<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 1996.
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
NEXUS HEALTHCARE INFORMATION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2721 54-1802406
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NO.)
JURISDICTION CLASSIFICATION CODE
OF INCORPORATION OR NUMBER)
ORGANIZATION)
11410 ISAAC NEWTON SQUARE
RESTON, VIRGINIA 22090 (703) 904-3900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
PETER L. BOWER, CPA
TREASURER AND CHIEF FINANCIAL OFFICER
NEXUS HEALTHCARE INFORMATION CORPORATION
11410 ISAAC NEWTON SQUARE
RESTON, VIRGINIA 22090
(703) 904-3900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
JOHN F. OLSON, ESQ. JOHN J. HUBER, ESQ.
GIBSON, DUNN & CRUTCHER LLP LATHAM & WATKINS
1050 CONNECTICUT AVENUE, NW, SUITE 900 1001 PENNSYLVANIA AVE., NW, SUITE 1300
WASHINGTON, DC 20036 WASHINGTON, DC 20004
(202) 955-8500 (202) 637-2200
----------------
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, 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,
check the following box: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
ECURITIES TO BE REGISTEREDS REGISTERED(1) PER UNIT(2) OFFERING PRICE(1)(2) FEE(3)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per 2,300,000
share.......................... shares $12.00 $27,600,000 $9,518
</TABLE>
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(1) Includes 300,000 shares as to which the Underwriters have been granted an
option to cover over-allotments.
(2) Estimated solely for the purpose of determining the registration fee.
(3) Calculated pursuant to Rule 457(a).
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION
CROSS-REFERENCE SHEET PURSUANT TO REGULATION S-K,
ITEM 501(B), SHOWING THE LOCATION IN THE PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 LOCATION OR
ITEM NO. CAPTION CAPTION IN PROSPECTUS
-------- ------- ---------------------
<C> <S> <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 and Outside Back Cover Pages
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed Prospectus Summary; Risk Factors; The
Charges................. Company
4. Use of Proceeds.......... Use of Proceeds
5. Determination of Offering
Price................... Underwriters
6. Dilution................. Dilution
7. Selling Security
Holders................. *
8. Plan of Distribution..... Outside Front Cover Page; Underwriters
9. Description of Securities
to be Registered........ Description of Capital Stock
10. Interests of Named
Experts and Counsel..... *
11. Information with Respect Outside Front Cover Page, Prospectus
to the Registrant....... Summary; The Company; Use of Proceeds;
Dividend Policy; Capitalization; S
Corporation Distributions and Termination
of Subchapter S Corporation Status;
Dilution; Selected Consolidated Financial
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal Stockholders;
Description of Capital Stock; Shares
Eligible for Future Sale; Financial
Statements
12. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities............. *
</TABLE>
- --------
* Not applicable or response is negative.
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUED JUNE 20, 1996
2,000,000 SHARES
NEXUS HEALTHCARE INFORMATION CORPORATION
COMMON STOCK
-----------
All of the 2,000,000 shares of Common Stock offered hereby are being sold by
NexUS Healthcare Information Corporation (the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial offering price per share will be
between $10.00 and $12.00. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. Application has
been made for quotation of the Common Stock on The Nasdaq National Market under
the symbol "NHIC."
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 6 THROUGH 9.
-----------
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.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $ $ $
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Total(3).................................... $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $535,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 300,000 additional shares of Common Stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any. If
the Underwriters exercise this option in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
the certificates for the shares of Common Stock will be available for delivery
at the offices of Volpe, Welty & Company, One Maritime Plaza, San Francisco,
California on or about , 1996.
VOLPE, WELTY & COMPANY LEGG MASON WOOD WALKER
INCORPORATED
The date of this Prospectus is , 1996
<PAGE>
[COMPANY LOGO]
NEXUS PRODUCTS INCLUDE A BROAD RANGE OF SURVEYS, COMPILATIONS, ANALYSES,
MANUALS AND REPORTS AND DECISION SUPPORT SYSTEMS THAT ASSIST PROVIDERS AND
PAYORS IN DETERMINING REIMBURSEMENT FOR CLINICAL SERVICES AND IN DEVELOPING A
VARIETY OF DATABASE INITIATIVES.
[ARTWORK TO COME]
DESCRIPTION OF ARTWORK:
THE ARTWORK WILL BE PHOTOS OF THREE PAGES FROM THREE OF THE COMPANY'S
PRODUCTS. PHOTO 1 WILL BE A PAGE FROM THE HEALTHCARE CAPITATION REPORT
NEWSLETTER. PHOTO 2 WILL BE A PAGE FROM THE 1995 ALMANAC OF HOSPITAL FINANCIAL
AND OPERATING INDICATORS. PHOTO 3 WILL BE A PAGE FROM THE ICD-9-CM OFFICIAL
GUIDELINES FOR DISEASES OF THE CIRCULATORY SYSTEM.
The Company intends to furnish to its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and with quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year
subsequent to consummation of this offering.
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>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and notes thereto
included elsewhere in this Prospectus. Unless the context otherwise requires,
references to "NexUS" or the "Company" are to NexUS Healthcare Information
Corporation, its predecessors and its wholly-owned subsidiaries, which include
St. Anthony Outsourcing, Inc., St. Anthony Healthcare Resource Group, Inc.
("SAHR") and St. Anthony Publishing, Inc. ("St. Anthony Publishing"), which
incorporates as a division The Center for Healthcare Industry Performance
Studies, Inc. ("CHIPS"). St. Anthony Publishing and SAHR are collectively
referred to as the "Operating Subsidiaries." Unless indicated otherwise, the
information contained in this Prospectus (i) gives effect to the
Recapitalization (as defined herein) and (ii) assumes no exercise of the
Underwriters' over-allotment option. References to fiscal years are to the
Company's fiscal year, which ends on April 30. See "The Company."
THE COMPANY
NexUS is a leading provider of information management products and services
to the healthcare industry. The Company's products and services include a broad
range of surveys, compilations, analyses, manuals and reports and decision
support systems that assist providers and payors in determining reimbursement
for clinical services and in developing a variety of database initiatives.
These products facilitate the customer's ability to evaluate resource
utilization, analyze practice patterns, develop clinical pathways, measure
outcomes, benchmark peer groups and negotiate managed care contracts under
capitation and various risk-sharing payment agreements. The Company's customers
include substantially all U.S. hospitals, as well as physician groups and
healthcare payors, including federal and state agencies, health maintenance
organizations ("HMOs"), insurance companies and employers. The Company believes
its St. Anthony Publishing brand name is acknowledged as a market leader in
medical coding, the basis on which healthcare financial and clinical
information is recorded.
Healthcare providers and payors in the United States use a uniform set of
basic data elements to identify and code diagnoses and the number and type of
patient procedures. In inpatient settings, these basic elements are expressed
in ICD-9-CM codes, and in outpatient settings, procedures are coded using a
classification system called CPT. Typically government agencies and private
payors require the use of these uniform coding systems on claims forms
submitted to them for reimbursement to ensure uniform claims data. In addition
to being used as the basis for reimbursement, coded claims data are used for a
variety of other purposes such as accreditation, rate setting, trend
monitoring, and increasingly for utilization and quality assessment reviews for
profiling provider practice patterns and clinical outcomes measurements.
Despite the importance and multiple uses of such data, claims processing is
widely acknowledged to generate substantial inaccuracies. Inaccuracies result
from (i) the broad discretion of medical coders in the coding process, (ii)
frequent omission of pertinent diagnoses and hospital discharge summaries,
(iii) clinical codes which are often not distinct and (iv) ambiguities in
classifying chronic and acute conditions.
The Company was founded in 1986 to provide value-added information and
reference manuals designed to assist providers and payors in coding medical
records under the evolving uniform coding system. In response to the increased
demand for healthcare information in the 1990's, the Company has expanded its
healthcare payment expertise and now provides a range of information products,
including products for managed care, decision support systems and benchmarking.
The Company believes these products enable providers to determine reimbursement
for clinical services, assess and manage financial risk, and enhance their
understanding of treatment costs, variability of costs and cost control
measures. The Company believes these products enable payors to assess more
accurately resource utilization, profile provider practice patterns, measure
clinical outcomes, and establish and implement peer group benchmarks.
The Company's products include: (i) healthcare and medical information
relating to coding and payment processing, (ii) managed care and related
information, and (iii) decision support systems and benchmarking products
utilizing the Company's proprietary software and public and proprietary
databases. These products are generally sold on a subscription basis and are
available in a variety of print and electronic formats. From April 30, 1994 to
April 30, 1996, the Company's subscriptions increased from 198,000 to 280,000
and units sold during fiscal 1994 and 1996 increased from 304,000 to 475,000.
In fiscal 1996, the Company experienced estimated renewal rates of 70% for its
coding and payment-related and managed care products and 94% for its decision
support systems and benchmarking products. In addition, the Company provides
consulting services which include the review and audit of the coding practices
and procedures of healthcare providers.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby..... 2,000,000 shares
Common Stock to be outstanding 9,682,080 shares(1)
after the offering.............
Use of proceeds................. To repay approximately $11.0 million of
revolving bank debt, to fund approximately
$1.2 million of capital expenditures and to
provide funds for general corporate purposes,
including possible acquisitions of products
and companies in healthcare information-
related fields. See "Use of Proceeds."
Proposed Nasdaq National Market NHIC
symbol.........................
</TABLE>
- --------
(1) Does not include (i) 317,500 shares of Common Stock issuable at $11.00 per
share upon the exercise of options currently outstanding or (ii) 1,000,000
shares of Common Stock reserved for issuance under the Company's 1996 Stock
Option Plan, of which options covering 430,104 shares of Common Stock have
been granted and will be exercisable at the initial offering price. See
"Management--Stock Options" and Note M to the Consolidated Financial
Statements.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED FISCAL YEAR ENDED APRIL 30,
DECEMBER 31, -------------------------------
1992(1) 1993 1994 1995 1996
------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
DATA:
Revenue.......................... $29,383 $28,664 $30,555 $35,799 $40,730
Operating income................. 2,549 1,056 2,011 3,111 3,674
Net income....................... 2,430 926 1,716 2,116 2,683
Pro forma net income(2).......... 2,352
Pro forma net income per share... $ 0.31
Weighted average number of common
shares outstanding.............. 7,682
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1996
-----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash.................................................... $ 164 $9,850
Working capital (deficit)............................... (949) 9,237
Total assets............................................ 18,685 28,371
Notes payable, noncurrent............................... 9,989 250
Stockholders' equity (deficit).......................... (4,480) 15,445
</TABLE>
- --------
(1) The Company changed its fiscal year end to April 30 subsequent to calendar
year 1992. Consolidated statement of income data for all years presented
are for full twelve month periods.
(2) Prior to the date of the Recapitalization (as defined herein), the Company
elected to be treated as a Subchapter S corporation, and accordingly was
not subject to federal or state income taxes. During the period the Company
was treated as a Subchapter S corporation, it made distributions to its
stockholders to pay these taxes at the individual level, as they relate to
the Company's operations. A substantial portion of these distributions was
recorded as compensation expense in the historical financial statements.
Pro forma net income reflects an adjustment to reduce compensation expense
relating to these distributions and a provision for income taxes as if the
Company had been subject to federal and state income taxes. See
"S Corporation Distributions and Termination of Subchapter S Corporation
Status," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Notes A and L to the Consolidated Financial
Statements.
(3) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock offered hereby and the application of the net proceeds therefrom as
described under "Use of Proceeds." Does not give effect to a one-time, non-
cash charge against earnings of approximately $475,000 in the first quarter
of fiscal 1997 to reflect additional deferred income tax liability
resulting from the termination of Subchapter S corporation status on May
15, 1996. See Note L to the Consolidated Financial Statements.
4
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby.
Competition. The markets for the Company's products and services are highly
competitive and change rapidly. The Company faces different competitors and
different levels of competition in each of its product categories. The Company
believes that the principal competitive factors in the markets for healthcare
information products are the breadth and quality of products offered,
experience and reputation for quality in providing healthcare information,
efficiency in the development and marketing of new products, access to data,
development of proprietary databases, methodologies and technical resources,
price, and the effectiveness of marketing expenditures. Certain competitors or
potential competitors of the Company have or may develop greater financial,
product development, technical and marketing resources than the Company. The
Company's competitors include other providers of coding and payment processing
information and reference manuals, managed care and general healthcare
information and operations and financial and clinical benchmarking data and
products. As the market for healthcare information and cost management
solutions develops, additional competitors, including other healthcare
information companies not currently competing with the Company, may enter the
market and competition may intensify. The Company may also face significant
competition from internal information services departments at for-profit and
not-for-profit hospital groups, many of which have developed or may develop
benchmarking information or other cost-containment products.
Dependence on New Product Development and Acceptance. The Company's products
typically experience a cycle from introduction through maturity, with the rate
of growth in revenue and gross margins declining as a product reaches
maturity. The Company believes that certain of its products have reached
maturity. The Company's future growth will depend on its ability to develop
and introduce new products and to enhance existing products. The Company's
ability to introduce new products is dependent upon a marketplace
characterized by frequent regulatory changes, rapid technological development
and evolving customer needs. There can be no assurance that the Company will
continue to be able to identify new product areas, develop new products within
new or existing areas, introduce new or enhance existing products on a timely
basis and achieve market acceptance for new products or enhancements, or that
regulatory change will generate a continuous need for new information products
within the healthcare industry. See "Business--Consulting and Product
Development."
Seasonality; Potential Fluctuations in Quarterly Results. The Company's
quarterly operating results have varied significantly in prior years. The
Company has historically experienced and expects to continue to experience a
seasonal pattern in revenue and net income, with the third and fourth fiscal
quarters being significantly higher than the first and second fiscal quarters.
The timing of revenue is influenced by a number of factors, including the
release of updated information used to revise existing products and develop
new products, the timing of individual orders and shipments and seasonal
customer buying patterns. During the first and second fiscal quarters,
customers frequently plan their orders in anticipation of the availability of
new and updated products. The release of updated information by federal and
state agencies and professional associations typically occurs in the second
fiscal quarter, which results in the concentration of new and updated products
in the second and third fiscal quarters and increased sales of products. To
produce revenue in the second half of the fiscal year, the Company continues
to incur marketing and other operating expenses in the first half of the
fiscal year. The combination of reduced orders and ongoing expenses typically
results in an operating loss in the first fiscal quarter and lower revenue and
net income in the first half of the fiscal year than the second half. This
seasonal pattern typically affects the Company's coding and payment-related
products, as well as its decision support systems and benchmarking products.
While the Company believes that the effects of seasonality will be mitigated
by increased sales of managed care products and, if implemented, through the
provision of outsourced medical coding services, no assurance can be given
that such sales will occur or that outsourcing will be implemented. The
Company's quarterly results of operations may also be adversely affected by
other factors, certain of which, such as increases in postal rates or the cost
of paper, are beyond the Company's control. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview--Quarterly
Results."
5
<PAGE>
Outsourcing and New Data Initiative. The Company is evaluating the
feasibility of providing medical reimbursement coding services to healthcare
providers on a contract basis ("outsourcing"), and of compiling the
information obtained through that outsourcing service in a proprietary
database. The Company is currently developing a business plan, strategy and
budget for the testing of such potential opportunities on a limited basis and
its goal is to begin limited pilot outsourcing projects at one or more
hospitals in the second quarter of fiscal 1997. The Company expects that a
decision whether to pursue outsourcing beyond the pilot projects will be made
in the second half of fiscal 1997. If the Company decides to pursue
outsourcing beyond the pilot projects, the Company anticipates providing
outsourcing services on a broader scale and developing additional decision
support systems and benchmarking products based on that proprietary database.
Such decision support systems and benchmarking products are expected to be
marketed to both the outsourcing customer and to existing and new customers.
See "Business--Products and Services--Outsourcing and New Data Initiative."
While the Company has performed limited reviews and audits of coding practices
and procedures for its consulting customers, the Company has not engaged in
digital scanning or the large scale database management which would be
involved in outsourcing. If outsourcing is pursued beyond the pilot projects,
the Company will incur significant expenditures for personnel, marketing and
technology. The Company will also be required to develop expertise in areas
such as digital scanning technology and large scale database management, which
have previously been outside the Company's core expertise and which may affect
the Company's ability to operate profitably in this market. These additional
expenditures and potential operational difficulties may result in diversion of
management's focus on ongoing operations, adversely affect results of
operations and reduce the level of capital available for other activities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." In addition, the Company expects
to face new competitors in this market as it evolves. Accordingly, no
assurance can be given that the Company will pursue outsourcing or, if it
pursues outsourcing beyond the pilot projects, that outsourcing will generate
significant revenue or be profitable.
If the Company decides to pursue outsourcing during the pilot stage and
thereafter, the Company may be subject to regulations applicable to healthcare
providers in connection with such providers' reimbursement claims, the
compliance with which, or the liability arising from which, may materially
affect the Company's results of operations or financial condition. Outsourcing
activities also may subject the Company to claims of fraud or abuse brought by
the government or other payors against the Company's healthcare provider
customers, or against the Company, in connection with the providers'
reimbursement claims prepared by the Company. While the Company intends to
enter into indemnification arrangements with its outsourcing customers and to
insure against such risk, there can be no assurance that such indemnification
arrangements or the Company's insurance coverage will be adequate to cover any
such claims, or that such claims will not have a material adverse affect on
the Company's results of operations or financial condition.
Acquisition Strategy. An important element of the Company's strategy is to
acquire complementary products and businesses in order to expand its market
penetration. The recent acquisitions, such as the CHIPS merger in February
1996, represent the initial efforts of the Company to implement this portion
of its strategy. The Company's ability to expand successfully through
acquisitions will depend upon: (i) the availability of suitable acquisition
candidates, (ii) the Company's ability to negotiate and consummate such
acquisitions on terms acceptable to the Company, (iii) the ability of the
Company to finance such acquisitions, either through internally generated
funds or third party financing and (iv) the ability of the Company to
integrate successfully acquired business or products and to retain their key
employees and customers. There can be no assurance that the Company will be
able to integrate successfully the recent acquisitions or that it will be
successful in making or integrating future acquisitions. Acquisitions involve
numerous risks, including possible short-term effects on the Company's
operating results or long-term effects associated with contingent earn-out
payments or the market price of the Common Stock. Also, the Company may incur
one-time acquisition expenses in connection with any future acquisitions.
There can be no assurance that the Company will be able to finance an
acquisition, or, if financing is available, that the terms will be favorable
to the Company. The issuance of shares of Common Stock in an acquisition may
result in dilution to the Company's stockholders. See "Business--Strategy--
Acquisitions."
6
<PAGE>
No Prior Public Market; Potential Volatility of Stock Price. Prior to this
offering, there has been no public market for the Common Stock, and there can
be no assurance that an active public trading market will develop or be
sustained after this offering. The initial public offering price of the shares
of Common Stock offered hereby will be determined by negotiations among the
Company and the Representatives of the Underwriters and may not be indicative
of prices that will prevail in the trading market. See "Underwriters."
Consequently, there can be no assurance that the market price for the Common
Stock will not fall below the public offering price. From time to time after
this offering, there may be significant volatility in the market price of the
Common Stock. The market price for the Common Stock following this offering
may be affected by a number of factors, including the seasonal effects on or
quarterly variations in, the Company's quarterly results of operations or
those of its competitors (See "--Seasonality; Potential Fluctuations in
Quarterly Results"), internal development of new products at the Company (See
"Business--Products and Services--Outsourcing and New Data Initiative"), the
market acceptance of major new products and the enhancement of existing
products by the Company or its competitors, the announcement of acquisitions
or mergers by the Company, changes in earnings estimates or recommendations by
security analysts, developments in the Company's industry, general market
conditions and other factors, including factors unrelated to the operating
performance of the Company or its competitors. In addition, concerns about the
potential effects of healthcare reform measures have affected the stock prices
of companies in healthcare and related industries and may similarly affect the
price of the Common Stock following this offering. Such factors may result in
fluctuations in the market price of the Common Stock.
Dilution. The Company has a net deficit in stockholders' 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 $10.01
per share based upon an assumed initial public offering price of $11.00 per
share. To the extent outstanding stock options to purchase shares of Common
Stock are exercised, there will be further dilution in net tangible book
value. See "Dilution."
Proprietary Databases and Intellectual Property. The Company offers decision
support systems and benchmarking products based upon its proprietary software
and public and proprietary databases and may develop and offer new decision
support systems and benchmarking products. The success of the Company's CHIPS
division and any new databases the Company may develop will depend to a
significant extent on the Company's ability to maintain exclusive rights over
its proprietary software and databases and its ability to retain continued
access to the data necessary to build and maintain those databases on a cost-
effective basis. While the Company relies on a combination of patent, trade
secret, copyright and contractual protections to establish and protect its
proprietary rights, there can be no assurance that these protections will be
adequate to prevent misappropriation of the Company's technology or
proprietary databases. In addition, these protections do not prevent
independent, third-party development of competitive technology or products.
The Company's competitors may develop competing products, and several
competitors currently have limited proprietary databases similar to those of
the Company. Furthermore, if the Company were restricted by the providers of
such information in its ability to obtain data necessary to build or maintain
its current or future databases or the cost of such information became
prohibitively expensive, such developments could have a material adverse
effect on the Company's results of operation and financial condition. See
"Business--Product and Services."
Dependence on Key Personnel. Eugene W. Lorenz, Chairman and Chief Executive
Officer of the Company, and the executive officers of the Company have been
primarily responsible for the development and expansion of the Company's
business. The loss of the services of Mr. Lorenz or any of the executive
officers could have a material adverse effect on the Company's results of
operations and financial condition. See "Management--Executive Compensation--
Employment Agreements."
Control by Principal Stockholders. Upon consummation of this offering, Mr.
Lorenz will beneficially own approximately 70.0% of the issued and outstanding
shares of Common Stock of the Company and, together with other employees will
hold shares and options which, in the aggregate, represent approximately 79.3%
of the issued and outstanding shares of Common Stock of the Company. As a
result, Mr. Lorenz is able to determine the outcome of all corporate actions
requiring approval of the stockholders and will be able to control election of
7
<PAGE>
the members of the Board of Directors and determination of the Company's
policies. Such control can have the effect of delaying or preventing a change
of control of the Company. See "Principal Stockholders" and "Description of
Capital Stock."
Possible Issuance of Preferred Stock; Anti-Takeover Provisions. Upon
completion of this offering, the Board of Directors will have the authority to
issue up to 10,000,000 shares of Preferred Stock and to determine the price,
rights, preferences, privileges and restrictions including voting and
conversion rights of such shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of holders of Preferred Stock
that may be issued in the future. The issuance of Preferred Stock could have
the effect of delaying, deferring or preventing a change of control of the
Company. The Company's Certificate of Incorporation provides for a classified
Board of Directors, such that approximately only one-third of the members of
the Board of Directors are elected at each annual meeting of stockholders. In
addition, the Certificate of Incorporation contains supermajority stockholder
approval requirements for certain actions and prohibits stockholder action by
written consent. The effect of these and other provisions in the Company's
Certificate of Incorporation and Bylaws and under the Delaware General
Corporation Law could delay or make more difficult a change of control of the
Company or discourage a third party from acquiring, or making a bid to
acquire, control of the Company. See "Description of Capital Stock."
Shares Eligible for Future Sale. 7,682,080 shares of Common Stock,
representing 79.3% of the Common Stock outstanding after consummation of this
offering, and 747,604 shares of Common Stock issuable upon exercise of
outstanding options 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"). 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 "Shares Eligible for Future Sale" and "Management--
Stock Options."
8
<PAGE>
THE COMPANY
The Company was organized and began operations in 1986 when it acquired the
assets of the publishing business originally started in 1983 by Eugene W.
Lorenz and two other stockholders. In December 1989, the Company's businesses
were merged into St. Anthony Publishing, a Subchapter S corporation. In
January 1994, the Company's consulting and seminar operations were transferred
into a newly formed Subchapter S corporation, SAHR.
As part of the Company's strategy to expand its healthcare information
products and to provide healthcare information in a variety of formats, on
February 29, 1996 CHIPS merged with and into St. Anthony Publishing. In
connection with the merger, the CHIPS stockholders received an aggregate 11.8%
of the voting common stock interests of each of the Operating Subsidiaries.
CHIPS, which provides healthcare related decision support systems and
benchmarking products to the Company's customers, is operated as a separate
division of St. Anthony Publishing.
NexUS Healthcare Information Corporation was incorporated in Delaware in
April 1996, and on May 15, 1996 became the holding company for the Operating
Subsidiaries through a recapitalization effected by an exchange of shares
between the Operating Subsidiaries' stockholders and NexUS (the
"Recapitalization").
The Company's principal offices are located at 11410 Isaac Newton Square,
Reston, Virginia 22090. The Company's telephone number is 703-904-3900.
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby, at an initial offering price of
$11.00 per share, are estimated to be approximately $19,925,000 ($22,975,000
if the Underwriters' over-allotment option is exercised in full), after
deducting estimated underwriting discounts and commissions and estimated
offering expenses. The Company intends to use approximately $11.0 million of
the net proceeds to pay down substantially all of its existing bank debt with
State Street Bank and Trust Company ("State Street Bank") and approximately
$1.2 million to fund capital expenditures in fiscal 1997. The balance of net
proceeds will be used for working capital, general corporate purposes and
potential acquisitions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." The
Company maintains two credit facilities with State Street Bank: a $9.0 million
declining line of credit (the "Working Capital Facility") and a $7.0 million
revolving credit line generally available and used for acquisitions (the
"Acquisition Facility" and, together with the Working Capital Facility, the
"Credit Facilities"). The Credit Facilities currently bear interest at the
prime rate quoted by State Street Bank plus 100 basis points and terminate in
2002. As of June 1, 1996 such interest rate was 9.25%. The Company may
subsequently reborrow all or any part of the funds available to it under the
Credit Facilities. The amounts actually expended by the Company for working
capital purposes may vary depending upon a number of factors, including future
revenue growth, the amount of cash generated by the Company's operations and
the success of the Company's product development efforts. In addition, the
Company may make one or more acquisitions of businesses, products, or
technologies as part of its strategy of expanding or enhancing the Company's
current and planned product offerings. While the Company is regularly engaged
in discussions with possible acquisition candidates, it is not currently
involved in any active acquisition negotiations.
Pending such uses, the net proceeds of this offering will be invested in
short-term, interest bearing investment grade securities.
S CORPORATION DISTRIBUTIONS AND TERMINATION
OF SUBCHAPTER S CORPORATION STATUS
From December 1979 to May 14, 1996, the Operating Subsidiaries were treated
for federal and certain state income tax purposes as Subchapter S corporations
under the Internal Revenue Code. As a result, the Company's stockholders,
rather than the Company, were required to pay federal and certain state income
taxes based on the Company's taxable earnings through May 14, 1996 (the "S
Corporation Earnings"), whether or not such amounts were distributed to the
Company's stockholders. The Company has made periodic distributions to its
stockholders in amounts approximately equal to the stockholders' tax
liabilities associated with the Company's S Corporation Earnings. The Company
made distributions to its stockholders of approximately $1,650,000, $553,000
and $1,430,000 in fiscal 1994, 1995 and 1996, respectively.
The Company intends to enter into an agreement (the "Tax Indemnification
Agreement") with Eugene W. Lorenz, who upon consummation of this offering will
hold approximately 70.0% of the Common Stock of the Company, providing for,
among other things, the indemnification of the Company by Mr. Lorenz for any
federal, state and other income taxes (including interest) incurred by the
Company if for any reason the Company is deemed to have been a C corporation
during any period for which it reported its taxable income as a Subchapter S
corporation. See "Certain Transactions."
Upon the capital contribution to the Company of all of the outstanding stock
of the Operating Subsidiaries on May 15, 1996, the Company's status as a
Subchapter S corporation terminated and, accordingly, the Company will be
subject to all future applicable federal and state income taxes.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on the Common Stock
and does not intend to pay cash dividends on the Common Stock in the
foreseeable future. In addition, the Credit Facilities restrict the payment of
cash dividends by the Company. See Note A to the Consolidated Financial
Statements. Any future payment of cash dividends on shares of Common Stock
will be within the discretion of the Board of Directors and will depend upon
the earnings of the Company, the Company's capital requirements, restrictions
in the Credit Facilities or other loan agreements, applicable requirements of
the Delaware General Corporation Law and other factors that are considered
relevant by the Board of Directors.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of April
30, 1996 (i) on an actual basis and (ii) as adjusted to give effect to the
sale of 2,000,000 shares of Common Stock offered hereby and application of the
net proceeds therefrom. See "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>
APRIL 30, 1996
-----------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
Short term debt:
Notes payable, current............................... $ 750 $ 250
Long term debt:
Notes payable, noncurrent............................ 9,989 250
Stockholders' equity (deficit):
Common Stock, $.01 par value, 30,000,000 shares
authorized, 7,682,080 shares issued and
outstanding(2); 9,682,080 shares issued and
outstanding, as adjusted............................ 77 97
Additional paid-in capital........................... 1,946 21,851
Retained earnings.................................... 2,757 2,757
Treasury stock, at cost.............................. (9,260) (9,260)
------- -------
Total stockholders' equity (deficit)............... (4,480) 15,445
------- -------
Total capitalization................................... $ 6,259 $15,945
======= =======
</TABLE>
- --------
(1) Does not give effect to a one-time, non-cash charge against earnings of
approximately $475,000 in the first quarter of fiscal 1997 to reflect
additional deferred income tax liability resulting from the termination of
Subchapter S corporation status on May 15, 1996. See Note L to the
Consolidated Financial Statements.
(2) Does not include (i) 317,500 shares of Common Stock issuable at $11.00 per
share upon exercise of options currently outstanding, or (ii) 1,000,000
shares of Common Stock reserved for issuance under the Company's 1996
Stock Option Plan of which options covering 430,104 shares of Common Stock
have been granted and will be exercisable at the initial offering price.
See "Management--Stock Options" and Note M to the Consolidated Financial
Statements.
11
<PAGE>
DILUTION
The pro forma net tangible book value (deficit) of the Company as of April
30, 1996 was $(10,301,335), or $(1.34) per share of outstanding Common Stock.
Net tangible book value (deficit) represents the Company's net tangible assets
less total liabilities, divided by the number of shares of Common Stock to be
outstanding. After giving effect to the sale of the 2,000,000 shares of Common
Stock offered hereby at an initial public offering price of $11.00 per share,
and after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company and the application of the estimated
net proceeds therefrom, the pro forma net tangible book value of the Company
at April 30, 1996 would have been $9,623,665 or $0.99 per share of Common
Stock, representing an immediate increase in net tangible book value of $2.33
per share to existing stockholders and an immediate dilution of $10.01 per
share to persons purchasing shares of Common Stock hereby. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1).......... $11.00
Net tangible book value deficit per share at April 30,
1996...................................................... $(1.34)
Increase in net tangible book value per share attributable
to new investors.......................................... $ 2.33
------
Pro forma net tangible book value per share after offering.. $ 0.99
------
Dilution per share to new investors......................... $10.01
======
</TABLE>
- --------
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses to be paid by the Company.
The following table summarizes, as of the consummation of this offering at
an assumed initial public offering price of $11.00 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
SHARES PURCHASED CONSIDERATION AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 7,682,080 79.3% $ 2,025,252 8.4% $ 0.26
New investors................... 2,000,000 20.7 $22,000,000 91.6 $11.00
--------- ----- ----------- -----
Total......................... 9,682,080 100.0% $24,025,252 100.0%
========= ===== =========== =====
</TABLE>
The foregoing tables exclude (i) 300,000 shares of Common Stock issuable
upon exercise of the Underwriters' over-allotment option, (ii) 317,500 shares
of Common Stock issuable at $11.00 per share upon the exercise of options
currently outstanding and (iii) 1,000,000 shares of Common Stock reserved for
issuance under the Company's 1996 Stock Option Plan, of which options covering
430,104 shares of Common Stock have been granted and will be exercisable at
the initial offering price. See "Management--Stock Options" and Note M to the
Consolidated Financial Statements. Immediately upon the pricing of the Common
Stock offered hereby, the Company intends to file a registration statement on
Form S-8 under the Securities Act covering the shares of Common Stock reserved
for issuance under the 1996 Stock Option Plan. The shares that are the subject
of such registration statement will be available for public sale 180 days
after the date of this Prospectus. See "Shares Eligible for Future Sale" and
"Management--Stock Options." To the extent such options are exercised in the
future, persons purchasing shares of Common Stock in the offering may suffer
additional dilution. See "Risk Factors--Dilution."
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the year 1992 and the
fiscal years 1993 through 1996 have been derived from the audited consolidated
financial statements of the Company. The information set forth below is not
necessarily indicative of the results of future operations and 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>
YEAR ENDED FISCAL YEAR ENDED APRIL 30,
DECEMBER 31, ----------------------------------
1992(1) 1993 1994 1995 1996
------------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
INCOME DATA:
Revenue
Products.................... $24,104 $23,306 $26,492 $31,592 $36,799
Consulting.................. 5,279 5,358 4,063 4,207 3,931
------- ------- ------- ------- -------
Total revenue............. 29,383 28,664 30,555 35,799 40,730
Cost of revenue
Products.................... 10,331 10,236 9,593 12,569 14,710
Consulting.................. 1,744 1,765 1,593 1,907 1,914
------- ------- ------- ------- -------
Total cost of revenue..... 12,075 12,001 11,186 14,476 16,624
Sales and marketing.......... 8,664 8,877 9,248 10,180 11,345
General and administrative... 5,536 6,111 7,349 6,903 7,802
Depreciation and
amortization................ 559 619 761 1,129 1,285
------- ------- ------- ------- -------
Operating income............. 2,549 1,056 2,011 3,111 3,674
Interest expense............. 119 130 295 995 916
Merger expenses.............. -- -- -- -- 75
------- ------- ------- ------- -------
Net income................... $ 2,430 $ 926 $ 1,716 $ 2,116 $ 2,683
======= ======= ======= ======= =======
Pro forma net income(2)...... $ 2,352
=======
Pro forma net income per
share....................... $ 0.31
=======
Weighted average number of
common shares outstanding... 7,682
=======
<CAPTION>
APRIL 30,
DECEMBER 31, ----------------------------------
1992 1993 1994 1995 1996
------------ ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash......................... $ 761 $ 240 $ 331 $ 315 $ 164
Working capital deficit...... (2,141) (2,675) (3,976) (4,918) (949)
Total assets................. 9,665 7,536 8,780 11,285 18,685
Notes payable, noncurrent ... 145 225 7,246 6,311 9,989
Stockholders' deficit........ (1,469) (2,431) (9,086) (7,018) (4,480)
</TABLE>
- --------
(1) The Company changed its fiscal year end to April 30 subsequent to calendar
year 1992. Consolidated statement of income data for all years presented
are for full twelve month periods.
(2) Prior to the date of the Recapitalization, the Company elected to be
treated as a Subchapter S corporation, and accordingly was not subject to
federal or state income taxes. During the period the Company was treated
as a Subchapter S corporation, it made distributions to its stockholders
to pay these taxes at the individual level. A substantial portion of these
distributions were recorded as compensation expense in the historical
financial statements. Pro forma net income reflects an adjustment to
reduce compensation expense relating to these distributions and a
provision for income taxes as if the Company had been subject to federal
and state income taxes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Notes A and L to the
Consolidated Financial Statements.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
NexUS is a leading provider of information management products and services
to the healthcare industry. The Company's customers include substantially all
U.S. hospitals, as well as physician groups and healthcare payors, including
federal and state agencies, HMOs, insurance companies and employers. The
Company believes its St. Anthony Publishing brand name is acknowledged as a
market leader in medical coding, the basis on which healthcare financial and
clinical information is recorded.
The Company's products include: (i) healthcare and medical information
relating to coding and payment processing, (ii) managed care and related
information and (iii) decision support systems and benchmarking products
utilizing the Company's proprietary software and public and proprietary
databases. These products are generally sold on a subscription basis and are
available in a variety of print and electronic formats. From April 30, 1994 to
April 30, 1996, the Company's subscriptions increased from 198,000 to 280,000
and units sold during fiscal 1994 and 1996 increased from 304,000 to 475,000.
In fiscal 1996, the Company experienced estimated renewal rates of 70% for its
coding and payment-related and managed care products and 94% for its decision
support systems and benchmaking products. In addition, the Company provides
consulting services which include the review and audit of the coding practices
and procedures of healthcare providers.
The Company's subscription-based products include books, looseleaf products,
specialty reports and newsletters, which are designed to be updated and
annually revised and to provide a continuing source of revenue from existing
and new customers. The Company's products are subject to changes in the
medical codes and the rapid pace of regulatory change in the healthcare
industry. The Company continuously supplements its product lines by
introducing new products to both existing customers and new customers. The
product development cycle from concept, through development and test
marketing, to customer delivery of a new product is typically three months. In
fiscal 1996, new product introductions focused primarily on managed care and
analytical information products, with the introduction of 16 such products.
For fiscal 1994, 1995 and 1996, the Company introduced nine, 21 and 26 new
products and terminated production of nine, two, and eight products,
respectively.
The Company is evaluating the feasibility of providing medical reimbursement
coding services to healthcare providers on a contract basis ("outsourcing")
and of compiling the information obtained through outsourcing in a proprietary
database. The Company is currently developing a business plan, strategy and
budget for the testing of such potential opportunities on a limited basis with
a goal of beginning limited pilot outsourcing projects at one or more
hospitals in the second quarter of fiscal 1997. The Company expects that a
decision whether to pursue outsourcing beyond the pilot projects will be made
in the second half of fiscal 1997.
Revenue
The Company's revenue is derived from the sale of its products and services
primarily to the hospital, physician and managed care markets in the United
States. Product revenue accounted for more than 90% of total revenue in fiscal
1996. While sales of the Company's own products account for a substantial
majority of product revenue, the Company also resells selected products of
other publishers. Product revenue is derived primarily from subscription-based
sales, and in fiscal 1996 less than 5.0% of product revenue was generated by
bulk sales through its direct sales force, usually at discount, made
principally to associations, including the American Medical Association,
distributors and insurance companies. Decision support systems and
benchmarking products accounted for approximately 6.9% of fiscal 1996 product
revenue and such sales grew by approximately 37.9% compared to fiscal 1995.
The Company expects an increasing portion of total revenue to be derived from
the sale of managed care and decision support systems and benchmarking
products. Consulting revenue from individual consulting contracts accounted
for 9.7% of total revenue in fiscal 1996, as compared to 11.8% of total
revenue in fiscal 1995.
14
<PAGE>
Product revenue from both new and renewal products is largely subscription-
based and is recognized when products are shipped. Thirty three of the
Company's products include periodic updates. Fiscal 1996 revenue for these
products was $11.4 million, a portion of which is deferred and used to offset
the cost of providing the updates. Updates are typically delivered as volume
supplements or insertable loose-leaf pages. Newsletter revenue is recognized
ratably over the life of the subscription, which is typically a period of 12
months. Substantially all of the Company's subscriptions are of one year
duration. During fiscal 1996, renewal revenue represented approximately 32.0%
of product revenue. Deferred revenue relating to customer orders not
immediately shipped is accrued as unearned subscription revenue.
The Company provides consulting services to its customers, primarily
training in coding, payment-processing and related services. Since 1986, over
1,000 hospitals have contracted to receive the Company's consulting services,
which are marketed to physician groups and outpatient clinics as well.
Consulting revenue is based upon individual contracts and consulting
assignments ranging from one to two weeks, the revenue from which currently
ranges between $10,000 to $20,000 per assignment. Consulting services are
provided primarily by independent contractors on an as-needed basis to
minimize costs. Consulting revenue is recognized as services are performed. As
a result of the Company's decision to continue to utilize its consulting
operations primarily as a source of product research and development, rather
than as a source of revenue and profits, the Company anticipates that
consulting revenue will continue to decline as a percentage of total revenue
in the future.
Expenses
The major components of cost of product revenue are product printing costs,
delivery costs, editorial expenses and royalties. The major component of cost
of consulting revenue is salaries. These costs are expensed as they are
incurred.
Sales and marketing expenses include primarily telesales and direct mail
operations both for new and renewal subscriptions. Certain of the direct mail
expenses relate to the development and test marketing of new products. Since
its introduction in fiscal 1989, telesales has received increasing emphasis
from the Company. The telesales force consisted of 57, 77 and 99 employees at
April 30, 1995, April 30, 1996 and June 1, 1996, respectively. Costs incurred
in connection with the Company's direct response advertising efforts are
deferred and then amortized over the estimated period of benefit for each
product, up to 24 months or 32 months, with a significant portion of such
costs amortized in 12 to 15 months. Expenses incurred in connection with the
Company's telesales operations are expensed as incurred. The Company intends
to continue enhancing its telesales marketing efforts because of the higher
returns telesales generates compared to direct mail.
Because the Company's operations are personnel intensive rather than capital
intensive, the primary expense is salaries. See "Business--Sales and
Marketing." Total salary expense (excluding employee benefits and commissions)
was approximately $10.6 million in fiscal 1996.
Certain of the Company's software development costs, which recently pertain
primarily to decision support system and benchmarking products, are
capitalized and amortized on a straight-line basis over the estimated economic
life of the products, which is typically three years. The Company capitalized
$46,000 and $181,000 of software development costs in fiscal 1995 and 1996,
respectively.
In fiscal 1996, the Company installed a new management information system to
automate and enhance the efficiency of the Company's order fulfillment and
internal accounting processes. From the third quarter of fiscal 1995 through
fiscal 1996, the Company spent approximately $1.4 million (approximately $1.1
million during fiscal 1996) on this system, which became operational in
January 1996. During fiscal 1997, the Company expects to make additional
expenditures of approximately $350,000 for planned enhancements of the
management information system. In the event the Company pursues outsourcing
beyond the pilot projects, the Company will incur significant expenses for
additional personnel, facilities, equipment and technology to support the
implementation, expansion and maintenance of outsourcing services. The timing
and amount of such expenses will depend upon a number of factors, including
the number and location of customers and the manner in which the Company
acquires the technology and equipment necessary to support this service.
15
<PAGE>
Seasonality
The Company's quarterly operating results have varied significantly in prior
years. The Company has historically experienced and expects to continue to
experience a seasonal pattern in revenue and net income, with the third and
fourth fiscal quarters being significantly higher than the first and second
fiscal quarters. The timing of revenue is influenced by a number of factors,
including the release of updated information used to revise existing products
and develop new products, the timing of individual orders and shipments and
seasonal customer buying patterns. During the first and second fiscal
quarters, customers frequently plan their orders in anticipation of the
availability of new and updated products. The release of updated information
by federal and state agencies and professional associations typically occurs
in the second fiscal quarter, which results in the concentration of new and
updated products in the second and third fiscal quarters and increased sales
of products. To produce revenue in the second half of the fiscal year, the
Company continues to incur marketing and other operating expenses in the first
half of the fiscal year. The combination of reduced orders and ongoing
expenses typically results in an operating loss in the first fiscal quarter
and lower revenue and net income in the first half of the fiscal year than the
second half. This seasonal pattern typically affects the Company's coding and
payment related products as well as its decision support systems and
benchmarking products. While the Company believes that the effects of
seasonality will be mitigated by increased sales of managed care products and,
if implemented, through outsourcing, no assurance can be given that such sales
will occur or that outsourcing will be implemented. The Company's quarterly
results of operations may also be adversely affected by other factors, certain
of which, such as increases in postal rates or the cost of paper, are beyond
the Company's control.
Recent Mergers and Acquisitions
Since the second quarter of fiscal 1996, the Company has added 24 products
through three acquisitions and one merger. The merger with CHIPS in February
1996, was accounted for as a pooling of interests. See "Certain Transactions"
and Note B to the Consolidated Financial Statements.
Recapitalization
In the Recapitalization, St. Anthony Publishing and SAHR became wholly-owned
subsidiaries of the Company. See "The Company," "Certain Transactions," and
Note A to the Consolidated Financial Statements. The Company's consolidated
financial statements give retroactive effect to the Recapitalization for all
periods presented.
Prior to the Recapitalization, the Company elected to be treated as a
Subchapter S corporation. A substantial portion of distributions made by the
Company to its stockholders to pay individual income taxes prior to the
Recapitalization was recorded as compensation expense in the historical
financial statements. As a result of its conversion to a C corporation, the
Company will record a one-time, non-cash charge against earnings of $475,000
in the first quarter of fiscal 1997, to reflect an additional deferred income
tax liability resulting from the termination of Subchapter S corporation
status for income tax purposes. See Notes A and L to the Consolidated
Financial Statements.
The Company intends to finance any future mergers or acquisitions with cash
generated from operations, borrowing under the Credit Facilities, or the
proceeds of debt or equity offerings, including shares of Common Stock. If the
Company consummates one or more significant acquisitions in which the
consideration includes Common Stock, significant dilution of the interests of
stockholders of the Company prior to such acquisitions could result.
16
<PAGE>
RESULTS OF OPERATIONS
The following table presents selected financial data and percentage of total
revenue for the periods indicated, and should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in
this Prospectus. The 1996 consolidated statement of income and the following
table include pro forma adjustments for stockholder compensation and income
taxes.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Revenue
Products.............................................. 86.7% 88.2% 90.3%
Consulting............................................ 13.3 11.8 9.7
------ ------ ------
100.0 100.0 100.0
Cost of revenue
Products.............................................. 31.4 35.1 36.1
Consulting............................................ 5.2 5.3 4.7
------ ------ ------
36.6 40.4 40.8
Sales and marketing..................................... 30.3 28.4 27.9
General and administrative.............................. 24.0 19.3 19.2
Depreciation and amortization........................... 2.5 3.2 3.1
------ ------ ------
Operating income........................................ 6.6 8.7 9.0
Interest expense........................................ 1.0 2.8 2.2
Merger expenses......................................... -- -- 0.2
------ ------ ------
Net income.............................................. 5.6% 5.9% 6.6%
====== ====== ======
Pro forma net income.................................... 5.8%
======
</TABLE>
Comparison of Fiscal Years Ended April 30, 1996 and April 30, 1995
Revenue. The Company's product revenue increased approximately 16.5%, or
$5.2 million, from $31.6 million in fiscal 1995 to $36.8 million in fiscal
1996. The increase resulted from continued introduction of new products, sales
of additional products to existing customers and an approximate 37.9% increase
in revenue from decision support systems and benchmarking products. Consulting
revenue decreased from $4.2 million in fiscal 1995 to $3.9 million in fiscal
1996, a decrease of 6.6% or approximately $300,000, as a result of the
Company's decision to focus consulting services primarily on product research
and development. See "Business--Consulting and Product Development."
Cost of revenue. Cost of product revenue increased approximately 17.0%, or
$2.1 million, from $12.6 million in fiscal 1995 to $14.7 million in fiscal
1996, representing approximately 39.8% and 40.0% of product revenue. Cost of
consulting revenue increased as a percentage of consulting revenue from 45.3%
to 48.7% as a result of reduction in consulting activity, including a decrease
in the number of employees. See "Business--Consulting and Product
Development."
Sales and marketing. Sales and marketing expenses increased approximately
10.8%, or $1.1 million, from $10.2 million in fiscal 1995 to $11.3 million in
fiscal 1996. The increase resulted from an increase in the number of employees
engaged in telesales from 57 at fiscal year end 1995 to 77 at fiscal year end
1996. The reduction of approximately 0.5% of sales and marketing expenses as a
percentage of total revenue resulted from increased expenditures for
telesales, which typically generate greater revenue than expenditures for
direct mail.
General and administrative. General and administrative expenses increased
approximately 13.0%, or $900,000, from $6.9 million in fiscal 1995 to $7.8
million in fiscal 1996. The increase resulted from higher compensation expense
primarily relating to distributions made to stockholders for income taxes
liability as a result of the Company's status as a Subchapter S corporation.
Depreciation and amortization. Depreciation and amortization increased
14.2%, or $156,000, from $1.1 million in fiscal 1995 to $1.3 million in fiscal
1996. The increase as a percentage of total revenue resulted from increased
capital investment in equipment and capital improvements, including the
Company's new management information system which became operational in
January 1996.
17
<PAGE>
Interest expense. Interest expense decreased $80,000 as a result of lower
interest rates resulting from the renegotiation and expansion of the former
credit facilities and lower outstanding balances thereunder. See "--Liquidity
and Capital Resources."
Merger expenses. Merger expenses in connection with the merger with CHIPS in
February 1996 was $75,000.
Net income. As a result of the foregoing, net income increased to $2.7
million for fiscal 1996 from $2.1 million in fiscal 1995, or 6.6% of net
revenues in fiscal 1996 from 5.9% in fiscal 1995.
Comparison of Fiscal Years Ended April 30, 1995 and April 30, 1994
Revenue. The Company's product revenue increased approximately 19.2%, or
$5.1 million, from $26.5 million in fiscal 1994 to $31.6 million in fiscal
1995. The increase in product revenue largely resulted from the introduction
of 21 new products in fiscal 1995 compared to nine new products in fiscal
1994. A significant portion of the revenue increase was in the area of managed
care products and coding and reimbursement products, with the effect of the
increase partially offset by the effect of competitive price pressures on
certain of the Company's mature coding and payment-related products. See
"Business--Products and Services." Consulting revenue remained relatively flat
and decreased as a percentage of total revenue to 11.8% from 13.3%.
Cost of revenue. Cost of product revenue increased approximately 31.0%, or
$3.0 million, from $9.6 million in fiscal 1994 to $12.6 million in fiscal
1995, representing approximately 36.2% and 39.8% of product revenue. The
increase in the cost of product revenue as a percent of product revenue
resulted from competitive price pressures on certain of the Company's mature
coding and payment-related products, partially offset by higher prices and
margins of new products introduced in fiscal 1995. Cost of consulting revenue
increased from 39.2% to 45.3% of consulting revenue as a result of higher
salaries.
Sales and marketing. Sales and marketing expenses increased approximately
10.1%, or $930,000, from $9.2 million in fiscal 1994 to $10.2 million in
fiscal 1995. Increased costs resulted from continued expansion of the
telesales operations, including the increase in the number of employees
engaged in telesales from 42 at fiscal year end 1994 to 57 at fiscal year end
1995.
General and administrative. General and administrative expenses decreased
approximately 6.0%, or $400,000, from $7.3 million in fiscal 1994 to $6.9
million in fiscal 1995. The principal area of expense reduction was a decrease
of $865,000 in compensation expense relating to lower distributions to
stockholders to pay income taxes as a result of the Company's Subchapter S
corporation status.
Depreciation and amortization. Depreciation and amortization expenses
increased approximately 52.6%, or $400,000, from $761,000 in fiscal 1994 to
$1.1 million in fiscal 1995. The increase as a percentage of total revenue
resulted from increased capital investment in equipment and capital
improvements.
Interest expense. Interest expense increased approximately $700,000 to $1.0
million in fiscal 1995 as a result of the financing required for the
Stockholder Redemption. See "Certain Transactions" and Note J to the
Consolidated Financial Statements.
Net income. As a result of the foregoing, net income increased to $2.1
million for fiscal 1995 from $1.7 million in fiscal 1994, or 5.9% of net
revenues in fiscal 1995 from 5.6% in fiscal 1994.
18
<PAGE>
QUARTERLY RESULTS
The following table presents certain unaudited quarterly financial data for
each of the quarters in fiscal 1995 and 1996 including such amounts expressed
as a percentage of total revenue. This information has been prepared on the
same basis as the consolidated financial statements appearing elsewhere in
this Prospectus and includes, in the opinion of the Company, all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the quarterly results when read in conjunction with the consolidated financial
statements and notes thereto. The Company has historically experienced and
expects to continue to experience quarterly fluctuations in its operating
results, which are also seasonal in nature. Quarterly results depend upon a
number of factors, including the Company's ability to develop, market and
introduce new products, changes in healthcare regulations, increased
competition, integration of mergers and acquisitions, general economic
conditions and seasonality. As a result, the operating results for any quarter
are not necessarily indicative of results for any future period for the full
year. See "Risk Factors--Seasonality; Potential Fluctuations in Quarterly
Results."
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------
JULY OCTOBER JANUARY APRIL JULY OCTOBER JANUARY APRIL
31, 31, 31, 30, 31, 31, 31, 30,
1994 1994 1995 1995 1995 1995 1996 1996
------ ------- ------- ------ ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Revenue
Products.............. $4,401 $7,463 $13,045 $6,682 $ 4,915 $8,213 $12,466 $11,205
Consulting............ 1,046 1,297 910 954 923 1,188 1,039 781
------ ------ ------- ------ ------- ------ ------- -------
5,447 8,760 13,955 7,636 5,838 9,401 13,505 11,986
Cost of revenue
Products.............. 1,593 3,118 5,510 2,348 1,721 3,202 5,871 3,916
Consulting............ 410 479 518 500 415 602 444 453
------ ------ ------- ------ ------- ------ ------- -------
2,003 3,597 6,028 2,848 2,136 3,804 6,315 4,369
Sales and marketing..... 2,163 3,015 2,713 2,289 2,632 2,800 3,089 2,824
General and
administrative......... 1,480 1,543 2,598 1,281 1,727 1,928 1,872 2,275
Depreciation and
amortization........... 296 279 288 266 271 248 281 485
------ ------ ------- ------ ------- ------ ------- -------
Operating income
(loss)................. (495) 326 2,328 952 (928) 621 1,948 2,033
Interest expense........ 293 293 197 212 213 225 233 245
Merger expenses......... -- -- -- -- -- -- 4 71
------ ------ ------- ------ ------- ------ ------- -------
Net income (loss)....... $ (788) $ 33 $ 2,131 $ 740 $(1,141) $ 396 $ 1,711 $ 1,717
====== ====== ======= ====== ======= ====== ======= =======
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------
JULY OCTOBER JANUARY APRIL JULY OCTOBER JANUARY APRIL
31, 31, 31, 30, 31, 31, 31, 30,
1994 1994 1995 1995 1995 1995 1996 1996
----- ------- ------- ----- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL
REVENUE:
Revenue
Products.............. 80.8% 85.2% 93.5% 87.5% 84.2% 87.4% 92.3% 93.5%
Consulting............ 19.2 14.8 6.5 12.5 15.8 12.6 7.7 6.5
----- ----- ----- ----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue
Products.............. 29.2 35.6 39.5 30.7 29.5 34.1 43.5 32.7
Consulting............ 7.5 5.5 3.7 6.5 7.1 6.4 3.3 3.8
----- ----- ----- ----- ----- ----- ----- -----
36.7 41.1 43.2 37.2 36.6 40.5 46.8 36.5
Sales and marketing..... 39.7 34.4 19.4 30.0 45.1 29.8 22.9 23.6
General and
administrative......... 27.2 17.6 18.6 16.8 29.6 20.5 13.9 19.0
Depreciation and
amortization........... 5.4 3.2 2.1 3.5 4.6 2.6 2.1 4.0
----- ----- ----- ----- ----- ----- ----- -----
Operating income
(loss)................. (9.1) 3.7 16.7 12.5 (15.9) 6.6 14.4 17.0
Interest expense........ 5.4 3.3 1.4 2.8 3.6 2.4 1.7 2.0
Merger expenses......... -- -- -- -- -- -- -- 0.6
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (14.5)% 0.4% 15.3% 9.7% (19.5)% 4.2% 12.7% 14.4%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations (including capital
expenditures) through cash flow from operations and bank borrowings. Bank
borrowings were used to finance the acquisitions of the newsletter
publications of Genesis Publishing, Inc. in the third quarter of fiscal 1996
and the McGraw Hill Company's Healthcare Management Group in the first quarter
of fiscal 1997. In fiscal 1994, 1995 and 1996, the Company generated cash from
operations of approximately $3.7 million, $1.6 million, and $1.0 million,
respectively, which consisted primarily of net income plus depreciation and
amortization, offset by changes in the components of working capital.
In April 1995, the Company refinanced its former credit facility with Core
States Bank with the Credit Facilities. See Note F to the Consolidated
Financial Statements. At April 30, 1996, the Company had a declining line of
credit of $9.0 million under the Working Capital Facility and a revolving line
of credit of $7.0 million under the Acquisition Facility. At April 30, 1996,
there was approximately $250,000 and $5.0 million available under the Working
Capital Facility and the Acquisition Facility, respectively. The Company is
required to reduce the outstanding principal balance under the Working Capital
Facility to $8.0 million by July 31, 1996. At June 10, 1996, there was $8.8
million principal balance outstanding under the Working Capital Facility and
$3.0 million under the Acquisition Facility. The Company intends to repay
substantially all of the principal balances outstanding under the Credit
Facilities with the net proceeds of this offering. See "Use of Proceeds." In
addition, subsequent to this offering, the Company intends to renegotiate the
terms of the Credit Facilities and to increase the amounts available
thereunder to support working capital requirements and acquisitions. The
Company anticipates that it will be able to renegotiate the Credit Facilities
on terms acceptable to it.
The Company's capital expenditures were approximately $1.2 million,
$725,000, and $1.6 million in fiscal 1994, 1995, and 1996, respectively. These
expenditures include approximately $1.4 million incurred from the third
quarter of fiscal 1995 through the end of fiscal 1996 for a new management
information system which became operational on January 1, 1996. The Company
anticipates capital expenditures in fiscal 1997 of approximately $1.2 million,
including $500,000 for the purchase of telemarketing software, $350,000 for
planned enhancements to the management information system and $350,000
principally for additional computer equipment, peripherals and workstations.
The Company intends to utilize a portion of the net proceeds of the offering
for such expenditures. See "Use of Proceeds."
20
<PAGE>
On May 15, 1996, the Company completed the Recapitalization and terminated
its status as a Subchapter S corporation. See "S Corporation Distributions and
Termination of Subchapter S Corporation Status." A substantial portion of
distributions made to stockholders to pay income taxes prior to the
Recapitalization was recorded as compensation expense in the Company's
historical financial statements, totaling $1.3 million, $505,000 and $1.3
million in fiscal 1994, 1995 and 1996, respectively. As a result of the
Company's conversion to a C corporation, the Company will record a one-time,
non-cash charge against earnings of $475,000 in the first quarter of fiscal
1997 to reflect additional deferred income tax liability resulting from the
termination of Subchapter S corporation status in May 1996.
On January 1, 1994, the Company redeemed 50% of the outstanding Common
Stock, which represented the entire holdings of one of its two stockholders.
This transaction was financed by bank borrowings under the Working Capital
Facility, a capital contribution from the remaining stockholder of $1.5
million, forgiveness of a short term note receivable from the stockholder of
$660,000 and the issuance of a note payable by the Company of $2.0 million
which was paid in July 1995. See "Certain Transactions."
The Company believes that the net proceeds from this offering, cash
generated from operations, together with existing sources of liquidity and the
anticipated renegotiation of the Credit Facilities, will be sufficient to meet
its capital expenditures, working capital and other cash requirements,
including acquisitions and the anticipated costs associated with the Company's
outsource testing, for the foreseeable future. The Company anticipates that
pilot projects to test its potential outsourcing initiative will result in
expenses of $100,000 to $200,000 during fiscal 1997. In the event that the
Company pursues outsourcing beyond the pilot projects, the Company will incur
capital expenditures to develop the infrastructure necessary to provide this
service, including expenditures to acquire technology and equipment, to hire
and train additional personnel and for additional facilities. In addition, to
support such outsourcing services, the Company will incur additional ongoing
personnel, marketing and technology costs, which may reduce the cash available
to the Company from operations. In the event that cash generated from
operations and the Credit Facilities is inadequate to finance acquisitions,
capital expenditures and the other costs of outsourcing, the Company may be
required to seek debt or equity financing or to enter into strategic
arrangements. Depending on the Company's future growth and acquisition
opportunities, the Company will consider from time to time various financing
alternatives and may seek to raise additional capital through equity or debt
financing or to enter into strategic arrangements. There can be no assurance,
however, that debt or equity financing will be available, and if so, that it
will be available on terms acceptable to the Company.
NEW ACCOUNTING STANDARDS
In January 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The adoption of this Statement did not
have a material effect on the Company's financial position or results of
operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 establishes financial accounting
and reporting standards for stock-based compensation plans and for
transactions in which an entity issues its equity instruments to acquire goods
and services from non-employees. The new accounting standards prescribed by
SFAS No. 123 are optional, and the Company is permitted to account for its
stock incentive
and stock purchase plans under previously issued accounting standards. The
Company expects to continue the application of the previously-issued
accounting standards, but will comply with the required pro-forma disclosures,
as if the fair-value based method of accounting defined in SFAS No. 123 had
been applied.
21
<PAGE>
BUSINESS
OVERVIEW
NexUS is a leading provider of information management products and services
to the healthcare industry. The Company's products and services include a
broad range of surveys, compilations, analyses, manuals and reports and
decision support systems that assist providers and payors in determining
reimbursement for clinical services and in developing a variety of database
initiatives. These products facilitate the customer's ability to evaluate
resource utilization, analyze practice patterns, develop clinical pathways,
measure outcomes, benchmark peer groups and negotiate managed care contracts
under capitation and various risk-sharing payment arrangements. The Company's
customers include substantially all U.S. hospitals, as well as physician
groups and healthcare payors, including federal and state agencies, HMOs,
insurance companies and employers. The Company believes its St. Anthony
Publishing brand name is acknowledged as a market leader in medical coding,
the basis on which healthcare financial and clinical information is recorded.
The Company's products include (i) healthcare and medical information
relating to coding and payment processing, (ii) managed care and related
information and (iii) decision support systems and benchmarking products
utilizing the Company's proprietary software and public and proprietary
databases. These products are generally sold on a subscription basis and are
available in a variety of print and electronic formats. From April 30, 1994 to
April 30, 1996, the Company's subscriptions increased from 198,000 to 280,000
and units sold during fiscal 1994 and 1996 increased from 304,000 to 475,000.
In fiscal 1996, the Company experienced estimated renewal rates of 70% for its
coding and payment-related and managed care products and 94% for its decision
support systems and benchmarking products. In addition, the Company provides
consulting services which include the review and audit of the coding practices
and procedures of healthcare providers.
INDUSTRY
Healthcare providers and payors are under continuing pressure to control
costs, driven in part by increasing healthcare expenditures that have
accounted for an increasing portion of the U.S. gross domestic product. In
1995, national healthcare expenditures totaled approximately $1 trillion
compared with $938 billion in 1994. Increasing healthcare expenditures have
driven healthcare payors to understand better and control or reduce the cost
of healthcare. As a result of cost containment pressures, payors have reduced
fee schedules to providers and implemented prospective payments, capitation
and other risk-sharing arrangements that lower reimbursement and transfer more
of the economic risk to healthcare providers, increasing the pressure on
providers to deliver medical services cost effectively. As a result,
healthcare providers are required to optimize payment for clinical services,
assess and manage financial risk, and enhance their understanding of treatment
costs, variability of costs and cost control measures, while preserving the
quality of care.
Healthcare providers and payors in the United States use a uniform set of
basic data elements to identify and code diagnoses and the number and type of
patient procedures. In inpatient settings, these basic elements are expressed
in ICD-9-CM codes, a scheme of classification codes used for insurance claims
processing. Outpatient procedures are coded using a classification system
known as CPT, copyrighted by the American Medical Association. These codes are
used as part of standard billing practices, and include Uniform Hospital
Decision Data Sets (UHDDS) and the Uniform Billing Form or UB-92. Typically
government agencies and private payors require the use of these uniform coding
systems on claims forms submitted to them for reimbursement to ensure uniform
claims data. In addition to being used as the basis for reimbursement, coded
claims data are used for a variety of other purposes. Coded data are used by
(i) accreditation entities, such as the Joint Commission on Accreditation of
Healthcare Organizations, for assessing hospital quality, (ii) actuarial
groups for rate setting, (iii) regulatory agencies, such as HCFA, and the
National Center for Health Statistics for monitoring trends, (iv) hospital
administrators for planning and marketing and, increasingly, (v) utilization
and quality assessment reviewers for profiling provider practice patterns and
measuring clinical outcomes.
22
<PAGE>
In most healthcare facilities, coding is a labor-intensive process performed
by vocationally trained employees that use their working knowledge of medical
terminology and government regulations to assign codes for payment
reimbursement. Despite the importance and multiple uses of such data, claims
processing is widely acknowledged to generate substantial inaccuracies.
Inaccuracies result from (i) the broad discretion medical coders have in
coding, (ii) frequent omission of pertinent diagnoses and hospital discharge
summaries, (iii) clinical codes which are often not distinct and (iv)
ambiguities in classifying chronic and acute conditions. Decisions based on
inaccurate information can lead to financial losses and diminish healthcare
providers' and payors' abilities to manage financial risk and compete
effectively.
STRATEGY
The Company's objective is to be the leading provider of healthcare
management information products and services in print and electronic formats
for financial and clinical purposes. The Company was founded in 1986 to
provide value-added information and reference manuals designed to assist
providers and payors in coding medical records under the evolving uniform
coding system. In response to the increased demand for healthcare information
in the 1990's, the Company has expanded its healthcare payment expertise by
developing a range of information products, including products for managed
care, decision support systems and benchmarking. The Company believes these
products enable providers to determine reimbursement for clinical services,
assess and manage financial risk, and enhance their understanding of treatment
costs, variability of costs and cost control measures. The Company believes
these products enable payors to assess more accurately resource utilization,
profile provider practice patterns, measure clinical outcomes, and establish
and implement peer group benchmarks.
The Company markets and distributes, through its St. Anthony Publishing
subsidiary, 109 coding and payment-related products and 37 managed care-
related products in print and electronic formats. Through its CHIPS division,
the Company also produces 13 types of decision support products for
approximately 2,400 customers in the healthcare industry, as of April 30,
1996. The Company's consulting group provides consulting services, which
include the review and audit of the coding practices and procedures of
healthcare providers. This group also serves as a source of current industry
information and customer feedback and provides input for new product
development.
Key elements of the Company's growth strategy are:
Leverage Nationwide Customer Base. The Company believes that its reputation
with its customers, the breadth of its products and its telesales marketing
efforts provide an opportunity to cross-sell products into its existing
customer base. For example, the Company's decision support systems and
benchmarking products, acquired in February 1996, through the merger with
CHIPS, provide the Company with cross-selling opportunities. To date, these
products have been marketed primarily to hospitals, and the Company believes a
significant opportunity exists to market these products to HMOs, insurance
companies and physician practice management groups. The Company will pursue
this strategy primarily through telesales marketing and plans to increase
expenditures in this effort in fiscal 1997. In addition, the Company is
pursuing increased renewal rates through a telesales marketing strategy that
targets customers who typically purchase multiple higher-volume products and
through increased product sales per customer.
Continued New Product Emphasis. Since it began operation in 1986, the
Company has grown largely through internal development of new products. To
meet the demand for healthcare information management tools, the Company
intends to continue to develop and introduce new products. The Company has
introduced an average of more than 18 new products a year over the past four
fiscal years, and more than 80% of the new products tested by the Company in
that period have been launched into the market. The Company develops new
products through its consulting group and self-directed work teams which
combine marketing and technical
23
<PAGE>
expertise. The Company was an early provider of managed care-related
information products and believes that this area will continue to provide a
growth opportunity for the Company. The Company's first managed care product
was introduced in fiscal 1995 with 540 subscribers. By the end of fiscal 1996,
the Company expanded the number of its managed care and related information
products to 37 and the number of subscribers to approximately 21,000.
Pursue Acquisitions. The Company intends to continue to expand its product
lines, customer base, and multiple media offerings through acquisition of
complementary products and businesses in order to expand its market
penetration. Future acquisitions are expected to focus on new formats (for
example, electronic coding products) and businesses and products that
complement the Company's current product lines, as well as possible new
initiatives, such as outsourcing.
Explore Outsourcing. The Company is currently evaluating various
opportunities to provide reimbursement coding services to healthcare providers
on an outsourcing basis. The Company believes that outsourcing for providers
is a logical extension of its experience in preparing reference manuals on,
and its consulting experience with, coding and payment processing. The Company
intends initially to market these services to healthcare institutions and
physician groups, focusing primarily on the Company's existing customers. The
Company has provided limited coding and payment-related consulting services to
more than 1,000 healthcare institutions since 1986. The Company anticipates
that healthcare providers who recognize the St. Anthony Publishing brand name
as a reliable and knowledgeable source of coding and payment-related
information may engage the Company to provide coding services to them on an
outsourcing basis. See "--Products and Services--Outsourcing and New Data
Initiative."
PRODUCTS AND SERVICES
The Company's products include (i) healthcare and medical payment
information relating to coding and payment processing, (ii) managed care and
related information and (iii) decision support systems and benchmarking
products utilizing the Company's proprietary software and databases. In
addition, the Company provides consulting services, which include the review
and audit of the coding practices and procedures of healthcare providers.
The Company's cycle for the development of new products begins with the
identification of a potential healthcare information product. The product is
typically test-marketed and, if sufficient customer demand is generated, a
product is produced and shipped. Demand for the product is then evaluated and
auxiliary products may be developed and marketed to subgroups of the customer
base of the initial product, such as ambulatory-related groups or medical
subspecialties. For example, in fiscal 1995, the Company launched its first
managed care product, the Healthcare Capitation Report, with 540
subscriptions. By the end of fiscal 1996, the Company had developed and
launched more than 30 related managed care products targeted to various
specialty issues including home healthcare, dental, radiology, pharmacology
and alternative medicine.
