights
---------------
of the holders of the Subordinated Indebtedness and the holder of Senior
Indebtedness. Nothing in this Section shall: (i) impair, as between the
Company and the holder of the Subordinated Indebtedness, the obligation of the
Company, which is absolute and unconditional, to pay principal of and interest
on Subordinated Indebtedness in accordance with its terms; or (ii) effect the
relative rights of holder of a Subordinated Indebtedness and creditors of the
Company other than holders of Senior Indebtedness.
(i) Subordination May Not Be Impaired by the Company. No right
------------------------------------------------
of any holder of any Senior Indebtedness to enforce the subordination of the
Subordinated Indebtedness shall be impaired by any failure by the Company to
comply with this Note.
(j) Payments. A payment with respect to principal of or
--------
interest on the Subordinated Indebtedness shall include, without limitation,
payment of principal of, and interest on the Subordinated Indebtedness.
(k) Subordination Not Impaired; Benefit of Subordination. The
----------------------------------------------------
Holder agrees and consents that without notice to or assent by such Holder, and
without affecting the liabilities and obligations of the Company and such Holder
and the rights and benefits of the holders of the Senior Indebtedness set forth
herein:
<PAGE>
5
(i) the obligations and liabilities of the Company and any
other party or parties for or upon the Senior Indebtedness may, from time to
time, be increased, renewed, refinanced, extended, modified, amended, restated,
compromised, supplemented, terminated, waived or released; and
(ii) any balance or balances of funds with any holder of
Senior Indebtedness at any time outstanding to the credit of the Company may,
from time to time, in whole or in part, be surrendered or released;
all as the holders of the Senior Indebtedness, and any representative or
representatives acting on behalf thereof, may deem advisable, and all without
impairing, abridging, diminishing, releasing or affecting the subordination of
the Subordinated Indebtedness to the Senior Indebtedness provided for herein.
(l) Modification of Subordination Provisions. The subordination
----------------------------------------
provisions of this Note are for the benefit of the holders from time to time of
Senior Indebtedness and, so long as any Senior Indebtedness remains unpaid,
these provisions may not be modified, rescinded or canceled in whole or in part
without the prior written consent thereto of the holders of a majority of the
aggregate principal amount outstanding of Senior Subordinated Notes and the
holders of a majority of the aggregate principal amount outstanding of any other
Senior Indebtedness which the Company may from time to time designate as
entitled to the benefits of this Section 5(l).
(m) Miscellaneous.
-------------
(i) To the extent permitted by applicable law, the Holder
and the Company hereby waive notice of acceptance hereof by the holders of the
Senior Indebtedness.
(ii) The Company and the Holder hereby expressly agree that
the holders of Senior Indebtedness may enforce any and all rights derived herein
by suit, either in equity or law, for specific performance of any agreement
contained in these subordination provisions or for judgement at law and any
other relief whatsoever appropriate to such action or procedure.
(iii) The Holder acknowledges and agrees that the foregoing
subordination provisions are, and are intended to be, an inducement and a
consideration to each holder of Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the issuance of this Note,
and each holder of Senior Indebtedness shall be deemed conclusively to have
relied upon such subordination provisions in acquiring and continuing to hold
the Senior Indebtedness held by such holder, sa the case may be.
5. Definitions. As used in this Note, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
<PAGE>
6
"Capital Stock" of any Person means any and all shares, interests,
-------------
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
common stock and preferred stock and any rights, warrants or options to purchase
such Person's capital stock.
"Contingent Obligation" means, as to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (each a "primary
-------
obligation") of another Person (with respect to a given primary obligation, the
- ----------
"primary obligor"), whether or not contingent, (a) to purchase, repurchase or
---------------
otherwise acquire any such primary obligation or any property constituting
direct or indirect security therefor, or (b) to advance or provide funds (i) for
the payment or discharge of any such primary obligation, or (ii) to maintain
working capital or equity capital of the primary obligor in respect of any such
primary obligation or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of such primary
obligor, or (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor in respect thereof to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof.
"Event of Default" has the meaning assigned such term in Section 3(a).
----------------
"GAAP" means generally accepted United States accounting principles in
----
effect from time to time.
"Indebtedness" means, as to any Person, (a) all obligations of such
------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any lien (other than
liens in favor of lessors under leases other than leases included in clause (f))
on any property or asset owned or held by such Person regardless of whether the
indebtedness secured thereby shall have been assumed by such Person or is non-
recourse to the credit of such Person and (h) all Contingent Obligations of such
Person.
<PAGE>
7
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by the Company of its Capital Stock pursuant to a registration
statement on Form S-1 or otherwise under the Securities Act.
"Investors" shall mean Whitney Subordinated Debt Fund, L.P., Whitney
---------
1990 Equity Fund, L.P., J.H. Whitney & Co. and Chemical Venture Capital
Associates.
"Maturity Date" has the meaning assigned to such term in the first
-------------
paragraph of this Note.
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
governmental authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"Sale Transaction" means an acquisition of all or any substantial part
----------------
of the business and properties of the Company and its subsidiaries taken as a
whole, whether by merger, tender offer, purchase of assets or shares of capital
stock or otherwise.
"Senior Default" has the meaning assigned such term in Section 4(a).
--------------
"Senior Indebtedness" has the meaning assigned such term in Section
-------------------
4(a).
"Senior Subordinated Notes" means the Company's Senior Subordinated
-------------------------
Promissory Notes, dated November 3, 1994, in aggregate principal amount of
$10,000,000.00.
"Severance Agreement" has the meaning assigned to such term in the
-------------------
first paragraph hereof.
"Subordinated Note and Stock Purchase Agreement" means the
----------------------------------------------
Subordinated Note and Stock Purchase Agreement, dated as of the date hereof,
between the Company and certain other parties thereto pursuant to which, among
other things, the Company issued the Senior Subordinated Notes.
6. Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in the manner specified in Section 6(e)
of the Severance Agreement.
7. Successors and Assigns. This Note shall inure to the benefit of
----------------------
and be binding upon the successors and permitted assigns of the parties hereto.
The Holder may not assign any of his rights under this Note. The Company may
not assign any of its obligations under this Note without the written consent of
the Holder.
8. Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the Holder
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor
<PAGE>
8
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. The remedies provided for herein are cumulative and are not
exclusive of any remedies that may be available to the Company or the Holder at
law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Note, any waiver of any provision of this Note, and any
consent to any departure by the Company from the terms of any provision of this
Note, shall be effective (i) only if it is made or given in writing and signed
by the Company and the Holder, and (ii) only in the specific instance and for
the specific purpose for which made or given. Except where notice is
specifically required by this Note, no notice to or demand on the Company in any
case shall entitle the Company to any other or further notice or demand in
similar or other circumstances.
9. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of Illinois, without regard to the
principles of conflicts of law of such State.
10. Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
11. Entire Agreement. This Note and the Severance Agreement are
----------------
intended by the parties as a final expression of their agreement and intended to
be a complete and exclusive statement of the agreement and understanding of the
parties hereto in respect
<PAGE>
9
of the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein. This Note and the Severance Agreement supersede all prior
agreements and understandings between the parties with respect to such subject
matter.
MEDICON, INC.
By: COPY
------------------------------
Name: Carl R. Adkins, M.D.
Title: Chief Executive Officer
Exhibit 10.49
SETTLEMENT AGREEMENT AND GENERAL RELEASE
----------------------------------------
This Settlement Agreement and General Release ("Agreement") is entered into
this 11th day of April, 1966, between Ms. Cheryl Lippert ("Ms. Lippert") and
Medicon, Inc. (the "Company").
WHEREAS, the parties are desirous of settling any and all disputes and
avoiding the expense, delay and uncertainty attendant to litigation and
administrative proceedings concerning any and all claims arising out of Ms.
Lippert's employment and the cessation of that employment;
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises hereinafter set forth, and for good and valuable consideration, the
sufficiency of which is acknowledged, Ms. Lippert and the Company agree as
follows:
I. CONSIDERATION
-------------
A. Ms. Lippert recognizes that her employment relationship with the
Company, its divisions, subsidiaries, affiliates and successors, was permanently
and irrevocably severed and terminated as of January 11, 1996, and that she
releases and waives any and all rights to reinstatement, employment, or
reemployment with the Company. Further, she agrees that she shall not apply or
otherwise seek reinstatement, reemployment, or future employment with the
Company, its divisions, subsidiaries, affiliates and successors at any time in
the future, unless this provision is waived by the Company in writing.
B. Ms. Lippert shall receive a cash payment in lieu of outplacement
services in the amount of Eight Thousand Dollars ($8,000.00) upon execution of
this Agreement by all parties.
C. The Company shall pay Ms. Lippert, jointly with her attorney, Sheribel
Rothenberg, within ten (10) days of execution of this Agreement, the sum of
Eighty Two Thousand Five Hundred Dollars ($82,500.00) in further consideration
for Ms. Lippert's release of all claims against the Company.
D. The Company shall provide Ms. Lippert with the following benefits:
(1) unused 1996 vacation time equal to approximately one (1) day's pay;
(2) Ms. Lippert remains the holder of an earnback warrant exercisable for
156,838 shares of Class A Common Stock if the events specified in such
warrant occur within certain time periods which are also specified in
such warrant. Other than as described in the preceding sentence, Ms.
Lippert is not entitled to, nor does she own, any shares of restricted
stock or stock options.
<PAGE>
(3) a payment of Five Thousand Dollars ($5,000.00) for attorney's fees
incurred by Ms. Lippert in connection with the negotiations over the
terms and conditions of this Agreement.
E. This section sets forth all compensation, benefits and monies due Ms.
Lippert from the Company. Ms. Lippert acknowledges that the benefits provided
in this Agreement exceed the benefits which she would have been entitled to
receive as a former employee of the Company, and those extra benefits are
provided by the Company in exchange for Ms. Lippert's execution of this
Agreement.
F. All amounts payable to Ms. Lippert on her behalf under this Agreement
will be reported to appropriate governmental agencies as taxable income, and an
appropriate withholding will be made where necessary. In addition, all amounts
payable to Ms. Lippert under this Agreement are expressed as amounts prior to
payment or withholding of any taxes, and the Company will not gross up the
amounts or otherwise reimburse Ms. Lippert for the taxes she will pay relating
to such amounts.
II. PERSONAL REFERENCES
-------------------
In response to inquiries by prospective employers, the Company shall
respond only with Ms. Lippert's dates of employment, position, job duties and
salary at termination, while informing any inquirer that it is Company policy to
disclose only that information. Ms. Lippert agrees to direct all requests for
references to the Company's Human Resources Department.
III. ADVERSE COMMENT PROHIBITED
--------------------------
Ms. Lippert and the Company agree that neither party shall disparage the
other, publicly or privately, the Company's services, or its officers,
directors, shareholders, employees, and agents.
IV. MISCELLANEOUS PROVISIONS
------------------------
Ms. Lippert agrees not to engage in actions contrary to the interest of the
Company; not to disclose or allow the disclosure of any provisions of this
Agreement; and to return to the Company all Company property, including, any
proprietary or confidential information.
V. CONFIDENTIALITY OF AGREEMENT
----------------------------
Ms. Lippert and the Company agree that the terms and conditions of this
Agreement shall be kept confidential (immediate family members, attorneys and
advisors excepted)
-2-
<PAGE>
and shall respond to inquiries, stating language to the effect that "the
matter has been resolved."
Notwithstanding the foregoing, either party may disclose this Agreement to
enforce its terms or as otherwise required by law.
VI. NON-ADMISSION OF LIABILITY
--------------------------
The parties mutually understand and agree that this Agreement does not
constitute any fault, responsibility or liability on the part of the Company.
Ms. Lippert further agrees and acknowledges that the Company has denied,
continues to deny and will deny all allegations of wrongful discharge, any and
all claims of employment discrimination, and any alleged violation of related
civil rights laws or any other statute or law, whether federal, state or local.
VII. RELEASE
-------
Ms. Lippert, on behalf of herself, her agents, representatives, assigns,
heirs, executors and administrators does hereby irrevocably and voluntarily
waive, release and forever discharge the Company, its divisions, subsidiaries,
affiliates, related companies, successors, predecessors, assigns, officers,
directors, employees, insurers, attorneys, agents and representatives from any
and all claims, demands, damages, causes of action or lawsuits, liabilities and
obligations, known or unknown, suspected or unsuspected, that she now might
have, that she has had or that might subsequently accrue to her, arising from,
growing out of or in any way connected with, directly or indirectly, her
employment relationship with the Company, or the manner, means or circumstances
of her termination of employment with the Company, including, without
limitation, any and all actual or potential common law claims, and any and all
actual or potential claims under any federal, state or local policy, statute,
law or regulation. Ms. Lippert further agrees that this Agreement is intended
to apply to any and all charges or lawsuits of employment discrimination or
wrongful discharge that she could have filed with any court or governmental
administrative body or tribunal having jurisdiction over such claims.
Ms. Lippert represents and warrants that she has not assigned any of the
claims described above or authorized any other person or entity to assert any
such claim on her behalf. Finally, Ms. Lippert agrees that under this Agreement
she waives (a) any claim for damages incurred any time after the date of this
Agreement because of alleged continuing effects of any alleged discriminatory
wrongful or illegal acts or omissions involving the Company which occurred on or
before the date of this Agreement; and (b) any right to sue for injunctive
relief against the alleged continuing effects of past discrimination or
-3-
<PAGE>
wrongful or illegal acts based on alleged acts or omissions occurring prior to
the date of this Agreement.
VIII. CONTROLLING LAW
---------------
This Agreement shall be interpreted and construed in accordance with the
law of the State of Illinois.
IX. VOLUNTARY NATURE OF THIS AGREEMENT
----------------------------------
The parties' negotiations are complete and no future attempts to
renegotiate shall be made. Ms. Lippert represents that in executing this
Agreement, no promise or inducement has been made except as set forth in this
Agreement, and that she is entering into this Agreement voluntarily and without
any threat or coercion and without reliance on any statement or representation,
written or oral, made by any person representing the Company.
Ms. Lippert has been advised to consult an attorney in this matter and has
consulted with Sheribel Rothenberg regarding this Agreement.
X. ENTIRE AGREEMENT
----------------
This agreement is the entire agreement between the parties concerning the
subject matter hereof and supersedes all prior and contemporaneous agreements,
if any, between the parties relating to the subject matter hereof.
Dated: 4-16-96 /s/ Cheryl Lippert
------------- ----------------------------------
Cheryl Lippert
Dated: /16/96 /s/ Sheribel F. Rothenberg
------------- ----------------------------------
Sheribel F. Rothenberg
Attorney for Cheryl Lippert
MEDICON, INC.
Dated: 4-23-96 By: /s/ Lawrence Rubinstein
------------- -----------------------------------
Lawrence Rubinstein
Secretary and General Counsel
By: __________________________________
David J. Parsons
One of Medicon, Inc.'s Attorneys
-4-
EXHIBIT 10.50
RESTRICTED SHARES AGREEMENT
---------------------------
RESTRICTED SHARES AGREEMENT dated November 15, 1995 by and between
MEDICON, INC., an Illinois corporation (the "Company"), and MARIA MCAFEE (the
"Holder").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Board of Directors of the Company (the "Board") has
authorized the grant of restricted shares to the Holder; and
WHEREAS, such resolution authorizing the grant provides that the
terms of such grant shall be set forth in a restricted shares agreement (the
"Agreement") by and between the Company and the Holder; and
WHEREAS, the parties now desire to enter into the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, and for other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereunto agree
as follows:
1. AWARD OF RESTRICTED SHARES. Subject to the restrictions, terms
--------------------------
and conditions of this Agreement, the Company hereby issues and sells to the
Holder 296,499 shares of Class A Common Stock, no par value, of the Company
("Common Stock"), at a purchase price of $.01 per share of Common Stock.
Such shares are hereinafter referred to as the "Restricted Shares" until such
shares vest in accordance with the terms hereof.
2. VESTING OF RESTRICTED SHARES. Subject to paragraphs 6 and 7 of
----------------------------
this Agreement, the Restricted Shares shall become fully "vested" on June 30,
1996.
3. LIMITATIONS ON RIGHTS OF HOLDER.
-------------------------------
(A) SHARES TO BEAR RESTRICTIVE LEGEND. The Restricted
---------------------------------
Shares will be represented by a stock certificate or certificates registered
in the name of the Holder. From and after the date of original issuance,
stock certificates representing the Restricted Shares shall bear a legend in
substantially the following form:
"THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE
OR OTHER DISPOSITION (EACH A "TRANSFER") AND VOTING OF
ANY OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
RESTRICTED BY THE TERMS OF THE
<PAGE>
STOCKHOLDERS' AGREEMENT, DATED AS OF NOVEMBER 3, 1994,
AND AMENDED AS OF SEPTEMBER 6, 1995, AMONG THE COMPANY
AND THE STOCKHOLDERS NAMED THEREIN, AND A RESTRICTED
SHARES AGREEMENT, DATED AS OF NOVEMBER 15, 1995,
BETWEEN THE REGISTERED HOLDER HEREOF AND THE COMPANY,
COPIES OF WHICH MAY BE INSPECTED AT THE COMPANY'S
PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE
TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY
UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN
COMPLIANCE WITH THE TERMS OF SUCH STOCKHOLDERS'
AGREEMENT AND RESTRICTED SHARES AGREEMENT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.
SUCH SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS."
(b) COMPANY TO RETAIN CUSTODY OF STOCK.
----------------------------------
Promptly after the date of this Agreement, the Company will issue to the
Holder, and the Holder will deposit with and deliver to the Company, the
stock certificate or certificates referred to in subparagraph (a) of this
paragraph 3, each duly endorsed in blank or accompanied by stock powers duly
executed in blank.
(c) POWER OF ATTORNEY. The company is hereby appointed
-----------------
the attorney-in-fact, with full power of substitution of the Holder for the
sole purpose of carrying out the provisions of this Agreement and taking any
action and executing any instrument which such attorney-in-fact may deem
necessary or advisable to accomplish the purposes hereof, which appointment
as attorney-in-fact is irrevocable and coupled with an interest. The Company
as attorney-in-fact for the Holder may, in the name and stead of the Holder,
make and execute all correspondence, assignments and transfers of the
Restricted Shares, and the Holder hereby ratifies and confirms all that the
Company, as said attorney-in-fact, shall do by virtue hereof, provided that
the foregoing shall be solely for the purpose of carrying out the provisions
of this Agreement. Nevertheless, the Holder shall, if so requested by the
Company, execute and deliver to the Company all such instruments as may, in
the reasonable judgment of the Company, be advisable for the purpose hereof.
(d) CERTAIN RIGHTS OF HOLDER. The Restricted Shares,
------------------------
when issued pursuant to the provisions hereof, shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. From and
after the
<PAGE>
date of original issueance, the Holder will have the right to vote
the Restricted Shares and to exercise all other rights, powers and privileges
of a holder of Common Stock with respect to the Restricted Shares, with the
exception that, until the Restricted Shares shall have become vested pursuant
to the terms hereof (i) the Holder will not be entitled to delivery of the
stock certificate or certificates representing the Restricted Shares; (ii)
the Company will retain custody of the Restricted Shares; (iii) the Holder
may not sell, assign, transfer, pledge, exchange, encumber or dispose of the
Restricted Shares. A material breach of any of the foregoing restrictions or
a material breach of any of the other restrictions, terms and conditions of
this Agreement with respect to any of the Restricted Shares, except as waived
by the Company, will cause a forfeiture of such Restricted Shares; and (iv)
the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Shares (and
such Retained Distributions will be subject to the same restrictions, terms
and conditions as are applicable to the Restricted Shares) until such time,
if ever, as the Restricted Shares with respect to which such Retained
Distributions shall have been made, paid or declared shall have become
bested, and such Retained Distributions shall not bear interest or be
segregated in separate accounts.
(e) STOCKHOLDERS' AGREEMENT. Concurrently with the
-----------------------
execution of this Agreement, the Holder agrees, as a condition to the receipt
of the Restricted Shares hereunder, to execute and become a party to the
Stockholders' Agreement, dated as of November 3, 1994, and amended as of
September 6, 1995, among the Company and the stockholders named therein (the
"Stockholders' Agreement").
4. DELIVERY OF VESTED SECURITIES. Subject to paragraph 8 hereof,
-----------------------------
when any Restricted Shares shall have become vested pursuant to the
provisions of this Agreement, the Company shall promptly issue and deliver to
the Holder new stock certificates or instruments representing the vested
shares, registered in the name of the Holder or, if deceased, her legatees,
personal representatives or distributees, which do contain the legend set
forth in subparagraph (a) of paragraph 3 hereof.
5. NO RIGHT TO EMPLOYMENT. Nothing in this Agreement shall be
----------------------
construed to give the Holder any right to be awarded any additional
Restricted Shares or to confer on the Holder any right to continue in the
employ of the Employer or to be evidence of any agreement or understanding,
express or implied, that the Company or any of its subsidiaries will employ
the Holder in any particular
<PAGE>
position or at any particular rate of remuneration, or for any particular
period of time or to interfere in any way with the right of the Employer
(or the right of the Holder) to terminate the employment of the Holder at any
time, with or without Cause (as defined in the EMployment Agreement dated as
of November 15, 1995, between the Company and the Holder (the "Employment
Agreement"), notwithstanding the consequences of such termination pursuant to
paragraph 7 of this Agreement.
6. ACCELERATION OF VESTING.
-----------------------
(a) DEATH OR DISABILITY. If the Holder's employment with
-------------------
the Company terminates by reason of death or disability (as determined under
the employment Agreement), all of the Restricted Shares that have yet to
become vested shall become immediately vested.
(b) WITH OR WITHOUT CAUSE. If the Holder's employment is
---------------------
terminaed by the Company, whether with or without Cause (as defined in the
Employment Agreement), prior to June 30, 1996, the Restricted Shares shall
become immediately vested.
(c) INITIAL PUBLIC OFFERING. If the Company completes an
-----------------------
Initial Public Offering (as defined in paragraph 17 of this Agreement) on or
before June 30, 1996, all Restricted Shares shall become immediately vested.
(d) SALE OF THE COMPANY. If the Company completes a Sale
-------------------
Transaction (as defined in Paragraph 17 of this Agreement) on or before June 30,
1996, all Restricted Shares shall become immediately vested.
7. RESIGNATION.
-----------
If the Holder's employment with the Company terminates by reason
of the resignation of the Holder prior to the date the shares of Common Stock
issued and sold hereunder vest, the Holder shall forfeit all Restricted Shares
that have not so vested hereunder and the Holder shall not e entitled to receive
any consideration or compensation therefor. The Holder shall cooperate with the
Company to effectuate the purpose of this provision.
8. Compliance with Law. The delivery of any certificate
-------------------
representing Restricted Shares may e postponed by the Company for such period as
may be required for it with reasonable diligence to comply with any applicable
registration requirements under the Securities Act of 1933, any applicable
listing requirement of any national securities exchange and requirements under
any other law or regulation applicable to the issuance or transfer of
securities.
<PAGE>
9. NO TRANSFER OR ASSIGNMENT. No right or benefit under this
-------------------------
Agreement shall e subject to anticipation, alienation. sale, assignment,
hypothecation, pledge, exchange, transfer, encumbrance or charge, and any
attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange,
transfer, encumber or charge the same shall be void. No right or benefit under
this Agreement shall in any manner be liable for or subject to the debts,
contract,s liabilities or torts of the person entitled to such benefit. If the
Holder or any beneficiary under this Agreement should become bankrupt or attempt
to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer,
encumber or charge any right or benefit under this Agreement, then such right or
benefit shall, in the discretion of the Company, cease and terminate, and in
such event, the Company in its discretion may hold or apply the same or any part
thereof for the benefit of the Holder or his beneficiary, spouse, children or
other dependents, or any of them, in such manner and in such proportion as the
Company may deem proper.
10. AMOUNTS NOT SALARY OR BONUS. The Holder agrees that the award of
---------------------------
the Restricted Shares hereunder is special incentive compensation and that it
will not be taken into account as "salary" or "compensation" or "bonus" in
determining the amount of any payment under any pension, retirement, profit-
sharing, savings or stock ownership plan of the Company or any of its
subsidiaries, unless expressly provided pursuant to the terms of such plan.
11. SECTION 83(b) ELECTION. The Holder shall elect within 30 days
----------------------
after the date hereof to include in gross income for Federal income tax purposes
an amount equal to the fair market value of the Restricted Shares as of the date
hereof and shall pay to the Employer or make arrangements satisfactory to the
Company to pay to the Employer in the year of award of such Restricted Shares,
any Federal, state or local taxes required to e withheld with respect to such
Restricted Shares. If the Holder shall fail to make such payment, the Employer
shall, to the extent permitted by law, have the right to deduct from any payment
of any kind otherwise due to him any Federal, state or local taxes of any kind
required by law to be withheld with respect to such Restricted Shares.
12. FEES AND EXPENSES. The Company shall pay all reasonable fees and
-----------------
expenses necessarily incurred by the Company and the Holder in connection with
this Agreement and will from time to time use its reasonable efforts to comply
with all laws and regulations which, in the opinion of counsel for the Company,
are applicable thereto.
13. NOTICES. Any notice which either party hereto may be required or
-------
permitted to give the other shall be made
<PAGE>
in accordance with the provisions of Section 10 of the Employment Agreement.
14. AMENDMENTS. This Agreement may only be amended or modified by
----------
written agreement of the Company and the Holder.
15. SUCCESSOR AND ASSIGNS. This Agreement shall be binding upon and
---------------------
inure to the benefit of the Company and its successors and assigns, and shall be
binding upon and inure to the benefit of the Holder and his legatees,
distributees and personal representatives.
16. GOVERNING LAW. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
Illinois applicable to agreements made and to be performed entirely in Illinois,
without regard to the conflict of laws principles of such state.
17. DEFINITIONS. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"INVESTORS" means the Whitney Subordinated Debt Fund, L.P.,
---------
Whitney 1990 Equity Fund, L.P., a Delaware limited partnership, J.H. Whitney &
Co., a New York limited partnership and Chemical Venture Capital Associates, a
California limited partnership.
"IPO" means the sale in an underwritten offering by the Company
---
of its Common Stock pursuant to a registration statement on Form S-1 or
otherwise under the Securities Act of 1933, as amended.
"SALES TRANSACTION" means (A) any sale of the capital stock of
-----------------
the Company owned by the Investors or (B) any merger, consolidation, sale or
other business combination involving the Company, in each case in one
transaction or a series of transactions occurring prior to the consummation of
an IPO.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its agent thereunto duly authorized, and the Holder has hereunto set
her hand, all as of the date first above written.
MEDICON, INC.
By: /s/ Carl R. Adkins, MD
-----------------------------------------
Name:
Title: President/CEO
/s/ Maria McAfee
---------------------------------------------
MARIA MCAFEE
EXHIBIT 10.51
LIMITED RECOURSE PROMISSORY NOTE
$137,000.00 Chicago, Illinois
November 15, 1995
SECTION 1. General. FOR VALUE RECEIVED, the undersigned (the "Maker")
-------
promises to pay to Medicon, Inc., an Illinois corporation (together with its
successors and permitted assigns, the "Holder"), at 40 Skokie Boulevard,
Northbrook, Illinois 60062, or at such other place as the Holder shall designate
to the Maker in writing, the principal amount of one hundred thirty seven
thousand and no/100 dollars ($137,000.00), together with interest on the unpaid
principal amount hereof from time to time outstanding from and including the
date hereof until such principal amount is paid in full. The principal amount
of and interest on this Note shall be due and payable at such time and in such
amounts as set forth in Section 2 hereof.
SECTION 2. Payment Terms.
-------------
2.1 Principal. On the Maturity Date (as hereinafter
---------
defined), the Maker will pay to the Holder the entire principal amount of this
Note then outstanding. "Maturity Date" means the earliest of (i) November 15,
1999, (ii) the date that is one year after the day on which the Maker's
employment with the Holder ceases, (iii) the date on which the Maker receives
cash proceeds, marketable securities or marginable securities in connection with
a Change of Control, (iv) the date on which the Maker receives cash proceeds in
an Initial Public Offering resulting from the sale of securities pledged
pursuant to the Pledge Agreement or (v) the date following an Initial Public
Offering when the securities pledged pursuant to the Pledge Agreement become
saleable or marginable. The unpaid principal amount of this Note and any
accrued and unpaid interest thereon may be prepaid in whole or in part, at any
time prior to the Maturity Date, without penalty or premium.
2.2 Interest. The unpaid principal amount of this Note shall
--------
bear interest at a rate equal to 6% per annum, computed on the basis of a year
of 360 days and paid for the actual number of days elapsed and payable from the
date of issue through and including the date of payment in full of the unpaid
principal balance of this Note. Such interest shall be due and payable on the
Maturity Date. If the Maker fails to pay on the Maturity Date the principal
<PAGE>
and interest due hereunder, the Maker shall pay, on demand, interest on such
amounts for each day from and including the Maturity Date to and including the
date paid in full, at a rate per annum equal to 10%.
SECTION 3. Manner of Payment. Payments of principal of and interest
-----------------
on this Note shall be made in lawful money of the United States of America by
certified or bank check payable to the order of the Holder.
SECTION 4. Security Interest. Payment of the principal of and
-----------------
interest due under this Note is secured by a first priority lien and security
interest in and to certain collateral of the Maker pursuant to a Pledge
Agreement (the "Pledge Agreement"), dated the date hereof, between the Maker and
the Holder.
SECTION 5. Limited Recourse. No recourse, except against the Maker's
----------------
interest in the Pledged Collateral (as defined in the Pledge Agreement), shall
be had for the payment of the principal amount of this Note, together with any
accrued interest thereon, against the Maker and in no event shall the Maker be
held liable for any such payment, whether by virtue of any statute or rule of
law, by the enforcement of any assessment or penalty or otherwise, all such
liability being expressly waived and released by the Holder.
SECTION 6. Events of Default. If any of the following events (herein
-----------------
called "Events of Default") shall occur and be continuing:
6.1 The Maker shall default in the payment of any part of the
principal of or interest on this Note on the Maturity Date and such default
shall continue unremedied for a period of 5 business days after the occurrence
thereof; or
6.2 The Maker:
(i) commences any case, proceeding or other action
under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to her or seeking to adjudicate
her bankrupt or insolvent, or seeking reorganization, composition, extension or
other such relief with respect to her or her debts, or seeking appointment of a
receiver, trustee, custodian or other similar official for all or any
substantial part of her assets (a "bankruptcy action"); or
<PAGE>
(ii) becomes the debtor named in any bankruptcy action
which results in the entry of an order for relief or any such adjudication or
appointment remains undismissed, undischarged or unbonded for a period of sixty
(60) days; or
(iii) generally fails to, or shall be unable to, or
shall admit in writing her inability to, pay her debts as they become due; or
(iv) makes a general assignment for the benefit of her
creditors;
then, in each and every such event, the Holder may, without limiting any other
- ---- -- ---- --- ----- ---- -----
rights it may have at law or in equity, by written notice to the Maker declare
the unpaid principal of and interest on this Note due and payable whereupon the
same shall be immediately due and payable without presentment, demand, protest
or other notice of any kind, all of which the Maker hereby expressly waives and
the Holder may proceed to enforce payment of such amount or part thereof in such
manner as it may elect; provided that, in the case of an Event of Default
--------
specified in Section 6.2, the unpaid principal of and interest on the Note shall
become immediately due and payable without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived by the Maker.
SECTION 7. Definitions. As used herein, the following terms shall
-----------
have the indicated meanings:
"Change of Control" shall mean (i) the direct or indirect sale, lease,
-----------------
exchange or other transfer of all or substantially all of the assets of Holder
to any Person or group of Persons acting in concert as a partnership or other
group (a "Group of Persons"), (ii) the merger or consolidation of Holder with or
into another Person, with the effect that the then existing stockholders of
Holder hold less than fifty percent (50%) of the combined voting power of the
then outstanding securities of the Person surviving such merger, or the Person
resulting from such consolidation, ordinarily (and apart from rights accruing
under special circumstances) having the right to vote in the election of
directors, (iii) the replacement of a majority of the Board of Directors of
Holder, over a two-year period, from the directors who constituted the Board of
Directors of Holder at the beginning of such period, and such replacement shall
not have been approved by the Board of Directors of Holder (or its replacements
approved by the Board of Directors of Holder) as constituted at the beginning of
such period, (iv) a Person or Group of Persons shall, as a result of a tender or
exchange offer, open market purchases, privately negotiated purchases or
otherwise, have become the
<PAGE>
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of Holder representing fifty (50%) or more of the combined voting
power of the then outstanding securities of Holder ordinarily (and apart from
rights accruing under special circumstances) having the right to vote in the
election of directors.
"Governmental Authority" shall mean any nation, state, sovereign or
----------------------
political subdivision thereof or thereto and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by Holder of its common stock pursuant to a registration statement on
Form S-1 or otherwise under the Securities Act.
"Person" shall mean and include any person, employee, individual,
------
sole proprietorship, partnership, joint venture, trust, unincorporated
organization, association, corporation, institution, entity, party or
Governmental Authority.
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
and the rules and regulations of any Governmental Authority promulgated
thereunder.
SECTION 8. Successors and Assigns. The provisions of this Note shall
----------------------
be binding upon and inure to the benefit of the Holder and its successors and
permitted assigns. The Holder may not sell, convey, assign or otherwise
transfer this Note, except to a corporation controlling, controlled by or under
common control with the Holder.
SECTION 9. Governing Law. This Note shall be governed by and
-------------
construed in accordance with the laws of the State of Illinois applicable to
instruments made and to be performed entirely within such State.
_____________________________
Maria McAfee
EXHIBIT 10.52
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (the "Pledge Agreement", dated as of November
15, 1995, is executed by and between Maria McAfee (the "Pledgor"), and Medicon,
Inc., and Illinois corporation (the "Company").
WITNESSETH:
----------
WHEREAS, on the date hereof the Company made a loan to the Pledgor
pursuant to a limited recourse promissory note, in the principal amount of
$137,000.00, executed by the Pledgor in favor of the Company (the "Promissory
Note");
WHEREAS, the Pledgor agreed to execute and deliver this Pledge
Agreement as security for the Promissory Note; and
WHEREAS, the Pledgor owns the number of shares (the "Shares") of Class
A Common Stock, no par value, of the Company indicated on Exhibit A hereto and
is willing to pledge all of such Shares to the Company as collateral security
for the payment and performance of her obligations under the Promissory Note.
NOW, THEREFORE, in consideration of the premises contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Pledgor and the Company do hereby agree as follows:
1. Pledge. The Pledgor hereby pledges to the Company and grants to
------
the Company a security interest in the following (collectively, the "Pledged
Collateral"):
(a) The Shares now owned by the Pledgor and the certificates
representing the Shares (all of such shares are identified in Exhibit A attached
---------
hereto and made a part hereof and are referred to as the "Pledged Stock"),
accompanied by stock power(s) in the form of Exhibit B attached hereto and made
---------
a part hereof (the "Powers") duly executed in blank, and all dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of, or in exchange for, any or all of the
Pledged Stock;
(b) The property and interests in property described in
Section 3 below; and
- ---------
<PAGE>
2
(c) All proceeds of the foregoing.
2. Security for Liabilities. The Pledged Collateral secures the
------------------------
prompt payment, performance and observance of (i) all amounts of indebtedness
of the Pledgor to the Company under the Promissory Note and all of the Pledgor's
obligations thereunder and (ii) the Pledgor's obligations and liabilities under
this pledge agreement (all such obligations and liabilities of the Pledgor
now or hereafter existing being hereinafter referred to as the "Liabilities").
3. Pledged Collateral Adjustments. If, during the term of this
------------------------------
Pledge Agreement:
(a) Any stock dividend, reclassification, readjustment or other
change is declared or made in the capital structure of the Company, or any
option included within the Pledged Collateral is exercised, or both, or
(b) Any subscription warrants or any other rights or options
shall be issued in connection with the Pledged Collateral, then all new,
substituted and additional shares, warrants, rights, options or other securities
issued by reason of any of the foregoing, shall be immediately delivered to and
held by the Company under the terms of this Pledge Agreement and shall
constitute Pledged Collateral hereunder.
4. Subsequent Changes Affecting Pledged Collateral. The Pledgor
-----------------------------------------------
represents and warrants that she has made her own arrangements for keeping
herself informed of changes or potential changes affecting the Pledged
Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, reorganization or other exchanges, tender
offers and voting rights), and the Pledgor agrees that the Company shall not
have any obligation to inform the Pledgor of any such changes or potential
changes or to take any action or omit to take any action with respect thereto.
5. Representations and Warranties. The Pledgor represents and
------------------------------
warrants as follows:
(a) The Pledgor is the sole legal and beneficial owner of the
Shares set forth on Exhibit A, free and clear of all claims, pledges, liens,
encumbrances, charges and security interests of every nature whatsoever
(collectively, "Liens") except for the security interest created by this Pledge
Agreement.
(b) The Pledgor has capacity to enter into this Pledge
Agreement.
<PAGE>
3
6. Voting Rights. During the term of this Pledge Agreement, and
-------------
except as provided in this Section 6 below, the Pledgor shall have the right to
---------
vote the Pledged Stock on all corporate questions in a manner not inconsistent
with the terms of this Pledge Agreement and any other agreement, instrument or
document executed pursuant thereto or in connection therewith. After the
occurrence of an Event of Default, the Pledgor hereby irrevocably grants her
proxy to the Company or its designee to exercise any and all voting powers
pertaining to the Pledged Collateral..
7. Dividends and Other Distributions.
---------------------------------
(a) So long as there shall exist no condition, event or act
which constitutes an Event of Default (as defined in the Promissory Note) or
which with notice or lapse of time or both would constitute an Event of Default:
(i) The Pledgor shall be entitled to receive and retain any
and all dividends paid in respect of the Pledged Collateral; provided,
--------
however, that any and all
-------
(A) dividends paid or payable other than in cash with
respect to, and instruments and other property received, receivable or
otherwise distributed with respect to, or in exchange for, any of the
Pledged Collateral;
(B) dividends and other distributions paid or payable
in cash with respect to any of the Pledged Collateral on account of a
partial or total liquidation or dissolution or in connection with a
reduction of capital, capital surplus or paid-in surplus; and
(C) cash paid, payable or otherwise distributed with
respect to principal of, or in redemption of, or in exchange for, any
of the Pledged Collateral;
shall be Pledged Collateral, and shall be, forthwith delivered to the Company to
hold for the benefit of the Company as Pledged Collateral and shall, if received
by the Pledgor, be received in trust for the benefit of the Company, be
segregated from the other property or funds of the Pledgor, and be delivered
immediately to the Company as Pledged Collateral in the same form as so received
(with any necessary endorsement); and
(ii) The Company shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other instruments as
the Pled-
<PAGE>
4
gor may reasonably request for the purpose of enabling the Pledgor to receive
the dividends or interest payments which she is authorized to receive and
retain pursuant to clause (i) above.
(b) After the occurrence of any condition, event or act which
constitutes an Event of Default or which with notice or lapse of time or both
would constitute an Event of Default:
(i) All rights of the Pledgor to receive the dividends
which it would otherwise be authorized to receive and retain pursuant to Section
7(a)(i) hereof shall cease, and all such rights shall thereupon become vested in
the Company, for the benefit of the Company, which shall thereupon have the sole
right to receive and retain as Pledged Collateral such dividends and interest
payments; and
(ii) All dividends which are received by the Pledgor
contrary to the provisions of clause (i) of this Section 7(b) shall be received
in trust for the benefit of the Company, shall be segregated from other funds of
the Pledged Collateral and shall be paid over immediately to the Company as
Pledged Collateral in the same form as so received (with any necessary
endorsements).
8. Transfers and Other Liens. The Pledgor agrees that she will
-------------------------
not (i) sell or otherwise dispose of, or grant any option with respect to, any
of the Pledged Collateral without the prior written consent of the Company, or
(ii) create or permit to exist any Lien upon or with respect to any of the
Pledged Collateral, except for the security interest under this Pledge
Agreement. Notwithstanding the foregoing, on the Maturity date (as defined in
the Promissory Note) of the Promissory Note, the Pledgor may sell, transfer or
margin all or any of the Pledged Collateral, provided that, in the case of any
such sale, transfer or margin, the proceeds thereof (or a portion thereof equal
to the outstanding principal amount of and accrued interest on the Promissory
Note) are first applied to the payment of the indebtedness of the Pledgor under
the Promissory Note.
9. Remedies.
--------
(a) The Company shall have, in addition to any other rights
given under this Pledge Agreement or by law, all of the rights and remedies with
respect to the Pledged Collateral of a secured party under the Uniform
Commercial Code as in effect in the State of Illinois. In addition, after the
occurrence of an Event of Default, the Company shall have such powers of sale
and other powers as may be conferred by applicable law. With respect to the
<PAGE>
5
Pledged Collateral or any part thereof which shall then be in or shall
thereafter come into the possession or custody of the Company or which the
Company shall otherwise have the ability to transfer under applicable law, the
Company may, in its sole discretion, without notice except as specified below
after the occurrence of an Event of Default, sell or cause the same to be sold
at any exchange, broker's board or at public or private sale, in one or more
sales or lots, at such price as the Company may deem best, for cash or on credit
or for future delivery, without assumption of any credit risk, and the purchaser
of any or all of the Pledged Collateral so sold shall thereafter own the same,
absolutely free from any claim, encumbrance or right of any kind whatsoever.
The Company may, in its own name, or in the name of a designee or nominee, buy
the Pledged Collateral at any public sale and, if permitted by applicable law,
buy the Pledged Collateral at any private sale. The Pledgor will pay to the
company all reasonable expenses (including, without limitation, court costs and
reasonable attorneys' and paralegals' fees and expenses) of, or incidental to,
the enforcement of any of the provisions of this Pledge Agreement. The Pledgor
shall not be liable for any deficiency following the sale of the Pledged
Collateral, except for the costs and expenses incurred by the Company or its
agent in connection with the enforcement of its remedies under this Section 9
and to the extent provided for in the Promissory Note.
(b) Unless any of the Pledged Collateral threatens to
decline speedily in value or is or becomes of a type sold on a recognized
market, the Company will give the Pledgor reasonable notice of the time and
place of any public sale thereof, or of the time after which any private sale or
other intended disposition is to be made. Notwithstanding any provision to the
contrary contained herein, the Pledgor agrees that any requirements of
reasonable notice shall be met if such notice is received by the Pledgor as
provided in Section 23 below at least five (5) Business Days (as hereinafter
----------
defined) before the time of the sale or disposition; provided, however, that
-------- -------
Company may give any shorter notice that is commercially reasonable under the
circumstances. Any other requirement of notice, demand or advertisement for
sale is waived, to the extent permitted by law. "Business Day" means any day
other than a Saturday, Sunday or other day on which banks are authorized or
required to be closed in New York City.
(c) The Pledgor recognizes that federal and state
securities laws may impose certain restrictions on the method by which a sale of
the Pledged Collateral may be effected after an Event of Default, and the
Pledgor agrees that after the occurrence of an Event of Default (i) it will be
commercially reasonable if a private sale, upon at least
<PAGE>
6
five (5) Business Days' notice to the Pledgor, is arranged so as to avoid a
public offering, even though the sales price established and/or obtained at such
private sale may be substantially less than prices which could have been
obtained for such security on any market or exchange or in any other public sale
and (ii) the Company may, from time to time, attempt to sell all or any part of
the Pledged Collateral by means of a private placement restricting the bidders
and prospective purchasers to those who are qualified and will represent and
agree that they are purchasing for investment only and not for distribution. In
so doing, the Company may solicit offers to buy the Pledged Collateral, or any
part of it, from a limited number of investors deemed by the Company, in its
reasonable judgment, to be financially responsible parties who might be
interested in purchasing the Pledged Collateral. If the Company solicits such
offers from not less than four (4) such investors, then the acceptance by the
Company of the highest offer obtained therefrom shall be deemed to be a
commercially reasonable method of disposing of such Pledged Collateral;
provided, however, that this Section does not impose a requirement that the
- -------- -------
Company solicit offers from four or more investors in order for the sale to be
commercially reasonable.
10. Application of Proceeds. The proceeds of any sale, public or
-----------------------
private, of all or any portion of the Pledged Collateral shall be applied by the
Company as follows: (i) first, to the payment of the costs and expenses
incidental to the care or safekeeping of the Pledged Collateral and incurred in
such sale, including reasonable out-of-pocket costs and expenses of the Company
and the reasonable expenses of its agents and counsel; (ii) second, to the
payment of interest on the Promissory Note; (iii) third, to the payment in full
of the principal amount owed and outstanding under the Promissory Note. The
balance, if any, remaining after payment in full of the Promissory Note, shall
be paid to the Pledgor, subject to any duty of the Company imposed by law to the
holder of any subordinate security interest in the pledged Collateral known to
the Company.
11. Security Interest Absolute. All rights of the Company and
--------------------------
security interests hereunder, and all obligations of the Pledgor hereunder,
shall be absolute and unconditional irrespective of (i) any change in the time,
manner or place of payment of, or in any other term of, all or any part of the
Liabilities, and (ii) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Pledgor in Respect of the
Liabilities or of this Pledge Agreement.
<PAGE>
7
12. Company Appointed Attorney-in-Fact. The Pledgor hereby appoints
----------------------------------
the Company its attorney-in-fact, with full authority, in the name of the
Pledgor or otherwise, after the occurrence of an Event of Default, from time to
time in the Company's sole discretion to take any action and to execute any
instrument which the Company may deem necessary or advisable to accomplish the
purposes of this Pledge Agreement, including, without limitation, to receive,
endorse and collect all instruments made payable to the Pledgor representing any
dividend or other distribution in respect of the Pledged Collateral or any part
thereof and to give full discharge for the same.
13. Waivers.
-------
(a) The Pledgor hereby agrees that its obligations under this
Agreement shall be unconditional, irrespective of (i) the validity or
enforceability, avoidance or subordination of the Liabilities; (ii) the absence
of any attempt by, or on behalf of, the Company to collect or take any other
action to enforce, all or any part of the Liabilities; (iii) the election of any
remedy by, or on behalf of, the Company with respect to all or any part of the
Liabilities; (iv) the failure of the Company to take any steps to perfect and
maintain its security interests in, or to preserve its right to any of the
Pledged Collateral for all or any part of the Liabilities; or (v) any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of the Pledgor.
(b) The Pledgor hereby waives any requirement of diligence,
presentment, demand of payment, protest or notice with respect to all or any
part of the Liabilities, the benefit of any statutes of limitation, and all
demands whatsoever, and covenants that this Pledge Agreement will not be
discharged, except by complete performance of the Liabilities.
(c) The Pledgor consents and agrees that neither the Company nor
any party acting for or on behalf of the Company shall be under any obligation
to marshal any assets in favor of the Pledgor or against or in payment of all or
any part of the Liabilities.
14. Term. This Pledge Agreement shall remain in full force and
----
effect until the Liabilities have been fully paid and the Promissory Note has
been terminated. Upon the termination of this Pledge Agreement as provided
above (other than as a result of the sale of all of the Pledged Collateral), the
Company will release the security interest created hereunder and, if it then has
possession of the
<PAGE>
8
Pledged Collateral, will deliver the Pledged Collateral and the stock powers to
the Pledgor.
15. Definitions. The singular shall include the plural and vice
-----------
versa and any gender shall include any other gender as the context may require.
16. Successors and Assigns. This Pledge Agreement shall be binding
----------------------
upon and inure to the benefit of the Company and the Pledgor and their
respective successors and assigns; provided, however, that the Pledgor may not
-------- -------
assign this Pledge Agreement or any of the rights and obligations of the Pledgor
hereunder without the prior written consent of the Company.
17. Governing Law. This Pledge Agreement has been executed and
-------------
delivered by the parties hereto in Northbrook, Illinois. Any dispute between
the Company and the Pledgor arising out of or related to the relationship
established between them in connection with this Pledge Agreement, and whether
arising in contract, tort, equity, or otherwise, shall be resolved in accordance
with the laws of the State of Illinois.
18. Waiver of Jury Trial. Each of the Pledgor and the Company waives
--------------------
any right to trial by jury in any dispute, whether sounding in contract, tort,
or otherwise, between the Company and the Pledgor arising out of or related to
the transactions contemplated by this Pledge Agreement or any other instrument,
document or agreement executed or delivered in connection herewith. Either the
Pledgor or the Company may file an original counterpart or a copy of this Pledge
Agreement with any court as written evidence of the consent of the parties
hereto to the wavier of their right to trial by a jury.
19. Waiver of Bond. The Pledgor waives the posting of any bond
--------------
otherwise required of the Company in connection with any judicial process or
proceeding to realize on the Pledged Collateral or any security for the
Liabilities, to enforce any judgment or other court order entered in favor of
the Company, or to enforce by specific performance, temporary restraining
order, or preliminary or permanent injunction, this Pledge Agreement or any
other agreement or document between the Company and the Pledgor.
20. Severability. Whenever possible, each provision of this Pledge
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but, if any provision of this Pledge Agreement shall be held to
be prohibited or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remain-
<PAGE>
9
der of such provision or the remaining provisions of this Pledge Agreement.
21. Further Assurances. the Pledgor agrees that it will cooperate
------------------
with the Company and will execute and deliver, or cause to be executed and
delivered all such other stock powers, proxies, instruments and documents, and
will take all such other actions, including, without limitation, the execution
and filing of financial statements, as the Company may reasonably request form
time to time in order to carry out the provisions and purposes of this Pledge
Agreement.
22. The Company's Duty of Care. The Company shall not be liable for
--------------------------
any acts, omissions, errors of judgment or mistakes of fact or law including,
without limitation, acts, omissions, errors or mistakes with respect to the
Pledged Collateral, except for those arising out of or in connection with the
Company's (i) gross negligence or willful misconduct, or (ii) failure to use
reasonable care with respect to the safe custody of the Pledged collateral in
the Company's possession. Without limiting the generality of the foregoing, the
Company shall be under no obligation to take any steps necessary to preserve
rights in the Pledged Collateral against any other parties but may do so at its
option. All expense incurred in connection therewith shall be for the sole
account of the Pledgor.
23. Notices. All notices and other communications required or desired
-------
to be served, given or delivered hereunder shall be made in writing and shall be
addressed to the party to be notified as follows:
if to the Pledgor, at:
Maria McAfee
c/o Medicon, Inc.
40 Skokie Boulevard
Northbrook, Illinois
Telecopy: (708) 564-8500
with a copy to:
Gertz & Moore
1416 Laurel Street
P.O. Box 456
Columbia, South Carolina 29202
Attention: Frederick A. Gertz
Telecopy: (803) 799-6946
<PAGE>
10
if to the Company, at:
Medicon, Inc.
40 Skokie Boulevard
Northbrook, Illinois 60062-1618
Attention: Chief Executive Officer
Telecopy: (708) 564-8500
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Bruce A. Gutenplan, Esq.
Telecopy: (212) 757-3990
or, as to each party, at such other address as designated by such party in a
written notice to the other party. All such notices and communications shall be
deemed to be validly served, given or delivered (i) three (3) days following
deposit in the United States mails, with proper postage prepaid; (ii) upon
delivery thereof if delivered by hand to the party to be notified; (iii) upon
delivery thereof to a reputable overnight courier service, with delivery charges
prepaid; or (iv) upon acknowledgment of receipt thereof if transmitted by
telecopier.
24. Amendments, Waivers and Consents. No amendment or waiver of any
--------------------------------
provision of this Pledge Agreement nor consent to any departure by the Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Company, and then such amendment, waiver, or consent shall
be effective only in the specific instance and for the specific instance and
for the specific purpose for which given.
25. Section Headings. The section headings herein are for
----------------
convenience of reference only, and shall not affect in any way the
interpretation of any of the provisions hereof.
26. Execution in Counterparts. This Pledge Agreement may be executed
-------------------------
in any number of counterparts, each of which shall be an original, but all of
which shall together constitute one and the same agreement.
27. Merger. This Pledge Agreement represents the final agreement of
------
the Pledgor with respect to the matters contained herein and may not be
contradicted by evidence of prior or contemporaneous agreements, or subsequent
oral agreements, between the Pledgor and the Company.
<PAGE>
11
IN WITNESS WHEREOF, the Pledgor and the Company have executed this
Pledge Agreement as of the date set forth above.
PLEDGOR:
__________________________________
Maria McAfee
MEDICON, INC.
By:_______________________________
Name:
Title:
<PAGE>
EXHIBIT A
to
PLEDGE AGREEMENT
dated as of November 15, 1995
Pledged Stock Certificates
--------------------------
Number of Shares of Class A
Common Stock owned by the Stock Certificate
Pledgor Subject to Pledge Number
------------------------------ --------------------
296,499
<PAGE>
EXHIBIT B
to
PLEDGE AGREEMENT
dated as of November 15, 1995
Form of Stock Power
-------------------
STOCK POWER
-----------
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and
transfer to ____________________________________________ _________shares of
Class A Common Stock, no par value, of MEDICON, INC., an Illinois corporation,
represented by Certificate No. ____(the "Stock"), standing in the name of the
undersigned on the books of said corporation and does hereby irrevocably
constitute and appoint_______________________________as the undersigned's
true and lawful attorney, for it and in its name and stead, to sell, assign
and transfer all or any of the Stock, and for that purpose to make and execute
all necessary acts of assignment and transfer thereof; and to substitute one
or more persons with like full power, hereby ratifying and confirming all
that said attorney or substitute or substitutes shall lawfully do by virtue
hereof.
Dated:
______________________________
EXHIBIT 10.53
Employment Agreement
--------------------
This EMPLOYMENT AGREEMENT (the "Agreement") is dated September 6, 1995 and
effective as of October 1, 1995 (the "Effective Date"), between MEDICON, Inc.,
an Illinois corporation (the "Company"), and Alan P. Mintz (the "Employee");
WHEREAS, the Board of Directors of the Company (the "Board") approved and
authorized the entry into this Agreement with the Employee;
WHEREAS, the parties desire to enter into this Agreement setting forth the terms
and conditions for the employment relationship between the Employee and the
Company.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed as Chairman of the Board of the
----------
Company from the date hereof through the term of this Agreement. In this
capacity, the Employee shall have such duties and responsibilities as the
Board shall designate and as are not inconsistent with the Employee's
position with the Company, including the performance of duties with respect
to any subsidiaries of the company.
2. Term.
-----
(a) The term of employment under this Agreement shall commence on the
Effective Date and end as provided below in this Section 2 (the
"Employment Period"). The Employment Period shall end on December 31,
1996, provided that (i) the employment of the Employee shall terminate
prior to such date (a) upon the Employee's resignation or death or (b)
upon the permanent disability or incapacity of the Employee that
causes the Employee to be unable to perform his duties under this
Agreement (as determined by the Board of Directors in its good faith
judgement) and (ii) the Employment Period may be terminated by the
Company at any time without Cause (as defined below) upon 90 days'
prior written notice or for Cause at any time. Notwithstanding the
foregoing, this Agreement will be renewed annually under similar
general terms unless the Board of Directors delivers notice of its
decision not to renew such Agreement to the Employee at least 90 days
prior to the expiration of the then-applicable term of employment.
(b) If Employment period is terminated by the Company without Cause, the
Employee shall be entitled to receive a severance payment equal to one
year of Base Salary (as defined below) paid out monthly; provided,
however, that the Company will cease paying such severance if the
Employee becomes employed within such time period; provided, further,
that the Company shall also cease paying such severance if the
Employee materially breaches any provision of paragraphs 8 or 9
hereof.
1
<PAGE>
(c) If the Employment Period is terminated by the Company for Cause or is
terminated pursuant to clause (a)(i) above, the Employee shall be
entitled to receive his Base Salary through the date of termination.
(d) All of the Employee's rights to Fringe Benefits (as defined below) and
Bonuses (as defined below) hereunder (if any) accruing after the
termination of the Employment Period shall cease upon such
termination.
(e) For purposes of this Agreement, "Cause" shall mean (i) the commission
of a felony or a crime involving moral turpitude or the commission of
any other act involving dishonesty, disloyalty or fraud with respect
to the Company or any of its subsidiaries, (ii) conduct tending to
bring the Company or any of its subsidiaries into substantial public
disgrace or disrepute, (iii) failure to perform duties as reasonably
and lawfully directed by the Board of Directors, (iv) gross negligence
or willful misconduct with respect to the Company or any of its
subsidiaries or (v) any other material breach of this Agreement which
is not cured within 15 days after written notice thereof to the
Employee, in each case as determined in the good faith judgment of
the Board of Directors.
3. Salary. The Company agrees to pay the Employee during the term of this
------
Agreement a salary at an annual rate of $250,000 (the "Base Salary"),
payable in accordance with the payroll policy of the Company (but not less
frequently than monthly), less such deductions or amounts to be withheld as
shall be required by applicable law and regulations. Participation in
deferred compensation, performance bonus, retirement, and other employee
benefit plans and in fringe benefits shall not reduce the Base Salary
payable to the Employee under this Section 3.
4. Performance Bonuses.
-------------------
(a) Short-term Incentive Bonus. The Employee is eligible to receive one
--------------------------
of two potential cash bonuses based on the following (which are in
addition to the Annual Bonus described in Section 4(b) below):
(i) If the Company (1) achieves positive quarterly net income in
either the first or second quarter of fiscal 1996 and (2) does
---
not require additional capital before June 30, 1996 (excluding
IPO or Board-approved investment by a non-affiliated corporate
partner) beyond the pending $7.5 million contribution of capital
by the principal selling shareholders of the 1994
recapitalization (the "Principals' Contribution"), the Employee
will receive a short-term incentive bonus ("Short-Term Bonus
Option One") equal to 50% of his Base Salary. Such bonus will
be payable at the end of the fiscal year, but only if the Company
has remained profitable for the balance of the year and has not
required any additional cash investment.
(ii) If the Company does not satisfy 4(a)(i) above but instead (1)
achieves positive quarterly net income in either the third or
fourth quarter of fiscal 1996 and (2) does not require
---
additional capital before December 31, 1996 (excluding an IPO or
Board-
2
<PAGE>
approved investment by a non-affiliated corporate partner) beyond
the Principals' Contribution, the Employee will receive a short-
term incentive bonus ("Short-term Bonus Option Two") equal to 25%
of his Base Salary. Such bonus will be payable at the end of the
fiscal year only if the company has remained profitable for the
balance of the year.
(b) Annual Bonus. For fiscal years ending December 31, 1996 and beyond,
------------
the Employee will be eligible for a performance based annual bonus
(the "Annual Bonus," and together with Short-Term Bonus Option One and
Short-Term Bonus Option Two, the "Bonuses"). The Compensation
Committee will meet during the fourth quarter of each fiscal year
(beginning in the fourth quarter of 1995) to agree upon appropriate
performance targets for the following year based on revenue growth,
profitability per share and capital required (the "Plan Targets").
These Plan Targets will be linked to the Company's annual plan as
approved by the Board of Directors (the "Annual Plan"). At the end of
each fiscal year the Employee's Annual Bonus payment will be as
follows:
(i) If the Company achieves the applicable Plan Targets, the employee
will receive an Annual Bonus equal to 25% of his Base Salary.
(ii) If the Company exceeds the applicable Plan Targets, the
Employee's Annual Bonus payment may be increased to an amount
which equals up to 50% of his Base Salary according to a sliding
scale based on extraordinary performance. This sliding scale
will be determined each year by the Compensation Committee based
on the specific Annual Plan and Plan Targets for that year with
the payment of an Annual Bonus equal to 50% of Base Salary
occurring with achievement of extraordinary performance.
The parties acknowledge that the Annual Bonus plan may have
to be revised in the event of an IPO.
5. Participation in Retirement and Employee Benefit Plans. The Employee shall
------------------------------------------------------
be entitled to participate in or receive benefits under any plan of the
Company relating to pension, thrift, profit sharing, life insurance,
medical coverage, disability, education, or other retirement or employee
benefits that are available generally to executive employees of the Company
(collectively "Fringe Benefits")
6. Vacations. The Employee shall be entitled to an annual paid vacation of
---------
six weeks per year. Any vacation days unused in any calendar year will be
lost. The timing of paid vacations shall be scheduled in a reasonable
manner by the Employee, with approval of the Company, said approval to not
be unreasonably withheld.
7. Business Expenses. The Employee shall be entitled to prompt reimbursement
-----------------
for all reasonable business expenses incurred by the Employee in the
performance of his duties.
3
<PAGE>
8. Confidential Information. The Employee acknowledges that the
------------------------
information, observations and data obtained by him while employed by the
Company concerning the business or affairs of the Company or any of its
subsidiaries ("Confidential Information") are the property of the Company
or such subsidiary. Therefore, the Employee agrees that he shall not
disclose to any unauthorized person or use for his own account any
Confidential Information without the prior written consent of the Board of
Directors of the Company, unless and to the extent that the aforementioned
matters are or become generally known to and available for use by the
members of the industry in which the Company operates other than as a
result of the Employee's acts or omissions to act. The Employee shall
deliver to the Company at the termination of the Employment Period or at
any other time that the Company requests, all memoranda, notes, plans,
records, reports and other documents and data (and any copies thereof)
relating to the Confidential Information or the business of the Company or
any of its subsidiaries which he may then possess or have under his
control.
9. Noncompete, Nonsolicitation.
---------------------------
(a) The Employee acknowledges that during his employment with the Company
he has become familiar with the Company's and its subsidiaries' trade
secrets, and with other confidential information of the Company and
its subsidiaries and that his services have been and will be of
special, unique and extraordinary value to the Company and its
subsidiaries. Therefore, the Employee agrees that during the
Employment Period and for a period (the "Noncompete Period") of three
years following the termination of his employment with the Company, or
five years if the Company terminates the employment for Cause or if
the Employee resigns, he shall not directly or indirectly own, manage,
control, participate in, consult with, render services for, or in any
manner engage in any business competing with the business of the
Company or its subsidiaries as such businesses exist (including,
without limitation, diagnostic imaging management care services,
diagnostic imaging practice management services, building or acquiring
networks of radiology providers or utilization review services) or are
in process on the date of the termination of the Employee's employment
, within the United States.
(b) During the Noncompete Period, the Employee shall not directly or
indirectly through another entity (i) induce or attempt to induce any
employee of the Company or any of its subsidiaries to leave the employ
thereof, or in any way interfere with the relationship between the
Company or any of its subsidiaries and any employee thereof, (ii) hire
any person who was an employee of the Company or any of its
subsidiaries at any time during the Employment Period, other than an
employee whose employment with such entity was terminated by such
entity, or (iii) induce or attempt to induce any customer,client,
supplier, licensee, vendor, physician or other business relation of
the Company or any of its subsidiaries to cease doing business with
the Company or such subsidiary, or in any way interfere with the
relationship between any such customer, supplier, licensee, vendor or
business relation and the Company or its subsidiaries.
(c) If, at the time of enforcement of this paragraph 9, a court shall hold
that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then
4
<PAGE>
existing, the parties agree that the maximum duration, scope or area
reasonable under such circumstances shall be substituted for the
stated duration, scope or area and that the court shall be allowed to
revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(d) In the event of a breach or a threatened breach by the Employee of any
of the provisions of this paragraph 9, the Company, in addition and
supplementary to other rights and remedies existing in its favor, may
apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive or other relief in order to
enforce or prevent any violations of the provisions hereof (without
posting a bond or other security).
10. Entire Agreement; Amendment and Waivers. This instrument is the entire
---------------------------------------
agreement of the parties with respect to the subject matter hereof and may
not be amended, supplemented, canceled or discharged except by written
instrument executed by both parties hereto. The parties do not intend to
confer any benefit hereunder on any third party, and, without limiting the
generality of the foregoing, the parties may, in writing, without notice to
or consent of any third person, at any time waive rights hereunder or amend
this Agreement in any respect or terminate this Agreement. If either party
should waive any breach of any provision of this Agreement such party will
not thereby be deemed to have waived any preceeding or succeeding breach of
the same provision or any breach of any other provision of this Agreement.