Coding and Payment-Related Products. The Company had an inventory of 109
coding and payment-related products, as of April 30, 1996 which assist
providers in determining the procedures and information necessary to receive
proper payment or reimbursement from payors for healthcare services. These
products include code books, reference guides, billing and payment reports and
other payment-related reports and newsletters, as well as electronic versions
of many of these products. The Company believes the financial performance of
its coding products results in large part from the prompt update of its
products in response to regulatory and other changes. The Company sells these
products to substantially all hospitals in the United States as well as to
physician groups.
24
<PAGE>
The Company's coding and payment-related products include:
Product Description
- ------- -----------
St. Anthony's ICD-9-CM Code Furnishes the codes used by providers to record
Book the patient's diagnosis and the procedure codes
for inpatient services. The Company publishes
updated information to reflect annual changes
in these codes.
St. Anthony's ICD-9-CM Analyzes diseases that can present coding
Codingfor Reimbursement problems and discusses how to review a
patient's medical record to determine the
correct code. This newsletter also reviews
regulatory changes and their impact on
hospitals.
St. Anthony's DRG Guidebook Lists each diagnosis related group ("DRG"), the
system used by Medicare to determine payments
based on resource consumption, and the ICD-9-CM
codes that are assigned to each DRG group.
Using this guidebook, a customer can locate an
ICD-9-CM diagnosis or procedure and determine
the anticipated payment with regard to each
code.
St. Anthony's Guide to ASC Provides a list of the procedures that are
Payment Groups approved by Medicare to be performed in an
outpatient setting and the payment rate for
each procedure. This manual highlights the
differences between codes to assist a provider
in billing accurately for the service provided.
St. Anthony's UB-92 Editor Assists providers in identifying and provides
procedures for correcting problems in hospital
bills. This product helps users ensure their
claims are accurate before submission to
Medicare, as well as reconcile claims, if
rejected.
St. Anthony's Code*Smart for Includes the ICD-9-CM diagnosis, CPT procedure,
Windows(R) and HCPCS Level II supply codes in an
electronic format. A sophisticated interface
allows the user to access coding information
originally offered in several St. Anthony
Publishing print products through a search
program, which helps in the selection of codes
which can then be transferred into a billing
program for submission to the payor.
Managed Care Products. Managed care news and information products focus on
specific issues relating to managed care organizations and the evolving
consolidation and delivery site integration, ranging from newsletters and
reference books to software. The Company markets these products largely to
executive-level decision makers of payors and providers, including hospitals
and physician groups. The Company believes such executives form an important
new customer source for the Company, complementing the base of coding and
payment-related professionals who were the Company's original customers and
who continue to purchase its products.
As with its coding products, the Company believes that it responds quickly
to regulatory change with new products or updates of existing products. The
Company's first managed care product was first introduced in fiscal 1995 and
initially had 540 subscribers. By the end of fiscal 1996, the Company had
expanded the number of its managed care and related information products to 37
and the number of subscribers to approximately 21,000.
25
<PAGE>
The Company's managed care products include:
Product Description
- ------- -----------
St. Anthony's Capitation Library of actual contracts for clinical
Reference Manual services between managed care health plans and
health care providers. The manual also features
payment rates, costs for services, and expected
usage rates per patient for a full range of
physician, hospital and ancillary services
under managed care. This manual includes
spreadsheet files on computer disk that allow
users to locate cost, utilization, and payment
rates, by region of the country and health
plan.
St. Anthony's Physician Monthly newsletter focusing on physician
Capitation Report reimbursement issues under capitated and
various risk sharing payment arrangements. The
newsletter profiles successful approaches to
controlling patient utilization of services,
and maximizing revenues for both primary care
physicians and specialists.
St. Anthony's Medicare Risk Analysis of regulatory developments in
Contracting Manual Medicare's HMO program. The manual covers
marketing, payment, and compliance with federal
rules. Subcribers also receive on computer disk
a software program that calculates provider
reimbursement rates for any type of Medicare
beneficiary in every county, and an extensive
data file detailing enrollment by age and sex
of enrollee, and by health plan in all Medicare
HMOs.
St. Anthony's Managed Care Survey of the states' use of managed care for
and Capitation Manual Medicaid recipients. Information in the manual
ranges from capitated payment rates for
providers to health plans' analyses of the
potential revenue and costs for delivering
care. The manual is accompanied by computer
data files that show an individual state's
historical utilization and service costs of
Medicare services.
St. Anthony's Managed Care Compilation of utilization statistics, by CPT
CPT Guidebook code, for primary care and physician specialist
services. The guidebook shows how to use CPT
code utilization statistics, along with the
relative values for the services, to calculate
capitated payment rates, or compare prepaid
rates with a physician's existing fee
schedules.
St. Anthony's Toolkit for A five-step method presented in print and
Managing Home Care electronic format to understand and manage
costs in home health services. The system
separates services and costs, identifies
resources required to treat high, average, and
low-intensity patients, provides clinical
guidelines to treat the most frequently
occurring diagnoses, and provides tools to
customize the treatment plan to an individual
patient's needs, monitor patient progress and
outcomes, and plan and monitor the teaching
element of providing care in the home.
Decision Support Systems and Benchmarking Products. Through its proprietary
software and proprietary and public databases, the Company provides a variety
of decision support systems and benchmarking products for healthcare
providers. These products facilitate managers' understanding of the factors
that affect their institution's financial performance. The Company's CHIPS
division has developed proprietary databases containing audited financial
statements of approximately 3,000 hospitals and annual operating surveys of
26
<PAGE>
approximately 2,000 hospitals. In addition to its proprietary data, the
Company compiles data from publicly available sources. The Company's decision
support systems and benchmarking products are generally derived from a
combination of this publicly-available and proprietary information.
The Company's decision support systems products include:
Product Description
- ------- -----------
Financial Analysis Service Subscription service offering 37 financial
ratios comparing a hospital to eight peer
groups and one competitor based on audited
financial statements and five years of
competitor data from HCFA Medicare Cost Reports
MCR Database (the "MCR Database").
Strategic Operating Subscription service offering 43 operating
Indicators indicators comparing a hospital to eight peer
groups and one competitor based on a data form
submitted by the hospital and five years of
competitor data from the MCR Database.
Competitive Analysis Report Side-by-side report on 75 ratios and indicators
comparing multiple hospitals to one peer group
based on five years of data from the MCR
Database.
Facility and Activity Center Quarterly subscription service that provides
Tracking productivity and cost information for 70
hospital departments. Opportunities for
operational efficiency are identified in the
reports and a networking system for linking
hospitals to best practice hospitals is
provided.
Clinical Assessment Profiles Report comparing a hospital to five peer
by Procedure hospitals and group average on costs, charges,
reimbursement and length of stay by DRG and
ICD-9-CM procedures.
The 1995 Physician Practice Data on practice valuation and physician
Acquisition Resource Book compensation based on a survey of 250 physician
practice acquisitions (produced in association
with Findley, Davies & Co.).
The Company's decision support systems and benchmarking products are sold
largely to hospitals seeking to identify areas for potential performance
improvements through "benchmarking" their performance against other
competitors, as well as to healthcare payors seeking to survey prices for
healthcare services in limited geographical areas. At April 30, 1996, the
Company's customers for these products included hospitals, such as the
Cleveland Clinic, healthcare plans, such as US Healthcare Inc. and Blue
Cross/Blue Shield of Ohio, and suppliers to the healthcare industry, such as
Minnesota Mining and Manufacturing Co. ("3M"), and Baxter International Inc.
Outsourcing and New Data Initiative. The Company is currently exploring the
feasibility of a substantial increase in the coding and payment-related
services it would offer to customers on an outsourcing basis. Based on its
experience in the development of coding-related materials and its consulting
work with more than 1,000 hospitals since 1986, the Company believes it can
provide coding and payment-related processing services on an outsourcing basis
to healthcare providers. The Company is currently developing a business plan,
strategy and budget for the testing of such potential opportunities on a
limited basis and its goal is to begin limited pilot outsourcing projects at
one or more hospitals in the second quarter of fiscal 1997. The Company
expects that a decision whether to pursue outsourcing beyond the pilot
projects will be made in the second half of fiscal 1997. If the Company begins
to perform a substantial amount of coding and payment-processing outsourcing,
the Company intends to seek agreements with its outsourcing customers to
permit the Company to use the payment and diagnosis-related data it processes
as part of the Company's proprietary databases. Because of its expertise in
coding, the Company believes such data would be far more accurate and timely
than that in existing databases,
27
<PAGE>
particularly to the extent such data includes access to the comprehensive
medical record, consistent with patient privacy. The Company believes that the
greater depth of such databases would support valuable auxiliary analyses of
its clients' financial operations and would permit sale of high value-added
financial and clinical analytical information products to its outsourcing
customers and to other database customers of the Company. There can be no
assurance that the Company will pursue outsourcing or, if it does pursue
outsourcing, that it will be profitable. See "Risk Factors--Outsourcing and
new data initiative" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Liquidity and Capital Resources."
CONSULTING AND PRODUCT DEVELOPMENT
The Company's consulting subsidiary, SAHR, provides training in coding,
payment-processing and related services to physicians, hospitals and
outpatient clinics. SAHR has provided coding and payment-related services to
more than 1,000 hospitals. SAHR also serves as a source of input, research and
development process of the Company, providing feedback on market trends and
serves as a strategic source for new product conceptualization and improvement
of existing products. As a result of its product development effort, the
Company has introduced an average of more than 18 new products a year over the
past four years, and an average of 82.0% of the new products tested during the
past four years have been launched into the market.
To gauge market demand and benefit from customer feedback, the Company holds
several "focus group" meetings with customers each year. In addition, members
of the Company's editorial board also have input into new product development.
The Company believes that the revenues generated from its new products result
from its ability to launch new products quickly, due to its in-house medical
industry expertise, as well as its ability to monitor industry trends through
its consulting subsidiary.
NEW PRODUCT INTRODUCTIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
APRIL 30,
----------------------
1993 1994 1995 1996 AVERAGE
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Products tested in fiscal year...................... 19 11 24 35 22.3
Products rejected................................... 2 2 3 9 4.0
Net products introduced............................. 17 9 21 26 18.3
Introduction rate(1)................................ 89% 82% 88% 74% 82.0%
</TABLE>
- --------
(1) Introduction rate equals the number of products introduced, divided by the
number of products tested.
While its role in new product conceptualization and improvement has been
maintained, SAHR has reduced its operations and number of employees in each of
fiscal years 1994, 1995 and 1996 and has contributed a decreasing proportion
of the Company's revenues in each of those fiscal years compared to the prior
year. The Company intends that SAHR's future consulting assignments will
increasingly be staffed by independent consultants on an as-needed basis
rather than Company employees. See Note K to the Consolidated Financial
Statements regarding the financial results of this industry segment.
SALES AND MARKETING
The Company markets its printed and electronic products and consulting
services through direct response marketing channels (telesales, direct mail,
print advertising and promotional inserts) to healthcare providers, primarily
to hospitals and physician groups and secondarily to ancillary users, such as
nursing homes, home health services, employers and insurance companies. All
strategy formulation and marketing plans are developed centrally to coordinate
sales channels and ensure that the appropriate marketing effort is made on
each account, based on its potential revenue contribution. The Company's
telesales force consisted of 57, 77 and 99 employees on April 30, 1995, April
30, 1996 and June 1, 1996, respectively. Given the size and value of the
publication customer base, the Company believes that telesales is an effective
method for selling to established customers. In addition, products are sold in
bulk to associations, such as the American Medical Association. These
marketing arrangements are developed through an internal direct sales force
and involve discounted volume pricing.
28
<PAGE>
Substantially all of the Company publications are sold on a subscription
basis. Once a customer purchases an annual subscription of a publication, a
newsletter or an updatable product, that customer is approached each year to
renew its subscription. The Company's marketing efforts are principally
directed at retaining customers and expanding the number of subscriptions
purchased by existing customers.
COMPETITION
The markets for the Company's products and services are highly competitive
and change rapidly. The Company faces different competitors and different
levels of competition in each of its product categories. The Company believes
that the principal competitive factors in the markets for healthcare
information products are the breadth and quality of products offered,
experience and reputation for quality in providing healthcare information,
efficiency in the development and marketing of new products, access to data,
development of proprietary databases, methodologies and technical resources,
price, and the effectiveness of marketing expenditures. Certain competitors or
potential competitors of the Company have or may develop greater financial,
product development, technical and marketing resources than the Company. The
Company's competitors include other providers of coding and payment processing
information and reference manuals, managed care and general healthcare
information and operations and financial and clinical benchmarking data and
products. As the market for healthcare information and cost management
solutions develops, additional competitors, including other healthcare
information companies not currently competing with the Company, may enter the
market and competition may intensify. The Company may also face significant
competition from internal information services departments at for-profit and
not-for-profit hospital groups, many of which have developed or may develop
benchmarking information or other cost-containment products.
FACILITIES
The Company's principal executive offices are located at 11410 Isaac Newton
Square, Reston, Virginia. The Company maintains three offices and a
distribution center. The Company leases all of its facilities, which
constitute 53,000 square feet of office space and 36,000 square feet of
industrial/warehouse facilities. The Company subleases 22,000 square feet of
the industrial/warehouse space to a local printer. The Company's leases have
terms ranging from month to month to six years. The Company believes that its
existing facilities are adequate for the foreseeable future. See Note H to the
Consolidated Financial Statements.
MANAGEMENT INFORMATION SYSTEMS
In January 1996, the Company implemented a new, comprehensive $1.4 million
management information system which integrates the Company's financial,
marketing and telesales activities with its product fulfillment processing.
The new system provides management with more detailed information and
increased reporting flexibility which is expected to result in improved
operating efficiency. The Company anticipates that additional expenditures
will be made to improve the system. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
SOFTWARE AND DATABASES
The Company maintains databases using both proprietary and public
information, as well as proprietary software. The Company's products using its
proprietary databases include benchmarking and profiling reports based on
audited financial statements of approximately 3,000 hospitals and annual
operating surveys of approximately 2,000 hospitals. The Company's products
using its public databases include reports incorporating data from the MCR
Database. See "Risk Factors--Proprietary Databases and Intellectual Property"
and "Business--Products and Services--Decision Support Systems and
Benchmarking Products."
29
<PAGE>
EMPLOYEES
The Company employed a total of 249 individuals on a full-time basis as of
April 30, 1996. None of the Company's employees is represented by a labor
union. The Company has experienced no work stoppages and believes that its
relations with employees are satisfactory. The Company's turnover among
telesales employees averages approximately 30% per year, which the Company
believes to be typical of telesales operations.
LEGAL PROCEEDINGS
The Company currently is not a party to any material legal proceedings, and
does not know of any threatened legal proceeding, that the Company believes,
individually or in the aggregate, will have a material adverse effect on the
Company's financial condition or results of operations.
30
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
directors and executive officers as of June 1, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Eugene W. Lorenz............... 43 Chairman, Chief Executive Officer and
Director
Peter L. Bower................. 46 Treasurer and Chief Financial Officer
Marleeta K. Jones-Burns........ 49 Senior Executive Vice President--Healthcare
and Director
John L. Canova................. 58 Executive Vice President--Operations
William O. Cleverley........... 49 President--CHIPS division and Director
David A. Webster............... 47 Senior Vice President, General Counsel and
Corporate Secretary
Laszlo Makk.................... 64 Director
Paul A. Gross.................. 58 Director
Richard Michael Abell.......... 57 Director
Alice H. Lusk.................. 48 Director
</TABLE>
For purposes of determining terms of office, directors are divided into
three classes. The current class designations of directors are Class I: Ms.
Jones-Burns, Ms. Lusk and Dr. Makk; Class II: Mr. Gross and Dr. Cleverley; and
Class III: Messrs. Lorenz and Abell. Each of the officers of the Company have
served in such capacity since May 1996. Except for the initial terms of each
Class, the Company's directors serve for terms of three years, with one class
being elected by the stockholders each year. The terms of the directors of
each Class will expire as follows: Class I--at the 1997 annual meeting of
stockholders; Class II--at the 1998 annual meeting of stockholders; Class
III--at the 1999 annual meeting of stockholders. Officers serve at the
discretion of the Board of Directors. There are no family relationships
between any of the directors or executive officers of the Company.
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee reviews the Company's accounting practices,
internal accounting controls and financial results and oversees the engagement
of the Company's independent auditors. The members of the Audit Committee are
Ms. Lusk and Messrs. Gross and Abell. The Compensation Committee reviews and
recommends to the Board of Directors salaries, bonuses and other forms of
compensation for executive officers of the Company and administer various
compensation and benefit plans, including the 1996 Stock Option Plan. The
members of the Compensation Committee are Dr. Makk and Messrs. Gross and
Abell. The Board of Directors does not maintain a nominating committee or a
committee performing similar functions.
Eugene W. Lorenz, the founder of the Company, has been a principal executive
officer of the Company since 1989 and a director since 1986. While serving as
the Assistant Administrator of the St. Anthony Hospital in Louisville,
Kentucky from 1983 to 1986, he developed the first DRG guidebook. As Senior
Vice President of the Kentucky Hospital Association from 1980 to 1983, Mr.
Lorenz was instrumental in the development of the uniform bill claim form (UB-
82).
Peter L. Bower joined the Company in November 1993 as Chief Financial
Officer. From May 1992 to November 1993, Mr. Bower served as Chief Financial
Officer for The Reinforced Earth Company, where he was also responsible for
information systems. Mr. Bower served as Chief Financial Officer at General
Kinetics, Inc. from January 1991 to May 1992. Prior to that, he was a Senior
Vice President with the investment banking firm of Johnston, Lemon & Company,
and was named head of Corporate Finance Operations. Mr. Bower spent sixteen
years with the international public accounting firm of Grant Thornton LLP
(formerly Alexander Grant & Company), the last six years of which as partner.
31
<PAGE>
Marleeta K. Jones-Burns joined the Company in 1986, and has been an
Executive Vice President of the Company since February 1991, overseeing
product development and quality assurance. Ms. Jones-Burns is principally
responsible for development of new products for the Company. Ms. Jones-Burns
has twenty years of experience in the field of healthcare management,
including the implementation of productivity systems and DRG programs for
hospitals as a management healthcare consultant for Coopers & Lybrand and as
Medical Records Director and Hospital DRG Coordinator for Floyd Memorial
Hospital in New Albany, Indiana.
John L. Canova has been an Executive Vice President of the Company since
July 1992. Prior to joining the Company, he was employed for 18 years by Time
Life Books in a variety of capacities, including Vice President of Marketing
and Publisher of its affiliate Stonehenge Press. Mr. Canova also worked for
MCI Communications Corp. as Director of Consumer Markets where he developed
joint marketing programs with companies such as Sears, Roebuck and Co.,
American Automobile Association and Mobil Oil Corporation.
William O. Cleverley is a co-founder of the CHIPS division of the Company,
where he served as managing director from CHIPS' inception in October 1992
until assuming the title of president in February 1996. Prior to his
involvement with CHIPS and concurrently therewith, Dr. Cleverley was a faculty
member at Ohio State University in the Graduate Program in Hospital and Health
Services Administration and in the Department of Accounting. He is the author
of eight books on healthcare finance and accounting, including The Essentials
of Health Care Finance, a widely-used university healthcare management text
book.
David A. Webster joined the Company as general counsel in May 1996. Prior to
joining the Company, Mr. Webster was a shareholder and head of the tax law
department of the law firm of Mahoney, Adams & Criser from January 1994 to May
1996 and a partner with Baker & Hostetler from January 1986 to December 1993.
Prior to that, Mr. Webster was employed by KPMG Peat Marwick as a domestic and
international tax specialist. Mr. Webster is a Florida Board Certified Tax
Lawyer. While at Mahoney, Adams & Criser, he served as outside legal counsel
to the Company and the firm received fees for his legal services.
Laszlo Makk has been director of the Company since September 1994.
Previously, Dr. Makk served as director of the department of clinical and
anatomical pathology at St. Anthony Medical Center in Louisville, Kentucky,
from 1967 through his retirement in 1995. Dr. Makk has been a director of
Vencor Reference Laboratory since 1995.
Paul A. Gross has been a director of the Company since September 1994. He
has served as professor emeritus of health administration and executive-in-
residence at Virginia Commonwealth University/Medical College of Virginia
since 1994. Mr. Gross retired from Humana, Inc. in 1992, after 20 years of
service, the last seven of which were spent as President and Chief Operating
Officer of the Hospital Division. Mr. Gross is a member of the board of
directors of MedEcon Inc. and CMMI and is a member of numerous committees and
associations, including the Board of Governors of the Federation of American
Health Systems and the American Hospital Association.
Richard Michael Abell has been a director of the Company since September
1994. He has served as President and Chief Executive Officer of Saint Joseph
Health Center and its holding company, Carondelet Health Corporation since
1986. From 1976 through 1986, he served as Administrator/Chief Executive
Officer of St. Anthony Medical Center in Louisville, Kentucky. He has served
on the Boards of Blue Cross/Blue Shield of Kentucky, Metro United Way and the
Kentucky Chamber of Commerce and is former President of HealthNet, former
Chairman of the Kansas City Area Hospital Association and former Chairman of
the Missouri Hospital Association and the Kentucky Hospital Association. He
also served on the Board of the Carondelet Health System.
Alice H. Lusk has been a director of the Company since June 1996. From 1975
until December 1995, she held a variety of positions with Electronic Data
Systems Corp., ("EDS") primarily in its healthcare and insurance business
units, and most recently serving as Corporate Vice President, Group Executive
and Chief Executive Officer of the healthcare and insurance business units of
EDS. Prior to that, Ms. Lusk served as
32
<PAGE>
Strategic Business Unit President of the healthcare business unit of EDS and
as Vice President of Sales. Ms. Lusk is a director of Access Health Inc. and
serves on the boards of numerous healthcare industry organizations, including
the Jacksonhole Group, Medical Education for South African Blacks and the
Visiting Nurses Association. She is a member of the U.S. Chamber of Commerce
Committee on Healthcare.
DIRECTOR COMPENSATION
Directors' Fees. Directors who are employees of the Company receive no
compensation for their service as directors. Non-employee directors of the
Company receive an annual retainer of $5,000, plus $750 for each Board meeting
attended and $500 for each committee meeting attended. All directors,
including employee directors, are reimbursed for expenses attendant to Board
of Directors membership.
Prior to the Recapitalization, in fiscal 1996 non-employee directors of the
Company's two current operating subsidiaries received a fee of $1,500 for each
Board of Directors meeting attended, and were reimbursed for expenses incurred
in attending Board meetings. The non-employee directors of the operating
subsidiaries in fiscal 1996 were Dr. Makk and Messrs. Gross and Abell.
Directors' Options. In connection with this offering, the Board has approved
the grant of options to purchase an aggregate of 37,000 shares of Common Stock
under, and subject to the terms of, the Company's 1996 Stock Option Plan to
the non-employee directors of the Company, contingent upon the determination
of the public offering price and effectiveness of the registration of the
Shares under the Securities Act. See "Management--Stock Options." All options
will be exercisable at the public offering price. Employee directors were not
granted options for service on the Board of Directors.
In addition to these one-time option grants, non-employee directors will
receive annually options to purchase 2,000 shares of Common Stock, exercisable
at the market value of the Common Stock on the grant date. These options will
vest over four years, as described above. The annual grant of options and the
terms thereof are intended to be automatic, but may be terminated, suspended
or amended by the Board at any time. Employee directors are not entitled to
receive stock options for their service on the Board.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the Company's
Chief Executive Officer and each of the other four most highly compensated
executive officers serving in such position at the end of fiscal 1996 (the
"Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------
FISCAL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- ------ -------- -------- ------------
<S> <C> <C> <C> <C>
Eugene W. Lorenz.................... 1996 $246,923 $ -- $1,136,800(1)
Chief Executive Officer
Marleeta K. Jones-Burns............. 1996 223,335 111,886(2) --
Executive Vice President
Peter L. Bower...................... 1996 151,693 10,000 --
Chief Financial Officer
John L. Canova...................... 1996 150,553 13,972 --
Executive Vice President
Curtis M. Shepherd.................. 1996 91,875 40,000 --
Team Leader-Physician Group
</TABLE>
- --------
(1) Represents distributions to pay individual federal and state income taxes
as a result of the Company's Subchapter S corporation status.
(2) Represents amount earned but not paid in fiscal 1996. The Company intends
to pay this amount in fiscal 1997.
33
<PAGE>
Option Grants. No stock options were granted to the Named Executive Officers
during fiscal 1996.
Option Exercises and Year-End Values.
The St. Anthony Publishing, Inc. Non-Qualified Stock Appreciation Rights
Plan for Key Employees (the "SAR Plan") was terminated effective as of May 15,
1996. While the SAR Plan was in existence at year-end fiscal 1996, the Company
believes that the conditions under which value could be realized under the SAR
Plan were unlikely to be met and, resultingly, that there was no value for any
employee as a result of the SAR Plan during or at year-end fiscal 1996. Each
participant in the SAR Plan has disclaimed any and all rights under the plan.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement, effective as of May 1,
1996, with Eugene W. Lorenz. The agreement, which has a two year term,
provides for an annual base salary for Mr. Lorenz of $325,000 and provides
that Mr. Lorenz will receive other benefits similar to those provided to other
senior managers of the Company. The agreement contains confidentiality
provision in force during the term of the agreement and a two year non-
competition provision upon termination of the agreement that limits Mr.
Lorenz' ability to engage in activities competitive with the Company or to
solicit employees or customers of the Company. The agreement provides that in
the event of Mr. Lorenz' death, the agreement shall terminate, and Mr. Lorenz'
estate shall be entitled only to compensation then owing to Mr. Lorenz.
Effective May 1, 1996, the Company has entered into employment agreements
with Marleeta Jones-Burns, Peter Bower, John Canova and Curtis Shepherd on
terms similar to those contained in the employment agreement with Mr. Lorenz.
Each of the employment agreements provides for successive one year extensions
upon expiration of the initial term unless either party notifies the other
party of its intention not to renew. Each agreement also contains a
confidentiality provision covering the term of the agreement and a two year
non-competition provision similar to that contained in Mr. Lorenz' agreement.
The agreements provide for the assignment to the Company of all proprietary
information and trade secrets (as such terms are defined in the agreements)
related to the Company's business and developed by the employee. Ms. Jones-
Burns' agreement has an initial term of two years and provides for a base
salary of $232,711 for the first year, with the base salary thereafter to be
determined by the Board of Directors. The agreements with Messrs. Bower,
Canova and Shepherd are for initial terms of one year and provide for base
salaries of $160,000, $154,275 and $100,000, respectively.
STOCK OPTIONS
Special Stock Option Grant
In May 1996 the Company granted non-qualified stock options (the "May 1996
Options"), pursuant to individual stock option award agreements or in
accordance with employment agreements, to certain of its past and present
employees and others to purchase up to an aggregate of 317,500 shares of
Common Stock. The May 1996 Options are exercisable at a purchase price of
$11.00 per share, which was the fair market value of such shares at the time
of the grant, based upon an independent, third party appraisal.
Of the 317,500 May 1996 Options that have been granted, 248,750 became
immediately exercisable upon their grant, with the remaining 68,750 becoming
exercisable on the first anniversary of their grant. The May 1996 Options may
be exercised at any time prior to December 31, 2004. The holder of these
options may exercise the options in full or in any portion, by payment of the
exercise price either in cash, Common Stock, through a broker exercise or
alternatively, by executing a seven year, interest-only promissory note,
secured by a pledge of the Common Stock acquired through exercise of the
option. Interest payable on the promissory note shall be at the minimum rate
of interest required under the Internal Revenue Code to avoid the imputation
of interest. The principal amount of the promissory note is due upon the
earlier of (i) the termination of the option holder's employment with the
Company (unless such termination occurs within one year of a change of control
of the
34
<PAGE>
Company), (ii) 30 days after the death of the option holder, (iii) the sale of
the Common Stock or (iv) expiration of the seven year term.
1996 Stock Option Plan
The 1996 Stock Option Plan was approved by the Board of Directors on June
14, 1996 and thereafter by the Company's stockholders. The 1996 Stock Option
Plan provides for the grant or award of stock options, stock appreciation
rights, restricted stock and performance units (the "Award"). Stock options
granted under the 1996 Stock Option Plan may be either incentive stock options
or non-qualified options. The purpose of the 1996 Stock Option Plan is to
attract and retain employees, consultants and directors through the incentives
of stock ownership and monetary payments. Regular full-time employees of the
Company, as well as its officers, consultants and others, are eligible to
receive Awards. Option grants to non-employee directors may also be made under
the 1996 Stock Option Plan. See "Management--Director Compensation."
The 1996 Stock Option Plan is administered by the Compensation Committee.
Subject to the provisions of the 1996 Stock Option Plan, the Compensation
Committee has the authority to designate participants, determine the type of
Awards to be granted, the number of shares to be covered by each Award, the
time at which each Award is vested, exercisable, or may be settled, the method
of payment and any other terms and conditions of the Awards. All Awards shall
be evidenced by an Award agreement between the Company and the participant.
The aggregate number of shares of Common Stock available for awards under
the 1996 Stock Option Plan is 1,000,000, which includes options available to
non-employee directors. The Board has granted options to purchase 430,104
shares of Common Stock (including the stock options granted to the outside
directors discussed above), contingent upon the determination of the public
offering price and effectiveness of the registration of the Shares under the
Securities Act. While the Compensation Committee is authorized to determine
the recipients, types of Awards, and level of Awards under the 1996 Stock
Option Plan, the plan itself requires that all stock options or restricted
stock awarded thereunder be awarded at the fair market value (as defined in
the 1996 Stock Option Plan) as of the date of grant or award. This plan also
provides that, subject to the discretion of the Board, options granted under
the plan will vest over a four year period, with half becoming exercisable on
the second anniversary of the grant date, an additional quarter becoming
exercisable on the third anniversary and the remaining options becoming
exercisable on the fourth anniversary. Such vesting period will be accelerated
by one year, with half becoming exercisable on the first anniversary of the
grant date and the additional quarters being exercisable on the second and
third anniversaries, respectively, for all participants who, in the
determination of the Board of Directors, have provided three years of service
to the Company. All options expire, to the extent not previously exercised,
seven years after the grant date. No Awards may be made under the 1996 Stock
Option Plan after April 30, 2002.
35
<PAGE>
CERTAIN TRANSACTIONS
DISTRIBUTIONS
Prior to May 15, 1996, the Operating Subsidiaries were operated as
Subchapter S corporations for income tax purposes; accordingly, they were not
subject to federal and state income taxes. The operating results of the
Operating Subsidiaries were reported by the individual stockholders, based on
their respective stockholding percentages. The Operating Subsidiaries made
distributions to the stockholders in amounts sufficient to pay these taxes, at
the individual level. The companies made distributions to Mr. Lorenz during
fiscal years ended April 30, 1994, 1995 and 1996, in the amounts of
$1,460,000, $333,000 and $1,282,000, respectively, of which $1,150,000,
$285,000 and $1,137,000, respectively, were included in compensation paid to
Mr. Lorenz during those periods. During the same fiscal years, Dr. Cleverley
and Mr. Harvey each received distributions to pay income taxes in the amounts
of $95,000, $110,000 and $74,000, respectively, all of which was included as
compensation.
STOCK REDEMPTION
On January 1, 1994, St. Anthony Publishing redeemed all of the stock of
Richard C. Henry, the owner of 50% of the outstanding stock of St. Anthony
Publishing. The redemption included the following components: (i) a purchase
price of $9,259,989, of which $7,259,989 was paid at closing, and $2,000,000
was to be paid on or before March 1999, (ii) a five year non-competition
agreement, for $1,100,000, payable $16,667 per month, with $100,000 due in the
last month and (iii) a three year employment agreement providing for full
employment in first year ($7,000 per month, plus potential bonus) and part-
time consulting (at $1,000 per month) for the balance of the term. As of June
1996, all payments to Mr. Henry had been made, so that there are no
outstanding continuing financial obligations. The non-competition agreement
continues through January 1999, notwithstanding the full payment by the
Company of the non-competition obligation. Financing of the payments to Mr.
Henry came from a $1,500,000 capital contribution by Mr. Lorenz, with the
balance provided from bank financing obtained in early 1994, which bank
financing was refinanced as part of the Credit Facilities. See "Use of
Proceeds."
MERGER WITH CHIPS
On February 29, 1996, CHIPS, an Ohio corporation (previously conducted as an
Ohio general partnership), was merged into and became a division of St.
Anthony Publishing. In the merger each of the stockholders of CHIPS exchanged
their shares of CHIPS for shares of St. Anthony Publishing and SAHR. The three
stockholders of CHIPS, Dr. Cleverley, Linda Cleverley, and Roger K. Harvey,
received an aggregate of 11.8% of the outstanding shares of each of St.
Anthony Publishing and SAHR with the remaining 88.2% of each company's stock
continuing to be owned by Mr. Lorenz. Additionally, Dr. Cleverley and Roger K.
Harvey entered into non-competition and employment agreements, consistent with
normal Company policy. The non-competition agreements are for a term of five
years, and provide for an initial payment to Mr. Cleverley of $200,000, and
payments of $40,000 per year over the succeeding five year period, for total
payments of $400,000, and an initial payment to Mr. Harvey of $125,000 and
$30,000 per year over the succeeding five year period, for total payments of
$275,000.
Mr. Cleverley's three year employment agreement which extends to February
28, 1999, provides for a salary of $200,000 in the first year, $225,000 in the
second year, and $250,000 in the third year. Mr. Harvey's two year employment
agreement provides for a salary of $87,500 per year.
RECAPITALIZATION
On May 15, 1996, the Company completed the Recapitalization, which resulted
in the two Operating Subsidiaries becoming wholly-owned subsidiaries of the
Company. In connection with the Recapitalization, each of the stockholders of
the Operating Subsidiaries exchanged their shares of Common Stock of the
Operating Subsidiaries for a proportionate percentage of the Common Stock of
the Company.
LOAN TRANSACTIONS
On December 21, 1995, Eugene W. Lorenz, Chairman of the Board and Chief
Executive Officer of the Company, loaned to SAHR $250,000 at the prime rate as
published in the Wall Street Journal. The loan principal and $5,312 of
interest were repaid to Mr. Lorenz by SAHR as of April 11, 1996. The loan
proceeds were used for working capital purposes. On June 13, 1996, Mr. Lorenz
loaned to St. Anthony Publishing $250,000 for 90 days at a variable interest
rate equal to the prime rate as published in the Wall Street Journal, which
was initially 8.25%. The loan principal and interest are due and payable to
Mr. Lorenz on September 13, 1996. The loan proceeds were used for working
capital purposes.
36
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of the date of this Prospectus, certain
information with respect to the beneficial ownership of the Common Stock at
June 1, 1996 by: (i) each person known by the Company to beneficially own more
than 5% of the outstanding shares of Common Stock; (ii) each director and
Named Executive Officer and (iii) all directors and executive officers of the
Company as a group. See "Management--Stock Options." The Company believes that
each of the persons named in the table has sole voting and investment power
with respect to all of the shares of Common Stock indicated, except as noted
below. The address of each listed stockholder is c/o NexUS Healthcare
Information Corporation, 11410 Isaac Newton Square, Reston, Virginia 22090.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED PRIOR BENEFICIALLY OWNED
TO THE OFFERING(1) AFTER THE OFFERING(1)
----------------------- -------------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ---- ------------ ---------- ------------- -----------
<S> <C> <C> <C> <C>
Eugene W. Lorenz............. 6,776,000 88.2% 6,776,000 70.0%
William O. Cleverley(2)...... 453,040 5.9 453,040 4.7
Linda Cleverley(2)........... 453,040 5.9 453,040 4.7
Roger K. Harvey.............. 453,040 5.9 453,040 4.7
Peter L. Bower(3)............ 30,000 * 30,000 *
Marleeta K. Jones-Burns(3)... 63,750 * 63,750 *
John L. Canova(3)............ 22,500 * 22,500 *
Curtis M. Shepard(3)......... 10,000 * 10,000 *
Laszlo Makk.................. -- -- -- --
Paul A. Gross................ -- -- -- --
Richard Michael Abell(3)..... 10,000 * 10,000 *
Alice H. Lusk................ -- -- -- --
Directors and executive
officers as a group (11
persons)(4)................. 7,830,830 100% 7,830,830 79.7%
</TABLE>
- --------
* Less than 1%.
(1) Under the rules of the Securities Exchange Commission (the "Commission"),
a person is deemed to be beneficial owner of securities that can be
acquired by such person within 60 days of the date of this Prospectus upon
the exercise of options and warrants. Each beneficial owner's percentage
ownership is determined by assuming that all options or warrants held by
such person (but not those held by any other person) and that are
exercisable within 60 days of the date of this Prospectus have been
exercised. The table does not include any beneficial ownership related to
stock options granted to employees of the Company pursuant to the 1996
Stock Option Plan since such options are not exercisable until June 1997.
See "Management--1996 Stock Option Plan."
(2) Includes, in the case of Dr. Cleverley, 226,520 shares of Common Stock
held by Linda Cleverley, Dr. Cleverley's wife. Includes, in the case of
Linda Cleverley, 226,520 shares of Common Stock held by Dr. Cleverley.
Each of Dr. Cleverley and Linda Cleverley disclaims beneficial ownership
of the shares held by the other.
(3) Represents shares issuable upon exercise of stock options currently
exercisable.
(4) Includes 148,750 shares issuable upon exercise of stock options currently
exercisable.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, $.01 par value per share, and 10,000,000 shares of Preferred
Stock, $.01 par value per share.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of any outstanding Preferred Stock. Upon the liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to receive
ratably the net assets of the Company available after the payment of all debts
and other liabilities and subject to the prior rights of any outstanding
Preferred Stock. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Common Stock are,
and the shares offered by the Company in this offering will be, when issued
and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future.
As of June 20, 1996, there were 7,682,080 shares of Common Stock outstanding
held of record by four stockholders. Based upon such number of shares
outstanding as of June 20, 1996 and giving effect to the issuance of the
2,000,000 shares of Common Stock offered hereby, there will be 9,682,080
shares of Common Stock outstanding upon the consummation of this offering.
PREFERRED STOCK
The Board of Directors has the authority, without further action of the
stockholders of the Company, to issue up to an aggregate of 10,000,000 shares
of Preferred Stock in one or more series and to fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series thereof, including the dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption (including
sinking fund provisions), redemption price or prices, liquidation preferences
and the number of shares constituting any series or the designations of such
series. The Board of Directors, without stockholder approval, can issue
Preferred Stock with voting and conversion rights that could adversely affect
the voting power of holders of Common Stock. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control
of the Company. The Company has no present plans to issue any shares of
Preferred Stock. See "Risk Factors--Possible Issuance of Preferred Stock;
Anti-Takeover Provisions."
CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Certificate of Incorporation and Bylaws provide that the
directors of the Company shall be classified into three classes as nearly
equal in size as possible, with staggered three-year terms. The Certificate of
Incorporation and Bylaws further provide that vacancies on the Board of
Directors, including vacancies resulting from enlargement of the Board, may
only be filled by a majority of the Board of Directors then in office.
Furthermore, any director elected by the stockholders, or by the Board of
Directors to fill a vacancy, may be removed, with or without cause, by a
majority vote of the combined voting power of the shares of Common Stock
entitled to vote for the election of directors until such time as no single
stockholder holds directly 40% of the shares of Common Stock entitled to vote
for directors, at which time the vote of 75% of such shares shall be required.
The classified nature of the Board of Directors and the supermajority removal
provision could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, or making a bid
to acquire, control of the Company.
Under the Company's Certificate of Incorporation and Bylaws, upon the
consummation of this offering any action required or permitted to be taken by
the stockholders of the Company may be taken only at a duly called
38
<PAGE>
annual or special meeting of the stockholders, and not by written consent. In
addition, special meetings of the stockholders may be called only by the Chief
Executive Officer, the Chairman of the Board of Directors or a majority of the
members of the Board of Directors and the only business that may be brought
before such a meeting is limited to that described in the notice prepared by
such officers. These provisions could have the effect of delaying until the
next annual stockholders meeting stockholder actions which are favored by the
holders of a majority of the outstanding voting securities of the Company.
These provisions may also discourage another person or entity from making a
tender offer for the Common Stock or conduct a proxy contest, because such
person or entity, even if it acquired a majority of the outstanding voting
securities of the Company, would be able to take action as a stockholder (such
as electing new directors or approving a merger) only at a duly called
stockholders meeting, and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws,
unless a corporation's certificate of incorporation or bylaws, as the case may
be, requires a greater percentage. The Company's Certificate of Incorporation
requires the affirmative vote of the holders of a majority of the outstanding
voting stock of the Company to amend or repeal any of the provisions described
above until such time as no single stockholder holds directly 40% of the
shares of Common Stock entitled to vote for directors, at which time the vote
of 75% of such shares shall be required. Such 75% stockholder vote would be in
addition to any separate class vote that might in the future be required by
the Board of Directors pursuant to the terms of any Preferred Stock that might
be outstanding at the time any such changes are submitted to stockholders. The
Company's Certificate of Incorporation provides that the Bylaws may be amended
only by a vote of the Board of Directors. See "Risk Factors--Possible Issuance
of Preferred Stock; Anti-Takeover Provisions."
DIRECTORS' AND OFFICERS' LIABILITY
The Company's Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. The Company's Certificate of Incorporation also
contains provisions requiring the Company to indemnify its directors and
officers to the fullest extent permitted by the General Corporation Law of
Delaware. The Company believes that these provisions will assist the Company
in attracting and retaining qualified individuals to serve as directors.
CLASSIFIED BOARD OF DIRECTORS
The Company has a classified Board of Directors, which may have the effect
of deterring hostile takeovers or delaying changes in control or management of
the Company. For purposes of determining terms of office, directors are
divided into three classes, with the term of office of the first, second and
third class to expire at the 1997, 1998 and 1999 annual meetings of
stockholders, respectively. Directors elected to succeed those directors whose
terms expire will be elected for a three-year term of office. All directors
hold office until the next annual meeting of stockholders at which their term
expires and until their successors have been duly elected and qualify.
DELAWARE LAW
Upon completion of this offering, the Company will be subject to the
provisions of Section 203 of the General Corporation Law of Delaware which
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder,
unless the business combination is approved in a prescribed manner. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is State
Street Bank and Trust Company.
39
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
9,682,080 shares of Common Stock. Of these shares, the 2,000,000 shares of
Common Stock sold in this offering (assuming no exercise of the Underwriters'
over-allotment option) will be freely tradable in the public market without
restriction under the Securities Act, except that any shares purchased by
affiliates of the Company, as that term is defined in Rule 144 under the
Securities Act ("Affiliates"), may generally only be sold in compliance with
the applicable provisions of Rule 144. The remaining issues and outstanding
shares of the Company as deemed to be restricted securities under Rule 144
("Restricted Shares") is that they were originally issued and sold by the
Company in reliance upon exemptions from registration under the Securities
Act. Of the Restricted Shares, immediately after this offering, 6,776,000
shares may be eligible for sale in the public market pursuant to Rule 144
subject to volume and other limitations described below. None of the
Restricted Shares will be eligible for sale under Rule 144(k).
In May 1996, the Company made a one-time grant of options to certain
directors, officers, former employees and consultants to purchase up to
317,500 shares of Common Stock, of which 248,750 options are currently
exercisable, and the remainder of which will become exercisable on the first
anniversary of their grant. The Company has also reserved 1,000,000 shares of
Common Stock to be issued under the 1996 Stock Option Plan, of which options
covering 430,104 shares of Common Stock have been granted and will be
exercisable at the initial public offering price upon vesting pursuant to the
1996 Stock Option Plan. See "Management--Stock Options." Immediately upon
pricing of the Common Stock offered hereby, the Company intends to file a
registration statement on Form S-8 under the Securities Act to register the
shares of Common Stock reserved for issuance under the 1996 Stock Option Plan.
All executive officers, directors and certain stockholders of the Company,
who in the aggregate held 7,682,080 shares outstanding of Common Stock at June
20, 1996, and options that are currently exercisable to purchase an additional
248,750 shares of Common Stock, 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 Volpe,
Welty & Company. However, Volpe, Welty & Company may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to these agreements. See "Underwriting."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned Restricted Shares for at least two years from the later of the date such
Restricted Shares were acquired from the Company or the date they were
acquired from an Affiliate, is entitled to sell within any three-month period
a number of shares that does not exceed the greater of 1% of the then
outstanding shares of the Common Stock or the average weekly trading volume in
the Common Stock in the over-the-counter market during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144.
Sales under Rule 144 are also subject to certain provisions relating to the
manner and notice of sale and availability of current public information about
the Company. Affiliates may sell shares not constituting Restricted Securities
in accordance with the foregoing volume limitations and other restrictions,
but without regard to the two-year holding period. Further, under Rule 144(k),
after three years have elapsed from the later of the date Restricted Shares
were acquired from the Company and the date they were acquired from an
Affiliate, a holder of such Restricted Shares who is not an Affiliate at the
time of the sale and has not been an Affiliate for at least three months prior
to the sale would be entitled to sell the shares immediately without regard to
the volume limitations and other conditions described above.
The Commission has proposed amendments to Rule 144 and Rule 144(k) that
would permit resales of restricted shares under Rule 144 after a one-year,
rather than a two-year holding period, subject to compliance with the other
provisions of Rule 144, and would permit resale of restricted shares by non-
affiliates under Rule 144(k) after a two-year, rather than a three-year
holding period. The proposed amendments have not yet been adopted. Adoption of
such amendments could result in resales of Restricted Shares sooner than would
be the case under Rule 144 as currently in effect.
40
<PAGE>
No precise prediction can be made as to the effect, if any, that market
sales of shares of Common Stock or the availability of shares of Common Stock
for sale will have on the market price of the Common Stock prevailing from
time to time. Nevertheless, sales of substantial amounts of Common Stock of
the Company in the public market, or the perception that such sales could
occur, could adversely affect prevailing market prices and could impair the
Company's future ability to raise capital through the sale of its equity
securities. See "Risk Factors--Shares Eligible for Future Sale."
41
<PAGE>
UNDERWRITERS
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the underwriters named below (the
"Underwriters"), and each of such Underwriters, for whom Volpe, Welty &
Company and Legg Mason Wood Walker, Incorporated, (together, the
"Representatives") are acting as representatives, has agreed severally to
purchase from the Company the respective number of shares of Common Stock set
forth opposite its name below. The Underwriters are committed to purchase and
pay for all shares if any shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Volpe, Welty & Company................................................
Legg Mason Wood Walker, Incorporated..................................
---------
Total............................................................... 2,000,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession of not in excess of $ per share, of
which $ may be reallocated to other dealers. After the initial public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction will change the amount of
proceeds to be received by the Company as set forth on the cover page of this
Prospectus.
The Company has granted the Underwriters an option for 30 days after the
date of this Prospectus to purchase, at the initial public offering price,
less the underwriting discounts and commission as set forth on the cover page
of this Prospectus, up to 300,000 additional shares of Common Stock solely to
cover over-allotments, if any. If the Underwriters exercise their over-
allotment option, the Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares of Common Stock to be purchased by each of them, as shown in
the foregoing table, bears to 2,000,000 shares of Common Stock offered hereby.
The Underwriters may exercise such option only to cover over-allotments in
connection with the sale of the 2,000,000 shares of Common Stock offered
hereby.
The Company, each of its directors and officers, and each of the holders of
the outstanding shares of Common Stock have agreed during the period of 180
days after the date of this Prospectus not to (i) offer, sell, contract to
sell, make any short sale (including without limitation short against the
box), pledge or otherwise dispose of, directly or indirectly, any shares of
the Common Stock now owned or hereafter acquired, options to acquire Common
Stock or securities convertible into or exchangeable for, or any other rights
to purchase or acquire, the Common Stock (including, without limitation,
Common Stock which may be deemed to be beneficially owned in accordance with
the rules and regulations of the Commission) other than the exercise or
conversion of outstanding options, warrants or convertible securities or (ii)
enter into any swap or other agreement that transfers, in whole or in part,
any of the economic consequences or ownership of Common Stock now owned or
hereafter required, whether any such transaction described in (i) or (ii) is
to be settled by delivery of Common Stock or such other securities, in cash or
otherwise provided, however, that bona fide gift transactions and transfers
which will not result in any change in beneficial ownership may be permitted
if the transferee enters into an agreement on substantially the same terms as
described above. Volpe, Welty & Company, in its discretion, may waive the
foregoing restrictions in whole or in part, with or without a public
announcement of such action.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which the Underwriters have
discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock was determined by
negotiations between the Company and the Representatives.
42
<PAGE>
Among the factors considered in determining the initial public offering price
of the Common Stock, in addition to prevailing market conditions, were the
Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuations of
companies in related businesses.
The Company has agreed to indemnify the Underwriters against certain
liabilities that may be incurred in connection with this offering, including
liabilities under the Securities Act, or to contribute to payments that the
Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Gibson, Dunn & Crutcher LLP,
Washington, D.C. and for the Underwriters by Latham & Watkins, Washington,
D.C.
EXPERTS
The consolidated balance sheets of the Company as of April 30, 1995 and 1996
and the related consolidated statements of income, changes in stockholders'
equity (deficit) and cash flows and schedule for each of the years in the
three year period ended April 30, 1996, and the statements of income and cash
flows of CHIPS for the ten month period ended February 29, 1996, included in
this Prospectus and Registration Statement have been audited by Grant Thornton
LLP, independent certified public accountants, as stated in their reports
dated June 10, 1996, which are included elsewhere herein, and have been so
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C. 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 filed
therewith. For further information with respect to the Company and the Common
Stock offered hereby, reference is hereby made to such Registration Statement
and to the exhibits and schedules filed therewith. Statements contained in
this Prospectus regarding the contents of any agreement or other document are
not necessarily complete, and in each instance reference is made to the copy
of such agreement 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 the exhibits and schedules
thereto, may be inspected without charge at the offices of the Commission at
its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1204,
Washington, D.C. 20549, and at the regional offices of the Commission located
at Seven World Trade Center, 13th Floor, New York, New York, 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
part of such materials may be obtained from the Public Reference Section of
the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the prescribed fees. The Company's
Common Stock has been submitted for listing on The Nasdaq National Market, and
upon such listing, material filed by the Company may be inspected at the
offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
Upon completion of this offering, the Company will be subject to the
informational reporting requirements of the Securities Exchange Act of 1934,
as amended, and, in accordance therewith, will file reports, proxy statements
and other information with the Commission.
43
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION
INDEX TO FINANCIAL STATEMENTS
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-1
Consolidated Balance Sheets as of April 30, 1995 and 1996................ F-2
Consolidated Statements of Income for the years ended April 30, 1994,
1995 and 1996........................................................... F-3
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
the years ended April 30, 1994, 1995 and 1996........................... F-4
Consolidated Statements of Cash Flows for the years ended April 30, 1994,
1995 and 1996........................................................... F-5
Notes to Consolidated Financial Statements............................... F-6
THE CENTER FOR HEALTHCARE INDUSTRY PERFORMANCE STUDIES
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-18
Statement of Income for the Ten Months ended February 29, 1996........... F-19
Statement of Cash Flows for the Ten Months ended February 29, 1996....... F-20
Notes to Financial Statements............................................ F-21
</TABLE>
44
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
NexUS Healthcare Information Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of NexUS
Healthcare Information Corporation and Subsidiaries as of April 30, 1995 and
1996, and the related consolidated statements of income, changes in
stockholder's equity (deficit) and cash flows for each of the three years in
the period ended April 30, 1996. 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 NexUS
Healthcare Information Corporation and Subsidiaries as of April 30, 1995 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended April 30, 1996, in conformity with generally
accepted accounting principles.
Grant Thornton LLP
Vienna, Virginia
June 10, 1996
F-1
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash............................................... $ 314,956 $ 163,767
Accounts receivable, net........................... 4,388,316 8,228,455
Inventory.......................................... 920,243 1,614,852
Prepaid expenses................................... 333,015 327,607
----------- -----------
Total Current Assets................................. 5,956,530 10,334,681
Property and Equipment
Furniture, systems and equipment................... 3,224,579 4,765,913
Leasehold improvements............................. 195,880 247,481
----------- -----------
3,420,459 5,013,394
Less accumulated depreciation and amortization..... (1,915,778) (2,567,039)
----------- -----------
1,504,681 2,446,355
Other Assets
Deferred advertising costs......................... 2,461,054 3,234,055
Capitalized software costs, net.................... 526,946 522,364
Intangible assets, net............................. 754,134 2,065,123
Other assets....................................... 82,040 82,040
----------- -----------
3,824,174 5,903,582
----------- -----------
Total Assets......................................... $11,285,385 $18,684,618
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Notes payable, current............................. $ 1,906,305 $ 750,000
Accounts payable................................... 3,107,635 3,246,556
Accrued salaries and employee benefits............. 592,781 575,963
Other accrued expenses............................. 635,512 430,527
Current portion of unearned subscription revenue... 4,631,866 6,280,178
----------- -----------
Total Current Liabilities............................ 10,874,099 11,283,224
Notes Payable, Noncurrent............................ 6,310,556 9,988,908
Unearned Subscription Revenue........................ 1,118,734 1,748,107
Deferred Rent........................................ -- 144,172
----------- -----------
Total Liabilities.................................... 18,303,389 23,164,411
Stockholders' Equity (Deficit)
Common stock, voting par value $.01 per share,
30,000,000 shares authorized, 7,682,080 shares
issued and outstanding............................ 76,821 76,821
Additional contributed capital..................... 1,946,431 1,946,431
Retained earnings.................................. 218,733 2,756,944
----------- -----------
2,241,985 4,780,196
Treasury stock, at cost............................ (9,259,989) (9,259,989)
----------- -----------
Total Stockholders' Equity (Deficit)................. (7,018,004) (4,479,793)
----------- -----------
Total Liabilities and Stockholders' Equity (Defi-
cit)................................................ $11,285,385 $18,684,618
=========== ===========
</TABLE>
F-2
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE
Products............................... $26,492,517 $31,591,640 $36,798,736
Consulting............................. 4,062,933 4,207,030 3,930,889
----------- ----------- -----------
30,555,450 35,798,670 40,729,625
COST OF REVENUE
Products............................... 9,592,876 12,569,502 14,709,628
Consulting............................. 1,593,139 1,906,664 1,913,968
----------- ----------- -----------
11,186,015 14,476,166 16,623,596
Sales and Marketing...................... 9,248,220 10,179,890 11,345,389
General and Administrative............... 7,348,621 6,902,162 7,801,865
Depreciation and Amortization............ 761,138 1,129,327 1,284,973
----------- ----------- -----------
28,543,994 32,687,545 37,055,823
----------- ----------- -----------
Operating Income......................... 2,011,456 3,111,125 3,673,802
Interest Expense......................... 295,750 994,975 915,391
Merger Expenses.......................... -- -- 75,000
----------- ----------- -----------
Net Income............................... $ 1,715,706 $ 2,116,150 $ 2,683,411
=========== =========== ===========
PRO FORMA DATA (NOTE L)
Historical Net Income.................... $ 2,683,411
Contractual Reduction in Stockholder Com-
pensation............................... 1,110,000
Provision for Income Taxes............... (1,441,496)
-----------
Pro Forma Net Income..................... $ 2,351,915
-----------
Pro Forma Income per Share............... $ 0.31
-----------
Weighted Average Common Shares Outstand-
ing..................................... 7,682,080
-----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED APRIL 30, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
----------------- ADDITIONAL ACCUMULATED
SHARES AMOUNT TREASURY STOCK CONTRIBUTED CAPITAL DEFICIT TOTAL
--------- ------- -------------- ------------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 1, 1993.. 7,682,080 $76,821 $ -- $ 436,431 $(2,943,758) $(2,430,506)
Paid-In Capital......... -- -- -- 1,510,000 -- 1,510,000
Repurchase Treasury
Stock.................. -- -- (9,259,989) -- -- (9,259,989)
Distributions........... -- -- -- -- (620,965) (620,965)
Net Income.............. -- -- -- -- 1,715,706 1,715,706
--------- ------- ----------- ---------- ----------- -----------
Balance at April 30,
1994................... 7,682,080 76,821 (9,259,989) 1,946,431 (1,849,017) (9,085,754)
Distributions........... -- -- -- -- (48,400) (48,400)
Net Income.............. -- -- -- -- 2,116,150 2,116,150
--------- ------- ----------- ---------- ----------- -----------
Balance at April 30,
1995................... 7,682,080 76,821 (9,259,989) 1,946,431 218,733 (7,018,004)
Distributions........... -- -- -- -- (145,200) (145,200)
Net Income.............. -- -- -- -- 2,683,411 2,683,411
--------- ------- ----------- ---------- ----------- -----------
Balance at April 30,
1996................... 7,682,080 $76,821 $(9,259,989) $1,946,431 $ 2,756,944 $(4,479,793)
========= ======= =========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................ $1,715,706 $2,116,150 $2,683,411
---------- ---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization............. 761,138 1,129,327 1,284,973
Bad debt expense.......................... 356,000 100,000 187,000
Loss on disposal of property and equip-
ment..................................... 27,337 -- --
Changes in assets and liabilities
Increase in accounts receivable.......... (539,324) (2,029,239) (4,027,139)
Decrease (increase) in inventory......... 188,260 (151,329) (694,609)
Decrease (increase) in prepaid expenses,
deposits and other assets............... 113,613 (140,215) 5,408
Decrease (increase) in deferred advertis-
ing costs............................... 240,182 (681,676) (773,001)
Increase (decrease) in accounts payable
and other accrued expenses.............. 767,472 1,046,582 (66,064)
(Decrease) increase in accrued salary and
employee benefits....................... (33,106) 191,661 (16,818)
Increase in unearned subscription reve-
nue..................................... 426,591 58,595 2,277,685
(Decrease) increase in deferred rent..... (309,670) (81,452) 144,172
---------- ---------- ----------
Total Adjustments.......................... 1,998,493 (557,746) (1,678,393)
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.. 3,714,199 1,558,404 1,005,018
---------- ---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Property and equipment purchases.......... (1,231,614) (726,644) (1,592,935)
Change in restricted cash requirements.... (3,859) 117,211 --
Proceeds from disposal of property and
equipment................................ 7,510 177,635 --
Purchases of intangible assets............ (1,072,314) (316,312) (1,940,119)
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES...... (2,300,277) (748,110) (3,533,054)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments) draws on line of credit.... (593,000) 41,951 8,750,000
Borrowings on notes payable............... 7,889,095 116,710 1,988,908
Repayments on notes payable............... (248,283) (936,685) (8,216,861)
Distributions to stockholders............. (620,965) (48,400) (145,200)
Purchase of treasury stock................ (9,259,989) -- --
Stockholder contribution.................. 1,510,000 -- --
---------- ---------- ----------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES................................ (1,323,142) (826,424) 2,376,847
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH............ 90,780 (16,130) (151,189)
CASH AT BEGINNING OF YEAR.................. 240,306 331,086 314,956
---------- ---------- ----------
CASH AT END OF YEAR........................ $ 331,086 $ 314,956 $ 163,767
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFOR-
MATION:
Interest payments during the year......... $ 295,750 $ 816,328 $ 942,493
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1995 AND 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Formation of Holding Company and Recapitalization
NexUS Healthcare Information Corporation ("NexUS"), a Delaware corporation,
was formed on April 30, 1996, as a newly created holding company for its
wholly-owned subsidiaries, St. Anthony Publishing, Inc. ("St. Anthony
Publishing"), St. Anthony Healthcare Resource Group, Inc. ("SAHR") and St.
Anthony Outsourcing, Inc. ("SAO"), collectively referred to as "the Company."
On May 15, 1996, the Company issued 7,682,080 shares (of a total of 30,000,000
newly authorized shares), to the stockholders of St. Anthony Publishing and
SAHR, in exchange for their respective ownership interests in these entities
(the "Recapitalization"). Previous to the formation of NexUS and the
recapitalization, St. Anthony Publishing and SAHR were Subchapter S
corporations. On May 22, 1996, the Company incorporated SAO, as an additional,
wholly-owned subsidiary which is currently inactive.
The accompanying consolidated financial statements, including stockholders'
equity and per share amounts, give retroactive effect to the formation of the
holding company and recapitalization for all periods presented.
Nature of Operations
The Company is a provider of information products and services to the health
care and medical industry. The Company conducts its business from its
headquarters in Virginia, from offices in Ohio and California, and delivers
most of its products from a distribution center in Virginia.
The Company's products and services are in the areas of coding and payment
information, managed care and capitation, analytical database information and
management tools, and specialized health care consulting services (principally
for the hospital market). The Company is a market leader in the aforementioned
product areas, and delivers products in multiple formats.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
NexUS Healthcare Information Corporation and its wholly-owned subsidiaries,
St. Anthony Publishing and SAHR. Material intercompany accounts and
transactions are eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include cash, time deposits and all highly liquid
debt instruments with an original maturity of three months or less.
Inventory
Inventory is stated at the lower of cost or market, and consists primarily
of unsold publications (finished goods), plus a minimum amount of paper and
printing supplies (raw materials) kept on hand. Cost is determined using the
first-in, first-out (FIFO) method.
Deferred Advertising Costs
In accordance with Statement of Position (SOP) 93-7, "Reporting on
Advertising Costs," the Company capitalizes certain direct-response
advertising costs which are amortized over the expected period of future
benefits. Such costs consist principally of product promotional mailings,
direct labor costs, and other promotional costs incurred in the Company's
direct response advertising activities. Deferred advertising costs are
amortized
F-6
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1995 AND 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
over the estimated period of benefits to be received from the advertising,
which varies by product type, for periods up to 24 or 32 months with a
significant portion of such costs amortized in 12 to 15 months. Deferred
advertising costs amounted to $2,461,054 and $3,234,055 at April 30, 1995 and
1996, respectively. Advertising expense, including amortization of direct-
response costs, totaled $2,013,565, $2,082,887, and $3,302,589 for the years
ended April 30, 1994, 1995, and 1996, respectively.
Property and Equipment
Property and equipment are carried at cost. Depreciation and amortization
are computed using the straight- line method over estimated useful lives of
three to seven years. Leasehold improvements are amortized over the lesser of
the estimated useful lives of the related improvements or the related lease.
Capitalized Software
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as
incurred until technological feasibility has been established. After
technological feasibility is established, any additional costs are capitalized
in accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." The Company capitalized $662,000, $46,000, and $181,000
of software development costs in 1994, 1995 and 1996, respectively.
Amortization is computed using the straight-line method over the estimated
economic life of the products, ranging from three to four years. Amortization
on software development costs charged to expense was $5,000, $176,000, and
$186,000 for 1994, 1995 and 1996, respectively.
Intangible Assets
Intangible assets consist primarily of amounts paid for non-compete
agreements in connection with mergers and acquisitions, goodwill, and debt
acquisition costs. Non-compete amounts are amortized on a straight-line basis
over the lives of the related agreements, generally five years. Goodwill is
amortized on a straight-line basis over 15 years. Debt acquisition costs are
amortized over the period that the related debt facility is available, using
the straight-line method. Impairments are recognized in operating results if a
permanent decline in value occurs.
Revenue
Revenue from loose-leaf services is recognized when the loose-leaf manual is
delivered, except for an estimate of the Company's cost to fulfill the
subsequent loose-leaf update issues. Book revenue is recognized upon shipment.
Newsletter revenue is recognized evenly over the life of the subscription.
Revenue from seminars and consulting services is recognized when services are
performed.
Based upon available information, management estimates an adequate allowance
to cover general credit risk, returns, and cancellations.
Unearned Subscription Revenue
Orders for loose-leaf services, books, and monthly newsletters are recorded
as unearned subscription revenue when received prior to fulfillment. In
addition, unearned subscription revenue includes the unfulfilled portion of
loose-leaf and newsletter subscriptions, including multi-year subscriptions,
which amounts are recognized over the life of the subscription.
F-7
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1995 AND 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Income Taxes
The Company elected to be taxed as an S corporation for federal and state
income tax purposes prior to the Recapitalization. As a result, no federal or
state income taxes were payable at the corporate level. The stockholders paid
tax on their respective shares of the Company's taxable income, even if such
income was not distributed. The Company's income tax returns are filed based
upon operations for a calendar year. Upon the formation of the holding company
and the Recapitalization, the Company terminated its S corporation status,
converted to a C corporation, and will be subject to both federal and state
income taxes in future periods. The income tax adjustment required as a result
of the conversion will be reflected in the first quarter's operating results
of fiscal year 1997.
Pro forma income taxes reflect a provision for income taxes at the effective
statutory federal and state rates applied to the Company's financial statement
net income.
Concentrations and Fair Value of Financial Instruments
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and trade accounts receivable. The
Company places its cash with high credit quality financial institutions. In
general, such cash balances exceed the FDIC insurance limit. The Company
provides credit, in the normal course of business, to a significant number of
customers throughout the United States. The Company routinely assesses the
financial strength of its customers and, as a consequence, believes that its
trade accounts receivable exposure is limited. The carrying value of financial
instruments potentially subject to valuation risk (principally consisting of
cash, accounts receivable, notes payable and accounts payable) approximates
fair market value.
The Company is not dependent upon any single third party for supplies used
in its operations. The Company believes that alternatives are available for
its supplies, the most significant being printing services and paper. No
customer accounts for more than 2% of the Company's sales.
Using Estimates in Preparing Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the reporting period. Actual
results could differ from those estimates.
New Accounting Standards Not Yet Adopted
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
provides guidance regarding when to assess, and how to measure impairment of
long-lived assets and certain intangibles and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. Management believes the impact of adopting SFAS
No. 121 will not have a material effect on the financial position of the
Company.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," effective for fiscal years beginning after December 15, 1995.
The new Statement encourages all entities to adopt a fair-value based method
of accounting for all employee stock option plans. Under this method,
compensation cost is measured at the grant date based on the value of the
stock option award, and is recognized over the service period, which is
usually the vesting
F-8
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1995 AND 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
period. Optionally, a company may continue using the intrinsic-value based
method, as prescribed by APB Opinion 25, "Accounting for Stock Issued to
Employees" (Opinion 25), which measures compensation cost only to the extent
that the option price is lower than the quoted market price of the stock at
the date of award. The Company expects to continue the application of Opinion
25, but will comply with the required future pro forma disclosures of net
income, and earnings per share, as if the fair-value based method of
accounting defined in SFAS No. 123 had been applied.
NOTE B--MERGERS AND ACQUISITIONS
Merger
On February 29, 1996, prior to the formation of the holding company and
reorganization discussed in Note A, St. Anthony Publishing and SAHR effected a
merger with The Center for Healthcare Industry Performance Studies ("CHIPS"),
an Ohio general partnership in the business of the development, marketing and
delivery of analytical database products and services to the health care
industry.
St. Anthony Publishing, merged with CHIPS in a transaction whereby the three
individual owners of CHIPS, in exchange for 100% of their voting interests,
received 1,618 newly issued voting shares of St. Anthony Publishing, and 118
voting shares of SAHR, collectively constituting 11.8% of the voting interest
in each of St. Anthony Publishing and SAHR.
The merger has been accounted for under the pooling-of-interest method. The
accompanying 1996 financial statements reflect the combined accounts for the
full year, and the financial statements of prior years have been restated to
give effect to the combination.
Summarized results of operations of the separate, combining companies for
the period from May 1, 1995, through April 30, 1996, are as follows:
<TABLE>
<CAPTION>
ST. ANTHONY
PUBLISHING
AND SAHR CHIPS COMBINED
----------- ---------- -----------
<S> <C> <C> <C>
Net sales................................ $37,931,081 $2,798,544 $40,729,625
Income before merger costs............... $ 2,477,614 $ 280,797 $ 2,758,411
Merger expenses.......................... 27,915 47,085 75,000
----------- ---------- -----------
Net income............................... $ 2,449,699 $ 233,712 $ 2,683,411
=========== ========== ===========
</TABLE>
Following is a reconciliation of the amounts of net sales and net income
previously reported for the years ended April 30, 1994, 1995 and 1996, with
restated combined amounts:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales and other revenue:
As previously reported............... $28,846,344 $33,768,694 $37,931,081
Effect of CHIPS merger............... 1,709,106 2,029,976 2,798,544
----------- ----------- -----------
Combined............................... $30,555,450 $35,798,670 $40,729,625
=========== =========== ===========
Net income:
As previously reported............... $ 1,396,062 $ 2,147,713 $ 2,449,699
Effect of CHIPS merger............... 319,644 (31,563) 233,712
----------- ----------- -----------
Combined............................... $ 1,715,706 $ 2,116,150 $ 2,683,411
=========== =========== ===========
</TABLE>
F-9
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1995 AND 1996
NOTE B--MERGERS AND ACQUISITIONS--CONTINUED
In connection with the restatement, several adjustments were made to conform
accounting policies. These adjustments consisted of classifying operating
expenses consistently, reflecting deferred direct response advertising costs,
reflecting unearned revenue, and reflecting capitalized software development
costs.
Prior to the date of the merger, St. Anthony Publishing and SAHR in the
normal course of business, did not enter into transactions with CHIPS for the
purchase or sale of services or merchandise. Consequently, there are no
intercompany transactions to be eliminated in the accompanying consolidated
financial statements.
In conjunction with the merger, and in accordance with standard operating
procedures, St. Anthony Publishing entered into the following agreements with
the two active stockholders of CHIPS:
Employment Agreements--Two and three year agreements, respectively,
stipulating annual salaries of $87,500 and $200,000, respectively (increasing
to $87,500 and $250,000, respectively), and requiring specific performance.
Non-Compete Agreements--Five-year agreements totaling $275,000 and $400,000,
respectively, to be paid over five years based upon compliance with specific
restrictions established.