11. No Assignments.
--------------
(a) This Agreement is personal to each of the parties hereto. No party
may assign or delegate any rights or obligations (except under merger)
hereunder without first obtaining the written consent of the other
parties hereto.
12. Notice. For the purpose of this Agreement, notices and all other
------
communications provided for in this Agreement, shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States certified or registered mail, return receipt requested, postage
prepaid addressed to Medicon, Inc., 40 Skokie Boulevard, Northbrook,
Illinois 60062, and to the Employee, 1140 Sheridan Road, Glencoe, Illinois
60022 provided that all notices to the Company shall be directed to the
attention of the Board of Directors with a copy to the Secretary of the
Company, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
13. Section Headings. The section headings used in this Agreement are included
----------------
solely for convenience and shall not affect, or be used in connection with,
the interpretation of this Agreement.
14. Severability. Any provision of this Agreement that is deemed invalid,
------------
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction
and subject to this section, be
5
<PAGE>
ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions
hereof in such jurisdiction or rendering that or any other provisions of
this Agreement invalid, illegal, or unenforceable in any other
jurisdiction.
15. Miscellaneous. No provision of this Agreement may be modified, waived or
-------------
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Employee and such officer as may be specifically
designated by the Board. No waiver to either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any other prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not
expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the
laws of the State of Illinois without regard to its conflict of law
principles.
16. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
17. Survival. Paragraphs 8 and 9 shall survive and continue in full force in
--------
accordance with their terms notwithstanding any termination of the
Employment Period.
Medicon, Inc.
ATTEST______________________________ ______________________________________
Secretary By: Jeffrey R. Jay, M.D.
Title: Chairman, Compensation Committee
EMPLOYEE:
______________________________________
6
Exhibit 10.54
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT is made and entered into this
3rd day of November, 1994, by and between MEDICON, INC., an Illinois corporation
(the "Company"), and ALAN P. MINTZ (the "Employee").
RECITALS
--------
WHEREAS, the Company and the Employee entered into that certain Employment
Agreement, dated as of January 1, 1994 (the "Employment Agreement"), which sets
forth the terms and conditions for the employment relationship of the Employee
with the Company; and
WHEREAS, the Company and the Employee desire to amend the Employment
Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto do agree to amend the Employment
Agreement as follows:
1. Amendment.
----------
(a) Section 3 of the Employment Agreement is hereby amended and
restated in its entirety to read as follows:
"3. Salary. The Company agrees to pay the Employee during the term
-------
of this Agreement a salary at an annual rate of $350,000.00.
Participation in deferred compensation, bonus, stock option,
retirement and other employee benefit plans and in fringe benefits
shall not reduce the based salary payable to the Employee under this
Section 3. The salary under this Section 3 shall be payable by the
Company to the Employee not less frequently than monthly."
(b) Section 4 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
"4. Bonuses. In addition to the salary provided in Section 3 above,
-------
during the term of this Agreement, the Employee shall receive an
annual bonus of $150,000.00 payable within thirty days after the end
of the Company's fiscal year. The Employee may also receive
additional bonus compensation, at such times and in such amounts, all
as determined in the sole and absolute discretion of the Board of
Directors. No other compensation provided for in this Agreement shall
be deemed a substitute for the Employee's
<PAGE>
right to participate in such bonuses when and as declared by such
Board of Directors."
2. Employment Agreement. As amended hereby, the Employment Agreement
---------------------
shall remain in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed as of the date first written above.
THE COMPANY:
MEDICON, INC.
By:_________________________________
Its:________________________________
THE EMPLOYEE:
____________________________________
Alan P. Mintz
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed as of the date first written above.
THE COMPANY:
MEDICON, INC.
By:__________________________________
Its:_________________________________
EMPLOYEE:
____________________________________
Alan P. Mintz
EXHIBIT 10.55
SEVERANCE AGREEMENT
-------------------
SEVERANCE AGREEMENT, dated as of January 31, 1996, among Medicon,
Inc., an Illinois corporation (the "Company"), and Alan P. Mintz, M.D.
("Mintz");
WHEREAS, Mintz was employed by the Company as its Chairman pursuant to
that certain employment agreement (the "Employment Agreement"), dated September
6, 1995, between the Company and Mintz;
WHEREAS, Mintz, pursuant to the letter attached hereto as Exhibit A,
resigned as both Chairman and as a member of the board of directors of the
Company, effective on December 21, 1995; and
WHEREAS, Mintz and the Company agree that Mintz' resignation is in
the best interests of the Company and, in consideration thereof, the parties
hereto desire to enter into this Severance Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1.
EMPLOYMENT AGREEMENT
--------------------
The parties hereto acknowledge that Sections 8 and 9 of the
Employments Agreement shall survive Mintz' resignation and shall continue in
full force in accordance with their terms, except that the Noncompete Period (as
defined in Section 9 of the Employment Agreement) shall be reduced from five
years to three years. Except as set forth above, the parties hereto agree that
the Employment Agreement shall be terminated and the provisions thereof shall be
of no further force and effect.
ARTICLE 2.
LETTER OF CREDIT, ETC.
----------------------
(a) Mintz acknowledges and agrees that he is not entitled to receive
any severance, bonus or other payments from the Company pursuant to the
Employment Agreement or otherwise.
(b) Mintz agrees to forever waive and forego receipt of the
outstanding balance of any indebtedness owed to him by the Company for personal
funds deposited
<PAGE>
2
by him in accounts of the Company, as evidenced by that certain letter
agreement, dated September 6, 1995, between Mintz and the Company
(c) Concurrently with the execution and delivery of this Agreement,
the Company will surrender the irrevocable letter of credit in the principal
amount of $1,706,418.68 delivered by Dr. Alan and Gloria Mintz on September 6,
1995 (the "Original L/C") in exchange for the delivery to the Company by Dr.
Alan and Gloria Mintz of a new letter of credit identical in form to the
Original L/C, in the principal amount of $1,275,519.77. The Company warrants
that it has received no funds as a draw upon the Original L/C.
ARTICLE 3.
FINANCIAL REPORTING
-------------------
Until the sale in an offering by the Company of its common stock
pursuant to a registration statement on Form S-1 or otherwise under the
Securities Act of 1933, as amended, the Company will provide Mintz with monthly
unaudited financial statements as well as a statement of new and lost business
(with no disclosure as to customer names) that management believes will have a
material effect on the Company.
ARTICLE 4.
MUTUAL RELEASE AND COVENANT NOT TO SUE
--------------------------------------
The parties hereto hereby fully, finally and forever waive, release
and discharge, as applicable, each other, and each other's predecessors,
subsidiaries, parent companies, divisions, affiliated corporations, heirs,
executors, administrators, past and present officers, directors, agents,
shareholders, employees, attorneys, successors and assigns and any or all of
them from any and all claims, causes of action, demands, suits, costs, expenses
and damages whatsoever, that they now have or hereafter may have of whatsoever
nature and kind, whether known or unknown, whether now existing or hereafter
arising, whether at law or in equity, arising out of or relating to (i) the
employment by the Company of Mintz or the resignation or termination of such
employment, (ii) the conduct of Mintz while acting in his capacity as an officer
or director of the Company on or prior to the date hereof or (iii) the
settlement of any legal proceedings relating to Unimed, Ltd., et al. v. Alan P.
Mintz, M.D., 92 CH 1385. Nothing contained in this Article 4 shall be deemed to
extinguish or restrict any of the rights, duties or obligations created by,
continued by, or confirmed by Sections 8 and 9 of the Employment Agreement or
by the other provisions of this Agreement or any agreements related hereto or to
Sections 8 and 9 of the Employment Agreement.
<PAGE>
3
The parties hereto hereby covenant that he or it, as the case may be,
will not commence, maintain, participate in or be a party to any lawsuit,
action, claim or cause of action against one another in connection with, arising
out of or relating to (i) the employment by the Company of Mintz or the
resignation or termination of such employment, (ii) the conduct of Mintz while
acting in his capacity as an officer or director of the Company on or prior to
the date hereof or (iii) the settlement of any legal proceedings relating to
Unimed, Ltd., et al. v. Alan P. Mintz, M.D., 92 CH 1385. Nothing in this
paragraph, however, shall preclude any action to enforce this Agreement or
Sections 8 and 9 of the Employment Agreement.
ARTICLE 5.
MISCELLANEOUS
-------------
(a) Binding upon Successors. This Agreement shall inure to the
-----------------------
benefit of and be binding upon the successors and assigns of the parties hereto.
(b) Representation by Counsel. Each party acknowledges that it has
-------------------------
been represented by independent legal counsel of its own choice through all of
the negotiations which preceded the execution of this Agreement and that it has
executed this Agreement with the consent and upon the advice of such independent
legal counsel.
(c) Understanding of Agreements. Each party acknowledges that it has
---------------------------
read this Agreement and assents to all of the terms and conditions contained
herein without any reservation whatsoever and that it has had the same explained
by counsel, who have answered any and all questions which have been asked with
regard to the meaning of any of the provisions hereof.
(d) Publicity: Announcements. Except to the extent required by law,
------------------------
without the prior written consent of the other parties hereto, (i) all publicity
related to this Agreement and the agreements related hereto, the terms hereof
and thereof and the transactions contemplated hereby and thereby shall be
subject to the mutual approval of all the parties hereto, and (ii) none of the
parties hereto nor anyone acting on their behalf shall issue or make any public
announcement or public communication related to this Agreement or any agreement
related hereto, the terms hereof or thereof or the transactions contemplated
hereby or thereby. To the extent any party is required by applicable law or
regulation to disclose publicly or make any public announcement of the terms
of this Agreement or any agreement related hereto and the transactions
contemplated hereby or thereby, such party shall, to the extent practicable,
give the other parties reasonable, actual prior notice of such disclosure.
(e) Notices. All notices and other communications hereunder shall be
-------
made in writing and shall be by telecopier, courier service or personal
delivery:
<PAGE>
4
(i) If to the Company:
Medicon, Inc.
40 Skokie Boulevard
Northbrook, Illinois 60062-1618
Telecopier No.: 708-559-6900
Attention: Chief Executive Officer
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopier No.: 212-757-3990
Attention: Bruce A. Gutenplan, Esq.
(ii) If to Mintz:
Alan P. Mintz, M.D.
1140 Sheridan Road
Glencoe, Illinois 60022
Telecopier No.: 847-835-2050
With a copy to:
Robbins, Salomon & Patt, Ltd.
Suite 1000
26 East Washington Street
Chicago, Illinois 60602
Telecopier No.: 312-782-6690
Attention: James M. DeZelar, Esq.
(f) Entire Agreement: Modifications. This Agreement and the
--------------------------------
agreements related hereto (including Sections 8 and 9 of the Employment
Agreement) contain the entire agreement among the parties with respect to the
subject matter hereof, and such agreements supersede all prior agreements,
written or oral, whether binding or non-binding, among any of the parties
hereto, with respect to the subject matter hereof. No representations,
warranties or inducements have been made to the parties hereto or to their
counsel concerning this Agreement and the agreements related hereto other than
those representations, warranties and covenants contained herein and in the
agreements related hereto. No waiver, modification or amendment of the terms of
this Agreement (or further waiver, modification or amendment of Sections 8 and 9
of the Employment Agreement) shall be valid unless in writing signed by the
party to be charged and only to the extent therein set forth. Any failure by
any party to insist upon the strict
<PAGE>
5
performance by any other party of any of the provisions of this Agreement, or of
Sections 8 and 9 of the Employment Agreement, shall not be deemed a waiver of
any of the provisions hereof and thereof, and such party, notwithstanding such
failure shall have the right thereafter to insist upon the strict performance of
any and all of the provisions hereof or thereof to be performed by such other
party.
(g) Headings. The headings contained in this Agreement are inserted
--------
only as a matter of convenience and in no way define, limit, extend or describe
the scope of this Agreement or the intent of any provision hereof.
(h) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Illinois, without regard to the
principles of conflicts of law of such State.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first written above.
__________________________________________
Alan P. Mintz, M.D.
MEDICON, INC.
By: /s/ Carl R. Adkins
-------------------------------------
Name: Carl Adkins
Title: President/CEO
<PAGE>
6
performance by any other party of any of the provisions of this Agreement, or of
Sections 8 and 9 of the Employment Agreement, shall not be deemed a waiver of
any of the provisions hereof and thereof, and such party, notwithstanding such
failure shall have the right thereafter to insist upon the strict performance of
any and all of the provisions hereof or thereof to be performed by such other
party.
(g) Headings. The headings contained in this Agreement are inserted
--------
only as a matter of convenience and in no way define, limit, extend or describe
the scope of this Agreement or the intent of any provision hereof.
(h) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Illinois, without regard to the
principles of conflicts of law of such State.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first written above.
/s/ Alan P. Mintz, M.D.
----------------------------------------
Alan P. Mintz, M.D.
MEDICON, INC.
By:_______________________________________
Name:
Title:
<PAGE>
EXHIBIT A
January 30, 1996
Board of Directors
Medicon, Inc.
40 Skokie Blvd.
Northbrook, IL 60062
Gentlemen:
Please accept this letter as my resignation as Chairman and as a member of the
Board of Directors of Medicon effective December 21, 1995, in order to pursue
other business and personal interests. This decision is made with great
difficulty, as I will immediately miss my association with the Company,
investors, officers, and employees, as well as the opportunity to participate
directly in the decisions ahead as the Company continues its course of dynamic
growth.
I extend my personal best wishes for the Company's future growth and success.
Sincerely,
/s/ Alan P. Mintz, M.D.
Alan P. Mintz, M.D.
1140 Sheridan Road
Glencoe, IL 60022
cc: Carl Adkins, M.D., President and Chief Executive Officer
EXHIBIT 10.56
MEDICON, INC.
STOCK OPTION AGREEMENT
----------------------
AGREEMENT made and entered into as of February 15, 1996, by and
between MEDICON, INC., an Illinois corporation (the "Company"), and ALAN P.
MINTZ, M.D. (the "Optionee").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company desires to issue an option to purchase
shares of Class A Common Stock, no par value ("Common Stock"), of the Company
pursuant to the terms and conditions specified herein.
NOW, THEREFORE, in consideration of the foregoing promises and of
the mutual covenants and agreements herein contained, the parties hereby agree
as follows:
1. Grant of Option. Subject to the terms and conditions set forth
---------------
herein, the Company grants to the Optionee an option (the "Option") to purchase
from the Company all or any part of an aggregate of 23,899 shares of Common
Stock (the "Optioned Shares").
2. Exercise Price. The purchase price for the Optioned Shares
--------------
shall be $0.01 per share (the "Option Price").
3. Term of Option. This Option shall be exercisable, either in
--------------
whole of in part, with respect to one-third of the Optioned Shares at any time
after August, 15, 1996, with respect to the second one-third of the Optioned
Shares at any time after August, 15, 1997 and with respect to the remaining
one-third of the Optioned Shares at any time after August 15, 1998, but in each
case prior to February 15, 1999.
4. Method of Option Exercise. The Option or any part thereof may
-------------------------
be exercised only by giving to the Company written notice of exercise addressed
and delivered to the Company (Attention: Chief Financial Officer) specifying the
number of shares of Common Stock to be purchased. Full payment of the purchase
price shall be made on the option exercise date by certified or official bank
check or, in the Company's discretion, by personal check (subject to
collection), payable to the Company, by delivery of shares of Common Stock
already owned by the Optionee, or by a combination thereof. The Optionee shall
have no right to pay the
<PAGE>
option exercise price, or to receive shares of Common Stock with respect to an
Option exercise, prior to the option exercise date. For purposes of this option
agreement, the "option exercise date" shall be deemed to be the first business
day immediately following the date written notice of exercise is received by the
Company.
5. Shares for Investment. The certificate representing the shares
---------------------
of Common Stock purchased upon exercise of any Option shall be issued as of the
exercise date and delivered by the Company to the Optionee free and clear of all
claims, liens and encumbrances, within five days following the exercise date or
as soon thereafter as practicable. As a condition to the exercise of any Option,
the Company may require the Optionee to represent and warrant at the time of any
such exercise that the shares of common Stock are being purchased for investment
purposes only, for the account of the Optionee and without any intention to
distribute such shares. If the shares of Common Stock issuable upon exercise of
any Option have not previously been registered under the Securities Act of 1933,
as amended, each certificate evidencing shares of Common Stock acquired upon
exercise of the Option shall contain on its face, or on the reverse side
thereof, in addition to any other legends required pursuant to applicable law or
contractual agreements between the Company and the Optionee, the following
legend:
"These shares have not been registered under the Securities Act of 1933
or under any applicable state law. They may not be offered for sale,
sold, transferred, or pledged without (1) registration under the
Securities Act of 1933 and any applicable state law, or (2) an opinion
(satisfactory to the corporation) that registration is not required."
6. Adjustment Upon Changes in Capitalization. Subject to the
-----------------------------------------
following provisions of this Section, in the event of any change in the number
of issued shares of Common Stock resulting from the subdivision or combination
of shares of Common Stock or other capital adjustment or the payment of a stock
dividend after the effective date of this Agreement, or other change in such
shares of Common Stock effective without receipt of consideration by the
Company, an appropriate and proportionate adjustment shall be made in the number
of shares of Common Stock subject to the Option and the exercise price of the
Option granted under this Agreement and the amount payable by an Optionee in
respect of an Option. Adjustments under this Section shall be made by the Board
of Directors or a Committee thereof whose determination as to what adjustment
shall be made, and the extent thereof, shall be final, binding and conclusive.
<PAGE>
7. Withholding Obligations. In the event that the Company is
-----------------------
required to satisfy withholding obligations under the Internal Revenue Code as
a result of the exercise of any Option, the Optionee may request that, in lieu
of withholding amounts from the Optionee's paycheck of requiring that the
Optionee deliver a check in the amount of the withholding obligation, the
Company withhold that number of share of Common Stock which have a fair market
value on the exercise date equal to the amount required to be withheld.
8. Nontransferability. All Options contained herein are not
------------------
transferable or assignable by the Optionee other than by will or by the laws of
descent and distribution and are exercisable during the lifetime of the Optionee
only by the Optionee.
9. Execution of Agreement. Notwithstanding anything
----------------------
contained in this Agreement to the contrary, no option may be exercised until
the Optionee has returned an executed copy of this option agreement to the
Company.
10. Compliance with Law. Buy accepting any Option, the Optionee
-------------------
agrees for Optionee and Optionee's legal representative that the Company shall
not be required to deliver any shares of Common Stock upon the exercise of any
Option until such shares have been qualified for delivery under applicable
securities law and regulations as determined by the Company or its legal
counsel. The Company will comply with applicable securities laws and regulations
to effectuate the terms of this provision.
11. Rights as a Stockholder. The Optionee shall have no rights as
-----------------------
a stockholder of the Company with respect to shares of Common Stock subject to
the Option until the Option has been exercised and payment made as herein
provided and certificates representing the shares as to which the Option has
been exercised have been delivered to the Optionee.
12. Notices. Any notice to be given to the Company hereunder
-------
shall be in writing and shall be addressed to Chief Financial Officer, Medicon,
Inc., 40 Skokie Boulevard, Northbrook, IL 60062, or at such other address as the
Company may hereafter designate to the Optionee by notice as provided herein.
Any notice to be given to the Optionee hereunder shall be addressed to the
Optionee at the address set forth below or at such other address as the Optionee
may hereafter designate to the Company by notice as provided herein. Notices
hereunder shall be deemed to have been duly
<PAGE>
given when received by personal delivery or by registered or certified mail to
the party entitled to receive the same.
13. Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and the successors and assigns of
the Company and, to the extent set forth in the Plan, the heirs and personal
representatives of the Optionee.
14. Governing Law. This Agreement shall be governed by the laws
-------------
of the State of Illinois applicable to agreements made and to be performed
entirely within such State.
15. Modifications to Agreement. This option agreement may not be
--------------------------
altered, modified, changed of discharged, except by a writing signed by or on
behalf of both the Company and the Optionee.
16. Optionee's Acknowledgment. By entering into this Agreement
-------------------------
the Optionee agrees and acknowledges that no officer or board member of the
Company shall be liable for any action or determination made with respect to
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
agreement as of the date and year first above written.
MEDICON, INC.
By:___________________________________________
Name: Carl R. Adkins, M.D.
Title: Chief Executive Officer
----------------------------------------------
(Optionee)
---------------------------------------------
(Optionee's Address)
EXHIBIT 10.57
______________________
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the 8th day
of April, 1996, (hereinafter called the "Date of Grant"), between Medicon, Inc.,
an Illinois corporation (hereinafter called the "Company"), and Mark Richards
(hereinafter called the "Optionee"):
R E C I T A L S :
- - - - - - - -
WHEREAS, the Company has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Optionee pursuant to the terms set forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. Grant of the Option. The Company hereby grants to the Optionee
-------------------
the right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of 271,581 shares of
Class A Common Stock, no par value (the "Shares"). The purchase price of the
Shares subject to the Option shall be 1 cent per Share (the "Exercise Price").
The Option is intended to be a non-qualified stock option, and is not intended
to be treated as an option that complies with Section 422 of the Internal
Revenue Code of 1986, as amended.
2. Vesting.
-------
(a) Subject to the Optionee's continued employment with the Company,
the Option shall vest and become exercisable as follows:
<PAGE>
Percentage of Shares with
Vesting Date Respect to Which Option Vests
- ------------ -----------------------------
January 15, 1997 20%
January 15, 1998 20%
January 15, 1999 20%
January 15, 2000 20%
January 15, 2001 20%
At any given time, the portion of the Option which has become
vested and exercisable as described above is hereinafter referred to as the
"Vested Portion".
3. Exercise of Option.
------------------
(a) Period of Exercise. Subject to the provisions of
------------------
this Agreement, the Optionee may exercise all or any part of the Vested Portion
of the Option at any time, subject to compliance with any trading policies of
the Company which may be in effect from time to time, prior to the earliest
to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) one year following the date of the Optionee's
termination of employment due to death or "Disability";
(iii) six months following the date of the Optionee's
termination of employment by the Company without "Cause"; and
(iv) the date of the Optionee's termination of employment by
the Company for "Cause" or by the Optionee for any reason.
Notwithstanding the foregoing, in the event the Optionee is
unable to exercise the Option during any of the periods described in clauses
(ii) or (iii) above due to restrictions set forth in any trading policy of the
company which is then in effect, the Option shall remain exercisable until such
time as the exercise of the Option is permitted under such policy or otherwise
permitted by the Board of Directors of the Company.
For purposes of this agreement:
"Cause" shall mean "Cause" as defined in any employment
agreement then in effect between the Optionee and the Company or if not defined
therein or, if
2
<PAGE>
there shall be no such agreement, (i) Optionee's engagement in misconduct which
is materially injurious to the Company or its affiliates, (ii) Optionee's
continued failure to substantially perform his duties to the Company, (iii)
Optionee's repeated dishonesty in the performance of his duties to the Company,
(iv) Optionee's commission of an act or acts constituting any (x) fraud against,
or misappropriation or embezzlement from the Company or any of its affiliates,
(y) crime involving moral turpitude, or (z) offense that could result in a jail
sentence of at least 30 days or (v) Optionee's material breach of any
confidentiality or non-competition covenant entered into between the Optionee
and the Company. The determination of the existence of Cause shall be made by
the Company's Compensation Committee in good faith, which determination shall be
conclusive for purposes of this Agreement; and
"Disability" shall mean "disability" as defined in any
employment agreement then in effect between the Optionee and the Company or if
not defined therein or if there shall be no such agreement, as defined in the
Company's long-term disability plan as in effect from time to time, or if there
shall be no plan or if not defined therein, the Optionee's becoming physically
or mentally incapacitated and consequent inability for a period of six (6)
months in any twelve (12) consecutive month period to perform his duties to the
Company.
(b) Method of Exercise.
------------------
(i) Subject to Section 3(a), the Vested Portion of the
Option may be exercised by delivering to the Company at its principal office
written notice of intent to so exercise; provided that, the Option may be
--------
exercised with respect to whole Shares only. Such notice shall specify the
number of Shares for which the Option is being exercised and shall be
accompanied by payment in full of the Exercise Price. The payment of the
Exercise Price shall be made in cash or its equivalent, or, if and to the extent
permitted by the Company's Compensation Committee, (i) by exchanging Shares
owned by the Optionee (which are not the subject of any pledge or other
security interest and which have been owned by the Optionee for at least 6
months), or (ii) through delivery of irrevocable instructions to a broker
to deliver promptly to the Company an amount equal to the aggregate exercise
price, or by a combination of the foregoing, provided that the combined value
--------
of all cash and cash equivalents and the fair market value of any such Shares
so tendered to the Company as of the date of such tender is at least equal to
the aggregate Exercise Price.
(ii) Notwithstanding any other provision of this Agreement
to the contrary, the Option may not be exercised prior to the completion of any
registration or qualification of the Option or the Shares under applicable state
and federal securities or other laws, or under any ruling or regulation of any
governmental body or national securities exchange that the Company's
Compensation Committee shall in its sole discretion determine to be necessary or
advisable.
3
<PAGE>
(iii) Upon the Company's determination that the Option has
been validly exercised as to any of the Shares, the Company shall issue
certificates in the Optionee's name for such Shares. However, the Company shall
not be liable to the Optionee for damages relating to any delays in issuing the
certificates to him, any loss of the certificates, or any mistakes or errors in
the issuance of the certificates or in the certificates themselves.
(iv) In the event of the Optionee's death, the Vested
Portion of the Option shall remain exercisable by the Optionee's executor or
administrator, or the person or persons to whom the Optionee's rights under this
Agreement shall pass by will or by the laws of descent and distribution as the
case may be, to the extent set forth in Section 3(a). Any heir or legatee of
the Optionee shall take rights herein granted subject to the terms and
conditions hereof.
4. No Right to Continued Employment. This Agreement shall
--------------------------------
not be construed as giving the Optionee the right to be retained in the employ
of, or in any consulting relationship to, the Company or any Affiliate.
Further, the Company or an affiliate may at any time dismiss the Optionee or
discontinue any consulting relationship, free from any liability or any claim
under this Agreement, except as otherwise expressly provided herein.
5. Legend on Certificates. The certificates representing the
----------------------
Shares purchased by exercise of the Option shall be subject to such stop
transfer orders and other restrictions as the Company's Compensation Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which such Shares
are listed, and any applicable Federal or state laws, and the Company's
Compensation Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
6. Transferability. This Option is not transferable or
---------------
assignable by the Optionee other than by will or by the laws of descent and
distribution and is exercisable during the lifetime of the Optionee only by the
Optionee.
7. Withholding. The Optionee agrees to make appropriate
-----------
arrangements with the Company for satisfaction of any applicable federal, state
or local income tax, withholding requirements or like requirements, including
the payment to the Company at the time of exercise of, or other settlement in
respect of, the Option of all such taxes and requirements and the Company shall
be authorized to take such action as may be necessary in the opinion of the
Company's counsel (including, without limitation, withholding Shares otherwise
deliverable to the Optionee hereunder and/or withholding amounts from any
compensation or other amount owing from the Company to the Optionee) to satisfy
all obligations for the payment of such taxes.
4
<PAGE>
8. Securities Laws. Upon the acquisition of any Shares
---------------
pursuant to the exercise of the Option, Optionee will make or enter into such
written representations, warranties and agreements as the Company's Compensation
Committee may reasonably request in order to comply with applicable securities
laws or with this Agreement.
9. Notices. Any notice necessary under this Agreement shall be
-------
addressed to the Company in care of its Secretary at the principal executive
office of the Company and to the Optionee at the address appearing in the
personnel records of the Company for such Optionee or to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Any such notice shall be deemed effective upon receipt thereof by the
addressee.
10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND
-------------
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
ILLINOIS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
11. Adjustment Upon Changes in Capitalization. Subject to
-----------------------------------------
the following provisions of this Section, in the event of any change in the
number of issued shares of Class A Common Stock resulting from the subdivision
or combination of shares of Class A Common Stock or other capital adjustment or
the payment of a stock dividend after the effective date of this Agreement, or
other change in such shares of Class A Common Stock effective without receipt of
consideration by the Company, an appropriate and proportionate adjustment shall
be made in the number of shares of Class A Common Stock subject to the Option
and the exercise price of the Option granted under this Agreement and the amount
payable by the Optionee in respect of this Option. Adjustments under this
Section shall be made by the Board of Directors or a committee thereof whose
determination as to what adjustment shall be made, and the extent thereof, shall
be final, binding and conclusive.
12. Signature in Counterparts. This Agreement may be
-------------------------
signed in counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
MEDICON, INC.
By:
---------------------------------
Name: Carl R. Adkins, M.D.
Title: Chief Executive Officer
------------------------------------
Mark Richards
5
EXHIBIT 10.58
Employment Agreement
--------------------
This EMPLOYMENT AGREEMENT (the "Agreement") is dated effective as of
January 1, 1994 (the "Effective Date"), between MEDICON, Inc., an Illinois
corporation (the "Company"), and Lawrence Rubinstein (the "Employee");
WHEREAS, the Board of Directors of the Company (the "Board") approved
and authorized the entry into this Agreement with the Employee;
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions for the employment relationship of the Employee with
the Company.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed as Executive Vice President
----------
and General Counsel of the Company from the date hereof through the term of this
Agreement. In this capacity, the Employee shall have such executive, policy and
other management duties and responsibilities as he may have on the date hereof
in addition to such other duties and responsibilities as the Board shall
designate as are not inconsistent with the Employee's position with the Company,
including the performance of duties with respect to any subsidiaries of the
Company.
2. Term. The term of employment under this Agreement shall be for
----
the period commencing on the Effective Date and ending on December 31, 1996.
<PAGE>
3. Salary. The Company agrees to pay the Employee during the term of
------
this Agreement a salary at an annual rate of $175,000. Participation in
deferred compensation, discretionary bonus, retirement, and other employee
benefit plans and in fringe benefits shall not reduce the base salary payable to
the Employee under this Section 3. The salary under this Section 3 shall be
payable by the Company to the Employee not less frequently than monthly.
4. Discretionary Bonuses. During the term of this Agreement, the
----------------------
Employee shall be entitled to participate in bonuses as may be authorized,
declared, and paid by the Board in its complete discretion to the executive
officers of the Company. No other compensation provided for in this Agreement
shall be deemed a substitute for the Employee's right to participate in such
bonuses when and as declared by such Board of Directors.
5. Participation in Retirement and Employee Benefit Plans. The
----------------------------------------------------------
Employee shall be entitled to participate in or receive benefits under any plan
of the Company relating to pension, thrift, profit sharing, life insurance,
medical coverage, disability, education, or other retirement or employee
benefits that the Company has adopted or may adopt for the benefit of its
employees.
6. Vacations. The Employee shall be entitled to an annual paid
---------
vacation of four weeks per year. Any vacation days unused in any calendar year
will be lost. The timing of paid vacations shall be scheduled in a reasonable
manner by the Employee, with approval of the Company, said approval to not be
unreasonably withheld.
7. Business Expenses. The Employee shall be entitled to prompt
------------------
reimbursement for all reasonable business expenses incurred by the Employee in
the performance of his duties.
8. Termination. The Employee's employment with the Company shall
-----------
only be terminated for "Cause". Termination by the Company of the Employee's
employment for "Cause" shall mean termination upon (1) the continued failure by
the Employee to substantially
<PAGE>
perform his duties with the Company after a written demand for substantial
performance is delivered to him by the Board, which demand specifically
identifies the manner in which the Board believes that he has not substantially
performed his duties or (2) the substantial violation of any of the substantive
terms of this Agreement, dishonesty, conviction of a felony, moral turpitude, or
any act that is demonstrably and materially injurious to the Company, monetarily
or otherwise.
9. No Assignments.
--------------
(a) This Agreement is personal to each of the parties
hereto. No party may assign or delegate any rights or obligations hereunder
without first obtaining the written consent of the other parties hereto.
However, in the event of the death of the Employee, all rights to receive
payments hereunder shall become rights of the Employee's estate.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Employee and his personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Employee should die while any amount would still be
payable to him hereunder had he continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to his devisee, legatee or other designee or, if there is not
such designee, to his estate.
10. Notice. For the purpose of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to MEDICON, Inc., 40 Skokie Boulevard, Northbrook, Illinois 60062, and
to the Employee, 540 Dundee Road, Glencoe, Illinois, 60022, provided that all
notices to the Company shall be directed to the attention of the Board with a
copy to the Secretary of the Company, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
<PAGE>
11. Amendments or Additions. No amendments or additions to this
------------------------
Agreement shall be binding unless in writing and signed by all parties hereto.
12. Section Headings. The section headings used in this Agreement
-----------------
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
13. Severability. Any provision of this Agreement that is deemed
------------
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction and subject to this section, be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provisions of this Agreement invalid, illegal, or unenforceable in any other
jurisdiction.
14. Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Chicago in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction.
15. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Employee and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The
<PAGE>
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of Illinois without regard to its conflicts
of law principles.
MEDICON, Inc.
ATTEST: __________________ __________________
By: Alan P. Mintz
Its: President
EMPLOYEE:
___________________
Lawrence Rubinstein
EXHIBIT 10.59
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT is made and entered into
this 3rd day of November 1994, by and between MEDICON, INC., an Illinois
corporation (the "Company"), and LAWRENCE RUBINSTEIN (the "Employee").
RECITALS
--------
WHEREAS, the Company and the Employee entered into that certain
Employment Agreement, dated as of January 1, 1994 (the "Employment Agreement"),
which sets forth the terms and conditions for the employment relationship of the
Employee with the Company; and
WHEREAS, the Company and the Employee desire to amend the Employment
Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto do agree to amend the
Employment Agreement as follows:
1. Amendment.
---------
(a) Section 3 of the Employment Agreement is hereby amended and
restated in its entirety to read as follows:
"3. Compensation.
------------
(a) Salary. The Company agrees to pay
------
the Employee during the term of this
Agreement a salary at an annual rate of
$150,000.00. Participation in deferred
compensation, bonus, stock option,
retirement and other employee benefit
plans and in fringe benefits shall not
reduce the base salary payable to the
Employee under this Section 3(a). The
salary under this Section 3(a) shall be
payable by the Company to the Employee
not less frequently than monthly.
(b) Section 4 of the Employment Agreement is hereby amended and
restated in its entirety to read as follows:
"4. Bonuses. In addition to the salary provided
-------
in Section 3 above, during the term of this
Agreement, the Company intends to
<PAGE>
pay the Employee an annual bonus of up to $25,000,
subject to review of the Company's and the
Employee's performance by the Compensation
Committee of the Board of Directors. The Employee
may receive this bonus and any additional bonus
compensation, at such times and in such amounts as
determined by the Board of Directors. No other
compensation provided for in this Agreement shall
be deemed a substitute for the Employee's right to
participate in such bonuses when and as declared
by such Board of Directors."
2. Employment Agreement. As amended hereby, the Employment Agreement
--------------------
shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed as of the date first written above.
THE COMPANY:
MEDICON, INC.
By: _________________
Its: ________________
THE EMPLOYEE:
______________________
Lawrence Rubinstein
EXHIBIT 10.60
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
----------------------------------------
THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT is made and entered into
this 6 day of September, 1995, by and between MEDICON, INC., an Illinois
corporation (the "Company"), and LAWRENCE RUBINSTEIN (the "Employee").
RECITALS
--------
WHEREAS, the Company and the Employee entered into that certain
Employment Agreement, dated as of January 1, 1994 (the "Employment Agreement"),
and that certain First Amendment to the Employment Agreement, dated as of
November 3, 1994, which agreements set forth the terms and conditions for the
employment relationship of the Employee with the Company; and
WHEREAS, the Company and the Employee desire to amend the Employment
Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto do agree to amend the
Employment Agreement as follows:
1. Amendment.
---------
(a) Section 3(a) of the Employment Agreement is hereby amended
and restated in its entirety to read as follows:
"The Company agrees to pay Employee during the term of this
Agreement a salary at an annual rate of $120,000 until such time
as Net Income of the Company is a positive sum for any fiscal
quarter as determined by the Chief Financial Officer of the
Company (the "Triggered Period"). Commencing at the Triggered
Period, the Company agrees to pay Employee during the term of
this Agreement a salary at an annual rate of $150,000. Net
Income shall mean for any period and prior to the accounting for
the payment of any dividends on the stock of the Company, (a) the
net income (loss) of the Company and its Subsidiaries, determined
on a consolidated basis in accordance with GAAP, minus (b) the
-----
aggregate for such period of, without duplication, (i) the net
income (loss) of any individual, firm, partnership, corporation,
trust, unincorporated association, or any other entity of any
kind, acquired in a pooling of interests transaction for any
period prior to the date of such acquisition, determined in
accordance with GAAP, and (ii) any other items that are treated
as expenses under GAAP, but excluding from the definition of Net
<PAGE>
Income any extraordinary or non-recurring charges, expenses,
gains or losses, all computed in accordance with GAAP as
reflected on the consolidated income statement of the Company.
Participation in deferred compensation, discretionary bonus,
retirement, and other employee benefit plans and in fringe
benefits shall not reduce the base salary payable to the Employee
under this Section 3. The salary under this Section 3 shall be
payable by the Company to the Employee not less frequently than
monthly."
2. Employment Agreement. As amended hereby, the Employment
--------------------
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Second Amendment
to be executed as of the date first written above.
THE COMPANY:
MEDICON, INC.
By:___________________________
Its:__________________________
THE EMPLOYEE:
______________________________
Lawrence Rubinstein
EXHIBIT 10.61
Employment Agreement
--------------------
This EMPLOYMENT AGREEMENT (the "Agreement") is dated effective as of
January 1, 1994 (the "Effective Date"), between MEDICON, Inc., an Illinois
corporation (the "Company"), and Alan Spiro (the "Employee");
WHEREAS, the Board of Directors of the Company (the "Board") approved
and authorized the entry into this Agreement with the Employee;
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions for the employment relationship of the Employee with
the Company.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed as Executive Vice President
----------
and Chief Medical Officer of the Company from the date hereof through the term
of this Agreement. In this capacity, the Employee shall have such executive,
policy and other management duties and responsibilities as he may have on the
date hereof in addition to such other duties and responsibilities as the Board
shall designate as are not inconsistent with the Employee's position with the
Company, including the performance of duties with respect to any subsidiaries or
affiliates of the Company.
2. Term. The term of employment under this Agreement shall be for the
----
period commencing on the Effective Date and ending on December 31, 1996.
1
<PAGE>
3. Salary.
------
(a) The Company agrees to pay the Employee during the term of
this Agreement a salary at an annual rate of $200,000. Participation in
deferred compensation, discretionary bonus, retirement, and other employee
benefit plans and in fringe benefits shall not reduce the base salary payable to
the Employee under this Section 3. The salary under this Section 3 shall be
payable by the Company to the Employee not less frequently than monthly.
(b) As additional compensation, the Company will issue non-voting
common stock of the Company to the Employee according to the following schedule:
Contemporaneously with the signing of this Agreement, Employee shall
be entitled to receive 44.5 non-voting common shares of Company stock.
The distribution of such shares to be on the following terms:
Contemporaneously with the signing of this agreement, Employee shall
receive 17.8 shares of non-voting common stock of the Company. Said
shares shall be non-forfeitable.
On or before January 1, 1995, the Employee shall be entitled to
receive an additional 8.9 non-voting common shares of Company stock,
subject to the forfeiture provisions set forth below.
On or before January 1, 1996, the Employee shall be entitled to
receive an additional 8.9 non-voting common shares of Company stock,
subject to the forfeiture provisions set forth below.
On or before December 31, 1996, the Employee shall be entitled to
receive an additional 8.9 non-voting common shares of Company stock,
subject to the forfeiture provisions set forth below.
Forfeiture Provisions: The above shares that are subject to
forfeiture shall only be forfeited by the Employee in the case of termination
for Cause as defined in Section 8 of this Agreement or if the
2
<PAGE>
Employee voluntarily terminates his employment with the Company, prior to the
issue date of the shares.
All shares of stock shall be subject to adjustment due to any stock splits
duly declared by the Board of Directors of the Company.
4. Discretionary Bonuses. During the term of this Agreement, the
---------------------
Employee shall be entitled to participate in bonuses as may be authorized,
declared, and paid by the Board in its complete discretion to the executive
officers of the Company. No other compensation provided for in this Agreement
shall be deemed a substitute for the Employee's right to participate in such
bonuses when and as declared by such Board of Directors.
5. Participation in Retirement and Employee Benefit Plans. The
------------------------------------------------------
Employee shall be entitled to participate in or receive benefits under any plan
of the Company relating to pension, thrift, profit sharing, life insurance,
medical coverage, disability, education, or other retirement or employee
benefits that the Company has adopted or may adopt for the benefit of its
employees.
6. Vacations. The Employee shall be entitled to an annual paid
---------
vacation of four weeks per year. Any vacation days unused in any calendar year
will be lost. The timing of paid vacations shall be scheduled in a reasonable
manner by the Employee, with approval of the Company, said approval to not be
unreasonably withheld.
7. Business Expenses. The Employee shall be entitled to prompt
-----------------
reimbursement for all reasonable business expenses incurred by the Employee in
the performance of his duties.
8. Termination. The Employee's employment with the Company
-----------
shall only be terminated for "Cause". Termination by the Company of the
Employee's employment for "Cause" shall mean termination upon (1) the continued
failure by the Employee to substantially perform his duties with the Company
after a written demand for substantial performance is delivered to him by the
Board, which demand specifically identifies the manner in which the Board
believes that he has not substantially performed his duties or (2) the
substantial violation of
3
<PAGE>
any of the substantive terms of this Agreement, dishonesty, conviction of a
felony, moral turpitude, or any act that is demonstrably and materially
injurious to the Company, monetarily or otherwise.
9. No Assignments.
--------------
(a) This Agreement is personal to each of the parties hereto.
Neither party may assign or delegate any rights or obligations hereunder without
first obtaining the written consent of the other parties hereto. However, in
the event of the death of the Employee, all rights to receive payments hereunder
shall become rights to the Employee's estate.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Employee and his personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Employee should die while any amount would still be payable to
him hereunder had he continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
his devisee, legatee or other designee or, if there is not such designee, to his
estate.
10. Notice. For the purpose of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to MEDICON, Inc., 40 Skokie Boulevard, Northbrook, Illinois 60062, and
to the Employee, 350 N. Deere Park Drive West, Highland Park, Illinois, 60035,
provided that all notices to the Company shall be directed to the attention of
the Board with a copy to the Secretary of the Company, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
11. Amendments or Additions. No amendments or additions to this
-----------------------
Agreement shall be binding unless in writing and signed by all parties hereto.
4
<PAGE>
12. Section Headings. The section headings used in this Agreement are
----------------
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
13. Severability. Any provision of this Agreement that is deemed
------------
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction and subject to this section, be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provisions of this Agreement invalid, illegal, or unenforceable in any other
jurisdiction.
14. Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Chicago in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction.
15. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Employee and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The
5
<PAGE>
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of Illinois without regard to its conflicts
of law principles.
MEDICON, Inc.
ATTEST /s/ Lawrence Rubinstein /s/ Alan P. Mintz
----------------------- -------------------------
Secretary By: Alan P. Mintz
Its: President
EMPLOYEE:
/s/ Alan Spiro
-------------------------
Alan Spiro
6
EXHIBIT 10.62
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT is made and entered
into this 3rd day of November, 1994, by and between MEDICON, INC., an
Illinois corporation (the "Company"), and ALAN SPIRO (the "Employee").
RECITALS
--------
WHEREAS, the Company and the Employee entered into that certain
Employment Agreement, dated as of January 1, 1994 (the "Employment
Agreement"), which sets forth the terms and conditions for the employment
relationship of the Employee with the Company; and
WHEREAS, the Company and the Employee desire to amend the
Employment Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do agree
to amend the Employment Agreement as follows:
1. Amendment:
---------
(a) Section 3 of the Employment Agreement is hereby
amended to add a subsection (c) which shall read as follows:
"3(c) The forfeiture provisions set forth in this Section 3
shall be of no further force and effect and all shares
issued by the Company to the Employee pursuant to Section
3(b) above shall be non-forfeitable."
(b) Section 4 of the Employment Agreement is
hereby amended and restated in its entirety to read as
follows:
"4. Discretionary Bonuses. During the term of this
---------------------
Agreement, the Employee may receive bonus compensation, at
such times and in such amounts, all as determined in the
sole and absolute discretion of the Board of Directors. No
other compensation provided for in this Agreement shall be
deemed a substitute in the Employee's right to participate
in such bonuses when and as declared by such Board of
Directors."
<PAGE>
2. Stock. The parties hereto acknowledge that the Company
-----
has issued to the Employee, and the Employee has received from the Company,
all of the shares of the Company's stock referenced in Section 3(b) of the
Employment Agreement.
3. Employment Agreement. As amended hereby, the Employment
--------------------
Agreement shall remain in full force and effect.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Amendment
to be executed as of the date first written above.
THE COMPANY:
MEDICON, INC.
By: /s/
------------------------
Its: EVP & COO
------------------------
THE EMPLOYEE:
/s/ Alan Spiro
-----------------------------
Alan Spiro
-3-
EXHIBIT 10.63
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
----------------------------------------
THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT is made and entered into
this 6th day of September 1995, by and between MEDICON, INC., an Illinois
corporation (the "Company"), and ALAN SPIRO (the "Employee").
RECITALS
--------
WHEREAS, the Company and the Employee entered into that certain
Employment Agreement, dated as of January 1, 1994 (the "Employment
Agreement"), and that certain First Amendment to the Employment Agreement,
dated as of November 3, 1994, which agreements set forth the terms and
conditions for the employment relationship of the Employee with the Company;
and
WHEREAS, the Company and the Employee desire to amend the Employment
Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do agree to
amend the Employment Agreement as follows:
1. Amendment.
---------
(a) Section 3(a) of the Employment Agreement is hereby amended and
restated in its entirety to read as follows:
"The Company agrees to pay Employee during the term of this
Agreement a salary at an annual rate of $160,000 until such time
as Net Income of the Company is a positive sum for any fiscal
quarter as determined by the Chief Financial Officer of the Company
(the "Triggered Period"). Commencing at the Triggered Period,
the Company agrees to pay Employee during the term of this
Agreement a salary at an annual rate of $200,000. Net Income
shall mean for any period and prior to the accounting for the
payment of any dividends on the stock of the Company, (a) the net
income (loss) of the Company and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP, minus (b) the aggregate
-----
for such period of, without duplication, (i) the net income (loss)
of any individual, firm, partnership, corporation, trust,
unincorporated association, or any other entity of any kind,
acquired in a pooling of interests transaction for any period
prior to the date of such acquisition, determined in accordance
with GAAP, and (ii) any other items that are treated as expenses
under GAAP, but excluding from the definition of Net Income any
extraordinary or non-recurring charges, expenses, gains or
<PAGE>
losses, all computed in accordance with GAAP as reflected on the
consolidated income statement of the Company. Participation in
deferred compensation, discretionary bonus, retirement, and other
employee benefit plans and in fringe benefits shall not reduce the
base salary payable to the Employee under this Section 3. The
salary under this Section 3 shall be payable by the Company to
the Employee not less frequently than monthly."
2. Employment Agreement. As amended hereby, the Employment Agreement
--------------------
shall remain in full force and effect.
3. IN WITNESS WHEREOF, the parties have caused this Second Amendment
to be executed as of the date first written above.
THE COMPANY:
MEDICON, INC.
By:________________________
Its:_______________________
THE EMPLOYEE:
/s/ Alan Spiro
_________________________
Alan Spiro
EXHIBIT 10.64
RESTRICTED SHARES AGREEMENT
---------------------------
RESTRICTED SHARES AGREEMENT dated September 6, 1995 by and between
MEDICON, INC., an Illinois corporation (the "Company"), and ALAN M. SPIRO
(the "Holder").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Board of Directors of the Company (the "Board") has
authorized the grant of restricted shares to the Holder; and
WHEREAS, such resolution authorizing the grant provides that the
terms of such grant shall be set forth in a restricted shares agreement (the
"Agreement") by and between the Company and the Holder; and
WHEREAS, the parties now desire to enter into the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, and for other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Award of Restricted Shares. Subject to the restrictions,
--------------------------
terms and conditions of this Agreement, the Company hereby issues and sells
to the Holder 139, 379 shares of Class A Common Stock, no par value per
share, of the Company ("Common Stock"), at a purchase price of $.01 per share
of Common Stock. Such shares are hereinafter referred to as the "Restricted
Shares" until such shares vest in accordance with the terms hereof.
2. Vesting of Restricted Shares. Subject to paragraphs 6 and 7
----------------------------
of this Agreement, Restricted Shares shall become "vested" at the rate of 20%
a year on a cumulative basis commencing on December 31, 1996 and each
anniversary date thereafter.
3. Limitations on Rights of Holder.
-------------------------------
(a) Shares to Bear Restrictive Legend. The Restricted Shares
---------------------------------
will be represented by a stock certificate or certificates registered in the
name of the Holder. From and after the date of original issuance, stock
certificates representing the Restricted Shares shall bear a legend in
substantially the following form:
"THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS
<PAGE>
CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE STOCKHOLDERS' AGREEMENT,
DATED AS OF NOVEMBER 3, 1994, AND AMENDED AS OF SEPTEMBER 6, 1995, AMONG
THE COMPANY AND THE STOCKHOLDERS NAMED THEREIN, AND A RESTRICTED SHARES
AGREEMENT BETWEEN THE REGISTERED HOLDER HEREOF AND THE COMPANY, DATED AS
OF SEPTEMBER 6, 1995, COPIES OF WHICH MAY BE INSPECTED AT THE COMPANY'S
PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH
SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS
BEEN MADE IN COMPLIANCE WITH THE TERMS OF SUCH STOCKHOLDERS' AGREEMENTS
AND RESTRICTED SHARES AGREEMENT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT,
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS."
(b) Company to Retain Custody of Stock.
-----------------------------------
Promptly after the date of this Agreement, the Company will issue to the
Holder, and the Holder will deposit with and deliver to the Company, the
stock certificate or certificates referred to in subparagraph (a) of this
paragraph 3, each duly endorsed in blank or accompanied by stock powers duly
executed in blank.
(c) Power of Attorney. The Company is hereby appointed the
-----------------
attorney-in-fact, with full power of substitution of the Holder for the sole
purpose of carrying out the provisions of this Agreement and taking any
action and executing any instrument which such attorney-in-fact may deem
necessary or advisable to accomplish the purposes hereof, which appointment
as attorney-in-fact is irrevocable and coupled with an interest. The Company
as attorney-in-fact is irrevocable and coupled with interest. The Company
as attorney-in-fact for the Holder may, in the name and stead of the Holder,
make and execute all conveyances, assignments and transfers of the Restricted
Shares, and the Holder hereby ratifies and confirms all that the Company, as
said attorney-in-fact, shall do by virtue hereof, provided that the foregoing
shall be solely for the purpose of carrying out the provisions of this
Agreement. Nevertheless, the Holder shall, if so requested by the Company,
execute and deliver to the Company all such instruments as may, in the
reasonable judgment of the Company, be advisable for the purpose hereof.
(d) Certain Rights of Holder. The Restricted Shares, when
------------------------
issued pursuant to the provisions hereof, shall constitute issued and
outstanding shares of
<PAGE>
Common Stock for all corporate purposes. From and after the date of original
issuance, the Holder will have the right to vote the Restricted Shares and to
exercise all other rights, powers and privileges of a holder of Common Stock
with respect to the Restricted Shares, with the exception that, until the
Restricted Shares shall have become vested pursuant to the terms hereof (i)
the Holder will not be entitled to delivery of the stock certificate or
certificates representing the Restricted Shares; (ii) the Company will retain
custody of the Restricted Shares; (iii) the Holder may not sell, assign,
transfer, pledge, exchange, encumber or dispose of the Restricted Shares. A
material breach of any of the foregoing restrictions or a material breach of
any of the other restrictions, terms and conditions of this Agreement with
respect to any of the Restricted Shares, except as waived by the Company,
will cause a forfeiture of such Restricted Shares; and (iv) the Company will
retain custody of all distributions ("Retained Distributions") made or
declared with respect to the Restricted Shares (and such Retained
Distributions will be subject to the same restrictions, terms and conditions
as are applicable to the Restricted Shares) until such time, if ever, as the
Restricted Shares with respect to which such Retained Distributions shall
have been made, paid or declared shall have become vested, and such Retained
Distributions shall not bear interest or be segregated in separate accounts.
(e) Stockholders' Agreement. Concurrently with the execution
-----------------------
of this Agreement, the Holder agrees, as a condition to the receipt of the
Restricted Shares hereunder, to execute and become a party to the
Stockholders' Agreement, dated as of November 3, 1994, and amended as of
September 6, 1995, among the Company and the stockholders named therein.
4. Delivery of Vested Securities. Subject to paragraph 8
-----------------------------
hereof, when any Restricted Shares shall have become vested pursuant to the
provisions of this Agreement, the Company shall promptly issue and deliver to
the Holder new stock certificates or instruments representing the vested
shares, registered in the name of the Holder or, if deceased, his legatees,
personal representatives or distributees, which do contain the legend set
forth in subparagraph (a) of paragraph 3 hereof.
5. No Right to Employment. Nothing in this Agreement shall
----------------------
be construed to give the Holder any right to be awarded any additional
Restricted Shares or to confer on the Holder any right to continue in the
employ of the Employer or to be evidence of any agreement or understanding,
express or implied, that the Company or any of its subsidiaries will employ
the Holder in any particular
<PAGE>
position or at any particular rate of remuneration, or for any particular
period of time or to interfere in any way with the right of the Employer (or
the right of the Holder) to terminate the employment of the Holder at any
time, with or without Cause (as defined in the Employment Agreement dated
January 1, 1994, as amended, between the Company and the Holder),
notwithstanding the consequences of such termination pursuant to paragraph 7
of this Agreement.
6. Acceleration of Vesting.
-----------------------
(a) Death or Disability. If the Holder's employment
-------------------
with the Company terminates by reason of death or disability (as determined
under the Employment Agreement), 50% of the Restricted Shares that have yet
to become vested shall become immediately vested.
(b) Initial Public Offering.
-----------------------
(i) If the Company completes a Qualified Public Offering
(as defined in Section 17) on or before December 31, 1996, all Restricted
Shares shall become immediately vested.
(ii) If the Company completes a Qualified Public Offering
after December 31, 1996, 50% of the Restricted Shares shall become
immediately vested.
(c) Sale of the Company. If the Holder's employment is
-------------------
terminated by the Company without Cause in connection with a Qualified Sale
Transaction (as defined in Section 17), all Restricted Shares shall become
immediately vested.
7. Termination of Employment.
-------------------------
(a) General. If the Holder's employment with the
-------
Company terminates for any reason prior to the date the shares of Common
Stock issued and sold hereunder vest, the Holder shall forfeit all Restricted
Shares that have not so vested hereunder and the Holder shall not be entitled
to receive any consideration or compensation therefor. The Holder shall
cooperate with the Company to effectuate the purpose of this provision.
(b) Cause. If the Holder's employment is terminated
-----
by the Company for Cause, the shares of Common Stock issue and sold hereunder
(whether or not vested) shall be irrevocably forfeited by the Holder or any
subsequent permitted transferee thereof.
8. Compliance with Law. The delivery of any certificate
-------------------
representing Restricted Shares may be postponed
<PAGE>
by the Company for such period as may be required for it with reasonable
diligence to comply with any applicable registration requirements under the
Securities Act of 1933, any applicable listing requirement of any national
securities exchange and requirements under any other law or regulation
applicable to the issuance or transfer of securities.
9. No Transfer or Assignment. No right or benefit under
-------------------------
this Agreement shall be subject to anticipation, alienation, sale,
assignment, hypothecation, pledge, exchange, transfer, encumbrance or charge,
and any attempt to anticipate, alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the same shall be void. No right or
benefit under this Agreement shall in any manner be liable for or subject to
the debts, contracts, liabilities or torts of the person entitled to such
benefit. If the Holder or any beneficiary under this Agreement should become
bankrupt or attempt to anticipate, alienate, sell, assign, hypothecate,
pledge, exchange, transfer, encumber or charge any right or benefit under
this Agreement, then such right or benefit shall, in the discretion of the
Company, cease and terminate, and in such event, the Company in its
discretion may hold or apply the same or any part thereof for the benefit of
the Holder or his beneficiary, spouse, children or other dependents, or any
of them, in such manner and in such proportion as the Company may deem
proper.
10. Amounts Not Salary or Bonus. The Holder agrees that the
---------------------------
award of the Restricted Shares hereunder is special incentive compensation
and that it will not be taken into account as "salary" or "compensation" or
"bonus" in determining the amount of any payment under any pension,
retirement, profit-sharing, savings or stock ownership plan of the Company or
any of its subsidiaries, unless expressly provided pursuant to the terms of
such plan.
11. Section 83(b) Election. The Holder shall elect within 30
----------------------
days after the date hereof to include in gross income for Federal income tax
purposes an amount equal to the fair market value of the Restricted Shares as
of the date hereof and shall pay to the Employer or make arrangements
satisfactory to the Company to pay to the Employer or make arrangements
satisfactory to the Company to pay to the Employer in the year of award of
such Restricted Shares, any Federal, state or local taxes required to be
withheld with respect to such Restricted Shares. If the Holder shall fail to
make such payment, the Employer shall, to the extent permitted by law, have
the right to deduct from any payment of any kind otherwise due to him any
Federal, state or local taxes of any kind required by law to be withheld with
respect to such Restricted Shares.
<PAGE>
12. Fees and Expenses. The Company shall pay all fees and
-----------------
expenses necessarily incurred by the Company in connection with this
Agreement and will from time to time use its reasonable efforts to comply
with all laws and regulations which, in the opinion of counsel for the
Company, are applicable thereto.
13. Notices. Any notice which either party hereto may be
-------
required or permitted to give the other shall be made in accordance with the
provisions of Section 10 of the Employment Agreement dated January 1, 1994,
as amended, between the Company and the Holder.
14. Amendments. This Agreement may only be amended or
----------
modified by written agreement of the Company and the Holder.
15. Successor and Assigns. This Agreement shall be binding
---------------------
upon and inure to the benefit of the Company and its successors and assigns,
and shall be binding upon and inure to the benefit of the Holder and his
legatees, distributees and personal representatives.
16. Governing Law. The validity, interpretation, construction
-------------
and performance of this Agreement shall be governed by the laws of the State
of Illinois applicable to agreements made and to be performed entirely in
Illinois, without regard to the conflict of laws principles of such state.
17. Definitions. As used in this Agreement, and unless the
-----------
context requires a different meaning, the following terms have the meanings
indicated:
"Investors" means the Whitney Subordinated Debt Fund,
---------
L.P., Whitney 1990 Equity Fund L.P., a Delaware limited partnership, J.H.
Whitney & Co., a New York limited partnership and Chemical Venture Capital
Associates, a California limited partnership.
"IPO" means the sale in an underwritten offering by the
---
Company of its Common Stock pursuant to a registration statement on Form S-1
or otherwise under the Securities Act of 1933, as amended.
"Net Cash Proceeds" means, with respect to (A) any IPO,
-----------------
(I) the cash proceeds received by the Company or any subsidiary of the
Company, minus (II) reasonable brokerage commissions or underwriting fees and
-----
other reasonable fees and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel and reasonable fees and expenses
of investment bankers) related to such IPO or (B) any Sale Transaction, (I)
the cash proceeds received
<PAGE>
by the Investors, minus (II) brokerage commissions or underwriting fees and
-----
all other costs, fees and expenses of the Investors associated with such Sale
Transaction (including, without limitation, fees, charges and disbursements
of counsel and reasonable fees and expenses of investment bankers or other
third party financial experts).
"Qualified Public Offering" means an IPO by the Company
-------------------------
with Net Cash Proceeds to the Company in excess of $30,000,000 and in respect
of which the price per share of Common Stock sold in such Qualified Public
Offering is at least $5.572923 (subject to appropriate adjustment for any
dividends, subdivisions, combinations or reclassifications of Common Stock).
This implies, for example, that the aggregate value of the Investors'
original equity investment will be at least $90,000,000.00 upon the closing
of a Qualified Public Offering.
"Qualified Sales Transaction" means a Sale Transaction in
---------------------------
which (A) the senior subordinated promissory notes in the aggregate principal
amount of $10,000,000.00 payable to Whitney Subordinated Debt Fund, L.P. and
Chemical Ventures Capital Associates, together with all accrued and unpaid
interest thereon, are repaid and (B) the Investors receive Net Cash Proceeds
equal to or in excess of $30,000,000.00 for the Series A Preferred Stock and
Common Stock of the Investors.
"Sale Transaction" means (A) any sale of the capital
----------------
stock of the Company owned by the Investors of (B) any merger, consolidation,
sale or other business combination involving the Company, in each case in one
transaction or a series of transactions occurring prior to the consummation
of an IPO.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed by its agent thereunto duly authorized, and the Holder has
hereunto set his hand, all as of the date first above written.
MEDICON, INC.
By: /s/ Alan Mintz, M.D.
--------------------------
Name: Alan Mintz, M.D.
Title: President
------------------------------
ALAN N. SPIRO
<PAGE>
by the Investors, minus (II) brokerage commissions or underwriting fees and
-----
all other costs, fees and expenses of the Investors associated with such Sale
Transaction (including, without limitation, fees, charges and disbursements
of counsel and reasonable fees and expenses of investment bankers or other
third party financial experts).
"Qualified Public Offering" means an IPO by the Company
-------------------------
with Net Cash Proceeds to the Company in excess of $30,000,000 and in respect
of which the price per share of Common Stock sold in such Qualified Public
Offering is at least $5.572923 (subject to appropriate adjustment for any
dividends, subdivisions, combinations or reclassifications of Common Stock).
This implies, for example, that the aggregate value of the Investors'
original equity investment will be at least $90,000,000.00 upon the closing
of a Qualified Public Offering.
"Qualified Sales Transaction" means a Sale Transaction in
---------------------------
which (A) the senior subordinated promissory notes in the aggregate principal
amount of $10,000,000.00 payable to Whitney Subordinated Debt Fund, L.P. and
Chemical Ventures Capital Associates, together with all accrued and unpaid
interest thereon, are repaid and (B) the Investors receive Net Cash Proceeds
equal to or in excess of $30,000,000.00 for the Series A Preferred Stock and
Common Stock of the Investors.
"Sale Transaction" means (A) any sale of the capital
----------------
stock of the Company owned by the Investors of (B) any merger, consolidation,
sale or other business combination involving the Company, in each case in one
transaction or a series of transactions occurring prior to the consummation
of an IPO.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed by its agent thereunto duly authorized, and the Holder has
hereunto set his hand, all as of the date first above written.
MEDICON, INC.
By:
--------------------------
Name:
Title:
/s/ ALAN N. SPIRO
------------------------------
ALAN N. SPIRO
EXHIBIT 10.65
PROMISSORY NOTE
---------------
$614,625.00 Chicago, Illinois
September 6, 1995
FOR VALUE RECEIVED, the undersigned, Alan H. Spiro, an individual
("Borrower"), HEREBY PROMISES TO PAY TO THE ORDER OF MEDICON, INC., an Illinois
corporation ("Lender"), at Lender's principal place of business, 40 Skokie
Boulevard, Northbrook, Illinois 60062, or such other place as Lender may
hereafter designate to Borrower from time to time, in lawful money of the United
States of America and in immediately available funds, in a single installment
payable in full on the "Maturity Date" (as defined below), the principal sum of
SIX HUNDRED AND FOURTEEN THOUSAND SIX HUNDRED AND TWENTY-FIVE AND NO/100 DOLLARS
($614,625.00) or, if less, the then unpaid principal balance of the "Loans" (as
defined below) evidenced hereby.