Acquisitions
In August 1995, the Company acquired the directory publications of American
Preeminent Registry of Publishers, Inc. These assets were not then currently
in print, and were received in exchange for a $30,000 cash payment and
potential contingent payment of immaterial amounts based upon the future
performance of the acquired assets. In connection with this acquisition,
three-year non-compete agreements were executed. This transaction was recorded
using purchase accounting.
On November 1, 1995, the Company acquired the newsletter publications of
Genesis Publishing, Inc., located in the San Diego area. The assets acquired
were received in exchange for a $525,000 cash payment, the assumption of
miscellaneous liabilities, and the potential contingent payment of immaterial
amounts based upon the future performance of the acquired assets. In
connection with this acquisition, five-year non-compete agreements were
executed. This transaction was recorded using purchase accounting.
On May 1, 1996, the Company acquired certain assets of the McGraw-Hill
Company's Healthcare Management Group. These publications, along with minor
amounts of related inventories, were acquired for the cash payment of
$1,045,000 and the assumption of related liabilities not to exceed $60,000.
The acquisition is expected to expand the Company's physician-based products.
In connection with the acquisition, three-year non-compete agreements were
executed. This transaction was recorded in fiscal year 1997 using purchase
accounting.
These acquisitions are not deemed significant and therefore, pro forma
information is not presented.
NOTE C--ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following at April 30:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Product receivables................................ $4,677,515 $8,999,047
Due from stockholder............................... 410,801 --
---------- ----------
5,088,316 8,999,047
Less allowance for doubtful accounts and cancella-
tions............................................. (700,000) (770,592)
---------- ----------
$4,388,316 $8,228,455
========== ==========
</TABLE>
F-10
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1995 AND 1996
NOTE C--ACCOUNTS RECEIVABLE, NET--CONTINUED
The product receivables consist mainly of amounts due from individual or
institutional providers of health care services, and are pledged as collateral
on bank borrowings.
The amount due from shareholder at April 30, 1995, represents an overpayment
by the Company for income taxes to be paid by the shareholder, and was
subsequently repaid to the Company by the shareholder during fiscal year 1996.
NOTE D--INVENTORY
Inventory consists of the following at April 30:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Unsold publications...................................... $ 11,761 $ 226,054
Supplies and other....................................... 908,482 1,388,798
-------- ----------
$920,243 $1,614,852
======== ==========
</TABLE>
NOTE E--INTANGIBLE ASSETS
Intangible assets consist of the following at April 30:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Non-compete agreements................................. $889,095 $1,269,094
Goodwill............................................... 25,000 848,649
Debt acquisition costs................................. 70,575 520,512
Other.................................................. -- 105,213
Less accumulated amortization.......................... (230,536) (678,345)
-------- ----------
$754,134 $2,065,123
======== ==========
</TABLE>
F-11
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1995 AND 1996
NOTE F--NOTES PAYABLE
Notes Payable
Notes payable consist of the following at April 30:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Declining line-of-credit agreement with principal
bank, available through July 31, 2002, totaling $9.0
million, collateralized by a general collateral
agreement. Annual reductions of $1,000,000 in credit
availability under the line commencing July 31, 1996,
plus interest at prime plus 1% (9.25% at April 30,
1996)................................................ $ -- $8,750,000
Revolving credit agreement with principal bank total-
ing $7.0 million, collateralized by a general collat-
eral agreement. Amounts under the agreement are due
in total on July 31, 2002, plus interest at prime
plus 1% (9.25% at April 30, 1996).................... -- 1,988,908
Demand line of credit with principal bank, collateral-
ized by a general collateral agreement and outstand-
ing common stock of the Company, bearing interest at
prime plus 1 3/4% (10 3/4% at April 30, 1995)........ 965,000 --
Long-term note with principal bank, collateralized by
accounts receivable, inventories, fixed assets and a
general collateral agreement. Payable in monthly in-
stallments from $62,500 to $125,000 plus interest at
prime plus 1 3/4% (10 3/4% at April 30, 1995)........ 4,437,500 --
Long-term note with former shareholder, subordinated
to the existing bank debt. Payable in monthly in-
stallments of $10,000 beginning in March 1996, bear-
ing interest at prime plus 2% (11% at April 30,
1995), with interest due monthly..................... 2,000,000 --
Various notes payable with fixed interest rates rang-
ing between 8% and 12%, and approximate aggregate
monthly payments of $16,400.......................... 814,361 --
Less current portion.................................. (1,906,305) (750,000)
---------- ----------
$6,310,556 $9,988,908
========== ==========
</TABLE>
On July 31, 1995, the Company refinanced its Core States Bank debt with the
State Street Bank and Trust Company ("State Street"). The new bank financing
provided for a working capital credit line of $9.0 million, with credit
availability under the line decreasing by $1.0 million annually, beginning
July 31, 1996, and a $7.0 million revolving credit line to assist in the
financing of acquisitions, due July 31, 2002. Initial proceeds under the line
were used to pay off existing debt.
The credit arrangements with State Street are collateralized by general
collateral agreements covering substantially all the Company's assets. Under
the credit agreements, the Company has certain distribution and compensation
restrictions and requires the Company to comply with other covenants,
including the maintenance of certain specific ratios.
As a result of the Company's expenditures of approximately $1.1 million
during fiscal year 1996, relating to the installation of its new management
information system, the Company exceeded the limits on capital expenditures
set forth in the credit agreement with State Street and consequently was in
technical default of this particular covenant as of April 30, 1996. The
Company was in full compliance with all other established covenants. On June
4, 1996, the Company received a waiver from State Street for this default.
F-12
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1995 AND 1996
NOTE F--NOTES PAYABLE--CONTINUED
Aggregate maturities of notes payable at April 30, 1996, for the next five
years and beyond are as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30,
---------------------
<S> <C>
1997........................................................... $ 750,000
1998........................................................... 1,000,000
1999........................................................... 1,000,000
2000........................................................... 1,500,000
2001........................................................... 1,500,000
Thereafter..................................................... 4,988,908
-----------
$10,738,908
===========
</TABLE>
Future maturities are based upon the balance of the revolving credit
facility at April 30, 1996.
In connection with the Company's planned initial public common stock
offering (see Note M), it is anticipated that a portion of the outstanding
balances under the existing bank facilities will be paid down with the
facilities remaining open to support future working capital requirements and
acquisitions.
NOTE G--OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following at April 30:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Royalties payable......................................... $ 59,345 $321,558
Sales and other taxes payable............................. 100,000 50,000
Other accrued expenses.................................... 476,167 58,969
-------- --------
$635,512 $430,527
======== ========
</TABLE>
NOTE H--COMMITMENTS AND CONTINGENT LIABILITIES
Leases
Effective in May 1994, the Company entered into an agreement to lease office
space. In fiscal year 1995, the Company leased additional space in its current
facility under the same terms of the original lease, which expires in May
2000. The lease calls for base rental payments with escalation increases of 3%
per year. In addition, the Company has entered into a lease for its
distribution facilities which expires in May 2000, and a sublease agreement
for approximately 52% of this distribution facility, with terms identical to
those within the Company's prime lease with its landlord. The aggregate
monthly net expense for these two facilities is approximately $47,000, and is
subject to minor escalation increases.
The Company also has several operating leases for various pieces of
equipment.
F-13
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1995 AND 1996
NOTE H--COMMITMENTS AND CONTINGENT LIABILITIES--CONTINUED
At April 30, 1996, the approximate future minimum rental commitments for all
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30,
---------------------
<S> <C>
1997............................................................ $ 708,885
1998............................................................ 681,083
1999............................................................ 638,066
2000............................................................ 627,454
2001............................................................ 798
----------
$2,656,286
==========
</TABLE>
Rent expense charged to operations for all operating leases for the years
ended April 30, 1994, 1995 and 1996, amounted to $1,011,000, $762,000 and
$861,000, respectively.
Other
In June 1996, the Company committed to purchase printing services totaling
approximately $1,900,000, payable ratably over a 13-week period commencing
August 9, 1996.
NOTE I--RETIREMENT PLAN
The Company has a retirement plan (the Plan), which qualifies under Section
401(k) of the Internal Revenue Code covering substantially all full-time
employees. The Plan allows all participants to contribute up to 20% of their
compensation up to the statutory limits. The Company, on a discretionary
basis, may make an employer match of the lower of 25% of a participant's
contribution or 6% of the participant's total compensation. The Company may
also make discretionary contributions, which are allocated on a pro-rata basis
to all active participants. The Company amended the Plan effective January 1,
1991. For employees hired after December 31, 1986, Company contributions made
after December 31, 1990, vest according to a six-year schedule. Employees
hired before January 1, 1987, remained fully vested in all former and future
Company contributions. The Company contributed approximately $50,000, $55,000
and $61,000 to the Plan for the years ended April 30, 1994, 1995 and 1996,
respectively.
NOTE J--TREASURY STOCK
On December 30, 1993, an agreement was reached between the Company and its
two stockholders for the redemption directly by the Company of all the stock
of one stockholder. This treasury stock transaction was closed as of January
1, 1994.
The stock redemption was paid for as follows:
<TABLE>
<S> <C>
Cash payment..................................................... $6,600,000
Short-term note forgiveness...................................... 660,000
Note payable (paid in full, July 1995)........................... 2,000,000
----------
$9,260,000
==========
</TABLE>
F-14
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1995 AND 1996
NOTE J--TREASURY STOCK--CONTINUED
The cash payment was financed by bank borrowings as well as an additional
capital contribution of $1.5 million by the surviving sole stockholder.
In addition, the Company entered into a five-year non-compete agreement with
the selling stockholder, providing for payments equaling $200,000 per year,
and a final, additional payment of $100,000. The Company entered into a one-
year employment and bonus agreement with the selling stockholder. Expenses of
approximately $250,000 incurred in connection with this transaction were
included in operations for the year ended April 30, 1994.
NOTE K--BUSINESS SEGMENTS
Financial information relating to each of the Company's two business
segments, which operate as two separate, wholly-owned subsidiaries, is
presented below. Operating income represents revenue less cost of revenue,
sales and marketing, general and administrative and depreciation and
amortization. Certain general and administrative expenses are allocated
between the business segments, based upon management estimates. Operating
income is prior to non-operating expenses, which consist primarily of interest
expense and 1996 merger expenses.
Financial Information by Business Segment
<TABLE>
<CAPTION>
PRODUCTS CONSULTING COMBINED
----------- ---------- -----------
<S> <C> <C> <C>
1996
Revenue.................................... $36,798,736 $3,930,889 $40,729,625
Operating Income (Loss).................... 3,837,544 (163,742) 3,673,802
Identifiable Assets........................ 18,469,356 215,262 18,684,618
Capital Expenditures....................... 1,589,533 3,402 1,592,935
Depreciation and Amortization.............. 628,108 23,153 651,261
----------- ---------- -----------
1995
Revenue.................................... 31,591,640 4,207,030 35,798,670
Operating Income........................... 2,961,648 149,477 3,111,125
Identifiable Assets........................ 10,713,038 572,347 11,285,385
Capital Expenditures....................... 588,112 138,532 726,644
Depreciation and Amortization.............. 3,180,080 32,134 3,212,214
----------- ---------- -----------
1994
Revenue.................................... 26,128,621 4,426,829 30,555,450
Operating Income........................... 1,292,932 718,524 2,011,456
Identifiable Assets........................ 8,152,730 627,543 8,780,273
Capital Expenditures....................... 1,208,898 22,716 1,231,614
Depreciation and Amortization.............. 2,768,721 9,471 2,778,192
----------- ---------- -----------
</TABLE>
NOTE L--PRO FORMA INFORMATION
Pro Forma Statement of Income (Unaudited)
The pro forma presentation in the 1996 statement of income reflects an
adjustment to officer stockholder salary to reflect that portion of historical
compensation expense representing distributions made to Subchapter S
F-15
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1995 AND 1996
NOTE L--PRO FORMA INFORMATION--CONTINUED
stockholders to pay federal and state income taxes at the individual level.
This reduction in historical expense is supported by current employment
agreements for each of the active stockholders of the combined companies.
Pro forma salary adjustments consist of the following:
<TABLE>
<S> <C>
Stockholder compensation expense in historical financial state-
ments, including amounts distributed for income taxes to be paid
directly by individuals......................................... $1,723,000
Fiscal year 1997 salaries of active stockholders according to
employment agreements........................................... 613,000
----------
Pro forma adjustments representing amounts deemed distributed for
the payment of federal and state income taxes................... $1,110,000
==========
</TABLE>
The pro forma presentation in the 1996 statement of income also reflects a
provision for income taxes based upon pro forma pretax earnings, after
adjustment of stockholder compensation expense discussed above, as if the
Company had been subject to federal and state income taxes, to which it is not
subject through April 30, 1996. The Company elected to be taxed as a
Subchapter S corporation prior to the formation of the holding company and
reorganization discussed in Note A. The pro forma income tax provision has
been prepared in accordance with SFAS No. 109. The effective pro forma tax
rate of the Company differs from the federal rate of 34%, primarily because of
the effects of state income taxes. Permanent differences are not material.
The 1996 pro forma provision for income taxes, after giving effect to the
stockholder compensation expense and applying the federal statutory rate of
34%, and an approximate state provision of 6% (4% after reflecting the federal
tax benefit), consists of the following as of April 30, 1996:
<TABLE>
<S> <C>
Federal........................................................... $1,213,891
State............................................................. 227,605
----------
$1,441,496
==========
</TABLE>
Pro Forma Balance Sheet (Unaudited)
The pro forma balance sheet of the Company at April 30, 1996, has been
adjusted for the pro forma effect of additional income tax liability as a
result of termination of the S-corporation status.
The following table illustrates the effect of the pro forma balance sheet
adjustment described above as of April 30, 1996:
<TABLE>
<S> <C>
Historical stockholders' equity (deficit)..................... $(4,479,793)
Effect of pro forma adjustment
Additional income tax liability resulting from termination
of S-corporation status, which will be charged to opera-
tions in the first quarter of fiscal year 1997............ (475,000)
-----------
Pro forma stockholders' equity (deficit).................... $(4,954,793)
===========
</TABLE>
F-16
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
APRIL 30, 1995 AND 1996
NOTE M--SUBSEQUENT EVENTS
Initial Public Offering
The Company's Board of Directors has authorized the filing of a registration
statement relating to an initial public offering of shares of NexUS common
stock.
Stock Option Grant
In May 1996, management made a one-time common stock option grant of 317,500
options to 16 key individuals, 15 of whom had been participants or were
designated to participate in the Company's Stock Appreciation Rights Cash
Plan, which was terminated May 15, 1996. The options have an exercise price of
$11 per share, which is the fair market value at the date of grant, based upon
an independent, third-party valuation.
1996 Stock Option Plan
In June 1996, the Company adopted the 1996 Stock Option Plan (the "Plan").
Under the Plan, 1,000,000 shares of common stock are reserved for issuance to
directors, executives, full-time employees and others. Grants under the Plan
may be in the form of options to purchase shares of common stock, restricted
stock, performance units or any combination thereof. The Plan provides for the
granting of options at no less than fair value of the Company's shares at the
date of the grant. In June 1996, the Company granted options to certain
employees, directors and others to purchase an aggregate of 430,104 shares
exercisable at the proposed public offering price.
F-17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors The Center for Healthcare Industry Performance Studies
We have audited the accompanying statements of income and cash flows of The
Center for Healthcare Industry Performance Studies for the ten months ended
February 29, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of The
Center for Healthcare Industry Performance Studies for the ten months ended
February 29, 1996, in conformity with generally accepted accounting
principles.
Grant Thornton LLP
Vienna, Virginia
June 10, 1996
F-18
<PAGE>
THE CENTER FOR HEALTHCARE INDUSTRY PERFORMANCE STUDIES
STATEMENT OF INCOME
TEN MONTHS ENDED FEBRUARY 29, 1996
<TABLE>
<S> <C>
Revenue
Products.......................................................... $2,229,307
Cost of Revenue..................................................... 564,760
Sales and Marketing................................................. 566,099
General and Administration.......................................... 912,741
Depreciation and Amortization....................................... 78,947
----------
2,122,547
----------
Operating Income.................................................... 106,760
Interest Expense.................................................... 6,523
Merger Expenses..................................................... 47,085
----------
Net Income.......................................................... $ 53,152
==========
</TABLE>
F-19
<PAGE>
THE CENTER FOR HEALTHCARE INDUSTRY PERFORMANCE STUDIES
STATEMENT OF CASH FLOWS
TEN MONTHS ENDED FEBRUARY 29, 1996
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................... $ 53,152
Adjustments to reconcile net income to net cash provided by operat-
ing activities
Depreciation and amortization..................................... 78,947
Changes in assets and liabilities
Increase in accounts receivable.................................. (33,074)
Decrease in prepaid expenses, deposits and other assets.......... 1,448
Increase in deferred advertising costs........................... (11,473)
Increase in accounts payable and other accrued expenses.......... 20,970
Increase in unearned subscription revenue........................ 18,900
---------
Total Adjustments................................................... 75,718
---------
Net Cash Provided by Operating Activities........................... 128,870
---------
Cash Flows Used in Investing Activities
Property, product and equipment purchases.......................... (224,542)
---------
Cash Flows Used in Financing Activities
Repayments on notes payable........................................ (27,473)
---------
Net Decrease in Cash................................................ (123,145)
Cash at Beginning of Year........................................... 262,561
---------
Cash at End of Year................................................. 139,416
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest payments during the year................................. $ 6,523
=========
</TABLE>
F-20
<PAGE>
THE CENTER FOR HEALTHCARE INDUSTRY PERFORMANCE STUDIES
NOTES TO FINANCIAL STATEMENTS
TEN MONTHS ENDED FEBRUARY 29, 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Center for Healthcare Industry Performance Studies (the "Company"), an
Ohio corporation formed in 1993, provides a wide variety of database products
and services for health care providers, primarily hospitals, to help managers
focus on factors which affect their institution's financial performance.
Primarily all of the Company's services are provided from its headquarters in
Columbus, Ohio.
Cash and Cash Equivalents
Cash and cash equivalents include cash, time deposits and all highly liquid
debt instruments with an original maturity of three months or less.
Deferred Advertising Costs
In accordance with Statement of Position (SOP) 93-7, "Reporting on
Advertising Costs," the Company capitalizes certain direct-response
advertising costs which are amortized over the expected period of future
benefits. Such costs consist principally of product promotional mailings,
direct labor costs, and other promotional costs incurred in the Company's
direct response advertising activities. Deferred advertising costs are
amortized over the estimated period of benefits to be received from the
advertising, which varies by product type, for periods up to 24 or 32 months
with a significant portion of such costs amortized in 12 to 15 months.
Deferred advertising costs amounted to $88,896 at February 29, 1995.
Advertising expense totaled $114,536 for the ten months ended February 29,
1996.
Depreciation and Amortization
Property and equipment are carried at cost. Depreciation and amortization
are computed using accelerated methods for both book and tax purposes.
Capitalized Software
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as
incurred until technological feasibility has been established. After
technological feasibility is established, any additional costs are capitalized
in accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed." The Company capitalized $148,450 of software development
costs for the ten months ended February 29, 1996. Amortization is computed
using the straight-line method over the estimated economic life of the
products. Amortization on software development costs charged to expense was
$13,388 for the ten months ended February 29, 1996.
Revenue Recognition
Revenue from the sale of database products is recognized when the product is
delivered, except for an estimate of the Company's cost to fulfill the
subsequent updates on certain products.
Income Taxes
The Company has elected to be taxed as an S corporation for federal and
state income tax purposes. As a result, no federal or state income taxes are
payable at the corporate level. The stockholders pay tax on their
F-21
<PAGE>
THE CENTER FOR HEALTHCARE INDUSTRY PERFORMANCE STUDIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
TEN MONTHS ENDED FEBRUARY 29, 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
respective shares of taxable income, even if such income is not distributed.
The Company's income tax returns are filed based upon operations for a
calendar year.
Using Estimates in Preparing Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE B--COMMITMENTS AND CONTINGENT LIABILITIES
Leases
Effective in March 1994, the Company entered into an agreement to lease
office space. On April 25, 1996, this agreement was renewed for a two-year
period commencing May 1, 1996. The lease calls for base rental payments,
including a pro rata share of operation expenses and is subject to annual
escalations.
At April 30, 1996, the approximate future minimum rental commitments for the
operating lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30,
---------------------
<S> <C>
1997.............................................................. $ 20,160
Thereafter........................................................ --
--------
$ 20,160
========
</TABLE>
Rent expense charged to operations for the Company's operating lease for the
ten months ended February 29, 1996, was $68,100.
NOTE C--MERGER
On February 29, 1996, the Company effected a merger with St. Anthony
Publishing, Inc., and St. Anthony Healthcare Resource Group, Inc., whereby the
owners of the Company exchanged 100% of their voting interest for stock
representing 11.8% of the voting interest in each of St. Anthony Publishing,
Inc. and St. Anthony Healthcare Resource Group, Inc.
F-22
<PAGE>
GLOSSARY
AMBULATORY PATIENT GROUP (APG)....... An outpatient case-mix reimbursement
methodology that groups patients
according to clinical characteristics,
resource use and cost. Procedures
provided in the hospital outpatient
setting are classified by APGs in a
way similar to the inpatient DRG
classification system for hospital
inpatient services. Objectives of the
APG system are to establish a fixed
reimbursement system for outpatient
procedures and visits, incorporate
patient data and information regarding
the reason for the outpatient visit,
and prevent unbundling of ancillary
services.
BENCHMARKING......................... The process of searching for and
implementing the best practices in the
healthcare industry that lead to
exceptional performance. Benchmarking
provides an organization an idea of
where it stands in relation to
competitors and a means for
establishing goals within the
organizational planning process.
BEST PRACTICE PROVIDER............... A provider that has demonstrated
superior performance in clinical and
operational processes, as indicated by
formal comparative performance
measures. Best practices demonstrate
not only highly successful clinical
aspects of patient care, but also
management practices that contribute
to their effectiveness. Providers with
a "best practice" rating use it to
their advantage in managed care
contract negotiations.
CAPITATION........................... A type of risk sharing reimbursement
method where providers in a plan's
network receive fixed periodic
payments (usually monthly) for
services rendered to plan members.
Capitated fees are set by contract
between a prepaid managed care plan
(typically an HMO) and providers to be
paid on a per person basis, usually
adjusted for age, sex and family size,
regardless of the amount of services
provided or the costs incurred.
Capitation is typically expressed in
units of per member per month (PMPM).
CODING............................... A classification method for
identifying and defining healthcare
clinical services for billing,
reimbursement, and statistical
purposes.
CPT PROCEDURES....................... A classification system of terminology
and coding developed by the American
Medical Association and used for
describing, coding and reporting
medical services and procedures in an
ambulatory patient care environment.
Also known as Physician's Current
Procedural Terminology, 4th Edition
(CPT-4).
G-1
<PAGE>
DECISION SUPPORT SYSTEMS............. Decision support systems provide
managers with information on business
operations to assist decision-making.
In the healthcare industry, these
systems can provide managers and
clinicians with data on patterns of
patient care and patient health
outcomes, which can then be used to
analyze resource utilization and the
cost of providing healthcare services.
DRG.................................. Diagnosis-Related Group. An inpatient
classification system used by HCFA to
determine hospital reimbursement for
Medicare patients since late 1983. The
DRG system categorizes patients with
similar medical diagnoses, treatment
patterns, and statistically comparable
lengths of stay in a hospital. HCFA
pays the hospital a fixed rate, based
on the average expected use of
hospital resources for each DRG in a
given geographic area. Some managed
care plans and insurers are now
adopting the DRG payment method for
setting their payment rates and
selecting providers.
HCFA................................. Health Care Financing Administration.
The federal agency responsible for
administering Medicare, overseeing
states' administration of Medicaid,
and a variety of other healthcare
financing and quality assurance
programs, including federal HMO
qualification. HCFA is a part of the
Health and Human Services Department
(HHS).
HCPCS LEVEL II....................... HCFA Common Procedural Coding System.
An alphanumeric coding system for
reporting provider services,
procedures, and supplies. Level II
national codes (five digit codes
beginning with A through V except S)
supplement CPT-4 codes (also known as
HCPCS Level I codes) and include
physician services not in the CPT, as
well as nonphysician services such as
ambulance, physical therapy, and
durable medical equipment (DME). Local
codes are developed by local Medicare
carriers and state Medicaid programs
to supplement the national codes.
ICD-9-CM............................. International Classification of
Disease, 9th Edition, Clinical
Modification. A standardized coding
system consisting of a listing of
diagnoses and associated
identification codes. The ICD-9 coding
system is used by healthcare providers
for reporting diagnoses and procedures
of covered persons on claims, and is
required on all Medicare claim forms
and itemized billing statements. The
coding and terminology provide a
uniform language, which accurately
designates primary and secondary
diagnoses and also ensures reliable,
consistent communication on claim
forms.
G-2
<PAGE>
MANAGED CARE......................... A system of managing and financing
healthcare delivery to ensure that
services provided are deemed
necessary, efficiently provided and
appropriately priced. Through a
variety of techniques, such as
preadmission certification, concurrent
review, financial incentives and
penalties, managed care attempts to
control access to provider sites where
services are received, contain costs,
manage utilization of services and
resources, and ensure favorable
patient outcomes.
MEDICARE RISK CONTRACTING............ A type of managed care arrangement in
which the federal government prepays
HMOs and competitive medical plans
(CMP) for services provided to
Medicare beneficiaries who join the
managed care plans and agree to
receive all of their care through the
plans. Monthly fixed payments are made
by the government to the plans, based
on a percentage of the adjusted
average per capita cost (AAPCC). Thus,
the HMOs and CMPs are "at risk" (i.e.
financially liable) for Medicare
services regardless of the extent,
expense, or intensity of services
rendered.
OUTPATIENT........................... A patient who receives medical
services at a healthcare facility
without being admitted to the facility
for an overnight stay.
UTILIZATION.......................... The use of healthcare services.
Managed care plans typically regard
utilization in terms of patterns or
rates of use of a single service or
type of service, such as hospital
care, physician visits, or
prescription drugs. Utilization is
typically expressed as the number of
services used per year per 1,000
persons who are eligible for the
services, or per eligible person.
Utilization rates are established for
health planning, budget review and
cost containment.
G-3
<PAGE>
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURI-
TIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO,
OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR A
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMA-
TION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
The Company.............................................................. 9
Use of Proceeds.......................................................... 10
S Corporation Distributions and Termination of Subchapter S Corporation
Status.................................................................. 10
Dividend Policy.......................................................... 10
Capitalization........................................................... 11
Dilution................................................................. 12
Selected Consolidated Financial Data..................................... 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 14
Business................................................................. 22
Management............................................................... 31
Certain Transactions..................................................... 36
Principal Stockholders................................................... 37
Description of Capital Stock............................................. 38
Shares Eligible for Future Sale.......................................... 40
Underwriters............................................................. 42
Legal Matters............................................................ 43
Experts.................................................................. 43
Available Information.................................................... 43
</TABLE>
-----------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 SHARES
NEXUS HEALTHCARE INFORMATION CORPORATION
COMMON STOCK
-----------
PROSPECTUS
, 1996
-----------
VOLPE, WELTY & COMPANY
LEGG MASON WOOD WALKER
INCORPORATED
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an estimate of the expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered, other than underwriting compensation, all of which will be
paid by the Company:
<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission.............. $ 9,518
Filing Fee--National Association of Securities Dealers, Inc....... 3,260
Listing Fee--Nasdaq National Market............................... 41,705
Transfer Agent and Registrar Fees and Expenses.................... 2,500
Blue Sky Fees and Expenses (including legal fees)................. 16,000
Legal Fees and Expenses........................................... 200,000
Accounting Fees and Expenses...................................... 100,000
Printing and Engraving Expenses................................... 125,000
Miscellaneous..................................................... 37,017
-------
Total........................................................... 535,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 ("Section 145") of the Delaware General Corporation Law, as
amended, provides a detailed statutory framework covering indemnification of
officers and directors against liabilities and expenses arising out of legal
proceedings brought against them by reason of their being or having been
directors or officers. Section 145 generally provides that a director or
officer of a corporation (i) shall be indemnified by the corporation for all
expenses of such legal proceedings when he is successful on the merits, (ii)
may be indemnified by the corporation for the expenses, judgments, fines and
amounts paid in settlement of such proceedings (other than a derivative suit),
even if he is not successful on the merits, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful, and (iii) may be
indemnified by the corporation for the expenses of a derivative suit (a suit
by a stockholder alleging a breach by a director or officer of a duty owed to
the corporation), even if he is not successful on the merits, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation. No indemnification may be made under
clause (iii) above, however, if the director or officer is adjudged liable for
negligence or misconduct in the performance of his duties to the corporation,
unless a corporation determines that, despite such adjudication, but in view
of all the circumstances, he is entitled to indemnification. The
indemnification described in clauses (ii) and (iii) above may be made only
upon a determination that indemnification is proper because the applicable
standard of conduct has been met. Such a determination may be made by a
majority of a quorum of disinterested directors, independent legal counsel,
the stockholders or a court of competent jurisdiction. Article X of the
Company's Certificate of Incorporation provides that the Company shall
indemnify any current or former incorporator, director or officer of the
Company to the fullest extent permitted by Delaware law.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to provide in its Certificate of Incorporation that a
director of the corporation shall not be personally liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware General Corporation Law, or
(iv) for any transaction from which the director derived an improper personal
benefit.
II-1
<PAGE>
Article VII(6) of the Company's Certificate of Incorporation provides for
the elimination of personal liability of a director for breach of fiduciary
duty, as permitted by Section 102(b)(7) of the Delaware General Corporation
Law.
Section 6 of the Underwriting Agreement provides for indemnification by the
Underwriters under certain circumstances of directors, officers and
controlling persons of the Registrant against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act").
The Registrant maintains liability insurance in the amount of $1 million
insuring its officers and directors against liabilities that they may incur in
such capacities, including liabilities arising under the Federal securities
laws other than liabilities arising out of the filing of a registration
statement with the Securities and Exchange Commission.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Securities issued by the Company and its predecessor corporations since June
1, 1993 which were not registered under the Securities Act are listed below.
(a) Issuance of Capital Stock.
(i) On May 15, 1996 the Company issued an aggregate of 7,682,080 shares of
Common Stock to Eugene W. Lorenz, William O. Cleverley, Linda Cleverley and
Roger K. Harvey (the "Stockholders") in exchange for all of the issued and
outstanding shares of St. Anthony Publishing, Inc. ("St. Anthony Publishing")
and St. Anthony Healthcare Resource Group, Inc. ("SAHR") held by the
Stockholders. As a result of the exchange, the Stockholders hold 100% of the
issued and outstanding capital stock of the Company and each of St. Anthony
Publishing and SAHR became wholly-owned subsidiaries of the Company.
(ii) In February 1996, CHIPS was merged into St. Anthony Publishing. In
connection with this merger, the prior three owners of CHIPS, Dr. Cleverley,
Mr. Harvey and Mrs. Cleverley, received an aggregate of 1,618 newly issued
shares of common stock of St. Anthony Publishing, and 118 previously
outstanding shares of common stock of SAHR held by St. Anthony Publishing,
that had been contributed by Mr. Lorenz to St. Anthony Publishing in
connection with the merger.
(b) Grants and Exercise of Stock Options.
(i) On May 15, 1996, the Company granted options to purchase an aggregate of
317,500 shares of Common Stock to 16 current and former directors, officers,
employees and consultants of the Company, 248,750 of which were immediately
exercisable upon grant.
(ii) The Company's 1996 Stock Option Plan (the "1996 Stock Option Plan") was
adopted by the Board of Directors on June 14, 1996 and thereafter approved by
the stockholders. As of June 20, 1996, options to purchase 430,104 shares of
Common Stock were outstanding under the 1996 Stock Option Plan.
No underwriters were involved in connection with the sales of securities
referred to herein. The shares of capital stock issued in the above
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Securities Act, relative to sales by an
issuer not involving any public offering.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- -----------------------------------------------------------------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement.
3.1 -- Certificate of Incorporation of the Registrant.
3.2 Certificate of Amendment of Certificate of Incorporation of
-- the Registrant.
3.3 -- Bylaws of the Registrant.
4.1* Specimen certificate for shares of the Registrant's Common
-- Stock.
5.1* -- Opinion of Gibson, Dunn & Crutcher LLP.
10.1 -- 1996 Stock Option Plan.
10.2 -- Form of Stock Option Agreement.
10.3a Lease Agreements between Reston Investment Properties
Associates Limited Partnership and the Company, dated March
18, 1994.
10.3b First Amendment to Lease Agreement between Reston Investment
Properties Associates Limited Partnership and the Company,
dated April 14, 1994.
10.3c Second Amendment to Lease Agreement between Reston
Investment Properties Associates Limited Partnership and the
Company, dated December 2, 1994.
10.4 Employment Agreement between Eugene W. Lorenz and the
Company, effective as of May 1, 1996.
10.5 Employment Agreement between Marleeta Jones-Burns and the
Company, effective as of May 1, 1996.
10.6 Employment Agreement between Peter L. Bower and the Company,
effective as of May 1, 1996.
10.7 Employment Agreement between John L. Canova and the Company,
effective as of May 1, 1996.
10.8 Employment Agreement between Curtis M. Shepherd and the
Company, effective as of May 1, 1996.
10.9 Non-qualified Stock Appreciation Rights Plan for Key
Employees.
21 List of Subsidiaries.
23.1 Consent of Gibson, Dunn & Crutcher LLP (contained in Exhibit
5.1).
23.2 Consent of Grant Thornton LLP
24 Power of Attorney (contained on page II-4 of the
Registration Statement).
27 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
(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.
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 described in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by
II-3
<PAGE>
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 of 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) to provide the Underwriters
at the closing specified in the Underwriting Agreement Certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser, (2) that for purposes of determining
any liability under the Securities Act, 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 and (3) that for the purpose of determining any liability
under the Securities Act, 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.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF RESTON, STATE OF
VIRGINIA, ON THIS 20TH OF JUNE 1996.
Nexus Healthcare Information
Corporation
/s/ Eugene W. Lorenz
By: _________________________________
EUGENE W. LORENZ
CHIEF EXECUTIVE OFFICER
Each person whose signature appears below constitutes and appoints Eugene W.
Lorenz, Peter L. Bower, David A. Webster and Stephen H. Willard, and any of
them, his true and lawful attorney-in-fact, each with full power of
substitution and resubstitution, severally, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement (including amendments thereto) relating to this
Registration Statement that is intended to be effective upon filing pursuant
to Rule 462(b) under the Securities Act of 1933, as amended, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-
fact and agent full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Eugene W. Lorenz Chairman, Chief June 20, 1996
- ------------------------------------- Executive Officer,
EUGENE W. LORENZ and Director
(Principal
Executive Officer)
/s/ Peter L. Bower Treasurer and Chief June 20, 1996
- ------------------------------------- Financial Officer
PETER L. BOWER (Principal
Financial Officer
and Principal
Accounting Officer)
/s/ Marleeta K. Jones-Burns Director June 20, 1996
- -------------------------------------
MARLEETA K. JONES-BURNS
/s/ Laszlo Makk Director June 20, 1996
- -------------------------------------
LASZLO MAKK
/s/ Paul A. Gross Director June 20, 1996
- -------------------------------------
PAUL A. GROSS
/s/ Richard Michael Abell Director June 20, 1996
- -------------------------------------
RICHARD MICHAEL ABELL
/s/ Alice H. Lusk Director June 20, 1996
- -------------------------------------
ALICE H. LUSK
/s/ William O. Cleverley Director June 20, 1996
- -------------------------------------
WILLIAM O. CLEVERLEY
II-5
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL INFORMATION
Board of Directors
NexUS Healthcare Information Corporation and Subsidiaries
In connection with our audit of the consolidated financial statements of
NexUS Healthcare Information Corporation and Subsidiaries referred to in our
report dated June 10, 1996, which is included in the Prospectus constituting
Part I of this Registration Statement, we have also audited Schedule II for
each of the three years in the period ended April 30, 1996. In our opinion,
this schedule presents fairly, in all material respects, the information
required to be set forth therein.
Grant Thornton LLP
Vienna, Virginia
June 10, 1996
S-1
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------------- --------------------------------- ------------- -------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
DESCRIPTION BEGINNING OF PERIOD COSTS AND EXPENSES OTHER ACCOUNTS DEDUCTIONS(1) END OF PERIOD
----------- ------------------- ------------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts and Cancella-
tions
Year ended April 30,
1996................. $700,000 $187,000 -- $116,408 $770,592
Year ended April 30,
1995................. 600,000 100,000 -- -- 700,000
Year ended April 30,
1994................. 580,000 356,000 -- 336,000 600,000
</TABLE>
- --------
(1) Includes amounts written off, net of recoveries.
S-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
EXHIBITS
FILED WITH
REGISTRATION STATEMENT
ON
FORM S-1
----------------
NEXUS HEALTHCARE INFORMATION CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
NEXUS HEALTHCARE INFORMATION CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 Certificate of Amendment of Certificate of Incorporation of the
Registrant.
3.3 Bylaws of the Registrant.
4.1* Specimen certificate for shares of the Registrant's Common Stock.
5.1* Opinion of Gibson, Dunn & Crutcher LLP.
10.1 1996 Stock Option Plan.
10.2 Form of Stock Option Agreement.
10.3a Lease Agreements between Reston Investment Properties Associates
Limited Partnership and the Company, dated March 18, 1994.
10.3b First Amendment to Lease Agreement between Reston Investment
Properties Associates Limited Partnership and the Company, dated
April 14, 1994.
10.3c Second Amendment to Lease Agreement between Reston Investment
Properties Associates Limited Partnership and the Company, dated
December 2, 1994.
10.4 Employment Agreement between Eugene W. Lorenz and the Company,
effective as of May 1, 1996.
10.5 Employment Agreement between Marleeta Jones-Burns and the Company,
effective as of May 1, 1996.
10.6 Employment Agreement between Peter L. Bower and the Company,
effective as of May 1, 1996.
10.7 Employment Agreement between John L. Canova and the Company,
effective as of May 1, 1996.
10.8 Employment Agreement between Curtis M. Shepherd and the Company,
effective as of May 1, 1996.
10.9 Non-qualified Stock Appreciation Rights Plan for Key Employees.
21 List of Subsidiaries.
23.1 Consent of Gibson, Dunn & Crutcher, LLP (contained in Exhibit
5.1).
23.2 Consent of Grant Thornton LLP.
24 Power of Attorney (contained on page II-4 of the Registration
Statement).
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
(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 Registration 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.
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
SAP NEWCO, INC.
ARTICLE I
---------
NAME AND DURATION
-----------------
The name of the Corporation is SAP NEWCO, INC. The duration of the
Corporation is perpetual. This Corporation shall begin its corporate existence
as of the 30th day of April, 1996.
ARTICLE II
----------
PRINCIPAL OFFICE
----------------
The address of the principal office of the Corporation in the State of
Virginia is 11410 Isaac Newton Square, Reston, Virginia 22090.
ARTICLE III
-----------
REGISTERED OFFICE AND AGENT
---------------------------
The address of the registered office in the State of Delaware is 1013
Centre Road, in the City of Wilmington, County of New Castle. The name of the
registered agent at such address is Corporation Service Company.
ARTICLE IV
----------
CORPORATE PURPOSES, POWERS AND RIGHTS
-------------------------------------
<PAGE>
1. The nature of the business to be conducted or promoted and the
purposes of the Corporation are to engage in any lawful act or activity for
which corporations may be organized under the Delaware General Corporation Law.
2. In furtherance of its corporate purposes, the Corporation shall
have all of the general and specific powers and rights granted to and conferred
on a corporation by the Delaware General Corporation Law.
ARTICLE V
---------
CAPITAL STOCK
-------------
SECTION 1. CAPITAL STOCK. The total number of shares of common stock
-------------
which the Corporation has the authority to issue is Thirty Million (30,000,000)
shares of Common Stock ("Common Stock") One Cent ($0.01) par value per share.
Additionally, the Corporation shall have the authority to issue up to Ten
Million (10,000,000) shares of Preferred Stock (as provided in Section 2
hereof).
SECTION 2. PREFERRED STOCK.
---------------
a. Preferred Stock may be issued from time to time in one or
more series, each of such series to have such terms as stated or expressed
herein and in the resolution or resolutions providing for the issue of such
series adopted by the Board of Directors of this Corporation as hereinafter
provided. Any shares of Preferred Stock which may be redeemed, purchased or
acquired by the Corporation may be reissued except as otherwise provided by law.
Different series of Preferred Stock shall not be construed to constitute
different classes of shares for the purposes of voting by classes, unless
expressly provided.
b. Authority is hereby expressly granted to the Board of
Directors from time to time to issue the Preferred Stock
-2-
<PAGE>
in one or more series, and in connection with the creation of any such series,
by resolution or resolutions providing for the issue of the shares thereof, to
determine and fix such voting powers, full or limited, or no voting powers, and
such designations, preferences and relative participating, optional or other
special rights and qualifications.
ARTICLE VI
----------
INCORPORATOR
------------
The name and mailing address of the incorporator of this Corporation
is as follows:
Name Address
---- -------
David A. Webster
General Counsel/ c/o St. Anthony Publishing, Inc.
Corporate Secretary 11410 Isaac Newton Square Reston,
Virginia 22090
ARTICLE VII
-----------
BOARD OF DIRECTORS
------------------
This Article is inserted for the management of the business and for the
conduct of the affairs of the Corporation, and it is expressly provided that it
is intended to be in furtherance and not in limitation or exclusion of the
powers conferred by the statutes of the State of Delaware.
1. The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously
-3-
<PAGE>
authorized directorships at the time any such resolution is presented to the
Board for adoption) (the "Whole Board"). The directors shall be divided into
three classes, as nearly equal in number as reasonably possible (if the number
shall not divide equally, the fraction of a position shall be assigned to the
"Class III director group), with the term of office of the first class ("Class
I") to expire at the 1997 annual meeting of the shareholders, the term of the
second class ("Class II") to expire at the 1998 annual meeting of shareholders,
and the term of office of the third class ("Class III") to expire at the 1999
annual meeting of shareholders. At each annual meeting of shareholders following
the initial classification and election, directors elected to succeed those
directors whose terms expire shall be elected for a term of office to expire at
the third annual meeting of shareholder after their election. A director shall
be permitted to succeed his or her self, without limitation. Qualifications of
persons to become members of the Board of Directors shall be established by the
Board of Directors, from time to time, by its discretion, as it determines are
in the best interests of this Corporation.
2. If any vacancy occurs in the Board of Directors (including a
vacancy resulting from an enlargement of the Board) during a term, the remaining
directors, by affirmative vote of a majority thereof, may elect a director to
fill the vacancy until the next annual meeting of shareholders. Notwithstanding
any provisions to the contrary contained herein, each director shall hold
officer until his or her successor is elected and qualified, or until his or her
death, resignation or removal.
3. A majority of the total number of the Whole Board shall
constitute a quorum at all meetings of the Board of Directors. In the event one
or more of the directors shall be disqualified to vote at any meeting, the
required quorum shall be reduced by one for each director so disqualified;
provided, however, that in no case shall less that one third (1/3) of the number
so fixed constitute a quorum. In the absence of a quorum
-4-
<PAGE>
at any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
4. Any one or more of the directors may be removed, with or without
cause, by the holders of at least the Required Percentage of the shares then
entitled to vote at an election of directors. The "Required Percentage" shall be
a majority at all times prior to the first time when no single shareholder holds
directly forty percent (40%) of the shares entitled to vote for directors and
shall be seventy five percent (75%) following the date when, as certified by the
Corporation's stock transfer agent, no single shareholder directly holds more
than forty percent (40%) of the shares, regardless of whether, subsequent to
such date, a shareholder does acquire more than forty percent (40%) of the
Voting Stock.
5. The names and mailing addresses of the person who shall serve as
the sole director of the Corporation until the first meeting of the shareholders
is as follows:
Name Address
---- -------
David A. Webster c/o St. Anthony Publishing, Inc.
11410 Isaac Newton Square
Reston, VA 22090
6. A director of this Corporation shall not be personally liable to
the Corporation or its shareholders for monetary or other damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its shareholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (v) for
-5-
<PAGE>
any transaction from which the director derived any improper personal benefit.
If the Delaware General Corporation Law is amended after the filing of the
Certificate of Incorporation of which this Article is a part to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of this Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as amended. However, no future amendment of law or of this
Certificate of Incorporation shall have the effect of increasing the liability
exposure of a director, unless such amendment is specifically adopted by an
amendment to this Certificate of Incorporation.
ARTICLE VIII
------------
SPECIAL MEETINGS OF SHAREHOLDERS;
NOMINATION AND SHAREHOLDER BUSINESS; ACTION BY CONSENT
-------------------------------------------------------
SECTION 1. SPECIAL MEETINGS OF SHAREHOLDERS. Special meetings of the
--------------------------------
shareholders may be called at any time by the Chairman of the Board of
Directors, the Chief Executive Officer of this Corporation, or a majority of the
members of the Board of Directors. Business transacted at such special meeting
of the shareholders shall be limited to matters relating to the purpose or
purposes stated in the notice of meeting.
SECTION 2. NOMINATIONS AND SHAREHOLDER BUSINESS.
------------------------------------
1. Nominations of persons for election to the Board of Directors of
this Corporation and the proposal of business to be considered by the
Shareholders may be made at an annual meeting of shareholders (a) pursuant to
this Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors, or (c) by any shareholder of the Corporation who was a shareholder of
record
-6-
<PAGE>
at the time of giving of notice provided for in this Section 2 of this Article.
2. For nominations or other business to be properly brought before
an annual meeting by a shareholder pursuant to this Section 2 of this Article,
the shareholder must have given timely notice thereof in writing to the
Secretary of this Corporation, and such business must be a proper subject for
shareholder action under the Delaware General Corporation Law. To be timely, a
shareholder's notice must be delivered to the Corporation not less than one
hundred (120) days nor more than one hundred (180) days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than thirty
(30) days or delayed by more than sixty (60) days from such anniversary date,
notice by the shareholder to be timely must be so delivered not later that the
close of business on the later of the 120th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made. Such shareholder's notice shall set forth (a) as to each
person whom the shareholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act:) (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the shareholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the shareholder giving the notice and the beneficial owners, if any, on whose
behalf the proposal is made (i) the name and address of such shareholder, as
they appear on the Corporation's books, and of such beneficial owner, and (ii)
-7-
<PAGE>
the class and number of shares of the Corporation which are owned beneficially
and of record by such shareholder and such beneficial owner.
3. Notwithstanding anything in this Section 2 of this Article to the
contrary, in the event the number of directors to be elected to the Board of
Directors of the Corporation is increased and there is no public announcement
specifying the size of the increased Board of Directors made by the Corporation
at least one hundred thirty (130) days prior to the first anniversary of the
preceding year's annual meeting, a shareholder's notice required by this Section
2 of this Article shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of this
Corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made by this Corporation.
4. Only such business shall be conducted at a special meeting of
shareholders as shall have been brought before the meeting pursuant to this
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of shareholders at which
directors are to be elected pursuant to this Corporation's notice of meeting (a)
by or at the direction of the Board of Directors, or (b) by any shareholder of
the Corporation who is a shareholder of record at the time of giving of notice
provided for in this Article, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 2 of this
Article. Nominations by shareholders of persons for election to the Board of
Directors may be made at such a special meeting of shareholders if the
shareholder's notice required by this Section 2 shall be delivered to the
Secretary at the principal executive offices of this Corporation not earlier
than the 180th day prior to such special meeting and not later than the close of
business on the later of the 120th day prior to such special meeting or the 10th
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day following the day on which the public announcement is first made of the date
of the special meeting and of the nominees proposed by the Board of directors to
be elected at such meeting.
5. Only such persons who are nominated in accordance with the
procedures set forth in this Section 2 shall be eligible for election as
directors at any meeting of shareholders. Only such business shall be conducted
before the meeting in accordance with the procedures set forth in this Section.
The chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made in
accordance with the procedures set forth in this Section 2 and, if any proposed
nomination or business is not in compliance with this Section 2, to declare that
such defective proposal shall be disregarded.
6. For purposes of this Section 2, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by
this Corporation with the Securities and Exchange Commission pursuant to Section
9, 13, 14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this Article, a shareholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
Article. Nothing in this Article shall be deemed to affect any rights of
shareholders to request inclusion of proposals in this Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 3. ACTION WITHOUT A MEETING OF THE SHAREHOLDERS. Until the
--------------------------------------------
closing of an Initial Public Offering, any action required or permitted to be
taken at any annual or special meeting of shareholders of this Corporation may
be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, is signed by the
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<PAGE>
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all share entitled to vote on such action were present and voted. Prompt notice
of the taking of corporate action without a meeting by less than unanimous
written consent shall be given to those shareholders who have not consented in
writing. Effective upon the closing of an Initial Public Offering, shareholders
of the Corporation may not take any action by written consent in lieu of a
meeting.
ARTICLE IX
----------
CERTAIN BUSINESS COMBINATIONS
-----------------------------
SECTION 1. "FAIR PRICE" REQUIREMENT FOR CERTAIN BUSINESS COMBINATIONS
----------------------------------------------------------
1. Higher Vote for Certain Business Combinations. In addition to
---------------------------------------------
any affirmative vote required by law or this Certificate of Incorporation, and
except as expressly provided in Section 2 of this Article:
(i) any merger or consolidation of this Corporation or any
subsidiary (as hereinafter defined) with (a) any Interested Shareholder (as
hereinafter defined) or (b) any other corporation (whether or not itself an
Interested Shareholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an Interested
Shareholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or series of transactions) to or with
any Interested Shareholder or any Affiliate of any Interested Shareholder
of any assets of this Corporation or any Subsidiary having an aggregate
Fair Market Value of $50 Million or more; or
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<PAGE>
(iii) the issuance or transfer by the Corporation or any
subsidiary (in one transaction or a series of transaction) of any
securities of this Corporation or any Subsidiary to any Interested
Shareholder or any Affiliate of any Interested Shareholder in exchange for
cash, securities, or other property (or a combination thereof) having an
aggregate Fair Market Value of $50 Million or more; or
(iv) the adoption of any plan or proposal for the liquidation
or dissolution of this Corporation proposed by or on behalf of an
Interested Shareholder or any Affiliate of any Interested Shareholder; or
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of this Corporation, or any merger or
consolidation of this Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an
Interested Shareholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class
of equity or convertible securities of this Corporation or any subsidiary
which is directly or indirectly owned by any Interested Shareholder or any
Affiliate of any Interested Shareholder;
shall require the affirmative vote of the holders of at least seventy five
percent (75%) of the voting power of the then outstanding shares of capital
stock of this Corporation entitled to vote generally in the election of
directors (the "Voting Stock"), voting together as single class (it being
understood that for purposes of this Article, each share of the Voting Stock
shall have the number of votes granted to it pursuant to Article V, Section 2 of
this Certificate of Incorporation). Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law
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or in any agreement with any national securities exchange or otherwise.
2. DEFINITION OF "BUSINESS COMBINATION." The term "Business
-------------------------------------
Combination" as used in this Article shall mean any transaction which is
referred to in any one or more of clauses (i) through (v) of paragraph 1 of this
Section 1.
SECTION 2. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of Section 1
--------------------------------
of this Article shall not be applicable to any particular Business Combination,
and such Business combination shall require only such affirmative vote as is
required by law and any other provision of this Certificate of Incorporation, if
all of the conditions specified in either of the following paragraphs 1 and 2
are met:
1. Approval by Disinterested Directors. The Business Combination
-----------------------------------
shall have been approved by a majority of the Disinterested Directors (as
hereinafter defined.)
2. Price and Procedure Requirements. All of the following
--------------------------------
conditions shall have been met:
(i) the aggregate amount of the cash and the Fair Market Value
(as hereinafter defined) as of the date of the consummation of the Business
Combination of consideration other than cash to be received per share of
holders of Common Stock in such Business Combination shall be at least
equal to the higher of the following:
(a) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder for any shares of Common
Stock acquired by it (1) within the two year period immediately prior
to the first public announcement of the proposal of the Business
Combination (the
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<PAGE>
"Announcement Date") or (2) in the transaction in which it became an
Interested Shareholder, whichever is higher; and
(b) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested Shareholder
became an Interested Shareholder (such latter date is referred to in
this Article as the "Determination Date"), whichever is higher.
(ii) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of shares
of any other class of outstanding Voting Stock shall be at least equal to
the highest of the following (it being intended that the requirements of
this paragraph 2 (ii) shall be required to be met with respect to every
class of outstanding Voting Stock whether or not the Interested Shareholder
has previously acquired any shares of a particular class of Voting Stock):
(a) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealer's
fees) paid by the Interested Shareholder for any shares of such class
of Voting Stock acquired by it (1) within the two year period
immediately prior to the Announcement Date or (2) in the transaction
in which it became an Interested Shareholder, whichever is higher;
(b) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of Voting Stock are
entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; and
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<PAGE>
(c) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination Date, whichever
is higher.
(iii) the consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common Stock) shall be
in cash or in the same form as the Interested Shareholder has previously paid
for shares of such class of Voting Stock with varying forms of consideration.
The form of consideration for such class of Voting Stock shall be either cash or
the form used to acquire the largest number of shares of such class of Voting
Stock previously acquired by it. The price determined in accordance with
paragraphs 2(i) and 2(ii) of this Section 2 shall be subject to appropriate
adjustment in the event of any stock dividend, stock split, combination of share
or similar event.
(iv) After such Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business Combination: (a)
except as approved by a majority of the Disinterested Directors, there shall
have been no failure to declare an pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on the outstanding Preferred
Stock; (b) there shall have been (1) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock), except as approved by a majority of the
Disinterested Directors, and (2) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse stock split),
recapitalization, reorganization, or any similar transaction which has the
effect of reducing the number of outstanding shares of the Common Stock, unless
the failure so to increase such annual rate is approved by a majority of the
Disinterested Directors; and (c) such Interested Shareholder shall not have
become the beneficial owner of any additional shares of Voting Stock except as
part of the transaction which results in such Interested Shareholder becoming an
Interested Shareholder.
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<PAGE>
(v) After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received the benefit,
directly or indirectly (except proportionately as a shareholder), of any loans,
advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by this Corporation, whether in anticipation of
or in connection with such Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to public
shareholders of this Corporation at least thirty (30) days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions).
SECTION 3. CERTAIN DEFINITIONS. For purposes of this Article:
-------------------
1. A "person" shall mean any individual, firm, corporation or other
entity.
2. "Interested Shareholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of more
than twenty percent (20%) of the voting power of the outstanding Voting
Stock (and did not hold at least 20% of the outstanding Voting Stock prior
to the Initial Public Offering of the shares of Common Stock of this
Corporation [an "Excepted Shareholder"]); or
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<PAGE>
(ii) is an Affiliate of this Corporation and at any time within
the two year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of twenty percent (20%) or more
of the voting power of the then outstanding Voting Stock, other than an
Excepted Shareholder; or
(iii) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two year period
immediately prior to the date in question beneficially owned by any
Interested Shareholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transaction not
involving a public offering within the meaning of the Securities Act of
1933.
3. A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates
(as hereinafter defined) beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates
has (a) the right to acquire (whether such right is exercisable immediately
or only after the passage of time or the occurrence of an event), pursuant
to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise, or
(b) the right to vote pursuant to any agreement, arrangement, or
understanding; or
(iii) which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any shares of Voting Stock.
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<PAGE>
4. For purposes of determining whether a person is an Interested
Shareholder pursuant to paragraph 2 of this Section 3, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned through
the application of paragraph 3 of this Section 3, but shall not include any
other shares of Voting Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights,warrants or
options, or otherwise.
5. "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General rules and Regulations under
the Securities Exchange act of 1934, as in effect on May 1, 1996.
6. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for purposes of the definition of Interested Shareholder
set forth in paragraph 2 of this Section 3, the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity is owned,
directly or indirectly, by this Corporation.
7. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Shareholder and was a member
of the Board of Directors prior to the time that the Interested Shareholder
became an Interested Shareholder, and any successor of a Disinterested Director
who is unaffiliated with the Interested Shareholder and is recommended to
succeed a Disinterested Director by a majority of Disinterested Directors then
on the Board of Directors.
8. "Fair Market Value" means: (i) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date in
question of a share of such stock on the Composite Tape for New York Stock
Exchange Listed Stocks, or, if such stock is not quoted on the Composite Tape,
on the New York Stock Exchange, or if such stock is not listed on
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<PAGE>
such Exchange, on the principal United States securities exchange registered
under the Securities Act of 1934 on which such stock is listed, or, if such
stock is not listed on any such exchange, the highest closing bid quotation with
respect to a share of such stock during the 30-day period preceding the date in
question on the National Association of Securities Dealers, Inc. Automated
Quotation System or any system then in use, or if no such quotations are
available, the fair market value on the date in question of a share of such
stock determined by the Board of Directors in good faith; and (ii) in the case
of property other than cash or stock, the fair market value of such property on
the date in question as determined by the Board of Directors in good faith.
9. In the event of any Business Combination in which this
Corporation survives, the phrase "other consideration to be received" as used in
paragraphs 2(i) and (ii) of Section 2 of this Article shall include the share of
Common Stock and/or the shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
SECTION 4. POWERS OF THE BOARD OF DIRECTORS. A majority of the Directors
--------------------------------
shall have the power and duty to determine for the purposes of this Article, on
the basis of information known to them after reasonable inquiry, (A) whether a
person is an Interested Shareholder, (B) the number of shares of Voting Stock
beneficially owned by any person, (C) whether a person is an Affiliate or
Associate of another, (D) whether the assets which are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by this Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $25 Million or more. A
majority of the Directors shall have the further power to interpret all of the
terms and provision of this Article.
SECTION 5. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED SHAREHOLDERS.
-------------------------------------------------------------
Nothing contained in this Article shall be
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construed to relieve any Interested Shareholder from any fiduciary obligation
imposed by law.
SECTION 6. CONSIDERATION OF OTHER FACTORS.
------------------------------
1. The Board of Directors of this Corporation may, in its sole
discretion, and it is hereby declared a proper corporate purpose for the Board
of Directors, if it deems it advisable, to oppose any offer, proposal or attempt
by any corporation or other business entity, person or group to (a) make any
tender or other offer to acquire any of this Corporation's securities; (b) merge
or consolidate this Corporation with or into another entity; (c) purchase or
otherwise acquire all or substantially all of the assets of this Corporation; or
(d) make any transaction similar in purpose or effect to any of the above. In
considering whether to oppose, recommend or remain neutral with respect to any
of the aforesaid offers, proposals or plans, the Board of Directors shall
evaluate what is in the best interests of this Corporation, and may, but is not
legally obligated to, consider any pertinent factors, by its discretion, which
may include, but are not limited to, any of the following:
(i) Whether the offering price, whether in cash or in securities is
adequate and acceptable based upon both the current market price of this
Corporation's securities and the historical and present operating results
or financial condition of this Corporation.
(ii) Whether a price more favorable to the shareholders may be
obtained now or in the future from other offerors and whether this
Corporation's continued existence as an independent corporation will affect
the future value of this Corporation.
(iii) the impact the offer would have on the employees, clients, and
customers of this Corporation or its Subsidiaries and the communities which
they serve.
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(iv) the present and historical financial position of the offeror,
its reputation in the communities which it serves, and the social and/or
economic effect which the reputation and practices of the offeror or its
management and affiliates would have on the employees and customers of this
Corporation and the community which this Corporation serves.
(v) An analysis of the value of securities (if any) offered in
exchange for this Corporation's securities.
(vi) Any anti-trust or other legal or regulatory issues raised by
the offer.
2. If the Board of Directors determines that an offer should be
rejected, it may take any lawful action to accomplish its purpose, including,
but not limited to, any or all of the following: advising shareholders not to
accept the offer; litigation against the offeror; filing complaints with all
government and regulatory authorities having jurisdiction over the offer;
causing this Corporation to acquire its own securities; selling or otherwise
issuing authorized but unissued securities or treasury stock and granting
options with respect thereto; acquiring a company to create an anti-trust or
other regulatory problem for the offeror; and obtaining a more favorable offer
from another individual, group or entity.
ARTICLE IX
----------
Bylaws
------
The power to adopt, amend or repeal bylaws for the management of this
Corporation shall be vested solely in the Board of Directors.
ARTICLE X
---------
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Indemnification
---------------
The Corporation shall indemnify any incorporator, officer or director,
or any former incorporator, officer or director, to the full extent permitted by
law.
ARTICLE XI
----------
Amendment
---------
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon shareholders
herein are granted subject to this reservation.
Notwithstanding any other provision of law, this Certificate of
Incorporation, or the Corporation's Bylaws, as amended, and notwithstanding the
fact that a lesser percentage may be specified by law, the affirmative vote of
holders of at least seventy five percent (75%) of the votes which all
shareholders would be entitled to cast at any annual election of directors or
class of directors shall be required to amend or repeal, or adopt any provision
inconsistent with the provisions of this Certificate of Incorporation at any
time after the time when no single shareholder holds directly forty percent
(40%) of the shares entitled to vote for directors, as certified by the
Corporation's stock transfer agent. If, subsequent to the time when no
shareholder holds directly forty percent (40%), a shareholder acquires forty
percent (40%) or more, such subsequent event shall not have any effect on the
required super-majority provisions of this Certificate of Incorporation,
including this Article.
The undersigned, for the purpose of forming a corporation under the
laws of the State of Delaware, does make, file and record these Certificate of
Incorporation, do certify that the
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facts herein stated are true; and, accordingly, have hereunto set my hand and
seal this 30th day of April, 1996.
/s/ David A. Webster
-----------------------------
David A. Webster
Incorporator
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<PAGE>
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SAP NEWCO, INC.
SAP NEWCO, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: the Corporation has not received any payment of any of its stock.
SECOND: The amendment to the Corporation's Certificate of Incorporation set
forth in the following resolution is approved by the Incorporator and was duly
adopted in accordance with the provisions of Section 241 of the General
Corporation Law of the State of Delaware:
"Resolved, that the Certificate of Incorporation
of the corporation be amended by striking Article
FIRST in its entirety and replacing therefor:
"FIRST: The name of the corporation is NexUS
Healthcare Information Corporation."
SAP NEWCO, INC.
By: /s/ David A. Webster
----------------------
David A. Webster,
Incorporator
<PAGE>
Exhibit 3.3
BYLAWS
OF
NEXUS HEALTHCARE INFORMATION CORPORATION
ARTICLE I
---------
Offices
-------
1.1 (a) Registered Office and Registered Agent. The location of the
--------------------------------------
registered office and the name of the registered agent of the Corporation in the
state of its incorporation shall be such as shall be determined from time to
time by the Board of Directors and on file in the appropriate office of the
state of its incorporation pursuant to applicable provisions of law.
(b) Corporate Offices. The Corporation may have such corporate
-----------------
offices, anywhere within and without the state of its incorporation as the Board
of Directors from time to time may appoint, or the business of the Corporation
may require. The "principal place of business" or "principal business" or
"executive" office or offices of the Corporation may be fixed and so designated
from time to time by the Board of Directors.
1.2 (a) Records. The Corporation shall keep at its registered
-------
office, principal place of business or principal business office in the state of
its incorporation, original or duplicate books in which shall be recorded the
number of its shares subscribed, the names of the owners of its shares, the
numbers owned of record by them respectively, the amount of shares paid, and by
whom, the transfer of said shares with the date of transfer, the amount of its
assets and liabilities, and the names and places of residence of its officers,
and from time to time such other or additional records, statements, lists, and
information as may be required by law, including the shareholders' lists
mentioned in Section 3.7 of these Bylaws.
<PAGE>
(b) Shareholders' Inspection Rights. Any person who is a
-------------------------------
shareholder of record, upon written demand stating the purpose thereof, shall
have the right to examine, in person or by agent or attorney, at any reasonable
time(s), for any proper purpose, the Corporation's relevant books and records of
accounts, minutes and records of shareholders and to make copies therefrom, at
his sole expense. No shareholder shall use or permit to be used or acquiesce in
the use by others of any information so obtained, to the detriment competitively
of the Corporation, nor shall he furnish or permit to be furnished any
information so obtained to any competitor or prospective competitor of the
Corporation. The Corporation as a condition precedent to any shareholder's
inspection of the records of the Corporation may require the shareholder to
indemnify the Corporation against any loss or damage which may be suffered by it
arising out of or resulting from any unauthorized disclosure made or permitted
to be made by such shareholder of information obtained in the course of such
inspection.
(c) Financial Information. Unless modified by resolution of the
---------------------
shareholders not later than four (4) months after the close of each fiscal year,
the Corporation shall, within four (4) months of the close of its fiscal year,
prepare a balance sheet showing in reasonable detail its financial condition as
of the end of said fiscal year, and a profit and loss statement showing the
results of the operation of Corporation during such year.
Upon the written request of any shareholder, the Corporation shall
mail to said shareholder a copy of the most recent balance sheet and profit and
loss statement.
The balance sheets and profit and loss statements shall be filed in
the registered office of the Corporation in this state, shall be kept for at
least five (5) years, and shall be subject to inspection during normal business
hours by any shareholder, in person or by agent.
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<PAGE>
ARTICLE II
----------
Seal
----
A corporate seal shall not be a prerequisite to the validity of any
instrument executed by or on behalf of the Corporation unless expressly required
by law, but if so required shall be of such shape and have such words therein as
may be prescribed by the Board of Directors. The seal may be used by causing it
or a facsimile thereof to be impressed or affixed or in any manner reproduced.
ARTICLE III
-----------
Shareholders
------------
3.1 Place of Meeting. Meetings of shareholders shall be held at the
----------------
time and place, within or without the State of Florida, stated in the notice of
meeting or in a waiver of notice.
3.2 (a) Annual Meetings. Commencing with the year 1997, the annual
---------------
meeting of the shareholders shall be held on the second Wednesday in June in
each year. The holders of stock entitled to vote shall elect the Board of
Directors and transact such other business as may properly come before the
meeting.
(b) Special Meetings. Special meetings of the shareholders may
----------------
be held for any purpose or purposes. They may be called by the Chairman of the
Board, President, Secretary, or by the Board of Directors, or when requested in
writing by the holders of not less than ten percent (10%) of all outstanding
shares entitled to vote at any such meeting.
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The "call" and the "notice" of any such meeting shall be deemed to be
synonymous.
3.3 Notice. Written or printed notice of each meeting of the
------
shareholders, whether annual or special, stating the place, day and hour of the
meeting, and, in case of a special meeting, the purpose or purposes thereof,
shall be delivered personally or by first class mail to each shareholder
entitled to vote thereat, not less than ten (10) days nor more than sixty (60)
days prior to the meeting, unless, as to a particular matter, other or further
notice is required by law, in which case such other or further notice shall be
given. In addition to such written notice, published notice shall be given in
the manner then required by law.
Any notice of a shareholders' meeting sent by mail shall be deemed to
be delivered when deposited in the United States mail with postage thereon
prepaid addressed to the shareholder at his address as it appears on the records
of the Corporation.
Notice of a meeting of the shareholders need not be given to any
shareholder who signs a waiver of notice either before or after the meeting.
The attendance of a shareholder entitled to vote at a meeting shall constitute a
waiver of notice of such meeting and a waiver of any and all objections to the
place of the meeting, the time of the meeting, or the manner in which it has
been called or convened, except when a shareholder states, at the beginning of
the meeting, an objection to the transaction of business because the meeting is
not lawfully called or convened.
3.4 Special Meetings of Shareholders.
--------------------------------
(a.) Special Meetings of Shareholders. Special meetings of the
--------------------------------
shareholders may be called at any time by the
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<PAGE>
Chairman of the Board of Directors, the Chief Executive Officer of this
Corporation, or a majority of the members of the Board of Directors. Business
transacted at such special meeting of the shareholders shall be limited to
matters relating to the purpose or purposes stated in the notice of meeting.
(b.) Nominations and Shareholder Business.
------------------------------------
1. Nominations of persons for election to the Board of
Directors of this Corporation and the proposal of business to be considered by
the Shareholders may be made at an annual meeting of shareholders (a) pursuant
to this Corporation's notice of meeting, (b) by or at the direction of the Board
of Directors, or (c) by any shareholder of the Corporation who was a shareholder
of record at the time of giving of notice provided for in this Section 2 of this
Article.
2. For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to this Section 2 of this
Article, the shareholder must have given timely notice thereof in writing to the
Secretary of this Corporation, and such business must be a proper subject for
shareholder action under the Delaware General Corporation Law. To be timely, a
shareholder's notice must be delivered to the Corporation not less than one
hundred (120) days nor more than one hundred (180) days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than thirty
(30) days or delayed by more than sixty (60) days from such anniversary date,
notice by the shareholder to be timely must be so delivered not later that the
close of business on the later of the 120th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made. Such shareholder's notice shall set forth (a) as to each
person whom the shareholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be
disclosed in solicitations
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of proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act:) (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); (b)
as to any other business that the shareholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such shareholder and the beneficial owner,
if any, on whose behalf the proposal is made; and (c) as to the shareholder
giving the notice and the beneficial owners, if any, on whose behalf the
proposal is made (i) the name and address of such shareholder, as they appear on
the Corporation's books, and of such beneficial owner, and (ii) the class and
number of shares of the Corporation which are owned beneficially and of record
by such shareholder and such beneficial owner.
3. Notwithstanding anything in this Section 2 of this Article
to the contrary, in the event the number of directors to be elected to the Board
of Directors of the Corporation is increased and there is no public announcement
specifying the size of the increased Board of Directors made by the Corporation
at least one hundred thirty (130) days prior to the first anniversary of the
preceding year's annual meeting, a shareholder's notice required by this Section
2 of this Article shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of this
Corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made by this Corporation.
4. Only such business shall be conducted at a special meeting
of shareholders as shall have been brought before the meeting pursuant to this
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may
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be made at a special meeting of shareholders at which directors are to be
elected pursuant to this Corporation's notice of meeting (a) by or at the
direction of the Board of Directors, or (b) by any shareholder of the
Corporation who is a shareholder of record at the time of giving of notice
provided for in this Article, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 2 of this
Article. Nominations by shareholders of persons for election to the Board of
Directors may be made at such a special meeting of shareholders if the
shareholder's notice required by this Section 2 shall be delivered to the
Secretary at the principal executive offices of this Corporation not earlier
than the 180th day prior to such special meeting and not later than the close of
business on the later of the 120th day prior to such special meeting or the 10th
day following the day on which the public announcement is first made of the date
of the special meeting and of the nominees proposed by the Board of directors to
be elected at such meeting.
5. Only such persons who are nominated in accordance with the
procedures set forth in this Section 2 shall be eligible for election as
directors at any meeting of shareholders. Only such business shall be conducted
before the meeting in accordance with the procedures set forth in this Section.
The chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made in
accordance with the procedures set forth in this Section 2 and, if any proposed
nomination or business is not in compliance with this Section 2, to declare that
such defective proposal shall be disregarded.
6. For purposes of this Section 3.4, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by this Corporation with the Securities and Exchange Commission pursuant
to Section 9, 13, 14 or 15(d) of the Exchange Act.
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<PAGE>
Notwithstanding the foregoing provisions of this Article, a shareholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
Article. Nothing in this Article shall be deemed to affect any rights of
shareholders to request inclusion of proposals in this Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
3.5 Action Without A Meeting of the Shareholders. Until the closing
--------------------------------------------
of an Initial Public Offering, any action required or permitted to be taken at
any annual or special meeting of shareholders of this Corporation may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all share
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those shareholders who have not consented in writing.
Effective upon the closing of an Initial Public Offering, shareholders of the
Corporation may not take any action by written consent in lieu of a meeting.
3.6 Closing of Transfer Books and Fixing Record Date. For the
------------------------------------------------
purpose of determining the identity of shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other purpose, the Board of Directors may provide that the
stock transfer books shall be closed for a stated period not to exceed sixty
(60) days. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders entitled to vote, such books shall be closed for at least ten (10)
days immediately preceding the meeting.
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<PAGE>
In lieu of closing the stock transfer books, the Board of Directors
may fix in advance a date as the record date for any determination of
shareholders entitled to vote, said date to be not more than sixty (60) days
and, in the case of a meeting of such shareholders entitled to vote, not less
than ten (10) days prior to the date on which the particular action requiring
such determination of such shareholders is to be taken.
If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of such shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for the determination of shareholders.
When a determination of shareholders entitled to notice of or to vote
at any meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjourned meeting.
3.7 Voting List. If the Corporation has six or more shareholders
-----------
entitled to vote, the Secretary shall prepare, at least ten days before each
meeting of shareholders entitled to vote, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, and such list shall
be arranged in alphabetical order and shall reflect the address of each
shareholder and the number, class and series (if any) of the shares held by each
shareholder entitled to vote. The list shall be kept on file at the registered
office of the Corporation for a period of ten days prior to the meeting, and any
shareholder entitled to vote at such meeting shall be entitled to inspect the
list at any time during normal business hours. The list shall also be produced
and kept open at the meeting and shall be subject
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to the inspection of any shareholder entitled to vote during the meeting.
If the requirements of this section are applicable and have not been
substantially complied with, upon the demand of any shareholder entitled to
vote, in person or by proxy, the meeting shall be adjourned until said
requirements are met. If no such demand is made, failure to comply with the
requirements of this section shall not affect the validity of any action taken
at this meeting.
The Corporation shall be entitled to treat the holder of any share(s)
of stock of the Corporation, as recorded on the stock record or transfer books
of the Corporation as the holder of record and as the holder and owner in fact
thereof.
3.8 Shareholder Quorum and Voting. A majority of the shares entitled
-----------------------------
to vote, represented in person or by proxy, shall constitute a quorum at a
meeting of such shareholders.
When a specified item of business is required to be voted on by a
class or series of stock, a majority of the shares of said class or series shall
constitute a quorum for the transaction of such item of business by that class
or series.
If a quorum is present, the affirmative vote of a majority of the
shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the shareholders unless otherwise provided by law.
After a quorum has been established at a shareholders' meeting, the
subsequent withdrawal of shareholders entitled to vote, so as to reduce the
number of shareholders entitled to vote at the meeting below the number required
for a quorum, shall not affect the validity of any action taken at the meeting
or an adjournment thereof.
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3.9 Proxies. Every shareholder entitled to vote at a meeting of the
-------
shareholders or to express consent or dissent without a meeting, or a
shareholder's duly authorized attorney-in-fact, may authorize another person or
persons to act for him by proxy.
Every proxy must be signed by the shareholder or his attorney-in-fact.
No proxy shall be valid after the expiration of eleven (11) months from the date
thereof unless otherwise provided in the proxy. Every proxy shall be revocable
at the pleasure of the shareholder executing it, except as otherwise provided by
law.
The authority of the holder of a proxy to act shall not be revoked by
the incompetence or death of the shareholder who executed the proxy unless,
before the authority is exercised, written notice of such death or of an
adjudication of such incompetence is received by the Corporation.
If a proxy for the same shares confers authority upon two or more
persons and does not otherwise provide, a majority of them present at the
meeting, or if only one is present then that one, may exercise all the powers
conferred by the proxy; but if the proxy holders present at the meeting are
equally divided as to the right and manner of voting in any particular case, the
voting of such shares shall be prorated.
If a proxy expressly provides, any proxy holder may appoint in writing
a substitute to act in his place.
ARTICLE IV
----------
Directors
---------
4.1 Directors -- Number. The directors of this Corporation shall be
-------------------
not less than one (1), the number to actually
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serve from time to time to be determined by the directors elected by the
shareholders.
4.2 Election and Term of Directors. The number of directors shall be
------------------------------
fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board for adoption) (the
"Whole Board"). The directors shall be divided into three classes, as nearly
equal in number as reasonably possible (if the number shall not divide equally,
the fraction of a position shall be assigned to the "Class III director group),
with the term of office of the first class ("Class I") to expire at the 1997
annual meeting of the shareholders, the term of the second class ("Class II") to
expire at the 1998 annual meeting of shareholders, and the term of office of the
third class ("Class III") to expire at the 1999 annual meeting of shareholders.
At each annual meeting of shareholders following the initial classification and
election, directors elected to succeed those directors whose terms expire shall
be elected for a term of office to expire at the third annual meeting of
shareholder after their election. A director shall be permitted to succeed his
or her self, without limitation. Qualifications of persons to become members of
the Board of Directors shall be established by the Board of Directors, from time
to time, by its discretion, as it determines are in the best interests of this
Corporation.
4.3 Qualification of Directors. Directors need not be shareholders
--------------------------
or employees of the Corporation or residents of the State of Delaware.
4.4 Powers of the Board. The property, affairs and business of the
-------------------
Corporation shall be managed by and under the direction of the directors, acting
as a Board. The Board shall have and is vested with all and unlimited powers
and authorities, except as may be expressly limited by law, the Articles of
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Incorporation or these Bylaws, to do or cause to be done any and all lawful
things for and in behalf of the Corporation, to exercise or cause to be
exercised any or all of its powers, privileges and franchises, and to seek the
effectuation of its objects and purposes.
4.5 Meetings of Directors Offices. The Board of Directors shall hold
-----------------------------
its meetings at the principal office of the Corporation or at such other place,
either within or without the State of Florida, as it may from time to time
determine.
Members of the Board of Directors may participate in a meeting of such
Board by means of a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participants by such means shall constitute presence in person
at a meeting.
The directors may have one or more offices, and keep the books of the
Corporation (except the original or duplicate stock ledgers, and such other
books and records as may by law be required to be kept at the registered office,
or at some office, of the Corporation in the state of its incorporation), at
such place or places within or without the state of its incorporation as they
may from time to time determine.
4.6 Meetings of the Newly Elected Board -- Notice. The members of
---------------------------------------------
each newly elected Board shall meet at the place of the shareholders meeting
immediately following such meeting, and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting; provided, however, that a quorum shall be present; or the members of
such Board may meet at such time and place as shall be consented to in writing
by all of the newly elected directors. Each director, upon his election, shall
qualify by accepting the office of director, and his attendance at, or his
written approval of the minutes of the first meeting of the newly elected
directors, shall
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<PAGE>
constitute his acceptance of such office; or he may execute such acceptance by a
separate writing, which shall be placed in the minute book.
4.7 Regular Meetings Notice. Regular meetings of the Board may be
-----------------------
held without notice at such time or times and place either within or without the
state of incorporation as shall from time to time be fixed by resolution of the
whole Board. Any business may be transacted at a regular meeting.
4.8 Special Meetings -- Notice. Special meetings of the Board may be
--------------------------
called by the President, any Vice-President or the Secretary, by giving two (2)
days' notice of such meeting to each director, either personally or by first
class mail, or by telegram, stating the time and place of any such meeting.
Special meetings shall be called by any one of such officers in like manner and
on like notice when requested in writing to do so by any one or more directors.
"Notice" and "call" with respect to such meetings shall be deemed to
be synonymous.
4.9 Quorum. A majority of the total number of the Whole Board shall
------
constitute a quorum at all meetings of the Board of Directors. In the event one
or more of the directors shall be disqualified to vote at any meeting, the
required quorum shall be reduced by one for each director so disqualified;
provided, however, that in no case shall less that one third (1/3) of the number
so fixed constitute a quorum. In the absence of a quorum at any such meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice other than announcement at the meeting, until a quorum
shall be present.
4.10 Waiver by Writing. Any notice provided or required to be given
-----------------
to the directors may be waived in writing by any of them, whether before, at or
after the time stated therein.
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<PAGE>
4.11 Waiver by Attendance. Attendance of a director at any meeting
--------------------
shall constitute a waiver of notice of such meeting, except where he attends for
the express purpose and so states at the opening of the meeting, of objecting to
the transaction of any business because the meeting is not lawfully called or
convened.
4.12 Removal of Directors. Any one or more of the directors may be
--------------------
removed, with or without cause, by the holders of at least the Required
Percentage of the shares then entitled to vote at an election of directors. The
"Required Percentage" shall be a majority at all times prior to the first time
when no single shareholder holds directly forty percent (40%) of the shares
entitled to vote for directors and shall be seventy five percent (75%) following
the date when, as certified by the Corporation's stock transfer agent, no single
shareholder directly holds more than forty percent (40%) of the shares,
regardless of whether, subsequent to such date, a shareholder does acquire more
than forty percent (40%) of the Voting Stock.
4.13 Vacancies. If any vacancy occurs in the Board of Directors
---------
(including a vacancy resulting from an enlargement of the Board) during a term,
the remaining directors, by affirmative vote of a majority thereof, may elect a
director to fill the vacancy until the next annual meeting of shareholders.
Notwithstanding any provisions to the contrary contained herein, each director
shall hold officer until his or her successor is elected and qualified, or until
his or her death, resignation or removal.
4.14 Executive Committee. The Board of Directors may, by resolution
-------------------
passed by a majority of the whole Board, designate an executive committee; such
committee to consist of two or more directors of the Corporation, which
committee, to the extent provided in said resolution or resolutions, shall have
and may exercise all of the authority of the Board of Directors in the
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management of the Corporation as permitted by law and the Certificate or
Articles of Incorporation.
The executive committee shall keep regular minutes of its proceedings
and the same shall be recorded in the minute book of the Corporation. The
Secretary or an Assistant Secretary of the Corporation may act as Secretary for
the committee, if the committee so requests.
4.15 Compensation of Directors and Committee Members. Directors and
-----------------------------------------------
members of all committees may receive such salary for their services as such,
and/or fixed sum and expenses of attendance, if any, for attendance at each
regular or special meeting of the Board or committee as may be set by resolution
of the Board of Directors from time to time; provided that nothing herein
contained shall be construed to preclude any director or committee member from
serving the Corporation in any other capacity and receiving compensation
therefor.
4.16 Duties of Directors. A director shall perform his duties in
-------------------
said capacity, including his duties as a member of any committee of the Board
upon which he may serve, in good faith, in a manner he reasonably believes to be
in the best interests of the Corporation, and with such care as an ordinarily
prudent person in a like position would use under similar circumstances.
In performing his duties, a director shall be entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, in each case prepared or presented by:
(a) One or more officers or employees of the Corporation whom
the director reasonably believes to be reliable and competent in the matters
presented;
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(b) Counsel, public accountants or other persons as to matters
which the director reasonably believes to be within such person's professional
or expert competence; or,
(c) A committee of the Board upon which he does not serve, duly
designated in accordance with a provision of the Articles of Incorporation or
these Bylaws, as to matters within its designated authority, which committee the
director reasonably believes to merit confidence.
A director shall not be considered to be acting in good faith if he
has knowledge concerning the matter in question that would cause reliance
described above to be unwarranted.
A person who performs his duties in compliance with this section shall
have no liability by reason of being or having been a director of the
Corporation.
4.17 Presumption of Assent. A director of the Corporation who is
---------------------
present at a meeting of the Board at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless he votes
against such action or abstains from voting in respect thereto because of an
asserted conflict of interest.
4.18 Resignation of Directors. A director may resign at any time by
------------------------
giving written notice to the Board, the President or the Secretary of the
Corporation. Unless otherwise specified in the notice, the resignation shall
take effect upon receipt thereof by the Board from such officer, and the
acceptance of the resignation shall not be necessary to make it effective.
4.19 Directors' Conflicts of Interest. No contract or other
--------------------------------
transaction between the Corporation and one or more of its directors or any
other corporation, firm, association or entity in which one or more of the
directors are directors or officers or are financially interested, shall be
either void or voidable
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<PAGE>
because of such relationship or interest or because said director or directors
are present at the meeting of the Board, or a committee thereof, which
authorizes, approves or ratifies the contract or transaction or because his or
their votes are counted for such purpose, provided that:
(a) The fact of such relationship or interest is disclosed or
known to the Board of Directors or committee which authorizes, approves or
ratifies the contract or transaction by a vote or consent sufficient for that
purpose without counting the votes or consents of the interested directors;
(b) The facts of such relationship or interest is disclosed or
known to the shareholders entitled to vote and they authorize, approve or ratify
the contract or transaction by vote or written consent; or,
(c) The contract or transaction is fair and reasonable as to the
Corporation at the time it is authorized by the Board, a committee or the
shareholders entitled to vote.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
4.20 Chairman of the Board. This Corporation shall have a Chairman
---------------------
of the Board of Directors who shall conduct all meetings of the Board, whether
annual or special.
ARTICLE V
---------
Officers
--------
5.1 Elected Officers. The following officers of the Corporation
----------------
shall be chosen or appointed by election by the Board
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<PAGE>
of Directors, and shall be deemed elected officers: A President, a
Vice-Presidents (one of which, if there be more than one, shall be known as the
"Senior Executive Vice-President"), a Secretary, and a Treasurer; and, if the
Board of Directors desires, a Chairman of the Board and additional
Vice-Presidents, as well as one or more Assistant Secretaries and Assistant
Treasurers.
An elected officer shall be deemed qualified when he enters upon the
duties of the office to which he has been elected and furnishes any bond
required by the Board; but the Board may also require of such person his written
acceptance and promise faithfully to discharge the duties of such office.
The Board from time to time may also appoint such other officers and
agents for the Corporation as it shall deem necessary or advisable. All
appointed officers and agents shall hold their respective positions at the
pleasure of the Board or for such terms as the Board may specify, and they shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board, or by an elected officer empowered by the Board to make such
determination.
5.2 Election, Term of Office and Qualification. Each officer shall
------------------------------------------
be elected by the Board of Directors. Each such officer (whether elected at an
annual meeting of the Board of Directors or whether to fill a vacancy or
otherwise) shall hold his office until the next annual meeting of the Board of
Directors and until his successor shall have been elected and qualified, or
until his death, resignation or removal. The failure to elect a President,
Vice-President, Secretary or Treasurer shall not affect the legal existence of
the Corporation.
5.3 Resignations. Any officer may resign at any time by giving a
------------
written notice of such resignation to the Board of Directors, the President or
the Secretary of the Corporation. Unless specified in such written notice, such
resignation shall
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take effect upon acceptance thereof by the Board of Directors or any such
officer.
5.4 Removal. Any officer specifically designated in Section 5.1 of
-------
Article V may be removed at any time, either for or without cause, by resolution
or resolutions adopted at any meeting of the Board of Directors called for that
purpose. Any other officer or agent appointed by the Board of Directors in
accordance with the provisions of Section 5.1 of Article V may be removed,
either for or without cause, by the Board of Directors, at any meeting, or by
any superior officer or agent upon whom such power of removal shall have been
conferred by the Board of Directors. The removal of any officer shall be
without prejudice to the contract rights, if any, of the person so removed;
however, the election or appointment of an officer shall not of itself create
contract rights.
5.5 Vacancies. Any vacancy in any office occurring by reason of
---------
death, resignation, removal, disqualification, or any other cause shall be
filled in the manner prescribed in these Bylaws for regular election or
appointment to such office.
5.6 The President. The President shall be a member of the Board of
-------------
Directors and shall be the chief executive officer of the Corporation. The
President shall (in the absence of the Chairman of the Board) preside at all
meetings of the Board of Directors, Shareholders and the executive committee.
The President, subject to the direction of the Board of Directors, shall have
general charge of the business affairs and property of the Corporation, and
general supervision over its officers and agents. He shall see that all orders
and resolutions of the Board of Directors and executive committee are carried
into effect. Except as the Board of Directors shall authorize the execution
thereof in some other manner, he may sign, with any other officer thereunto duly
authorized, certificates of stock of the Corporation, the issuance of which has
been duly authorized, and may sign and execute in the name of the Corporation,
deeds,
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mortgages, bonds, contracts, agreements and other instruments duly authorized by
the Board of Directors. The President shall cause the seal of the Corporation to
be affixed to any instrument requiring it and so affixed, the seal shall be
attested by the Secretary or the Treasurer or their respective assistants. From
time to time he shall report to the Board of Directors and to the executive
committee on all matters within his knowledge which the interest of the
Corporation may require to be brought to their attention. He shall perform such
other duties as are given to him by these Bylaws or as from time to time may be
assigned to him by the Board of Directors.
5.7 Vice-Presidents. The Vice-Presidents in the order of their
---------------
seniority shall, in the absence, disability or inability to act of the Chairman
of the Board or the President, perform the duties and exercise the powers of the
Chairman of the Board and the President, and shall perform such other duties as
the Board of Directors shall from time to time prescribe.
5.8 The Secretary.
-------------
(a) The Secretary shall attend all meetings of the Board of
Directors and all meetings of the shareholders and record all votes, actions and
the minutes of all proceedings in a book to be kept for that purpose and shall
perform like duties for the executive and other committees when required.
(b) The Secretary shall give, or cause to be given, notice of
all meetings of the shareholders entitled to vote at such meetings and special
meetings of the Board of Directors.
(c) The Secretary shall prepare or cause to be prepared and
available at each meeting of shareholders a certified list in alphabetical order
of the names of shareholders entitled to vote thereat, indicating the number of
shares of each respective class held by each.
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(d) The Secretary shall keep in safe custody the seal of the
Corporation and, when authorized by the Board of Directors or the executive
committee, affix it to any instrument requiring it. When so affixed, it shall be
attested by his signature or by the signature of the Treasurer or an Assistant
Secretary.
(e) The Secretary shall be under the supervision of the
President. He shall perform such other duties and have such other authority and
powers as the Board of Directors may from time to time prescribe or as the
President may from time to time delegate.
5.9 The Assistant Secretary. The Assistant Secretary shall, in the
-----------------------
absence or disability of the Secretary, perform the duties and have the
authority and exercise the powers of the Secretary. He shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe or as the President or Secretary may from time to time delegate.
5.10 The Treasurer.
-------------
(a) The Treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements on the Corporation books and shall deposit all moneys and other
valuables in the name and to the credit of the Corporation in depositories
designated by the Board of Directors.
(b) The Treasurer shall disburse the funds of the Corporation as
ordered by the Board of Directors, preserve proper vouchers for such
disbursements, render to the President and Board of Directors at the regular
meetings of the Board, or whenever they require it, an account of all
transactions as Treasurer and of the financial condition of the Corporation, and
prepare financial statements as they direct, and shall render a full
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financial report at the annual meeting of the holders of voting common stock, if
so requested .
(c) If required by the Board of Directors, the Treasurer shall
give the Corporation a bond (in such form, in such sum, and with such surety or
sureties satisfactory to the Board) for the faithful performance of the duties
of his office and for the restoration to the Corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his possession or under his control
belonging to the Corporation.
(d) The Treasurer shall be furnished by all corporate officers,
directors, or agents, with such reports and statements as are reasonably
requested by the Treasurer or the Board of Directors as to all financial
transactions of the Corporation.
(e) The Treasurer shall perform such other duties and have such
other authority and powers as the Board of Directors may from time to time
prescribe or as the President may from time to time delegate.
5.11 The Assistant Treasurer. The Assistant Treasurer, or if there
-----------------------
is more than one, the one so designated by the Secretary of by the Board of
Directors, shall, in the absence of disability of the Treasurer, perform the
duties and have the authority and exercise the powers of the Treasurer. He
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe or the President may from time to
time.
5.12 Additional Duties and Powers. In addition to the foregoing
----------------------------
specifically enumerated powers, the several officers and agents of the
Corporation, whether or not specifically referred to in these Bylaws, shall
perform such duties and exercise such
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powers, in addition to those for which provision is made in these Bylaws, as the
Board of Directors or executive committee may from time to time determine or as
may be assigned to them by any superior officer.
5.13 Compensation. The Board of Directors shall elect, from among its
------------
members, a compensation committee which shall fix the compensation of the
officers of the Corporation.
5.14 Sureties and Bonds. In case the Board of Directors shall so
------------------
require, any officer or agent of the Corporation shall execute to the
Corporation a bond in such sum and with such surety or sureties as the Board may
direct, conditioned upon the faithful performance of their duties to the
Corporation and including responsibility for negligence and for the accounting
for all property, funds or securities of the Corporation which may come into
their hands. The cost of such bond shall be paid by the Corporation.
ARTICLE VI
----------
Shares of Stock
---------------
6.1 Issuance. Shares (both Treasury and authorized but un-issued)
--------
may be issued for such consideration, but not less than par value, and to such
persons, as the Board of Directors may determine from time to time except as
otherwise provided in the Articles of Incorporation and these Bylaws. Shares
may not be issued until such shares are fully paid. Every holder of shares of
stock in the Corporation shall be entitled to the issuance of a certificate
representing all the shares held by such shareholder.
6.2 Certificates. Certificates representing shares of stock in this
------------
Corporation shall be signed by the President (or Chairman of the Board, if the
President is not available) and the Secretary or Assistant Secretary, if the
Secretary is not
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<PAGE>
available, and shall be sealed with the seal of the Corporation or a facsimile
thereof. In the event any officer who signed a certificate shall have ceased to
hold such an office before the certificate is issued, it may be issued by the
Corporation with the same effect as if he held the office at the date of its
issuance.
Every certificate representing shares which are restricted as to their
sale, disposition or other transfer shall state that such shares are so
restricted and shall set forth or fairly summarize such restrictions upon the
certificates, or shall state that the Corporation will furnish to any
shareholder upon request and without charge, a full statement of such
restrictions.
Each certificate representing shares shall set forth upon the face
thereof the name of the Corporation; that the Corporation is organized under the
laws of the State of Delaware; the name of the person or persons to whom issued;
the number and class of shares; and the designation of the series, if any, which
such certificate represents; and the par value of each share represented by such
certificate, or a statement that the shares are without par value.
6.3 Payment for Shares.
------------------
(a) Kind. Consideration for the issuance of shares shall
----
consist of money paid, labor or services actually performed for the Corporation,
or property (tangible or intangible) actually received. Notwithstanding the
foregoing, future services shall not constitute payment for such shares.
(b) Valuation. In the absence of fraud in the transaction, the
---------
judgment of the Board of Directors as to the value of consideration received
shall be conclusive.
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<PAGE>
(c) Effect. When consideration for such shares has been fully
------
paid, the shares shall be deemed to have been duly issued and fully paid and
nonassessable.
(d) Allocation of Consideration. The consideration received for
---------------------------
shares shall be allocated by the Board of Directors, in accordance with law,
between stated capital and capital surplus.
6.4 Subscriptions. Unless otherwise provided in the subscription
-------------
agreements, subscriptions for shares, whether made before or after organization
of the Corporation, shall be paid in full at such time or in such installments
and at such times as shall be determined by the Board of Directors. Any call
made by the Board of Directors for payments on subscriptions shall be uniform as
to all shares of the same series. In case of default in the payment of any
installment or call when payment is due, the Corporation may proceed to collect
the amount due in the same manner as to any debts to the Corporation.
6.5 Liens. The Corporation shall have the first and prior lien on
-----
all shares of its stock owned by a shareholder, and on all dividends or other
distributions declared thereon, for any indebtedness of such shareholder to the
Corporation unless the Board of Directors authorizes by resolution that such
indebtedness be subordinate.
6.6 Lost or Destroyed Certificates. In case of the loss or
------------------------------
destruction of any certificate for shares of stock of the Corporation, upon due
proof of the registered owner thereof or his representatives, by affidavit of
such loss or otherwise, the President and Secretary may issue a duplicate
certificate (plainly marked "duplicate") in its place, upon the Corporation
being fully indemnified therefor.
6.7 Transfers of Shares. Upon surrender to the Corporation or the
-------------------
transfer agent of the Corporation of a
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<PAGE>
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, and
cancel the old certificate; every such transfer shall be entered on the transfer
book of the Corporation which shall be kept at its principal office. Whenever a
transfer shall be made for collateral security, and not absolutely, it shall be
so expressed on the entry of the transfer. No transfer of voting common stock or
other stock entitled to vote shall be made within ten (10) days next preceding
the annual meeting of holders of voting common stock or other holders of stock
entitled to vote. No transfer of stock entitled to vote shall be made within ten
(10) days of a special meeting of shareholders entitled to vote for which proper
notice was given in accordance with these Bylaws.
The Corporation shall register the transfer of the certificate for
shares presented to it for transfer if:
(a) Endorsement. The certificate is properly endorsed by the
-----------
registered owner or by his duly authorized attorney;
(b) Adverse Claims. The Corporation has no notice of an adverse
--------------
claim or has discharged any duty to inquire into such a claim;
(c) Collection of Taxes. Any applicable law relating to the
-------------------
collection of taxes has been complied with.
6.8 Transfer Agents and Registrars. The Board of Directors may
------------------------------
appoint one or more transfer agents and one or more registrars with respect to
the certificates representing shares of stock of the Corporation, and may
require all such certificates to bear the signature of either or both. When
such certificates are signed by a transfer agent or an assistant transfer agent
or by a
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<PAGE>
transfer clerk acting on behalf of the Corporation and a registrar, the
signatures of such officers may be facsimiles.
6.9 Registered Owner. Prior to due presentment for registration of
----------------
transfer of a certificate for shares, the Corporation may treat the registered
owner as the person exclusively entitled to vote, to receive notices and
otherwise to exercise all of the rights and powers of a shareholder.
6.10 Preferred Stock.
---------------
a. Preferred Stock may be issued from time to time in one or
more series, each of such series to have such terms as stated or expressed
herein and in the resolution or resolutions providing for the issue of such
series adopted by the Board of Directors of this Corporation as hereinafter
provided. Any shares of Preferred Stock which may be redeemed, purchased or
acquired by the Corporation may be reissued except as otherwise provided by law.
Different series of Preferred Stock shall not be construed to constitute
different classes of shares for the purposes of voting by classes, unless
expressly provided.
b. Authority is hereby expressly granted to the Board of
Directors from time to time to issue the Preferred Stock in one or more series,
and in connection with the creation of any such series, by resolution or
resolutions providing for the issue of the shares thereof, to determine and fix
such voting powers, full or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special rights and
qualifications.
ARTICLE VII
-----------
Dividends and Reserves
----------------------
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<PAGE>
7.1 Declaration of Dividends. The Board of Directors of this
------------------------
Corporation may, in its sole discretion, from time to time declare and the
Corporation may pay dividends on its shares of voting common stock in cash,
property or its own shares, except when the Corporation is insolvent or when the
payment thereof would render the Corporation insolvent when the declaration of
payment thereof would be contrary to any restriction contained in the
Certificate of Incorporation, subject to the following provisions:
(a) The Corporation shall not declare or pay dividends (other
than dividends payable in voting common stock) on, or purchase, or permit any
subsidiary to purchase, the voting common stock of the Corporation unless either
(1) the Corporation shall have paid all cumulative dividends for expired annual
periods on each series of preferred stock, and the Corporation shall have
declared, and set aside funds for the payment of, the annual dividend on each
series of preferred stock for the current year, or (2) the holders of the
majority of the outstanding shares of each series of preferred stock, voting as
separate classes, shall consent in writing to such action or actions.
(b) Voting common stock shall participate equally per share in
all dividends to holders of record on such record date not exceeding forty (40)
days preceding the dividend payment date as may be fixed for that purpose by the
Board of Directors in advance of payment of each particular dividend.
(c) Dividends in cash or property may be declared and paid,
except as otherwise provided in this section, only out of the unreserved and
unrestricted earned surplus of the Corporation or out of capital surplus,
however arising, but each dividend paid out of capital surplus shall be
identified as a distribution of capital surplus, and the amount per share paid
from such surplus shall be disclosed to the shareholders receiving same
concurrently with the distribution.
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<PAGE>
(d) Dividends may be declared and paid in the Corporation's own
treasury shares.
(e) Dividends may be declared and paid in the Corporation's own
authorized but unissued shares out of any unreserved and unrestricted surplus of
the Corporation upon the following conditions:
(1) If a dividend is payable in shares having a par value,
such shares shall be issued at not less than the par value thereof and there
shall be transferred to stated capital at the time the dividend is paid an
amount of surplus equal to the aggregate par value of the shares issued as a
dividend.
(2) If a dividend is payable in shares without par value,
the shares shall be issued at such stated value as shall be fixed by the Board
of Directors by resolution adopted at the time the dividend is declared, and
there shall be transferred to stated capital at the time the dividend is paid an
amount of surplus equal to the aggregate stated value so fixed in respect of
such shares, and the amount per share so transferred to stated capital shall be
disclosed to the shareholders receiving the dividend concurrently with the
payment thereof.
(f) No dividend payable in shares of one class shall be paid to
the holders of shares of any other class unless the Certificate of Incorporation
so provide or unless such payment is authorized by the affirmative vote or the
written consent of the holders of at least a majority of the outstanding shares
of the class in which the payment is to be made.
7.2 Reserves. By resolution, the Board of Directors may create such
--------
reserve or reserves out of the earned surplus of the Corporation as the
Directors from time to time, in their discretion, think proper to provide for
contingencies, or to equalize dividends, or to repair or maintain any property
of the
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<PAGE>
Corporation, or for any other purpose they think beneficial to the Corporation.
The Directors may modify or abolish any such reserve in the manner in which it
was created.
7.3 Checks. All checks or instruments for the payment of money and
------
all notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate. If no such designation is made and unless and until the Board
otherwise provides, the President and Treasurer shall have power to sign all
such instruments for, in behalf of and in the name of the Corporation, which are
executed or made in the ordinary course of the Corporation's business.
ARTICLE VIII
------------
Miscellaneous
-------------
8.1 Fiscal Year. The fiscal year of the Corporation shall be fixed
-----------
by resolution of the Board of Directors.
8.2 Construction. Whenever the context so requires, the masculine
------------
shall include the feminine and neuter, and the singular shall include the plural
and conversely. If any portion of these Bylaws shall be found to be invalid or
inoperative, then, so far as reasonable and possible:
(a) The remainder of these Bylaws shall be considered valid and
operative; and,
(b) Effect shall be given to the intent manifested by the
portion held invalid or inoperative.
8.3 Table of Contents; Headings. The table of contents and headings
---------------------------
are for organization, convenience and
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<PAGE>
clarity. In interpreting these Bylaws, they shall be subordinated in importance
to the other written material.
8.4 Relation to Certificate of Incorporation. These Bylaws are
----------------------------------------
subject to and governed by the Certificate of Incorporation.
8.5 Indemnification.
---------------
(a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fee),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding, including any appeal
thereof, if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
(b) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened pending or completed
action or suit by or in the right
-32-
<PAGE>
of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, including any appeal thereof, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made with respect to any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the Corporation unless and only to the extend that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnify for such
expenses which such could shall deem proper.
(c) To the extent that any person referred to in this Section
8.5 has been successful on the merits or otherwise in defense of any action,
suit or proceeding referred to therein or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith, including
fees for appellate services rendered.
(d) Any indemnification under this Section 8.5 (unless ordered
by a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in this Section 8.5. Such determination
shall be made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (ii) if such quorum
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<PAGE>
is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or
(iii) by the shareholders.
(e) Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by the Corporation in advance of final
disposition of such action, suit or proceeding as authorized by the Board of
Directors in the specific case upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
Corporation as provided in this Section 8.5.
(f) The indemnification provided by this Section 8.5 shall not
be deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any statute, Bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
(g) The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Section 8.5.
(h) For the purposes of this Section 8.5, references to "the
Corporation" include all constituent corporations absorbed in a consolidation or
merger as well as the
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<PAGE>
resulting or surviving corporation so that any person who is or was a director,
officer, employee or agent of such a constituent corporation or is or was
serving at the request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise shall stand in the same position under the provisions of this
section with respect to the resulting or surviving corporation as he would if he
had served the resulting or surviving corporation in the same capacity.
6. Amendment of Bylaws. These Bylaws may be repealed or amended, and
-------------------
new Bylaws may be adopted by the Board of Directors or the shareholders, but the
Board of Directors may not amend or repeal any Bylaw adopted by the shareholders
if the shareholders specifically provide that such Bylaw is not subject to
amendment or repeal by the directors.
APPROVED in accordance with organizational action.
_______________________ __________________________
Secretary President
DATE: ________________, 1996
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<PAGE>
Exhibit 10.1
1996 STOCK OPTION PLAN
OF
NEXUS HEALTHCARE INFORMATION CORPORATION
I. GENERAL
1.1 PURPOSE OF THE PLAN
The 1996 STOCK OPTION PLAN (the "Plan") of NexUS HEALTHCARE
INFORMATION CORPORATION (the "Company") is intended to advance the best
interests of the Company and its subsidiaries by providing employees,
consultants, and others with additional incentives through the grant of options
to purchase shares of common stock, $0.01 par value, of the Company (the "Common
Stock"), restricted stock, stock appreciation rights and performance units,
thereby increasing the personal stake of such key persons in the continued
success and growth of the Company and encouraging them to remain in the employ
of or otherwise involved with the Company. The Plan shall consist of two
elements: (1) an employee, consultant or other element, and ((2) a fixed outside
director program, in accordance with the terms of the "Director Program"
attached hereto as Exhibit "A" and incorporated herein. The Director Program
shall be a part of and interpreted in accordance with the terms contained
herein, unless a provision of the Director Program shall be in conflict with a
provision herein, in which case, for purposes of interpretation of the Director
Program, the terms of the Director Program shall control.
1.2 ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Compensation Committee
or other designated committee (the "Committee") of the Board of Directors of the
Company which shall consist solely of three or more directors meeting the
definition of outside directors under Proposed Treasury Regulation Section
1.162-27(e)(3) in effect as of December 31, 1993 and the definition of a
disinterested person under Rule 16b-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Members of the Committee are not eligible to
participate in the Plan. No one shall become a member of the Committee who has
been eligible to participate in the Plan, in a capacity other than as
<PAGE>
a director, where the sole rights are to a fixed annual grant of stock option at
the then current fair market value of the underlying stock, within one (1) year
prior to the date of his or her proposed appointment to the Committee.
The Committee shall have full and final authority in its
discretion to interpret conclusively the provisions of the Plan as it may deem
advisable; to adopt such rules and regulations for carrying out the Plan as it
may deem advisable; to decide all questions of fact arising in the application
of the Plan; and to make all other determinations necessary or advisable for the
administration of the Plan.
The Committee shall meet once each fiscal year, and at such
additional times as it may determine or at the request of the chief executive
officer of the Company, to designate the eligible persons, if any, to be granted
awards under the Plan and the type and amount of such awards and the time when
awards will be granted. No such designation by the Committee shall be effective
as a grant of an award under the Plan until approved by the Board of Directors
of the Company; provided, however, that the Board of Directors may empower the
-------- -------
Committee to grant such awards without approval by the Board of Directors. All
awards granted under the Plan shall be on the terms and subject to the
conditions hereinafter provided.
1.3 ELIGIBLE PARTICIPANTS
Full time employees, including officers of the Company and
its subsidiaries, consultants, independent contractors and others, as determined
by the discretion of the Committee, with the approval of the Board, shall be
eligible to participate in the Plan (any persons receiving an award under this
Plan hereinafter referred to as a "Participant"). Directors who are not
employees of the Company or its subsidiaries shall not be eligible to
participate in the Plan, except to the extent of the attached Director Program.
2
<PAGE>
1.4 GRANTS UNDER THE PLAN
Grants under the Plan may be in the form of Incentive Stock
Options (as described in Article II), Executive Stock Options (as described in
Article III) which are options to purchase shares of Common Stock, restricted
stock (as described in Article IV), stock appreciation rights (as described in
Article V), performance units (as described in Article VI) or any combination
thereof.
1.5 OTHER COMPENSATION PROGRAMS
The adoption of this Plan contemplates the possible adoption
of any other incentive compensation plan of NexUS HEALTHCARE INFORMATION
CORPORATION as a compensation program of the Company and in no way limits or is
limited by the operation, administration or amendment of any such plan. The
existence and terms of the Plan shall not limit the authority of the Board of
Directors in compensating employees of the Company and others in such other
forms and amounts as it may determine from time to time.
1.6 LIMITATION ON GRANTS
The aggregate number of shares of Common Stock and
restricted stock, including but not limited to shares reserved for issuance
pursuant to the exercise of options, which may be granted or issued under the
terms of the Plan may not exceed One Million (1,000,000) shares. The maximum
number of shares of Common Stock that may be subject to grants under the Plan to
a Participant may not exceed Forty Thousand (40,000) shares of Common Stock per
fiscal year of the Company. Whenever any outstanding grant or portion thereof
expires, is canceled or forfeited or is otherwise terminated for any reason
without having been exercised, vested or payment having been made in respect of
the entire grant, the Common Stock allocable to the expired, forfeited, canceled
or otherwise terminated portion of the grant may again be the subject of further
grants hereunder.
3
<PAGE>
II. INCENTIVE STOCK OPTIONS
2.1 TERMS AND CONDITIONS
Subject to the following provisions in this Article II, all Incentive Stock
Options shall be in such form and upon such terms and conditions as the
Committee, in its discretion, may from time to time determine.
2.2 QUALIFIED STOCK OPTIONS
Incentive Stock Options shall, at the time of grant, be in such form and
upon such terms and conditions as may be required in order that such options
will constitute incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2.3 OPTION PRICE
The option price per share shall be at least the Fair Market Value (as
defined in Section 7.14 of this Plan) of the Common Stock on the date the
Incentive Stock Option is granted.
2.4 TERM OF OPTION
The term of an Incentive Stock Option shall not exceed seven (7) years from
the date of grant.
2.5 PAYMENT
Payment for shares for which an Incentive Stock Option is exercised shall
be made in such manner and at such time or times as shall be provided by the
Committee at the time of grant, in cash, in Common Stock, including Restricted
Stock, through the surrender of stock options or stock appreciation rights, or
any combination thereof.
4
<PAGE>
2.6 EXERCISE OF OPTION
Incentive Stock Options shall be exercisable in whole or in part after
completion of such periods of service as the Committee shall specify when
granting the options; provided, however, that in the absence of any Committee
-------- -------
specification to the contrary, and subject to Sections 2.7 and 2.8 of this
Article II, fifty percent (50%) of the shares subject to the Incentive Stock
Option shall have been earned and the Incentive Stock Option shall become
exercisable with respect to such shares on the second (2nd) anniversary of the
date of grant of the Incentive Stock Option. On each of the next two
anniversaries of the date of the grant, an additional twenty-five percent (25%)
of the shares subject to the Incentive Stock Option shall have been earned and
the Incentive Stock Option shall become exercisable with respect to such shares.
In the event that an Acceleration Event (as defined in Section 7.15)
occurs, all of the shares subject to the Incentive Stock Option shall
immediately become earned and the Incentive Stock Option shall become
exercisable with respect to such shares. In no event, however, and
notwithstanding Sections 2.7 and 2.8 of this Article II, shall an Incentive
Stock Option be exercised after the expiration of seven (7) years from the date
of grant.
2.7 TERMINATION OF EMPLOYMENT
A Participant's Incentive Stock Options shall expire three (3) months after
the termination of the Participant's employment for any reason other than death,
disability (as determined by the Committee) or retirement (under the applicable
retirement program of the Company or one of its subsidiaries or as otherwise
determined by the Committee), and shall be limited to the shares of Common Stock
which could have been purchased by the Participant at the date of termination of
employment.
2.8 TERMINATION OF EMPLOYMENT BY REASON OF DEATH, DISABILITY OR RETIREMENT
Upon the termination of a Participant's employment by reason of death,
disability, or normal retirement within
5
<PAGE>
the meaning of the applicable retirement plan or thereafter, Incentive Stock
Options held at the termination date by such Participant shall be exercisable,
irrespective of whether the options were fully exercisable in accordance with
Section 2.6 on that date. The Participant's Incentive Stock Options shall expire
unless exercised within one (1) year from the date of such termination.
In the case of termination of a Participant's employment by reason of early
retirement within the meaning of the applicable retirement plan of the Company,
Incentive Stock Options which may be exercised shall be limited to the shares
which could have been purchased by the Participant at the date of such early
retirement, except that the Committee, in its discretion, may waive the vesting
requirements of Section 2.6. The Participant's Incentive Stock Options shall
expire unless exercised within one (1) year from the date of such termination.
The Committee may, at any time on or before the termination of the exercise
period of the Participant's Incentive Stock Options, extend the exercise period
if the Participant's employment is terminated for a reason specified in Section
2.8. If so extended, the term of the exercise period shall expire on the date
specified by the Committee, which date shall be no later than the date which is
sixty (60) months following the date of the Participant's termination of
employment. If such extension could adversely affect the Participant's federal
income tax treatment of the Incentive Stock Option at the time of extension or
exercise, the extension shall only be made with the consent of the Participant.
In no event may the term of an Incentive Stock Option, including extensions,
exceed seven (7) years from the date of grant.
2.9 SPECIAL RULE FOR 10 PERCENT SHAREHOLDERS
If, at the time an Incentive Stock Option is granted, a Participant owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any of its subsidiaries, then
the terms of the Incentive Stock Option shall specify that the option price
shall at the time of grant be at least one hundred ten percent (110%) of the
Fair Market Value of the stock subject to the option and
6
<PAGE>
such option shall not be exercisable after the expiration of five (5) years from
the date such option is granted.
2.10 NOTICE OF DISPOSITION
If a Participant makes a disposition, within the meaning of Section 424(c)
of the Code and regulations promulgated thereunder, of a share or shares of
Common Stock issued to such Participant pursuant to the exercise of an Incentive
Stock Option within the two-year period commencing on the day after the date of
the grant or within the one-year period commencing on the day after the date of
transfer of such Share or Shares to the Participant pursuant to such exercise,
the Participant shall, within ten (10) days of such disposition, notify the
Company thereof by delivery of written notice to the Company at its principal
executive office.
2.11 ACCELERATION EVENT
Notwithstanding anything herein to the contrary, if an Acceleration Event
has occurred, then all of the shares subject to the Incentive Stock Option shall
immediately become earned and the Incentive Stock Option shall become
exercisable with respect to such shares on the date such Acceleration Event
occurred. However, to the extent that an Accelleration would cause the amount of
Stock Options which then vest to cause the limitations contained in Code
Sections 161(m) or 280(g) to be applicable, the Committee shall make such
adjustments, with assistance of their professional advisors, as they shall deem
reasonably necessary, so as to comply with such rules and limitations.
III. STOCK OPTIONS
3.1 TERMS AND CONDITIONS OF OPTIONS
Subject to the following provisions, all Stock Options shall be in such
form and upon such terms and conditions as the Committee, in its discretion, may
from time to time determine.
7
<PAGE>
3.2 NONQUALIFIED STOCK OPTIONS
The terms of a Stock Option shall, at the time of grant, provide that it
will not be treated as an incentive stock option within the meaning of Section
422 of the Code. As such, all such Stock Options shall be non-qualified stock
options.
3.3 OPTION PRICE
The option price per share shall be at least the Fair Market Value of the
Common Stock on the date the Stock Option is granted.
3.4 TERM OF OPTION
The term of a Stock Option shall not exceed seven (7) years from the date
of grant.
3.5 PAYMENT
Payment for shares for which a Stock Option is exercised shall be made in
such manner and at such time or times as shall be provided by the Committee at
the time of grant, in cash, in Common Stock, including Restricted Stock, through
the surrender of options or stock appreciation rights, or any combination
thereof, or other contingent grants which the Committee determines is consistent
with the Plan's purposes and applicable law.
3.6 EXERCISE OF OPTION
Stock Options shall be exercisable in whole or in part after completion of
such periods of service as the Committee shall specify when granting the
options; provided, however, that in the absence of any Committee specification
to the contrary, and subject to Sections 3.7 and 3.8 of this Article III, if, at
the time of grant the Participant has less than three (3) years of
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service with the Company, fifty percent (50%) of the shares subject to the Stock
Option shall be vested and the Stock Option shall become exercisable with
respect to such shares on the second anniversary of the date of grant of the
Employee Stock Option. If the Participant has at least three (3) years of
service with the Company on the date of grant, the Stock Option shall vest as to
fifty percent (50%) on the first (1st) anniversary of the date of the grant.
Thereafter, on each of the next two anniversaries of the date of the grant, an
additional twenty-five percent (25%) of the shares subject to the Stock Option
shall have been earned and the Stock Option shall become exercisable with
respect to such shares. In no event, however, and notwithstanding Sections 3.7
and 3.8, shall an Stock Option be exercised after the expiration of seven (7)
years from the date of grant.
3.7 TERMINATION OF EMPLOYMENT
A Participant's Stock Options shall expire three (3) months after the
termination of the Participant's employment for any reason other than death,
disability (as determined by the Committee) or retirement (under the applicable
retirement program of the Company or one of its subsidiaries or as otherwise
determined by the Committee), and shall be limited to the shares which could
have been purchased by the Participant at the date of termination of employment.
3.8 TERMINATION OF EMPLOYMENT BY REASON OF DEATH, DISABILITY OR RETIREMENT
Upon the termination of a Participant's employment by reason of death,
disability, or retirement (whether normal or early retirement) within the
meaning of the applicable retirement plan or thereafter, Stock Options held at
the termination date by such Participant shall be exercisable, irrespective of
whether the options were fully exercisable in accordance with Section 3.6 on
that date. The Participant's Stock Options shall expire unless exercised within
one (1) year from the date of such termination.
The Committee may, at any time on or before the termination of the exercise
period of the Participant's Stock Options, extend the exercise period if the
Participant's employment is terminated for a reason specified in this Section
3.8. If so extended, the term of the exercise period shall expire on the date
specified by the Committee, which date shall be no later than the date which is
sixty (60) months following the date of the Participant's termination of
employment. In no event may the term of a Stock
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Option, including extensions, exceed the term of option as limited by Section
3.4.
3.9 ACCELERATION EVENT
Notwithstanding anything herein to the contrary, if an Acceleration Event
has occurred, then all of the shares subject to the Stock Option shall
immediately become earned and the Stock Option shall become exercisable with
respect to such shares on the date such Acceleration Event occurred. However, to
the extent that an Accelleration would cause the amount of Stock Options which
then vest to cause the limitations contained in Code Sections 161(m) or 280(g)
to be applicable, the Committee shall make such adjustments, with assistance of
their professional advisors, as they shall deem reasonably necessary, so as to
comply with such rules and limitations.
3.10 SUPPLEMENTAL PAYMENT ON EXERCISE OF OPTIONS
The Committee may, but shall have no obligation to, at any time on or
before the exercise of any Stock Option, provide for a supplemental payment by
the Company or its subsidiaries to the Participant upon the exercise of any
Stock Option. The amount of any such supplemental payment shall be determined by
the Committee in its discretion.
IV. RESTRICTED STOCK GRANTS
4.1 RESTRICTIONS
Restricted Stock may be granted to a Participant by the Committee under a
restricted stock agreement. Such agreement shall specify the number of shares
granted and the conditions and terms of the restrictions. Such restrictions
shall lapse for all or part of the shares granted upon satisfaction of specified
Management Objectives (as defined below) within a specified "Performance
Period." Restricted stock, with restrictions noted on the face of the
certificates, shall be issued in the name of the Participant and deposited with
the Company or its designee during the Performance Period.
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4.2 MANAGEMENT OBJECTIVES
Restricted Stock shall be deemed to have been earned by a Participant based
upon achievement of Management Objectives specified by the Committee at the time
of grant. Management Objectives may be the Participant's length of service
and/or specified levels of performance objectives, or return on equity achieved
by the Company or any subsidiary, department or function of the Company in which
the Participant is employed. Management Objectives relating to any particular
grant of Restricted Stock need not be the same as those relating to any other
grant, whether made at the same or a different time.
4.3 PERFORMANCE PERIOD
The Performance Period with respect to Restricted Stock shall be the period
of time within which the Management Objectives relating to that grant are to be
achieved. The Committee shall determine the length of the Performance Period,
which shall commence on the date of grant of Restricted Stock and shall be at
least two (2) years in length.
4.4 EARNING OF RESTRICTED STOCK
The Committee shall, promptly after the date on which the necessary
financial or other information for a particular Performance Period becomes
available, determine the extent to which the restrictions on Restricted Stock to
which such Performance Period relates have terminated based on the Participant's
achievement of the relevant Management Objectives.
4.5 RIGHTS AS SHAREHOLDER
Except as otherwise provided in this Article IV, the Participant shall have
all rights as a shareholder, including dividend rights and voting rights. During
the Performance Period and subject to the restrictions set forth this Article
IV, a Participant has the right to receive the dividends paid on the Common
Stock at the same time and in the same amount as other shareholders of the
Company. Any such dividends shall be credited to the account of the Participant
maintained by the trustee and shall be subject to the restrictions set forth in
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this Article IV. If the Committee determines that the Management Objectives have
not been met within the Performance Period, any such dividends shall revert to
the Company.
4.6 TERMINATION OF EMPLOYMENT
If any Participant's employment has terminated prior to the end of the
Performance Period, the extent to which Restricted Stock shall be deemed to have
been earned shall be determined by multiplying the amount of the Restricted
Stock which would have been earned had the Participant's employment not been
terminated by a fraction, the numerator of which is the number of full calendar
months such Participant was employed during the Performance Period and the
denominator of which is the total number of full calendar months in the
Performance Period. If a Participant's employment terminates prior to the end of
a Performance Period for any reason other than because of death, disability (as
determined by the Committee) or retirement (under the applicable retirement
program of the Company or one of its subsidiaries or as otherwise determined by
the Committee), the Committee, in its discretion, may, within sixty (60) days
from the date of such termination, reduce or eliminate the amount of the
Restricted Stock that shall be deemed to have been earned based on its
reasonable assessment of the extent that the Participant was "on track" in
meeting the performance objectives for the Performance Period.
4.7 ACCELERATION EVENT
Notwithstanding anything herein to the contrary, if an Acceleration Event
has occurred, then all restrictions on the Restricted Stock shall lapse on the
date such Acceleration Event occurred. However, to the extent that an
Accelleration would cause the amount of Restricted Stock which then vest to
cause the limitations contained in Code Sections 161(m) or 280(g) to be
applicable, the Committee shall make such adjustments, with assistance of their
professional advisors, as they shall deem reasonably necessary, so as to comply
with such rules and limitations.
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V. STOCK APPRECIATION RIGHTS
5.1 IN GENERAL
The Committee may, in its discretion, either alone or in connection with
the grant of an Incentive Stock Option or a Stock Option (collectively referred
to in this Article V as an "Option"), grant to Participants Stock Appreciation
Rights the terms and conditions of which shall be set forth in a Stock
Appreciation Rights Agreement. If granted in connection with an Option, Stock
Appreciation Rights shall cover the same number of shares of Common Stock
covered by the Option (or such lesser number of shares of Common Stock as the
Committee may determine) and shall, except as provided in this Article V, be
subject to the same terms and conditions as the related Option.
5.2 TIME OF GRANT
A Stock Appreciation Right may be granted (a) at any time if unrelated to
an Option, or (b) if related to an Option, either at the time of grant, or at
any time thereafter during the term of the Option.
5.3 STOCK APPRECIATION RIGHT RELATED TO AN OPTION
(a) EXERCISE. Subject to Section 5.7, a Stock Appreciation Right
granted in connection with an Option shall be exercisable at such time or times
and only to the extent that the related Option is exercisable, and will not be
transferable except to the extent the related Option may be transferable. A
Stock Appreciation Right granted in connection with an Incentive Stock Option
shall be exercisable only if the Fair Market Value of a share of the Common
Stock on the date of exercise exceeds the purchase price specified in the
related Incentive Stock Option Agreement.
(b) AMOUNT PAYABLE. Upon the exercise of a Stock Appreciation Right
related to an Option, the Participant shall be entitled to receive an amount
determined by multiplying (i) the excess of the Fair Market Value of a share of
Common Stock on the day immediately preceding the date of exercise of such Stock
Appreciation Right over the per share purchase price under the
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related Option, by (ii) the number of shares of Common Stock as to which such
Stock Appreciation Right is being exercised. Notwithstanding the foregoing, the
Committee may limit in any manner the amount payable with respect to any Stock
Appreciation Right by including such a limit in the Stock Appreciation Rights
Agreement evidencing the Stock Appreciation Right at the time it is granted.
(c) TREATMENT OF RELATED OPTIONS AND STOCK APPRECIATION RIGHTS UPON
EXERCISE. Upon the exercise of a Stock Appreciation Right granted in connection
with an Option, the Option shall be canceled to the extent of the number of
shares of Common Stock as to which the Stock Appreciation Right is exercised,
and upon the exercise of an Option granted in connection with a Stock
Appreciation Right, the Stock Appreciation Right shall be canceled to the extent
of the number of shares of Common Stock as to which the Option is exercised or
surrendered.
5.4 STOCK APPRECIATION RIGHTS UNRELATED TO AN OPTION
(a) TERMS AND CONDITIONS. The Committee may grant to Participants
Stock Appreciation Rights unrelated to Options. Stock Appreciation Rights
unrelated to Options shall contain such terms and conditions as to
exercisability (subject to Section 5.7), vesting and duration as the Committee
shall determine, but in no event shall they have a term of greater than ten (10)
years. Upon the exercise of a Stock Appreciation Right unrelated to an Option,
the Participant shall be entitled to receive an amount determined by multiplying
(a) the excess of the Fair Market Value of a share of Common Stock on the day
immediately preceding the date of exercise of such Stock Appreciation Right over
the Fair Market Value of a share of Common Stock on the date the Stock
Appreciation Right was granted, by (b) the number of shares of Common Stock as
to which the Stock Appreciation Right is being exercised. Notwithstanding the
foregoing, the Committee may limit in any manner the amount payable with respect
to any Stock Appreciation Right by including such a limit in the Stock
Appreciation Rights Agreement evidencing the Stock Appreciation Right at the
time it is granted.
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(b) TERMINATION OF EMPLOYMENT. Stock Appreciation Rights unrelated to
Options shall expire three (3) months after the termination of the Participant's
employment for any reason other than death, disability (as determined by the
Committee) or retirement (under the applicable retirement program of the Company
or one of its subsidiaries or as otherwise determined by the Committee), and
shall be limited to the Stock Appreciation Rights which could have been
exercised by the Participant at the date of termination of employment; provided,
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however, that the Committee, in its discretion, may, within sixty (60) days from
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the date of such termination, reduce or eliminate the amount of the Stock
Appreciation Rights that shall be deemed to have been earned.
(c) TERMINATION OF EMPLOYMENT BY REASON OF DEATH, DISABILITY OR
RETIREMENT. Upon the termination of a Participant's employment by reason of
death, disability, or retirement (whether normal or early retirement) within the
meaning of the applicable retirement plan or thereafter, Stock Appreciation
Rights held at the termination date by such Participant shall be exercisable,
irrespective of whether the Stock Appreciation Rights were fully exercisable in
accordance with the Stock Appreciation Rights Agreement on that date. The
Participant's Stock Appreciation Rights shall expire unless exercised within one
(1) year from the date of such termination.
The Committee may, at any time on or before the termination of the
exercise period of the Participant's Stock Appreciation Rights, extend the
exercise period if the Participant's employment is terminated for a reason
specified in this Section 5.4(c). If so extended, the term of the exercise
period shall expire on the date specified by the Committee, which date shall be
no later than the date which is sixty (60) months following the date of the
Participant's termination of employment. In no event may the term of a Stock
Appreciation Right, including extensions, exceed the term of the Stock
Appreciation Right established by the Committee at the time of the grant.
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5.5 METHOD OF EXERCISE
Stock Appreciation Rights shall be exercised by a Participant only by a
written notice delivered to the Committee (in care of the Secretary of the
Company) at the Company's principal executive office, specifying the number of
shares of Common Stock with respect to which the Stock Appreciation Right is
being exercised. If requested by the Committee, the Participant shall deliver
the Stock Appreciation Rights Agreement evidencing any related Option to the
Secretary of the Company who shall endorse thereon a notation of such exercise
and return such Stock Appreciation Rights Agreement to the Participant.
5.6 FORM OF PAYMENT
Payment of the amount determined under Sections 5.3(b) or 5.4(a) may be
made in the discretion of the Committee, solely in whole shares of Common Stock
in a number determined at their Fair Market Value on the day immediately
preceding the date of exercise of the Stock Appreciation Right, or solely in
cash, or in a combination of cash and Common Stock. If the Committee decides to
make full payment in Common Stock and the amount payable results in a fractional
share of Common Stock, payment for the fractional share of Common Stock will be
made in cash. Notwithstanding the foregoing, no payment in the form of cash may
be made upon the exercise of a Stock Appreciation Right to an officer of the
Company or of its subsidiaries who is subject to liability under Section 16(b)
of the Exchange Act, unless the exercise of such Stock Appreciation Right is
made either (i) during the period beginning on the third business day and ending
on the twelfth business day following the date of release for publication of the
Company's quarterly or annual statements of earnings or (ii) pursuant to an
irrevocable election to receive cash made at least six (6) months prior to the
exercise of such Stock Appreciation Right.
5.7 RESTRICTIONS
No Stock Appreciation Right may be exercised before the date six (6) months
after the date it is granted, except that this restriction shall not apply in
the event of a death or disability
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of the Participant occurring before the expiration of the six-month period.
5.8 ACCELERATION EVENT
Notwithstanding anything contained in this Plan to the contrary, in the
event of an Acceleration Event, subject to Section 5.7, all Stock Appreciation
Rights shall become immediately and fully exercisable. However, to the extent
that an Accelleration would cause the amount of Stock Appreciation Rights which
then vest to cause the limitations contained in Code Sections 161(m) or 280(g)
to be applicable, the Committee shall make such adjustments, with assistance of
their professional advisors, as they shall deem reasonably necessary, so as to
comply with such rules and limitations.
VI. PERFORMANCE UNITS
6.1 TERMS AND CONDITIONS OF GRANTS
One Performance Unit shall have a cash value equal to the Fair Market Value
of one share of Common Stock. The number of Performance Units to which the
Participant is entitled is based upon certain Management Objectives over a
Performance Period (as defined in Section 6.3) as determined by the Committee at
the time of grant and as set forth in a Performance Unit Agreement. The
Performance Unit Agreement shall specify the number of Performance Units granted
and the Management Objectives and applicable performance period.
6.2 MANAGEMENT OBJECTIVES
Performance Units shall be deemed to have been earned by a Participant
based upon fulfillment of Management Objectives specified by the Committee at
the time of grant. The Management Objectives may be the Participant's length of
service and/or specified levels performance objectives, or return on equity
achieved by the Company or any subsidiary, department or function of the Company
in which the Participant is employed. Management Objectives relating to any
particular grant of a Performance
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Units need not be the same as those relating to any other grant, whether made at
the same or a different time.
6.3 PERFORMANCE PERIOD
The Performance Period with respect to any Performance Unit shall be the
period of time within which the Management Objectives relating to that grant are
to be achieved (which shall be no less than 12 months). The Committee shall
determine the length of the Performance Period, which shall commence on the date
of grant of the Performance Units.
6.4 EARNING OF GRANT
The Committee shall, promptly after the date on which the necessary
financial or other information for a particular Performance Period becomes
available, determine the extent to which the Management Objectives have been
achieved prior to the expiration of the Performance Period and, if such
Management Objectives have been achieved, the restrictions on such Performance
Units may, in the discretion of the Committee, be deemed to have been satisfied
prior to the expiration of the Performance Period. Upon the expiration of the
Performance Period, if the Committee determines that the Management Objectives
have not been met, the Performance Units shall revert to the Company.
6.5 RIGHTS AS SHAREHOLDER
During the Performance Period and subject to the restrictions set forth
this Article VI, a Participant has the right to receive an amount equal to the
dividends paid on the Common Stock at the same time and in the same amount as
other shareholders of the Company (by assuming that, for purposes of such
dividend, each Performance Unit is equivalent to one share of Common Stock). Any
such dividends shall be credited to the account of the Participant maintained by
the trustee and shall be subject to the restrictions set forth in this Article
VI. If the Committee determines that the Management Objectives have not been met
within the Performance Period, any such dividends shall revert to the Company.
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6.6 TERMINATION OF EMPLOYMENT
If any Participant's employment has terminated prior to the end of the
Performance Period, the extent to which Performance Units shall be deemed to
have been earned shall be determined by multiplying the amount of the
Performance Units which would have been earned had the Participant's employment
not been terminated by a fraction, the numerator of which is the number of full
calendar months such Participant was employed during the Performance Period and
the denominator of which is the total number of full calendar months in the
Performance Period. If a Participant's employment terminates for any reason
other than because of death, disability (as determined by the Committee) or
retirement (under the applicable retirement program of the Company or one of its
subsidiaries or as otherwise determined by the Committee), the Committee, in its
discretion, may, within sixty (60) days from the date of such termination,
reduce or eliminate the amount of the Performance Units which shall be deemed to
have been earned.
6.7 FORM OF PAYMENT
In accordance with Section 6.4, upon the expiration of the Performance
Period and the determination by the Committee that the Management Objectives
established by the Committee at the time of grant of the Performance Units have
been met, the Company shall distribute cash to the Participant in an amount
equal to the number of Performance Units multiplied by the Fair Market Value of
the Common Stock as of the date of distribution.
6.8 ACCELERATION EVENT
Notwithstanding anything herein to the contrary, if an Acceleration Event
has occurred, then all restrictions on the Performance Units shall be deemed to
have been satisfied as of the date of the Acceleration Event, and such
Performance Units shall become payable on the date such Acceleration Event
occurred. However, to the extent that an Accelleration would cause the amount of
Performance Units which then vest to cause the limitations contained in Code
Sections 161(m) or 280(g) to be applicable, the Committee shall make such
adjustments, with assistance of their professional advisors, as they shall deem
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reasonably necessary, so as to comply with such rules and limitations.
VII. ADDITIONAL PROVISIONS
7.1 GENERAL RESTRICTIONS
Each grant under the Plan shall be subject to the requirement that if the
Committee shall determine, at any time, that (a) the listing, registration or
qualification of the shares of Common Stock subject or related thereto upon any
securities exchange or under any state or federal law, or (b) the consent or
approval of any government regulatory body, or (c) an agreement by the
Participant with respect to the disposition of shares of Common Stock, is
necessary or desirable as a condition of, or in connection with, the granting or
the issuance or purchase of shares of Common Stock thereunder, such grant may
not be consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the Committee.
7.2 ADJUSTMENTS FOR CHANGES IN CAPITALIZATION
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, rights offer, liquidation, dissolution, merger,
consolidation, spin-off or sale of assets, or any other change in or affecting
the corporate structure or capitalization of the Company, the Board of Directors
shall make such adjustments as the Committee may recommend, and as the Board of
Directors in its discretion may deem appropriate, in the number and kind of
shares authorized by the Plan, in the number, option price or kind of shares
covered by the grants and in any outstanding grants under the Plan in order to
prevent substantial dilution or enlargement thereof.
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7.3 AMENDMENTS
The Board of Directors may discontinue the Plan at any time, and may amend
it from time to time, but no amendment, without approval by shareholders, may
(a) increase the total number of shares which may be issued under the Plan,
except as provided in Section 7.2 hereof, (b) change the persons to whom grants
may be granted, or (c) cause the Plan to no longer comply with Rule 16b-3 of the
Exchange Act or any other federal or state statutory or regulatory requirements.
7.4 MODIFICATION OR SUBSTITUTION
Subject to the terms of the Plan, the Committee may modify outstanding
grants under the Plan or accept the surrender of outstanding grants and make new
grants in substitution for them. Notwithstanding the foregoing, no modification
of any grant shall adversely alter or impair any rights or obligations of the
Participant without the Participant's consent.
7.5 CANCELLATION OF GRANTS
Any grant under the Plan may be canceled at any time with the consent of
the Participant, and a new grant may be provided to such Participant in lieu
thereof.
7.6 SHARES SUBJECT TO THE PLAN
Shares distributed pursuant to the Plan shall be made available from
authorized but unissued shares or from shares purchased or otherwise acquired by
the Company for use in the Plan, as shall be determined from time to time by the
Committee.
7.7 RIGHTS OF A SHAREHOLDER
Participants under the Plan, unless otherwise provided by the Plan, shall
have no rights as shareholders by reason thereof unless and until certificates
for shares of Common Stock are issued to them.
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7.8 WITHHOLDING
(a) The Company shall have the right to deduct from any distribution
of cash or Common Stock to any Participant an amount equal to the federal, state
and local income taxes and other amounts as may be required by law to be
withheld (the "Withholding Taxes") with respect to any grant under the Plan. If
a Participant is to experience a taxable event in connection with the receipt of
cash or shares of Common Stock pursuant to an Option exercise or payment of a
grant (a "Taxable Event"), the Participant shall pay the Withholding Taxes to
the Company prior to the issuance, or release from the trust, of such shares of
Common Stock. In satisfaction of the obligation to pay Withholding Taxes to the
Company, the Participant may make a written election (the "Tax Election"), which
may be accepted or rejected in the discretion of the Committee, to have withheld
a portion of the cash or shares of Common Stock then issuable to the Participant
having an aggregate Fair Market Value on the day immediately preceding the date
of such issuance equal to the Withholding Taxes, provided that in respect of a
Participant who may be subject to liability under Section 16(b) of the Exchange
Act either: (i) in the case of a Taxable Event involving an Option, grant of
Restricted Stock, or Stock Appreciation Rights (A) the Tax Election is made at
least six (6) months prior to the date of the Taxable Event and (B) the Tax
Election is irrevocable with respect to all Taxable Events of a similar nature
occurring prior to the expiration of six (6) months following a revocation of
the Tax Election; or (ii) in the case of the exercise of an Option (A) the
Participant makes the Tax Election at least six (6) months after the date the
Option was granted, (B) the Option is exercised during the ten (10) day period
beginning on the third business day and ending on the twelfth business day
following the release for publication of the Company's quarterly or annual
statement of sales and earnings (the "Window Period") and (C) the Tax Election
is made during the Window Period in which the related Option is exercised or
prior to such Window Period and subsequent to the immediately preceding Window
Period; or (iii) in the case of a Taxable Event relating to the payment of any
award (A) the Participant makes the Tax Election at least six (6) months after
the date the Restricted Stock or Stock Appreciation Rights were granted and (B)
the Tax Election is made (x) in the case of a
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Taxable Event occurring within a Window Period, during the Window Period in
which the Taxable Event occurs, or (y) in the case of a Taxable Event not
occurring within a Window Period, during the Window Period immediately preceding
the Taxable Event relating to the Restricted Stock or Stock Appreciation Rights.
Notwithstanding the foregoing, the Committee may, by the adoption of rules or
otherwise, (i) modify the provisions of this Section 7.8 as may be necessary to
ensure that the Tax Elections will be exempt transactions under Section 16(b) of
the Exchange Act, and (ii) permit Tax Elections to be made at such other times
and subject to such other conditions as the Committee determines will constitute
exempt transactions under Section 16(b) of the Exchange Act.
(b) The Committee shall have the authority, at the time of grant of
an Option, Restricted Stock, Stock Appreciation Right or Performance Unit under
the Plan or at any time thereafter, to grant tax bonuses to designated
Participants to be paid upon their exercise of Options or payment in respect of
Restricted Stock, Stock Appreciation Rights or Performance Units granted
hereunder. The amount of any such payments shall be determined by the Committee
and shall not be in excess of the amount determined pursuant to Section 3.10 of
the Plan (except that, with respect to Restricted Stock, Stock Appreciation
Rights or Performance Units, the "Spread," for purposes of applying Section
3.10, shall be the difference between the amount paid for the Restricted Stock,
Stock Appreciation Right or Performance Unit, as applicable, and the Fair Market
Value of the Common Stock (or cash) distributed). The Committee shall have full
authority in its absolute discretion to determine the amount of any such tax
bonus (subject to the limits of Section 3.10) and the terms and conditions
affecting the vesting and payment thereof.