This Promissory Note evidences the "Restructuring Loan" and re-
evidences the "Prior Loan" (in each case as defined below). To the extent that
this Promissory Note re-evidences the Prior Loan, (i) the repayment and other
terms governing the Prior Loan are hereby amended and restated in their entirety
and the Prior Loan shall be repayable hereafter in accordance with the terms and
provisions hereof and (ii) it is the intention of the parties that this
Promissory Note not constitute a novation of the Prior Loan.
Borrower further promises to pay to the order of Lender (i) interest
on the outstanding principal balance hereof at an annual rate (the "Interest
Rate") equal to the "Designated Rate" (as defined below); provided, however,
-------- -------
that the Interest Rate shall not (except as set forth in the next provison)
exceed 10%; provided, further, however, that after the occurrence of an "Event
-------- ------- -------
of Default" (as defined below), interest shall accrue at an annual rate equal to
the Designated Rate plus four percent (4.0%) until all amounts due hereunder are
----
fully paid and satisfied and (ii) any amounts payable by Borrower pursuant to
Section 6.1 hereof. The Interest Rate shall change automatically and
simultaneously with each change in the Designated Rate and simultaneously with
each change in the Designated Rate (effective as of the opening of business on
the date of such change in the Designated Rate). Accrued interest hereunder
shall be payable by Borrower in lawful money of the United States of America and
in immediately available funds on the Maturity Date. Notwithstanding anything
to the contrary contained herein, interest payable hereunder shall not exceed
the maximum rate permitted by applicable law.
The obligation of Borrower hereunder shall be absolute and
unconditional notwithstanding any defense or claim that may arise hereunder or
in connection herewith, and Borrower shall
<PAGE>
perform Borrower's obligations hereunder without notice or demand and without
making any setoff or otherwise withholding amounts in respect of any such
defense or claim.
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. As used herein, the following terms shall
-----------
have the indicated meanings:
"Bankruptcy Code" shall mean Title 11 of the United States Code
---------------
entitled "Bankruptcy", as amended from time to time or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect and all
rules and regulations promulgated thereunder.
"Bonus Payment" shall have the meaning assigned to such term in the
---------------
Spiro Pledge Agreement.
"Business Day" shall mean any day, excluding Saturday, Sunday and any
------------
day that is a legal holiday under the laws of the State of Illinois, or is a day
on which banking institutions in Chicago, Illinois are required or authorized by
law or other governmental action to close.
"Change of Control" shall mean (i) the direct or indirect sale,
-----------------
lease, exchange or other transfer of all or substantially all of the assets of
Lender to any Person or group of Persons acting in concert as a partnership or
other group (a "Group of Persons"), (ii) the merger or consolidation of Lender
with or into another Person, with the effect that the then existing stockholders
of Lender hold less than fifty percent (50%) of the combined voting power of the
then outstanding securities of the Person surviving such merger, or the Person
resulting from such consolidation, ordinarily (and apart from rights accruing
under special circumstances) having the right to vote in the election of
directors, (iii) the replacement of a majority of the Board of Directors of
Lender, over a two-year period, from the directors who constituted the Board of
Directors of Lender at the beginning of such period, and such replacement shall
not have been approved by the Board of Directors of Lender (or its replacements
approved by the Board of Directors of Lender) as constituted at the beginning of
such period, (iv) a Person or Group of Persons shall, as a result of a tender or
exchange offer, open market purchases, privately negotiated purchases or
otherwise, have become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of securities of Lender representing fifty (50%) or more
of the combined voting power of the then outstanding securities of Lender
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote in the election of directors.
- 2 -
<PAGE>
"Contractual Obligations" shall mean, with respect to any Person, any
-----------------------
provision of any capital stock issued by that Person or any indenture, mortgage,
deed of trust, contact, undertaking, agreement, instrument or other document to
which that Person is a party or by which that Person or any of that Person's
properties is bound or to which that Person or any of that Person's properties
is subject (including, without limitation, any restrictive covenant affecting
any of the properties of that Person).
"Designated Rate" shall mean a variable annual rate of interest equal
---------------
to the highest of the "prime rate," "reference rate," "base rate" or other
similar rate announced from time to time by The Northern Trust Company, Chicago,
as reasonably determined from time to time by Lender (with the understanding
that any such rate may merely be a reference rate and may not necessarily
represent the lowest or best rate charged to any customer by such bank).
"Event of Default" shall mean any of the events described or listed in
----------------
Section 5.1 hereof.
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
------------
amended, and the rules and regulations of any Governmental Authority promulgated
thereunder.
"Governmental Authority" shall mean any nation, state, sovereign or
----------------------
political subdivision thereof or thereto and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Initial Public Offering" shall mean the sale in an underwritten
-----------------------
offering by Lender of its common stock pursuant to a registration statement on
form S-1 or otherwise under the Securities Act.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
----
assignment, deposit arrangement, security interest, encumbrance, lien (statutory
or other), preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever.
"Loans" shall mean, collectively, the Prior Loan and the Restructuring
-----
Loan.
"Material Adverse Effect" shall mean, with respect to Borrower, a
-----------------------
material adverse effect on (i) the financial condition of Borrower, or (ii) the
ability of Borrower to perform his obligations under this Promissory Note.
"Maturity Date" shall mean the date which is the earliest to occur of
-------------
(i) September 6, 2005, (ii) the date on which Borrower's employment by Lender
shall terminate as a result of termination of Lender for "Cause" (as such term
is defined in the Spiro Employment Agreement) (iii) the date which is three
- 3 -
<PAGE>
years after the date on which Lender terminates Borrower's employment without
Cause and (iv) the date which is six (6) months after the Borrower's employment
with Lender shall terminate as a result of the Borrower's resignation.
"Obligations" shall mean all present and future loans, advances,
-----------
debts, liabilities, obligations, covenants and duties owing by Borrower to
Lender, of every type and description, present or future, arising under or in
connection with this Promissory Note, or the transactions contemplated hereby.
The term includes, without limitation, all interest, charges, expenses, fees,
reasonable attorneys' fees and disbursements and paralegals' fees, and any other
sums chargeable to Borrower hereunder.
"Person" shall mean and include any person, employee, individual, sole
------
proprietorship, partnership, joint venture, trust, unincorporated organization,
association, corporation, institution, entity, party or Governmental Authority.
"Prior Loan" shall mean the demand loan in the original principal
----------
amount of $150,000, evidenced by the books and records of Lender and advanced by
Lender to Borrower on April 14, 1995.
"Requirements of Law" shall mean any law, rule or regulation, or
-------------------
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon Borrower or any of his property or to
which Borrower or any of his property is subject.
"Restructuring Agreement" shall mean that certain Restructuring
-----------------------
Agreement dated as of September 6, 1995, among Borrower, Lender and certain
other Persons signatories thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
and the rules and regulations of any Government Authority promulgated
thereunder.
"Spiro Employment Agreement" shall have the meaning assigned to such
--------------------------
term in the Spiro Pledge Agreement.
"Spiro Pledge Agreement" shall mean that certain Pledge and Security
----------------------
Agreement dated as of September 6, 1995, executed by Borrower in favor of
Lender.
"Tax Refund" shall have the same meaning assigned to such term in the
----------
Spiro Pledge Agreement.
Section 1.2. Terms. Capitalized terms used herein shall be deemed to
-----
refer to the masculine, feminine, neuter, singular or plural, as the identity of
any Person or Persons may in the context require.
- 4 -
<PAGE>
ARTICLE II
OTHER TERMS AND PAYMENT
Section 2.1 Restructuring Loan. Upon satisfaction of the
------------------
conditions set forth in Article III, Lender agrees (A) to continue the Prior
Loan, which shall be repayable hereafter in accordance with the terms and
provisions hereof, and (B) to make advances (each a "Restructuring Advance") to
Borrower from time to time prior to the earliest to occur of (i) the Maturity
Date, (ii) the date on which Borrower shall cease to be employed by Lender for
any reason and (iii) commencement of the "Trigger Period" (as such term is
defined in the Spiro Employment Agreement), in an aggregate principal amount not
to exceed $464,625 (the "Restructuring Loan"). Amounts borrowed under this
Section 2.1 and repaid may not be reborrowed. The initial Restructuring Advance
shall be in the principal amount of $374,625 and shall be made on the date of
this Promissory Note by application of the proceeds thereof in satisfaction of
Borrower's payment obligation pursuant to Section 1 of the Restructuring
Agreement. Each subsequent Restructuring Advance shall be in the principal
amount of $1,250 and shall be made by Lender on the fifteenth day and last day,
respectively, of each consecutive calendar month commencing September 15, 1995,
and the proceeds thereof shall be deposited by Lender on each such date in such
account as Borrower may from time to time designate to Lender in writing.
Section 2.2. Payments and Computations.
-------------------------
(a) Borrower shall make each payment hereunder not later than 12:00
noon (Chicago time) on the day when due, in lawful money of the United States of
America and immediately available funds, by wire transfer to an account
designated by Lender.
(b) All computations of interest shall be made by Lender on the basis
of a year of 360 days for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest is
payable.
(c) Whenever any payment to be made hereunder shall be stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest.
Section 2.3. Prepayments.
-----------
(a) Voluntary Prepayments. Borrower may prepay the Loans, in whole
---------------------
or part, at any time or from time to time, without premium or penalty.
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<PAGE>
(b) Mandatory Prepayments.
---------------------
(1) Immediately upon receipt by or for the account of Borrower
of the proceeds of any Tax Refund, Borrower shall prepay the Loans in an
amount equal to such proceeds.
(2) Immediately upon receipt by or for the account of Borrower
of the proceeds of any Bonus Payment, Borrower shall prepay the Loans in an
amount equal to such proceeds.
(3) Immediately upon receipt by the Borrower of cash proceeds,
marketable securities or marginable securities in connection with a Change
of Control, Borrower shall prepay the Loans in an amount equal to such proceeds
or the cash proceeds resulting from the sale or margin of such securities, as
the case may be.
(4) Immediately upon (i) the receipt of cash proceeds in an Initial
Public Offering resulting from the sale of the securities pledged pursuant to
the Spiro Pledge Agreement or (ii) the securities pledged pursuant to the
Spiro Pledge Agreement becoming saleable or marginable (in such case following
an Initial Public Offering), Borrower shall prepay the Loans in an amount equal
to the proceeds from any such sale or margin of such securities.
(b) Application. All prepayments made pursuant to subsections
-----------
2.3(a) and (b) above shall be applied by Lender to the outstanding principal
balance of the Loans on a pro rata basis.
ARTICLE III
CONDITIONS PRECEDENT
3.1 Conditions Precedent to Disbursement of Proceeds. The obligation
------------------------------------------------
of Lender on any date (i) to make any Restructuring Advance, including, without
limitation, the Initial Restructuring Advance, and (ii) to continue to maintain
the Prior Loan, shall be subject to the prior satisfaction of all of the
following conditions precedent, before and after giving effect thereto:
(a) Certain Documents. Lender shall have received on or before such
-----------------
date the following documents, each of which shall be in form and substance
satisfactory to Lender:
(i) this Promissory Note and the Spiro Pledge Agreement, duly
executed and delivered by Borrower; and
(ii) the Employment Agreement, duly executed and delivered by
Borrower.
(b) Certain Transactions. Lender shall have received on or before
--------------------
such date evidence reasonably satisfactory to Lender
- 6 -
<PAGE>
of the due execution and delivery by each Person a party thereto of the
Restructuring Agreement, and all other agreements, documents and instruments
executed pursuant thereto or in connection therewith, each of which shall be in
form and substance satisfactory to Lender, and the consummation of the
respective transactions contemplated thereby.
(c) Representations and Warranties. All of the representations and
------------------------------
warranties of Borrower contained herein shall be true and correct in all
material respects on and as of such date as though made on and as of such date
both before and after giving effect to such disbursements.
(d) No Default. No Event of Default or event which, after the giving
----------
of notice or the lapse of time, or both, would constitute an Event of Default
shall have occurred and be continuing or would result from the making of such
disbursement.
(e) No Injunction. No law or regulation shall prohibit, and no
-------------
order, judgment or decree of any Governmental Authority shall enjoin, prohibit
or restrain Lender from making such disbursement.
An Event of Default shall be deemed "continuing" until waived in
writing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce Lender (i) to make any Restructuring Advance,
including, without limitations, the initial Restructuring Advance, and (ii) to
continue to maintain the Prior Loan, Borrower hereby represents and warrants to
Lender that on and as of the date hereof and on and as of the date of each such
Advance, before and after giving effect thereto:
4.1 Capacity. Borrower has all requisite capacity to
--------
own and encumber his property and assets and to execute, deliver and perform his
obligations under this Promissory Note, and all other agreements, documents and
instruments, if any, to be executed in connection herewith or with the
transactions contemplated hereby.
4.2 Enforceability. This Promissory Note has been duly executed and
--------------
delivered by Borrower and constitutes the legal, valid and binding obligation
of Borrower enforceable against Borrower in accordance with its terms.
4.3 No Conflict. The execution, delivery and perform-
-----------
ance by Borrower of this Promissory Note do not and will not, (a) violate any
Requirement of Law or Contractual Obligation binding upon Borrower, (b)
constitute a tortious interference with any such Contractual Obligation or
conflict with, result in a breach of or constitute (with or without notice or
lapse of
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<PAGE>
time or both) a default under any such Requirement of Law or Contractual
Obligation, or require the termination of any such Contractual Obligation, (c)
result in or require the creation or imposition of any Lien whatsoever upon any
assets or property of Borrower (other than a Lien in favor of Lender), or (d)
require any consent of any Person under any material Contractual Obligation of
Borrower.
4.4 Governmental Consents. The execution, delivery and performance
---------------------
by Borrower of this Promissory Note, the respective uses of the proceeds of the
Loans and the consummation of the transactions contemplated hereby do not and
will not require any registration with, consent or approval of, or notice to, or
other action to, with or by any Governmental Authority.
ARTICLE V
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
Section 5.1. Events of Default. Each of the following
-----------------
occurrences shall constitute an "Event of Default" under this Promissory Note:
(a) Payment. Failure of Borrower to pay, when due or declared due,
-------
any of the Obligations.
(b) Breach of Covenants. Failure to Borrower to duly and punctually
-------------------
perform or observe any term, provision, condition, agreement or covenant binding
on Borrower hereunder.
(c) Breach of Warranty or Representation. Any repre-
------------------------------------
sentation, warranty or other written disclosure made by Borrower to Lender under
or in connection with this Promissory Note shall be false or incorrect in any
material respect on the date made.
(d) Involuntary Bankruptcy; Appointment of Receiver; etc. (i) A
-----------------------------------------------------
court enters a decree or order for relief with respect to Borrower in an
involuntary case under the Bankruptcy Code, which decree or order is not stayed
or other similar relief is not granted under any applicable federal or state
law; or (ii) the continuance of any of the following events for forty-five (45)
days unless dismissed, bonded or discharged: (1) an involuntary case is
commenced against Borrower under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect; or (2) a decree or order of a court
for the appointment of a receiver, liquidator, sequestrator, trustee, custodian
or other officer having similar powers over Borrower, or over all or a
substantial part of his property, is entered; or (3) an interim receiver,
trustee or other custodian is appointed without the consent of Borrower for all
or a substantial part of the property of Borrower.
(e) Voluntary Bankruptcy; Appointment of Receiver; etc. (i) An
---------------------------------------------------
order for relief is entered with respect to Borrower, or Borrower commences a
voluntary case under the
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<PAGE>
Bankruptcy Code, or consents to the entry of an order for relief in an
involuntary case or to the conversion of an involuntary case to a voluntary case
under any such law or consents to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of Borrower's
property; or (ii) Borrower makes any assignment for the benefit of creditors.
An Event of Default shall be deemed "continuing" until waived in
writing.
5.2. Acceleration; Remedies. Upon the occurrence of any Event of
----------------------
Default described in the foregoing
subsections 5.1(d) or (e), the unpaid principal amount of and any and all
accrued interest on this Promissory Note shall automatically become immediately
due and payable without presentment, demand, or protest or other requirements of
any kind (including, without limitation, valuation and appraisement, diligence,
presentment, notice of intent to demand or accelerate and of acceleration), all
of which are hereby expressly waived by Borrower; and upon the occurrence and
during the continuance of any other Event of Default, Lender may by written
notice to Borrower declare the unpaid principal amount of and any and all
accrued and unpaid interest on this Promissory Note to be, and the same shall
thereupon be, immediately due and payable without presentment, demand, or
protest or other requirements of any kind (including, without limitation,
valuation and appraisement, diligence, presentment, notice of intent to demand
or accelerate and of acceleration), all of which are hereby expressly waived by
Borrower. In addition, upon the occurrence of an Event of Default, Lender may
thereupon exercise all other rights, powers and remedies granted to Lender by
law and in equity, all of which rights, powers and remedies are cumulative and
non-exclusive.
ARTICLE VI
MISCELLANEOUS
Section 6.1. Tax Liability of Lender. In addition to all other
-----------------------
amounts payable by Borrower to Lender hereunder, Borrower hereby agrees to pay
to Lender on the Maturity Date in lawful money of the United States of America
and in immediately available funds, an amount equal to the aggregate tax
liability of Lender attributable to interest accruing hereunder on the Loans, as
determined in good faith by Lender and notified to Borrower on or prior to such
date.
Section 6.2. Amendments, etc. No amendment or waiver of any
---------------
provision of this Promissory Note, nor consent to any departure by Lender
herefrom, shall in any event be effective unless the same shall be in writing
and signed by Lender; and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
- 9 -
<PAGE>
Section 6.3. Notices. Any notice required hereunder shall be in
-------
writing, and shall be deemed to have been validly served, given or delivered (i)
three (3) days following deposit in the United States mails, registered or
certified mail return receipt requested with proper postage prepaid, and
addressed to the party to be notified; (ii) one (1) day following delivery to a
reputable overnight courier, addressed to the party to be notified; (iii) upon
delivery thereof, if delivered by hand to the party to be notified; or (iv) upon
acknowledgement of receipt thereof if transmitted to a valid telecopier number
for the party to be notified; in each case to the address of the party to be
notified as set forth below or to such other address as each party may designate
for itself by like notice:
If to Lender, to:
MEDICON, INC.
40 Skokie Boulevard
Northbrook, Illinois 60062
Attention: General Counsel
Facsimile No.: (708) 559-6900
If to Borrower, to:
ALAN H. SPIRO
266 Vine Street
Highland Park, Illinois 60035
Facsimile No.: (708) 559-6900
with a copy to:
ALTHEIMER & GRAY
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Michael Peck, Esq.
Facsimile No.: (312) 715-4800
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice.
Section 6.4. No Waiver; Remedies. No failure on the part of Lender
-------------------
to exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
Section 6.5. Costs and Expenses. Borrower agrees to pay on demand
------------------
all costs and expenses incurred by Lender as the
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<PAGE>
result of acts of or omissions by Borrower, whether or not constituting an Event
of Default, in connection with this Promissory Note, and any other documents to
be delivered in connection herewith, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for Lender with respect
thereto and with respect to advising Lender as to its rights and
responsibilities under this Promissory Note and such other documents. Borrower
further agrees to pay on demand all losses, costs and expenses, if any
(including reasonable counsel fees and expenses), of Lender in connection with
the enforcement of this Promissory Note and any other documents delivered in
connection herewith, including, without limitation, losses, costs and expenses
sustained by Lender as a result of a default by Borrower in the performance of
his obligations contained in this Promissory Note or any document delivered in
connection herewith.
Section 6.6. Choice of Law. BORROWER AGREES THAT THIS PROMISSORY
-------------
NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW
PROVISIONS) OF THE STATE OF ILLINOIS. ANY DISPUTE BETWEEN LENDER AND BORROWER
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS PROMISSORY NOTE, AND WHETHER
ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE
WITH THE INTERNAL LAWS AND NOT THE CONFLICTS OF LAW PROVISIONS OF THE STATE
ILLINOIS.
Section 6.7. Waiver of Jury Trial. BORROWER WAIVES ANY RIGHT TO HAVE
--------------------
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE, BETWEEN LENDER AND ANY BORROWER ARISING OUT OF, CONNECTED WITH,
RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS PROMISSORY NOTE. INSTEAD, ANY DISPUTES RESOLVED IN COURT
WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
Section 6.8. Successors and Assigns. This Promissory Note shall be
----------------------
binding upon the parties hereto and their respective successors and assigns and
shall inure to the benefit of the parties hereto and the successors and assigns
of Lender. The rights and obligations of Borrower hereunder, or any interest
therein, may not be assigned without the prior written consent of Lender.
Section 6.9. Indemnification. Borrower hereby agrees to indemnify
---------------
and hold harmless Lender from and against any and all claims, damages,
liabilities and expenses (including, without limitation, fees and disbursements
of counsel) that may be incurred by or asserted against Lender in connection
with the investigation of , preparation for or defense of any pending or
threatened claim or any action or proceeding arising out of or relating to this
Promissory Note and the transactions contemplated hereby.
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<PAGE>
Section 6.10. Severability of Provisions. Any provision of this
--------------------------
Promissory Note which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 6.11. Headings. The Article and Section headings of this
--------
Promissory Note are for convenience of reference only and shall not, for any
purpose, be deemed a part hereof.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this
Promissory Note as of the date first above written.
-----------------------------
ALAN H. SPIRO
EXHIBIT 10.66
PLEDGE AND SECURITY AGREEMENT
-----------------------------
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement") dated as of
September 6, 1995 is entered into between ALAN H. SPIRO, an individual
residing at 266 Vine Street, Highland Park, Illinois 60035, (the "Pledgor")
and MEDICON, INC., an Illinois corporation, having its principal office at 40
Skokie Boulevard, Northbrook, Illinois 60062 (the "Pledgee").
W I T N E S S E T H:
WHEREAS, pursuant to the terms of that certain Promissory Note of even
date herewith in the original maximum principal amount of $614,625 (herein,
as the same may be amended, restated, supplemented, substituted or otherwise
modified from time to time, called the "Secured Note"), between the Pledgor
and Pledgee, the Pledgee has agreed to make certain extensions of credit to
or for the account of the Pledgor; and
WHEREAS, the Pledgor wishes to secure the payment, performance and
observance of all "Obligations" (as defined in the Secured Note);
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. All capitalized terms used herein and not
-----------
otherwise defined herein shall have the respective meanings assigned thereto
in the Secured Note. In addition, as used herein:
"Bonus Collateral" shall have the meaning assigned to such term in
clause (iii) of SECTION 3.
"Bonus Payment" shall mean any payment made to or for the account
of Pledgor by Pledgee other than pursuant to Section 3(a) of the Spiro
Employment Agreement.
"Collateral" shall have the meaning assigned to such term in
Section 3.
"Default" shall mean the occurrence or existence of any of the
following events or conditions: (i) an "Event of Default" (as defined in the
Secured Note); (ii) non-compliance by the Pledgor with or failure by the
Pledgor to perform any agreement contained herein and continuance of such
non-compliance or failure after notice therefor to the Pledgor from the
Pledgee; or (iii) any representation, statement or warranty of the Pledgor
contained herein or given pursuant hereto is untrue in any material respect
as of this date made.
<PAGE>
"Pledged Stock" shall have the meaning given to such term in clause
(i) of SECTION 3.
"Refund Collateral" shall have the meaning assigned to such term in
CLAUSE (ii) of SECTION 3.
"Spiro Employment Agreement" shall mean that certain Employment
Agreement dated as of January 1, 1994 between Pledgor and Pledgee, as amended
as of November 3, 1994 and September 6, 1995, respectively.
"Tax Refund" shall mean any refund of taxes payable to Pledgor in
connection with his federal and/or state income tax returns for the
respective tax years ending December 31, 1994, December 31, 1995, December
31, 1996, December 31, 1997, December 31, 1998 and December 31, 1999.
"Stock Collateral" shall have the meaning given to such term in
clause (i) of Section 3.
"Warrant" shall mean that certain Class A Common Stock Purchase
Warrant dated as of September 6, 1995, executed by Pledgor in favor of
Pledgee.
SECTION 2. Representations and Warranties. The Pledgor represents
------------------------------
and warrants to the Pledgee that:
(a) The Pledgor is the sole record and beneficial owner of the
Pledged Stock described on Schedule 1 hereto, and no Lien upon such
Pledged Stock or upon any other Collateral exists, except for those
Liens in favor of the Pledgee created or provided for herein.
(b) Schedule 1 hereto correctly identifies all Pledged Stock as of
the date hereof and correctly identifies the certificates evidencing
such Pledged Stock.
SECTION 3. Collateral. To secure the prompt and complete
----------
payment, performance and observance of all Obligations, the Pledgor hereby
grants to the Pledgee a first priority security interest in, a general
continuing lien upon, and right of set-off against, and hereby mortgages,
assigns and pledges to the Pledgee all of the Pledgor's right, title and
interest in and to, the following property and interests in property, whether
now owned or hereafter acquired by the Pledgor and whether now existing or
hereafter coming into existence (all being collectively referred to herein as
the "Collateral").
----------
(i) all shares of capital stock of whatever class of the
Pledgee held beneficially or of record by Pledgor, including,
without limitation, all shares described on Schedule 1 hereto
(all shares of capital stock of the Pledgee held beneficially
or of record by Pledgor being herein called the "Pledged
Stock"), together with all certificates representing the
Pledged Stock, and all
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<PAGE>
dividends, cash, instruments, subscription warrants and other
rights, options and property of any kind whatsoever from time
to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Stock,
including, without limitation, the Warrant (the Pledged Stock,
together with all such certificates, dividends, cash,
instruments, subscription warrants, and other rights, options
and property being herein collectively referred to as the
"Stock Collateral".
(ii) all Tax Refunds and rights and claims of any kind to
receive Tax Refunds (Tax Refunds and such rights and claims to
receive Tax Refunds being herein collectively referred to as
the "Refund Collateral");
(iii) all Bonus Payments and rights and claims of any kind to
receive Bonus Payments (Bonus Payments and such rights and
claims to receive Bonus Payments being herein collectively
referred to as the "Bonus Collateral"); and
(iv) all proceeds of, and all books and records
pertaining to, any of the property and interests in
property described in Clauses (i), (ii) and (iii)
above in this Section 3.
SECTION 4. Further Covenants. In furtherance of the grant of security
-----------------
in Section 3 hereof, the Pledgor hereby agrees with the Pledgee as follows:
---------
(a) Delivery and Other Perfection The Pledgor
-----------------------------
shall:
(i) if any Collateral required to be delivered or
otherwise paid to Pledgee hereunder or under the Secured
Note is received by the Pledgor, forthwith transfer and
deliver to the Pledgee such shares, securities, moneys or
property so received by the Pledgor (together with the
certificates for any such collateral consisting of shares
and securities duly endorsed in blank, or accompanied by
undated stock powers duly executed in blank) all of
which thereafter shall be held by the Pledgee as part of
the Stock Collateral, or applied by the Pledgee to the
Obligations, pursuant to the respective terms of this
Agreement and the Secured Note, as applicable; and
(ii) give, execute, deliver, file and/or record any
financing statement, notice, instrument, document,
agreement or other papers that may be necessary or
desirable (in the reasonable judgment of the Pledgee) to
create, preserve, perfect or validate any security
interest granted pursuant hereto or to enable the
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<PAGE>
Pledgee to exercise and enforce its rights hereunder with
respect to such security interest.
(b) Other Financing Statements and Liens. Without the prior written
------------------------------------
consent of the Pledgee, the Pledgor shall not file or suffer to be on file,
or authorize or permit to be filed or to be on file, in any jurisdiction any
financing statement or like instrument with respect to the Collateral naming
any Person other than the Pledgee as sole secured party. Sole record and
beneficial ownership of the Stock Collateral shall at all times remain with
the Pledgor, and the Pledgor shall not at any time incur or permit to exist
any Liens on the Pledged Stock or any other Collateral except for those Liens
in favor of the Pledgee created or provided for herein.
(c) Concurrently with filing or delivery thereof, Pledgor will deliver
to Pledgee copies of all tax returns, extension requests and other reports,
filings and correspondence of any kind whatsoever filed and/or delivered by
Pledgor to the Internal Revenue Service or any other taxing authority
covering or otherwise relating to taxes payable with respect to the tax years
ending December 31, 1994, December 31, 1995, December 31, 1996, December
31, 1997, December 31, 1998 and December 31, 1999, respectively.
SECTION 5. Collateral.
----------
(a) For the better perfection of the Pledgee's rights in and to
the Collateral or any part thereof and to facilitate implementation of such
rights, the Pledgor shall, insofar as possible, upon the request of the
Pledgee, cause the Stock Collateral to be transferred, registered or
otherwise put into the name or names of such nominee or nominees of the
Pledgee as the Pledgee shall from time to time direct.
(b) So long as no Default shall have occurred and be continuing
(and after any Default until, by notice to the Pledgor, the Pledgee elects to
exercise the right to vote or consent), the Pledgor shall retain the right to
exercise all voting and other consensual rights and other powers of ownership
pertaining to the Stock Collateral owned by Pledgor for all purposes not
inconsistent with the terms of this Agreement or the Secured Note; and the
Pledgee shall execute and deliver to the Pledgor or cause to be executed and
delivered to the Pledgor all such proxies, powers of attorney, dividend and
other orders, and all such instruments, without recourse, as the Pledgee may
reasonably request for the purpose of enabling the Pledgee to exercise the
rights and powers which it is entitled to exercise pursuant to this Section
5(b).
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<PAGE>
(c) Unless and until a Default has occurred and is continuing, the
Pledgor shall be entitled to receive and retain dividends on the Pledged
Stock.
(d) If any Default shall have occurred, then so long as such
Default shall continue, and whether or not the Pledgee exercises any
available right to declare any Obligation due and payable or seeks or pursues
any other relief or remedy available to it under applicable law or under any
agreement relating to such Obligation, all dividends and other distributions
on the Stock Collateral shall be paid directly to the Pledgee and retained by
it as part of the Collateral, subject to the terms of this Agreement, and, if
the Pledgee shall so request in writing, the Pledgor agrees to execute and
deliver to the Pledgee appropriate additional dividend, distribution and
other orders and documents to that end.
SECTION 6. Certain Actions. The Pledgee may, from time to time,
---------------
whether before or after any of the Obligations shall become due and payable,
without notice to the Pledgor, take all or any of the following actions:
(a) retain or obtain a security interest in any property, in
addition to the Collateral, to secure any of the Obligations;
(b) retain or obtain the primary or secondary liability of any
party or parties in addition to the Pledgor with respect to any of the
Obligations;
(c) extend or renew for any period (whether or not longer than the
original period), alter or exchange any of the Obligations, or release or
compromise any obligation of any nature of any Obligor with respect to any of
the Obligations; and
(d) surrender, release or exchange all or any part of
any property, in addition to the Collateral, securing any of the Obligations,
or compromise or extend or renew for any period (whether or not longer than
the original period) any obligations of any nature of any party with respect
to any such property.
SECTION 7. Default And Remedies. Upon the occurrence and during
--------------------
the continuance of a Default:
(i) the Pledgee shall have all of the rights and remedies
with respect to the Collateral of a secured party under the Uniform
Commercial Code in effect at such time in the State of Illinois (whether or
not such Code is in effect in the jurisdiction where the rights and remedies
are asserted); and
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<PAGE>
(ii) the Pledgee may, upon five (5) Business Days' prior
written notice to the Pledgor of the time and place, with respect to the
Collateral owned by the Pledgor it or any part thereof which shall then be
or shall thereafter come into the possession, custody or control of the
Pledgee or any of its agents, sell, lease, assign or otherwise dispose of all
or any of such Collateral, at such place or places as the Pledgee deems best,
and for cash or on credit or for future delivery (without thereby assuming
any credit risk), at public or private sale, without demand of performance or
notice of intention to effect any such disposition or of time or place
thereof (except such notice as is required above or by applicable statute and
cannot be waived) and the Pledgee or anyone else may be the purchaser,
lessee, assignee or recipient of any or all of the Collateral so disposed of
at public sale (or, to the extent permitted by law, at any private sale), and
thereafter hold the same absolutely, free from any claim or right of
whatsoever kind, including any equity of redemption, of the Pledgor, any such
demand, notice or right and equity being hereby expressly waived and
released. The proceeds of each collection, sale or other disposition under
this Section 7, shall be applied in accordance with Section 9. The Pledgee
may resort to the Collateral for payment of any of the Obligations whether or
not the Pledgee shall have resorted to any other property securing any of the
Obligations or shall have proceeded against any party primarily or
secondarily liable on any of the Obligations.