7.9 "CASHLESS" EXERCISE OF OPTIONS. If requested by the Participant, the
Company shall undertake to cause such exercise of an Option to be "cashless" to
such Participant, by causing the immediate sale of sufficient Shares of Common
Stock to permit the funds received from such sale to cover the purchase price
for the Shares received from the exercise of such Option, plus the Withholding
Amount discussed in Section 7.8. However, if on advice of counsel, the
Committee determines that such sale
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is restricted by applicable law, then the Company's obligation to make the
exercise of such Option "cashless" shall be relieved and the Participant shall
be required to provide the funds necessary to acquire such Shares and pay the
Withholding Amount.
7.10 NON-ASSIGNABILITY
Except as expressly provided in the Plan, no grant shall be transferable
except by will, the laws of descent and distribution or a qualified domestic
relations order ("QDRO") as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
During the lifetime of the Participant, except as expressly provided in the
Plan, grants under the Plan shall be exercisable only by such Participant or by
the guardian or legal representative of such Participant or pursuant to a QDRO.
7.11 NON-UNIFORM DETERMINATIONS
Determinations by the Committee under the Plan (including, without
limitation, determinations of the persons to receive grants, the form, amount
and timing of such grants, and the terms and provisions of such grants and the
agreements evidencing the same) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, grants under
the Plan, whether or not such persons are similarly situated.
7.12 NO GUARANTEE OF EMPLOYMENT
Grants under the Plan shall not constitute an assurance of continued
employment for any period.
7.13 EFFECTIVE DATE; DURATION
The Plan shall become effective as of the initial issuance of stock of the
Company through a publicly registered offering of stock subsequent to June 10,
1996, the date that this plan was approved by the shareholders. No grant may
be given under the Plan after April 30, 2002, but grants theretofore granted may
extend beyond such date.
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7.14 FAIR MARKET VALUE
The phrase "Fair Market Value" on any date means the average of the high
and low sales prices of the shares of Common Stock on such date on the principal
national securities exchange on which such shares of Common Stock are listed or
admitted to trading. If the shares of Common Stock on such date are not listed
or admitted to trading, the Fair Market Value shall be the value established by
the Board in good faith and, in the case of an Incentive Stock Option, in
accordance with Section 422 of the Code.
7.15 ACCELERATION EVENT
Notwithstanding anything herein to the contrary, if a Change in Control of
the Company occurs or if the Committee determines in its sole discretion that an
Acceleration Event has occurred, then all Incentive Stock Options, Stock
Options, Stock Appreciation Rights and Performance Units shall become fully
exercisable and all restrictions on the Restricted Stock Grants and Performance
Units shall expire as of the date such Change in Control occurred or the
Committee determines than an Acceleration Event has occurred.
For the purposes of the Plan, an Acceleration Event includes, but is not
limited to, any Change in Control of the Company, which shall be deemed to have
occurred upon the earliest of the following events:
(a) when the Company acquires actual knowledge that any person (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then-outstanding securities;
(b) upon the first purchase of Common Stock pursuant to a tender or
exchange offer (other than a tender or exchange offer made by the Company);
25
<PAGE>
(c) upon the approval by the Company's shareholders of (i) a merger
or consolidation of the Company with or into another corporation (other than a
merger or consolidation in which the Company is the surviving corporation and
which does not result in any capital reorganization or reclassification or other
change in the Company's then-outstanding shares of Common Stock), (ii) a sale or
disposition of all or substantially all of the Company's assets or (iii) a plan
of liquidation or dissolution of the Company;
(d) if during any period of two consecutive years, the individuals
who at the beginning of such period constitute the Board of Directors of the
Company cease for any reason to constitute at least a majority thereof, unless
the election, or the nomination for election by the Company's shareholders, of
each new director was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period, or
(e) if the Board of Directors or any designated committee determines
in its sole discretion that any person (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) directly or indirectly exercises a controlling
influence over the management or policies of the Company.
Certified as the adopted Plan by the Company Secretary as of this ____ day of
_______, 1996.
/s/ David A. Webster
-------------------------------------------
David A. Webster, Secretary/General Counsel
26
<PAGE>
DIRECTORS PROGRAM
Under the
1996 STOCK OPTION PLAN
OF
NEXUS HEALTHCARE INFORMATION CORPORATION
I. GENERAL
1.1 PURPOSE OF THE PROGRAM.
The purpose of the NEXUS HEALTHCARE INFORMATION CORPORATION ("NHIC")
Directors Program (the "Director Program) is to enable NHIC (the "Company") to
attract and retain persons of exceptional ability to serve as directors of the
Company and to align the interests of directors and shareholders in enhancing
the value of the Company's common stock (the "Common Stock").
1.2 ADMINISTRATION OF THE DIRECTOR PROGRAM.
The Director Program shall be administered by the Company's Board of
Directors (the "Board") which shall have full and final authority in its
discretion to interpret, administer and amend the provisions of the Director
Program; to adopt rules and regulations for carrying out the Director Program;
to decide all questions of fact arising in the application of the Director
Program; and to make all other determinations necessary or advisable for the
administration of the Director Program. The Board shall meet once each fiscal
year, and at such additional times as it may determine or as is requested by the
chief executive officer of the Company.
1
<PAGE>
1.3 ELIGIBLE PARTICIPANTS.
Each member of the Board who is not a full-time employee of the Company or
any of its subsidiaries shall be a participant (a "Participant") in the Director
Program.
1.4 GRANTS UNDER THE DIRECTOR PROGRAM.
Grants under the Director Program shall be in the form of stock options as
described in Section II (an "Option" or "Options").
1.5 SHARES.
The aggregate number of shares of Common Stock, including but not limited
to shares reserved for issuance pursuant to the exercise of Options, which may
be granted or issued under the terms of the Director Program, may not exceed (in
combination with the stock options granted under the Company Stock Option Plan),
One Million (1,000,000) shares, and hereby are reserved for such purpose.
Whenever any outstanding grant or portion thereof expires, is canceled or
forfeited or is otherwise terminated for any reason without having been
exercised, the Common Stock allocable to the expired, forfeited, canceled or
otherwise terminated portion of the grant may again be the subject of further
grants hereunder.
Notwithstanding the foregoing, the number of shares of Common Stock
available for grants at any time under the Director Program shall be reduced to
such lesser amount as may be required pursuant to the methods of calculation
necessary so that the exemptions provided pursuant to Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") will continue
to be available for transactions involving all current and future grants. In
addition, during the period that any grants remain outstanding under the
Director Program, the Board may make good faith adjustments with respect to the
number of shares of Common Stock attributable to such grants for purposes of
calculating the maximum number of shares of Common Stock available for the
granting of future grants under the Director Program, provided that following
such adjustments the exemptions provided pursuant
2
<PAGE>
to Rule 16b-3 under the Exchange Act will continue to be available for
transactions involving all current and future grants.
1.7 DEFINITIONS
The following definitions shall apply to the Director Program:
(a) "Disability" shall have the meaning provided in the Company's
applicable disability plan or, in the absence of such a definition, when a
Participant becomes totally disabled (as determined by a physician mutually
acceptable to the Participant and the Company) before termination of his or her
service on the Board if such total disability continues for more than three (3)
months.
(b) "Fair Market Value" means the average of the high and low sales prices
of the shares of Common Stock on such date on the principal national securities
exchange or automated quotation system of a registered securities association on
which such shares of Common Stock are listed or admitted to trading. If the
shares of Common Stock on such date are not listed or admitted to trading, the
Fair Market Value shall be the value established by the Board in good faith.
(c) "Retirement" shall have the meaning provided in the Company's
retirement policy applicable to directors of the Company.
II. OPTIONS
2.1 TERMS AND CONDITIONS OF OPTIONS
(i) Each Participant, who is a Participant as of the time the Company
goes effective with its initial public offering of shares of Common Stock (the
"IPO Grant") shall receive the number of Options granted to such Director in the
separate IPO Grant Agreement with such Director, in accordance with the schedule
attached as Exhibit "A." The shares granted in such IPO Grant shall be part of
and subject to the limitations on total grants of shares under Section 1.5 of
this Director Program.
3
<PAGE>
(ii) Each Participant shall receive an annual grant of an Option to
purchase two thousand (2,000) shares of Common Stock on the date of each annual
meeting of shareholders of the Company at which directors are elected (an
"Annual Meeting Date") during the period such director serves on the Board.
2.2 NONQUALIFIED STOCK OPTIONS
The terms of the Options shall, at the time of grant, provide that the
Options will not be treated as incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). As
such, the Option shall be non-qualified stock options.
2.3 OPTION PRICE
The option price per share shall be the Fair Market Value of the Common
Stock on the date the Option is granted.
2.4 TERM AND EXERCISE OF OPTIONS
(a) The term of an Option shall not exceed seven (7) years from the date
of grant. Except as provided in this Section 2.4, after a Participant ceases to
serve as a director of the Company for any reason, including, without
limitation, Retirement, or any other voluntary or involuntary termination of a
Participant's service as a director (a "Termination"), the unexercisable portion
of an Option shall immediately terminate and be null and void, and the
unexercised portion of any outstanding Options held by such Participant shall
terminate and be null and void for all purposes, after three (3) months have
elapsed from the date of the Termination unless extended by the Board, in its
sole discretion, within thirty (30) days from the date of the Termination. Upon
a Termination as a result of death or Disability, any outstanding Options may be
exercised by the Participant or the Participant's legal representative within
twelve (12) months after such death or Disability; provided, however, that in no
event shall the period extend beyond the expiration of the option term.
(b) Options shall become exercisable in whole or in part as follows: If,
at the time of grant, the Participant has less than
4
<PAGE>
three (3) years of service with the Company, fifty percent (50%) of the shares
subject to the Stock Option shall be vested and the Stock Option shall become
exercisable with respect to such shares on the second (2nd) anniversary of the
date of grant of the Employee Stock Option. If the Participant has at least
three (3) years of service with the Company on the date of grant, the Stock
Option shall vest as to fifty percent (50%) on the first (1st) anniversary of
the date of the grant. Thereafter, on each of the next two anniversaries of the
date of the grant, an additional twenty-five percent (25%) of the shares subject
to the Stock Option shall have been earned and the Stock Option shall become
exercisable with respect to such shares. In no event, however, shall an Option
be exercised after the expiration of seven (7) years from the date of grant.
(c) A Participant, by written notice to the Company, may designate one or
more persons (and from time to time change such designation) including his or
her legal representative, who, by reason of his or her death, shall acquire the
right to exercise all or a portion of the Option. If no designation is made
before the death of the Participant, the Participant's Option may be exercised
by the personal representative of the Participant's estate, or by a person who
acquired the right to exercise such Option by will or the laws of descent and
distribution. If the person with exercise rights desires to exercise any portion
of the Option, such person must do so in accordance with the terms and
conditions of this Director Program.
5
<PAGE>
2.5 NOTICE OF EXERCISE
When exercisable pursuant to the terms of the Director Program and the
governing stock option agreement, an Option shall be exercised by the
Participant as to all or part of the shares subject to the Option by delivering
written notice of exercise to the Company at its principal business office or
such other office as the Company may from time to time direct, (a) specifying
the number of shares to be purchased, (b) accompanied by a check payable to the
Company in an amount equal to the full exercise price of the number of shares
being exercised, (c) including a Tax Election, if applicable, in accordance with
Section 3.7, and (d) containing such further provisions consistent with the
provisions of the Director Program, as the Company may from time to time
prescribe. No Option may be exercised after the expiration of the term specified
in Section 2.4 hereof.
2.6 LIMITATION OF EXERCISE PERIODS
The Board may limit the time periods within which an Option may be
exercised if a limitation on exercise is deemed necessary in order to effect
compliance with applicable law.
2.7 CHANGE IN CONTROL
Notwithstanding anything herein to the contrary, if a Change in Control has
occurred, then the Option shall immediately become exercisable on the date such
Change in Control occurred.
III. GENERAL PROVISIONS
3.1 GENERAL RESTRICTIONS
Each grant under the Director Program shall be subject to the requirement
that if the Board shall determine, at any time, that (a) the listing,
registration or qualification of the shares of Common Stock subject or related
thereto upon any securities exchange or under any state or federal law, or (b)
the consent or approval of any government regulatory body, or (c) an agreement
by the Participant with respect to the disposition of shares of Common Stock, is
necessary or desirable as a condition of, or in connection with, the granting or
the issuance or purchase of
6
<PAGE>
shares of Common Stock thereunder, such grant may not be consummated in whole or
in part unless such listing, registration, qualification, consent, approval or
agreement shall have been effected or obtained free of any conditions not
acceptable to the Board.
3.2 ADJUSTMENTS FOR CHANGES IN CAPITALIZATION
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, rights offer, liquidation, dissolution, merger,
consolidation, spin-off or sale of assets, or any other change in or affecting
the corporate structure or capitalization of the Company, the Board shall make
such adjustments as the Board may recommend, and as the Board in its discretion
may deem appropriate, in the number and kind of shares authorized by the
Director Program, in the number, Option price or kind of shares covered by the
grants and in any outstanding grants under the Director Program in order to
prevent substantial dilution or enlargement thereof.
3.3 AMENDMENTS
Without further approval of the shareholders, the Board may discontinue the
Director Program at any time and may amend it from time to time in such respects
as the Board may deem advisable, unless shareholder or regulatory approval is
required by law or regulation, and subject to any conditions established by the
terms of such amendment; provided however, that the Director Program may not be
amended more than once every six (6) months other than to comport with changes
in the Code, the Employee Retirement Income Security Act or the rules
thereunder.
3.4 MODIFICATION, SUBSTITUTION OR CANCELLATION OF GRANTS
No rights or obligations under any outstanding Option may be altered or
impaired without the Participant's consent. Any grant under the Director Program
may be canceled at any time with the consent of the Participant, and a new grant
may be provided to such Participant in lieu thereof.
7
<PAGE>
3.5 SHARES SUBJECT TO THE DIRECTOR PROGRAM
Shares distributed pursuant to the Director Program shall be made available
from authorized but unissued shares or from shares purchased or otherwise
acquired by the Company for use in the Director Program, as part of the 1996
Stock Option Plan of the Company, as shall be determined from time to time by
the Board.
3.6 RIGHTS OF A SHAREHOLDER
Participants under the Director Program, unless otherwise provided by the
Director Program, shall have no rights as shareholders by reason thereof unless
and until certificates for shares of Common Stock are issued to them.
3.7 WITHHOLDING
The Company shall have the right to deduct from any distribution of Common
Stock to any Participant an amount equal to the federal, state and local income
taxes and other amounts as may be required by law to be withheld (the
"Withholding Taxes") with respect to any grant under the Director Program. If a
Participant is to experience a taxable event in connection with the receipt of
cash or shares of Common Stock pursuant to an Option exercise (a "Taxable
Event"), the Participant shall pay the Withholding Taxes to the Company prior to
the issuance of such shares of Common Stock. In satisfaction of the obligation
to pay Withholding Taxes to the Company, the Participant may make a written
election (the "Tax Election"), which may be accepted or rejected in the
discretion of the Board, to have withheld a portion of the shares of Common
Stock then issuable to the Participant having an aggregate Fair Market Value on
the day immediately preceding the date of such issuance equal to the Withholding
Taxes, provided that in respect of a Participant who may be subject to liability
under Section 16(b) of the Exchange Act either: (i) in the case of a Taxable
Event involving an Option or a grant of Restricted Stock, (A) the Tax Election
is made at least six (6) months prior to the date of the Taxable Event and (B)
the Tax Election is irrevocable with respect to all Taxable Events of a similar
nature occurring prior to the expiration of six (6) months following a
revocation of the Tax Election; (ii) in the case of the exercise of an Option
(A) the Participant makes the Tax Election at least
8
<PAGE>
six (6) months after the date the Option was granted, (B) the Option is
exercised during the ten (10) day period beginning on the third business day and
ending on the twelfth business day following the release for publication of the
Company's quarterly or annual statement of sales and earnings (the "Window
Period") and (C) the Tax Election is made during the Window Period in which the
Option is exercised or prior to such Window Period and subsequent to the
immediately preceding Window Period; or (iii) in the case of a Taxable Event
relating to the payment of an award, (A) the Participant makes the Tax Election
at least six (6) months after the date of grant and (B) the Tax Election is made
(1) in the case of a Taxable Event occurring within a Window Period, during the
Window Period in which the Taxable Event occurs or (2) in the case of a Taxable
Event not occurring within a Window Period, during the Window Period immediately
preceding the Taxable Event. Notwithstanding the foregoing, the Board may, by
the adoption of rules or otherwise, (i) modify the provisions of this Section
4.7 as may be necessary to ensure that the Tax Elections will be exempt
transactions under Section 16(b) of the Exchange Act, and (ii) permit Tax
Elections to be made at such other times and subject to such other conditions as
the Board determines will constitute exempt transactions under Section 16(b) of
the Exchange Act.
3.8 NON-ASSIGNABILITY
Except as expressly provided in the Director Program, no grant shall be
transferable except by will, the laws of descent and distribution or a qualified
domestic relations order ("QDRO") as defined by the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder. During the lifetime of the Participant, except as expressly
provided in the Director Program, grants under the Director Program shall be
exercisable only by such Participant or by the guardian or legal representative
of such Participant or pursuant to a QDRO.
3.9 NON-UNIFORM DETERMINATIONS
Determinations by the Board under the Director Program (including, without
limitation, determinations of the persons to receive grants, the form, amount
and timing of such grants, and
9
<PAGE>
the terms and provisions of such grants and the agreements evidencing the same)
need not be uniform and may be made by it selectively among persons who receive,
or are eligible to receive, awards under the Director Program, whether or not
such persons are similarly situated.
3.10 EFFECTIVE DATE; DURATION
The Director Program shall become effective as of the date the Company
becomes admitted to trading on the NASDAQ, subject to approval by the
shareholders. No grant may be given under the Director Program after April 30,
2002, but grants theretofore granted may extend beyond such date.
3.11 CHANGE IN CONTROL
Notwithstanding anything herein to the contrary, if a Change in Control of
the Company occurs, then all Options shall become fully exercisable and all
restrictions on the Restricted Stock shall lapse as of the date such Change in
Control occurred. For the purposes of the Director Program, a Change in Control
of the Company shall be deemed to have occurred upon the earliest of the
following events:
(a) when the Company acquires actual knowledge that any person (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than
any person who was the beneficial owner of 25% or more of the Common Stock as of
the effective date of the Director Program, becomes the beneficial owner (as
defined in Rule 13d-3 of the Exchange Act) directly or indirectly, of securities
of the Company representing 25% or more of the combined voting power of the
Company's then-outstanding securities;
(b) upon the first purchase of Common Stock pursuant to a tender or
exchange offer (other than a tender or exchange offer made by the Company);
(c) upon the approval by the Company's shareholders of (i) a merger
or consolidation of the Company with or into another corporation (other than a
merger or consolidation in which the Company is the surviving corporation and
which does not result in any capital reorganization or reclassification or other
change in
10
<PAGE>
the Company's then-outstanding shares of Common Stock), (ii) a sale or
disposition of all or substantially all of the Company's assets or (iii) a plan
of liquidation or dissolution of the Company; or
(d) if the Board of Directors or any designated Board determines in
its sole discretion that any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than a person who exercised a controlling
influence as of the effective date of the Director Program, directly or
indirectly exercises a controlling influence over the management or policies of
the Company.
3.12 GOVERNING LAW
The Director Program and all actions taken thereunder shall be governed by
and construed in accordance with the laws of the Commonwealth of Virginia.
Certified as the adopted Director Program by the Company Secretary as of this
________ day of _______________, 1996.
___________________________________________
David A. Webster, Secretary/General Counsel
11
<PAGE>
EXHIBIT "A"
IPO OPTION GRANTS TO DIRECTORS
The following options shall be granted to the named directors, as noted:
<TABLE>
<S> <C>
Richard M. Abell 10,000
Paul Gross 10,000
Laszlo Makk 10,000
Alice H. Lusk 7,000
</TABLE>
12
<PAGE>
EXHIBIT 10.2
NEXUS HEALTHCARE INFORMATION CORPORATION
STOCK OPTION AGREEMENT
----------------------
No. of Shares ______
THIS AGREEMENT ("Agreement") is effective as of the 15th day of May, 1996,
between NEXUS HEALTHCARE INFORMATION CORPORATION, a Delaware corporation (the
"Company"), and __________________, ("Optionee").
W I T N E S S E T H
1. Grant of Stock Option. The Company hereby grants, subject to Section 5
---------------------
hereof, to Optionee the right and option (the "Stock Option") to purchase from
the Company __________________ (___________) shares of common stock of the
Company (the "Common Stock"), subject to the terms and conditions herein set
forth and exercisable as hereinafter provided. This Stock Option shall not
constitute an incentive stock option within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"). It shall be a non-
qualified stock option, as such term is used for purposes of the Code.
2. Terms and Conditions. The Stock Option evidenced hereby is subject to
--------------------
the following terms and conditions:
(a) Price. The purchase price per share is Eleven and no/100ths
-----
Dollars ($11.00).
(b) Expiration Date. This Stock Option shall expire on 31 December
---------------
2004.
(c) Exercise of Stock Option. This Stock Option shall be immediately
------------------------
vested as of the date hereof and shall not be subject to forfeiture, restriction
or amendment (except as otherwise herein provided) without the agreement of
Optionee.
<PAGE>
This Stock Option may be exercised, to the extent exercisable by its
terms, in whole, or from time to time in part, at any time prior to the
expiration hereof.
(d) Payment of Purchase Price Upon Exercise.
---------------------------------------
(i) At the time of any exercise, the full purchase price of the
shares of Common Stock as to which this Stock Option has been exercised shall be
paid to the Company in the form of cash, Common Stock that has been held by the
Optionee for at least six (6) months (unless the Company waives such holding
period), valued for such purposes at fair market value, a promissory note of
Optionee [as described below] secured by the Common Stock acquired by the
exercise of such Stock Option), a commitment by a broker to pay the full
purchase price from proceeds of a sale of the Shares issued upon exercise of
this Stock Option, or any combination thereof. For the purposes of this
paragraph, "fair market value" of the Common Stock shall mean the average of the
highest and lowest market price on the first business day immediately preceding
the date of the exercise of this Stock Option or, in case no such sale takes
place on such day, the average of the highest and lowest market price on the
most recent date, as reported on the New York Stock Exchange or, if the Common
Stock is not then listed on such exchange, on the principal national securities
exchange on which the Common Stock is listed for trading.
(ii) If the Optionee shall elect to pay the purchase price for
the shares of Common Stock which the Optionee has elected to receive by
execution and delivery of a promissory note, then the following shall apply:
a. The purchase price for the shares of Common Stock to be
acquired shall be the principal amount due under a promissory note
(the "Note") to be executed and delivered by the Optionee.
b. The Note shall provide for payment of interest only for
a period of seven (7) years, interest to be paid bi-weekly by
deduction from the Optionee's compensation from the Company (or its
subsidiary), or otherwise paid directly by Optionee, if Optionee is
not employed by the Company or its subsidiary.
2
<PAGE>
c. The Note shall bear interest at the minimum rate of
interest required under the Code to avoid the imputation of interest,
as determined by the Company by its sole discretion, as of the date
the Note is signed.
d. The Note shall be a general obligation of the Optionee
and shall be secured by a pledge of the shares of Common Stock
acquired, the purchase price for which was not paid in full. The
stock pledge shall be in accordance with the terms and conditions of a
form of stock pledge customarily used in the community in which the
principal place of business of the Company is located, as determined
by the Company in its sole discretion.
e. The Note (or the pro rata portion applicable to any
shares to be sold by Optionee) shall be due and payable upon the
earlier to occur of (i) seven (7) years from the date it is issued;
(2) the sale of any of the pledged shares (prorated); (3) the
termination of the employment of the Optionee by the Company or its
subsidiaries (unless such termination occurs within one (1) year
following a Change of Control [as defined in Section 4]); or (4)
thirty (30) days after the date of death of the Optionee.
(e) Exercise/Expiration Upon Death, Disability or Termination of
------------------------------------------------------------
Employment.
- ----------
(1) Death While Employed. If Optionee shall die while an
--------------------
employee of the Company or of a subsidiary, this Stock Option may be fully
exercised (to the extent not theretofore exercised) by the person or persons to
whom Optionee's rights under this Stock Option shall pass by will or by
applicable law, or if no such person has such right, by Optionee's executors or
administrators, at any time, or from time to time, within one (1) year from the
date of Optionee's death, and at the end of such one (1) year period, this Stock
Option shall expire.
3
<PAGE>
(2) Disability or Normal Retirement. If Optionee's employment
-------------------------------
with the Company or with a Subsidiary shall terminate because of permanent
disability (as defined in the disability plan for Employees of the Company and
its Subsidiaries) or because of retirement at age 65 or later, Optionee may
fully exercise (to the extent not theretofore exercised) this Stock Option at
any time, or from time to time, within one (1) year from the date of termination
of employment, and at the end of such one (1) year period this Stock Option
shall expire.
(3) Early Retirement. If Optionee's employment with the Company
----------------
or with a Subsidiary shall terminate because of early retirement (as defined in
the retirement plan for Employees of the Company or the Subsidiary with which
Optionee is employed), Optionee may fully exercise (to the extent not
theretofore exercised) this Stock Option at any time, or from time to time,
within three (3) years from the date of termination of employment, and at the
end of such three (3) year period, this Stock Option shall expire.
Notwithstanding this Section 2(c)(3), in no event shall a Stock Option be
exercised after the expiration of seven (7) years from the date of grant.
(4) Other Termination. If Optionee's employment with the Company
-----------------
or with a subsidiary shall terminate for any reason other than death, permanent
disability or retirement as specified in clauses (1), (2), or (3) of this
subparagraph (e), Optionee may exercise (to the extent not theretofore
exercised) this Stock Option, at any time, or from time to time, within three
(3) months from the date of termination of employment, and at the end of such
three (3) month period this Option shall expire. However, if Optionee's
employment shall terminate within one (1) year following a Change of Control (as
defined in Section 4), then Optionee shall period to exercise this Stock Option
under this subsection (4) shall be three (3) years from the date of such
termination of employment.
(5) Death After Termination of Employment. If Optionee shall die
-------------------------------------
following a termination of employment, this Stock Option may be exercised only
by the person or persons to whom Optionee's rights under this Stock Option shall
pass by will or by applicable law, or if no such person has such right, by
Optionee's
4
<PAGE>
executors or administrators, to the extent and during the period that Optionee
was entitled to do so.
(6) Expiration. Notwithstanding anything to the contrary in this
----------
subparagraph (e) of Section 2, in no event shall Optionee or, on Optionee's
death, Optionee's successors exercise this Stock Option after the expiration
date specified in subparagraph (b) of this Section 2.
(f) Nontransferability. This Stock Option shall not be assignable or
------------------
transferable other than by Will or the laws of descent and distribution, or, if
permitted of an option complying with Exchange Act Rule 16b-3, or if held by an
Optionee not subject to Exchange Act Section 16, a qualified domestic relations
order ("QDRO") as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder. During the
lifetime of Optionee, this Stock Option shall be exercisable only by Optionee or
by the guardian or legal representative of Optionee or pursuant to a QDRO.
(g) Adjustments. In the event of a reorganization, recapitalization,
-----------
stock split, stock dividend, combination of shares, rights offer, liquidation,
dissolution, merger, consolidation, spin-off or sale of assets, or of any other
change in or affecting the corporate structure or capitalization of the Company,
then in any such event the number and kind of shares subject to this Stock
Option and the purchase price per share shall be appropriately adjusted
consistent with such change in such manner as the Committee appointed by the
Board of Directors (the "Committee") may deem equitable to prevent substantial
dilution or enlargement of the rights granted to Optionee hereunder. Any
adjustment so made shall be final and binding upon Optionee.
(h) No Rights as Shareholder. Optionee shall have no rights as a
------------------------
shareholder with respect to any shares subject to this Stock Option prior to the
date of issuance of a certificate or certificates for such shares.
(i) No Right to Continued Employment. This Stock Option shall not
--------------------------------
confer upon Optionee any right with respect to continuance of employment by the
Company or any Subsidiary, nor
5
<PAGE>
shall it interfere in any way with the right of the employer to terminate
Optionee's employment at any time.
(j) Compliance With Law and Regulations. This Stock Option and the
-----------------------------------
obligation of the Company to sell and deliver shares hereunder shall be subject
to all applicable federal and state laws, rules, and regulations and to such
approvals by any government or regulatory agency as may be required. The
Company shall not be required to issue or deliver any certificates for shares
prior to (1) the listing of such shares on any stock exchange on which the
Common Stock may then be listed and (2) the completion of any registration or
qualification of such shares under any federal or state law, or any rule or
regulation of any governmental body which the Company shall, in its sole
discretion, determine to be necessary or advisable.
(k) Income Tax Withholding. The parties hereto recognize that the
----------------------
Company may be obligated to withhold federal, state or local income taxes and
social security taxes in connection with the exercise of the Stock Option or in
connection with the disposition of any shares of Common Stock acquired by
exercise of this Stock Option. Optionee agrees that the Company may withhold
and/or may withhold shares of Common Stock otherwise issuable upon exercise of
this Option with a fair market value equal to the amount needed to cover such
taxes from payments otherwise due and owing to Optionee, and also agrees that
upon demand Optionee will promptly pay to the Company having such obligation any
additional amounts as may be necessary to satisfy such withholding tax
obligation. Such payment shall be made in cash or by certified check payable to
the order of the Company.
3. Investment Representation. The Committee may require Optionee to
-------------------------
furnish to the Company, prior to the issuance of any shares upon the exercise of
all or any part of this Stock Option, an agreement (in such form as such
Committee may specify) in which Optionee represents that the shares of Common
Stock acquired upon exercise are being acquired for investment and not with a
view to the sale or distribution thereof and that any transfers of such shares
will be made only in compliance with the registration requirements of the
Securities Act of 1933, as amended, or an exemption therefrom.
6
<PAGE>
4. Change of Control. For the purposes of this Agreement, a Change in
-----------------
Control of the Company shall be deemed to have occurred upon the earliest of the
following events:
(a) if any person (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934) should acquire direct or indirect
beneficial ownership of 24 percent or more of the combined voting power of the
then outstanding securities of the Company, other than as a result of any such
beneficial ownership by a person held on the date of this Agreement, or
(b) if during any period of two consecutive years, the individuals who
at the beginning of such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof, unless the
election, or the nomination for election by the Company's shareholders of each
new director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period, or
(c) if the Board of Directors or any designated committee determines
in its sole discretion that any person (as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934) directly or indirectly
exercises a controlling influence over the management or policies of the
Company, other than a person appointed or approved by the Board or such
committee, or a person holding such influence on the date of this Agreement.
5. Shareholders Agreement. In the event that the Company has not
----------------------
registered any of its shares with the Securities and Exchange Commission as of
the date that the Optionee exercised any portion of the Option contained herein,
the Optionee shall execute and deliver, as an additional precondition to the
exercise of this Option, or the right to receive the Option Shares, a
Shareholders Agreement in the form of the Shareholders Agreement attached hereto
as Exhibit "A.".
6. Notices. Any notice hereunder to the Company shall be addressed to it
-------
at its office, 11410 Isaac Newton Square, Reston
7
<PAGE>
Virginia 22090, Attention: Corporate Secretary, and any notice hereunder to
Optionee shall be addressed to him or her at the last address on the Company's
records for the Optionee, subject to the right of either party to designate at
any time hereafter, in writing, some other address.
7. Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall constitute one and the same instrument.
8. Amendment and Waiver. This Agreement may not be amended except through
--------------------
a written agreement signed by the party against whom the amendment is sought to
be enforced. No waiver of any term or condition under this Option shall operate
as a waiver of such term and condition thereafter, except to the extent
otherwise agreed to in writing by the person granting such waiver.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by its duly authorized officer and Optionee has executed this
Agreement to be effective as of the day and year first above written.
NEXUS HEALTHCARE INFORMATION CORPORATION
___________________________ By:_________________________
Its:________________________
___________________________
OPTIONEE
___________________________ ____________________________
___________________________
8
<PAGE>
Exhibit 10.3a
LEASE AGREEMENT
BY AND BETWEEN
RESTON INVESTMENT PROPERTIES
ASSOCIATES LIMITED PARTNERSHIP
AND
ST. ANTHONY PUBLISHING, INC.
AND
ST. ANTHONY CONSULTING GROUP, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS...............................................................1
ARTICLE II
PREMISES..................................................................2
ARTICLE III
TERM......................................................................8
ARTICLE IV
BASE RENT................................................................14
ARTICLE V
OPERATING CHARGES........................................................15
ARTICLE VI
USE OF PREMISES..........................................................18
ARTICLE VII
ASSIGNMENT AND SUBLETTING................................................20
ARTICLE VIII
MAINTENANCE AND REPAIRS..................................................22
ARTICLE IX
ALTERATIONS..............................................................24
ARTICLE X
SIGNS....................................................................25
ARTICLE XI
SECURITY DEPOSIT.........................................................26
ARTICLE XII
HOLDING OVER.............................................................27
ARTICLE XIII
INSURANCE................................................................27
ARTICLE XIV
SERVICES AND UTILITIES...................................................29
ARTICLE XV
LIABILITY OF LANDLORD....................................................31
ARTICLE XVI
RULES....................................................................32
ARTICLE XVII
DAMAGE OR DESTRUCTION....................................................32
ARTICLE XVIII
CONDEMNATION.............................................................34
ARTICLE XIX
DEFAULT..................................................................35
ARTICLE XX
BANKRUPTCY...............................................................38
ARTICLE XXI
SUBORDINATION............................................................39
ARTICLE XXII
COVENANTS OF LANDLORD....................................................40
ARTICLE XXIII
GENERAL PROVISIONS.......................................................41
ARTICLE XXIV
PARKING..................................................................44
</TABLE>
EXHIBIT A -- Plan Showing Premises
EXHIBIT B -- Work Agreement
EXHIBIT C -- Form of Certificate Affirming
Lease Commencement Date
EXHIBIT D -- Rules
EXHIBIT E -- Measurement of Rentable Area
EXHIBIT F -- First Refusal Space
EXHIBIT G -- Subordination of Mortgage Agreement
EXHIBIT H -- Janitorial Specifications
EXHIBIT I -- Reserved Parking Spaces
EXHIBIT J -- Lien Subordination
-i-
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (this "Lease") is dated as of March 18, 1994 by and
between RESTON INVESTMENT PROPERTIES ASSOCIATES LIMITED PARTNERSHIP, a
("Landlord"), and ST. ANTHONY PUBLISHING, INC., a Delaware corporation and ST.
ANTHONY CONSULTING GROUP, INC., a Delaware corporation (collectively, "Tenant").
ARTICLE I
---------
DEFINITIONS
-----------
1.1 Building: a two (2) story office building containing sixty-two
thousand six hundred ten (62,610) square feet of rentable area, located on
certain land (the "Land") at 11410 Isaac Newton Square, Reston, Virginia,
together with related parking areas and facilities (whether in or near the
Building), roadways and driveways and other amenities.
1.2 Premises: thirty-nine thousand three hundred fifty-nine (39,359)
square feet of rentable area, which is comprised of eight thousand fifty-four
(8,054) square feet of rentable area located on the first (1st) floor of the
Building and thirty-one thousand three hundred five (31,305) square feet of
rentable area located on the second (2nd) floor of the Building, all as outlined
on Exhibit A attached hereto.
1.3 Tenant's Proportionate Share: 62.86%.
1.4 Lease Term: Seventy-two (72) months.
1.5 Anticipated Occupancy Date: May 6, 1994.
1.6 Base Rent and Base Rent Rate: four hundred twelve thousand
eighty-eight dollars and seventy-six cents ($412,088.76) for the first Lease
Year (which amount is based on a base rent rate of ten dollars and forty-seven
cents ($10.47) per square foot of rentable area), divided into twelve (12) equal
monthly installments of $34,340.73 for the first Lease Year.
1.7 Intentionally Deleted.
1.8 Security Deposit: eighty thousand dollars ($80,000.00).
1.9 Broker(s): Zell Partners, Ltd. and CB Commercial Real Estate Group,
Inc.
1.10 Tenant Address for Notices: 500 Montgomery Street, Suite 700,
Alexandria, Virginia 22314 (Attn: John Lawson), until Tenant has commenced
beneficial use of the Premises, and the Premises (Attn: John Lawson) after
Tenant has commenced beneficial use of the Premises.
1.11 Complex: that complex (of which the Building is a part) known as
Isaac Newton Square (including the buildings located at 1916-1924, 1925, 1930,
1943, 11410, 11411-11415 and 11440 Isaac Newton Square), and including all
easements, rights and appurtenances thereto (including private streets, storm
detention facilities and other service facilities).
1.12 Guarantor(s): None.
1.13 Landlord Address for Notices: c/o The Mark Winkler Company, 4900
Seminary Road, Suite 900, Alexandria, Virginia 22311.
<PAGE>
-2-
1.14 Parking Permits: one hundred thirty-seven (137), of which fifteen
(15) shall be for reserved spaces, as more particularly described in Article
XXIV.
ARTICLE II
----------
PREMISES
--------
2.1 Tenant leases the Premises from Landlord upon the terms stated herein.
Provided that an Event of Default is not continuing hereunder. Tenant shall have
the right to quietly enjoy and occupy the Premises. Tenant will have the
non-exclusive right to use for their intended purpose the areas of the Building
designated by Landlord from time to time as common and public space. Except as
required by law, Landlord shall not reduce or materially adversely alter such
common areas in a manner that would materially adversely affect Tenant's access
to the Premises.
2.2 The standard of measurement set forth on Exhibit E attached hereto
governs and controls all calculations in this Lease relating to the rentable
area of the Premises. In no event shall any core facilities be counted twice in
computing rentable area pursuant to Exhibit E. Tenant shall have the right to
have the rentable area of the Premises remeasured (using the method of
measurement described in Exhibit E attached hereto) within thirty (30) days
after the Lease Commencement Date by an architect who shall be licensed in the
Commonwealth of Virginia, has at least ten (10) years experience and is
recognized within the field as being reputable and ethical (a "Qualified
Architect"), provided that Tenant notifies Landlord thereof in writing within
thirty (30) days after the Lease Commencement Date. If Tenant's architect
disputes the rentable area of the Premises described in Section 1.2 hereinabove
and Landlord's architect does not agree with such determination, then Tenant's
architect and Landlord's architect shall together appoint a third Qualified
Architect to remeasure the Premises (using the method of measurement described
in Exhibit E attached hereto) and such architect's determination of the rentable
area of the Premises shall be final and conclusive. If the number of rentable
square feet of the Premises as finally determined by the remeasuring process
described above is different than the number of rentable square feet of the
Premises described in Section 1.2 above, then Landlord and Tenant shall promptly
enter into an amendment to this Lease incorporating the appropriate changes. If
Tenant fails to notify Landlord in writing of its intention to remeasure the
space within the thirty (30) day period described above, then the number of
rentable square feet of the Premises described in Section 1.2 above shall be
final and conclusive. Landlord and Tenant shall each bear the cost of its
architect and shall share equally the cost of the third architect; provided,
however, that if the number of rentable square feet of the Premises as finally
determined by the remeasuring process described above is more than five percent
(5%) less than the number of rentable square feet of the Premises described in
Section 1.2 hereinabove, then Landlord shall bear the reasonable cost of
Tenant's architect.
2.3 Tenant shall have a first right of refusal to lease the balance of the
space in the quadrant occupied by Tenant on the first (1st) floor of the
Building (the "First Quadrant"), which space is comprised of approximately eight
thousand (8,000) rentable square feet and is more particularly shown on Exhibit
F attached hereto, on the following terms and conditions:
(1) If at any time during the initial Lease Term
Landlord has a prospect for the leasing of all or any
part of the space on the first floor of the Building,
provided that (i) such prospect is not an affiliate of
Landlord or The Mark Winkler Company, (ii)
<PAGE>
-3-
such prospect has toured such space, (iii) a bona fide
proposal has been delivered either by Landlord or the
prospect to the other party (the "Proposal"), provided
that if the Proposal was delivered by Landlord to the
Prospect, then the prospect shall have provided an
expression of interest to Landlord related thereto, (iv)
the Proposal includes a proposed commencement date and a
proposed term for the leasing of such space, and (v) the
space covered by such Proposal includes any portion of the
space in the First Quadrant, then Tenant shall have the
right to lease the space identified in such Proposal (the
"First Refusal Space") and Landlord shall provide written
notice thereof to Tenant ("Landlord's Notice"), which
notice shall specify the proposed term, the proposed
commencement date and the proposed number of rentable
square feet to be leased by such prospect, as such terms
are provided in the Proposal; provided, however, that if
the Landlord's Notice is provided to Tenant after the end
of the second Lease Year, then Landlord shall simultaneously
deliver a copy of the Proposal to Tenant. Tenant shall have
a period of ten (10) days after receipt of Landlord's Notice
to notify Landlord in writing of its intention to lease the
First Refusal Space identified in Landlord's Notice.
Notwithstanding anything in the preceding two sentences to
the contrary, if the Landlord Notice is delivered to Tenant
prior to the end of the second (2nd) Lease Year and the
First Refusal Space identified in the Landlord Notice
includes space both inside and outside of the First Quadrant,
then Tenant may, in lieu of electing to lease all of the
space identified in Landlord's Notice, elect to lease only
the greater of (a) the available space in the First Quadrant
or (b) a total of eight thousand (8,000) rentable square
feet (including all available space in the First Quadrant
and the appropriate amount of space in the Second Quadrant),
provided that Tenant specifies such intention in writing
with Tenant's notice described in the immediately preceding
sentence. If Landlord does not timely receive such notice
from Tenant, then Tenant's rights under this Section with
respect to the identified prospect or any affiliate thereof
shall lapse and be of no further force or effect if Landlord
enters into a lease with such prospect within nine (9)
months from the date of the Landlord's Notice on terms that
in the aggregate do not have a net present value that is
greater that ten percent (10%) more favorable to the
prospect than the terms described in the Proposal. If Tenant
timely elects to lease such space, then such lease shall be
upon and subject to the terms set forth in subparagraph (2)
below.
(2) If any First Refusal Space is leased to Tenant,
the number of rentable square feet and the location of such
First Refusal Space shall be as provided in
<PAGE>
-4-
Landlord's Notice (except as specifically provided otherwise
pursuant to Section 2.3 (1) above). If any First Refusal
Space is leased to Tenant, the term of the Lease for such
First Refusal Space shall be conterminous with the Lease
Term; provided, however, that, except with respect to First
Refusal Space in the First Quadrant covered by a Landlord
Notice delivered prior to the end of the Second (2nd) Lease
Year, if the term described in the Proposal would extend
beyond the end of the Lease Term, then Tenant shall have the
Option to either (i) lease the First Refusal Space for the
term described in the Proposal or (ii) exercise its option
to renew the Lease pursuant to Section 3.6 for a renewal
period equal to the greater of (a) three (3) years or (b)
the length of time necessary to extend the Lease Term to
expire on the fifth (5th) anniversary of the commencement
date of the term of the Lease for the First Refusal Space.
In the event that the Lease Term is renewed pursuant to the
preceding sentence, Landlord and Tenant agree that the
rental terms for the leasing of the Premises during any such
Renewal Terms shall be determined pursuant to the process
described in Section 3.6 below and that such process shall
not be commenced until one (1) year prior to the expiration
date of the initial six (6) year Lease Term (provided that
if the Landlord's Notice is delivered after the end of the
second (2nd) Lease Year the rental terms for the First
Refusal Space during any such Renewal Term shall continue to
be as provided in the Proposal and not redetermined pursuant
to the process described in Section 3.6). If Tenant renews
the Lease pursuant to this provision for a period in excess
of three (3) years, then the length of the Second Renewal
Term (as defined in Section 3.6 below) shall be reduced by
the number of months by which such First Renewal Term
exceeds three (3) years, it being understood that in no
event shall Tenant's right to renew the Lease pursuant to
Section 3.6 (as modified by this Section) be construed to
extend for more than six (6) years beyond the initial six
(6) year Lease Term. If Landlord's Notice with respect to
the applicable Proposal is delivered prior to the end of the
second Lease Year, then the initial Base Rent Rate for such
First Refusal Space shall be the same as the Base Rent Rate
for the remainder of the Premises as of the date of Tenant's
occupancy of such First Refusal Space (without taking into
account any abatements that may be applicable to the
remainder of the Premises, except that if the term of the
lease for any First Refusal Space commences within three (3)
months after the Lease Commencement Date, then Tenant shall
receive an abatement equal to the number of days prior to
the end of such three (3) month period that the term of the
Lease for such First Refusal Space actually commences).
Tenant shall be responsible for all costs of building out
the First Refusal Space, including but not limited to all
permitting costs,
<PAGE>
-5-
all planning costs, all design costs, the cost of
installing any such work in the First Refusal Space and
Landlord's construction management fee of 5%.
Notwithstanding the foregoing, Landlord shall provide Tenant
with a construction allowance for such First Refusal Space
equal to five dollars ($5.00) per rentable square foot of
such First Refusal Space; provided, however, that if the
term of the lease for such First Refusal Space is less than
six (6) years, then the construction allowance for such
First Refusal Space shall be reduced to a number determined
by multiplying the full construction allowance by a
fraction, the numerator of which shall be equal to the
number of full calendar months of the term of the lease for
the First Refusal Space and the denominator of which shall
be equal to 72. If Landlord's notice with respect to the
applicable proposal is delivered at any time after the end
of the second Lease Year, then the initial Base Rent Rate
and the construction allowance to be provided by Landlord
for the First Refusal Space shall be the same as such terms
are provided in the Proposal. All other terms of the leasing
of the First Refusal Space shall be the same as the terms of
this Lease. If Tenant timely and validly exercises its right
to lease the First Refusal Space, then Landlord and Tenant
shall promptly enter into a lease (or an amendment to this
Lease) reflecting such terms, which amendment shall contain
(among other things) a provision requiring Landlord and
Tenant to proceed diligently and in good faith to undertake
any and all activities necessary or appropriate to insure
that Tenant's occupancy of the First Refusal Space occurs as
soon as practicable after Tenant's exercise of its rights
pursuant to this Section.
(3) Tenant's rights under this Section are subject and
subordinate to Landlord's right to renew expiring leases
pursuant to rights contained in such leases or pursuant to
the mutual agreement of Landlord and tenants under such
leases.
(4) If an Event of Default exists under this Lease on
the date of Landlord's Notice or at any time thereafter
prior to the date any First Refusal Space is occupied by
Tenant or if there exists a material adverse change in
Tenant's financial condition or liquidity from the financial
condition and liquidity of Tenant as the date of Tenant's
execution of this Lease that in Landlord's reasonable
opinion could impair Tenant's ability to meet its
obligations under this Lease, then, at Landlord's option,
Tenant's rights pursuant to this Section shall lapse and be
of no further force or effect.
(5) Tenant's rights under this Section may be
exercised only by Tenant and Permitted Transferees (as
defined in Section 7.5), and
<PAGE>
-6-
may not be exercised by any other transferee, sublessee or
assignee of Tenant.
(6) If at any time thirty percent (30%) or more of the
square feet of rentable area of the Premises has been
terminated, sub-leased or assigned other than to Permitted
Transferees, then Tenant's rights pursuant to this Section
shall lapse and be of no further force or effect.
(7) Except as specifically provided otherwise pursuant
to Section 2.3(i) above, Tenant shall have no right to lease
less than the entire First Refusal Space identified in
Landlord's Notice. Tenant shall have the right to lease more
than the entire First Refusal Space so identified if such
additional space is then available and, in Landlord's
reasonable judgment, the remaining space in the Quadrant of
the first (1st) floor where such additional space is located
is readily marketable as a separate suite (or suites) at
similar rents and terms to those Landlords is then obtaining
for other space in the Complex. If Tenant duly elects to
lease more than the entire First Refusal Space so
identified, then the terms and conditions of the leasing of
any such additional space shall be agreed upon by Landlord
and Tenant. If Landlord and Tenant are unable to agree on
the terms and conditions for the leasing of such additional
space, then Tenant shall not be obligated to lease
such additional space, but shall remain obligated to lease
the First Refusal Space in accordance with the terms of this
Section.
(8) If the term of the First Refusal Space is
coterminous with the Lease Term or expires on a date between
the expiration of the Lease Term and the date the Renewal
Term would expire if Tenant exercised its rights pursuant to
Section 3.6, of the Lease, then if Tenant renews the Lease
pursuant to such Section 3.6, Tenant shall be obligated to
extend the term of the lease for the First Refusal Space to
be coterminous with the Renewal Term. During the extended
term the Base Rent Rate for the First Refusal Space shall be
equal to the then-current Base Rent Rate for the balance of
the Premises.
(9) If Tenant leases any First Refusal Space pursuant
to this Section, then Tenant shall be allotted, at no
charge, three and one-half (3.5) Parking Permits per each
one thousand (1,000) rentable square feet of such First
Refusal Space, which Parking Permits shall be subject to the
terms of Article XXIV.
(10) If Tenant leases any First Refusal Space pursuant
to this Section, then, if Tenant notifies Landlord thereof
in writing within thirty (30) days after the commencement of
the term of the lease for such First Refusal Space, Tenant
may confirm the number
<PAGE>
-7-
of rentable square feet of the First Refusal Space in
accordance with the procedure described in Section 2.2
above.
2.4 If Tenant leases any portion of the First Quadrant pursuant to the
terms of Section 2.3 hereinabove, then Tenant shall have a first right of
refusal to lease a portion of the space in the quadrant not occupied by Tenant
on the first (1st) floor of the Building (the "Second Quadrant"), which Second
Quadrant is comprised of a total of approximately sixteen thousand (16,000)
rentable square feet. Tenant's first right of refusal with respect to the Second
Quadrant shall be in effect if the consumation of a proposed lease to
a prospect for space on the first floor of the Building would result
in the number of rentable square feet available in the Second Quadrant
being reduced to less than Tenant's Minimum Second Quadrant Space (as
herein defined). The amount of "Tenant's Minimum Second Quadrant
Space" shall be equal at any time to the number of rentable square
feet of space previously leased by Tenant in the First Quadrant
pursuant to Section 2.3 hereinabove. Tenant's rights of first refusal
with respect to space in the Second Quadrant shall be in the following
terms and conditions:
(1) If at any time during the initial Lease Term
Landlord has a prospect for the leasing of all or any part
of the space on the first floor of the Building, provided
that (i) such prospect is not an affiliate of Landlord or
The Mark Winkler Company, (ii) such prospect has toured such
space, (iii) a Proposal has been delivered either by
landlord or the prospect to the other party, provided that
if the Proposal was delivered by Landlord to the Prospect,
then the Prospect shall have provided an expression of
interest to Landlord related thereto, (iv) the Proposal
includes a proposed commencement date and a proposed term
for the leasing of such space and (v) as a result of a lease
being entered into with such prospect based on such Proposal
less than the Tenant's Minimum Second Quadrant Space would
remain unleased in the Second Quadrant, then Tenant shall
have the right to lease the space identified in such
Proposal (the "Additional First Refusal Space") and Landlord
shall provide a Landlord's Notice to Tenant, which notice
shall specify the location of the Additional First Refusal
Space available to Tenant; provided, however, that if the
Landlord's Notice is provided to Tenant after the end of the
second Lease Year, then Landlord shall simultaneously
deliver a copy of the Proposal to Tenant. Tenant shall have
a period of ten (10) days after receipt of Landlord's Notice
to notify Landlord in writing of its intention to lease the
Additional First Refusal Space identified in Landlord's
Notice. If Landlord does not timely receive such notice from
Tenant, then Tenant's rights under this Section with respect
to the identified prospect or any affiliate thereof shall
lapse and be of no further force or effect if Landlord
enters into a lease with such prospect within nine (9)
months from the date of the Landlord's Notice on terms that
in the aggregate do not have a net present value that is
greater than ten percent (10%) more favorable
<PAGE>
-8-
to the prospect than the terms provided in the Proposal. If
the Tenant timely elects to lease such space, then such
lease shall be upon and subject to the terms set forth in
subparagraph (2) below.
(2) The terms of subsections (2)-(10) of Section 2.3
above shall apply to the Additional First Refusal Space as
if they were fully stated in this Section 2.4; provided,
however, that notwithstanding anything in Section 2.3 to the
contrary, in no event shall Tenant be permitted to lease
less than the entire Additional First Refusal Space
identified in Landlord's Notice.
(3) Landlord shall have the absolute right to lease
any portion of the Second Quadrant at any time without
providing Tenant a first refusal right as long as the
leasing of such space would not reduce the available number
of rentable square feet in the Second Quadrant to less than
the Tenant's Minimum Second Quadrant Space.
ARTICLE III
-----------
TERM
----
3.1 The terms and conditions of this Lease shall be effective from the
date of execution of this Lease by Landlord and Tenant. The Lease Term shall
Commencement Date specified in Section 3.2 hereinbelow. If the Lease
Commencement Date is not the first day of a month, then the Lease Term shall be
the period set forth in Section 1.4 hereinabove plus the partial month in which
the Lease Commencement Date occurs. The Lease Term shall also include any
properly exercised renewal or extension of the term of this lease.
3.2 (a) The Lease Commencement Date shall be the earlier of the date (i)
the work and materials to be provided by Landlord pursuant to Exhibit B attached
hereto are substantially complete, as determined pursuant to Section 3.2(b)
hereinbelow, or (ii) Tenant commences beneficial use of the Premises, as
determined pursuant to Section 3.2(c) hereinbelow.
(b) The Premises shall be deemed to be substantially complete when
the work and materials to be provided by Landlord pursuant to Exhibit B attached
hereto (except for items of work and adjustment of equipment and fixtures that
can be completed after the Premises are occupied without causing substantial
interference with Tenant's use of the Premises (i.e., the "punch list" items))
have been completed, as determined by Landlord, and Landlord has obtained all
required permits in connection with the Initial Improvements (as defined in
Exhibit B) being installed in the premises by Landlord. The date of substantial
completion determined by Landlord shall be final and conclusive unless Tenant
notifies Landlord in writing, within five (5) days after such date, that Tenant
disputes the date of substantial completion. If Tenant sends such notice, then,
within five (5) days after Landlord's receipt of such notice, Landlord's
architect shall reasonably determine the date of substantial completion.
Notwithstanding the preceding sentence, if Landlord shall be delayed in
completing the work and materials to be provided pursuant to Exhibit B as a
result of (1) Tenant's failure to comply with any of its duties and obligations
hereunder or with any deadlines specified in Exhibit B. (2) except to the extent
necessary to comply with applicable codes, Tenant's request for modifications to
plans or working drawings subsequent to the date
<PAGE>
-9-
such plans or working drawings are approved by Tenant, (3) Tenant's failure to
pay when due any amount required pursuant to Exhibit B, (4) Tenant's request for
materials, finishes or installations not reasonably deemed by Landlord's
contractor to be available off the shelf, provided that Landlord has notified
Tenant that such materials, finishes or installations are not available off the
shelf prior to placing a firm order for any such material, finish or
installation and Tenant has not withdrawn the request for any such material,
finish or installation within two (2) business days after receiving such notice
from Landlord, (5) Tenant's installation of modular furniture or (6) the
performance of any work by any person or firm employed or retained by Tenant,
then for purposes of determining the Lease Commencement Date, the work and
materials to be provided pursuant to Exhibit B shall be deemed to have been
substantially complete on the date that Landlord determines in its reasonable
judgment that such work and materials would have been substantially complete if
such delay(s) had not occurred. The determination by Landlord of the date such
work and materials would have been substantially complete absent such delay(s)
shall be final and conclusive unless Tenant notifies Landlord in writing within
five (5) days after such date that Tenant disputes such date. If Tenant timely
sends such notice, then, within five (5) days after Landlord's receipt of such
notice, Landlord's architect shall reasonably determine the date such work and
materials would have been substantially complete absent such delay(s).
(c) Tenant shall be deemed to have commenced beneficial use of the
premises when Tenant begins to move furniture, furnishings, inventory, equipment
or trade fixtures into the Premises or any portion thereof (other than in
accordance with Paragraph 9 of Exhibit B).
(d) If the Lease Commencement Date is not the Anticipated Occupancy
Date, then, promptly after the Lease Commencement Date is ascertained, Landlord
shall provide Tenant with a certificate (in the form of Exhibit C attached
hereto) confirming such date.
3.3 (a) It is presently anticipated that the Premises will be delivered
to Tenant on or about the Anticipated Occupancy Date. If Landlord does not
complete construction and deliver possession of the Premises by such date, then
Landlord shall not have any liability whatsoever, and this Lease shall not be
rendered voidable on account thereof, except as otherwise provided in Sections
3.3 (b) and (c) below.
(b) If the Lease Commencement Date does not occur on or before May
23, 1994 (as such date may be extended as hereinbelow described, the "Penalty
Date"), then Landlord agrees to provide Tenant an abatement of Base Rent (the
"Additional Rent Abatement") equal to one day (based on the Base Rent payable
during the first Lease Year) for each day commencing on the Penalty Date and
continuing to (but not including) the Lease Commencement Date (or the date of
termination of this Lease if Tenant terminates in accordance with Section 3.3
(c) below), provided, however, that if the Lease Commencement Date does not
occur on or before June 15, 1994 (as such date may be extended, the "Additional
Penalty Date"), then the Additional Rent Abatement shall be increased by two
days for each day commencing on the day after the Additional Penalty Date and
continuing to (but not including) the Lease Commencement Date (or the date of
termination of this Lease if Tenant terminates in accordance with Section 3.3
(c) below). In the event of any delay in Landlord's delivery of the Premises
because of the wrongful acts or omissions of Tenant (including, without
limitation, the factors or causes described in clauses (1) through (6) of
Section 3.2 (b)), the Penalty Date and the Additional Penalty Date shall each be
automatically
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extended for a period equal to the period of such delay. In addition, if this
Lease has not been executed by Tenant and delivered to Landlord in form
satisfactory to Landlord by March 15, 1994, then the Penalty Date and the
Additional Penalty Date shall each be extended by the number of days after March
15, 1994 until this Lease is executed by Tenant and delivered to landlord in
form satisfactory to Landlord. If Tenant is entitled to any Additional Rent
Abatement pursuant to this Section 3.3 (b), then the total amount of such
Additional Rent Abatement shall be amortized over the course of the Lease Term
using a nine percent (9%) amortizing factor and the monthly installments of Base
Rent shall be reduced accordingly.
(c) If the Lease Commencement Date does not occur on or before June
15, 1994 (as such date may be extended as hereinbelow described, the "Outside
Date"), then Tenant shall have the option to notify Landlord of its intent to
cancel this Lease by written notice delivered to Landlord. If Tenant provides
such notice, than Landlord shall have thirty (30) days from receipt thereof to
deliver the Premises. If Landlord fails to deliver the Premises pursuant to the
terms hereof within such thirty (30) day period, then this Lease shall be deemed
terminated and the parties hereto shall have no further liability to each other.
In the event of any delay in Landlord's delivery of the Premises because of any
of the factors or causes described in Section 23.20 hereinbelow that are beyond
Landlord's reasonable control (it being understood that Landlord shall use its
best efforts to obtain the permits necessary for the construction of the Initial
Improvements as quickly as practicable after execution hereof) or the wrongful
acts or omissions of Tenant (including, without limitation, the factors or
causes described in clauses (1) through (6) of Section 3.2 (b)), Tenant's option
to cancel this Lease shall be postponed for the period of such delay and the
Outside Date (or cure period, as applicable) shall be automatically extended for
a period equal to the period of such delay. In addition, if this Lease has not
been executed by Tenant and delivered to Landlord in form satisfactory to
Landlord by March 15, 1994, Tenant's option to cancel this Lease shall be
postponed and the Outside Date automatically extended by the number of days
after March 15, 1994 until this Lease is executed by Tenant and delivered to
Landlord in form satisfactory to Landlord.
3.4 Lease Year shall mean a period of twelve (12) consecutive months
commencing on the Lease Commencement Date and each successive twelve (12) month
period thereafter; provided, however, that if the Lease Commencement Date is not
the first day of a month, then the second Lease Year shall commence on the first
day of the month after the month in which the first anniversary of the Lease
Commencement Date occurs.
3.5 Tenant shall have the right to terminate this Lease only as of the
last day of each of the thirty-sixth (36th), the forty-eighth (48th) or the
sixtieth (60th) full calendar month of the Lease Term (each, a "Termination
Date") by timely notifying Landlord in writing of its intention to exercise such
right at least two hundred forty (240) days prior to the applicable Termination
Date (each, a "Termination Notice"), provided that an Event of Default does not
exist hereunder as of the date Tenant provides the Termination Notice or at any
time thereafter prior to such Termination Date and either (i) Tenant and all of
its related entities (including, without limitation, all affiliates,
subsidiaries, parent corporations or successors due to merger or otherwise)
permanently relocate all of their offices and other facilities (other than a
maximum of 2,000 rentable square feet) to locations outside of Maryland,
Washington, D.C. and Virginia, or (ii) Tenant has previously requested in
writing 8,000 or more rentable square feet of expansion space from landlord (an
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"Expansion Notice") and Landlord has been unable, within the six (6) month
period after receipt of any such request, to make available to Tenant an amount
of space in the Complex equal to at least ninety percent (90%) of the number of
rentable square feet of expansion space requested by Tenant, provided, however,
that Landlord shall notify Tenant at an earlier date if Landlord believes at
such earlier date that it will not be possible for Landlord to accommodate
Tenant's needs. Tenant's Termination Notice shall specify whether Tenant is
terminating pursuant to subparagraph (i) or (ii) above. Notwithstanding anything
in subparagraph (i) above to the contrary, Tenant shall have the right to
terminate this Lease pursuant to Subsection (i) above if Tenant has been
purchased by another entity and such entity permanently relocates Tenant's
offices and other facilities in accordance with subsection (i) even if such
entity does not move its other operations from Maryland, Washington, D.C. and
Virginia, provided that for purposes of this section Tenant's operations shall
be deemed to include but not be limited to publishing, consulting and education,
a principal focus of each is ICD-9, ICD-10 or CPT coding, or payment or
reimbursement optimization which respect to such coding (which Tenant represents
is descriptive of Tenant's current business operations), and provided further
that such entity shall provide satisfactory evidence that none of Tenant's
operations have been moved to other locations of the entity within Maryland,
Washington, D.C. or Virginia. If Tenant is offered any additional space pursuant
to Section 2.3 or 2.4 and Tenant fails to lease such space, then Tenant shall
not have the right to exercise its termination right pursuant to subsection (ii)
above for the full one (1) year period from the date Landlord offered such
additional space to Tenant. If Tenant's Termination Notice specifies
subparagraph (ii) as Tenant's basis for terminating the Lease, then Tenant's
right to terminate shall automatically be nullified if Landlord makes available
to Tenant an amount of space in the Complex equal to at least the number of
square feet requested by Tenant pursuant to the Expansion Notice within three
(3) months after Landlord's receipt of the Termination Notice. Tenant shall not
have the right to terminate the Lease pursuant to subparagraph (ii) above unless
Tenant exercises such termination right with respect to the first Termination
Date following Landlord's failure to satisfy the terms of subparagraph (ii)
above. If Tenant timely and validly exercises its termination right pursuant to
this Section, then Tenant shall pay Landlord a termination payment equal to (x)
$6.50 per rentable square foot of the Premises if Tenant terminates this Lease
as of the end of the thirty-sixth (36th) full calendar month of the Lease Term,
(y) $4.50 per rentable square foot of the Premises if Tenant terminates this
Lease as of the end of the forty-eighth (48th) full calendar month of the Lease
Term and (z) $2.25 per rentable square foot of the Premises if Tenant terminates
this Lease as of the sixtieth (60th) full calendar month of the Lease Term,
which termination payment shall be payable concurrently with Tenant's
Termination Notice, provided, however, that, if Tenant so elects, Tenant may
deliver such termination payment into escrow with an escrow agent who is
mutually agreed upon by Landlord and Tenant, and such escrow agent shall be
instructed to deliver the termination payment to Landlord on the date that
Tenant's termination right becomes final or to return the termination payment to
Tenant if Tenant's termination option is nullified. Such termination payment
shall be in addition to, and not in lieu of, the rental payments and other
charges due hereunder through the Termination Date, and it is understood by the
parties hereto that such termination payment shall be deemed to be recapture of
inducements provided to Tenant to enter into this Lease and other costs and
expenses incurred or suffered by Landlord in connection with this Lease. If
Tenant does not timely deliver the Termination Notice and timely make the
termination payment in accordance with the terms of this Section (time being of
the essence), then Tenant's right to
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terminate this Lease with respect to the applicable Termination Date pursuant to
this Section shall immediately lapse and be of no further force or effect. If
Tenant timely provides both the Termination Notice and the termination payment
to Landlord but fails to vacate the premises completely and in the condition
required pursuant to the terms of this Lease by the applicable Termination Date,
then at Landlord's option Tenant shall be treated as a holdover tenant subject
to the terms of Article XII) of this Lease. If (1) Tenant terminates this Lease
pursuant to subparagraph (i) above and fails to enter into the lease (s) outside
of Maryland, Virginia and Washington, D.C. for the space to which Tenant will
move its offices and other facilities within one hundred eights (180) days after
the date of Tenant's Termination Notice (and provide written notice thereof to
Landlord) and completely move all of Tenant's offices and other facilities (and
those of Tenant's affiliates, subsidiaries, parent corporations and successors
due to merger or otherwise) outside of Maryland, Virginia and Washington, D.C.
within ninety (90) days after the applicable Termination Date (and provide
written notice thereof to landlord), or (2) Tenant terminates this Lease
pursuant to subparagraph (ii) above and fails to lease at least an additional
amount of space equal to the total rentable area of the Premises immediately
prior to the Termination Date plus the amount of space specified in the
Expansion Notice in a single location within one hundred eighty (180) days after
the date of Tenant's Termination Notice (and provide written notice thereof to
Landlord), then, in either such event, at Landlord's option, either (I) Tenant's
right to terminate this Lease pursuant to this Section shall be nullified and of
no further force or effect, or (II) Tenant shall immediately be liable to
Landlord for an amount equal to the total Base Rent and additional rent that
would have been payable from the Termination Date through the end of the Lease
Term (in addition to the termination payment previously paid by Tenant). The
right to terminate this Lease in accordance with this Section is personal to St.
Anthony Publishing, Inc. and Permitted Transferees and may not be exercised by
any other transferee or assignee of St. Anthony Publishing, Inc.
3.6 Landlord hereby grants to Tenant the conditional right exercisable at
Tenant's option, to renew the term of this Lease for two (2) terms of three (3)
years. If exercised, and if the conditions applicable thereto have been
satisfied, the first renewal term (the "First Renewal Term") shall commence
immediately following the end of the initial Lease Term of this Lease and the
second renewal term (the "Second Renewal Term") shall commence immediately
following the end of the First Renewal Term. The rights of renewal herein
granted to Tenant shall be subject to, and shall be exercised in accordance
with, the following terms and conditions:
(a) Tenant shall exercise its right of renewal with respect to a
Renewal Term by giving Landlord written notice thereof not earlier than three
hundred sixty (360) days (except as specifically provided otherwise pursuant to
Section 2.3 (2) hereinabove) nor later than two hundred forty (240) days prior
to the expiration of the then-current term of this Lease (a "Renewal Notice").
The parties shall have thirty (30) days after Landlord's timely receipt of the
Renewal Notice in which to agree on the existing "market rate" base rent,
escalation factor, parking charge (if customary for the buildings owned by
Landlord in the complex at that time) and additional rent (collectively, the
"Market Rent"). Among the factors to be considered by the parties during such
negotiations shall be (i) the general office rental market in Northern Virginia,
(ii) the rental rates then being offered by Landlord to comparable tenants for
comparable space in the Building and in buildings similar to the Building
(including any premium quoted by Landlord for enhanced views and marketability
on higher floors), (iii) rent abatements,
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concessions and buildout allowances then prevalent in the Northern Virginia
Marketplace for renewal tenants and (iv) the condition that the base year for
Operating Charges during such Renewal Term shall be the calendar year in which
such Renewal Term commences. If, based upon the above factors, Landlord and
Tenant are able to agree on the Market Rent, then the base rent, escalation
factor, parking charge and additional rent which shall be payable during a
Renewal Term shall be such Market Rent; provided, however, that the base rent
and parking charges payable shall be ninety-five percent (95%) of the base rent
and parking charges components of such Market Rent. In no event, however, shall
Landlord be under any obligation to agree to a base rent, escalation factor,
parking charge or additional rent for a Renewal Term which is less than the Base
Rent, escalation factor, parking charge or additional rent in effect under this
Lease during the Lease Year immediately preceding the commencement of such
Renewal Term (the "Then-Current Rent"). Notwithstanding the foregoing sentence,
if during such thirty (30) day period Landlord determines, in its reasonable
discretion, that the Market Rent is lower than the Then-Current Rent and that
Landlord would be willing to lease the Premises to a tenant substantially
comparable to Tenant for a three (3) year term commencing at the time of the
expiration of the then-current Lease Term on the terms and conditions herein set
forth (taking into account that the base rent and parking charges would be 95%
of such components of Market Rent) for a base rent, escalation factor, parking
charge and additional rent that is below the Then-Current Rent. If during such
thirty (30) day period the parties are unable, for any reason whatsoever, to
agree on such base rent, escalation factor, parking charge and additional rent
payable and all other terms and conditions, then within five (5) days thereafter
the parties shall each appoint a real estate broker who shall be licensed in the
Commonwealth of Virginia and who has expertise in the field of commercial office
space leasing in the Northern Virginia market, (including Reston) has at least
ten (10) years of experience and is recognized within the field as being
reputable and ethical. Such two individuals shall each determine such base rent,
escalation factor, parking charge and additional rent (to be no less than the
minimums specified in this section) within ten (10) days after being appointed.