SECTION 8. Private Sale and Compliance With Law.
------------------------------------
(a) The Pledgee shall incur no liability as a result of the sale of the
Collateral, or any part thereof, at any private sale conducted in a
commercially reasonable manner. The Pledgor hereby waives any claim against
the Pledgee arising by reason of the fact that the price at which the
Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale or was less than the
aggregate amount of the Obligations, even if the Pledgee accepts the first
offer received and does not offer the Collateral to more than one offeree.
(b) The Pledgor agrees that in any sale of any of the Collateral
whenever a Default hereunder shall have occurred and be continuing, the
Pledgee is hereby authorized to comply with any limitation or restriction in
connection with such sale as it may be advised by
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<PAGE>
counsel is necessary in order to avoid any violation of applicable law
(including, without limitation, compliance with such procedures as may
restrict the number of prospective bidders and purchasers or require that
such prospective bidders and purchasers be persons who will represent and
agree that they are purchasing for their own account for investment and not
with a view to the distribution or resale of such Collateral), or in order to
obtain any required approval of the sale or of the purchaser by any
governmental regulatory authority or official, and the Pledgor further
agrees that such compliance shall not result in such sale being considered or
deemed not to have been made in a commercially reasonable manner, nor shall
the Pledgee be liable nor accountable to the Pledgor for any discount allowed
by the reason of the fact that such Collateral is sold in compliance with any
such limitations or restrictions.
SECTION 9. Application of Proceeds. Except as otherwise herein
-----------------------
expressly provided, the proceeds of any collection, sale or other realization
of all or any part of the Collateral, and any other cash at the time
held by the Pledgee under this Agreement, shall be applied by the Pledgee:
First, to the payment in full of all costs and expenses of such
-----
collection, sale or other realization, including reasonable attorneys' fees
and legal expenses incurred by the Pledgee in connection therewith, and all
expenses and/or advances made or incurred by the Pledgee in connection
therewith, or incidental thereto or to the care or safekeeping of any
of the Collateral or in any way relating to the rights of the Pledgee
hereunder, including reasonable attorneys' fees and legal expenses;
Second, to the payment in full of the Obligations; and
------
Third, to the payment to the Pledgor, or the Pledgor's
-----
successors or assigns, or as a court of competent jurisdiction may
direct, of any surplus then remaining from such proceeds which relate to
the Collateral.
SECTION 10. No Waiver. No failure on the part of the Pledgee or any
---------
of its agents to exercise, and no course of dealing with respect to, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by the Pledgee or
any of its agents of any right, power or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
remedy. The remedies herein are cumulative and are not exclusive of any
remedies provided by law.
SECTION 11. Continuing Security Interest. This Agreement creates a
----------------------------
continuing security interest in the Collateral and shall remain in full force
and effect until all Obligations shall have been paid in full.
-7-
<PAGE>
SECTION 12. Expenses. The Pledgor agrees to pay to the Pledgee all
--------
expenses (including reasonable expenses for legal services of every kind) of,
or incident to, the enforcement of any of the provisions of this Agreement,
or performance by the Pledgee of any of the Pledgor's obligations in respect
of the Collateral which the Pledgor has failed or refused to perform, or any
actual or attempted sale, or any exchange, enforcement, collection, comproise
or settlement in respect of any of the Collateral, and for the care of the
Collateral and defending or asserting rights and claims of the Pledgee in
respect thereof, by litigation or otherwise; and all such expenses shall be
Obligations secured pursuant to Section 3.
SECTION 13. Further Assurances. The Pledgor agrees that, from time to
------------------
time upon the written request of the Pledgee, the Pledgor will execute and
deliver such further documents and do such other acts and things as the
Pledgee may reasonably request in order fully to effect the purposes of this
Agreement.
SECTION 14. Miscellaneous.
-------------
(a) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws (without regard to conflicts of law
provisions) of the State of Illinois, provided that as to Collateral located
in any jurisdiction other than the State of Illinois, the Pledgee shall have
all the rights to which a secured party under the laws of such jurisdiction
is entitled.
(b) Notices. All notices, requests, consents and demands hereunder
-------
shall be in writing and shall be given (and deemed to have been received)
pursuant to the terms of Section 6.3 of the Secured Note.
(c) Successors and Assigns. This Agreement shall be binding upon, and
----------------------
shall inure to the benefit of, the respective successors and assigns of the
Pledgor and the Pledgee and each subsequent holder of all or any part of the
Obligations (provided, however, that the Pledgor shall not assign or transfer
his rights or duties hereunder without the prior written consent of the
Pledgee).
(d) Severability. Any provision of this Agreement which is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
(e) Waiver of Jury Trial. THE PLEDGOR WAIVES ANY RIGHT TO A TRIAL BY
--------------------
JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (I) UNDER
THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
(II) ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PLEDGOR:
____________________________
ALAN M. SPIRO
Address:
_____________________
_____________________
_____________________
PLEDGEE:
MEDICON, INC.
By:___________________________
Name:_________________________
Title:________________________
Address:
40 Skokie Boulevard
Northbrook, IL 60062
Attention: General Counsel
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as the day and year first above written.
PLEDGOR:
____________________________
ALAN M. SPIRO
Address:
_____________________
_____________________
_____________________
PLEDGEE:
MEDICON, INC.
By:___________________________
Name:_________________________
Title:________________________
Address:
40 Skokie Boulevard
Northbrook, IL 60062
Attention: General Counsel
<PAGE>
SCHEDULE 1
----------
List of Pledged Stock
Number of Certificate
Issuer Shares Class Number
Medicon, Inc. 120,037 A Common 7
Medicon, Inc. 139,379 A Common -
EXHIBIT 10.67
Employment Agreement
--------------------
This EMPLOYMENT AGREEMENT (the "Agreement") is dated effective as of June
10, 1994 (the "Effective Date"), between Medicon, Inc., an Illinois corporation
(the "Company"), and James E. Zechman (the "Employee");
WHEREAS, the Board of Directors of the Company (the "Board") approved
and authorized the entry into this Agreement with the Employee;
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions for the employment relationship of the Employee with
the Company.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed as Executive Vice President of
----------
Client Development of the Company from the date hereof through the term of this
Agreement. In this capacity, the Employee shall have such executive, policy and
other management duties and responsibilities as he may have on the date hereof
in addition to such other duties and responsibilities as the Board shall
designate as are not inconsistent with the Employee's position with the Company,
including the performance of duties with respect to any subsidiaries or
affiliates of the Company.
2. Term. The term of employment under this Agreement shall be for the
----
period commencing on the Effective Date and ending on December 31, 1996.
3. Salary.
------
(a) The Company agrees to pay the Employee during the term of
this Agreement a salary at an annual rate of $150,000. Participation in
deferred compensation, discretionary bonus, retirement, and other employee
benefit plans and in fringe benefits shall not reduce the base salary payable to
the Employee under this Section 3. The salary under this Section 3 shall be
payable by the Company to the Employee not less frequently than monthly.
(b) As additional compensation, the Company will issue non-voting
common stock of the Company to the Employee according to the following schedule:
<PAGE>
(1) Contemporaneously with the signing of this Agreement,
Employee shall purchase from the Company 35.6 non-voting common shares of
Company stock. The distribution of such shares to be on the following terms:
(2) Contemporaneously with the signing of this agreement,
Employee shall purchase from the Company 17.8 shares of non-voting common stock
of the Company. Said shares shall be non-forfeitable.
(3) On or before January 1, 1995, the Employee shall purchase
from the Company an additional 8.9 non-voting common shares of Company stock,
subject to the forfeiture provisions set forth below.
(4) On or before January 1, 1996, the Employee shall purchase
from the Company an additional 8.9 non-voting common shares of Company stock,
subject to the forfeiture provisions set forth below.
(c) The issuance of stock pursuant to this Section (b) shall be
further governed by the following provision:
(1) The purchase price of the shares purchased shall be $10.00
per share increased by the per share increase in the book value of each share
(adjusted for any other issuances, redemptions or stock dividends or splits)
from January 1, 1994 to the date of issuance. With respect to the stock
purchased, the Employee will make the election provided by Section 83(b) of
the Code relating to transfer of property in connection with performance of
services.
(d) Forfeiture Provisions: The above shares that are subject to
forfeiture shall only be forfeited by the Employee in the case of termination
for Cause as defined in Section 8 of this Agreement or if the Employee
voluntarily terminates his employment with the Company, prior to the issue date
of the shares.
(e) All shares of stock shall be subject to adjustment due to any
stock splits duly declared by the Board of Directors of the Company, and any
additional shares of stock received by the Employee shall be of the same
character, in all respects, as the above described non-voting common stock.
4. Discretionary Bonuses. During the term of this Agreement, the Employee
---------------------
shall be entitled to participate in bonuses as may be authorized, declared, and
paid by the Board in its complete discretion to the executive officers of the
Company. No other compensation provided for in this Agreement shall be deemed a
substitute for the Employee's right to participate in such bonuses when and as
declared by such Board of Directors.
2
<PAGE>
5. Participation in Retirement and Employee Benefit Plans. The Employee
------------------------------------------------------
shall be entitled to participate in or receive benefits under any plan of the
Company relating to pension, thrift, profit sharing, life insurance, medical
coverage, disability, education, or other retirement or employee benefits that
the Company has adopted or may adopt for the benefit of its employees.
6. Vacations. The Employee shall be entitled to an annual paid vacation of
---------
four weeks per year. Any vacation days unused in any calendar year will be
lost. The timing of paid vacations shall be scheduled in a reasonable manner by
the Employee with approval of the Company, said approval to not be unreasonably
withheld.
7. Business Expenses. The Employee shall be entitled to prompt
-----------------
reimbursement for all reasonable business expenses incurred by the Employee in
the performance of his duties.
8. Termination. The Employee's employment with the Company shall only be
-----------
terminated for "Cause". Termination by the Company of the Employee's employment
for "Cause" shall mean termination upon (1) the continued failure by the
Employee to substantially perform his duties with the Company after a written
demand for substantial performance is delivered to him by the Board, which
demand specifically identifies the manner in which the Board believes that he
has not substantially performed his duties or (2) the substantial violation of
any of the substantive terms of this Agreement, dishonesty, conviction of a
felony, moral turpitude, or any act that is demonstrably and materially
injurious to the Company, monetarily or otherwise.
9. No Assignments.
--------------
(a) This Agreement is personal to each of the parties hereto.
Neither party may assign or delegate any rights or obligations hereunder without
first obtaining the written consent of the other parties hereto. However, in
the event of the death of the Employee, all rights to receive payments hereunder
shall become rights of the Employee's estate.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Employee and his personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Employee should die while any amount would still be payable to
him hereunder had he continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
his devisee, legatee or other designee or, if there is not such designee, to his
estate.
3
<PAGE>
10. Notice. For the purpose of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to MEDICON, Inc., 40 Skokie Boulevard, Northbrook, Illinois 60062, and
to the Employee, 197 Hazel, Highland Park, Illinois, 60035, provided that all
notices to the Company shall be directed to the attention of the Board with a
copy to the Secretary of the Company, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
11. Amendments or Additions. No amendments or additions to this Agreement
-----------------------
shall be binding unless in writing and signed by all parties hereto.
12. Section Headings. The section headings used in this Agreement are
----------------
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
13. Severability. Any provision of this Agreement that is deemed invalid,
------------
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction and
subject to this section, be ineffective to the extent of such invalidity,
illegality or unenforceability, without affecting in any way the remaining
provisions hereof in such jurisdiction or rendering that or any other provisions
of this Agreement invalid, illegal, or unenforceable in any other jurisdiction.
14. Arbitration. Any dispute or controversy arising under or in connection
-----------
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three arbitrators in Chicago in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction.
15. Miscellaneous. No provision of this Agreement may be modified, waived
-------------
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Employee and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to
4
<PAGE>
the subject matter hereof have been made by either party which are not expressly
set forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Illinois without regard to its conflicts of law principles.
MEDICON, Inc.
Attest_________________________ _________________________________
Secretary By: Alan P. Mintz
Its: President
EMPLOYEE:
__________________________________
James E. Zechman
5
EXHIBIT 10.68
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT is made and entered into
this 6th day of September, 1995, by and between MEDICON, INC., an Illinois
corporation (the "Company"), and JAMES E. ZECHMAN (the "Employee").
RECITALS
--------
WHEREAS, the Company and the Employee entered into that certain
Employment Agreement, dated as of January 1, 1994 (the "Employment
Agreement"), which agreement sets forth the terms and conditions for the
employment relationship of the Employee with the Company; and
WHEREAS, the Company and the Employee desire to amend the Employment
Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do agree to
amend the Employment Agreement as follows:
1. Amendment.
---------
(a) Section 3(a) of the Employment Agreement is hereby amended and
restated in its entirety to read as follows:
"The Company agrees to pay Employee during the term of this Agreement a
salary at an annual rate of $140,000 until such time as Net Income of
the Company is a positive sum for any fiscal quarter as determined by
the Chief Financial Officer of the Company (the "Triggered Period").
Commencing at the Triggered Period, the Company agrees to pay Employee
during the term of this Agreement a salary at an annual rate of
$175,000. Net Income shall mean for any period and prior to the
accounting for the payment of any dividends on the stock of the Company,
(a) the net income (loss) of the Company and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP, minus(b)
-----
the aggregate for such period of, without duplication, (i) the net
income (loss) of any individual, firm, partnership, corporation,
trust, unincorporated association, or any other entity of any kind,
acquired in a pooling of interests transaction for any period prior to
the date of such acquisition, determined in accordance with GAAP, and
(ii) any other items that are treated as expenses under GAAP, but
excluding from the definition of Net Income any extraordinary or non-
recurring charges, expenses, gains or
<PAGE>
losses, all computed in accordance with GAAP as reflected on the
consolidated income statement of the Company. Participation in
deferred compensation, discretionary bonus, retirement, and other
employee benefit plans and in fringe benefits shall not reduce the
base salary payable to the Employee under this Section 3. The salary
under this Section 3 shall be payable by the Company to the Employee
not less frequently than monthly."
2. Employment Agreement. As amended hereby, the Employment Agreement
--------------------
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Second Amendment to
be executed as of the date first written above.
THE COMPANY:
MEDICON, INC.
By:____________________
Its:___________________
THE EMPLOYEE:
_______________________
James E. Zechman
Exhibit 10.69
RESTRICTED SHARES AGREEMENT
---------------------------
RESTRICTED SHARES AGREEMENT dated September 6, 1995 by and between
MEDICON, INC., an Illinois corporation (the "Company"), and JAMES E. ZECHMAN
(THE "Holder").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Board of Directors of the Company (the "Board") has
authorized the grant of restricted shares to the Holder; and
WHEREAS, such resolution authorizing the grant provides that the terms
of such grant shall be set forth in a restricted shares agreement (the
"Agreement") by and between the Company and the Holder; and
WHEREAS, the parties now desire to enter into the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Award of Restricted Shares. Subject to the restrictions, terms
--------------------------
and conditions of this Agreement, the Company hereby issues and sells to the
Holder 586,771 shares of Class A Common Stock, no par value per share, of the
Company ("Common Stock"), at a purchase price of $.01 per Share of Common Stock.
Such shares are hereinafter referred to as the "Restricted Shares" until such
shares vest in accordance with the terms hereof.
2. Vesting of Restricted Shares. Subject to paragraphs 6 and 7 of
----------------------------
this Agreement, Restricted Shares shall become "vested" at the rate of 20% a
year on a cumulative basis commencing on December 31, 1996 and each anniversary
date thereafter.
3. Limitations on Rights of Holder.
-------------------------------
(a) Shares to Bear Restrictive Legend. The Restricted Shares
---------------------------------
will be represented by a stock certificate or certificates registered in the
name of the Holder. From and after the date of original issuance, stock
certificates representing the Restricted Shares shall bear a legend in
substantially the following form:
"THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE,
ENCUMBRANCE OR OTHER DISPOSITION (EACH
A TRANSFER") AND VOTING OF ANY OF THE SECURITIES REPRESENTED BY THIS
<PAGE>
CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE STOCKHOLDERS' AGREEMENT,
DATED AS OF NOVEMBER 3, 1994, AND AMENDED AS OF SEPTEMBER 6, 1995, AMONG
THE COMPANY AND THE STOCKHOLDERS NAMED THEREIN, AND A RESTRICTED SHARES
AGREEMENT, DATED AS OF SEPTEMBER 6, 1995, BETWEEN THE REGISTERED HOLDER
HEREOF AND THE COMPANY, COPIES OF WHICH MAY BE INSPECTED AT THE COMPANY'S
PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH
SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS
BEEN MADE IN COMPLIANCE WITH THE TERMS OF SUCH STOCKHOLDERS' AGREEMENT AND
RESTRICTED SHARES AGREEMENT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
(b) Company to Retain Custody of Stock.
----------------------------------
Promptly after the date of this Agreement, the Company will issue to the
Holder, and the Holder will deposit with and deliver to the Company, the stock
certificate or certificates referred to in subparagraph (a) of this paragraph 3,
each duly endorsed in blank or accompanied by stock powers duly executed in
blank.
(c) Power of Attorney. The Company is hereby appointed the
-----------------
attorney-in-fact, with full power of substitution of the Holder for the sole
purpose of carrying out the provisions of this Agreement and taking any action
and executing any instrument which such attorney-in-fact may deem necessary or
advisable to accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest. The Company as
attorney-in-fact for the Holder may, in the name and stead of the Holder, make
and execute all conveyances, assignments and transfers of the Restricted Shares,
and the Holder hereby ratifies and confirms all that the Company, as said
attorney-in-fact, shall do by virtue hereof, provided that the foregoing shall
be solely for the purpose of carrying out the provisions of this Agreement.
Nevertheless, the Holder shall, if so requested by the Company, execute and
deliver to the Company all such instruments as may, in the reasonable judgment
of the Company, be advisable for the purpose hereof.
(d) Certain Rights of Holder. The Restricted Shares, when
------------------------
issued pursuant to the provisions hereof, shall constitute issued and
outstanding shares of
<PAGE>
Common Stock for all corporate purposes. From and after the date of original
issuance, the Holder will have the right to vote the Restricted Shares and to
exercise all other rights, powers and privileges of a holder of Common Stock
with respect to the Restricted Shares, with the exception that, until the
Restricted Shares shall have become vested pursuant to the terms hereof (i) the
Holder will not be entitled to delivery of the stock certificate or certificates
representing the Restricted Shares; (ii) the Company will retain custody of the
Restricted Shares; (iii) the Holder may not sell, assign, transfer, pledge,
exchange, encumber or dispose of the Restricted Shares. A material breach of
any of the foregoing restrictions or a material breach of any of the other
restrictions, terms and conditions of this Agreement with respect to any of
the Restricted Shares, except as waived by the Company, will cause a forfeiture
of such Restricted Shares; and (iv) the Company will retain custody of all
distributions ("Retained Distributions") made or declared with respect to the
Restricted Shares (and such Retained Distributions will be subject to the same
restrictions, terms and conditions as are applicable to the Restricted Shares)
until such time, if ever, as the Restricted Shares with respect to which such
Retained Distributions shall have been made, paid or declared shall have become
vested, and such Retained Distributions shall not bear interest or be segregated
in separate accounts.
(e) Stockholders' Agreement. Concurrently with the execution of
-----------------------
this Agreement, the Holder agrees, as a condition to the receipt of the
Restricted Shares hereunder, to execute and become a party to the Stockholders'
Agreement, dated as of November 3, 1994, and amended as of September 6, 1995,
among the Company and the stockholders named therein.
4. Delivery of Vested Securities. Subject to paragraph 8
-----------------------------
hereof, when any Restricted Shares shall have become vested pursuant to the
provisions of this Agreement, the Company shall promptly issue and deliver to
the Holder new stock certificates or instruments representing the vested shares,
registered in the name of the Holder or, if deceased, his legatees, personal
representatives or distributees, which do contain the legend set forth in
subparagraph (a) of paragraph 3 hereof.
5. No right to Employment. Nothing in this Agreement shall be
----------------------
construed to give the Holder any right to be awarded any additional Restricted
Shares or to confer on the Holder any right to continue in the employ of the
Employer or to be evidence of any agreement or understanding, express or
implied, that the Company or any of its
<PAGE>
subsidiaries will employ the Holder in any particular position or at any
particular rate of remuneration, or for any particular period of time or to
interfere in any way with the right of the Employer (or the right of the Holder)
to terminate the employment of the Holder at any time, with or without Cause (as
defined in the Employment Agreement dated June 10, 1994, as amended, between the
Company and the Holder), notwithstanding the consequences of such termination
pursuant to paragraph 7 of this Agreement.
6. Acceleration of Vesting.
-----------------------
(a) Death or Disability. If the Holder's employment with
-------------------
the Company terminates by reason of death or disability (as determined under
the Employment Agreement), 50% of the Restricted Shares that have yet to become
vested shall become immediately vested.
(b) Initial Public Offering.
-----------------------
(i) If the Company completes a Qualified Public
Offering (as defined in Section 17) on or before December 31, 1996, all
Restricted Shares shall become immediately vested.
(ii) If the Company completes a Qualified Public
Offering after December 31, 1996, 50% of the Restricted Shares shall become
immediately vested.
(c) Sale of the Company. If the Holder's employment is
-------------------
terminated by the Company without Cause in connection with a Qualified Sale
Transaction (as defined in Section 17), all Restricted Shares shall become
immediately vested.
7. Termination of Employment.
-------------------------
(a) General, If the Holder's employment with the Company
-------
terminates for any reason prior to the date the shares of Common Stock issued
and sold hereunder vest, the Holder shall forfeit all Restricted Shares that
have not so vested hereunder and the Holder shall not be entitled to receive any
consideration or compensation therefor. The Holder shall cooperate with the
Company to effectuate the purpose of this provision.
(b) Cause. If the Holder's employment is terminated by the
-----
Company for Cause, the shares of Common Stock issued and sold hereunder (whether
or not vested) shall be irrevocably forfeited by the Holder or any subsequent
permitted transferee thereof.
<PAGE>
8. Compliance with Law. The delivery of any certificate
-------------------
representing Restricted Shares may be postponed by the Company for such period
as may be required for it with reasonable diligence to comply with any
applicable registration requirements under the Securities Act of 1933, any
applicable listing requirement of any national securities exchange and
requirements under any other law or regulation applicable to the issuance or
transfer of securities.
9. No Transfer or Assignment. No right or benefit under this
-------------------------
Agreement shall be subject to anticipation, alienation, sale, assignment,
hypothecation, pledge, exchange, transfer, encumbrance or charge, and any
attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange,
transfer, encumber or charge the same shall be void. No right or benefit under
this Agreement shall in any manner be liable for or subject to the debts,
contracts, liabilities or torts of the person entitled to such benefit. If the
Holder or any beneficiary under this Agreement should become bankrupt or attempt
to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer,
encumber or assign, hypothecate, pledge, exchange, transfer, encumber or charge
any right or benefit under this Agreement, then such right or benefit shall, in
the discretion of the Company, cease and terminate, and in such event, the
Company in its discretion may hold or apply the same or any part thereof for the
benefit of the Holder or his beneficiary, spouse, children or other dependents,
or any of them, in such manner and in such proportion as the Company may deem
proper.
10. Amounts Not Salary or Bonus. The Holder agrees that the award of
---------------------------
the Restricted Shares hereunder is special incentive compensation and that it
will not be taken into account as "salary" or "compensation" or "bonus" in
determining the amount of any payment under any pension, retirement, profit-
sharing, savings or stock ownership plan of the Company or any of its
subsidiaries, unless expressly provided pursuant to the terms of such plan.
11. Section 83(b) Election. The Holder shall elect within 30 days
----------------------
after the date hereof to include in gross income for Federal income tax purposes
an amount equal to the fair market value of the Restricted Shares as of the
date hereof and shall pay to the Employer or make arrangements satisfactory to
the Company to pay to the Employer in the year of award of such Restricted
Shares, any Federal, state or local taxes required to be withheld with respect
to such Restricted Shares. If the Holder shall fail to make such payment, the
Employer shall, to the extent permitted by law, have the right to deduct from
any payment of any kind otherwise due to him any Federal, state or local taxes
of any kind required by law to be withheld with respect to such Restricted
Shares.
<PAGE>
12. Fees and Expenses. The Company shall pay all fees and expenses
-----------------
necessarily incurred by the Company in connection with this Agreement and will
from time to time use its reasonable efforts to comply with all laws and
regulations which, in the opinion of counsel for the Company, are applicable
thereto.
13. Notices. Any notice which either party hereto may be required or
-------
permitted to give the other shall be made in accordance with the provisions of
Section 10 of the Employment Agreement dated June 10, 1994, as amended, between
the Company and the Holder.
14. Amendments. This Agreement may only be amended or modified by
----------
written agreement of the Company and the Holder.
15. Successor and Assigns. This Agreement shall be binding upon and
---------------------
inure to the benefit of the Company and its successors and assigns, and shall be
binding upon and inure to the benefit of the Holder and his legatees,
distributees and personal representatives.
16. Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
Illinois applicable to agreements made and to be performed entirely in Illinois,
without regard to the conflict of laws principles of such state.
17. Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Investors" means the Whitney Subordinated Debt Fund, L.P.,
---------
Whitney 1990 Equity Fund, L.P., a Delaware limited partnership, J.H. Whitney &
Co., a New York limited partnership and Chemical Venture Capital Associates, a
California limited partnership.
"IPO" means the sale in an underwritten offering by the Company
---
of its Common Stock pursuant to a registration statement on Form S-1 or
otherwise under the Securities Act of 1933, as amended.
"Net Cash Proceeds" means, with respect to (A) any IPO, (I) the
-----------------
cash proceeds received by the Company or any subsidiary of the Company, minus
-----
(II) reasonable brokerage commissions or underwriting fees and other reasonable
fees and expenses (including, without limitation, reasonable fees, charges and
disbursements of counsel and reasonable fees and expenses of investment
bankers) related to such IPO or (B) any Sale Transaction, (I) the cash proceeds
received
<PAGE>
by the Investors, minus (II) brokerage commissions or underwriting fees and all
-----
other costs, fees and expenses of the Investors associated with such Sale
Transaction (including, without limitation, fees, charges and disbursements of
counsel and reasonable fees and expenses of investment bankers or other third
party financial experts).
"Qualified Public Offering" means an IPO by the Company with Net
-------------------------
Cash Proceeds to the Company in excess of $30,000,000 and in respect of which
the price per share of Common Stock sold in such Qualified Public Offering is at
least $5.572923 (subject to appropriate adjustment for any dividends,
subdivisions, combinations or reclassifications of Common Stock). This implies,
for example, that the aggregate value of the Investors' original equity
investment will be at least $90,000,000.00 upon the closing of a Qualified
Public Offering.
"Qualified Sale Transaction" means a Sale Transaction in which
--------------------------
(A) the senior subordinated promissory notes in the aggregate principal amount
of $10,000,000.00 payable to Whitney Subordinated Debt Fund, L.P. and Chemical
Ventures Capital Associates, together with all accrued and unpaid interest
thereon, are repaid and (B) the Investors receive Net Cash Proceeds equal to or
in excess of $30,000,000.00 for the Series A Preferred Stock and Common Stock of
the Investors.
"Sale Transaction" means (A) any sale of the capital stock of the
----------------
Company owned by the Investors or (B) any merger, consolidation, sale or other
business combination involving the Company, in each case in one transaction or a
series of transactions occurring prior to the consummation of an IPO.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
duly executed by its agent thereunto duly authorized, and the Holder has
hereunto set his hand, all as of the date first above written.
MEDICON, INC.
BY: /s/
------------------------------
Name:
Title:
------------------------------
JAMES B. ZECHMAN
EXHIBIT 10.70
MEDICON, INC.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
MEDICON, Inc., an Illinois corporation (the "Company"), hereby
formulates and adopts the following Stock Option Plan for Non-Employee Directors
(the "Plan") of the Company.
1. Purpose. The purpose of the Plan is to secure for the Company
-------
the benefits of the addition incentive inherent in the ownership of Class A
Common Stock, no par value, of the Company ("Common Stock") by non-employee
directors of the Company and to help the Company secure and retain the services
of such non-employee directors. The Plan is not intended to be a formula plan
under Rule 16b-3 (c)(2)(ii), under the Securities Exchange Act of 1934.
2. Administration. The Plan shall be administered by the
--------------
compensation committee (the "Committee") appointed by the Board of Directors of
the Company (the "Board of Directors"), which Committee shall consist of two or
more directors. The members of the Committee shall be appointed by, and may be
changed at any time and from time to time in the discretion of, the Board of
Directors.
Subject to the provisions of the Plan, the Committee shall have
the authority (a) to exercise all of the powers granted to it under the Plan,
(b) to construe, interpret and implement the Plan and any option agreements
executed pursuant to the Plan, (c) to prescribe, amend and rescind rules
relating to the Plan, (d) to make any determination necessary or advisable in
administering the Plan, and (e) to correct any defect, supply any omission and
reconcile any inconsistency in the Plan. The determination of the Committee on
all matters relating to the Plan or any option agreement shall be conclusive.
No member of the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any option granted hereunder.
Notwithstanding anything to the contrary contained herein:
(a) until the Board of Directors shall appoint the members of the Committee,
the Plan shall be administered by the Board of Directors, and (b) the Board of
Directors may, in its sole discretion, at any time and from time to time,
resolve to administer the Plan. In either of the foregoing events, the term
Committee as used herein shall mean the Board of Directors.
<PAGE>
Options for members of the Committee shall be granted by the
entire Board of Directors, rather than by the Committee.
3. Common Stock Subject to Options. Subject to the adjustment
-------------------------------
provisions of Section 13 below, a maximum of 48,487 shares of Common Stock may
be made subject to options granted under the Plan. If, and to the extent that,
options granted under the Plan shall terminate, expire or be canceled for any
reason without having been exercised, new options may be granted in respect of
the shares covered by such terminated, expired or canceled options. The
granting and terms of such new options shall comply in all respects with the
provisions of the Plan.
Shares sold upon the exercise of any option granted under the
Plan may be shares of authorized and unissued Common Stock, shares of issued
Common Stock held in the Company's treasury or both.
There shall be reserved at all times for sale under the Plan a
number of shares, of either authorized and unissued shares of Common Stock
shares of Common Stock held in the Company's treasury, or both, equal to the
maximum number of shares which may be purchased pursuant to options granted or
that may be granted under the Plan.
4. Eligibility. Options under the Plan may be granted to such
-----------
directors of the Company who are not employees of the Company or any affiliate
of the Company as the Committee shall from time to time in its sole discretion
select ("Eligible Directors").
5. Grant of Options.
----------------
(a) Awards. Eligible Directors may be awarded, at the
------
discretion of the Committee, options to purchase shares of Common Stock with the
number of such shares to be determined by the Committee, such grants to be made
at the time the person becomes a member of the Board of Directors, and/or at a
later date as selected by the Committee.
(b) Type of Options. All options granted under the Plan shall be
---------------
"nonqualified" stock options subject to the provisions of section 83 of the
Internal Revenue Code of 1986, as amended (the "Code") and are not intended to
qualify for special tax treatment as incentive stock options subject to the
provisions of Code section 422. A director receiving an option pursuant to the
Plan is hereinafter referred to as an "Optionee."
<PAGE>
6. Price. The option price of each share of Common Stock
-----
purchasable under any option granted pursuant to the Plan shall be the Fair
Market Value (as defined below) thereof at the time the option is granted.