If such individuals do not agree on such items, then the two individuals shall,
within five (5) days, render separate written reports of their determinations
and together appoint a third similarly qualified individual. The third
individual shall within ten (10) days after his or her appointment make a
determination of such base rent, escalation factor, parking charge and
additional rent applicable during the first lease year of the Renewal Term shall
equal the median of the three determinations and shall be final and conclusive;
provided, however, that the base rent and parking charges payable shall be
ninety-five percent (95%) of the base rent and parking charges components of
such Market Rent. If the individual appointed by Landlord or the individual
appointed by Tenant fails to make such determination within the ten (10) day
period (and fails to make such determination within five (5) days after notice
of such individual's failure to timely make such determination), then the
individual that made a timely determinations shall select the third individual
and the base rent, escalation factor, parking charge and additional rent
applicable during the first year of the Renewal Term shall
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equal the average of the two determinations and shall be final and conclusive;
provided, however, that the base rent and parking charges payable shall be
ninety-five percent (95%) of the base rent and parking charges components of
such Market Rent. Landlord and Tenant shall each bear the cost of its broker and
shall share equally the cost of the third broker. Upon determination of the base
rent, escalation factor, parking charge and additional rent payable pursuant to
this Section, the parties shall promptly execute an amendment to this Lease
stating the rent so agreed upon.
(b) If any Renewal Notice is not given timely, then Tenant's right of
renewal with respect to the applicable Renewal Term shall lapse and be of no
further force or effect.
(c) If an Event of Default exists under this Lease on the date a
Renewal Notice is given to Landlord or at any time thereafter prior to
commencement of the Renewal Term or if there exists a material adverse change in
Tenant's financial condition or liquidity from the financial condition and
liquidity of Tenant as of the date of Tenant's execution of this Lease that in
Landlord's reasonable opinion could impair Tenant's ability to meet its
obligations under this Lease, then, at Landlord's option, such Renewal Term
shall not commence and the term of this Lease shall expire at the expiration of
the initial term of this Lease.
(d) If Tenant's right of renewal with respect to the First Renewal
Term lapses for any reason, then Tenant's right of renewal with respect to the
Second Renewal Term shall similarly lapse and be of no further force or effect.
(e) If at any time thirty percent (30%) or more of the Premises has
been terminated, subleased or assigned other than to Permitted Transferees, then
Tenant's rights pursuant to this section shall lapse and be of no further force
or effect.
(f) Tenant's right of renewal under this Section may be exercised by
Tenant and Permitted Transferees only and may not be exercised by any other
transferee, sublessee or assignee of Tenant.
ARTICLE IV
----------
BASE RENT
---------
4.1 During each Lease Year during the Lease Term, Tenant shall pay to
Landlord as annual base rent for the Premises, without set-off , deduction or
demand, the Base Rent, which amount is subject to upward adjustment from time to
time as provided in Section 4.2 hereinbelow. The Base Rent shall be divided into
twelve (12) equal monthly installments and each such monthly installments and
each such monthly installment such be due and payable in advance on the first
day of each month during each Lease Year. Concurrently with Tenant's execution
of this Lease, Tenant shall pay an amount equal to one (1) monthly installment
of the Base Rent payable during the first Lease Year, which amount shall be
credited toward the first monthly installment of the Base Rent due and payable
hereunder. If the Lease Commencement Date is not the first day of a month, then
the BAse REnt from the Lease Commencement Date until the first day of the
following month shall be prorated on a per diem basis at the rate of one-
thirtieth (1/30th) of the monthly installment of the Base Rent payable during
the first Lease Year, and Tenant shall pay such prorated installment in advance
on the Lease Commencement Date.
4.2 Commencing on the first (1st) day of the second (2nd) Lease Year and
on the first day of every Lease Year thereafter during the Lease Term, the Base
Rent in effect shall be increased
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by the product of (i) thirty-one cents ($0.31) and (ii) the number of rentable
square feet of the Premises.
4.3 All sums payable by Tenant shall be paid to Landlord in legal tender
of the United States, at the address to which notices to Landlord are to be
given or to such other party or such other address as Landlord may designate in
writing. Landlord's acceptance of rent after it shall have become due and
payable shall not excuse a delay upon subsequent occasions nor constitute a
waiver of rights, notwithstanding any endorsement or restriction that Tenant may
include with such payment. If a monetary Event or Default has occurred
hereunder, Landlord may at any time thereafter require that Base Rent and
additional rent due hereunder be paid by certified check.
4.4 Provided that an Event of Default does not exist hereunder, Landlord
agrees to provide Tenant an abatement of Base Rent equal to ninety-two (92) days
of Base Rent payable during the first Lease Year. Such abatement shall be
apportioned as follows: (a) all Base Rent payable shall be abated from the Lease
Commencement Date shall be through the earlier of (i) July 31, 1994 and (ii) the
ninetieth (90th) day after the Leases Commencement Date, and (b) any portion of
the ninety (90) day abatement that is not used by Tenant pursuant to Section
4.4(a)(i) above (if any) shall be amortized over the course of the Lease Term
using a nine percent (9%) amortizing factor, and the monthly installments of
Base Rent shall be proportionately reduced accordingly. In addition to the
abatement described above, provided that an Event of Default does not exist
hereunder, Landlord agrees to provide Tenant a monthly abatement of $4,362.50
for each of the six (6) monthly installments of Base Rent due between August 1,
1994 and January 31, 1995.
ARTICLE V
---------
OPERATING CHARGES
-----------------
5.1 Tenant shall pay as additional rent to Landlord, Tenant's
Proportionate Share (as defined in Section 1.3 hereinabove) of the amount by
which Operating Charges (as defined in Section 5.2 hereinbelow) during each
calendar year falling entirely or partly within the Lease Term exceed a base
amount (the "Operating Charges Base Amount") equal to the product of (i) the
number of rentable square feet of the Building and (ii) five dollars and
twenty-five cents ($5.25), which equals $328,702.50 (as same may be adjusted if
there are any adjustments to the number of rentable square feet of the
Building). Tenant's Proportionate Share is that percentage which is equal to a
fraction, the numerator of which is the number of square feet of rentable area
in the Premises, and the denominator of which is the number of square feet of
rentable area in the Building, excluding the number of square feet of rentable
area of any storage, roof or garage space.
5.2 Operating Charges shall mean all costs and expenses incurred by
Landlord in the operation and management of the Building and the Land,
including, but not limited to: (a) electricity, water, sewer, power, natural
gas, fuel oil and other utility charges (including surcharges and connection
fees); (b) insurance premiums; (c) management fees that are then customary in
the Northern Virginia area for similar properties and personnel costs; (d) costs
of Service, security and maintenance contracts; (e) maintenance, redecoration
and repair expenses; (f) depreciation for capital expenditures made by Landlord
to reduce operating expenses if Landlord reasonably estimates that the annual
reduction in operating expenses equals or exceeds such depreciation; (g) Real
Estate Taxes (as defined in Section 5.3); (h) charges for janitorial, cleaning,
security, window cleaning, and snow and trash removal services; (i) assessments
imposed by any association now or hereafter established to maintain common
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areas and facilities of the Complex, including assessments imposed to finance
capital improvements in such common areas; provided, however, that is the extent
such assessments are within Landlord's reasonable control, Landlord shall only
charge same to the extent same relate to either current operating expenses or
capital charges, which capital charges may only be charged in accordance with
subparagraph (f) hereinabove); (j) any business, professional and occupational
license tax payable by Landlord with respect to the Building; (k) any cost or
expense incurred by Landlord in connection with providing (directly
or indirectly) transportation assistance or service to or from the Building or
in administering any transportation management program required by any
governmental agency or instrumentality if such transportation assistance is
required by applicable governmental authorities and is made available to Tenant
and Tenant's employees on the same terms as it is available to other tenants of
the Building (provided that if Landlord receives any income related to such
transportation, the revenue actually realized by Landlord shall be offset
against the amount charged through); (1) auditing and accounting fees; (m)
reasonable legal and other professional fees; and (n) any other expense incurred
by Landlord in managing, maintaining, repairing or operating the Building.
Operating Charges shall not include: principal or interest payments on any
mortgage, deed of trust or ground lease; leasing commissions; depreciation of
the Building (except as specified above); costs of any tenant fit-up or other
inducements paid to any tenent; costs of any item provided to any tenant in the
Building and not made available to Tenant on the same basis; costs of financing,
refinancing or sale of all or any part of the Building; fines or penalties of
any kind or nature (except to the extent incurred in connection with a bona
fide dispute); amounts paid to any affiliate of Landlord or affiliate of The
Mark Winkler Company to the extent same exceed the amounts that would
customarily be paid pursuant to an arms-length transaction; wages, salaries or
benefits for any employee of Landlord over the grade of building manager; any
overhead expenses for Landlord's personnel not directly or regularly involved in
the management of the Building, any expense which, under generally accepted
accounting principals, should be capitalized, except as specifically permitted
under Section 5.2(f) above, and the costs of special services or utilities
separately charges to and paid for by particular tenants of the Building.
5.3 Real Estate Taxes shall mean (a) all real estate taxes, including
general and special assessments, ordinary and extraordinary, foreseen and
unforeseen, which are imposed or levied upon Landlord or assessed against the
Buildings and/or the Land or Landlord's personal property to the extent used in
connection therewith, (b) any other present or future taxes or governmental
charges that are imposed upon Landlord or assessed against the Building or the
Land which are in the nature of or in substitution for real estate taxes,
including any tax levied on or measured by the rents payable by tenants of the
Building, and (c) all expenses (including reasonable attorney's fees) incurred
in reviewing or seeking a reduction of any real estate taxes. Real Estate Taxes
shall not include income taxes or estate or inheritance taxes.
5.4 If the average occupancy rate for the Building during any calendar
year is less than ninety-five percent (95%), or if any tenant is separately
paying for electricity or janitorial services furnished to its premises, or if
any tenant does not desire or require electricity or janitorial services
available to its premises, then Operating Charges for such calendar year shall
be deemed to include all additional costs and expenses, as reasonably estimated
by Landlord, which would have been incurred during such calendar year if such
average occupancy rate had been ninety-five percent (95%) and if electricity and
janitorial
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services had been furnished to all of such premises and paid for by Landlord.
For example, if the average occupancy rate for the Building during a calendar
year is eighty percent (80%), and if the janitorial contractor charges are $1.00
per square foot of occupied rentable area per year, and if the Building
contains one hundred thousand (100,000) square feet of rentable area, then it
would be reasonable for Landlord to estimate that if the Building had been
ninety-five percent (95%) occupied during such year, then janitorial charges for
such year would have been ninety-five thousand dollars ($95,000).
Notwithstanding the foregoing, in no event shall Landlord collect more than one
hundred percent (100%) of actual Operating Charges for any calendar year.
5.5 At the beginning of the Lease Term and at the beginning of each
calendar year thereafter, Landlord may submit a statement setting forth the
amount by which Operating Charges that Landlord reasonably expects to be
incurred during each calendar year exceed the Operating Charges Base Amount and
Tenant's Proportionate Share of such excess. Tenant shall pay to Landlord on the
first day of each month after receipt of such statement, until Tenant's receipt
of any succeeding statement, an amount equal to one-twelfth (1/12) of the total
estimated amount payable by Tenant as set forth in such statement.
5.6 Within approximately one hundred twenty (120) days after the end of
each calendar year, Landlord shall submit a statement showing (a) Tenant's
Proportionate Share of the amount by which Operating Charges incurred during
the preceding calendar year exceeded the Operating Charges Base Amount, and (b)
the aggregate amount of Tenant's estimated payments during such year; provided
that if Landlord fails to deliver any such statement to Tenant by the end of the
calendar year after the calendar year in which the Lease terminated, then
Landlord shall not have the right to collect any shortfalls for such year. Such
statement shall be in sufficient detail to allow Tenant to properly review its
charges. If such statement indicates that the aggregate amount of such estimated
payments exceeds Tenant's actual liability, then the excess shall be credited to
Tenant; provided that if such excess occurs for the final year of the Lease or
in any year in which the Lease actually terminates, then, provided no Event of
Default exists, Landlord shall pay such excess to Tenant within one (1) year
after the end of the calendar year in which the Lease terminated. If such
statement indicates that Tenant's actual liability exceeds the aggregate amount
of such estimated payments, then Tenant shall pay the amount of such excess
within thirty (30) days after receipt of such statement. If Tenant does not
notify Landlord in writing of any objection to such statement within thirty (30)
days after receipt, then Tenant shall be deemed to have waived such objection.
If Tenant objects to anything contained in such statement, Tenant may, after
paying the amount set forth in such statement, notify Landlord in writing of its
objections. Landlord shall review such objections and furnish to Tenant
reasonable documentation of the specific items of expense to which Tenant has
objected in writing. For a period of six (6) months after Tenant's receipt of
such statement, Tenant and its representative shall have the right, provided
that Tenant has timely paid any amounts due pursuant to such statement, during
business hours and upon reasonable prior written notice to Landlord, to commence
to inspect (and if so commenced, to expeditiously and diligently pursue such
inspection to completion) Landlord's books and records relating to Operating
Charges during the preceding calendar year, or to commence to have such books
and records audited (and if so commenced, to expeditiously and diligently pursue
such audit to completion) at Tenant's expense by an independent, certified
public accountant designated by Tenant and reasonably approved by Landlord. Any
discrepancy shall be promptly corrected by a payment of any shortfall to
Landlord by Tenant within thirty (30) days after the applicable
<PAGE>
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audit, or by a credit against the next payment(s) of rent by Tenant hereunder;
provided, however, that if any such adjustment occurs after the end of the Lease
Term, then any overpayment shall be paid to Tenant within sixty (60) days after
the final determination thereof. If Landlord disagrees with the results of
Tenant's audit, then Landlord and Tenant's auditor shall together select a
neutral auditor of similar qualifications to conduct an audit of such books and
records (the fees of such auditor to be shared equally by Landlord and Tenant),
and the determination of Operating Charges reached by such neutral auditor shall
be final and conclusive. Notwithstanding any of the foregoing to the contrary,
if the final results of the audit procedure described in this Section show that
Tenant's Proportionate Share of Operating Charges for the subject calendar year
were overstated by more than six and one-half percent (6.5%), then Landlord
shall reimburse Tenant for the reasonable costs and expenses of Tenant's audit.
In the event Tenant does not contest in writing a statement of Operating Charges
(or commence an audit procedure) within six (6) months after it is rendered,
such statement shall become binding and conclusive.
5.7 During the initial term of this Lease only, the amount by which
Operating Charges increase during each calendar year commencing with calendar
year 1995 shall not exceed a cumulative increase of more than six percent (6%)
over the Operating Charges for the immediately preceding calendar year (the
"Cap"), for purposes of determining Tenant's Proportionate Share of increases in
Operating Charges. For purposes of this Section 5.7 only, all insurance costs,
utility charges and Real Estate Taxes shall be excluded from the definition of
Operating Charges. In the event that in any calendar year the increase in the
Operating Charges over the Operating Charges for the immediately preceding
calendar year is less than the Cap, any shortfall shall be carried forward to
later calendar years allowing Landlord to raise the Cap for such years (provided
that the cumulative increase during the initial term of this Lease does not
exceed an average of 6% per year). Tenant's Proportionate Share of increases in
Operating Charges shall be calculated after the determination of increases in
Operating Charges has been made pursuant to this Section 5.7 (subject to
Tenant's obligation to make estimated payments pursuant to Section 5.5).
5.8. If the Lease Term commences or expires on a day other than the first
day or the last day of a calendar year, respectively, then Tenant's liability
for Operating Charges incurred during such year shall be proportionately
reduced.
ARTICLE VI
----------
USE OF PREMISES
---------------
6.1 Tenant shall use the Premises solely for general office purposes and
for no other use or purpose. Tenant shall not use the Premise for any unlawful
purpose or in any manner that in Landlord's reasonable opinion will constitute
waste, nuisance or unreasonable annoyance to Landlord or any tenant of the
Building, nor in any manner that would cause the Premises to be deemed a "place
of Public Accommodation" under the American With Disabilities Act, as same may
be amended. Tenant shall comply at its expense with all present and future laws,
ordinances, regulations and orders (including, without limitation, any
regulation requiring the sorting or separation of refuse and trash) concerning
the use and occupancy of the Premises and all machinery, equipment and
furnishings therein. If any such law, ordinance, regulation or order requires an
occupancy or use permit for the Premises, then Tenant shall obtain and keep
current such permit at Tenant's expense and promptly deliver a copy thereof to
Landlord; provided that Landlord shall be obligated to obtain the permits
required in connection with the Initial Improvements being performed by
<PAGE>
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Landlord pursuant to Exhibit B. Use of the Premises is subject to all covenants,
conditions and restrictions of record; provided that such covenants, conditions
and restrictions shall not prohibit Tenant from using the Premises for general
offices purposes.
6.2 Tenant shall pay before delinquency any business, rent or other tax or
fee that is now or hereafter assessed or imposed upon Tenant's use or occupancy
of the Premises, the conduct of Tenant's business in the Premises or Tenant's
equipment, fixtures, furnishing, inventory or personal property. If any such
tax or fee is enacted or altered so that such tax or fee is imposed upon
Landlord or so that Landlord is responsible for collection or payment thereof,
then Tenant shall pay the amount of such tax or fee within ten (10) days after
Landlord's demand therefor.
6.3 Tenant shall not (either with or without negligence) generate, use,
store, or cause or permit the escape, disposal or release of any Hazardous
Materials in or about the Building or the Land or the Complex, except that
Tenant may bring such materials or substances into the Premises only to be used
in the ordinary course of Tenant's business, and then only after written notice
is given to Landlord of the identity of such materials or substances and
Landlord has approved in writing Tenant's use of such materials or substances.
Hazardous Materials shall mean (a) "hazardous wastes," as defined by the
Resource Conservation and Recovery Act of 1976, as amended from time to time,
(b) "hazardous substances," as defined by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended from time to time,
(c) "toxic substances," as defined by the Toxic Substances Control Act, as
amended from time to time, (d) "hazardous materials," as defined by the
Hazardous Materials Transportation Act, as amended form time to time, (e) any
applicable state or local laws and the regulations adopted under these acts, as
amended from time to time, (f) oil or other petroleum products, (g) any highly
combustible substance, (h) any biologically or chemically active substance and
(i) any substance whose presence in Landlord's reasonable judgment could be
detrimental to the Building or the Land or the Complex or hazardous to health or
the environment. Notwithstanding the foregoing, Tenant shall have the right to
use reasonable quantities of cleaning supplies and similar items customarily
found in office environments, as long as such items are used and disposed of in
accordance with all applicable laws. If any lender or governmental agency shall
ever require testing to ascertain whether or not there has been any release of
Hazardous Materials, then, if it is reasonably determined that such release was
caused by Tenant or those acting under Tenant, the reasonable costs thereof
shall be reimbursed by Tenant to Landlord upon demand as additional charges if
such requirement applies to the Premises. In addition, Tenant shall execute
affidavits, representations and the like from time to time at Landlord's request
concerning Tenant's best knowledge and belief regarding the presence of
Hazardous Materials in the Premises. In all events, Tenant shall indemnify
Landlord in the manner elsewhere provided in this Lease from any release of
Hazardous Materials in the Premises occurring while Tenant is in possession, or
elsewhere if caused by Tenant or persons acting under Tenant. The within
covenants shall survive the expiration or earlier termination of the Lease Term.
Landlord represents that to its knowledge, the Building and the Land are not in
violation of any Federal, state or local law, ordinance or regulation relating
to Hazardous Materials, including, but not limited to soil and groundwater
conditions.
6.4 Landlord represents that, to the best of its actual knowledge, there
are no Hazardous Materials in the Building or the Premises as of the date hereof
and Landlord will not
<PAGE>
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introduce any Hazardous Materials to the Building or the Premises other than
cleaning supplies and similar items customarily found in office environments.
Landlord represents that, to the best of its actual knowledge, the air
conditioning and ventilating system of the Building meets all applicable
governmental codes with respect to fresh air return standards. In connection
with the installation of the Initial Improvements, Landlord shall comply with
The Americans with Disabilities Act and applicable life safety and code
requirements as they apply to general office purposes in the Premises and the
common areas of the Building.
ARTICLE VII
-----------
ASSIGNMENT AND SUBLETTING
-------------------------
7.1 Tenant shall not assign this Lease or any of Tenant's rights or
obligations hereunder, or sublet or permit anyone to occupy the Premises or any
part thereof, without the prior written consent of Landlord, which consent shall
not be unreasonably withheld, conditioned or delayed provided the conditions set
forth below in this Section 7.1 are satisfied. Provided that no Event of Default
exists hereunder, Landlord shall not unreasonably withhold, condition or delay
its consent to any proposed assignment or subletting of the Premises, provided
that (i) the use of the Premises pursuant to such assignment or sublease is in
compliance with Article VI hereof; (ii) the proposed assignee or subtenant is of
a type and quality consistent and compatible with a comparable office building
and with the Building and its tenants; (iii) the assignee under any such
assignment or the sub-lessee under any such sublease has a net worth and
liquidity at least equal to the net worth and liquidity of Tenant as of the date
of execution hereof, provided that if such assignee's or sublessee's net worth
and liquidity is less than the net worth and liquidity of Tenant immediately
prior to the transfer, then the Security Deposit shall be increased to the
original amount described in Section 1.8 (and shall no longer be subject to the
reductions described in Section 11.2) as a precondition to any such transfer;
and (iv) the initial Tenant remains fully liable as a primary obligor for the
payment of all rent and other charges payable hereunder and for the performance
of all its other obligations hereunder. No assignment or transfer of this Lease
may be effected by operation of law or otherwise without Landlord's prior
written consent. Any assignment, subletting or occupancy, Landlord's consent
thereto or Landlord's collection or acceptance of rent from any assignee,
subtenant or occupant, shall not be construed as a waiver or release of Tenant
from liability hereunder (it being understood that Tenant shall at all times
remain primarily liable as a principal and not as a guarantor or a surety) and
shall not be construed as relieving Tenant or any assignee, subtenant or
occupant from the obligation of obtaining Landlord's prior written consent to
any subsequent assignment, subletting or occupancy. Tenant assigns to Landlord
any sum due from any assignee, subtenant or occupant of Tenant as security for
Tenant's performance of its obligations pursuant to this Lease. Tenant
authorizes each such assignee, subtenant or occupant to pay such sum directly to
Landlord if such assignee, subtenant or occupant receives written notice from
Landlord specifying that such rent shall be paid directly to Landlord.
Landlord's collection of such rent shall not be construed as an acceptance of
such assignee, subtenant or occupant as a tenant nor a waiver of any default
hereunder by Tenant. All restrictions and obligations imposed pursuant to this
Lease on Tenant or the use and occupancy of the Premises shall be deemed to
extend to any subtenant, assignee or occupant of Tenant, and Tenant shall cause
such persons to comply with all such restrictions and obligations. Tenant shall
not mortgage or hypothecate this Lease without Landlord's written consent, which
consent may be granted or withheld in Landlord's sole and absolute discretion.
Tenant shall pay the expenses (including reasonable attorneys' fees and
<PAGE>
-21-
hourly fees for Landlord's employees and agents) incurred by Landlord in
connection with reviewing Tenant's request for Landlord to give its consent to
any assignment, subletting, occupancy or mortgage.
7.2 If Tenant is a partnership, then any dissolution of Tenant or a
withdrawal or change, whether voluntary, involuntary or by operation of law, or
partners owning a controlling interest in Tenant shall be deemed a voluntary
assingment of this lease. If Tenant is a corporation or a partnership with a
corporate general partner, then any dissolution, merger, consolidation or other
reorganization of Tenant (or such corporate general partner), or any sale or
transfer of a controlling interest of its capital stock, shall be deemed a
voluntary assignment of this Lease. Whether Tenant is a partnership, corporation
or any other type of entity, then at the option of Landlord, a sale of all or
substantially all of its assets or a change in its name shall also be deemed a
voluntary assignment of this Lease. The provisions of this Section 7.2 shall be
subject to Section 7.5 hereinbelow.
7.3 If Tenant wants to assign, sublet or otherwise transfer all or part of
the Premises or this Lease, then Tenant shall give Landlord written notice
("Tenant's Request Notice") of the identity of the proposed assignee or
subtenant and its business, all terms of the proposed assignment or subletting,
the commencement date of the proposed assignment or subletting (the "Proposed
Sublease Commencement Date"), the area proposed to be assigned or sublet (the
"Proposed Sublet Space") and such other information as Landlord may reasonably
request. Tenant shall also transmit therewith the most recent financial
statement or other evidence of financial responsibility of such assignee or
subtenant and a certification executed by Tenant and such proposed assignee or
subtenant stating whether any premium or other consideration is being paid for
the proposed assignment or sublease.
7.4 If any sublease, assignment or other transfer (whether by operation of
law or otherwise) provides that the subtenant, assignee or other transferee (or
any affiliate thereof) is to pay any amount in excess of the rent and other
charges due under this Lease, then, whether such excess be in the form of an
increased rental, lump sum payment, payment for the sale or lease of fixtures or
other leasehold improvements or any other form (and if the applicable space does
not constitute the entire Premises, the amount and existence of such excess
shall be determined on a prorata basis), Tenant shall pay to Landlord fifty
percent (50%) of any net profit that Tenant realizes on account of such
sublease, assignment or other transfer, after taking into account the rent and
charges due under this Lease and the actual expenses Tenant incurs in connection
with such sublease, assignment or other transfer (including tenant improvement
costs, customary leasing commissions, reasonable legal fees and reasonable
advertising and marketing costs, but which shall not include lost revenue) upon
such terms as shall be specified by Landlord and in no event later than ten (10)
days after Tenant's receipt thereof. Nothwithstanding the foregoing, if
Landlord's current Mortgage holder ever forecloses on the Building, then Tenant
shall thereafter be entitled to one hundred percent (100%) of any such profits.
Tenant shall in all events diligently pursue the collection of all amounts owed
by any subtenant, assignee or other transferee. Landlord shall have the right to
inspect and audit Tenant's books and records relating to any sublease,
assignment or other transfer. Any sublease, assignment or other transfer shall
be effected on forms supplied or approved by Landlord.
7.5 Nothwithstanding anything contained in this Article VII to the
contrary, and provided that no Event of Default exists under this Lease, Tenant,
upon prior written notice to Landlord
<PAGE>
-22-
but without Landlord's prior written consent, may assign or transfer this Lease
or sublease all or any portion of the Premises: (a) to a corporation or other
business entity (herein sometimes referred to as a "successor corporation") into
or with which Tenant shall be merged or consolidated, or to which substantially
all of the assets of Tenant may be transferred or sold, provided that (1) such
successor corporation shall have a net worth and liquidity at least equal to the
net worth and liquidity of Tenant as of the Lease Commencement Date, provided
that if the net worth and liquidity of such successor corporation is less than
the net worth and liquidity of Tenant immediately prior to the transfer, then
the Security Deposit shall be increased to the original amount described in
Section 1.8 (and shall no longer be subject to the reductions described in
Section 11.2) as a precondition to such transfer, (2) the successor corporation
shall assume in writing all of the obligations and liabilities of Tenant under
this Lease, and (3) the use of the Premises pursuant to such assignment or
sublease is in compliance With Article VI of this Lease, or (b) to a corporation
or other business entity (herein sometimes referred to as a "related
corporation") that shall control, be controlled by or be under common control
with Tenant, provided that (1) such related corporation shall have a net worth
and liquidity at least equal to the net worth and liquidity of Tenant as of the
Lease Commencement Date, provided that if the net worth and liquidity of Tenant
immediately prior to the transfer, then the Security Deposit shall be increased
to the original amount described in Section 1.8 (and shall no longer be subject
to the reductions described in Section 11.2) as a precondition to such transfer,
(2) the related corporation shall assume in writing all of the obligations and
liabilities of Tenant under this Lease, and (3) the use of the Premises pursuant
to such assignment or sublease is in compliance with Article VI of this Lease.
In the event of any such assignment, transfer or subletting, Tenant shall remain
fully liable as a primary obligor for the payment of rent and other charges
required hereunder and for the performance of obligations to be performed
hereunder. For purposes of Paragraph (b) above, control shall be deemed to be
the ownership of fifty percent (50%) or more of the stock or other voting
interest of the controlled corporation or other business entity. A successor
corporation described in subparagraph (a) above or a related corporation
described in subparagraph (b) above shall be referred to sometimes in this Lease
as a "Permitted Transferee." Notwithstanding any of the foregoing to the
contrary, if Tenant structures an assignment or sublease hereunder such that the
assignee or subtenant falls within the definition of a successor or a related
corporation for the purpose of avoiding or circumventing the restrictions on
assignments and subleases provided elsewhere in this Article VII, then any such
assignee or sublease shall be conclusively deemed not to be a successor
corporation or related corporation and shall be subject to the other provisions
of this Article VII.
ARTICLE VIII
------------
MAINTENANCE AND REPAIRS
-----------------------
8.1 Tenant shall keep and maintain the Premises and all fixtures and
equipment located therein in clean, safe and sanitary condition and in
compliance with all legal requirements, shall take good care thereof and make
all repairs thereto, shall suffer no waste or injury thereto, and at the
expiration or earlier termination of the Lease Term, shall surrender the
Premises in the same order and condition in which they were on the Lease
Commencement Date (ordinary wear and tear consistent with the permitted use
hereunder and damage by casualty or the elements not caused by the gross
negligence or willful misconduct of Tenant or its Invitees excepted). All
injury, breakage and
<PAGE>
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damage to the Premises and to any other part of the Building or the Land caused
by any act or omission of any invitee, agent, employee, subtenant, assignee,
contractor, client, family member, customer or guest of Tenant (collectively
"Invitee") or Tenant, shall be repaired or replaced (as applicable) by and at
Tenant's expense, except that, if Tenant fails to make such repair or
replacement within ten (10) days after the occurrence of such injury, breakage
or damage, Landlord shall have the right at Landlord's option to make any such
repair or replacement and to charge Tenant for all costs and expenses incurred
in connection therewith (provided, however, that Landlord, at its option, may
make structural repairs, repairs to the Buildings mechanical, electrical and
plumbing systems, repairs to the common or public areas, and repairs of any
matters causing disruption or annoyance to other tenants of the Building,
without providing Tenant with ten (10) days to make such repairs). Tenant shall
not be obligated to maintain or repair any of the structural components or
building systems within the Premises unless any such repair or maintenance
becomes necessary as a result of any of Tenant's special tenant areas,
facilities, finishes or equipment described in Section 8.2(b) below or
otherwise. Tenant shall not be responsible for any changes required to the
Premises or the Building as a result of a change in the law, unless Tenant's use
of the Premises for other than general office purposes triggers the application
of any such law to the Premises or the Building.
8.2 (a) Landlord shall keep the exterior walls, load bearing elements,
foundations, pipes and conduits, roof and common areas that form a part of the
Building (including those located in the Premises, other than any special tenant
areas, facilities, finishes or equipment described in Section 8.2(b) below), and
the building standard mechanical electrical, HVAC and plumbing systems that are
provided by Landlord in the operation of the Building, clean and in good
operating condition and, subject to Section 8.1, shall make all required repairs
thereto. Landlord shall maintain and operate the Building in accordance with the
standards for similar class office buildings in the Reston, Virginia area.
(b) Notwithstanding any of the foregoing to the contrary, maintenance
and repair of special tenant areas, facilities, finishes and equipment
(including, but not limited to, any special fire protection equipment,
telecommunications and computer equipment, kitchen/galley/coffee equipment,
air-conditioning equipment serving the Premises only and all other furniture
finishings and equipment of Tenant and any Alterations (as hereinafter defined)
made by Tenant) shall be the sole responsibility of Tenant. Moreover, Landlord
shall have the right to require Tenant, at Tenant's sole expense, to enter into
maintenance contracts with duly qualified contractors reasonably satisfactory to
Landlord in all respects providing for good, workmanlike, first-class and prompt
maintenance and repair of such areas, facilities, finishes, equipment and
Alterations as may be reasonably designated by Landlord. Tenant, at its expense,
shall keep the two supplemental air-conditioning units servicing the Premises in
good operating order, shall make all required repairs thereto and shall enter
into a regularly scheduled preventive maintenance/service contract therefor. The
maintenance contractor, the contract and the maintenance schedule shall be
subject to Landlord's reasonable prior approval. Landlord warrants that such
supplemental units shall be in good working order on the Lease Commencement Date
and, in the event either of such supplemental units shall require any repairs
thereto during the first twelve (12) months following the Lease Commencement
Date, which are not the result of any negligence of misuse of Tenant, Landlord
shall be responsible for the cost of such repairs. Thereafter, Tenant shall be
responsible for the cost of any repairs to such supplemental units.
<PAGE>
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ARTICLE IX
----------
ALTERATIONS
-----------
9.1 The initial improvement of the Premises shall be accomplished by
Landlord in accordance with Exhibit B. Landlord is under no obligation to make
any alterations, decorations, additions, improvements, demolitions or other
changes (collectively "Alterations") in or to the Premises except as set forth
in Exhibit B or as specifically provided elsewhere in the Lease.
9.2 Tenant shall not make or permit anyone to make any Alteration in or to
the Premises or the Building without Landlord's prior written consent, which
consent may be granted or withheld in Landlord's sole and absolute discretion.
Notwithstanding the foregoing, Landlord shall not unreasonably withhold,
condition or delay its consent to any non-structural Alteration which Tenant may
delay its consent to any non-structural Alteration which Tenant may desire to
make to the Premises; provided, however, that Landlord shall retain sole and
absolute discretion to withhold its consent to any Alteration, whether
structural or non-structural, which may, in the reasonable opinion of Landlord
(i) adversely affect the marketability of the Premises or (ii) exceed the
capacity of, hinder the effectiveness, interfere with, or be connected to the
electrical, mechanical, heating, ventilating, air conditioning, or plumbing
systems of the Premises or the Building. Any Alteration which Landlord permits
Tenant to make shall be made: (a) in a good, workmanlike, first-class and prompt
manner; (b) using high quality materials only; (c) by a contractor and in
accordance with plans and specifications approved in writing by Landlord; (d) in
accordance with legal requirements (including, without limitation, the obtaining
of all necessary permits and licenses) and requirements of any insurance company
insuring the Building; (e) after obtaining a workmen's compensation insurance
policy approved in writing by Landlord; (f) after delivering to landlord
written, unconditional waivers of mechanics' and materialmen's liens against the
Premises, the Building and the Land from all proposed contractors,
subcontractors, laborers and material suppliers for all work and materials in
connection with such Alteration (provided that Tenant shall be deemed to be in
compliance with this subsection (f) as long as Tenant's delivers such lien
waivers within thirty (30) days after such Alterations have been completed by
any such contractor, subcontractor, laborer or material supplier) and (g) in
compliance with such other requirements as Landlord might reasonably impose. If
any lien (or a petition to establish a lien) is filed in connection with any
Alteration, then such lien (or petition) shall be discharged by Tenant at
Tenant's expense within ten (10) days thereafter by the payment thereof or
filing of a bond acceptable to Landlord. Landlord's consent to the making of an
Alteration shall be deemed not to constitute Landlord's consent to subject its
interest in the Premises or the Building or the Land to liens which may be filed
in connection therewith.
9.3 If any Alteration is made without Landlord's prior written consent,
then Landlord shall have the right, in addition to exercising all other
available remedies, at Tenant's expense to remove and correct such Alteration
and restore the Premises and the Building to their condition immediately prior
thereto or to require Tenant to do the same. Unless Landlord elects otherwise
pursuant to this Section 9.3, all Alterations to the Premises or the Building
made by either party shall immediately become Landlord's property (provided,
however, that during the Lease Term Tenant shall retain an insurable interest in
such Alterations) and shall remain upon and be surrendered with the Premises at
the expiration or earlier termination of the Lease Term; provided, however, that
if Tenant is not in default under this Lease, then Tenant shall have the right
to remove, prior to the expiration or earlier termination of the Lease Term, all
movable furniture, furnishings and trade fixtures installed in the
<PAGE>
-25-
Premises solely at Tenant's expense. Notwithstanding anything of the foregoing
to the contrary in this Section 9.3, Tenant shall also be required to remove all
Alterations to the Premises or the Building and all non-trade fixtures and
equipment which Landlord designates in writing for removal (which designation
shall be provided to Tenant at the time of Landlord's approval of the
installation thereof) and Tenant shall be required to remove all telephone and
data cabling installed by or on behalf of Tenant (collectively, "Cabling").
Movable furniture, furnishings and trade fixtures shall be deemed to exclude any
item which would normally be removed or detached from the Premises with the
assistance of any tool or machinery other than a dolly (except items attached to
walls or floors only for purposes of stability, as long as Tenant repairs any
damage to the Premises caused by such removal). Landlord shall have the right to
repair or replace at Tenant's expense all damage to the Premises or the Building
caused by any such removal if not repaired by Tenant to Landlord's satisfaction.
If any such furniture, furnishing or trade fixture is not removed by Tenant
prior to the expiration or earlier termination of the Lease Term, then the same
shall, at Landlord's option, become Landlord's property and shall be surrendered
with the Premises as a part thereof; provided, however, that Landlord shall have
the right to remove from the Premises at Tenant's expense such furniture,
furnishing or trade fixture and any Alteration, non-trade fixture or equipment
(which Landlord designates in writing for removal at the time of Landlord's
approval of the installation thereof) and any Cabling.
ARTICLE X
---------
SIGNS
-----
10.1 Landlord will list the initial Tenant's name in the Building
directory, if any, and provide building standard signage near one suite entry
door. Tenant shall not paint, affix or otherwise display on any part of the
exterior or interior of the Building (or any part of the Premises which is
visible from outside the Premises) any other sign, advertisement or notice,
except as otherwise provided in Section 10.2 below. If any such item that has
not been approved by Landlord is so displayed, then Landlord shall have the
right to remove such item at Tenant's expense or to require Tenant to do the
same.
10.2 Tenant shall have the right (subject to compliance with applicable
law), at Tenant's sole cost, to install either (i) a monument sign bearing
Tenant's name at the Wiehle Avenue and Isaac Newton Square north entrance or
(ii) a sign bearing Tenant's name on the upper portion of the Building. The
exact size, color, design, location, and other features of the sign shall be
subject to the prior written approval of Landlord (which approval shall not
unreasonably withheld) and the prior approval of the Reston Architectural Review
Board and any other applicable governmental authorities, if required. Tenant
shall be responsible, at its cost, for installing such sign and for obtaining
all necessary approvals and permits for the installation of such sign. Tenant
shall be responsible for maintaining the sign and shall at all times maintain
the sign in first class condition and repair. At the termination or earlier
expiration of the Lease Term, Tenant shall be obligated, in its sole cost, to
remove such sign and restore the area where such sign was located to its
condition prior to the installation of the sign. If Tenant fails to so remove
and restore, Landlord shall have the right to do so at Tenant's expense.
10.3 Except by United States mail, Tenant shall not distribute any
advertisements or notices within the Complex. Landlord reserves the right to
prohibit any advertisement which in Landlord's reasonable opinion tends to
impair the reputation or desirability of the Building or the Complex.
<PAGE>
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ARTICLE XI
----------
SECURITY DEPOSIT
----------------
11.1 Concurrently with Tenant's execution of this Lease, Tenant shall
deposit with Landlord the Security Deposit to secure Tenant's full and faithful
performance of all the obligations herein set forth. Landlord shall not be
required to maintain the Security Deposit in a separate account. The Security
Deposit shall earn simple interest at three and 35/100 percent (3.35%) per
annum, which interest shall be earned by and payable to Tenant at such time as
the entire amount of the Security Deposit is returned to Tenant. If any sum
payable by Tenant to Landlord shall be due and unpaid beyond any applicable
notice and cure period, or if Landlord makes any payments on behalf of Tenant,
or if Landlord suffers any loss, cost or expense as a result of Tenant's non-
performance of any obligation or covenant herein, then Landlord, at its option
and without limiting any other remedy, may use and apply any part of the
Security Deposit to compensate Landlord for the actual payments not made or the
actual loss, cost or expense suffered by Landlord. Within three (3) days after
written notice of Landlord's use of the Security Deposit (which notice shall
contain a description by Landlord of the payments made and the provisions of
this Lease under which Landlord is entitled to charge such expense to Tenant,
accompanied by invoices, where appropriate, substantiating same), Tenant shall
deposit with Landlord cash in an amount sufficient to restore the Security
Deposit to its prior amount. Within sixty (60) days after the later of (a) the
expiration or earlier termination of the Lease Term, or (b) Tenant's vacating
the Premises, Landlord shall return the Security Deposit less such portion
thereof as Landlord may have used to satisfy Tenant's obligations and less such
other sums as Landlord reasonably expects to be due from Tenant. If Landlord
transfers the Security Deposit to a transferee of the Building or Landlord's
interest therein, then such transferee (and not Landlord) shall be liable for
its return. The holder of any Mortgage shall not be liable for the return of the
Security Deposit unless such holder actually receives the Security Deposit.
Tenant shall not transfer or assign the Security Deposit or any interest therein
without Landlord's prior written consent, which consent Landlord may withhold in
its sole and absolute discretion.
11.2 Provided that Tenant is not in default under this Lease as of each
applicable "Reduction Date" (as hereinafter defined) and there has not occurred
three (3) or more Events of Default prior to each such Reduction Date, and
provided that there has been no material adverse change to Tenant's financial
condition or liquidity from the date of Tenant's financial condition or
liquidity form the date of Tenant's execution of this Lease, Landlord hereby
agrees that the Security Deposit shall (subject to the terms of this Section
11.2) be reduced in accordance with the following schedule:
<TABLE>
<CAPTION>
"Reduction date"shall mean At which time, the Security
-------------------------- ---------------------------
the first day of the: Deposit may be reduced to:
-------------------- -------------------------
<S> <C>
2nd Lease Year $72,500.00
3rd Lease Year $65,000.00
4th Lease Year $57,000.00
5th Lease Year $50,000.00
6th Lase Year $42,000.00
</TABLE>
At any time after each such Reduction Date, Tenant may submit to Landlord a
written request to reduce the Security Deposit in accordance with the foregoing
schedule. Provided that Tenant is not in default as of such Reduction Date or
prior to Landlord's receipt of such written request and there has not occurred
three (3) or more Events of Default prior to such Reduction Date, and there had
been no material adverse change to Tenant's
<PAGE>
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financial condition or liquidity from such condition as of the date of this
Lease, Landlord will, within thirty (30) days after the receipt of such written
request, apply toward the next monthly installment of Base Rent due hereunder
any amount by which the cash Landlord is holding as the Security Deposit exceeds
the reduced amount of the Security Deposit as set forth in the schedule above.
Notwithstanding any of the foregoing to the contrary, in no event shall the
Security Deposit be reduced at any time to an amount less than an amount equal
to one (1) monthly installment of the then-current Base Rent.
ARTICLE XII
-----------
HOLDING OVER
------------
12.1 Tenant acknowledges that it is extremely important that Landlord have
substantial advance notice of the date on which Tenant will vacate the Premises,
because Landlord will (a) require an extensive period to locate a replacement
tenant, and (b) plan its entire leasing and renovation program for the Building
in reliance on its lease expiration dates. Therefore, if Tenant does not
immediately surrender the Premises upon the expiration or earlier termination of
the Lease Term, then the rent shall be increased to equal the greater of (1) one
and one-half times the fair market rent for the Premises, or (2) one and one-
half times the Base Rent, additional rent and other sums that would have been
payable pursuant to the provisions of this Lease if the Lease Term had continued
during such holdover period; provided, however, that if Landlord and Tenant
agree in writing to a consensual holdover (it being understood that Landlord
shall have no obligation to agree to any such holdover), then the rent payable
by Tenant during any such holdover period shall be as provided in such written
agreement. Such rent shall be computed on a monthly basis and shall be payable
on the first day of such holdover period and the first day of each calendar
month thereafter during such holdover period until the Premises have been
vacated. Landlord's acceptance of such rent shall not in any manner adversely
affect Landlord's other rights and remedies, including Landlord's right to evict
Tenant and to recover damages. Landlord may, in addition to its other remedies,
elect, in its sole discretion, to treat such holding over by Tenant as the
creation of a month-to-month tenancy. Tenant agrees to hold Landlord harmless
from and against all loss and damages, direct and consequential, which Landlord
may suffer or incur in connection with claims by other parties against Landlord
arising out of the holding over by Tenant, including, without limitation,
reasonable attorneys' fees which may be incurred by Landlord in defense of such
claims. Except as otherwise specifically provided in this Article, all terms of
this Lease shall remain in full force and effect during such holdover period.
ARTICLE XIII
------------
INSURANCE
---------
13.1 Tenant shall not conduct any activity or place any item in or about
the Building which may increase the rate of any insurance on the Building. If
any increase in the rate of such insurance is due to any such activity or item,
then (whether or not Landlord has consented to such activity or item and without
waiving Landlord's right to require such activities to cease) Tenant shall pay
the amount of such increase. The statement of any insurance company or insurance
rating organization (or other organization exercising similar functions in
connection with the prevention of fires or the correction of hazardous
conditions) that such an increase is due to any such activity or item shall be
conclusive evidence thereof.
13.2 Tenant shall maintain throughout the Lease Term with a company
licensed to do business in the jurisdiction in which the
<PAGE>
-28-
Building is located, approved by Landlord and having a rating equal to or
exceeding A:11 in Best's Insurance Guide (a) broad form comprehensive general
liability insurance (written on an occurrence basis and including contractual
liability coverage insuring the obligations assumed by Tenant pursuant to
Section 15.2 and an endorsement for personal injury), (b) special form property
insurance, and (c) comprehensive automobile liability insurance (covering
automobiles owned by Tenant). Based on Tenant's representation that Utica
Insurance Company has a rating of A:08 in Best's insurance guide, Landlord
approves such insurance carrier. Such liability insurance shall be in minimum
amounts typically carried by prudent tenants engaged in similar operations,
but in no event shall be in an amount less than four million dollars
($4,000,000) combined single limit per occurrence: provided, however, that upon
prior written notice to Landlord, Tenant may reduce such coverage to a minimum
of three million dollars ($3,000,000) combined single limit per occurrence if
the premiums for $4,000,000 of coverage increase by an unreasonable amount. Such
property insurance shall be in an amount not less than that required to replace
all Alterations and all other contents of the Premises, excluding only the work
and materials considered to be building standard finishes. Such automobile
liability insurance shall be in an amount not less than one million dollars
($1,000,000) combined single limit per occurrence and one million dollars
($1,000,000) in the aggregate. All such insurance shall name Landlord, its
managing agent (or its successor) and the holder of any Mortgage as additional
insureds (as their interests may appear) (except that the liability insurance
shall not name the holder of the Mortgage as an additional insured), contain an
endorsement that such insurance shall remain in full force and effect
notwithstanding that the insured may have waived its claims against any person
prior to the occurrence of a loss, provide that the insurer waives all right of
recovery by way of subrogation against Landlord, its partners, agents and
employees, and contain an endorsement prohibiting cancellation, failure to
renew, reduction in amount of insurance or change of coverage (1) as to the
interests of Landlord or the holder of any Mortgage by reason of any act or
omission of Tenant, and (2) without the insurer's giving Landlord thirty (30)
days' prior written notice of such action. Landlord reserves the right from time
to time to require Tenant to obtain higher minimum amounts or different types of
insurance if it becomes customary for similar sized tenants in similar
industries to carry insurance of such higher minimum amounts or of such
different types. Tenant shall deliver a certificate of such insurance and
receipts evidencing payment of the premium for such insurance (and, upon
request, copies of all required insurance policies, including endorsements and
declarations) to Landlord concurrently with Tenant's execution of this Lease and
thereafter within five (5) days after any request therefor.
13.3 Landlord shall maintain fire insurance with extended coverage insuring
the base Building (but not any Alterations or any personal property or other
property of any tenant, including Tenant) in an amount not less than ninety
percent (90%) of replacement cost.
13.4 Landlord and Tenant each hereby waive any and all right to recover
against the other (or against their respective officers, directors, trustees,
beneficiaries, shareholders, partners, joint ventures, employees, agents,
customers, invitees or business visitors) for any loss or damage to such waiving
party arising from any cause covered by any insurance required to be carried by
such party pursuant to this Lease or, if greater, actually carried by such
party. Landlord and Tenant shall secure appropriate waivers of subrogation
from their respective insurance carriers; and each party will, upon request,
deliver to the
<PAGE>
-29-
other a certificate evidencing such waiver of subrogation by the insurer.
ARTICLE XIV
-----------
SERVICES AND UTILITIES
----------------------
14.1 Landlord will furnish to the Premises heating, ventilation and
air-conditioning ("HVAC") during the seasons they are required in a manner
consistent with comparable office buildings in the Reston, Virginia area.
Landlord shall maintain the base-building systems and change the filters
regularly. The equipment is designed to be capable of maintaining a uniform
indoor temperature of approximately 75 degrees Fahrenheit Dry Bulb at a maximum
of 50% Relative Humidity in summer based on the local outdoor design condition
and approximately 70 degrees Fahrenheit Dry Bulb at a minimum of 25% Relative
Humidity in the winter based on local outdoor design condition. The equipment is
capable of maintaining temperature set point +5 degrees Fahrenheit. Landlord
-
shall not be liable for any failure to maintain comfortable atmosphere
conditions in all or any portion of the Premises due to excessive heat generated
by any equipment or machinery installed by Tenant (with or without Landlord's
consent) or due to any impact that Tenant's furniture, equipment, machinery or
millwork may have upon the delivery of HVAC to the Premises. For purposes of
this Section 14.1, excessive heat shall be deemed to result from (a) the
installation of machinery or equipment, other than normal office machinery and
equipment, in an area not engineered for such office machinery and equipment, or
(b) the installation and concurrent operation of a number of normal office
machines or pieces of equipment in an area not engineered for such a
concentration. For example, a typical office will provide comfortable
temperatures for its occupant when a normal personal computer is installed and
operated in that office, but it may not do so if an unusually large computer or
a number of smaller computers are installed and operated in that office.
Landlord shall not be liable for its failure to maintain comfortable atmosphere
conditions due to an occupancy load of more than one person per one hundred and
fifty (150) square feet. Landlord will provide: janitorial service on Monday
through Friday only (excluding legal public holidays celebrated by the federal
government) consistent with comparable office buildings in the Reston, Virginia
area (which as of the date of execution hereof shall be generally in accordance
with the janitorial specifications attached hereto as Exhibit H); electricity;
water; elevator service; and exterior window-cleaning service. The normal hours
of operation of the Building will be 8:30 a.m. to 6:30 p.m. on Monday through
Friday (except such holidays) and such other hours, if any, as Landlord
determines. If Tenant requires air-conditioning or heat beyond the normal hours
of operation, then Landlord will furnish the same, provided Tenant gives
Landlord advance notice of such requirement by 12:00 noon of the most recent
business day. Tenant shall pay for such extra service in accordance with
Landlord's then-current schedule. The current charge for such extra service is
$14.00 per hour for each quadrant; provided that such hourly charge may be
upwardly adjusted from time to time by Landlord based on increases in costs
incurred by Landlord in connection with providing such services (but which shall
in no event exceed Landlord's actual costs plus 5%). Tenant shall have access to
the Building 24 hours a day, 7 days a week. Except as otherwise specified
herein, Landlord shall not be reqired to furnish services and utilities during
hours other than normal hours of operation of the Building.
14.2 Landlord may install checkmeters to electrical circuits to verify that
Tenant's electricity consumption is not excessive. A total average consumption
of electricity in excess of five (5) watts per square foot for the Premises,
including HVAC, lighting and power for Tenant's outlets, equipment and
<PAGE>
-30-
machinery, shall be deemed excessive. If such checkmeters indicate that such
consumption is excessive, then Tenant shall reimburse Landlord for the cost of
installing such checkmeters and Landlord may install at Tenant's expense
submeters (or similar measuring devices) to ascertain Tenant's actual
electricity consumption, and thereafter Tenant shall pay for such consumption at
the then-current price per kilowatt hour charged Landlord by the utility
company.
14.3 Tenant shall promptly reimburse Landlord on demand for the cost of any
excess or disproportionate utility usage in or in connection with the Premises
(including, but not limited to, water, sewer and chiller usage). Excess and/or
disproportionate usage shall be determined by Landlord (in consultation with its
mechanical engineer) and pursuant to measurement of such usage by Landlord's
energy management system.
14.4 Landlord reserves the right to curtail or suspend any utility, service
or Building system necessary or desirable in the reasonable judgment of
Landlord, by reason of accident, emergency, repairs, alterations, replacements
or improvements or any other reason whatsoever, until such cause has been
removed or remedied. In the event of Landlord's failure or inability to furnish
any of the utilities or services required to be furnished by Landlord hereunder,
Landlord shall not have any liability to Tenant; provided, however, that
Landlord shall use good faith efforts to restore such failure or inability so
long as such failure or inability is within Landlord's reasonable control and
provided further, that if any utility or service is interrupted for any reason
within Landlord's reasonable control and such interruption shall continue for
more than five (5) consecutive business days after written notice of such
interruption or failure from Tenant to Landlord, and if such interruption or
failure shall render any portion of the Premises unusable for the normal conduct
of Tenant's business, and if Tenant in fact does not use or occupy such portion
of the premises during the period of such interruption or failure, then all Base
Rent and additional rent payable hereunder with respect to such unusable portion
of the Premises shall be abated for the period beginning on the sixth (6th)
consecutive business day of such interruption or failure and such rental
abatement shall continue until such portion of the Premises is tenantable again
or Tenant recommences use or occupancy of such portion of the Premises,
whichever occurs first. If any utility or service is interrupted on account of a
cause within Landlord's reasonable control and such interruption shall continue
for more than thirty (30) consecutive days after written notice of such
interruption or failure from Tenant to Landlord, and if such interruption or
failure shall render the Premises unusable for the normal conduct of Tenant's
business and if Tenant in fact does not use or occupy any portion of the
Premises during the period of such interruption or failure, then after the
expiration of said thirty (30) consecutive day period Tenant shall have the
option to notify delivered to Landlord. If Tenant provides such notice, then
Landlord shall have ten (10) days from receipt thereof to restore such utility
or service. If Landlord fails to restore such utility or service within such ten
(10) day period, then this Lease shall be deemed terminated and the parties
hereto shall have no further liability to each other.
14.5 If any public utility or governmental body requires Landlord or Tenant
to restrict the consumption of any utility or reduce any service to the Premises
or the Building, Landlord and Tenant shall comply with such requirements whether
or not the utilities and services referred to in this Article XIV are thereby
reduced or otherwise affected, without any abatement, deduction, set-off, rebate
or adjustment to the Base Rent or additional rent payable hereunder.
<PAGE>
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ARTICLE XV
----------
LIABILITY OF LANDLORD
---------------------
15.1 Landlord, its employees and agents shall not be liable to Tenant, any
Invitee or any other person or entity for any damage (including indirect and
consequential damage), injury, loss or claim (including claims for the
interruption of or loss to business) based on or arising out of any cause
whatsoever (except as otherwise provided in this Section), including without
limitation the following: repair to any portion of the Premises or the Building;
interruption in the use of the Premises or any equipment therein; any accident
or damage resulting from any use or operation (by Landlord, Tenant or any other
person or entity) of elevators or heating, cooling, electrical, sewerage, or
plumbing or mechanical equipment or apparatus; termination of this Lease by
reason of damage to the Premises or the Building; fire, robbery, theft,
vandalism, mysterious disappearance or any other casualty; actions of any other
tenant of the Building or of any other person or entity; failure or inability to
furnish any service specified in this Lease; and leakage in any part of the
Premises or the Building from water, rain, ice, snow or other cause that may
leak into, or flow from, any part of the Premises or the Building or the Land,
or from drains, pipes or plumbing fixtures in the Premises or the Building or
the Land. Notwithstanding the foregoing, Landlord shall use commercially
reasonable efforts to maintain services and to repair any item which it is
Landlord's obligation to repair. If any condition exists which may be the basis
of a claim of constructive evection, then Tenant shall give Landlord written
notice thereof and a reasonable opportunity to correct such condition, and in
the interim Tenant shall not claim that it has been constructively evicted or is
entitled to a rent abatement. Any property placed by Tenant or Invitees in or
about the Premises, the building or the Land shall be at sole risk of Tenant,
and Landlord shall not in any manner be responsible therefor. If any employee of
Landlord receives any package or article delivered for Tenant, then such
employee shall be acting as Tenant's agent for such purpose and not as
Landlord's agent. Notwithstanding the foregoing provisions of this Section,
Landlord shall not be released from liability to Tenant for any physical injury
to any natural person or property damage caused by Landlord's willful misconduct
or gross negligence.
15.2 Tenant shall reimburse Landlord for, and shall indemnify, defend upon
request and hold Landlord, its employees and agents harmless from and against,
all costs, damages, claims, liabilities, expenses (including attorneys' fees),
losses and court costs suffered by or claimed against Landlord, directly or
indirectly, based on or arising out of, in whole or in part, (a) use and
occupancy of the Premises or the business conducted therein, (b) any gross
negligence or willful misconduct of Tenant or any Invitee, (c) any breach of
Tenant's obligations under this Lease, including failure to surrender the
Premises upon the expiration or earlier termination of the Lease Term, or (d)
any entry by Tenant or any Invitee upon the Land prior to the Lease Commencement
Date.
15.3 If any landlord hereunder transfers the Building or such landlord's
interest therein, then such landlord shall not be liable for any obligation or
liability based on or arising out of any event or condition occurring after such
transfer and Tenant shall no longer be liable to the prior Landlord (except with
respect to defaults or other obligations accruing prior to such transfer).
Tenant shall attorn to such transferee and, within five (5) days after request,
shall execute, acknowledge and deliver any reasonable document submitted to
Tenant confirming such attornment; provided, however, that Tenant shall not be
obligated to execute any such document confirming Tenant's
<PAGE>
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attornment unless such transferee provides to Tenant a non-disturbance agreement
(or similar document) recognizing Tenant's rights under this Lease and agreeing
that, as long as no Event of Default has occurred under this Lease, Tenant's
occupancy of the Premises shall not be disturbed.
15.4 Tenant shall not have the right to offset or deduct any amount
allegedly owed to Tenant pursuant to any claim against Landlord from any rent or
other sum payable to Landlord. Tenant's sole remedy for recovering upon such
claim shall be to institute an independent action against Landlord.
15.5 If Tenant or any Invitee is awarded a money judgment against Landlord,
then recourse for satisfaction of such judgment shall be limited to execution
against Landlord's estate and interest in the Building and the Land. No other
asset of Landlord, any partner, director or officer of Landlord (collectively,
"Officer") or any other person or entity shall be available to satisfy or
subject to such judgment, nor shall any Officer or other person or entity have
personal liability for satisfaction of any claim or judgment against Landlord or
any Officer.
ARTICLE XVI
-----------
RULES
-----
16.1 Tenant and Invitees shall observe the rules specified in Exhibit D
attached hereto. Tenant and Invitees shall also observe any other rule that
Landlord may promulgate for the operation or maintenance of the Building,
provided that notice thereof is given, such rule is not in consistent with the
provisions of this Lease and such rule would not materially adversely affect
Tenant's rights under this Lease or materially increase Tenant's obligations
under this Lease. Landlord shall have no duty to enforce such rules or any
provision of any other lease against any other tenant; provided that Landlord
shall not enforce the rules in a manner that would discriminate unfairly against
Tenant.
ARTICLE XVII
------------
DAMAGE OR DESTRUCTION
---------------------
17.1 If the Premises or the Building are totally or partially damaged or
destroyed thereby rendering the Premises totally or partially untenantable, then
Landlord shall repair and restore the Premises (except as hereinafter provided)
and the Building to substantially the same condition in which they were in prior
to such damage or destruction; provided, however, that if in Landlord's judgment
such repair and restoration cannot be completed within one hundred eighty (180)
days after the occurrence of such damage or destruction (taking into account the
time needed for effecting a satisfactory settlement with any insurance company
involved, removal of debris, preparation of plans and issuance of all required
governmental permits), then Landlord shall have the right, at its sole option,
to terminate this Lease as of the sixtieth (60th) day after such damage or
destruction by giving written notice of termination within forty-five (45) days
after the occurrence of such damage or destruction. If the Premises or any part
thereof are damaged or destroyed by fire or any other cause, Tenant shall give
prompt notice thereof to Landlord. Tenant shall be responsible for any
additional expenses incurred in the event that Tenant does not promptly provide
such notice. If this Lease is terminated pursuant to this Article, then rent
shall be apportioned (based on the portion of the Premises which is usable after
such damage or destruction) and paid to the date of termination. If this Lease
is not terminated as a result of such damage or destruction, then until such
repair and restoration of the Premises are substantially complete, Tenant shall
be required to pay the Base Rent and additional rent only for the
<PAGE>
-33-
portion of the Premises that is usable while such repair and restoration are
being made; provided, however, that if such damage or destruction was caused by
the gross negligence or willful misconduct of Tenant or any Invitee, then Tenant
shall not be entitled to any such rent reduction. If this Lease is not
terminated as a result of such damage or destruction, then Landlord shall bear
the expenses of such repair and restoration of the Premises and the Building;
provided, however, that if such damage or destruction was caused by the act or
omission of Tenant or any Invitee, then Tenant shall pay the amount by which
such expenses exceed the insurance proceeds, if any, actually received by
Landlord on account of such damage or destruction; and provided further,
however, that in no event shall Landlord be required to repair or restore any
work and materials not deemed by Landlord to be building standard work and
materials, any Alteration previously made by Tenant or any of Tenant's trade
fixtures, furnishings, equipment or personal property. Notwithstanding anything
herein to the contrary, Landlord shall have the right to terminate this Lease if
(a) Landlord's insurance is insufficient to pay the full cost of such repair and
restoration, (b) the holder of any Mortgage fails or refuses to make such
insurance proceeds available for such repair and restoration, (c) zoning or
other applicable laws or regulations do not permit such repair and restoration,
or (d) the Building is damaged by fire or casualty (whether or not the Premises
has been damaged) to such an extent that Landlord decides, in its sole and
absolute discretion, not to rebuild or reconstruct the Building.
17.2 If, within forty-five (45) days after the occurrence of the damage or
destruction described in Section 17.1, Landlord determines in its reasonable
judgment that the repairs and restoration cannot be substantially completed
within one hundred eighty (180) days after the date of such damage or
destruction, and provided Landlord does not elect to terminate this Lease
pursuant to this Article XVII, then Landlord shall promptly notify Tenant of
such determination, which determination shall specify the number of days
Landlord estimates it will take to substantially complete such repairs and
restoration (the "Estimate Restoration Period"). For a period continuing through
the thirtieth (30th) day after receipt of such notice, Tenant shall have the
right to terminate this Lease by providing written notice to Landlord. If Tenant
does not elect to terminate this Lease within such period, and provided Landlord
does not elect to terminate this Lease, then Landlord shall proceed to repair
and restore the Premises and the Building. Tenant shall be required to repair
restore or replace all of the Alterations previously made by Tenant and all of
Tenant's trade fixtures, furnishings, equipment or personal property (and
Landlord shall have no responsibility with respect to the repair, restoration or
replacement or such items). If Landlord fails to send the notice described in
the first sentence of this Section 17.2 within the specified forty-five (45) day
period, then Tenant shall have the right to notify Landlord in writing of
Tenant's intention to terminate this Lease as a result of such failure. If
Landlord fails to send such notice within ten (10) days after receipt of
Tenant's notice with respect thereto, then this Lease shall automatically
terminate as of such tenth (10th) day. If Landlord sends such notice within such
ten (10) day period, then the remaining provisions of this Section 17.2 shall
apply and Tenant's rights to terminate this Lease for Landlord's failure to
timely deliver such notice shall lapse and be of no further force or effect.
Notwithstanding any of the foregoing to the contrary, Tenant shall not have the
right to terminate this Lease pursuant to this Section 17.2 if the willful
misconduct or negligence of Tenant, its agents or employees, shall have caused
the damage or destruction.
<PAGE>
-34-
17.3 If Landlord is required to or elects to repair or restore the Premises
in accordance with this Article XVII and (subject to any delays caused by
Tenant) fails to substantially complete same by the end of the Estimated
Restoration Period, then Tenant shall have the sole right after the end of the
Estimated Restoration Period (or such longer period if Tenant cause any delay)
to notify Landlord of Tenant's intention to terminate this Lease. Upon receipt
of any such termination notice, Landlord shall have a period of sixty (60) days
(or, if Landlord's work is delayed during such sixty (60) day period by any act
or omission of Tenant, such sixty (60) day period shall be extended for the
period of such delay) to substantially complete the repair and restoration of
the Premises. If Landlord substantially completes such repair and restoration
during such sixty (60) day period (or longer period), then Tenant's right to
terminate this Lease pursuant to this Section 17.3 shall immediately lapse and
this Lease shall continue in full force and effect. If Landlord fails to
substantially complete such repairs and restoration within such sixty (60) day
period (or such longer period), then this Lease shall terminate as of such
sixtieth (60th) day (or the last day of such longer period). Notwithstanding
any of the foregoing to the contrary, Tenant shall not have the right to
terminate this Lease pursuant to this Section 17.3 if the willful misconduct or
gross negligence of Tenant, its agents or employees shall have caused the damage
or destruction.
ARTICLE XVIII
-------------
CONDEMNATION
------------
18.1 If one-third or more of the Premises or occupancy thereof shall be
taken or condemned by any governmental or quasi-governmental authority for any
public or quasi-public use or purpose or sold under threat of such a taking or
condemnation (collectively, "condemned"), then this Lease shall terminate on the
date title vest in such authority and rent shall be apportioned as of such date.
If less than one-third of the Premises or occupancy thereof is condemned, then
this Lease shall continue in full force and effect as to the part of the
Premises not condemned, except that as of the date title vests in such authority
Tenant shall not be required to pay the Base Rent and additional rent with
respect to the part of the Premises condemned. Notwithstanding anything herein
to the contrary, if any portion of the Land or the Building is condemned, and
the nature, location or extent of such condemnation is such that Landlord
elects, in its sole and absolute discretion, to demolish the Building (in whole
or in part), then Landlord may terminate this Lease by giving sixty (60) days
prior written notice of such termination to Tenant at any time after such
condemnation and this Lease shall terminate on the date specified in such notice
and rent shall be adjusted to such date. Notwithstanding any of the foregoing
to the contrary, if less than one-third of the Premises but more than fifteen
percent (15%) of the Premises is condemned and not sufficient for Tenant to
operate its business therein, then Tenant shall have the right terminate this
Lease by written notice to Landlord within thirty (30) days after title vests in
such condemning authority (unless, within such thirty (30) day period, Landlord
makes reasonable alternative space in the Complex available to Tenant that makes
it possible for Tenant to adequately operate its business).
18.2 All awards, damages and other compensation paid by such authority on
account of such condemnation shall belong to Landlord, and Tenant assigns to
Landlord all rights to such awards, damages and compensation. Tenant shall not
make any claim against Landlord or the authority for any portion of such award,
damages or compensation attributable to damage to the Premises, value of the
unexpired portion of the Lease Term, loss
<PAGE>
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of profits or goodwill, leasehold improvements or severance damages. Nothing
contained herein, however, shall prevent Tenant from pursuing a separate claim
against the authority for the value of furnishings and trade fixtures installed
in the Premises at Tenant's expense and for relocation expenses, provided that
such claim is stated separately from any award to Landlord and provided further
that such claim shall in no way diminish the award, damages or compensation
otherwise payable to Landlord in connection with such condemnation.
ARTICLE XIX
-----------
DEFAULT
-------
19.1 An Event of Default is any one or more of the following: (a) Tenant's
failure to make when due any payment of the Base Rent, additional rent or other
sum due hereunder, which failure continues for ten (10) days after written
notice thereof from Landlord to Tenant; (b) Tenant's failure to perform or
observe any other term, covenant or condition hereof, which failure continues
for thirty (30) days after Landlord's delivery of written notice thereof to
Tenant, or such shorter period as is appropriate if such failure can be cured in
a shorter period, provided that, if such violation or failure is susceptible to
cure but is not capable of being cured within such thirty (30) day period, there
shall exist no Event of Default provided that Tenant promptly commences to cure
such violation or failure and diligently pursues such cure to completion and
actually completes such cure within ninety (90) days from the date of Landlord's
notice; (c) an Event of Bankruptcy as specified in Article XX; or (d) Tenant's
dissolution or liquidation.
19.2 If there shall be an Event of Default, including an Event of Default
prior to the Lease Commencement Date, then the provisions of this Section shall
apply. Landlord shall have the right, at its sole option, to terminate this
Lease. In addition, with or without terminating this Lease, Landlord may re-
enter, terminate Tenant's right of possession and take possession of the
Premises. The provisions of this Article shall operate as a notice to quit, any
other notice to quit or of Landlord's intention to re-enter the Premises being
expressly waived. If necessary, Landlord may proceed to recover possession of
the Premises under applicable laws, by such other proceedings, including re-
entry and possession, or by using such force (to the extent lawful) as may be
necessary. If Landlord elects to terminate this Lease and/or elects to terminate
Tenant's right of possession, then everything in this Lease to be done by
Landlord shall cease, without prejudice, however, to Tenant's liability for all
rent and other sums due hereunder. Landlord shall make reasonable efforts to
market the Premises, but retains sole discretion regarding any decision to relet
(or not relet) the Premises or any part thereof. Landlord may relet the Premises
or any part thereof, alone or together with other premises, for such term(s)
(which may extend beyond the date on which the Lease Term would have expired but
for Tenant's default) and on such terms and conditions (which may include
concessions or free rent and alterations of the Premises) as Landlord, in its
sole discretion, any determine, but Landlord shall not be liable for, nor shall
Tenant's obligations be diminished by reason of, Landlord's failure to relet the
Premises or collect any rent due upon such reletting. If Landlord relets the
Premises and collects rent in excess of the Base Rent and additional rent owed
by Tenant hereunder, Landlord shall not be entitled to a credit therefor.
Whether or not this Lease is terminated, Tenant nevertheless shall remain liable
for the Base Rent, additional rent and damages which may be due or sustained,
and all costs, fees and expenses (including without limitation attorneys' fees,
brokerage fees and expenses incurred in placing the Premises in rentable
condition with
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finishes substantially equivalent to the quality of finishes in the Premises as
of the Lease Commencement Date) incurred by Landlord in pursuit of its remedies
and in renting the Premises to others from time to time. Tenant shall be liable
for all rent that would have applied to any period of occupancy of the Premises
(whether or not any such period has elapsed) for which Tenant was hereunder
granted occupancy without any obligation to pay such rent (if any). Tenant shall
also be liable for additional damages which at Landlord's election shall be
either; (a) an amount equal to the Base Rent and additional rent which would
have become due during the remainder of the Lease Term, less the amount of
rental, if any, which Landlord receives during such period from others to whom
the Premises may be rented (other than any additional rent payable as a result
of any failure of such other person to perform any of its obligations), in which
case such damages shall be computed and payable in monthly installments, in
advance, on the first day of each calender month following Tenant's default and
continuing until the date on which the Lease Term would have expired but for
Tenant's default (provided, however, that if at the time of any reletting of the
Premises there exists other space in the Building or the Complex available for
leasing that would be sufficient to meet the new tenant's needs, then the
Premises shall be deemed the last space rented, even though the Premises shall
be deemed the last space rented, even though the Premises may be relet prior to
the date such other space is leased and provided further however, that separate
suits may be brought to collect any such damages for any month(s), and such
suits shall not in any manner prejudice Landlord's right to collect any such
damages for any subsequent month(s), or Landlord may defer any such suit until
after the expiration of the Lease Term, in which event such suit shall be deemed
not to have accrued until the expiration of the Lease Term); or (b) an amount
equal to the present value (as of the date of Tenant's default) of the Base Rent
and additional rent which would have become due through the date on which the
Lease Term would have become due through the date on which the Lease Term would
have expired but for Tenant's default, which damages shall be payable to
Landlord in a lump sum on demand. For purpose of this Section, present value
shall be computed by discounting at a rate equal to one (1) whole percentage
point above the discount rate then in effect at the Federal Reserve Bank nearest
to the Building. Tenant waives any right of redemption, re-entry or restoration
of the operation of this Lease under any present or future law, including any
such right which Tenant would otherwise have if Tenant shall be dispossessed for
any cause. As used in the preceding sentence, the words "redemption", "re-
entry", "retention", and "dispossessed" shall not be deemed restricted to their
technical or legal meanings. Whether or not this Lease and/or Tenant's right of
possession is terminated, Landlord shall have the right to terminate by written
notice any renewal or expansion right contained in this Lease and to grant or
withhold any consent or approval pursuant to this Lease in its sole and absolute
discretion. Notwithstanding the foregoing, Landlord shall not be entitled to
collect from Tenant twice for any loss, cost or other expense covered by this
Section 19.2.
19.3 Landlord's rights and remedies set forth in this Lease are cumulative
and in addition to Landlord's other rights and remedies at law or in equity,
including those available as a result of any anticipatory breach of this Lease.
Landlord's exercise of any such right or remedy shall not prevent the concurrent
or subsequent exercise of any other right or remedy. Landlord's delay or failure
to exercise or enforce any of Landlord's rights or remedies or Tenant's
obligations shall not constitute a waiver of any such rights, remedies or
obligations. Landlord shall not be deemed to have waived any default unless such
waiver expressly is set forth in an instrument signed by Landlord. Any such
waiver shall not be construed as a waiver of any covenant or Condition except as
to the specific circumstances
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described in such waiver. Neither Tenant's payment of an amount less than a sum
due nor Tenant's endorsement or statement on any check or letter accompanying
such payment shall be deemed an accord and satisfaction. Notwithstanding any
request or designation by Tenant. Landlord may apply any payment received from
Tenant to any payment then due. Landlord may accept the same without prejudice
to Landlord's right to recover the balance of such sum or to pursue other
remedies. Re-entry and acceptance of keys shall not be considered an acceptance
of a surrender of this Lease.
19.4 If more than one natural person and/or entity shall constitute Tenant
or any Guarantor, then the liability of each such person or entity shall be
joint and several. If Tenant or any Guarantor is a general partnership or other
entity the partners or members of which are subject to personal liability, then
the liability of each such partner or member shall be joint and several.
19.5 If Tenant fails to make any payment to any third party or to do any
act herein required to be made or done by Tenant within ten (10) days after
notice thereof, then Landlord may, but shall not be required to, make such
payment or do such act. Landlord's taking such action shall not be considered a
cure of such failure by Tenant nor prevent Landlord from pursuing any remedy it
is otherwise entitled to in connection with such failure. If Landlord elects to
make such payment or do such act, then all expenses incurred, plus interest
thereon at the Default Rate (as hereinafter defined) from the date incurred to
the date of payment thereof by Tenant, shall constitute additional rent. The
Default Rate shall equal the rate per annum which is the greater of twelve
percent (12%) or five (5) whole percentage points above the prime rate published
from time to time in the Money Rate section of the Wall Street Journal.
19.6 If Tenant fails to make any payment of the Base Rent, additional rent
or any other sum payable to Landlord on or before the date such payment is due
and payable, then Tenant shall pay a late charge equal to the greater of (i)
five percent (5%) of the amount of such payment or (ii) five hundred dollars
($500.00); provided, however, that on the first occasion of any such late
payment during the Lease Term, such late fee shall not be assessed if Tenant
makes such payment within five (5) days after receipt of notice from Landlord
that such payment was not received timely. Such payment and such late fee shall
bear interest at the Default Rate from the date such payment was due to the date
of payment. If a monetary Event of Default occurs under this lease more than
three times during the Lease Term, then, at Landlord's election, Tenant shall
not have the right to cure such repeated default. In the event of Landlord's
election not to allow a cure of a repeated default, Landlord shall have all the
rights and remedies provided herein and by law. In addition, following each
second consecutive monthly installment of rent that remains unpaid for longer
than ten (10) days after Tenant's receipt of notice thereof, Landlord may, in
addition to all other rights and remedies provided herein and by law, require
that (i) beginning with the first monthly installment of rent next due, the rent
shall no longer be paid in monthly installments but shall be payable in advance
on a quarterly basis and/or (ii) beginning with the first monthly installment of
rent next due, the rent shall no longer be paid in monthly installments but
shall be payable in advance on a quarterly basis and/or (ii) Tenant increase the
amount of the security deposited with Landlord by an amount equal to two (2)
months' rent. If Tenant shall deliver to Landlord a check that is returned
unpaid for any reason, such payment shall be deemed never to have been made and,
additionally, Tenant shall pay Landlord One Hundred Dollars ($100.00) for
Landlord's expense in connection therewith (plus any out-of-pocket expenses
incurred in connection therewith) and said charge shall be payable to Landlord
on the first day of the next succeeding month as additional rent.
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19.7 During any period Tenant is in default under this Lease but subject to
the terms of any lien subordination executed by Landlord pursuant to the
succeeding sentence, Tenant shall not sell, transfer or remove from the Premises
any of Tenant's personal property, inventory, furniture, fixtures, equipment and
assets. Landlord's agrees to execute a lien subordinated subordination for the
benefit of Mercantile - Safe Deposit and Trust Company ("Mercantile") in the
form of Exhibit J attached hereto for the purpose of Tenant obtaining a loan
from such lender, and to execute a lien subordination for the purpose of Tenant
obtaining a loan to any successor or substitute lender to Mercantile that
becomes Tenant's principal lender, which lien subordination shall contain such
reasonable terms and conditions as may be agreed upon by Landlord and such
successor or replacement lender.
ARTICLE XX
----------
BANKRUPTCY
----------
20.1 An Event of Bankruptcy is: (a) Tenant's, a Guarantor's or any general
partner (a "General Partner") of Tenant's becoming insolvent, as that term is
defined in Title 11 of the United States Code (the "Bankruptcy Code"), or under
the insolvency laws of any state (the "Insolvency Laws"); (b) appointment of a
receiver or custodian for any property of Tenant, a Guarantor or a General
Partner, or the institution of a foreclosure or attachment action upon any
property of Tenant, a Guarantor or a General Partner; (c) filing of a voluntary
petition by Tenant, a Guarantor or a General Partner under the provisions of the
Bankruptcy Code or Insolvency Laws; (d) filing of an involuntary petition
against Tenant, a Guarantor or a General Partner as the subject debtor under the
Bankruptcy Code or Insolvency Laws, which either (1) is not dismissed within
sixty (60) days after filling, or (2) results in the issuance of an order for
relief against the debtor; (e) Tenant's, a Gurantor's or a General Partner's
making or consenting to an assignment for the benefit of creditors or a
composition of creditors; (f) a material and adverse change in the financial
condition or status of Tenant, a General Partner or a Guarantor; or (g) an
admission by Tenant or a Guarantor of its inability to pay debts as they become
due.
20.2 Upon occurrence of an Event of Bankruptcy, Landlord shall have all
rights and remedies available pursuant to Article XIX; provided, however, that
while a case (the "Case") in which Tenant is the subject debtor under the
Bankruptcy Code is pending, Landlord's right to terminate this Lease shall be
subject, to the extent required by the Bankruptcy Code, to any rights of Tenant
or its trustee in bankruptcy (collectively, "Trustee") to assume or assign this
Lease pursuant to the Bankruptcy Code. Trustee shall not have the right to
assume or assign this Lease unless Trustee promptly (a) cures all defaults under
this Lease, (b) compensates Landlord for all damages incurred as a result of
such defaults, (c) provides adequate assurance of future performance on the part
of Tenant as debtor in possession or Tenant's assignee, and (d) complies with
all other requirements of the Bankruptcy Code. If Trustee fails to assume or
assign this Lease in accordance with the requirements of the Bankruptcy Code
within sixty (60) days after the initiation of the Case, then Trustee shall be
deemed to have rejected this Lease. Adequate assurance of future performance
shall require that, at a minimum, all of the following minimum criteria be met:
(1) Tenant's gross income (as defined by generally accepted accounting
principles) during the thirty (30) days preceding the filing of the Case must be
greater than ten (10) times the next monthly installment of the Base Rent and
additional rent; (2) Both the average and median of Tenant's monthly gross
income (as defined by generally accepted accounting principles) during the seven
(7) months preceding the monthly installment of the Base Rent and additional
rent;
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(3) Trustee must pay its estimated pro rata share of the cost of all services
performed or provided by Landlord (whether directly or through agents or
contractors and whether or not previously included as part of the Base Rent) in
advance of the performance or provision of such services; (4) Trustee must agree
that Tenant's business shall be conducted in a first-class manner, and that no
liquidating sale, auction or other non-first-class business operation shall be
conducted in the Premises; (5) Trustee must agree that the use of the Premises
as stated in this Lease shall remain unchanged and that no prohibited use shall
be permitted; (6) Trustee must agree that the assumption or assignment of this
Lease shall not violate or affect the rights of other tenants in the Building
and the Complex; (7) Trustee must pay at the time the next monthly installment
of the Base Rent is due, in addition to such installment, an equal to the
monthly installments of the Base Rent and additional rent due for the next six
(6) months thereafter, such amount to be held as a security deposit; (8) Trustee
must agree to pay, at any time Landlord draws on such security deposit, the
amount necessary to restore such security deposit to its original amount; and
(9) All assurances of future performance specified in the Bankruptcy Code must
be provided.
ARTICLE XXI
-----------
SUBORDINATION
-------------
21.1 This Lease is subject and subordinate to the lien, provisions,
operation and effect of the first mortgage, deed of trust, or other security
instrument which may now or hereafter encumber the Building or the Land (the
"Mortgage"), to all funds and indebtedness intended to be secured thereby, and
to all renewals, extensions, modifications, recastings or refinancings thereof;
provided, however, that Tenant shall only be obligated to subordinate its
interest in this Lease to a future Mortgage holder if such mortage holder
provides Tenant a non-disturbance agreement (or similar document) recognizing
Tenant's rights under this Lease and agreeing that, as long as no Event of
Default has occurred hereunder, Tenant's occupancy of the Premises shall not be
disturbed. The holder of the Mortgage to which this Lease is subordinate shall
have the right at any time to declare this Lease to be superior to the lien,
provisions, operation and effect of such Mortgage and Tenant shall execute,
acknowledge and deliver all confirming documents required by such holder. After
execution of the Lease, Landlord shall obtain a subordination agreement (or non-
disturbance agreement) from landlord's current Lender on such Lender's standard
form agreement, which agreement has in the past been in the form attached hereto
as Exhibit G. If Landlord has not delivered to Tenant a copy of such agreement
executed by Landlord's current lender within sixty (60) days after the date of
full execution of this Lease, then Tenant may elect to terminate this Lease by
providing written notice thereof within five (5) business days after such
sixtieth (60th) day. If Tenant timely provides such notice, then Landlord shall
have a period of thirty (30) days after receipt of such notice to deliver to
Tenant a copy of such agreement executed by Landlord's current lender. If Lender
fails to do so within such thirty (30) day period, then this Lease shall be
deemed terminated and the parties shall have no further liability to each other;
provided, however, that Tenant shall have the right to continue to occupy the
Premises for to one (1) year after the date of such termination as long as
Tenant notifies Landlord in writing of such intention on or before such
termination date and continues to satisfy all of its rental and other
obligations hereunder. Tenant shall have the right to vacate the Premises (and
cease paying rent) as of the last day of any calendar month during such one (1)
year period by providing written notice to Landlord thereof at least one hundred
fifty (150) days prior to the date Tenant intends to vacate the
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Premises. In all events Tenant shall be obligated to vacate the Premises on the
first (1st) anniversary of the termination date described above. If Tenant fails
to deliver such termination notice timely, the Tenant's right to terminate this
Lease pursuant to this Section shall lapse and be of no further force or effect.
21.2 In confirmation of the foregoing subordination, Tenant shall at
Landlord's request promptly execute any requisite or appropriate document.
Tenant waives the provisions of any statute or rule of law now or hereafter in
effect which may give or purport to give Tenant any right to terminate or
otherwise adversely affect this Lease or Tenant's obligations in the event any
such foreclosure proceeding is prosecuted or completed in the event the Land,
the Building or Landlord's interest therein is sold at a foreclosure sale or by
deed in lieu of foreclosure. If this Lease is not extinguished upon such sale or
by the purchaser following such sale, then, at the request of such purchaser,
Tenant shall attorn to such purchaser and shall recognize such purchaser as the
landlord under this Lease. Upon such attornment such purchaser shall not be (a)
bound by any payment of the Base Rent or additional rent more than one (1) month
in advance (except as same may be paid pursuant to Section 19.6), (b) bound by
any amendment of this Lease made without the consent of the holder of each
Mortgage existing as of the date of such amendment, (c) liable for damages for
any breach, act or omission of any prior landlord, or (d) subject to any offsets
or defenses which Tenant might have against any prior landlord. Within five (5)
days after receipt, Tenant shall execute, acknowledge and deliver any requisite
or appropriate document submitted to Tenant confirming such attornment.
21.3 If any lender providing financing secured by the Building requires as
a condition of such financing that modifications to this Lease be obtained, and
provided that such modifications (a) are reasonable, (b) to do not adversely
affect in a material manner Tenant's use of the Premises as herein permitted or
Tenant's rights under this Lease, and (c) do not increase the rent and other
sums to be paid by Tenant or any of Tenant's other obligations under this Lease,
then Landlord may submit to Tenant an amendment to this Lease incorporation such
modifications. Tenant shall execute, acknowledge and deliver such amendment to
this Lease incorporating such modifications. Tenant shall execute, acknowledge
and deliver such amendment to Landlord within five (5) days after receipt.
ARTICLE XXII
------------
COVENANTS OF LANDLORD
---------------------
22.1 Landlord covenants that if Tenant shall perform timely all of its
obligations, then, subject to the provisions of this Lease, Tenant shall during
the Lease Term peaceably and quietly occupy and enjoy possession of the Premises
without hindrance by Landlord or anyone claiming through Landlord.
22.2 Landlord reserves the right to: (a) change the street address and name
of the Building or the Complex, provided that in the event Landlord changes the
Street address, Landlord shall reimburse Tenant for the reasonable out-of-pocket
expenses incurred in replacing Tenant's current stock of stationery: (b) change
the arrangement and location of entrances, passage-ways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the Building and
the Complex, and, in connection with such work, to temporarily close door entry
ways, common or public spaces and corridors of the Building or the Complex so
long as the Premises remain reasonably accessible; (c) erect, use and maintain
pipes and conduits in and through the Premises; (d) grant to anyone the
exclusive right to conduct any particular business in the Building or the
Complex not inconsistent with the permitted use of the Premises; (e) use or
lease
<PAGE>
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exclusively the roof areas, the sidewalks and other exterior areas; (f)
resubdivide the Land or to combine the Land with other lands; (g) construct
improvements (including kiosks) on the Land and in the public and common areas
of the Building; (h) relocate or change roads, driveways and parking areas and
to alter the means of access to all or any portion of the Building or Complex;
(i) install and display signs, advertisements and notices on any part of the
exterior or interior of the Building; (j) install such security systems and
devices as Landlord deems appropriate; (k) create easements over the Premises
and in the entrances, aisles and stairways of any parking areas for utilities,
telephone lines, sanitary sewer, storm sewer, water lines, pipes, conduits,
drainage ditches, sidewalks, pathways, emergency vehicles, and ingress and
egress for the use and benefit of others, without Tenant joining in the
execution thereof and the Lease shall automatically be subject and subordinate
thereto; and (l) alter the site plan, landscaping, walkways and common areas
outside the Building within the context of general site improvements, repairs
and maintenance. Unless required by law, Landlord shall not conduct any of the
foregoing to the extent same would materially adversely affect Tenant's access
to the Premises or materially adversely affect Tenant's ability to operate its
business in the Premises for general office purposes. Exercise of any such right
shall not be considered a constructive eviction or a disturbance of Tenant's
business or occupancy.
ARTICLE XXIII
-------------
GENERAL PROVISIONS
------------------
23.1 Tenant acknowledges that neither Landlord nor any broker, agent or
employee of Landlord has made any representation or promise with respect to the
Premises or the Building or the Land except as expressly set forth herein, and
no right is being acquired by Tenant except as expressly set forth herein. This
Lease contains the entire agreement of the parties and supersedes all prior
agreements, negotiations, letters of intent, proposals, representations,
warranties and discussions between the parties. This Lease may be changed in any
manner only by an instrument signed by both parties.
23.2 Nothing contained in this Lease shall be construed as creating any
relationship between Landlord and Tenant other than that of landlord and tenant.
23.3 Landlord and Tenant each warrants that in connection with this Lease
it has not employed or dealt with any broker, agent or finder other than the
Broker(s). Tenant shall indemnify and hold Landlord harmless from and against
any claim for brokerage or other commissions asserted by any other broker, agent
or finder employed by Tenant or with whom Tenant has dealt.
23.4 From time to time upon ten (10) days' prior written notice, Tenant
and each other subtenant, assignee or occupant of Tenant shall execute,
acknowledge and deliver to Landlord and any designee of Landlord a written
statement certifying: (a) that this Lease is unmodified and in full force and
effect (or that this Lease is in full force and effect as modified and stating
the modifications); (b) the dates to which rent and any other charges have been
paid; (c) that, to the best of Tenant's knowledge, Landlord is not in default in
the performance of any obligation (or specifying the nature of any default); (d)
the address to which notices are to be sent; (e) to the extent true, that this
Lease is subject and subordinate to all Mortgages; (f) that Tenant has accepted
the Premises and all work thereto has been completed (or specifying the
incomplete work); and (g) to the extent true, such other matters as Landlord may
reasonably request. Any such statement may be relied upon by any owner of the
Building or the Land, any prospective purchaser of the
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Building or the Land, any holder or prospective holder of a Mortgage or any
other person or entity. Tenant acknowledges that time is of the essence to the
delivery of such statements and Tenant's failure to deliver timely such
statements may cause substantial damages resulting from, for example, delays in
obtaining financing secured by the Building.
23.5 LANDLORD, TENANT, GUARANTORS AND GENERAL PARTNERS WAIVE TRAIL BY JURY
IN ANY ACTION, CLAIM OR COUNTERCLAIM BROUGHT IN CONNECTION WITH ANY MATTER
ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE RELATED TO POSSESSION OF
THE PREMISES. Tenant consents to service of process and any pleading relating to
any such action at the Premises; provided, however, that nothing herein shall be
construed as requiring such service at the Premises. Landlord, Tenant, all
Guarantors and all General Partners waive any objection to the venue of any
action filed in any court situated in the jurisdiction in which the Building is
located and waive any right under the doctrine of forum non conveniens or
otherwise to transfer any such action filed in any such court to any other
court.
23.6 All notices or other required communications shall be in writing and
shall be deemed duly given only when delivered in person (with receipt
therefor), or three (3) days after sent by certified or registered mail, return
receipt requested, postage prepaid, to the following addresses: (a) if to
Landlord, at the Landlord Address for Notices, with a copy to Shaw, Pittman,
Potts & Trowbridge, 2300 N Street, N.W., Washington, D.C. 20037, Attention:
Mitchell S. Nusbaum, Esquire; or Nusbaum, Esquire; or (b) if to Tenant, at the
Tenant Address for Notices, with a copy to Steven W. Jacobson, Esq., West &
Feinberg, P.C., 4550 Montgomery Avenue, #775N, Bethesda, Maryland 20814 and with
a copy to Mercantile Safe Deposit and Trust Company, 2 Hopkins Plaza, 5th Floor,
Baltimore, Maryland 21201, Attn: Asset Based Lending Division, for so long as
said company is a lender of Tenant. Either party may change its address for the
giving of notices by notice given in accordance with this Section. If Landlord
or the holder of any Mortgage notifies Tenant that a copy of each notice to
Landlord shall be sent to such holder at a specified address, then Tenant shall
send (in the manner specified in this Section and at the same time such notice
is sent to Landlord) a copy of each such notice to such holder, and no such
notice shall be considered duly sent unless such copy is so sent to such holder.
If Tenant claims that Landlord has breached any obligation, then Tenant shall
send such holder notice specifying the breach and permit such holder a
reasonable opportunity to cure the breach.
23.7 Each provision of this Lease shall be valid and enforceable to the
fullest extent permitted by law. If any provision or its application to any
person or circumstance shall to any extent be invalid or unenforceable, then
such provision shall be deemed to be replaced by the valid and enforceable
provision most substantively similar thereto, and the remainder of this Lease
and the application of such provision to other persons or circumstances shall
not be affected.
23.8 Feminine, masculine or neuter pronouns shall be substituted for those
of another form, and the plural or singular shall be substituted for the other
number, in any place in which the context may require.
23.9 The provisions of this Lease shall be binding upon and inure to the
benefit of the parties and their respective representatives, successors and
assigns, subject to the provisions herein restricting assignment or subletting.
23.10 Upon reasonable prior notice (except in cases of emergency), Landlord
and its designees may enter the Premises at
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any time (but, except in cases of emergency, Landlord shall enter during normal
business hours), without charge therefor and without diminution of the rent
payable by Tenant, to inspect and exhibit the Premises and make such alterations
and repairs as Landlord may deem necessary.
23.11 This Lease shall be governed by the laws of the jurisdiction in
which the Building is located.
23.12 Headings are used for convenience and shall not be considered when
construing this Lease.
23.13 The submission of a copy of this document to Tenant shall not
constitute an offer or option to lease. This Lease shall become effective and
binding only upon execution and delivery by both Landlord and Tenant.
23.14 Time is of the essence with respect to each obligation of Tenant
and Landlord.
23.15 This Lease may be executed in multiple counterparts, each of which
is deemed an original and all of which constitute one and the same document.
23.16 Neither this Lease nor a memorandum thereof shall be recorded.
23.17 Landlord reserves the right to make reasonable changes to the plans
and specifications for the Building without Tenant's consent, provided such
changes do not alter the character of the Building as a first-class office
building and do not materially adversely affect Tenant's access to the Premises.
23.18 Except as otherwise provided in this Lease, any additional rent or
other sum owed by Tenant to Landlord, and any cost, expense, damage or liability
incurred by Landlord for which Tenant is liable, shall be considered additional
rent payable pursuant to this Lease and paid by Tenant no later than ten (10)
days after the date Landlord notifies Tenant of the amount thereof.
23.19 Landlord's and Tenant's liabilities existing as of the expiration or
earlier termination of the Lease Term shall survive such expiration or earlier
termination.
23.20 If Landlord is in any way delayed or prevented from performing any
obligation due to fire, act of God, governmental act or failure to act, labor
dispute, inability to procure materials or any cause beyond Landlord's
reasonable control (whether similar or dissimilar to the foregoing events), then
the time for performance of such obligation shall be excused for the period of
such delay or prevention and extended for the time necessary to compensate for
the period of such delay or prevention.
23.21 The deletion of any printed, typed or other portion of this Lease
shall not evidence an intention to contradict such deleted portion. Such deleted
portion shall be deemed not to have been inserted in this Lease.
23.22 Landlord has procured financing, but Landlord is required to obtain
the approval of this Lease by Landlord's lender. Landlord shall submit this
Lease after execution by the parties for such approval, and in the event such
lender disapproves this Lease, then Landlord shall have the right to cancel this
Lease by giving written notice to Tenant, in which event the parties to this
Lease shall automatically be released from any and all liability in connection
with this Lease to the full extent as though it had neither been negotiated nor
executed,
<PAGE>
-44-
except for Base Rent and additional rent and other obligations of Tenant through
the effective date of such cancellation. If Landlord has not notified Tenant
within six (6) business days after receiving an executed lease satisfactory to
Landlord (together with the Security Deposit and first month's rent) that
Landlord's lender has approved this Lease or that Landlord's lender has approved
this Lease subject to modifications that Tenant is required to make pursuant to
Section 21.3 hereof, then Tenant shall have the right to provide notice in
writing to Landlord at any time thereafter (but prior to Tenant's receipt of
notice from Landlord that Landlord has received any such approval) of Tenant's
intention to terminate this Lease. Landlord shall have two (2) business days
from receipt of such notice to notify Tenant that this Lease has been approved
by Lender (or approved subject to modifications Tenant is required to make
pursuant to Section 21.3). If Landlord fails to provide such notice within such
two (2) business day period, then this Lease shall automatically terminate as of
the end of such second (2nd) business day and the parties shall have no further
obligations to each other pursuant hereto.
23.23 The person executing this Lease on Tenant's and Landlord's behalf
warrants that such person is duly authorized to so act.
23.24 If any Base Rent or additional rent is collected by or through an
attorney or if Landlord requires the services of an attorney to cause Tenant to
cure any default, to evict Tenant or to pursue any other remedies to which
Landlord is entitled hereunder, Tenant shall pay the reasonable fees of such
attorney (including in-house attorneys) together with all reasonable costs and
expenses incurred by Landlord in connection with such matters, whether or not
any legal proceedings have been commenced. Notwithstanding the foregoing
sentence, in the event of under this Lease, the prevailing party shall be
entitled to recover all costs and expenses incurred in connection with such
proceeding, including reasonable legal fees.
23.25 Tenant represents that the financial statements dated December 31,
1991 and December 31, 1992 and previously delivered to Landlord is are a true,
complete and accurate presentation as of the date such statements of all of the
assets, liabilities and net worth of Tenant. Tenant further represents that the
combined net worth and retained earnings of St. Anthony Publishing, Inc. and St.
Anthony Consulting Group, Inc. immediately after the division of the companies
on January 1, 1994 was no less than the net worth and retained earnings of St.
Anthony Publishing, Inc. immediately before the division of the companies on
December 31, 1993 based on the financial statements Tenant Submitted to Landlord
on March 8, 1994 for the period ending December 31, 1993. Tenant acknowledges
that as a material inducement for entering into this Lease, Landlord is relying
on the accuracy of this information.
23.26 Landlord, at Landlord's expense, shall provide a limited renovation
to the lobby of the Building, which renovation shall include a new drywall
ceiling and new light fixtures. Landlord shall complete such renovation by the
Lease Commencement Date.
ARTICLE XXIV
------------
PARKING
-------
24.1 During the Lease Term, Tenant shall have the right to use (on a
non-exclusive first-come, first-served basis) the Parking Permits (as defined in
Section 1.14 hereinabove) for the parking of passenger automobiles in the
parking areas designated
<PAGE>
-45-
from time to time by Landlord for the use of tenants of the Building; provided,
however, that fifteen (15) of the Parking Permits shall be for reserved parking
spaces, which reserved spaces shall be across from the Building's entrance in
the locations shown on Exhibit I attached hereto. The parking facility will
remain open Monday through Friday (excluding legal holidays) during the normal
hours of operation of the Building.
24.2 Landlord reserves the right to establish rates and fees for the use
of such parking areas and to establish and modify or amend rules and regulations
governing the use of such parking areas; provided that the Parking Permits shall
be free of charge during the initial six (6) year Lease Term. Landlord shall
have the right to revoke a user's parking privileges in the event such user
fails to abide by the rules and regulations governing the use of such parking
areas. Tenant shall be prohibited from using such parking areas for purposes
other than for parking registered vehicles. The storage or repair of vehicles in
such parking areas shall be prohibited.
24.3 Tenant shall not assign or sublet any parking rights granted to
Tenant herein. Any attempted assignment or sublease shall be null and void.
24.4 Landlord reserves the right to institute a valet parking system or a
magnetic card access system or any other parking or permit system it deems
appropriate.
24.5 Landlord shall be liable for any damage or loss to any automobile (or
property therein) parked in, on or about such parking areas, or for any injury
sustained by any person in, on or about such areas. If Landlord, in its sole
and absolute discretion, deems it necessary to repair or maintain such parking
areas, Landlord shall have the right to substitute use of other parking areas.
<PAGE>
-46-
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
date first above written.
WITNESS: LANDLORD:
RESTON INVESTMENT PROPERTIES
ASSOCIATES LIMITED PARTNERSHIP,
a Virginia limited partnership
By: THE FAMILY TRUST UNDER THE
LAST WILL AND TESTAMENT OF
MARK WINKLER, DECEASED
By: /s/ Randal B. Kell
---------------------------
Randal B. Kell, Trust
Manager
WITNESS: TENANT:
ST. ANTHONY PUBLISHING, INC.,
a Delaware corporation
[SIGNATURE NOT LEGIBLE] By: [SIGNATURE NOT LEGIBLE]
- ------------------------- ---------------------------------
Name: Peter L. Bower
-------------------------------
Title: Chief Financial Officer
-----------------------------
Date: March 18, 1994
-----------------------------
ST. ANTHONY CONSULTING GROUP INC.,
a Delaware Corporation
[SIGNATURE NOT LEGIBLE] By: [SIGNATURE NOT LEGIBLE]
- ------------------------- ---------------------------------
Name: Peter L. Bower
-------------------------------
Title: Chief Financial Officer
-----------------------------
Date: 3-18-1994
-----------------------------
Recommended for Landlord's consideration:
THE MARK WINKLER COMPANY
By: /s/ Michael D. Lynch
----------------------------
Michael D. Lynch, President
<PAGE>
EXHIBIT 10.3b
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made and
entered into as of April 14, 1994 by and between RESTON INVESTMENT PROPERTIES
ASSOCIATES LIMITED PARTNERSHIP, a Virginia limited partnership ("Landlord") and
ST. ANTHONY PUBLISHING, INC., a Delaware corporation, and ST. ANTHONY CONSULTING
GROUP, INC., a Delaware corporation (collectively, "Tenant").
WITNESSETH:
----------
WHEREAS, Landlord and Tenant entered into that certain Lease Agreement
dated as of March 18, 1994 (the "Lease") for 39,359 square feet of rentable area
(the "Premises") in that certain office building located at 11800 Sunrise Valley
Drive, Reston, Virginia (the "Building"); and
WHEREAS, Landlord's lender has required that certain modifications be made
to the Lease as a condition of such lender's approval of the Lease; and
WHEREAS, Landlord and Tenant desire to make certain changes to the Lease in
order to obtain such lender's approval of the Lease, all as more particularly
set forth hereinbelow.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, Landlord and
Tenant, intending legally to be bound, hereby agree as follows:
1. Section 4.4 of the Lease is deleted in its entirety and the following
new Section 4.4 is substituted in lieu thereof:
4.4 Provided that an Event of Default does not
exist hereunder, Landlord agrees to provide to Tenant
(i) an abatement of the monthly installments of Base
Rent payable for the first three (3) full calender
months of the Lease Term and (ii) a monthly abatement
of $4,362.50 for the fourth (4th) through ninth (9th)
full calender months of the Lease Term.
2. The second sentence of Section 7.4 of the Lease is deleted in its
entirety and the following new sentence is substituted in lieu thereof:
"Notwithstanding the foregoing, if Landlord's current Mortgage holder ever
forecloses on the Building, then,in lieu of any payments required pursuant to
the immediately preceding sentence, Tenant shall be obligated to pay to Landlord
fifty percent (50%) of any excess of the amount by which the subtenant, assignee
or other transferee (or any affiliate thereof) is to pay Tenant above the rent
and other charges due from Tenant under this Lease for the same period."
3. All defined terms used in this Amendment but not defined herein shall
have the meanings ascribed to them in the Lease.
4. The submission of this Amendment to Tenant shall not constitute an
offer and this Amendment shall be binding, subject to its terms, only upon
execution by both Landlord and Tenant.
<PAGE>
5. Except as modified by this Amendment, all of the terms and conditions
of the Lease shall continue in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of
the date first above written.
LANDLORD:
WITNESS/ATTEST: RESTON INVESTMENT PROTERTIES
ASSOCIATES LIMITED PARTNERSHIP,
a Virginia limited partnership
By: THE FAMILY TRUST UNDER THE
LAST WILL AND TESTAMENT OF
MARK WINKLER, DECEASED,
Sole general partner
/s/ Susan D. Shara By: /s/ Randal B. Kell
- ------------------ ---------------------
Randal B. Kell, Trust
Manager
TENANT:
ST. ANTHONY PUBLISHING, INC., a
Delaware corporation
By: /s/ Peter L. Bower By: /s/ James C. Miller
------------------- ---------------------
Name: Peter L. Bower Name: James C. Miller
----------------- -------------------
Title: CEO Title: President
---------------- ------------------
ST. ANTHONY CONSULTING GROUP, INC.,
a Delaware corporation
By: /s/ Peter L. Bower By: /s/ James C. Miller
------------------- ---------------------
Name: Peter L. Bower Name: James C. Miller
----------------- -------------------
Title: CEO Title: President
---------------- ------------------
Recommended for Landlord's Approval:
THE MARK WINKLER COMPANY
By: /s/ Michael D. Lynch
----------------------------
Michael D. Lynch, President
-2-
<PAGE>
EXHIBIT 10.3c
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT, this ("Amendment"), is made and
entered into as of December 2, 1994 by and between RESTON INVESTMENT PROPERTIES
ASSOCIATES LIMITED PARTNERSHIP, a Virginia limited partnership ("Landlord") and
ST. ANTHONY PUBLISHING, INC., A Delaware corporation, and ST. ANTHONY CONSULTING
GROUP, INC., a Delaware corporation collectively ("Tenant").
WITNESSETH:
----------
WHEREAS, Landlord and Tenant entered into that certain Lease Agreement
dated March 18, 1993, as amended by that certain First Amendment to Lease
Agreement dated April 4, 1994 (as amended, the "Lease") for 39,359 square feet
of rentable area (the "Premises"), in that certain office building located at
11410 Isaac Newton Square, Reston, Virginia (the "Building"); and
WHEREAS, Landlord and Tenant desire to expand the rentable area of the
Premises and make certain other additions and modifications to the Lease, all as
more particularly set forth hereinbelow.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, Landlord and
Tenant, intending legally to be bound, hereby agree as follows:
1. a. Landlord and Tenant hereby agree to add to the Premises seven
thousand, one hundred eleven (7,111) square feet of rentable area located on the
first (1st) floor of the Building (the "Supplemental Space"), as shown on Second
Amendment Exhibit A attached hereto. The entire Premises shall therefore consist
of forty-six thousand, four hundred seventy (46,470) square feet of rentable
area located on the first (1st) and second (2nd) floors of the Building. ON the
Supplemental Space Commencement Date (as defined below in this Paragraph) the
Supplemental Space shall become part of the Premises and be subject to all the
terms and conditions of the Lease for the remainder of the Lease Term. The
Supplemental Space Commencement Date shall be the earlier of the date (I) the
work and materials to be provided to Landlord in the Supplemental Space pursuant
to Paragraph 6 hereinbelow are substantially complete (as determined pursuant to
Paragraph 1(b) below), or (ii) Tenant commences beneficial use of the
Supplemental Space (as determined pursuant to Paragraph 1(C) below).
b. The Supplemental Space shall be deemed to be substantially
complete when the work and materials to be provided by Landlord pursuant to
Paragraph 6 hereinbelow (except for items of work and adjustment of equipment
and fixtures that can be completed after the Supplement Space is occupied
without causing substantial interferences with Tenant's use of the Supplemental
Space (i.e., the "punch list" items) have been completed, as determined by
Landlord. Nothwithstanding the preceding sentence, if Landlord shall be delayed
in completing the work and materials to be provided pursuant to Paragraph 6
hereinbelow as a direct or indirect result of (1) Tenant's failure to comply
with any of its duties and obligations under the Lease or hereunder, (2) except
at the extent necessary to
<PAGE>
comply with applicable codes, Tenant's request for modifications to plans or
working drawings subsequent to the date such plans or working drawings are
approved by Tenant, (3) Tenant's failure to pay when due any amount required
pursuant to the Lease or this Amendment, (4) Tenant's request for materials,
finishes or installations not reasonably deemed by Landlord's contractor to be
building standard materials, finishes or installations available off the shelf,
provided that Landlord has notified Tenant that such materials, finishes or
installations are not available off the shelf prior to placing a firm order for
any such material, finish or installation and Tenant has not withdrawn the
request for same within two (2) business days after receiving such notice from
landlord, or (5) the performance of any work by an person or firm employed or
retained by Tenant, then for purposes of determining the Supplemental Space
Commencement Date, the work and materials to be provided pursuant to Paragraph 6
shall be deemed to have been substantially complete on the date that Landlord
determined in the reasonable judgment that such work and materials would have
been substantially complete if such delays had not occurred.
c. Tenant shall be deemed to have commenced beneficial use of the
Supplemental Space when Tenant begins to move furniture, furnishings, inventory,
equipment or trade fixtures into the Supplemental Space when Tenant begins to
move furniture, furnishings, inventory, equipment or trade fixtures into the
Supplemental Space or any portion thereof.
d. It is presently anticipated that the Supplemental Space shall be
delivered to the Tenant on or about January 1, 1995. Nothwithstanding the
foregoing, if Landlord does not complete construction and deliver possession of
the Supplemental Space by such date, then Landlord shall have no liability
whatsoever, and this Amendment shall not be rendered voidable on account
thereof.
2. Effective as of the Supplemental Space Commencement Date, Sections 1.2
and 1.3 are deleted in their entireties and the following new Sections 1.2 and
1.3 are substituted in lieu thereof:
1.2 Premises: Forty-six thousand, four hundred seventy (46,470)
square feet of rentable area located on the first (1st) and second (2nd)
floors of the Building, as shown on Exhibit A to the Lease and Exhibit A to
the Second Amendment to Lease Agreement.
1.3 Tenant's Proportionate Share: 74.226.
3. Effective as of the Supplemental Space Commencement Date, Section 1.6
of the lease is deleted in its entirety and the following new Section 1.6 is
substituted in lieu thereof:
1.6 Base Rent and Base Rent Rate: Four hundred eighty-six thousand,
five hundred forty dollars and ninety-six cents ($486,540.96) for the first
Lease Year (which is based on a base rent of ten dollars and forty-seven
cents ($10.47) per square foot of rentable area), divided into twelve equal
monthly installments of $40,545.08 for the first Lease Year.
4. Effective as of the Supplemental Space Commencement Date, Section 1.14
of the Lease is deleted in its entirety and the following new Section 1.14 is
substituted in lieu thereof:
<PAGE>
1.14 Parking Permits: One hundred sixty-two (162), of which fifteen
(15) shall be for reserved spaces, as more particularly described in
Article XXIV.
5. Nothwithstanding anything to the contrary in Section *** of the Lease
or Article IV of the Lease, provided that no Event of Default exists under the
Lease, Landlord agrees to provide Tenant's monthly abatement of three thousand,
one hundred two dollars and seventeen cents ($3,102.17) for the period from the
Supplemental Space Commencement Date through April 30, 1995.
6. Landlord shall provide for the modifications to the Supplemental Space
shown and described on that certain space plan (the "Space Plan") prepared by
Stanmyre & Noel and dated December 5, 1994 (the "Supplemental Improvements
Space"). Landlord is under no obligation to make any alterations, modifications
or changes to any part of the Supplemental Space or the Premises except as
specifically shown in the Space Plan, Tenant shall be responsible for all costs
of bidding out the Supplemental Space in accordance with the Space Plan,
including but not limited to all permitting costs, all planning costs, all
design costs, the costs of installing any such work in the Supplement Space and
Landlord's construction management fee of ***. Nothwithstanding the foregoing,
Landlord shall provide Tenant with construction allowance (the "Allowance")
toward the cost of the Supplemental Space Improvements equal to the product of
five dollars ($5.00), and a fraction, the numerator of which shall be equal to
the number of the Supplemental Space Commencement Date and the denominator shall
be equal to 72. Tenant shall reimburse Landlord for all costs of the
Supplemental Space Improvements that exceed the Allowance within thirty (30)
days after Landlord delivers an invoice to the Tenant therefore. Tenant accepts
the original portion of the Premises in its "as is" "where is" condition as of
the date of execution hereof.
7. The inclusion of the Supplemental Space into the Premises pursuant to
this Amendment reflects Tenant's exercise of its rights under Section 2.3 of the
Lease. Landlord and Tenant acknowledge and agree that Tenant shall have no
further rights under Section 2.3 of the Lease.
8. Tenant hereby acknowledges that this Amendment is subject to the
consent of Landlord's lender. In the event that Landlord's lender disapproves
Amendment for any reason whatsoever, then, upon Landlord's written notice to
Tenant of such disapproval, this Amendment shall be null and void as if never
negotiated or executed.
9. Zell Partners and CB Commercial Real Estate Group, Inc. (the
"Brokers") have acted as Brokers in connection with this Amendment. Tenant
warrants that it has not employed any broker, agent or finder in connection with
this Agreement other than the Brokers. Tenant shall indemnify and hold Landlord
harmless from and against any claim or claims for brokerage or other commissions
made by any broker, agent or finder (other than the Brokers) employed by Tenant
in connection with this Amendment.
10. All defined terms used in this Amendment but not defined herein shall
have the meanings ascribed to them in the Lease.
11. The submission of this Amendment to Tenant shall not constitute an
offer and this Amendment shall be binding, subject to its terms, only upon
execution by both Landlord and Tenant.
<PAGE>
12. Except as modified by this Amendment, all of the terms and conditions
of the Lease shall continue in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of
the date first above written.
LANDLORD:
WITNESS/ATTEST: RESTON INVESTMENT PROPERTIES
ASSOCIATES LIMITED PARTNERSHIP,
A Virginia Limited Partnership
BY:
RESTON INVESTMENT PROPERTIES, INC.
A Virginia Corporation
By: ____________________________
Randal G. keil,
President
TENANT:
ST. ANTHONY PUBLISHING, INC.,
A Delaware Corporation
By: By: /s/ Peter L. Bower
----------------------------- ------------------------------
Name: Name: Peter L. Bower
----------------------------- ------------------------------
Title: Title: CEO
----------------------------- ------------------------------
ST. ANTHONY CONSULTING GROUP, INC.
A Delaware Corporation
By: By: /s/ Peter L. Bower
------------------------------- ------------------------------
Name: Name: Peter L. Bower
------------------------------- ------------------------------
Title: Title: CEO
------------------------------- ------------------------------
Recommended for Landlord's Approval
THE MARK WINTER COMPANY
BY:_______________________________
Michael D. Lynch, President
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("the Agreement") is made and entered into on 13
June, 1996, with an effective date of May 1, 1996, by and between St. Anthony
Publishing, Inc., a Delaware corporation ("the Company") and Eugene W. Lorenz
("the Employee").
RECITALS:
---------
The Company is engaged in the business of publishing reference manuals,
newsletters and other publications and providing consulting and training
services related to the health care industry. The Company desires to hire
Employee, and Employee desires to be employed by the Company.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
1. Employment. The Company agrees to employ Employee and Employee
----------
agrees to serve the Company upon the terms and conditions hereinafter set forth.
Employee shall serve as President and Chief Executive Officer of the Company.
Employee hereby accepts such employment and agrees to perform the foregoing
duties and to render any such other services and duties as are reasonably
assigned from time to time by the Company.
2. Performance of Employee's Duties. Employee agrees to devote his
--------------------------------
full time to the faithful performance of his duties for the Company and to
render service to the Company to the best of his ability, experience and talent
to the satisfaction of the Company. Such duties shall be rendered at such place
or places in Reston, Virginia as the Company shall require in accordance with
the best interests, needs, business and opportunities of the Company.
3. Term of Employment. The term of employment shall be for a
------------------
period of two (2) years, commencing on May 1, 1996, and ending on April 30,
1998, unless sooner terminated as provided herein.
4. Compensation. The Company shall pay and Employee shall accept
------------
as full consideration for the services to be rendered hereunder compensation
consisting of the following:
a. Base Salary. The Company shall pay Employee a base salary
-----------
("Base Salary"). During the first twelve month period of employment (May 1, 1996
through April 30, 1997), the Base Salary will be Three Hundred Twenty Five
Thousand and no/100ths DOLLARS ($325,000.00) per year, and during the second
twelve month period of employment (May 1, 1997 through April 30, 1998), the Base
Salary will be Three Hundred Twenty Five Thousand and no/100ths Dollars
($325,000.00) per year. The Base Salary will be paid in equal semi-monthly
installments or in accordance with the Company's normal pay practices as may be
altered from time to time by the Company.
<PAGE>
b. Other Benefits. The Company shall provide Employee with
--------------
other fringe benefits substantially similar to the benefits normally provided
other Company employees holding senior management positions.
c. Vacation. Employee shall be entitled to paid vacation and
--------
other leave (e.g., sickness and personal days) in accordance with the Company's
personal time off policy applicable to other Company employees holding positions
and performing duties substantially similar to Employee.
d. Expenses. After prior approval by the Company, the Company
--------
shall pay directly Employee's license fees, membership dues in professional
associations, and subscriptions to professional journals. After prior approval
by the Company and subject to submission of proper documentation as required by
the Company, Employee will be reimbursed for all reasonable expenses (such as
travel, seminars, entertainment) incurred by his in the discharge of his duties
to the Company. If any travel, entertainment, membership dues, license fees,
subscriptions, salary or other expense, paid or incurred by the Company to or on
behalf of Employee is disallowed in whole or in part as a deductible expense of
the Company for federal income tax purposes, Employee shall reimburse the
Company to the full extent of the disallowed portion. Such reimbursement shall
be made within sixty (60) days after the date on which the Company pays the
deficiency with respect to such amount. It is further understood that the
Company shall not be required to defend or challenge any proposed disallowance
by the Internal Revenue Service and the amount required to be reimbursed by the
Employee shall be the amount, as finally determined by agreement or otherwise,
actually disallowed as a deduction.
5. Confidentiality.
---------------
a. Employee shall, during and after his term of employment with
the Company: (i) keep confidential all Confidential Information (as defined in
paragraph 5b below) at any time known to him concerning the Company or any of
its clients, (ii) not disclose or use any Confidential Information for non-
business reasons or for the Employee's benefit, (iii) not disclose any
Confidential Information to third parties without the Company's prior written
permission, (iv) exercise reasonable care to prevent dissemination of
Confidential Information to third persons, (v) not make copies of documents,
including, without limitations drawings, notebooks, reports, and video or audio
recordings, which embody any Confidential Information, unless necessary for the
performance of the Employee's duties as assigned by the Company, (vi) return to
the Company any documents, including without limitation, drawings, notebooks,
reports, video or audio recordings, that contain Confidential Information and
are in the Employee's possession whenever the Employee may leave the Company's
employment and (vii) not disclose or use Confidential Information in any way
that might injure or jeopardize the operations of the Company or any of its
clients.
b. As used in this Agreement, "Confidential Information" shall
include any information regarding the operations of the Company or of any of its
clients, which information
2
<PAGE>
is of a special, unique, or non-public nature, including, but not limited to (i)
business or marketing strategies, (ii) design, engineering, financial and
personnel matters, regardless of whether any such Confidential Information is
labeled or otherwise treated as confidential, material, or important, (iii)
Proprietary Information (as hereinafter defined), and (iv) Trade Secrets (as
hereinafter defined).
c. As used in this Agreement, "Proprietary Information" shall
include any and all proprietary property of the Company, including but not
limited to all techniques, processes, devices, training materials, charts,
manuals, payroll, and improvements thereto together with the names and
identities of all clients and prospective clients, price lists, suppliers and
all other information or materials which the Company may from time to time
designate and treat as confidential and proprietary or as a trade secret.
d. As used in this Agreement, "Trade Secrets" shall mean the
whole or any portion of any formula, pattern, device, combination of devices, or
compilation of information which is for use, or is used in the operation of the
Company's business and which provides the business an advantage, or an
opportunity to obtain an advantage, over those who do not know or use it,
irrespective of novelty, invention, patentability, the state of the prior art,
and the level of skill in the business, art or file to which the subject matter
pertains. Trade Secret includes any scientific, technical or commercial
information, including any design, process, procedure, list of suppliers, list
of customers, business code, sales or installation technique, or improvement
thereof. Trade Secrets also include information (not readily compiled from
publicly available sources) which has been made available to Employee during the
course of his employment, including but not limited to the names, addresses,
telephone number, qualifications, education, accomplishments, experience and
resumes of all persons who have applied or been recruited for employment, for
either or both permanent and temporary jobs, job order specifications and the
particular characteristics and requirements of persons generally hired by the
Company, as well as specific job listings from companies with whom the Company
does, or attempts to do business, as well as mailing lists, computer runoffs,
financial or other information not generally available to others, and all
information defined as a trade secret by applicable Virginia law.
e. Employee agrees that he is under no obligation to any former
employer which is in any way inconsistent with this Agreement or which imposes
any restriction on behalf of the Company. Employee also acknowledges that he has
been instructed that during the term of employment by the Company, he is not to
divulge to the Company, its employees or its consultants any confidential
information obtained from any previous employers or any other person.
6. Non-Competition.
---------------
a. Employee agrees that while employed by the Company and for a
period of two (2) years following the termination or expiration of his
employment with the Company, whether voluntary or involuntary (the "Termination
Date") (such two year period shall
3
<PAGE>
be referred to as the "Noncompetition Period"), he will not, for himself or on
behalf of any person, partnership, trust, corporation or other entity other than
the Company for whatever reason:
(1) Engage, directly or indirectly (either as an employee,
officer, director, partner, shareholder, consultant or independent contractor),
in any business substantially similar to that carried on by the Company as of
the Termination Date within those areas in the United States in which the
Company is doing business as of the Termination Date or in which, at the time of
the Termination Date, the Company contemplates doing business (the
"Noncompetition Area"). Employee further agrees that during the Noncompetition
Period he will not be connected, directly or indirectly, with any person, firm
or corporation engaged in a business of the character now or hereafter carried
on or contemplated by the Company within the Noncompetition Area and that he
will not directly or indirectly be employed or become a partner, officer or
stockholder of any corporation engaged in such business within said
Noncompetition Area;
(2) Engage, directly or indirectly (either as an employee,
officer, director, partner, shareholder, consultant or independent contractor),
in providing services or products or offering to provide products or services of
the kind provided by the Company as of the Termination Date for those customers
of the Company for whom the Company: (i) is engaged in providing services or
products as of the Termination Date, or (ii) has either provided services or
products within the twelve (12) month period prior to the Termination Date, or
(iii) has contacted, as of the Termination Date, for the purpose of offering to
provide services or products (all of which are hereinafter referred to as the
"Clients");
(3) Solicit or attempt to solicit those Clients for the
purposes of providing or offering to provide any services or products of a type
which the Company provides or contemplates providing as of the Termination Date,
on behalf of those Clients, whether directly or through any other persons,
partnerships, corporations or other entities; or
(4) Directly or indirectly, for himself or any other person
or entity, employ or solicit for employment, including without limitation,
recommending to any subsequent employer the solicitation for employment of any
person then employed by the Company or any person who was employed by the
Company within the preceding twelve (12) months. For purposes of this paragraph,
indirect interests shall include interests held by Employee's family members or
any partner in a partnership in which he has a twenty percent (20%) or greater
partnership interest.
b. If in any judicial proceeding, a court shall refuse to
enforce this Agreement, whether because the Noncompetition Period is too long or
because the restrictions contained herein are more extensive (whether as to
geographic area, scope of business or otherwise) than is necessary to protect
the business and goodwill of the Company, it is expressly understood and agreed
between the parties hereto that this Agreement is deemed modified to the extent
necessary to permit this Agreement to be enforced in such proceedings.
4
<PAGE>
c. If the Company or its successors in interest shall make
application to a court of competent jurisdiction for injunctive relief, then the
Noncompetition Period specified herein shall be tolled from the time of
application for injunctive relief until the date of final adjudication of the
claim for injunctive relief. Additionally, Employee waives, to the greatest
extent permissible, any requirement that the Company post bond or other security
as a precondition to an injunction, whether temporary or permanent.
7. Remedies. Employee acknowledges that compliance with Paragraphs
--------
5 and 6 of this Agreement is necessary to protect the goodwill and other
proprietary interests of the Company and that a breach of either paragraph will
give rise to irreparable and continuing injury to the Company which is not
adequately compensable in monetary damages or at law. Accordingly, Employee
agrees that the Company, its successors and assigns may obtain injunctive relief
against the breach or threatened breach of the foregoing provisions, in addition
to any other legal remedies which may be available to it under this Agreement
without the necessity of proving actual damages. Employee also waives, to the
full extent permitted by law, any requirement that a bond be provided as a
condition of the Company obtaining temporary or permanent injunctive relief.
Employee further acknowledges that in the event of his termination or expiration
of employment with the Company, his knowledge, experience and capabilities are
such that Employee can obtain employment in business activities which are of a
different or noncompeting nature than those performed in the course of
employment with the Company, and that the enforcement of a remedy hereunder by
way of injunction will not prevent Employee from earning a reasonable
livelihood.
8. Death, Incapacity or Illness of Employee.
----------------------------------------
a. If Employee dies during the term of this Agreement, the
Company shall pay to the estate of the Employee only the compensation which is
then owing Employee. Except as herein provided, the death of Employee shall
terminate this Agreement and discharge the Company from any further liability
for the payments provided herein.
b. In the event Employee becomes disabled, ill or unable to
perform his duties under this Agreement, his salary compensation may continue as
provided under the Company's short and/or long term disability plans. After the
expiration of this time period or if Employee does not qualify under such
disability plans, Employee's salary compensation will be suspended until the
Employee can resume performance of his duties during the remaining term of this
Agreement.
9. Termination for Cause. The Company may terminate this Agreement
---------------------
immediately without liability or further obligation hereunder upon written
notice to Employee if Employee commits any one or more of the following acts:
a. Willful damaging of the Company's property, business,
reputation or goodwill;
5
<PAGE>
b. Commission of a felony;
c. Death, theft, dishonesty, fraud or embezzlement;
d. Inattention to or neglect of the duties to be performed by
Employee which is not the result of illness or accident;
e. Possession of and/or consumption of alcoholic beverages or
unprescribed drugs or narcotics or misuse of prescribed drugs, while on duty,
during work breaks or on Company property;
f. Reporting for work under the influence of alcoholic
beverages or with illegal drugs or unprescribed controlled substances in
Employee's body and/or refusing to submit to drug screening tests or failing a
drug screening test;
g. Willfully injuring of any other employee of the Company;
h. Willfully injuring any person in the course of performance
of services for the Company;
i. Disclosing to a competitor or other unauthorized persons
Confidential Information;
j. Solicitation of business on behalf of a competitor or a
potential competitor;
k. Sexual harassment of any other employee of the Company or
the commission of any act which otherwise creates an offensive work environment
for other employees of the Company; or
l. Failure of Employee for any reason within five (5) days
after receipt by Employee of written notice thereof from the Company, to
correct, cease or otherwise alter any insubordination, failure to comply with
instructions or Company policies, rules or procedures or other act or omission
to act that in the opinion of the Company does or may adversely affect its
business or operations.
The Company shall not be limited to termination as a remedy for any improper or
illegal act of Employee, but may also seek damages, injunction or such other
remedy as it may deem appropriate under the circumstances.
6
<PAGE>
10. Accounting for Profits. Employee covenants and agrees that if he
----------------------
violates any of the provisions of this Agreement, the Company shall be entitled
to an accounting and repayment of all profits, compensation, commissions,
remuneration or other benefits that Employee has realized and/or may realize as
a result of or in connection with any such violation. These remedies shall be
in addition and not in limitation of any injunctive relief or other rights or
remedies to which the Company is or may be entitled at law, in equity or under
this Agreement.
11. Assignment of Proprietary Information.
-------------------------------------
a. Except as may be required in the course of employment by the
Company, Employee agrees that any and all Proprietary Information and/or Trade
Secrets which Employee has made, conceived of, developed or originated, either
individually or jointly with any other person or persons at any time during the
term of this Agreement, including the Noncompetition Period, whether during
working hours or any other time, which relate in any way to the business or the
type of business now or hereafter engaged in or contemplated by the Company
during the period of Employee's employment or which result from or may be
suggested by any work Employee does for the Company or at the Company's request,
shall be the property of the Company.
b. Employee shall promptly disclose and assign such Proprietary
Information and/or Trade Secrets to the Company's representatives and do all
such acts, and execute and deliver all such documents, as may be necessary to
vest in the Company the title to all such Proprietary Information and/or Trade
Secrets and enable the Company to properly prepare and prosecute any and all
applications for patents, trademarks or copyrights thereon as well as all
reissues, renewals and extensions thereof, so that the Company shall be the sole
and absolute owner of all right, title and interest in said proprietary
property. It is understood and agreed that the words "which relate in any way to
the business or the type of business now or hereafter carried on or contemplated
by the Company" shall properly cover any reasonable development or extension of
the Company's field of operation. These obligations shall continue beyond the
termination or expiration of Employee's employment with respect to inventions,
discoveries and developments conceived or made by Employee during the period of
employment and shall be binding on Employee's assigns, executors, heirs,
administrators and other legal representatives. Employee agrees that all
correspondence, drawings, reports, ideas, blueprints, manuals, letters, notes,
analyses, notebooks, reports, charts, programs, proposals or any other documents
concerning the Company's customers or products or processes, whether or not
prepared by and in the course of employment, alone or in conjunction with
others, is the property of the Company. Employee further agrees that upon
termination or expiration of employment for any reason, Employee shall promptly
return to the Company any such documents in his possession, custody or control.
c. Employee will, without expense to himself, give such true
information and testimony under oath as may be requested of him by the Company
relative to any Proprietary Information that is subject to disclosure to the
Company under the terms hereof.
7
<PAGE>
12. Dissolution, Merger or Sale of Company.
--------------------------------------
a. In the event the Company should be dissolved during the term
of this Agreement, the balance of the payments due under Paragraph 4 shall be
considered a debt of the Company and shall not be discharged by reason of such
dissolution.
b. In the event of the sale, merger or consolidation of the
Company, Employee agrees that the Company may assign its rights and obligations
hereunder to its successor or purchaser.
13. Limitations on Other Employment. During Employee's employment
-------------------------------
with the Company, Employee shall not enter into the services of or be employed
in any capacity or for any purposes whatsoever, whether directly or indirectly,
by any person, firm, corporation or entity other than Company, and will not be
engaged in any business, enterprise or undertaking other than employment by the
Company, without prior written permission from the Board of Directors of the
Company.
14. Return of Records. On termination of employment, Employee shall
-----------------
deliver all records, notes, data, memoranda, models, and equipment of any nature
that are in Employee's possession or under his control and that are the property
of the Company or relate to the employment or to the business of the Company.
15. Waiver or Modification. No waiver or modification of this
----------------------
Agreement or of any covenant, condition, or limitation herein contained shall be
valid unless in writing and duly executed by the party to be charged therewith.
Furthermore, no evidence of any modification or waiver shall be offered or
received as evidence in any proceeding, arbitration or litigation between the
parties arising out of or affecting this Agreement or the rights or obligations
of any party hereunder, unless such waiver or modification is in writing, duly
executed as aforesaid. The provisions of this paragraph may not be waived except
as herein set forth.
16. Complete Agreement. This written Agreement contains the sole
------------------
and entire agreement between the parties as to the matters contained herein, and
supersedes any and all other agreements between them. The parties acknowledge
and agree that neither of them has made any representation with respect to such
matters of this Agreement or any representations except as are specifically set
forth herein, and each party acknowledges that he or it has relied on her or its
own judgment in entering into this Agreement. The parties further acknowledge
that statements or representations that may have been heretofore made by either
of them to the other are void and of no effect and that neither of them has
relied thereon in connection with him or its dealing with the other.
8
<PAGE>
17. Choice of Law. This Agreement and the performance hereunder and
-------------
all suits and special proceedings hereunder shall be construed in accordance
with the laws of the State of Virginia. In any action, special proceeding or
other proceeding that may be brought arising out of, in connection with, or by
reason of this Agreement, the laws of the State of Virginia shall be applicable
and shall govern to the exclusion of the law of any other forum, without regard
to the jurisdiction in which the action or special proceeding may be instituted.
All actions under this Agreement shall be taken in a court of competent
jurisdiction within Fairfax County, Virginia and Employee hereby waives and
agrees that he shall not assert that such forum is inconvenient.
18. Binding Effect of Agreement. This Agreement shall be binding up
---------------------------
on and inure to the benefit of the parties hereto and their respective heirs,
successors, assigns and legal representatives.
19. Life Insurance. Inasmuch as the services of Employee are
--------------
important to the success or failure of the Company, the Company may, by its sole
discretion, purchase disability insurance or insurance on the life of Employee
during the term hereof in such amounts as Company shall determine appropriate.
Such insurance shall be owned by the Company, the Company shall be the sole
beneficiary, and all premiums therefor shall be paid by the Company. Employee
agrees to cooperate with the reasonable requirements of the Company and/or its
insurance carriers as necessary to obtain such insurance, including submitting
to any and all necessary medical examinations.
20. Invalid Provision. The invalidity or unenforceability of a
-----------------
particular provision of this Agreement shall not effect the other provisions
hereto, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
21. Costs of Enforcement. In the event either party initiates
--------------------
action to enforce his, her or its rights hereunder, the substantially prevailing
party shall recover from the substantially non-prevailing party its reasonable
expenses, court costs, including taxed and untaxed costs, and reasonable
attorneys' fees, whether suit be brought or not (jointly referred as to
"Expenses"). As used herein, Expenses include expenses incurred in any appellate
or bankruptcy proceeding. All such Expenses shall bear interest at the highest
rate allowable under the laws of the State of Virginia from the date the
substantially prevailing party pays such Expenses until the date the
substantially non-prevailing party repays such Expenses. Expenses incurred in
enforcing this paragraph shall be covered by this paragraph. For this purpose,
the court is requested by the parties to award actual costs and attorneys' fees
incurred by the substantially prevailing party, it being the manifest intention
of the parties that the substantially prevailing party be completely reimbursed
for all such costs and fees. The parties request that inquiry by the court as to
the fees and costs shall be limited to a review of whether the fees charged and
hourly rates for such fees are consistent with the fees and hourly rates
routinely charged by the attorneys for the substantially prevailing party.
9
<PAGE>
22. Assignment. This Agreement shall be construed as a contract for
----------
personal services by Employee to the Company and shall not be assignable by
Employee.
23. Strict Construction. This Agreement was the joint, negotiated
-------------------
product of the parties. Therefore, neither party shall advance a position that
any provision hereof should be more strictly construed against the other party
on the basis that such other party prepared such provision.
24. Cumulative Rights. Unless otherwise provided herein, all rights,
-----------------
powers and privileges conferred upon the parties by law, this Agreement or
otherwise shall be cumulative.
25. Waiver. No failure of any party to exercise any power given
------
such party hereunder or to insist upon strict compliance by any party with its
obligations hereunder, and no custom or practice of the parties in variance with
the terms hereof shall constitute a waiver of the parties' right to demand exact
compliance with the terms hereof.
26. Survival. The provisions of this Agreement shall continue and
--------
survive the closing hereof unless or until there is a completion and fulfillment
of all the conditions, covenants and warranties herein.
27. Time. Time is of the essence of this Agreement.
----
28. Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand or when mailed by certified registered
mail, return receipt requested, with postage prepaid to the parties' current
addresses or to such other addresses as the parties request in writing.
29. Singular/Plural Feminine/Masculine, Successors or Assigns. All
---------------------------------------------------------
references as used herein shall include male and female, singular and plural,
and successors or assigns in the use of a corporation, partnership, individual
or entity in any place or places herein in which the context may require or
permit such substitution, substitutions or designations.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first written above.
Witness: /s/ Eugene W. Lorenz
____________________________
Eugene W. Lorenz
/s/ Susan L. Abels
_____________________________________
Print Name: Susan L. Abels Date: 6/13/96
-------------------------- --------------------------
10
<PAGE>
St. Anthony Publishing, Inc.
Witness:
/s/ Jerrie Herbert By: /s/
________________________________ _____________________________
Print Name: Jerrie Herbert Its:
_____________________ _____________________________
Date:
_____________________________
"COMPANY"
11
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("the Agreement") is made and entered into on
__________________, 1996, with an effective date of May 1, 1996, by and between
St. Anthony Publishing, Inc., a Delaware corporation ("the Company") and
Marleeta Jones-Burns ("the Employee").
RECITALS:
---------
The Company is engaged in the business of publishing reference manuals,
newsletters and other publications and providing consulting and training
services related to the health care industry. The Company desires to hire
Employee, and Employee desires to be employed by the Company.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
1. Employment. The Company agrees to employ Employee and Employee
----------
agrees to serve the Company upon the terms and conditions hereinafter set forth.
Employee shall serve as Senior Executive Vice President of the Company.
Employee hereby accepts such employment and agrees to perform the foregoing
duties and to render any such other services and duties as are reasonably
assigned from time to time by the Company.
2. Performance of Employee's Duties. Employee agrees to devote
--------------------------------
her full time to the faithful performance of her duties for the Company and to
render service to the Company to the best of her ability, experience and talent
to the satisfaction of the Company. Such duties shall be rendered at such place
or places in Reston, Virginia as the Company shall require in accordance with
the best interests, needs, business and opportunities of the Company.
3. Term of Employment. The term of employment shall be for a
------------------
period of two (2) years, commencing on May 1, 1996, and ending on April 30,
1998, unless sooner terminated as provided herein. This Agreement shall be
extended for additional periods of one (1) year, unless a notice of non-renewal
is given by one party to the other at least thirty (30) days prior to the annual
renewal date.
4. Compensation. The Company shall pay and Employee shall accept
------------
as full consideration for the services to be rendered hereunder compensation
consisting of the following:
a. Base Salary. The Company shall pay Employee a base salary
-----------
("Base Salary"). During the first twelve month period of employment (May 1, 1996
through April 30, 1997), the Base Salary will be Two Hundred Thirty Two Thousand
Seven Hundred Eleven and no/100ths DOLLARS ($232,711.00) per year. Thereafter,
on the first anniversary of this Agreement, the Board of Directors shall
determine the Employee's salary.