For purposes of the Plan, "Fair Market Value" shall mean, with respect
to each share of Common Stock for any day, (a) the last reported sale price
regular way or, in case no such sale takes place on such day, the average of the
closing bid and asked prices regular way, in either case as reported on the
principal national securities exchange on which such Common Stock is listed or
admitted for trading or (b) if such Common Stock is not listed or admitted for
trading on any national securities exchange, the last reported sale price or, in
case no such sale takes place on such day, the average of the highest reported
bid and the lowest reported asked quotation for such Common Stock, in either
case as reported on the Automatic Quotation System of NASDAQ or a similar
service if NASDAQ is no longer reporting such information. If stock is not
listed or admitted for trading on any national securities exchange or quoted on
NASDAQ or a similar service on such date, Fair Market Value shall be determined
by the Committee in its sole discretion.
7. Exercisability of Options. Each option granted to an Optionee
-------------------------
hereunder shall become exercisable as set forth in the individual option
agreements.
All outstanding options, to the extent not vested in accordance with
the foregoing, shall be forfeited on the date of termination of a director's
service as a director of the Company.
8. Duration of Options. Notwithstanding any provision of the
-------------------
Plan to the contrary, the unexercised portion of any vested option granted under
the Plan shall automatically and without notice terminate and become null and
void at the time of the earliest to occur of the following:
(a) The expiration of 10 years from the date on which such option
was granted;
(b) The expiration of one year from the date the Optionee's
service with the Company shall terminate by reason of "permanent and total
disability" within the meaning of Section 22(e)(3) of the Code ("Disability"),
provided, however, that if the Optionee shall die during such one-year period,
the provisions of subparagraph (c) below shall apply;
(c) The expiration of one year from the date of the Optionee's
death, if such death occurs during service
<PAGE>
as a director, during the one-year period described in subparagraph (b) above or
during the three-month period described in subparagraph (e) below;
(d) The date the Optionee's service with the Company shall
terminate by reason of "cause" (as hereafter defined). Termination by reason of
"Cause" shall mean termination by reason of participation and conduct during the
performance of services consisting of fraud, felony, willful misconduct or
commission of any act which causes or may reasonably be expected to cause damage
to the Company or any of its affiliates; and
(e) The expiration of three months from the date of the
Optionee's service with the Company (including advisory services) terminates
other than by reason of death, Disability or termination for Cause.
9. Method of Exercise.
------------------
(a) The option or any part thereof may be exercised in
accordance with Section 2 of the individual option agreements only by giving
written notice of exercise to the Company at its principal business office,
directed to the attention of its Chief Financial Officer and by specifying the
number of whole shares of Common Stock with respect to which the option is being
exercised. Such notice must be accompanied by payment of the full purchase
price for the number of shares purchased.
(b) Payment of the purchase price shall be made by the Optionee
to the Company at the time of exercise by cash, check or money order or by
Common Stock owned by the Optionee (provided that, if the Committee so requires,
such Common Stock must be owned by the Optionee for at least six months prior to
exercise). As soon as practicable after it receives payment of the purchase
price, subject to the withholding provisions of Section 21 of this Plan, the
Company shall deliver to the Optionee a certificate or certificates for the
shares of Common Stock so purchased.
<PAGE>
10. Nontransferability of Options. No option or any right granted to
-----------------------------
the Optionee shall be assignable or transferable (whether by operation of law or
otherwise and whether voluntarily or involuntarily) other than by will or the
laws of descent and distribution. During the Optionee's lifetime, all rights
granted to the Optionee under the Plan shall be exercisable only by the Optionee
(or the Optionees' court-appointed legal representative).
11. Right of Discharge Reserved. Nothing in the Plan or in any
---------------------------
option shall confer upon any Optionee the right to continue as a director of the
Company or affect any right that the Company or its shareholders may have to
terminate the Optionee's service as a director.
12. No Stockholder Rights. No Optionee or other person shall have
---------------------
any of the rights of a stockholder of the Company with respect to any shares
subject to the option until the date of the issuance of a stock certificate or
certificates to him for such shares. Except for adjustments made pursuant to
Section 14 no adjustment shall be made for dividends, distributions or other
rights (whether ordinary or extraordinary, and whether in cash, securities or
other property) for which the record date is prior to the date such stock
certificate is issued.
13. Adjustments.
-----------
(a) Upon Changes in Capitalization. To the extent specified by
------------------------------
the Board of Directors, the number of shares of Stock that may be issued
pursuant to options under the Plan, the number of shares of Stock subject to
options, the exercise price of options theretofore granted under the Plan and
the amount payable by a grantee in respect of an option shall be appropriately
adjusted (as the Board of Directors may determine) for any change in the number
of issued shares of Stock resulting from the subdivision or combination of
shares of Stock or other capital adjustments, or the payment of a stock dividend
after the effective date of the Plan, or other change in such shares of Stock
effected without receipt of consideration by the Company; provided that any
options covering fractional shares of Stock resulting from any such adjustment
shall be eliminated. Adjustments under this Section 14 shall be made by the
Board of Directors, whose determination as to what adjustments shall be made,
and the extent thereof, shall be final, binding and conclusive.
(b) Other. In the event of any acquisition, divestiture or any
-----
other corporate transaction of any kind involving the Company or its
subsidiaries which the Board of Directors, in its discretion, determines to be
of such a kind or nature as to make appropriate an amendment or
<PAGE>
adjustment to the Plan in order to effectuate the intent and purposes of the
Plan, the Board of Directors, in its discretion, may make such amendment or
adjustment. Without limiting the generality of the foregoing, the Board of
Directors, in its discretion, may, in connection with any such corporate
transaction, (a) reduce or increase the Minimum EBITDA Targets, the Maximum
EBITDA Targets and/or the EBITDA Factors and/or (b) amend any other terms or
provisions of the Plan, all as it deems appropriate to effectuate the intent and
purposes of the Plan.
14. Form of Agreements with Optionees. Each option granted
---------------------------------
pursuant to the Plan shall be in writing and shall have such form, terms and
provisions, not inconsistent with the provisions of the Plan, as the Committee
shall provide for such option.
15. Purchase for Investment. Whether or not the options and shares
-----------------------
covered by the Plan have been registered under the Securities Act of 1933, as
amended, each person exercising an option under the Plan may be required by the
Company to give a representation in writing that such person is acquiring such
shares for investment and not with a view to, or for sale in connection with,
the distribution of any part thereof. The Company will endorse any
necessary legend referring to the foregoing restriction upon the certificate or
certificates representing any shares issued or transferred to the Optionee upon
the exercise of any option granted under the Plan.
16. Puts and Calls.
--------------
(a) Call Option. During the 120-Day period following the date
-----------
the Optionee's services as director with the Company and its subsidiaries
terminates, the Company shall have an option to purchase from such Optionee (or
from any legal representative or transferee (by will or the laws of descent and
distribution or otherwise) of such Optionee) all or any portion of shares
("option shares") acquired by such Optionee pursuant to the exercise of options
granted under this Plan at a purchase price per share equal to (i) if the
Optionee's services as director terminates other than for Cause, "Put/Call
Value" (as defined in the next sentence and as determined on the date of the
written notice described in Section 17(c)), and (ii) if the Optionee's services
as director with the Company and its subsidiaries terminates for Cause, the
lesser of Put/Call Value (determined on the date of the written notice described
in Section 17(c)) and the option exercise price; provided, however, that this
-------- -------
provision shall have no applicability if the Common Stock is publicly traded on
a national securities exchange, throughout such 120-day period except in the
event the Optionee's services as director is terminated for Cause.
<PAGE>
Put/Call Value" shall mean: if the Stock is listed or admitted for trading on
any national securities exchange or quoted on NASDAQ or a similar service on
such date, Fair Market Value as defined above; and if the Stock is not listed or
admitted for trading on any national securities exchange or quoted on NASDAQ or
a similar service on such date, the value equal to four times the EBITDA for the
12-month period ending at the end of the month proceeding the put or call
exercise divided by the outstanding "Shares" (as such term is defined in the
Amended and Restated Articles of Incorporation) unless the Committee determines
that it does not reflect the Fair Market Value,in which case it shall mean the
Fair Market Value.
(b) Put Option. During the 120-day period following the date
----------
the Optionee's services as director with the Company and its subsidiaries
terminates by reason of death or disability, the Optionee, the Optionee's court-
appointed legal representative (or the person or persons to whom such options
pass under the Optionee's will or, if applicable, pursuant to the laws of
descent and distribution) may cause the Company to purchase the option shares at
a purchase price per share equal to Put/Call Value (determined on the date of
the written notice described in Section 17(c)); provided, however, that this
-------- -------
provision shall have no applicability if (i) the Common Stock is publicly traded
on a national securities exchange throughout such 120-day period or (ii) such
purchase by the Company would (x) constitute or cause a breach or violation of,
or a default (whether immediately or with notice or lapse of time or both)
under, any debt agreement of the Company or of any of its subsidiaries whether
currently in existence or entered into subsequent to the date hereof), (y)
require the consent or approval of the holders of any class of the Company's
capital stock pursuant to the Company's Amended and Restated Articles of
Incorporation and such consent or approval is not obtained, or (z) violate any
law applicable to the Company.
(c) Closing. To the extent applicable, the call and put options
-------
described in Sections 17(a) and (b) shall be exercisable by delivering to the
Optionee or the Company, as the case may be, within such 120-day period, written
notice of intention to exercise such option. The closing of the purchase and
sale of shares of Common Stock pursuant to the exercise of such options shall
take place on the 11th day (or if not a business day, the next business day)
following the date of the written notice at the offices of the Company. At such
closing the Optionee shall deliver to the Company, duly endorsed for transfer,
certificates representing all of the shares of Common Stock being purchased and
sold at such closing against payment therefor
<PAGE>
which, at the option of the Company, shall be made either by certified or bank
cashier's check for the purchase price.
(d) Option Cancellation. During the 120-day period following
-------------------
the date the Optionee's services as director with the Company and its
subsidiaries terminates, or in connection with a Change of Control (as defined
in the Amended and Restated Articles of Incorporation), the Committee, in its
discretion, by written notice to the Optionee may cancel all options then
exercisable (as determined under Section 7 hereof), or any part thereof, and the
Company shall pay to the Optionee, as soon as practicable thereafter, an amount
in cash equal to the excess of (i) the aggregate Fair Market Value of the shares
of Common Stock subject to the option or part hereof canceled (determined as of
the date the Committee, provide written notice thereof to the Optionee) over
(ii) the aggregate option exercise price of the shares of Common Stock subject
to the option or part thereof canceled.
17. Notices. All notices and other communications hereunder shall be
-------
given in writing, shall be personally delivered against receipt or sent by
registered or certified mail, return receipt requested, shall be deemed given on
the date of delivery or of mailing, and if mailed, shall be addressed (a) to the
Company, at its principal business office and (b) to the Optionee, at the
Optionee's principal residential address last furnished to the Company. Notices
sent to the Company shall be sent to Medicon, Inc., 40 Skokie Boulevard,
Northbrook, Il 60062-1618, Attention: Chief Financial Officer of the Company.
Either party may, by notice, change the address to which notice to such party is
to be given.
18. Termination and Amendment of Plan and Options. Unless the Plan
---------------------------------------------
shall theretofore have been terminated a hereinafter provided, options may be
granted under the Plan prior to the tenth anniversary of the Effective Date on
which the Plan will expire, except as to options then outstanding under the
Plan. Such options shall remain in effect until they have been exercised, have
expired or have been canceled.
The Plan may be terminated or amended at any time by the Board of
Directors; provided, however, that (i) any such amendment shall comply with all
applicable laws and applicable stock exchange listing requirements, and (ii) any
amendment for which stockholder approval is required by law or in order to
maintain continued qualification of the Plan under Rule 16b-3 shall not be
effective until such approval has been obtained.
<PAGE>
No termination, modification or amendment of the Plan, without the
consent of the Optionee, may adversely affect the rights of such person with
respect to such option.
19. Effective Date of Plan. The Plan shall become effective upon its
----------------------
adoption by the Board of Directors (the "Effective Date"), subject, however, to
its approval by the Company's shareholders within 12 months after the date of
such adoption.
20. Government and Other Regulations. The obligation of the Company
--------------------------------
with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations and such approvals by any governmental
agency as may be required, including, without limitation, the effectiveness of
any registration statement required under the Securities Act of 1933, as
amended, and the rules and regulations of any securities exchange on which the
Common Stock may be listed.
21. Withholding. The Company's obligation to deliver the shares of
-----------
Common Stock in respect of any option granted under the Plan shall be subject to
all applicable federal, state and local tax withholding requirements. Federal,
state and local withholding tax due upon the exercise of any option, may be paid
in shares of Common Stock (including the withholding of shares subject to an
option).
22. Separability. If any part of the Plan is declared by any court
------------
or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any portion of the Plan not declared to be
unlawful or invalid. Any Section or part of a Section so declared to be unlawful
or invalid shall, if possible, be construed in a manner which will give effect
to the terms of such Section or part of a Section to the fullest extent possible
while remaining lawful and valid.
23. Non-Exclusivity of the Plan. Neither the adoption of the Plan by
---------------------------
the Board of Directors nor the submission of the Plan to the Shareholders of the
Company for approval shall be construed as creating any limitation on the power
of the Board of Directors to adopt such other incentive arrangements as it may
deem desirable, including, without limitation, the granting of stock options and
the awarding of stock and cash otherwise than under the Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
24. Exclusion from Pension and Profit-Sharing Computation. By
-----------------------------------------------------
acceptance of an option, each Optionee
<PAGE>
shall be deemed to have agreed that such grant is special incentive compensation
that will not be taken into account, in any manner, as salary, compensation or
bonus in determining the amount of any payment under any pension, retirement or
other employee benefit plan of the Company or any of its affiliates. In
addition, such option will not affect the amount of any life insurance coverage,
if any provided by the Company on the life of the Optionee.
25. Governing Law. The Plan shall be governed by, and construed in
-------------
accordance with, the laws of the State of Illinois.
EXHIBIT 10.71
AMENDMENT NO. 1
MEDICON, INC.
STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS
WHEREAS, Medicon, Inc. (the "Corporation") adopted the Medicon, Inc. Stock
Option Plan for Non-Employee Directors (the "Plan"), effective October 28, 1994;
and
WHEREAS, Section 18 of the Plan provides that the Board of Directors may
amend the Plan; and
WHEREAS, the Board of Directors of the Corporation and the shareholders of
the Corporation each have resolved to amend the Plan in unanimous written
consents dated as of September 6, 1995 (the "Amendment Date"), as set forth
herein.
NOW, THEREFORE, the Plan hereby is amended, effective as of the Amendment
Date as follows:
By substituting the following for the first sentence of Section 3 of the
Plan:
"Subject to the adjustment provisions of Section 13 below,
a maximum of 286,789 shares of Common Stock may be made subject to
options granted under the Plan."
Except as hereby expressly amended and modified, the terms and provisions
of the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Amendment No. 1 to be
executed as of the Amendment Date.
MEDICON, INC.
By: /s/ ALAN MINTZ, M.D.
---------------------------
Name: ALAN MINTZ, M.D.
Title: President
EXHIBIT 10.72
AMENDMENT NO. 2
MEDICON, INC.
STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS
WHEREAS, Medicon, Inc. (the "Corporation") adopted the Medicon, Inc. Stock
Option Plan for Non-Employee Directors (the "Plan"), effective October 28, 1994;
and
WHEREAS, Section 18 of the Plan provides that the Board of Directors may
amend the Plan; and
WHEREAS, the Board of Directors of the Corporation has resolved to amend
the Plan by unanimous written consent dated as of April 23, 1996 (the "Amendment
Date"), as set forth herein.
NOW, THEREFORE, the Plan hereby is amended, effective as of the Amendment
Date as follows:
By substituting the following for the first sentence of Section 3 of the
Plan:
"Subject to the adjustment provisions of Section 13 below, a maximum
of 261,771 shares of Common Stock may be made subject to options granted
under the Plan."
Except as hereby expressly amended and modified, the terms and provisions
of the Plans shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amendment No. 2 to be
executed as of the Amendment Date.
MEDICON, INC.
By:
---------------------------
Name: Carl R. Adkins, M.D.
Title: President and Chief Executive Officer
EXHIBIT 10.73
MEDICON, INC.
TIME ACCELERATED RESTRICTED STOCK
OPTION PLAN FOR CERTAIN EMPLOYEES
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. Purpose . . . . . . . . . . . . . . . . . . 1
SECTION 2. Administration . . . . . . . . . . . . . . . 1
SECTION 3. Eligibility . . . . . . . . . . . . . . . . 2
SECTION 4. Shares of Stock Subject to the Plan . . . . 2
4.1 Reserved Shares. . . . . . . . . . . . . . . 2
4.2 Type of Shares . . . . . . . . . . . . . . . 2
SECTION 5. Certain Definitions . . . . . . . . . . . . 2
SECTION 6. Stock Options . . . . . . . . . . . . . . . 4
6.1 Grant and Type of Stock Options . . . . . . 4
6.2 Agreements Evidencing Options . . . . . . . 4
6.3 Special ISO Requirements . . . . . . . . . . 5
6.4 Exercisability of Options . . . . . . . . . 5
6.5 Payment of Option Price . . . . . . . . . . 7
6.6 Termination of Employment . . . . . . . . . 8
6.7 Puts and Calls . . . . . . . . . . . . . . . 9
SECTION 7. Amendment of the Plan; Modification
of Options . . . . . . . . . . . . . . . . . 11
7.1 Plan Amendments . . . . . . . . . . . . . . 11
7.2 Option Modifications. . . . . . . . . . . . 12
SECTION 8. Restrictions . . . . . . . . . . . . . . . . 12
8.1 Consent Requirements . . . . . . . . . . . . 12
8.2 Consent Defined . . . . . . . . . . . . . . 12
SECTION 9. Nontransferability . . . . . . . . . . . . . 13
SECTION 10. Withholding Taxes . . . . . . . . . . . . . 13
10.1 General . . . . . . . . . . . . . . . . . . 13
10.2 Use of Shares . . . . . . . . . . . . . . . 13
SECTION 11. Adjustments . . . . . . . . . . . . . . . . 14
11.1 Upon Changes in Capitalization . . . . . . . 14
11.2 Other . . . . . . . . . . . . . . . . . . . 14
SECTION 12. Right of Discharge Reserved . . . . . . . . 14
<PAGE>
Page
----
SECTION 13. No Rights as a Shareholder . . . . . . . . . 15
SECTION 14. Nature of Payments . . . . . . . . . . . . . 15
14.1 Consideration . . . . . . . . . . . . . . . 15
14.2 Other Plans . . . . . . . . . . . . . . . . 15
14.3 Waiver . . . . . . . . . . . . . . . . . . . 15
SECTION 15. Non-Uniform Determinations . . . . . . . . . 15
SECTION 16. Other Payments or Options . . . . . . . . . 16
SECTION 17. Reorganization . . . . . . . . . . . . . . . 16
SECTION 18. Governing Law . . . . . . . . . . . . . . . 17
SECTION 19. Headings . . . . . . . . . . . . . . . . . . 17
SECTION 20. Effective Date; Term . . . . . . . . . . . . 17
20.1 Effective Date . . . . . . . . . . . . . . . 17
20.2 Term . . . . . . . . . . . . . . . . . . . 17
<PAGE>
MEDICON, INC.
TIME ACCELERATED RESTRICTED STOCK
OPTION PLAN FOR CERTAIN EMPLOYEES
SECTION 1. Purpose.
-------
The purpose of this Plan (as defined in Section 5) is to promote the
interests of Medicon, Inc. (the "Company") by (a) attracting, motivating and
retaining executive personnel of outstanding ability; (b) focusing the attention
of executive management on achievement of sustained long term results; (c)
fostering management's attention on overall corporate performance and thereby
promoting cooperation and teamwork among management of the operating units; and
(d) providing executives with a direct economic interest in the attainment of
demanding long term business objectives.
SECTION 2. Administration.
--------------
2.1 The Plan shall be administered by the compensation committee (the
"Committee") appointed by the Board of Directors of the Company (the "Board"),
which Committee shall consist of two or more directors, and, to the extent
necessary to comply with Rule 16b-3 of the Securities Exchange Act of 1934 (the
"Act"), or any successor rule thereto, each director shall be a "disinterested
person" within the meaning of the Act. To the extent necessary to comply with
section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
each Committee member shall be intended to be an "outside director" within the
meaning of the Code; provided, however, that if such member is not an outside
director his or her action shall be valid nonetheless. The members of the
Committee shall be appointed by, and may be changed at any time and from time to
time in the discretion of, the Board.
2.2 The Committee shall have the authority (a) to exercise all of the
powers granted to it under the Plan, (b) to construe, interpret and implement
the Plan and any option agreements executed pursuant to the Plan, (c) to
prescribe, amend and rescind rules relating to the Plan, (d) to make any
determination necessary or advisable in administering the Plan, (e) to
correct any defect, supply any omission and reconcile any inconsistency in the
Plan, (f) to determine EBITDA (as defined in Section 5), and
(g) to determine and to adjust Minimum and Maximum EBITDA Targets.
<PAGE>
2
2.3 The determination of the Committee on all matters relating to the
Plan or any option agreement shall be conclusive.
2.4 No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
hereunder.
2.5 Notwithstanding anything to the contrary contained herein: (a)
until the Board shall appoint the members of the Committee, the Plan shall be
administered by the Board, and (b) the Board may, in its sole discretion, at
any time and from time to time, resolve to administer the Plan. In either of
the foregoing events, the term Committee as used herein shall mean the Board.
SECTION 3. Eligibility.
-----------
Options under the Plan may be granted to such key employees (including
officers and directors) of the Company ("grantees") as the Committee shall from
time to time in its sole discretion select.
SECTION 4. Share of Stock Subject to the Plan.
----------------------------------
4.1 Reserved Shares. Subject to Section 11 (relating to
---------------
adjustments upon changes in capitalization), the aggregate number of shares of
Stock (as defined in Section 5) that may be acquired under the Plan by all
eligible individuals pursuant to options granted hereunder shall not exceed
282,677 shares and the aggregate number of shares that may be acquired by any
one individual pursuant to options granted hereunder shall not exceed 96,973
shares. Without limiting the generality of the foregoing, shares of Stock
covered by options granted under the Plan that expire, terminate or are canceled
for any reason (other than exercise or other than an option, or part thereof,
that is canceled by the Committee and for which cash is paid in respect thereof)
shall again become available for award under the Plan.
4.2 Types of Shares. Shares of Stock subject to issuance pursuant
---------------
to the Plan shall be authorized and unissued shares or treasury shares.
SECTION 5. Certain Definitions.
-------------------
5.1 "Cumulative Exercisability Percentage" shall mean the extent to
which at any given time the option is currently exercisable (expressed as a
percentage) with
<PAGE>
3
respect to shares of Stock subject thereto. The Cumulative Exercisability
Percentage on the Effective Date is zero.
5.2 "EBITDA" shall have the same meaning as in the Amended and
Restated Articles of Incorporation, and shall be determined on a consolidated
basis for the Company and its subsidiaries as reflected in the audited
consolidated financial statements of the Company and its subsidiaries for the
applicable Fiscal Year.
5.3 "Effective Date" shall mean January 1, 1995.
5.4 "Fair Market Value" shall mean, with respect to each share of
Stock for any day, (a) the last reported sale price regular way or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices regular way, in either case as reported on the principal national
securities exchange on which such Stock is listed or admitted for trading or (b)
if such Stock is not listed or admitted for trading on any national securities
exchange, the last reported sale price or, in case no such sale takes place on
such day, the average of the highest reported bid and the lowest reported asked
quotation for such Stock, in either case as reported on the Automatic Quotation
System of NASDAQ or a similar service if NASDAQ is no longer reporting such
information. If the Stock is not listed or admitted for trading on any national
securities exchange or quoted on NASDAQ or a similar service on such date, Fair
Market Value shall be determined by the Committee in its sole discretion.
5.5 "Fiscal Year" shall mean the calendar year ending December 31,
whether or not such period is the fiscal year of the Company.
5.6 "Maximum EBITDA Target" shall mean, with respect to a Fiscal
Year, the Maximum EBITDA Target specified for such Fiscal Year in the individual
option agreements.
5.7 "Minimum EBITDA Target" shall mean, with respect to a Fiscal
Year, the Minimum EBITDA Target specified for such Fiscal Year in the individual
option agreements.
5.8 "Nine Year Vesting Date" shall mean the completion of nine years
after the date of grant of an option, upon which time such option will become
fully exercisable if not fully exercisable or expired prior thereto.
5.9 "Performance Cycle" shall mean the period commencing on the
Effective Date and ending on December 31, 1999.
<PAGE>
4
5.10 "Plan" shall mean the Medicon, Inc. Time Accelerated Restricted
Stock Option Plan for Certain Employees.
5.11 "Stock" shall mean the Class A common stock, no par value, of the
Company as constituted on the effective date of the Plan, and any other shares
into which such common stock shall thereafter be changed by reason of a
recapitalization, merger, consolidation, split-up, combination, exchange of
shares or the like.
SECTION 6. Stock Options.
-------------
6.1 Grant and Type of Stock Options.
-------------------------------
(a) General. Subject to the terms of the Plan, the Committee
-------
may grant options to purchase shares of Stock in such amounts and subject to
such terms and conditions as the Committee shall from time to time in its sole
discretion determine in accordance with applicable law.
(b) Types of Options Under Plan. Options granted under the Plan
---------------------------
may be either: (i) "nonqualified" stock options subject to the provisions of
section 83 of the Code, or (ii) options intended to qualify for incentive stock
option treatment described in Code Section 422.
6.2 Agreements Evidencing Options.
-----------------------------
(a) General. Options granted under the Plan shall be evidenced
-------
by written agreements, which shall (i) contain such provisions, not inconsistent
with the terms of the Plan, as the Committee may in its sole discretion deem
necessary or desirable and (ii) be referred to herein as "option agreements."
If the grantee is party to an employment or consulting agreement the terms of
which relate to stock options and which are inconsistent with the terms of any
such option agreement, the terms of such employment or consulting agreement
shall govern with respect to any terms relating to options granted hereunder.
(b) Certain Terms. Each option agreement shall set forth the
-------------
number of shares of Stock subject to the option granted thereby and the amount
(the "option exercise price") payable by the grantee to the Company in
connection with the exercise of the option evidenced thereby. Options shall be
granted with an exercise price of no less than Fair Market Value at the time of
grant. Each option agreement shall set forth the period during which and the
conditions subject to which the option evidenced thereby shall become
exercisable.
<PAGE>
5
6.3 Special ISO Requirements.
------------------------
In order for a grantee to receive special tax treatment with respect
to stock acquired under an option intended to be an incentive stock option, the
grantee of such option must be, at all times during the period beginning on the
date of grant and ending on the day three months before the date of exercise of
such option, an employee of the Company or any of the Company's parent or
subsidiary corporations (within the meaning of Code section 424), or of a
corporation or a parent or subsidiary corporation of such corporation issuing or
assuming a stock option in a transaction to which Code section 424(a) applies.
The aggregate Fair Market Value, determined as of the date an option is granted,
of the Stock for which any grantee may be awarded incentive stock options which
are first exercisable by the grantee during any calendar year under the Plan
(and any other stock option plan to be taken into account under Code section
422(d) shall not exceed $100,000. If an option granted under the Plan is
intended to be an incentive stock option, the option exercise price may not be
less than Fair Market Value of the Stock on the date of its grant, and if the
grantee at the time of grant, owns stock possessing 10% or more of the total
combined voting power of all classes of stock of the grantee's employer
corporation or of its parent or subsidiary corporation, then (i) the option
exercise price per share shall in no event be less than 110% of the Fair Market
Value of the Stock on the date of such grant and (ii) such option shall not be
exercisable after the expiration of five years after the date such option is
granted.
6.4 Exercisability of Options.
-------------------------
(a) Basic Exercisability Requirements. The options shall be
---------------------------------
first exercisable with respect to the shares of stock subject thereto, only if
(i) the Nine Year Vesting Date is reached upon which time the options shall be
fully exercisable, or (ii) an earlier date at which the Cumulative
Exercisability Percentage is greater than zero. An option may be exercised only
with respect to the applicable Cumulative Exercisability Percentage of the
number of shares covered by such option until reaching the Nine Year Vesting
Date, upon which time the option will be 100% exercisable.
(b) EBITDA Targets. The Minimum EBITDA Target and the Maximum
--------------
EBITDA Target for any Fiscal Year are set forth in the individual option
agreements and are subject to Committee determination as set forth in such
option agreements. The Minimum and Maximum EBITDA Targets for various Fiscal
Years can be adjusted by the Committee (prior to such Fiscal Year), but it is
the intention that if
<PAGE>
so adjusted by the Committee the Maximum EBITDA Target for each succeeding
Fiscal Year shall be no less 125% of the actual EBITDA for the prior Fiscal Year
and the Minimum EBITDA Target for each succeeding Fiscal Year shall be no less
than 121.25% of the actual EBITDA for the prior Fiscal Year.
(c) Determination of Cumulative Exercisability Percentage.
-----------------------------------------------------
(i) Expiration. If (A) a grantee's Minimum EBITDA Target
----------
is not achieved in any Fiscal Year and (B) a grantee's employment is
terminated prior to the Nine Year Vesting Date, then none of the grantee's
options which have been or may be granted under this Plan shall be
exercisable and all such options shall be cancelled.
(ii) Cumulative Exercisability Percentage. If the Minimum
------------------------------------
EBITDA Target is achieved for any Fiscal Year during the Performance Cycle,
the Cumulative Exercisability Percentage will be increased by ten
percentage points at the end of such Fiscal Year. If the Maximum EBITDA
Target is achieved for any Fiscal Year during the Performance Cycle, the
Cumulative Exercisability Percentage will be increased by twenty percentage
points at the end of such Fiscal Year. If the actual EBITDA for such
Fiscal Year falls between the Minimum EBITDA Target and Maximum EBITDA
Target for any Fiscal Year during the Performance Cycle, the Cumulative
Exercisability Percentage will be increased by between ten and twenty
percentage points to be calculated on a straight-line interpolation basis.
(d) Carryover for Targets Not Met. For each Fiscal Year
-----------------------------
during the Performance Cycle in which the Maximum EBITDA Target is not
satisfied, the difference between twenty percentage points and the actual
increase in the Cumulative Exercisability Percentage for such Fiscal Year (the
"Missed Target Percentage") shall be carried over to the subsequent five Fiscal
Years (regardless of whether or not they fall with the Performance Cycle). One-
fifth of the Missed Target Percentage will be available for each such year if
the Maximum EBITDA Target is met for such year, one-tenth of the Missed Target
Percentage will be available for each such year if the Minimum EBITDA Target is
met for such year, and if the EBITDA falls between the Minimum EBITDA Target and
the Maximum EBITDA Target between one-fifth and one-tenth of the Missed Target
Percentage will be available calculated on a straight-line interpolation basis.
The Committee will set the Minimum and Maximum EBITDA Targets for Fiscal Years
beyond the Performance Cycle.
<PAGE>
7
(e) General Exercisablity Provisions.
--------------------------------
(i) Each option shall terminate and cease to be exercisable
on the tenth anniversary of the date of grant thereof; and
(ii) Each option, once exercisable, may be exercised from
time to time as to all or part of the full number of shares as to which
such option shall then be exercisable.
(f) Notice of Exercise; Exercise Date.
---------------------------------
(i) An option shall be exercisable by the filing of a
written notice of exercise with the Company, on such form and in such
manner as the Committee shall in its sole discretion prescribe, and by
payment in accordance with Section 6.5.
(ii) For purposes of the Plan, the "option exercise date"
shall be deemed to be the first business day immediately following the date
written notice of exercise is received by the Company.
6.5 Payment of Option Price.
-----------------------
(a) Tender Due Upon Notice of Exercise. Unless the
----------------------------------
applicable option agreement otherwise provides or the Committee in its sole
discretion otherwise determines, (i) any written notice of exercise of an option
shall be accompanied by payment of the full purchase price for the shares being
purchased and (ii) the grantee shall have no right to receive shares of Stock
with respect to an option exercise prior to the option exercise date.
(b) Manner of Payment. Payment of the option exercise price
-----------------
shall be made in any combination of the following:
(i) by certified or official bank check payable to the
Company (or the equivalent thereof acceptable to the Committee);
(ii) with the consent of the Committee in its sole
discretion, by personal check (subject to collection); and
(iii) if and to the extent provided in the applicable
option agreement, by delivery of previously acquired shares of Stock owned
by the grantee for at least six months having a Fair Market Value
(determined as of the option exercise date) equal to the portion of the
option exercise price being paid
<PAGE>
8
thereby, provided that the Committee may require the grantee to furnish
an opinion of counsel acceptable to the Committee to the effect that such
delivery would not result in the grantee incurring any liability under
Section 16(b) of the Act or any other federal or state securities laws,
rules or regulations and does not require any Consent (as defined in
Section 8.2).
(c) Issuance of Shares. As soon as practicable after receipt of
------------------
full payment, the Company shall, subject to the provisions of Section 8, deliver
to the grantee one or more certificates for the shares of Stock so purchased,
which certificates may bear such legends as the Company may deem appropriate
concerning restrictions on the disposition of the shares in accordance with
applicable securities laws, rules and regulations or otherwise.
6.6 Termination of Employment.
-------------------------
(a) General Rule. All options granted to a grantee shall
------------
terminate and no longer be exercisable upon such grantee's termination of
employment for any reason, except to the extent post-employment exercise of the
exercisable portion of an option is permitted in accordance with this Section
6.6.
(b) Cause. All options granted to a grantee shall terminate
-----
and expire on the day the grantee's employment with the Company and its
subsidiaries is terminated for Cause. For purposes of the Plan, a grantee's
employment shall be deemed to be terminated for "Cause" if (i) such grantee is
discharged following the conviction of the grantee of any felony involving
intentional conduct on the part of the grantee, the conviction of the grantee of
any lesser crime or offense involving the illegal use or conversion of property
of the Company or its subsidiaries, the willful misconduct by the grantee in
connection with the performance of the grantee's duties or the violation of any
nonsolicitation, confidentiality or noncompetition covenant specified in an
employment agreement or other contractual arrangement, or (ii) such grantee
terminates his employment with the Company and its subsidiaries and the
Committee determines, within 90 days after the grantee's termination date, that
such grantee's employment could have been terminated for Cause pursuant to
clause (i).
(c) Death and Disability. If a grantee's employment with the
--------------------
Company and its subsidiaries terminates by reason of death or disability (as
defined in section 22(e)(3) of the Code), such grantee's options shall be
exercisable, but only to the extent already exercisable immediately prior to
such death or disability, by the grantee under Section 6.4 hereof, or as the
case may be, by
<PAGE>
9
such grantee's court-appointed legal representative or, in the case of the
grantee's death, by the person or persons to whom such options pass under the
grantee's will (or, if applicable, pursuant to the laws of descent and
distribution). Such options shall remain exercisable through and until the
earlier of (i) in the case of a grantee who dies or becomes disabled, one year
after the grantee's termination by reason of death or disability, (ii) the date
on which such options terminate or expire in accordance with the other
provisions of the Plan and the option agreement.
(d) Regular Termination; Leaves of Absence. If the grantee's
--------------------------------------
employment terminates for reasons other than as provided in Section 6.6(b) or
(c), the portion, if any, of options granted to such grantee that were
exercisable immediately prior to such termination of employment may be exercised
until the earlier of (i) 90 days after the grantee's date of termination, and
(ii) the date on which such options terminate or expire in accordance with the
other provisions of the Plan and the option agreement. The Committee may in its
discretion determine (x) whether any leave of absence (including short-term or
long-term disability or medical leave) shall constitute a termination of
employment for purposes of the Plan and (y) the impact, if any, of any such
leave on outstanding awards under the Plan.
6.7 Puts and Calls.
--------------
(a) Call Option. Upon termination of the grantee's employment
-----------
with the Company and its subsidiaries, the Company shall have an option to
purchase from such grantee (or from any legal representative or transferee, by
will or the laws of descent and distribution or otherwise, of such grantee) all
or any portion of shares ("option shares") acquired by such grantee pursuant to
the exercise of options granted under this Plan (the "call option"). Such call
option may be exercised during the later of the following periods: (i) the 120-
day period following the date of the grantee's termination of employment or (ii)
the 120-day period following the expiration of six months from the acquisition
of the option shares. Such call option shall be at a purchase price per share
equal to (i) if the grantee's employment terminates other than for Cause,
"Put/Call Value" (as defined in the next sentence and as determined on the date
of the written notice described in Section 6.7(c)), and (ii) if the grantee's
employment with the Company and its subsidiaries terminates for Cause, the
lesser of Put/Call Value (determined on the date of the written notice described
in Section 6.7(c)) and the option exercise price. Such call option shall have
no applicability if the Stock is publicly traded on a national securities
exchange, throughout such 120-day period except
<PAGE>
10
in the event the grantee's employment is terminated for Cause. "Put/Call Value"
shall mean: if the Stock is listed or admitted for trading on any national
securities exchange or quoted on NASDAQ or a similar service on such date, Fair
Market Value as defined above; and if the Stock is not listed or admitted for
trading on any national securities exchange or quoted on NASDAQ or a similar
service on such date, the value equal to four times the EBITDA for the 12-month
period ending at the end of the month proceeding the put or call exercise
divided by the outstanding "Shares" (as such term is defined in the Amended and
Restated Articles of Incorporation) unless the Committee determines that it does
not reflect the Fair Market Value, in which case it shall mean the Fair Market
Value.
(b) Pub Option Upon Death or Disability. Upon termination of
-----------------------------------
the grantee's employment with the Company and its subsidiaries by reason of
death or disability, the grantee, the grantee's court-appointed legal
representative (or person or the persons to whom such options pass under the
grantee's will or, if applicable, pursuant to the laws of descent and
distribution) may cause the Company to purchase the option shares (the "put
option"). Such put option may be exercised during the later of the following
two periods: (i) the 120-day period following the date that the grantee's
employment terminates by reason of death or disability, or (ii) the 120-period
following the expiration of six months from the acquisition of the option
shares. Such put option shall be for a purchase price per share equal to
Put/Call Value (as defined in the previous paragraph and as determined on the
date of the written notice described in Section 6.7(c)). Such put option shall
have no applicability if (i) the Stock is publicly traded on a national
securities exchange throughout such 120-day period or (ii) such purchase by the
Company would (x) constitute or cause a breach or violation of, or a default
(whether immediately or with notice or lapse of time or both) under, any debt
agreement of the Company or of any of its subsidiaries (whether currently in
existence or entered into subsequent to the date hereof), (y) require the
consent or approval of the holders of any class of the Company's capital stock
pursuant to the Company's Amended and Restated Articles of Incorporation and
such consent or approval is not obtained, or (z) violate any law applicable to
the Company.
(c) Closing. To the extent applicable, the call and put options
-------
described in Sections 6.7(a) and (b) shall be exercisable by delivering to the
grantee or the Company, as the case may be, within such 120-day period, written
notice of intention to exercise such option. The closing of the purchase and
sale of shares of Stock pursuant to the exercise of such options shall take
place on the 15th
<PAGE>
11
day (or if not a business day, the next business day) following the date of the
written notice at the offices of the Company. At such closing, the grantee
shall deliver to the Company, duly endorsed for transfer, certificates
representing all of the shares of Stock being purchased and sold at such closing
against payment therefor which, at the option of the Company, shall be made
either by certified or bank cashier's check for the purchase price.
(d) Option Cancellation. During the 120-day period following
-------------------
the date the grantee's employment with the Company and its subsidiaries
terminates, or in connection with a Change of Control (as such term is defined
in the Amended and Restated Articles of Incorporation), the Committee, in its
discretion, by written notice to the grantee may cancel all options then
exercisable (as determined under Section 6.4 hereof), or any part thereof, and
the Company shall pay to the grantee, as soon as practicable thereafter, an
amount in cash equal to the excess of (i) the aggregate Fair Market Value of the
shares of Stock subject to the option or part thereof canceled (determined as of
the date the Committee provides written notice thereof to the grantee) over (ii)
the aggregate option exercise price of the shares of Stock subject to the option
or part thereof canceled.
SECTION 7. Amendment of the Plan; Modification of Options.
----------------------------------------------
7.1 Plan Amendments. The Committee may, without shareholder
---------------
approval, at any time and from time to time, suspend, discontinue or amend the
Plan in any respect whatsoever, except that no such amendment shall materially
and adversely impair any rights under any option theretofore granted under the
Plan without the consent of the grantee of such option. Furthermore, except as
and to the extent otherwise permitted by Section 11 or 17, no such amendment
shall, without shareholder approval:
(a) Subject to Section 7.2, materially increase the
benefits accruing to grantees under the Plan;
(b) materially increase, beyond the amounts set forth in Section
4, the number of shares of Stock in respect of which options may be issued
under the Plan;
(c) materially modify the designation in Section 3 of the class
of persons eligible to receive options under the Plan;
<PAGE>
12
(d) provide for the grant of options having an exercise price of
less than a 100% of the Fair Market Value of Stock on the date of grant;
(e) permit any stock option to be exercisable more than ten
years after the date of grant;
(f) extend the term of the Plan beyond the period set forth in
Section 20;
(g) if the Company has a class of equity securities registered
under Section 12 of the Act at the time of such proposed amendment result
in an "material increase" in the benefits accruing to participants under
the Plan, as provided in 17 C.F.R. Section 240.16(b)-3(b)(2)(C) as
interpreted by the Securities and Exchange Commission in interpretative
guidance; or
(h) would result in a material modification of the Plan within
the meaning of Code section 162(m) that would require shareholder approval
if the Plan is intended to qualify under section 162(m) of the Code as
performance based compensation.
7.2 Option Modifications. With the consent of the grantee and
--------------------
subject to the terms and conditions of the Plan, the Committee may, in its sole
discretion, amend outstanding option agreements with such grantee, including,
without limitation, any amendment that would (i) accelerate the time or times at
which an option may become exercisable and/or (ii) extend the scheduled
termination or expiration date of the option.
SECTION 8. Restrictions.
------------
8.1 Consent Requirements. If the Committee shall at any time
--------------------
determine that any Consent (as hereinafter defined) is necessary or desirable as
a condition of, or in connection with, the granting of any option under the
Plan, the acquisition, issuance or purchase of shares or other rights hereunder
or the taking of any other action hereunder (each such action being hereinafter
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee. Without limiting the
generality of the foregoing, if (i) the Company may make any payment under the
Plan in cash, Stock or both and (ii) the Committee determines that a Consent is
necessary or desirable as a condition of, or in connection with, payment in any
one or more of such forms, then the Committee shall be entitled to
<PAGE>
13
determine not to make any payment whatsoever until such Consent has been
obtained.
8.2 Consent Defined. The term "Consent" as used herein with
---------------
respect to any Plan Action means (a) any and all listings, registrations or
qualifications in respect thereof upon any securities exchange or other
regulatory organization or under any federal, state or local law, rule or
regulation, (b) the expiration, elimination or satisfaction of any prohibitions,
restrictions or limitations under any federal, state or local law, rule or
regulation or the rules of any securities exchange or other regulatory
organization, (c) any and all written agreements and representations by the
grantee with respect to the disposition of shares, or with respect to any other
matter which the Committee shall deem necessary or desirable to comply with the
terms of any such listing, registration or qualification or to obtain an
exemption from the requirement that any such listing, qualification or
registration be made, (d) any and all consents, waivers, clearances and
approvals in respect of a Plan Action by any governmental or other regulatory
bodies or any parties to any loan agreements or other contractual obligations of
the Company or any of its subsidiaries and (e) any and all consents and
approvals in respect of any Plan Action by the holders of any class of the
Company's capital stock pursuant to the Company's Amended Restated Articles of
Incorporation.
SECTION 9. Nontransferability.
------------------
No option granted to any grantee shall be assignable or transferable
by the grantee (whether by operation of law or otherwise and whether voluntarily
or involuntarily) other than by will or by the laws of descent and distribution.
During the lifetime of the grantee, all rights with respect to any option
granted to the grantee shall be exercisable only by the grantee or the grantee's
court-appointed legal representative.
SECTION 10. Withholding Taxes.
-----------------
10.1 General. Whenever under the Plan shares of Stock are to be
-------
delivered pursuant to an option, the Committee may require as a condition of
delivery that the grantee remit an amount sufficient to satisfy all federal,
state and other governmental withholding tax requirements related thereto.
Whenever cash is to be paid under the Plan, the Company may, as a condition of
its payment, deduct therefrom, or from any salary or other payments due to the
grantee, an amount sufficient to satisfy all federal, state and other
governmental withholding tax requirements related
<PAGE>
14
thereto or to the delivery of any shares of Stock under the Plan.
10.2 Use of Shares. Subject to the Committee's consent, a grantee may
-------------
elect to satisfy all or part of the foregoing withholding requirements by
delivery of unrestricted shares of Stock owned by the grantee for at least six
months (or such other period as the Committee may determine) having a Fair
Market Value (determined as of the date of such delivery by the grantee) equal
to all or part of the amount to be so withheld, provided that the Committee may
require, as a condition of accepting any such delivery, the grantee to furnish
an opinion of counsel acceptable to the Committee to the effect that such
delivery would not result in the grantee incurring any liability under Section
16(b) of the Act or any other federal or state securities laws, rules or
regulations.
SECTION 11. Adjustments.
-----------
11.1 Upon Changes in Capitalization. To the extent specified by the
------------------------------
Committee, the number of shares of Stock that may be issued pursuant to options
under the Plan, the number of shares of Stock subject to options, the exercise
price of options theretofore granted under the Plan and the amount payable by a
grantee in respect of an option shall be appropriately adjusted (as the
Committee may determine) for any change in the number of issued shares of Stock
resulting from the subdivision or combination of shares of Stock or other
capital adjustments, or the payment of a stock dividend after the effective date
of the Plan, or other change in such shares of Stock effected without receipt of
consideration by the Company; provided that any options covering fractional
shares of Stock resulting from any such adjustment shall be eliminated.
Adjustments under this Section 11 shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
11.2 Other. In the event of any acquisition, divestiture or any
-----
other corporate transaction of any kind involving the Company or its
subsidiaries which the Committee, in its discretion, determines to be of such a
kind or nature as to make appropriate an amendment or adjustment to the Plan in
order to effectuate the intent and purposes of the Plan, the Committee, in its
discretion, may make such amendment or adjustment. Without limiting the
generality of the foregoing, the Committee, in its discretion, may, in
connection with any such corporate transaction, (a) reduce or increase the
Minimum EBITDA Targets and/or the Maximum EBITDA Targets and/or (b) amend any
other terms or provisions of the Plan, all as it deems
<PAGE>
15
appropriate to effectuate the intent and purposes of the Plan.
SECTION 12. Right of Discharge Reserved.
---------------------------
Nothing in the Plan or in any option agreement shall confer upon any
person the right to continue in the employment of the Company or any subsidiary
or affect or restrict any right which the Company or any subsidiary may have to
terminate the employment of such person.
SECTION 13. No Rights as a Shareholder.
--------------------------
No grantee or other person shall have any of the rights of a
shareholder of the Company with respect to shares of Stock subject to an option
until the issuance of a stock certificate to such grantee for such shares of
Stock. Except as otherwise provided in Section 11, no adjustment shall be made
for dividends, distributions or other rights (whether ordinary or extraordinary,
and whether in cash, securities or other property) for which the record date is
prior to the date such stock certificate is issued.
SECTION 14. Nature of Payments.
------------------
14.1 Consideration. All options, shares or payments hereunder shall be
-------------
granted, issued, delivered or paid, as the case may be, in consideration of
services performed for the Company or for its subsidiaries by the grantee.
14.2 Other Plans. No options, shares or payments hereunder shall,
-----------
unless otherwise determined by the Committee and expressly set forth in the
option agreement, be taken into account in computing the grantee's salary or
compensation for the purposes of determining any benefits under (a) any pension,
retirement, life insurance or other benefit plan of the Company or any
subsidiary or (b) any agreement between the Company or any subsidiary and the
grantee.
14.3 Waiver. By accepting an option under the Plan, the grantee
------
thereby waives any claim to the continued exercisability of an option or to
damages or severance entitlement related to non-continuation of the option
beyond the period provided herein or in the applicable option agreement,
notwithstanding any contrary provision in any written employment contract with
the grantee, whether any such contract is executed before or after the grant
date of the option.
<PAGE>
16
SECTION 15. Non-Uniform Determinations.
--------------------------
The Committee's determinations under the Plan need not be uniform and
may be made by it selectively among persons who receive, or are eligible to
receive, options under the Plan (whether or not such persons are similarly
situated). Without limiting the generality of the foregoing, the Committee
shall be entitled, among other things, to make non-uniform and selective
determinations, and to enter into non-uniform and selective option agreements,
as to (a) the persons to receive options under the Plan, (b) the terms and
provisions of options under the Plan and (c) the treatment of leaves of absence
pursuant to Section 6.6(d).
SECTION 16. Other Payments or Options.
-------------------------
Nothing contained in the Plan shall be deemed in any way to limit or
restrict the Company, any subsidiary or the Committee from making any option,
award or payment to any person under any other plan, arrangement or
understanding, whether now existing or hereafter in effect; provided, however,
that the option agreement may contain (but shall not be required to contain)
such provisions as the Committee deems appropriate to insure that the penalty
provisions of section 4999 of the Code will not apply with respect to any option
granted under the Plan.
SECTION 17. Reorganization.
--------------
In the event that the Company is merged or consolidated with another
corporation and, whether or not the Company shall be the surviving corporation,
there shall be any change in the shares of Stock by reason of such merger or
consolidation, or in the event that all or substantially all of the assets of
the Company are acquired by another person, or in the event of a Change of
Control after the date of the adoption of this Plan or in the event of a
reorganization or liquidation of the Company (each such event being hereinafter
referred to as a "Reorganization Event") or in the event that the Board shall
propose that the Company enter into a Reorganization Event, then the Committee
may in its discretion, by written notice to a grantee, provide that such
grantee's options will be terminated unless exercised within 30 days (or such
longer period as the Committee shall determine in its sole discretion) after the
date of such notice. The Committee also may in its discretion by written notice
to a grantee provide that all or some of the restrictions on any of his options
may lapse in the event of a Reorganization Event
EXHIBIT 10.74
AMENDMENT NO. 1
MEDICON, INC.
TIME ACCELERATED RESTRICTED STOCK
OPTION PLAN FOR CERTAIN EMPLOYEES
---------------------------------
WHEREAS, Medicon, Inc. (the "Corporation") adopted the Medicon, Inc.
Time Accelerated Restricted Stock Option Plan for Certain Employees (the
"Plan"), effective October 28, 1994; and
WHEREAS, Section 7.1 of the Plan provides that the Compensation
Committee (the "Committee") appointed by the Board of Directors of the
Corporation may amend the Plan, and that certain amendments such as amendments
that increase the number of shares of common stock in respect of which options
may be issued are subject to shareholder approval; and
WHEREAS, the Board of Directors of the Corporation (including the
members of the Committee acting both in their capacity as Board members and
Committee members) and the shareholders of the Corporation each have resolved to
amend the Plan in unanimous written consents dated as of September 6, 1995 (the
"Amendment Date"), as set forth herein.
NOW, THEREFORE, the Plan hereby is amended, effective as of the
Amendment Date as follows:
By substituting the following for the first sentence of Section 4.1 of
the Plan:
"Subject to Section 11 (relating to adjustments upon changes in
capitalization), the
<PAGE>
aggregate number of shares of Stock (as defined in Section 5) that may be
acquired under the Plan by all eligible individuals pursuant to options
granted hereunder shall not exceed 868,074 shares, and the aggregate number
of shares that may be acquired by any one individual pursuant to options
granted hereunder shall not exceed 434,037 shares."
Except as hereby expressly amended and modified, the terms and
provisions of the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Amendment No.
1 to be executed as of the Amendment Date.
MEDICON, INC.
By: /s/
_____________________________
Name:
Title:
EXHIBIT 10.75
AMENDMENT NO. 2
MEDICON, INC.
TIME ACCELERATED RESTRICTED STOCK
OPTION PLAN FOR CERTAIN EMPLOYEES
---------------------------------
WHEREAS, Medicon, Inc. (the "Corporation") adopted the Medicon, Inc.
Time Accelerated Restricted Stock Option Plan for Certain Employees (the
"Plan"), effective October 28, 1994; and
WHEREAS, the Plan was amended September 6, 1995 to increase to 868,074
the number of shares that may be acquired pursuant to options granted; and
WHEREAS, Section 7.1 of the Plan provides that the Compensation
Committee (the "Committee") appointed by the Board of Directors of the
Corporation may amend the Plan, and that except in the case of certain
amendments (such as amendments that increase the number of shares of common
stock in respect of which options may be issued), shareholder approval is not
required, and the Committee has approved this Amendment by written consent.
NOW, THEREFORE, the Plan hereby is amended, effective as of November
14, 1995 (the "Amendment Date") as follows:
By substituting the following for the first sentence of Section 4.1 of
the Plan:
"Subject to Section 11 (relating to adjustments upon changes in
capitalization), the aggregate number of shares of Stock (as defined in
<PAGE>
Section 5) that may be acquired under the Plan by all eligible individuals
pursuant to options granted hereunder shall not exceed 571,575 shares, and
the aggregate number of shares that may be acquired by any one individual
pursuant to options granted hereunder shall not exceed 285,787 shares."
Except as hereby expressly amended and modified, the terms and
provisions of the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Amendment No.
2 to be executed as of the Amendment Date.
MEDICON, INC.
By: _____________________________
Name:
Title:
EXHIBIT 10.76
AMENDMENT NO. 3
MEDICON, INC.
TIME ACCELERATED RESTRICTED STOCK
OPTION PLAN FOR CERTAIN EMPLOYEES
---------------------------------
WHEREAS, Medicon, Inc. (the "Corporation") adopted the Medicon, Inc.
Time Accelerated Restricted Stock Option Plan for Certain Employees (the
"Plan"), effective October 28, 1994; and
WHEREAS, the Plan was amended September 6, 1995 to increase to 868,074
the number of shares that may be acquired pursuant to options granted and
subsequently amended November 15, 1995 to decrease to 571,575 the number;
of shares that may be acquired pursuant to options granted and
WHEREAS, Section 7.1 of the Plan provides that the Compensation
Committee (the "Committee") appointed by the Board of Directors of the
Corporation may amend the Plan, and that except in the case of certain amendment
(such as amendments that increase the number of shares of common stock in
respect of which options may be issued), shareholder approval is not required,
and the Committee has approved this Amendment by written consent.
NOW, THEREFORE, the Plan hereby is amended, effective as of November
28, 1995 (the "Amendment Date") as follows:
<PAGE>
By substituting the following for the first sentence of Section 4.1 of
the Plan:
"Subject to Section 11 (relating to adjustments upon changes in
capitalization), the aggregate number of shares of Stock (as defined in
Section 5) that may be acquired under the Plan by all eligible individuals
pursuant to options granted hereunder shall not exceed 555,332 shares, and
the aggregate number of shares that may be acquired by any one individual
pursuant to options granted hereunder shall not exceed 277,666 shares."
Except as hereby expressly amended and modified, the terms and
provisions of the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Amendment No.
3 to be executed as of the Amendment Date.
MEDICON, INC.
By: /s/ Lawrence Rubinstein
------------------------------
Name: Lawrence Rubinstein
Title: General Counsel and Secretary
EXHIBIT 10.77
AMENDMENT NO. 4
MEDICON, INC.
TIME ACCELERATED RESTRICTED STOCK
OPTION PLAN FOR CERTAIN EMPLOYEES
---------------------------------
WHEREAS, Medicon, Inc. (the "Corporation") adopted the Medicon, Inc.
Time Accelerated Restricted Stock Option Plan for Certain Employees (the
"Plan"), effective October 28, 1994; and
WHEREAS, the Plan was amended September 6, 1995 to increase to 868,074
the number of shares that may be acquired pursuant to options granted,
subsequently amended November 15, 1995 to decrease to 571,575 the number of
shares that may be acquired pursuant to options granted and amended again on
November 28, 1995 to decrease to 555,332 the number of shares that may be
acquired pursuant to options granted; and
WHEREAS, Section 7.1 of the Plan provides that the Corporation may not
amend the Plan in the case of certain amendments (such as amendments that
increase the number of shares of Class A Common Stock, $.01 par value, in
respect of which options may be issued) absent shareholder approval; and
WHEREAS, the holders of a majority of the shares of the Corporation,
the Board of Directors and the Committee have approved this Amendment No. 4 by
written consent.
<PAGE>
NOW, THEREFORE, the Plan hereby is amended, effective as of February
6, 1996 (the "Amendment Date") as follows:
By substituting the following for the first sentence of Section 4.1 of
the Plan:
"Subject to Section 11 (relating to adjustments upon changes in
capitalization), the aggregate number of shares of Stock (as defined in
Section 5) that may be acquired under the Plan by all eligible individuals
pursuant to options granted hereunder shall not exceed 616,080 shares, and
the aggregate number of shares that may be acquired by any one individual
pursuant to options granted hereunder shall not exceed 306,040 shares."
Except as hereby expressly amended and modified, the terms and
provisions of the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Amendment No.
4 to be executed as of the Amendment Date.
MEDICON, INC.
By:
--------------------------------
Name: Jeffrey R. Jay, M.D.
Title: Chairman, Compensation
Committee
EXHIBIT 10.78
AMENDMENT NO. 5
MEDICON, INC.
TIME ACCELERATED RESTRICTED STOCK
OPTION PLAN FOR CERTAIN EMPLOYEES
---------------------------------
WHEREAS, Medicon, Inc. (the "Corporation") adopted the Medicon, Inc.
Time Accelerated Restricted Stock Option Plan for Certain Employees (the
"Plan"), effective October 28, 1994; and
WHEREAS, the Plan was amended September 6, 1995 to increase to 868,074
the number of shares that may be acquired pursuant to options granted;
WHEREAS, the Plan was subsequently amended on each of November 15,
1995 and November 28, 1995 to decrease the number of shares that may be acquired
pursuant to options granted, and was then amended again on February 6, 1996 to
increase the number of shares that may be acquired pursuant to options granted;
WHEREAS, immediately prior to this Amendment No. 5 the number of
shares that may be acquired pursuant to options granted under the Plan is
616,080; and
WHEREAS, Section 7.1 of the Plan provides that the Compensation
Committee (the "Committee") appointed by the Board of Directors of the
Corporation may amend the Plan, and that except in the case of certain
amendments (such as amendments that increase the number of shares of common
stock in respect of which options may be issued), share-
<PAGE>
holder approval is not required, and the Committee has approved this Amendment
by written consent.
NOW, THEREFORE, the Plan hereby is amended, effective as of February
15, 1996 (the "Amendment Date") as follows:
By substituting the following for the first sentence of Section 4.1 of
the Plan:
"Subject to Section 11 (relating to adjustments upon changes in
capitalization), the aggregate number of shares of Stock (as defined in
section 5) that may be acquired under the Plan by all eligible individuals
Pursuant to options granted hereunder shall not exceed 591,181 shares, and
the aggregate number of shares that may be acquired by any one individual
pursuant to options granted hereunder shall not exceed 278,090 shares."
Except as hereby expressly amended and modified, the terms and
provisions of the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Amendment No.
5 to be executed as of the Amendment Date.
MEDICON, INC.
By: /s/ Jeffrey R. Jay
--------------------------------
Name: Jeffrey R. Jay, M.D.
Title: Chairman, Compensation
Committee
EXHIBIT 10.79
AMENDMENT NO. 6
MEDICON, INC.
TIME ACCELERATED RESTRICTED STOCK
OPTION PLAN FOR CERTAIN EMPLOYEES
---------------------------------
WHEREAS, Medicon, Inc. (the "Corporation") adopted the Medicon, Inc.
Time Accelerated Restricted Stock Option Plan for Certain Employees (the
"Plan"), effective October 28, 1994;
WHEREAS, the Plan was amended September 6, 1995 to increase to 868,074
the number of shares that may be acquired pursuant to options granted;
WHEREAS, the Plan was subsequently amended on each of November 15,
1995 and November 28, 1995 to decrease the number of shares that may be
acquired pursuant to options granted, was then amended on February 6, 1996
to increase the number of shares that may be acquired pursuant to options
granted and was amended again on February 15, 1996 to decrease the number of
shares that may be acquired pursuant to options granted;
WHEREAS, immediately prior to this Amendment No. 6 the number of
shares that may be acquired pursuant to options granted under the Plan is
591,181;
WHEREAS, Section 7.1 of the Plan provides that the Compensation
Committee (the "Committee") appointed by the Board of Directors of the
Corporation may amend the Plan, and that except in the case of certain amendment
(such as amendments that increase the number of shares of common stock in
respect of which
<PAGE>
2
options may be issued), shareholder approval is not required, and the Committee
has approved this Amendment by written consent.
NOW, THEREFORE, the Plan hereby is amended, effective as of April 8,
1996 (the "Amendment Date") as follows:
By substituting the following for Section 3 of the Plan:
"Options under the Plan may be granted to such key employees
(including officers and directors) and key consultants (together,
"grantees") as the Committee shall from time to time in its sole discretion
select."
By substituting the following for the first sentence of Section 4.1 of
the Plan:
"Subject to Section 11 (relating to adjustments upon changes in
capitalization), the aggregate number of Shares of Stock (as defined in
section 5) that may be acquired under the Plan by all eligible individuals
pursuant to options granted hereunder shall not exceed 319,600 shares, and
the aggregate number of shares that may be acquired by any one individual
pursuant to options granted hereunder shall not exceed 159,800 shares."
Except as hereby expressly amended and modified, the terms and
provisions of the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Amendment No.
6 to be executed as of the Amendment Date.
MEDICON, INC.
By:
-----------------------------
Name: Jeffrey R. Jay, M.D.
Title: Chairman,
Compensation Committee
EXHIBIT 10.80
AMENDMENT NO. 7
MEDICON, INC.
TIME ACCELERATED RESTRICTED STOCK
OPTION PLAN FOR CERTAIN EMPLOYEES
---------------------------------
WHEREAS, Medicon, Inc. (the "Corporation") adopted the Medicon, Inc.
Time Accelerated Restricted Stock Option Plan for Certain Employees (the
"Plan"), effective October 28, 1994; and
WHEREAS, Section 7.1 of the Plan provides that the Compensation
Committee (the "Committee") appointed by the Board of Directors of the
Corporation may amend the Plan, and that except in the case of certain amend-
ments (such as amendments that increase the number of shares of common stock in
respect of which options may be issued) shareholder approval is not required,
and the Committee has approved this Amendment by written Consent.
NOW, THEREFORE, the Plan hereby is amended, effective as of April 23,
1996 (the "Amendment Date") as follows:
By substituting the following for the first sentence of Section
4.1 of the Plan:
"Subject to Section 11 (relating to adjustments upon changes in
capitalization), the aggregate number of shares of Stock (as defined in
Section 5) that may be acquired under the Plan by all eligible individuals
pursuant to options granted hereunder shall not exceed 309,618 shares, and
the aggregate number of shares that may be acquired by any one individual
pursuant to options granted hereunder shall not exceed 154,809 shares."
<PAGE>
Except as hereby expressly amended and modified, the terms and
provisions of the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Amendment No. 7 to
be executed as of the Amendment Date.
MEDICON, INC.
By:
-----------------------------
Name: Jeffrey R. Jay, M.D.
Title: Chairman, Compensation
Committee
EXHIBIT 16.1
ARTHUR
ANDERSEN
May 22, 1996
Securities and Exchange Commission
450 Washington Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We have read the second paragraph of the "Additional Information" included in
the attached Form S-1 of UtiliMed, Inc. to be filed with the Securities and
Exchange Commission and are in agreement with the statements contained therein.
Very truly yours,
/s/ Arthur Andersen LLP
Arthur Andersen LLP
EXHIBIT 21.1
List of Subsidiaries of UtiliMed, Inc.
UtiliMed C I, Inc.
UtiliMed P II, Inc.
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Consolidated Financial Data" and to the use of our reports dated May
10, 1996, in the Registration Statement on Form S-1 and related Prospectus of
UtiliMed, Inc. for the registration of 2,875,000 shares of its common stock.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
May 21, 1996