<PAGE>
b. Other Benefits. The Company shall provide Employee with
--------------
other fringe benefits substantially similar to the benefits normally provided
other Company employees holding senior management positions.
c. Vacation. Employee shall be entitled to paid vacation and
--------
other leave (e.g., sickness and personal days) in accordance with the Company's
personal time off policy applicable to other Company employees holding positions
and performing duties substantially similar to Employee.
d. Expenses. After prior approval by the Company, the Company
--------
shall pay directly Employee's license fees, membership dues in professional
associations, and subscriptions to professional journals. After prior approval
by the Company and subject to submission of proper documentation as required by
the Company, Employee will be reimbursed for all reasonable expenses (such as
travel, seminars, entertainment) incurred by his in the discharge of his duties
to the Company. If any travel, entertainment, membership dues, license fees,
subscriptions, salary or other expense, paid or incurred by the Company to or on
behalf of Employee is disallowed in whole or in part as a deductible expense of
the Company for federal income tax purposes, Employee shall reimburse the
Company to the full extent of the disallowed portion. Such reimbursement shall
be made within sixty (60) days after the date on which the Company pays the
deficiency with respect to such amount. It is further understood that the
Company shall not be required to defend or challenge any proposed disallowance
by the Internal Revenue Service and the amount required to be reimbursed by the
Employee shall be the amount, as finally determined by agreement or otherwise,
actually disallowed as a deduction.
5. Confidentiality.
---------------
a. Employee shall, during and after her term of employment with
the Company: (i) keep confidential all Confidential Information (as defined in
paragraph 5b below) at any time known to her concerning the Company or any of
its clients, (ii) not disclose or use any Confidential Information for non-
business reasons or for the Employee's benefit, (iii) not disclose any
Confidential Information to third parties without the Company's prior written
permission, (iv) exercise reasonable care to prevent dissemination of
Confidential Information to third persons, (v) not make copies of documents,
including, without limitations drawings, notebooks, reports, and video or audio
recordings, which embody any Confidential Information, unless necessary for the
performance of the Employee's duties as assigned by the Company, (vi) return to
the Company any documents, including without limitation, drawings, notebooks,
reports, video or audio recordings, that contain Confidential Information and
are in the Employee's possession whenever the Employee may leave the Company's
employment and (vii) not disclose or use Confidential Information in any way
that might injure or jeopardize the operations of the Company or any of its
clients.
b. As used in this Agreement, "Confidential Information" shall
include any information regarding the operations of the Company or of any of its
clients, which information
2
<PAGE>
is of a special, unique, or non-public nature, including, but not limited to (i)
business or marketing strategies, (ii) design, engineering, financial and
personnel matters, regardless of whether any such Confidential Information is
labeled or otherwise treated as confidential, material, or important, (iii)
Proprietary Information (as hereinafter defined), and (iv) Trade Secrets (as
hereinafter defined).
c. As used in this Agreement, "Proprietary Information" shall
include any and all proprietary property of the Company, including but not
limited to all techniques, processes, devices, training materials, charts,
manuals, payroll, and improvements thereto together with the names and
identities of all clients and prospective clients, price lists, suppliers and
all other information or materials which the Company may from time to time
designate and treat as confidential and proprietary or as a trade secret.
d. As used in this Agreement, "Trade Secrets" shall mean the
whole or any portion of any formula, pattern, device, combination of devices, or
compilation of information which is for use, or is used in the operation of the
Company's business and which provides the business an advantage, or an
opportunity to obtain an advantage, over those who do not know or use it,
irrespective of novelty, invention, patentability, the state of the prior art,
and the level of skill in the business, art or file to which the subject matter
pertains. Trade Secret includes any scientific, technical or commercial
information, including any design, process, procedure, list of suppliers, list
of customers, business code, sales or installation technique, or improvement
thereof. Trade Secrets also include information (not readily compiled from
publicly available sources) which has been made available to Employee during the
course of her employment, including but not limited to the names, addresses,
telephone number, qualifications, education, accomplishments, experience and
resumes of all persons who have applied or been recruited for employment, for
either or both permanent and temporary jobs, job order specifications and the
particular characteristics and requirements of persons generally hired by the
Company, as well as specific job listings from companies with whom the Company
does, or attempts to do business, as well as mailing lists, computer runoffs,
financial or other information not generally available to others, and all
information defined as a trade secret by applicable Virginia law.
e. Employee agrees that she is under no obligation to any
former employer which is in any way inconsistent with this Agreement or which
imposes any restriction on behalf of the Company. Employee also acknowledges
that she has been instructed that during the term of employment by the Company,
she is not to divulge to the Company, its employees or its consultants any
confidential information obtained from any previous employers or any other
person.
6. Non-Competition.
---------------
a. Employee agrees that while employed by the Company and for a
period of two (2) years following the termination or expiration of her
employment with the Company, whether voluntary or involuntary (the "Termination
Date") (such two year period shall
3
<PAGE>
be referred to as the "Noncompetition Period"), she will not, for himself or on
behalf of any person, partnership, trust, corporation or other entity other than
the Company for whatever reason:
(1) Engage, directly or indirectly (either as an employee,
officer, director, partner, shareholder, consultant or independent contractor),
in any business substantially similar to that carried on by the Company as of
the Termination Date within those areas in the United States in which the
Company is doing business as of the Termination Date or in which, at the time of
the Termination Date, the Company contemplates doing business (the
"Noncompetition Area"). Employee further agrees that during the Noncompetition
Period she will not be connected, directly or indirectly, with any person, firm
or corporation engaged in a business of the character now or hereafter carried
on or contemplated by the Company within the Noncompetition Area and that she
will not directly or indirectly be employed or become a partner, officer or
stockholder of any corporation engaged in such business within said
Noncompetition Area;
(2) Engage, directly or indirectly (either as an employee,
officer, director, partner, shareholder, consultant or independent contractor),
in providing services or products or offering to provide products or services of
the kind provided by the Company as of the Termination Date for those customers
of the Company for whom the Company: (i) is engaged in providing services or
products as of the Termination Date, or (ii) has either provided services or
products within the twelve (12) month period prior to the Termination Date, or
(iii) has contacted, as of the Termination Date, for the purpose of offering to
provide services or products (all of which are hereinafter referred to as the
"Clients");
(3) Solicit or attempt to solicit those Clients for the
purposes of providing or offering to provide any services or products of a type
which the Company provides or contemplates providing as of the Termination Date,
on behalf of those Clients, whether directly or through any other persons,
partnerships, corporations or other entities; or
(4) Directly or indirectly, for herself or any other person
or entity, employ or solicit for employment, including without limitation,
recommending to any subsequent employer the solicitation for employment of any
person then employed by the Company or any person who was employed by the
Company within the preceding twelve (12) months. For purposes of this paragraph,
indirect interests shall include interests held by Employee's family members or
any partner in a partnership in which she has a twenty percent (20%) or greater
partnership interest.
b. If in any judicial proceeding, a court shall refuse to
enforce this Agreement, whether because the Noncompetition Period is too long or
because the restrictions contained herein are more extensive (whether as to
geographic area, scope of business or otherwise) than is necessary to protect
the business and goodwill of the Company, it is expressly understood and agreed
between the parties hereto that this Agreement is deemed modified to the extent
necessary to permit this Agreement to be enforced in such proceedings.
4
<PAGE>
c. If the Company or its successors in interest shall make
application to a court of competent jurisdic tion for injunctive relief, then
the Noncompetition Period specified herein shall be tolled from the time of
application for injunctive relief until the date of final adjudication of the
claim for injunctive relief. Additionally, Employee waives, to the greatest
extent permissible, any requirement that the Company post bond or other security
as a precondition to an injunction, whether temporary or permanent.
7. Remedies. Employee acknowledges that compliance with Paragraphs
--------
5 and 6 of this Agreement is necessary to protect the goodwill and other
proprietary interests of the Company and that a breach of either paragraph will
give rise to irreparable and continuing injury to the Company which is not
adequately compensable in monetary damages or at law. Accordingly, Employee
agrees that the Company, its successors and assigns may obtain injunctive relief
against the breach or threatened breach of the foregoing provisions, in addition
to any other legal remedies which may be available to it under this Agreement
without the necessity of proving actual damages. Employee also waives, to the
full extent permitted by law, any requirement that a bond be provided as a
condition of the Company obtaining temporary or permanent injunctive relief.
Employee further acknowledges that in the event of his termination or expiration
of employment with the Company, his knowledge, experience and capabilities are
such that Employee can obtain employment in business activities which are of a
different or noncompeting nature than those performed in the course of
employment with the Company, and that the enforcement of a remedy hereunder by
way of injunction will not prevent Employee from earning a reasonable
livelihood.
8. Death, Incapacity or Illness of Employee.
----------------------------------------
a. If Employee dies during the term of this Agreement, the
Company shall pay to the estate of the Employee only the compensation which is
then owing Employee. Except as herein provided, the death of Employee shall
terminate this Agreement and discharge the Company from any further liability
for the payments provided herein.
b. In the event Employee becomes disabled, ill or unable to
perform her duties under this Agreement, his salary compensation may continue as
provided under the Company's short and/or long term disability plans. After the
expiration of this time period or if Employee does not qualify under such
disability plans, Employee's salary compensation will be suspended until the
Employee can resume performance of her duties during the remaining term of this
Agreement.
9. Termination for Cause. The Company may terminate this Agreement
---------------------
immediately without liability or further obligation hereunder upon written
notice to Employee if Employee commits any one or more of the following acts:
5
<PAGE>
a. Willful damaging of the Company's property, business,
reputation or goodwill;
b. Commission of a felony;
c. Death, theft, dishonesty, fraud or embezzlement;
d. Inattention to or neglect of the duties to be performed by
Employee which is not the result of illness or accident;
e. Possession of and/or consumption of alcoholic beverages or
unprescribed drugs or narcotics or misuse of prescribed drugs, while on duty,
during work breaks or on Company property;
f. Reporting for work under the influence of alcoholic
beverages or with illegal drugs or unprescribed controlled substances in
Employee's body and/or refusing to submit to drug screening tests or failing a
drug screening test;
g. Willfully injuring of any other employee of the Company;
h. Willfully injuring any person in the course of performance
of services for the Company;
i. Disclosing to a competitor or other unauthorized persons
Confidential Information;
j. Solicitation of business on behalf of a competitor or a
potential competitor;
k. Sexual harassment of any other employee of the Company or
the commission of any act which otherwise creates an offensive work environment
for other employees of the Company; or
l. Failure of Employee for any reason within five (5) days
after receipt by Employee of written notice thereof from the Company, to
correct, cease or otherwise alter any insubordination, failure to comply with
instructions or Company policies, rules or procedures or other act or omission
to act that in the opinion of the Company does or may adversely affect its
business or operations.
The Company shall not be limited to termination as a remedy for any improper or
illegal act of Employee, but may also seek damages, injunction or such other
remedy as it may deem appropriate under the circumstances.
6
<PAGE>
10. Accounting for Profits. Employee covenants and agrees that if
----------------------
she violates any of the provisions of this Agreement, the Company shall be
entitled to an accounting and repayment of all profits, compensation,
commissions, remuneration or other benefits that Employee has realized and/or
may realize as a result of or in connection with any such violation. These
remedies shall be in addition and not in limitation of any injunctive relief or
other rights or remedies to which the Company is or may be entitled at law, in
equity or under this Agreement.
11. Assignment of Proprietary Information.
-------------------------------------
a. Except as may be required in the course of employment by the
Company, Employee agrees that any and all Proprietary Information and/or Trade
Secrets which Employee has made, conceived of, developed or originated, either
individually or jointly with any other person or persons at any time during the
term of this Agreement, including the Noncompetition Period, whether during
working hours or any other time, which relate in any way to the business or the
type of business now or hereafter engaged in or contemplated by the Company
during the period of Employee's employment or which result from or may be
suggested by any work Employee does for the Company or at the Company's request,
shall be the property of the Company.
b. Employee shall promptly disclose and assign such Proprietary
Information and/or Trade Secrets to the Company's representatives and do all
such acts, and execute and deliver all such documents, as may be necessary to
vest in the Company the title to all such Proprietary Information and/or Trade
Secrets and enable the Company to properly prepare and prosecute any and all
applications for patents, trademarks or copyrights thereon as well as all
reissues, renewals and extensions thereof, so that the Company shall be the sole
and absolute owner of all right, title and interest in said proprietary
property. It is understood and agreed that the words "which relate in any way to
the business or the type of business now or hereafter carried on or contemplated
by the Company" shall properly cover any reasonable development or extension of
the Company's field of operation. These obligations shall continue beyond the
termination or expiration of Employee's employment with respect to inventions,
discoveries and developments conceived or made by Employee during the period of
employment and shall be binding on Employee's assigns, executors, heirs,
administrators and other legal representatives. Employee agrees that all
correspondence, drawings, reports, ideas, blueprints, manuals, letters, notes,
analyses, notebooks, reports, charts, programs, proposals or any other documents
concerning the Company's customers or products or processes, whether or not
prepared by and in the course of employment, alone or in conjunction with
others, is the property of the Company. Employee further agrees that upon
termination or expiration of employment for any reason, Employee shall promptly
return to the Company any such documents in his possession, custody or control.
7
<PAGE>
c. Employee will, without expense to herself, give such true
information and testimony under oath as may be requested of her by the Company
relative to any Proprietary Information that is subject to disclosure to the
Company under the terms hereof.
12. Dissolution, Merger or Sale of Company.
--------------------------------------
a. In the event the Company should be dissolved during the term
of this Agreement, the balance of the payments due under Paragraph 4 shall be
considered a debt of the Company and shall not be discharged by reason of such
dissolution.
b. In the event of the sale, merger or consolidation of the
Company, Employee agrees that the Company may assign its rights and obligations
hereunder to its successor or purchaser.
13. Limitations on Other Employment. During Employee's employment
-------------------------------
with the Company, Employee shall not enter into the services of or be employed
in any capacity or for any purposes whatsoever, whether directly or indirectly,
by any person, firm, corporation or entity other than Company, and will not be
engaged in any business, enterprise or undertaking other than employment by the
Company, without prior written permission from the Board of Directors of the
Company.
14. Return of Records. On termination of employment, Employee shall
-----------------
deliver all records, notes, data, memoranda, models, and equipment of any nature
that are in Employee's possession or under her control and that are the property
of the Company or relate to the employment or to the business of the Company.
15. Waiver or Modification. No waiver or modification of this
----------------------
Agreement or of any covenant, condition, or limitation herein contained shall be
valid unless in writing and duly executed by the party to be charged therewith.
Furthermore, no evidence of any modification or waiver shall be offered or
received as evidence in any proceeding, arbitration or litigation between the
parties arising out of or affecting this Agreement or the rights or obligations
of any party hereunder, unless such waiver or modification is in writing, duly
executed as aforesaid. The provisions of this paragraph may not be waived except
as herein set forth.
16. Complete Agreement. This written Agreement contains the sole
------------------
and entire agreement between the parties as to the matters contained herein, and
supersedes any and all other agreements between them. The parties acknowledge
and agree that neither of them has made any representation with respect to such
matters of this Agreement or any representations except as are specifically set
forth herein, and each party acknowledges that she or it has relied on her or
its own judgment in entering into this Agreement. The parties further
acknowledge that statements or
8
<PAGE>
representations that may have been heretofore made by either of them to the
other are void and of no effect and that neither of them has relied thereon in
connection with her or its dealing with the other.
17. Choice of Law. This Agreement and the performance hereunder and
-------------
all suits and special proceedings hereunder shall be construed in accordance
with the laws of the State of Virginia. In any action, special proceeding or
other proceeding that may be brought arising out of, in connection with, or by
reason of this Agreement, the laws of the State of Virginia shall be applicable
and shall govern to the exclusion of the law of any other forum, without regard
to the jurisdiction in which the action or special proceeding may be instituted.
All actions under this Agreement shall be taken in a court of competent
jurisdiction within Fairfax County, Virginia and Employee hereby waives and
agrees that she shall not assert that such forum is inconvenient.
18. Binding Effect of Agreement. This Agreement shall be binding
---------------------------
upon and inure to the benefit of the parties hereto and their respective heirs,
successors, assigns and legal representatives.
19. Life Insurance. Inasmuch as the services of Employee are
--------------
important to the success or failure of the Company, the Company may, by its sole
discretion, purchase disability insurance or insurance on the life of Employee
during the term hereof in such amounts as Company shall determine appropriate.
Such insurance shall be owned by the Company, the Company shall be the sole
beneficiary, and all premiums therefor shall be paid by the Company. Employee
agrees to cooperate with the reasonable requirements of the Company and/or its
insurance carriers as necessary to obtain such insurance, including submitting
to any and all necessary medical examinations.
20. Invalid Provision. The invalidity or unenforceability of a
-----------------
particular provision of this Agreement shall not effect the other provisions
hereto, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
21. Costs of Enforcement. In the event either party initiates
--------------------
action to enforce his, her or its rights hereunder, the substantially prevailing
party shall recover from the substantially non-prevailing party its reasonable
expenses, court costs, including taxed and untaxed costs, and reasonable
attorneys' fees, whether suit be brought or not (jointly referred as to
"Expenses"). As used herein, Expenses include expenses incurred in any appellate
or bankruptcy proceeding. All such Expenses shall bear interest at the highest
rate allowable under the laws of the State of Virginia from the date the
substantially prevailing party pays such Expenses until the date the
substantially non-prevailing party repays such Expenses. Expenses incurred in
enforcing this paragraph shall be covered by this paragraph. For this purpose,
the court is requested by the parties to award actual costs and attorneys' fees
incurred by the substantially prevailing party, it being the manifest intention
of the parties that the substantially prevailing party be completely reimbursed
for all such costs and fees. The parties request that inquiry by the court as to
the fees and costs shall be
9
<PAGE>
limited to a review of whether the fees charged and hourly rates for such fees
are consistent with the fees and hourly rates routinely charged by the attorneys
for the substantially prevailing party.
22. Assignment. This Agreement shall be construed as a contract for
----------
personal services by Employee to the Company and shall not be assignable by
Employee.
23. Strict Construction. This Agreement was the joint, negotiated
-------------------
product of the parties. Therefore, neither party shall advance a position that
any provision hereof should be more strictly construed against the other party
on the basis that such other party prepared such provision.
24. Cumulative Rights. Unless otherwise provided herein, all rights,
-----------------
powers and privileges conferred upon the parties by law, this Agreement or
otherwise shall be cumulative.
25. Waiver. No failure of any party to exercise any power given
------
such party hereunder or to insist upon strict compliance by any party with its
obligations hereunder, and no custom or practice of the parties in variance with
the terms hereof shall constitute a waiver of the parties' right to demand exact
compliance with the terms hereof.
26. Survival. The provisions of this Agreement shall continue and
--------
survive the closing hereof unless or until there is a completion and fulfillment
of all the conditions, covenants and warranties herein.
27. Time. Time is of the essence of this Agreement.
----
28. Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand or when mailed by certified registered
mail, return receipt requested, with postage prepaid to the parties' current
addresses or to such other addresses as the parties request in writing.
29. Singular/Plural Feminine/Masculine, Successors or Assigns. All
---------------------------------------------------------
references as used herein shall include male and female, singular and plural,
and successors or assigns in the use of a corporation, partnership, individual
or entity in any place or places herein in which the context may require or
permit such substitution, substitutions or designations.
DELIBERATELY LEFT BLANK
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first written above.
Witnesses: __________________________________
Marleeta Jones-Burns
____________________________
Print Name: ________________ Date:_____________________________
St. Anthony Publishing, Inc.
Witness:
____________________________ By: ______________________________
Print Name:_________________ Its:______________________________
"COMPANY"
11
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("the Agreement") is made and entered into on
__________________, 1996, with an effective date of May 1, 1996, by and between
St. Anthony Publishing, Inc., a Delaware corporation ("the Company") and Peter
L. Bower ("the Employee").
RECITALS:
---------
The Company is engaged in the business of publishing reference manuals,
newsletters and other publications and providing consulting and training
services related to the health care industry. The Company desires to hire
Employee, and Employee desires to be employed by the Company.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
1. Employment. The Company agrees to employ Employee and Employee
----------
agrees to serve the Company upon the terms and conditions hereinafter set forth.
Employee shall serve as Treasurer and Chief Financial Officer of the Company.
Employee hereby accepts such employment and agrees to perform the foregoing
duties and to render any such other services and duties as are reasonably
assigned from time to time by the Company.
2. Performance of Employee's Duties. Employee agrees to devote his
--------------------------------
full time to the faithful performance of his duties for the Company and to
render service to the Company to the best of his ability, experience and talent
to the satisfaction of the Company. Such duties shall be rendered at such place
or places in Reston, Virginia as the Company shall require in accordance with
the best interests, needs, business and opportunities of the Company.
3. Term of Employment. The term of employment shall be for a period
------------------
of one (1) year, commencing on May 1, 1996, and ending on April 30, 1997, unless
sooner terminated as provided herein. This Agreement shall be extended for
additional periods of one (1) year, unless a notice of non-renewal is given by
one party to the other at least thirty (30) days prior to the annual renewal
date.
4. Compensation. The Company shall pay and Employee shall accept as
------------
full consideration for the services to be rendered hereunder compensation
consisting of the following:
a. Base Salary. The Company shall pay Employee a base salary
-----------
("Base Salary"). During the first twelve month period of employment (May 1, 1996
through April 30, 1997), the Base Salary will be One Hundred Sixty Thousand and
no/100ths DOLLARS ($160,000.00) per year.
b. Other Benefits. The Company shall provide Employee with
--------------
other fringe benefits substantially similar to the benefits normally provided
other Company employees holding senior management positions.
<PAGE>
c. Vacation. Employee shall be entitled to paid vacation and
--------
other leave (e.g., sickness and personal days) in accordance with the Company's
personal time off policy applicable to other Company employees holding positions
and performing duties substantially similar to Employee.
d. Expenses. After prior approval by the Company, the Company
--------
shall pay directly Employee's license fees, membership dues in professional
associations, and subscriptions to professional journals. After prior approval
by the Company and subject to submission of proper documentation as required by
the Company, Employee will be reimbursed for all reasonable expenses (such as
travel, seminars, entertainment) incurred by his in the discharge of his duties
to the Company. If any travel, entertainment, membership dues, license fees,
subscriptions, salary or other expense, paid or incurred by the Company to or on
behalf of Employee is disallowed in whole or in part as a deductible expense of
the Company for federal income tax purposes, Employee shall reimburse the
Company to the full extent of the disallowed portion. Such reimbursement shall
be made within sixty (60) days after the date on which the Company pays the
deficiency with respect to such amount. It is further understood that the
Company shall not be required to defend or challenge any proposed disallowance
by the Internal Revenue Service and the amount required to be reimbursed by the
Employee shall be the amount, as finally determined by agreement or otherwise,
actually disallowed as a deduction.
5. Confidentiality.
---------------
a. Employee shall, during and after his term of employment with
the Company: (i) keep confidential all Confidential Information (as defined in
paragraph 5b below) at any time known to him concerning the Company or any of
its clients, (ii) not disclose or use any Confidential Information for non-
business reasons or for the Employee's benefit, (iii) not disclose any
Confidential Information to third parties without the Company's prior written
permission, (iv) exercise reasonable care to prevent dissemination of
Confidential Information to third persons, (v) not make copies of documents,
including, without limitations drawings, notebooks, reports, and video or audio
recordings, which embody any Confidential Information, unless necessary for the
performance of the Employee's duties as assigned by the Company, (vi) return to
the Company any documents, including without limitation, drawings, notebooks,
reports, video or audio recordings, that contain Confidential Information and
are in the Employee's possession whenever the Employee may leave the Company's
employment and (vii) not disclose or use Confidential Information in any way
that might injure or jeopardize the operations of the Company or any of its
clients.
b. As used in this Agreement, "Confidential Information" shall
include any information regarding the operations of the Company or of any of its
clients, which information is of a special, unique, or non-public nature,
including, but not limited to (i) business or marketing strategies, (ii) design,
engineering, financial and personnel matters, regardless of whether any such
2
<PAGE>
Confidential Information is labeled or otherwise treated as confidential,
material, or important, (iii) Proprietary Information (as hereinafter defined),
and (iv) Trade Secrets (as hereinafter defined).
c. As used in this Agreement, "Proprietary Information" shall
include any and all proprietary property of the Company, including but not
limited to all techniques, processes, devices, training materials, charts,
manuals, payroll, and improvements thereto together with the names and
identities of all clients and prospective clients, price lists, suppliers and
all other informa tion or materials which the Company may from time to time
designate and treat as confidential and proprietary or as a trade secret.
d. As used in this Agreement, "Trade Secrets" shall mean the
whole or any portion of any formula, pattern, device, combination of devices, or
compilation of information which is for use, or is used in the operation of the
Company's business and which provides the business an advantage, or an
opportunity to obtain an advantage, over those who do not know or use it,
irrespective of novelty, invention, patentability, the state of the prior art,
and the level of skill in the business, art or file to which the subject matter
pertains. Trade Secret includes any scientific, technical or commercial
information, including any design, process, procedure, list of suppliers, list
of customers, business code, sales or installation technique, or improvement
thereof. Trade Secrets also include information (not readily compiled from
publicly available sources) which has been made available to Employee during the
course of his employment, including but not limited to the names, addresses,
telephone number, qualifications, education, accomplishments, experience and
resumes of all persons who have applied or been recruited for employment, for
either or both permanent and temporary jobs, job order specifications and the
particular characteristics and requirements of persons generally hired by the
Company, as well as specific job listings from companies with whom the Company
does, or attempts to do business, as well as mailing lists, computer runoffs,
financial or other information not generally available to others, and all
information defined as a trade secret by applicable Virginia law.
e. Employee agrees that he is under no obligation to any former
employer which is in any way inconsistent with this Agreement or which imposes
any restriction on behalf of the Company. Employee also acknowledges that he has
been instructed that during the term of employment by the Company, he is not to
divulge to the Company, its employees or its consultants any confidential
information obtained from any previous employers or any other person.
6. Non-Competition.
---------------
a. Employee agrees that while employed by the Company and for a
period of two (2) years following the termination or expiration of his
employment with the Company, whether voluntary or involuntary (the "Termination
Date") (such two year period shall be referred to as the "Noncompetition
Period"), he will not, for himself or on behalf of any person, partnership,
trust, corporation or other entity other than the Company for whatever reason:
3
<PAGE>
(1) Engage, directly or indirectly (either as an employee,
officer, director, partner, shareholder, consultant or independent contractor),
in any business substantially similar to that carried on by the Company as of
the Termination Date within those areas in the United States in which the
Company is doing business as of the Termination Date or in which, at the time of
the Termination Date, the Company contemplates doing business (the
"Noncompetition Area"). Employee further agrees that during the Noncompetition
Period he will not be connected, directly or indirectly, with any person, firm
or corporation engaged in a business of the character now or hereafter carried
on or contemplated by the Company within the Noncompetition Area and that he
will not directly or indirectly be employed or become a partner, officer or
stockholder of any corporation engaged in such business within said
Noncompetition Area;
(2) Engage, directly or indirectly (either as an employee,
officer, director, partner, shareholder, consultant or independent contractor),
in providing services or products or offering to provide products or services of
the kind provided by the Company as of the Termination Date for those customers
of the Company for whom the Company: (i) is engaged in providing services or
products as of the Termination Date, or (ii) has either provided services or
products within the twelve (12) month period prior to the Termination Date, or
(iii) has contacted, as of the Termination Date, for the purpose of offering to
provide services or products (all of which are hereinafter referred to as the
"Clients");
(3) Solicit or attempt to solicit those Clients for the
purposes of providing or offering to provide any services or products of a type
which the Company provides or contemplates providing as of the Termination Date,
on behalf of those Clients, whether directly or through any other persons,
partnerships, corporations or other entities; or
(4) Directly or indirectly, for himself or any other person
or entity, employ or solicit for employment, including without limitation,
recommending to any subsequent employer the solicitation for employment of any
person then employed by the Company or any person who was employed by the
Company within the preceding twelve (12) months. For purposes of this paragraph,
indirect interests shall include interests held by Employee's family members or
any partner in a partnership in which he has a twenty percent (20%) or greater
partnership interest.
b. If in any judicial proceeding, a court shall refuse to
enforce this Agreement, whether because the Noncompetition Period is too long or
because the restrictions contained herein are more extensive (whether as to
geographic area, scope of business or otherwise) than is necessary to protect
the business and goodwill of the Company, it is expressly understood and agreed
between the parties hereto that this Agreement is deemed modified to the extent
necessary to permit this Agreement to be enforced in such proceedings.
c. If the Company or its successors in interest shall make
application to a court of competent jurisdiction for injunctive relief, then the
Noncompetition Period specified
4
<PAGE>
herein shall be tolled from the time of application for injunctive relief until
the date of final adjudication of the claim for injunctive relief. Additionally,
Employee waives, to the greatest extent permissible, any requirement that the
Company post bond or other security as a precondition to an injunction, whether
temporary or permanent.
7. Remedies. Employee acknowledges that compliance with Paragraphs
--------
5 and 6 of this Agreement is necessary to protect the goodwill and other
proprietary interests of the Company and that a breach of either paragraph will
give rise to irreparable and continuing injury to the Company which is not
adequately compensable in monetary damages or at law. Accordingly, Employee
agrees that the Company, its successors and assigns may obtain injunctive relief
against the breach or threatened breach of the foregoing provisions, in addition
to any other legal remedies which may be available to it under this Agreement
without the necessity of proving actual damages. Employee also waives, to the
full extent permitted by law, any requirement that a bond be provided as a
condition of the Company obtaining temporary or permanent injunctive relief.
Employee further acknowledges that in the event of his termination or expiration
of employment with the Company, his knowledge, experience and capabilities are
such that Employee can obtain employment in business activities which are of a
different or noncompeting nature than those performed in the course of
employment with the Company, and that the enforcement of a remedy hereunder by
way of injunction will not prevent Employee from earning a reasonable
livelihood.
8. Death, Incapacity or Illness of Employee.
----------------------------------------
a. If Employee dies during the term of this Agreement, the
Company shall pay to the estate of the Employee only the compensation which is
then owing Employee. Except as herein provided, the death of Employee shall
terminate this Agreement and discharge the Company from any further liability
for the payments provided herein.
b. In the event Employee becomes disabled, ill or unable to
perform his duties under this Agreement, his salary compensation may continue as
provided under the Company's short and/or long term disability plans. After the
expiration of this time period or if Employee does not qualify under such
disability plans, Employee's salary compensation will be suspended until the
Employee can resume performance of his duties during the remaining term of this
Agreement.
9. Termination for Cause. The Company may terminate this Agreement
---------------------
immediately without liability or further obligation hereunder upon written
notice to Employee if Employee commits any one or more of the following acts:
a. Willful damaging of the Company's property, business,
reputation or goodwill;
b. Commission of a felony;
5
<PAGE>
c. Death, theft, dishonesty, fraud or embezzlement;
d. Inattention to or neglect of the duties to be performed by
Employee which is not the result of illness or accident;
e. Possession of and/or consumption of alcoholic beverages or
unprescribed drugs or narcotics or misuse of prescribed drugs, while on duty,
during work breaks or on Company property;
f. Reporting for work under the influence of alcoholic
beverages or with illegal drugs or unprescribed controlled substances in
Employee's body and/or refusing to submit to drug screening tests or failing a
drug screening test;
g. Willfully injuring of any other employee of the Company;
h. Willfully injuring any person in the course of performance
of services for the Company;
i. Disclosing to a competitor or other unauthorized persons
Confidential Information;
j. Solicitation of business on behalf of a competitor or a
potential competitor;
k. Sexual harassment of any other employee of the Company or
the commission of any act which otherwise creates an offensive work environment
for other employees of the Company; or
l. Failure of Employee for any reason within five (5) days
after receipt by Employee of written notice thereof from the Company, to
correct, cease or otherwise alter any insubordination, failure to comply with
instructions or Company policies, rules or procedures or other act or omission
to act that in the opinion of the Company does or may adversely affect its
business or operations.
The Company shall not be limited to termination as a remedy for any improper or
illegal act of Employee, but may also seek damages, injunction or such other
remedy as it may deem appropriate under the circumstances.
10. Accounting for Profits. Employee covenants and agrees that if he
----------------------
violates any of the provisions of this Agreement, the Company shall be entitled
to an accounting and repayment of all profits, compensation, commissions,
remuneration or other benefits that Employee
6
<PAGE>
has realized and/or may realize as a result of or in connection with any such
violation. These remedies shall be in addition and not in limitation of any
injunctive relief or other rights or remedies to which the Company is or may be
entitled at law, in equity or under this Agreement.
11. Assignment of Proprietary Information.
-------------------------------------
a. Except as may be required in the course of employment by the
Company, Employee agrees that any and all Proprietary Information and/or Trade
Secrets which Employee has made, conceived of, developed or originated, either
individually or jointly with any other person or persons at any time during the
term of this Agreement, including the Noncompetition Period, whether during
working hours or any other time, which relate in any way to the business or the
type of business now or hereafter engaged in or contemplated by the Company
during the period of Employee's employment or which result from or may be
suggested by any work Employee does for the Company or at the Company's request,
shall be the property of the Company.
b. Employee shall promptly disclose and assign such Proprietary
Information and/or Trade Secrets to the Company's representatives and do all
such acts, and execute and deliver all such documents, as may be necessary to
vest in the Company the title to all such Proprietary Information and/or Trade
Secrets and enable the Company to properly prepare and prosecute any and all
applications for patents, trademarks or copyrights thereon as well as all
reissues, renewals and extensions thereof, so that the Company shall be the sole
and absolute owner of all right, title and interest in said proprietary
property. It is understood and agreed that the words "which relate in any way to
the business or the type of business now or hereafter carried on or contemplated
by the Company" shall properly cover any reasonable development or extension of
the Company's field of operation. These obligations shall continue beyond the
termination or expiration of Employee's employment with respect to inventions,
discoveries and developments conceived or made by Employee during the period of
employment and shall be binding on Employee's assigns, executors, heirs,
administrators and other legal representatives. Employee agrees that all
correspon dence, drawings, reports, ideas, blueprints, manuals, letters, notes,
analyses, notebooks, reports, charts, programs, proposals or any other documents
concerning the Company's customers or products or processes, whether or not
prepared by and in the course of employment, alone or in conjunction with
others, is the property of the Company. Employee further agrees that upon
termination or expiration of employment for any reason, Employee shall promptly
return to the Company any such documents in his possession, custody or control.
c. Employee will, without expense to himself, give such true
information and testimony under oath as may be requested of him by the Company
relative to any Proprietary Information that is subject to disclosure to the
Company under the terms hereof.
7
<PAGE>
12. Dissolution, Merger or Sale of Company.
--------------------------------------
a. In the event the Company should be dissolved during the term
of this Agreement, the balance of the payments due under Paragraph 4 shall be
considered a debt of the Company and shall not be discharged by reason of such
dissolution.
b. In the event of the sale, merger or consolidation of the
Company, Employee agrees that the Company may assign its rights and obligations
hereunder to its successor or purchaser.
13. Limitations on Other Employment. During Employee's employment
-------------------------------
with the Company, Employee shall not enter into the services of or be employed
in any capacity or for any purposes whatsoever, whether directly or indirectly,
by any person, firm, corporation or entity other than Company, and will not be
engaged in any business, enterprise or undertaking other than employment by the
Company, without prior written permission from the Board of Directors of the
Company.
14. Return of Records. On termination of employment, Employee shall
-----------------
deliver all records, notes, data, memoranda, models, and equipment of any nature
that are in Employee's possession or under his control and that are the property
of the Company or relate to the employment or to the business of the Company.
15. Waiver or Modification. No waiver or modification of this
----------------------
Agreement or of any covenant, condition, or limitation herein contained shall be
valid unless in writing and duly executed by the party to be charged therewith.
Furthermore, no evidence of any modification or waiver shall be offered or
received as evidence in any proceeding, arbitration or litigation between the
parties arising out of or affecting this Agreement or the rights or obligations
of any party hereunder, unless such waiver or modification is in writing, duly
executed as aforesaid. The provisions of this paragraph may not be waived except
as herein set forth.
16. Complete Agreement. This written Agreement contains the sole and
------------------
entire agreement between the parties as to the matters contained herein, and
supersedes any and all other agreements between them. The parties acknowledge
and agree that neither of them has made any representation with respect to such
matters of this Agreement or any representations except as are specifically set
forth herein, and each party acknowledges that he or it has relied on her or its
own judgment in entering into this Agreement. The parties further acknowledge
that statements or representations that may have been heretofore made by either
of them to the other are void and of no effect and that neither of them has
relied thereon in connection with him or its dealing with the other.
17. Choice of Law. This Agreement and the performance hereunder and
-------------
all suits and special proceedings hereunder shall be construed in accordance
with the laws of the State
8
<PAGE>
of Virginia. In any action, special proceeding or other proceeding that may be
brought arising out of, in connection with, or by reason of this Agreement, the
laws of the State of Virginia shall be applicable and shall govern to the
exclusion of the law of any other forum, without regard to the jurisdiction in
which the action or special proceeding may be instituted. All actions under this
Agreement shall be taken in a court of competent jurisdiction within Fairfax
County, Virginia and Employee hereby waives and agrees that he shall not assert
that such forum is inconvenient.
18. Binding Effect of Agreement. This Agreement shall be binding
---------------------------
upon and inure to the benefit of the parties hereto and their respective heirs,
successors, assigns and legal representatives.
19. Life Insurance. Inasmuch as the services of Employee are
--------------
important to the success or failure of the Company, the Company may, by its sole
discretion, purchase disability insurance or insurance on the life of Employee
during the term hereof in such amounts as Company shall determine appropriate.
Such insurance shall be owned by the Company, the Company shall be the sole
beneficiary, and all premiums therefor shall be paid by the Company. Employee
agrees to cooperate with the reasonable requirements of the Company and/or its
insurance carriers as necessary to obtain such insurance, including submitting
to any and all necessary medical examinations.
20. Invalid Provision. The invalidity or unenforceability of a
-----------------
particular provision of this Agreement shall not effect the other provisions
hereto, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
21. Costs of Enforcement. In the event either party initiates action
--------------------
to enforce his, her or its rights hereunder, the substantially prevailing party
shall recover from the substantially non-prevailing party its reasonable
expenses, court costs, including taxed and untaxed costs, and reasonable
attorneys' fees, whether suit be brought or not (jointly referred as to
"Expenses"). As used herein, Expenses include expenses incurred in any appellate
or bankruptcy proceeding. All such Expenses shall bear interest at the highest
rate allowable under the laws of the State of Virginia from the date the
substantially prevailing party pays such Expenses until the date the
substantially non-prevailing party repays such Expenses. Expenses incurred in
enforcing this paragraph shall be covered by this paragraph. For this purpose,
the court is requested by the parties to award actual costs and attorneys' fees
incurred by the substantially prevailing party, it being the manifest intention
of the parties that the substantially prevailing party be completely reimbursed
for all such costs and fees. The parties request that inquiry by the court as to
the fees and costs shall be limited to a review of whether the fees charged and
hourly rates for such fees are consistent with the fees and hourly rates
routinely charged by the attorneys for the substantially prevailing party.
22. Assignment. This Agreement shall be construed as a contract for
----------
personal services by Employee to the Company and shall not be assignable by
Employee.
9
<PAGE>
23. Strict Construction. This Agreement was the joint, negotiated
-------------------
product of the parties. Therefore, neither party shall advance a position that
any provision hereof should be more strictly construed against the other party
on the basis that such other party prepared such provision.
24. Cumulative Rights. Unless otherwise provided herein, all rights,
-----------------
powers and privileges conferred upon the parties by law, this Agreement or
otherwise shall be cumulative.
25. Waiver. No failure of any party to exercise any power given such
------
party hereunder or to insist upon strict compliance by any party with its
obligations hereunder, and no custom or practice of the parties in variance with
the terms hereof shall constitute a waiver of the parties' right to demand exact
compliance with the terms hereof.
26. Survival. The provisions of this Agreement shall continue and
--------
survive the closing hereof unless or until there is a completion and fulfillment
of all the conditions, covenants and warranties herein.
27. Time. Time is of the essence of this Agreement.
----
28. Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand or when mailed by certified registered
mail, return receipt requested, with postage prepaid to the parties' current
addresses or to such other addresses as the parties request in writing.
29. Singular/Plural Feminine/Masculine, Successors or Assigns. All
---------------------------------------------------------
references as used herein shall include male and female, singular and plural,
and successors or assigns in the use of a corporation, partnership, individual
or entity in any place or places herein in which the context may require or
permit such substitution, substitutions or designations.
DELIBERATELY LEFT BLANK
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first written above.
Witnesses:
______________________________________
Peter L. Bower
______________________________
Print Name: __________________ Date:_________________________________
St. Anthony Publishing, Inc.
Witness:
______________________________ By: __________________________________
Print Name:___________________ Its: _________________________________
"COMPANY"
11
<PAGE>
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("the Agreement") is made and entered into on
13 June 1996, with an effective date of May 1, 1996, by and between St. Anthony
Publishing, Inc., a Delaware corporation ("the Company") and John L. Canova
("the Employee").
RECITALS:
---------
The Company is engaged in the business of publishing reference manuals,
newsletters and other publications and providing consulting and training
services related to the health care industry. The Company desires to hire
Employee, and Employee desires to be employed by the Company.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
1. Employment. The Company agrees to employ Employee and Employee
----------
agrees to serve the Company upon the terms and conditions hereinafter set forth.
Employee shall serve as Executive Vice President of the Company. Employee hereby
accepts such employment and agrees to perform the foregoing duties and to render
any such other services and duties as are reasonably assigned from time to time
by the Company.
2. Performance of Employee's Duties. Employee agrees to devote his
--------------------------------
full time to the faithful performance of his duties for the Company and to
render service to the Company to the best of his ability, experience and talent
to the satisfaction of the Company. Such duties shall be rendered at such place
or places in Reston, Virginia as the Company shall require in accordance with
the best interests, needs, business and opportunities of the Company.
3. Term of Employment. The term of employment shall be for a
------------------
period of one (1) year, commencing on May 1, 1996, and ending on April 30, 1997,
unless sooner terminated as provided herein. This Agreement shall be extended
for additional periods of one (1) year, unless a notice of non-renewal is given
by one party to the other at least thirty (30) days prior to the annual renewal
date.
4. Compensation. The Company shall pay and Employee shall accept
------------
as full consideration for the services to be rendered hereunder compensation
consisting of the following:
a. Base Salary. The Company shall pay Employee a base salary
-----------
("Base Salary"). During the first twelve month period of employment (May 1, 1996
through April 30, 1997), the Base Salary will be One Hundred Fifty Four Thousand
Two Hundred Seventy Five and no/100ths DOLLARS ($154,275.00) per year.
b. Other Benefits. The Company shall provide Employee with
--------------
other fringe benefits substantially similar to the benefits normally provided
other Company employees holding senior management positions.
<PAGE>
c. Vacation. Employee shall be entitled to paid vacation and
--------
other leave (e.g., sickness and personal days) in accordance with the Company's
personal time off policy applicable to other Company employees holding positions
and performing duties substantially similar to Employee.
d. Expenses. After prior approval by the Company, the Company
--------
shall pay directly Employee's license fees, membership dues in professional
associations, and subscriptions to professional journals. After prior approval
by the Company and subject to submission of proper documentation as required by
the Company, Employee will be reimbursed for all reasonable expenses (such as
travel, seminars, entertainment) incurred by his in the discharge of his duties
to the Company. If any travel, entertainment, membership dues, license fees,
subscriptions, salary or other expense, paid or incurred by the Company to or on
behalf of Employee is disallowed in whole or in part as a deductible expense of
the Company for federal income tax purposes, Employee shall reimburse the
Company to the full extent of the disallowed portion. Such reimbursement shall
be made within sixty (60) days after the date on which the Company pays the
deficiency with respect to such amount. It is further understood that the
Company shall not be required to defend or challenge any proposed disallowance
by the Internal Revenue Service and the amount required to be reimbursed by the
Employee shall be the amount, as finally determined by agreement or otherwise,
actually disallowed as a deduction.
5. Confidentiality.
---------------
a. Employee shall, during and after his term of employment with
the Company: (i) keep confidential all Confidential Information (as defined in
paragraph 5b below) at any time known to him concerning the Company or any of
its clients, (ii) not disclose or use any Confidential Information for non-
business reasons or for the Employee's benefit, (iii) not disclose any
Confidential Information to third parties without the Company's prior written
permission, (iv) exercise reasonable care to prevent dissemination of
Confidential Information to third persons, (v) not make copies of documents,
including, without limitations drawings, notebooks, reports, and video or audio
recordings, which embody any Confidential Information, unless necessary for the
performance of the Employee's duties as assigned by the Company, (vi) return to
the Company any documents, including without limitation, drawings, notebooks,
reports, video or audio recordings, that contain Confidential Information and
are in the Employee's possession whenever the Employee may leave the Company's
employment and (vii) not disclose or use Confidential Information in any way
that might injure or jeopardize the operations of the Company or any of its
clients.
b. As used in this Agreement, "Confidential Information" shall
include any information regarding the operations of the Company or of any of its
clients, which information is of a special, unique, or non-public nature,
including, but not limited to (i) business or marketing strategies, (ii) design,
engineering, financial and personnel matters, regardless of whether any such
2
<PAGE>
Confidential Information is labeled or otherwise treated as confidential,
material, or important, (iii) Proprietary Information (as hereinafter defined),
and (iv) Trade Secrets (as hereinafter defined).
c. As used in this Agreement, "Proprietary Information" shall
include any and all proprietary property of the Company, including but not
limited to all techniques, processes, devices, training materials, charts,
manuals, payroll, and improvements thereto together with the names and
identities of all clients and prospective clients, price lists, suppliers and
all other information or materials which the Company may from time to time
designate and treat as confidential and proprietary or as a trade secret.
d. As used in this Agreement, "Trade Secrets" shall mean the
whole or any portion of any formula, pattern, device, combination of devices, or
compilation of information which is for use, or is used in the operation of the
Company's business and which provides the business an advantage, or an
opportunity to obtain an advantage, over those who do not know or use it,
irrespective of novelty, invention, patentability, the state of the prior art,
and the level of skill in the business, art or file to which the subject matter
pertains. Trade Secret includes any scientific, technical or commercial
information, including any design, process, procedure, list of suppliers, list
of customers, business code, sales or installation technique, or improvement
thereof. Trade Secrets also include information (not readily compiled from
publicly available sources) which has been made available to Employee during the
course of his employment, including but not limited to the names, addresses,
telephone number, qualifications, education, accomplishments, experience and
resumes of all persons who have applied or been recruited for employment, for
either or both permanent and temporary jobs, job order specifications and the
particular characteristics and requirements of persons generally hired by the
Company, as well as specific job listings from companies with whom the Company
does, or attempts to do business, as well as mailing lists, computer runoffs,
financial or other information not generally available to others, and all
information defined as a trade secret by applicable Virginia law.
e. Employee agrees that he is under no obligation to any former
employer which is in any way inconsistent with this Agreement or which imposes
any restriction on behalf of the Company. Employee also acknowledges that he has
been instructed that during the term of employment by the Company, he is not to
divulge to the Company, its employees or its consultants any confidential
information obtained from any previous employers or any other person.
6. Non-Competition.
---------------
a. Employee agrees that while employed by the Company and for a
period of two (2) years following the termination or expiration of his
employment with the Company, whether voluntary or involuntary (the "Termination
Date") (such two year period shall be referred to as the "Noncompetition
Period"), he will not, for himself or on behalf of any person, partnership,
trust, corporation or other entity other than the Company for whatever reason:
3
<PAGE>
(1) Engage, directly or indirectly (either as an employee,
officer, director, partner, shareholder, consultant or independent contractor),
in any business substantially similar to that carried on by the Company as of
the Termination Date within those areas in the United States in which the
Company is doing business as of the Termination Date or in which, at the time of
the Termination Date, the Company contemplates doing business (the
"Noncompetition Area"). Employee further agrees that during the Noncompetition
Period he will not be connected, directly or indirectly, with any person, firm
or corporation engaged in a business of the character now or hereafter carried
on or contemplated by the Company within the Noncompetition Area and that he
will not directly or indirectly be employed or become a partner, officer or
stockholder of any corporation engaged in such business within said
Noncompetition Area;
(2) Engage, directly or indirectly (either as an employee,
officer, director, partner, shareholder, consultant or independent contractor),
in providing services or products or offering to provide products or services of
the kind provided by the Company as of the Termination Date for those customers
of the Company for whom the Company: (i) is engaged in providing services or
products as of the Termination Date, or (ii) has either provided services or
products within the twelve (12) month period prior to the Termination Date, or
(iii) has contacted, as of the Termination Date, for the purpose of offering to
provide services or products (all of which are hereinafter referred to as the
"Clients");
(3) Solicit or attempt to solicit those Clients for the
purposes of providing or offering to provide any services or products of a type
which the Company provides or contemplates providing as of the Termination Date,
on behalf of those Clients, whether directly or through any other persons,
partnerships, corporations or other entities; or
(4) Directly or indirectly, for himself or any other person
or entity, employ or solicit for employment, including without limitation,
recommending to any subsequent employer the solicitation for employment of any
person then employed by the Company or any person who was employed by the
Company within the preceding twelve (12) months. For purposes of this paragraph,
indirect interests shall include interests held by Employee's family members or
any partner in a partnership in which he has a twenty percent (20%) or greater
partnership interest.
b. If in any judicial proceeding, a court shall refuse to
enforce this Agreement, whether because the Noncompetition Period is too long or
because the restrictions contained herein are more extensive (whether as to
geographic area, scope of business or otherwise) than is necessary to protect
the business and goodwill of the Company, it is expressly understood and agreed
between the parties hereto that this Agreement is deemed modified to the extent
necessary to permit this Agreement to be enforced in such proceedings.
c. If the Company or its successors in interest shall make
application to a court of competent jurisdic tion for injunctive relief, then
the Noncompetition Period specified
4
<PAGE>
herein shall be tolled from the time of application for injunctive relief until
the date of final adjudication of the claim for injunctive relief. Additionally,
Employee waives, to the greatest extent permissible, any requirement that the
Company post bond or other security as a precondition to an injunction, whether
temporary or permanent.
7. Remedies. Employee acknowledges that compliance with Paragraphs
--------
5 and 6 of this Agreement is necessary to protect the goodwill and other
proprietary interests of the Company and that a breach of either paragraph will
give rise to irreparable and continuing injury to the Company which is not
adequately compensable in monetary damages or at law. Accordingly, Employee
agrees that the Company, its successors and assigns may obtain injunctive relief
against the breach or threatened breach of the foregoing provisions, in addition
to any other legal remedies which may be available to it under this Agreement
without the necessity of proving actual damages. Employee also waives, to the
full extent permitted by law, any requirement that a bond be provided as a
condition of the Company obtaining temporary or permanent injunctive relief.
Employee further acknowledges that in the event of his termination or expiration
of employment with the Company, his knowledge, experience and capabilities are
such that Employee can obtain employment in business activities which are of a
different or noncompeting nature than those performed in the course of
employment with the Company, and that the enforcement of a remedy hereunder by
way of injunction will not prevent Employee from earning a reasonable
livelihood.
8. Death, Incapacity or Illness of Employee.
----------------------------------------
a. If Employee dies during the term of this Agreement, the
Company shall pay to the estate of the Employee only the compensation which is
then owing Employee. Except as herein provided, the death of Employee shall
terminate this Agreement and discharge the Company from any further liability
for the payments provided herein.
b. In the event Employee becomes disabled, ill or unable to
perform his duties under this Agreement, his salary compensation may continue as
provided under the Company's short and/or long term disability plans. After the
expiration of this time period or if Employee does not qualify under such
disability plans, Employee's salary compensation will be suspended until the
Employee can resume performance of his duties during the remaining term of this
Agreement.
9. Termination for Cause. The Company may terminate this Agreement
---------------------
immediately without liability or further obligation hereunder upon written
notice to Employee if Employee commits any one or more of the following acts:
a. Willful damaging of the Company's property, business,
reputation or goodwill;
b. Commission of a felony;
5
<PAGE>
c. Death, theft, dishonesty, fraud or embezzlement;
d. Inattention to or neglect of the duties to be performed by
Employee which is not the result of illness or accident;
e. Possession of and/or consumption of alcoholic beverages or
unprescribed drugs or narcotics or misuse of prescribed drugs, while on duty,
during work breaks or on Company property;
f. Reporting for work under the influence of alcoholic
beverages or with illegal drugs or unprescribed controlled substances in
Employee's body and/or refusing to submit to drug screening tests or failing a
drug screening test;
g. Willfully injuring of any other employee of the Company;
h. Willfully injuring any person in the course of performance
of services for the Company;
i. Disclosing to a competitor or other unauthorized persons
Confidential Information;
j. Solicitation of business on behalf of a competitor or a
potential competitor;
k. Sexual harassment of any other employee of the Company or
the commission of any act which otherwise creates an offensive work environment
for other employees of the Company; or
l. Failure of Employee for any reason within five (5) days
after receipt by Employee of written notice thereof from the Company, to
correct, cease or otherwise alter any insubordination, failure to comply with
instructions or Company policies, rules or procedures or other act or omission
to act that in the opinion of the Company does or may adversely affect its
business or operations.
The Company shall not be limited to termination as a remedy for any improper or
illegal act of Employee, but may also seek damages, injunction or such other
remedy as it may deem appropriate under the circumstances.
10. Accounting for Profits. Employee covenants and agrees that if he
----------------------
violates any of the provisions of this Agreement, the Company shall be entitled
to an accounting and repayment of all profits, compensation, commissions,
remuneration or other benefits that Employee
6
<PAGE>
has realized and/or may realize as a result of or in connection with any such
violation. These remedies shall be in addition and not in limitation of any
injunctive relief or other rights or remedies to which the Company is or may be
entitled at law, in equity or under this Agreement.
11. Assignment of Proprietary Information.
-------------------------------------
a. Except as may be required in the course of employment by the
Company, Employee agrees that any and all Proprietary Information and/or Trade
Secrets which Employee has made, conceived of, developed or originated, either
individually or jointly with any other person or persons at any time during the
term of this Agreement, including the Noncompetition Period, whether during
working hours or any other time, which relate in any way to the business or the
type of business now or hereafter engaged in or contemplated by the Company
during the period of Employee's employment or which result from or may be
suggested by any work Employee does for the Company or at the Company's request,
shall be the property of the Company.
b. Employee shall promptly disclose and assign such Proprietary
Information and/or Trade Secrets to the Company's representatives and do all
such acts, and execute and deliver all such documents, as may be necessary to
vest in the Company the title to all such Proprietary Information and/or Trade
Secrets and enable the Company to properly prepare and prosecute any and all
applications for patents, trademarks or copyrights thereon as well as all
reissues, renewals and extensions thereof, so that the Company shall be the sole
and absolute owner of all right, title and interest in said proprietary
property. It is understood and agreed that the words "which relate in any way to
the business or the type of business now or hereafter carried on or contemplated
by the Company" shall properly cover any reasonable development or extension of
the Company's field of operation. These obligations shall continue beyond the
termination or expiration of Employee's employment with respect to inventions,
discoveries and developments conceived or made by Employee during the period of
employment and shall be binding on Employee's assigns, executors, heirs,
administrators and other legal representatives. Employee agrees that all
correspondence, drawings, reports, ideas, blueprints, manuals, letters, notes,
analyses, notebooks, reports, charts, programs, proposals or any other documents
concerning the Company's customers or products or processes, whether or not
prepared by and in the course of employment, alone or in conjunction with
others, is the property of the Company. Employee further agrees that upon
termination or expiration of employment for any reason, Employee shall promptly
return to the Company any such documents in his possession, custody or control.
c. Employee will, without expense to himself, give such true
information and testimony under oath as may be requested of him by the Company
relative to any Proprietary Information that is subject to disclosure to the
Company under the terms hereof.
7
<PAGE>
12. Dissolution, Merger or Sale of Company.
--------------------------------------
a. In the event the Company should be dissolved during the term
of this Agreement, the balance of the payments due under Paragraph 4 shall be
considered a debt of the Company and shall not be discharged by reason of such
dissolution.
b. In the event of the sale, merger or consolidation of the
Company, Employee agrees that the Company may assign its rights and obligations
hereunder to its successor or purchaser.
13. Limitations on Other Employment. During Employee's employment
-------------------------------
with the Company, Employee shall not enter into the services of or be employed
in any capacity or for any purposes whatsoever, whether directly or indirectly,
by any person, firm, corporation or entity other than Company, and will not be
engaged in any business, enterprise or undertaking other than employment by the
Company, without prior written permission from the Board of Directors of the
Company.
14. Return of Records. On termination of employment, Employee shall
-----------------
deliver all records, notes, data, memoranda, models, and equipment of any nature
that are in Employee's possession or under his control and that are the property
of the Company or relate to the employment or to the business of the Company.
15. Waiver or Modification. No waiver or modification of this
----------------------
Agreement or of any covenant, condition, or limitation herein contained shall be
valid unless in writing and duly executed by the party to be charged therewith.
Furthermore, no evidence of any modification or waiver shall be offered or
received as evidence in any proceeding, arbitration or litigation between the
parties arising out of or affecting this Agreement or the rights or obligations
of any party hereunder, unless such waiver or modification is in writing, duly
executed as aforesaid. The provisions of this paragraph may not be waived except
as herein set forth.
16. Complete Agreement. This written Agreement contains the sole and
------------------
entire agreement between the parties as to the matters contained herein, and
supersedes any and all other agreements between them. The parties acknowledge
and agree that neither of them has made any representation with respect to such
matters of this Agreement or any representations except as are specifically set
forth herein, and each party acknowledges that he or it has relied on her or its
own judgment in entering into this Agreement. The parties further acknowledge
that statements or representations that may have been heretofore made by either
of them to the other are void and of no effect and that neither of them has
relied thereon in connection with him or its dealing with the other.
17. Choice of Law. This Agreement and the performance hereunder and
-------------
all suits and special proceedings hereunder shall be construed in accordance
with the laws of the State
8
<PAGE>
of Virginia. In any action, special proceeding or other proceeding that may be
brought arising out of, in connection with, or by reason of this Agreement, the
laws of the State of Virginia shall be applicable and shall govern to the
exclusion of the law of any other forum, without regard to the jurisdiction in
which the action or special proceeding may be instituted. All actions under this
Agreement shall be taken in a court of competent jurisdiction within Fairfax
County, Virginia and Employee hereby waives and agrees that he shall not assert
that such forum is inconvenient.
18. Binding Effect of Agreement. This Agreement shall be binding
---------------------------
upon and inure to the benefit of the parties hereto and their respective heirs,
successors, assigns and legal representatives.
19. Life Insurance. Inasmuch as the services of Employee are
--------------
important to the success or failure of the Company, the Company may, by its sole
discretion, purchase disability insurance or insurance on the life of Employee
during the term hereof in such amounts as Company shall determine appropriate.
Such insurance shall be owned by the Company, the Company shall be the sole
beneficiary, and all premiums therefor shall be paid by the Company. Employee
agrees to cooperate with the reasonable requirements of the Company and/or its
insurance carriers as necessary to obtain such insurance, including submitting
to any and all necessary medical examinations.
20. Invalid Provision. The invalidity or unenforceability of a
-----------------
particular provision of this Agreement shall not effect the other provisions
hereto, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
21. Costs of Enforcement. In the event either party initiates
--------------------
action to enforce his, her or its rights hereunder, the substantially prevailing
party shall recover from the substantially non-prevailing party its reasonable
expenses, court costs, including taxed and untaxed costs, and reasonable
attorneys' fees, whether suit be brought or not (jointly referred as to
"Expenses"). As used herein, Expenses include expenses incurred in any appellate
or bankruptcy proceeding. All such Expenses shall bear interest at the highest
rate allowable under the laws of the State of Virginia from the date the
substantially prevailing party pays such Expenses until the date the
substantially non-prevailing party repays such Expenses. Expenses incurred in
enforcing this paragraph shall be covered by this paragraph. For this purpose,
the court is requested by the parties to award actual costs and attorneys' fees
incurred by the substantially prevailing party, it being the manifest intention
of the parties that the substantially prevailing party be completely reimbursed
for all such costs and fees. The parties request that inquiry by the court as to
the fees and costs shall be limited to a review of whether the fees charged and
hourly rates for such fees are consistent with the fees and hourly rates
routinely charged by the attorneys for the substantially prevailing party.
22. Assignment. This Agreement shall be construed as a contract for
----------
personal services by Employee to the Company and shall not be assignable by
Employee.
9
<PAGE>
23. Strict Construction. This Agreement was the joint, negotiated
-------------------
product of the parties. Therefore, neither party shall advance a position that
any provision hereof should be more strictly construed against the other party
on the basis that such other party prepared such provision.
24. Cumulative Rights. Unless otherwise provided herein, all rights,
-----------------
powers and privileges conferred upon the parties by law, this Agreement or
otherwise shall be cumulative.
25. Waiver. No failure of any party to exercise any power given such
------
party hereunder or to insist upon strict compliance by any party with its
obligations hereunder, and no custom or practice of the parties in variance with
the terms hereof shall constitute a waiver of the parties' right to demand exact
compliance with the terms hereof.
26. Survival. The provisions of this Agreement shall continue and
--------
survive the closing hereof unless or until there is a completion and fulfillment
of all the conditions, covenants and warranties herein.
27. Time. Time is of the essence of this Agreement.
----
28. Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand or when mailed by certified registered
mail, return receipt requested, with postage prepaid to the parties' current
addresses or to such other addresses as the parties request in writing.
29. Singular/Plural Feminine/Masculine, Successors or Assigns. All
---------------------------------------------------------
references as used herein shall include male and female, singular and plural,
and successors or assigns in the use of a corporation, partnership, individual
or entity in any place or places herein in which the context may require or
permit such substitution, substitutions or designations.
DELIBERATELY LEFT BLANK
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first written above.
Witnesses: /s/ John L. Canova
--------------------------------
John L. Canova
/s/ Susan L. Abels
- -----------------------------
Print Name: Susan L. Abels Date: 6/13/96
-------------------- ----------------------------
St. Anthony Publishing, Inc.
Witness:
/s/ Susan L. Abels By: /s/
- ----------------------------- ------------------------------
Print Name: Susan L. Abels Its:_____________________________
------------------ "COMPANY"
11
<PAGE>
Exhibit 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("the Agreement") is made and entered into
on __________________, 1996, with an effective date of May 1, 1996, by and
between St. Anthony Publishing, Inc., a Delaware corporation ("the Company") and
Curtis M. Shepherd ("the Employee").
RECITALS:
---------
The Company is engaged in the business of publishing reference
manuals, newsletters and other publications and providing consulting and
training services related to the health care industry. The Company desires to
hire Employee, and Employee desires to be employed by the Company.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
1. Employment. The Company agrees to employ Employee and Employee
----------
agrees to serve the Company upon the terms and conditions hereinafter set forth.
Employee shall serve as Publisher Physician Products of the Company. Employee
hereby accepts such employment and agrees to perform the foregoing duties and to
render any such other services and duties as are reasonably assigned from time
to time by the Company.
2. Performance of Employee's Duties. Employee agrees to devote his
--------------------------------
full time to the faithful performance of his duties for the Company and to
render service to the Company to the best of his ability, experience and talent
to the satisfaction of the Company. Such duties shall be rendered at such place
or places in Reston, Virginia as the Company shall require in accordance with
the best interests, needs, business and opportunities of the Company.
3. Term of Employment. The term of employment shall be for a period
------------------
of one (1) year, commencing on May 1, 1996, and ending on April 30, 1997, unless
sooner terminated as provided herein. This Agreement shall be extended for
additional periods of one (1) year, unless a notice of non-renewal is given by
one party to the other at least thirty (30) days prior to the annual renewal
date.
4. Compensation. The Company shall pay and Employee shall accept as
------------
full consideration for the services to be rendered hereunder compensation
consisting of the following:
a. Base Salary. The Company shall pay Employee a base salary
-----------
("Base Salary"). During the first twelve month period of employment (May 1, 1996
through April 30, 1997), the Base Salary will be One Hundred Thousand and
no/100ths DOLLARS ($100,000.00) per year.
<PAGE>
b. Other Benefits. The Company shall provide Employee with
--------------
other fringe benefits substantially similar to the benefits normally provided
other Company employees holding senior management positions.
c. Vacation. Employee shall be entitled to paid vacation and
--------
other leave (e.g., sickness and personal days) in accordance with the Company's
personal time off policy applicable to other Company employees holding positions
and performing duties substantially similar to Employee.
d. Expenses. After prior approval by the Company, the Company
--------
shall pay directly Employee's license fees, membership dues in professional
associations, and subscriptions to professional journals. After prior approval
by the Company and subject to submission of proper documentation as required by
the Company, Employee will be reimbursed for all reasonable expenses (such as
travel, seminars, entertainment) incurred by his in the discharge of his duties
to the Company. If any travel, entertainment, membership dues, license fees,
subscriptions, salary or other expense, paid or incurred by the Company to or on
behalf of Employee is disallowed in whole or in part as a deductible expense of
the Company for federal income tax purposes, Employee shall reimburse the
Company to the full extent of the disallowed portion. Such reimbursement shall
be made within sixty (60) days after the date on which the Company pays the
deficiency with respect to such amount. It is further understood that the
Company shall not be required to defend or challenge any proposed disallowance
by the Internal Revenue Service and the amount required to be reimbursed by the
Employee shall be the amount, as finally determined by agreement or otherwise,
actually disallowed as a deduction.
5. Confidentiality.
---------------
a. Employee shall, during and after his term of employment with
the Company: (i) keep confidential all Confidential Information (as defined in
paragraph 5b below) at any time known to him concerning the Company or any of
its clients, (ii) not disclose or use any Confidential Information for non-
business reasons or for the Employee's benefit, (iii) not disclose any
Confidential Information to third parties without the Company's prior written
permission, (iv) exercise reasonable care to prevent dissemination of
Confidential Information to third persons, (v) not make copies of documents,
including, without limitations drawings, notebooks, reports, and video or audio
recordings, which embody any Confidential Information, unless necessary for the
performance of the Employee's duties as assigned by the Company, (vi) return to
the Company any documents, including without limitation, drawings, notebooks,
reports, video or audio recordings, that contain Confidential Information and
are in the Employee's possession whenever the Employee may leave the Company's
employment and (vii) not disclose or use Confidential Information in any way
that might injure or jeopardize the operations of the Company or any of its
clients.
b. As used in this Agreement, "Confidential Information" shall
include any information regarding the operations of the Company or of any of its
clients, which information
2
<PAGE>
is of a special, unique, or non-public nature, including, but not limited to (i)
business or marketing strategies, (ii) design, engineering, financial and
personnel matters, regardless of whether any such Confidential Information is
labeled or otherwise treated as confidential, material, or important, (iii)
Proprietary Information (as hereinafter defined), and (iv) Trade Secrets (as
hereinafter defined).
c. As used in this Agreement, "Proprietary Information" shall
include any and all proprietary property of the Company, including but not
limited to all techniques, processes, devices, training materials, charts,
manuals, payroll, and improvements thereto together with the names and
identities of all clients and prospective clients, price lists, suppliers and
all other information or materials which the Company may from time to time
designate and treat as confidential and proprietary or as a trade secret.
d. As used in this Agreement, "Trade Secrets" shall mean the
whole or any portion of any formula, pattern, device, combination of devices, or
compilation of information which is for use, or is used in the operation of the
Company's business and which provides the business an advantage, or an
opportunity to obtain an advantage, over those who do not know or use it,
irrespective of novelty, invention, patentability, the state of the prior art,
and the level of skill in the business, art or file to which the subject matter
pertains. Trade Secret includes any scientific, technical or commercial
information, including any design, process, procedure, list of suppliers, list
of customers, business code, sales or installation technique, or improvement
thereof. Trade Secrets also include information (not readily compiled from
publicly available sources) which has been made available to Employee during the
course of his employment, including but not limited to the names, addresses,
telephone number, qualifications, education, accomplishments, experience and
resumes of all persons who have applied or been recruited for employment, for
either or both permanent and temporary jobs, job order specifications and the
particular characteristics and requirements of persons generally hired by the
Company, as well as specific job listings from companies with whom the Company
does, or attempts to do business, as well as mailing lists, computer runoffs,
financial or other information not generally available to others, and all
information defined as a trade secret by applicable Virginia law.
e. Employee agrees that he is under no obligation to any former
employer which is in any way inconsistent with this Agreement or which imposes
any restriction on behalf of the Company. Employee also acknowledges that he
has been instructed that during the term of employment by the Company, he is not
to divulge to the Company, its employees or its consultants any confidential
information obtained from any previous employers or any other person.
6. Non-Competition.
---------------
a. Employee agrees that while employed by the Company and for a
period of two (2) years following the termination or expiration of his
employment with the Company, whether voluntary or involuntary (the "Termination
Date") (such two year period shall
3
<PAGE>
be referred to as the "Noncompetition Period"), he will not, for himself or on
behalf of any person, partnership, trust, corporation or other entity other than
the Company for whatever reason:
(1) Engage, directly or indirectly (either as an employee,
officer, director, partner, shareholder, consultant or independent contractor),
in any business substantially similar to that carried on by the Company as of
the Termination Date within those areas in the United States in which the
Company is doing business as of the Termination Date or in which, at the time of
the Termination Date, the Company contemplates doing business (the
"Noncompetition Area"). Employee further agrees that during the Noncompetition
Period he will not be connected, directly or indirectly, with any person, firm
or corporation engaged in a business of the character now or hereafter carried
on or contemplated by the Company within the Noncompetition Area and that he
will not directly or indirectly be employed or become a partner, officer or
stockholder of any corporation engaged in such business within said
Noncompetition Area;
(2) Engage, directly or indirectly (either as an employee,
officer, director, partner, shareholder, consultant or independent contractor),
in providing services or products or offering to provide products or services of
the kind provided by the Company as of the Termination Date for those customers
of the Company for whom the Company: (i) is engaged in providing services or
products as of the Termination Date, or (ii) has either provided services or
products within the twelve (12) month period prior to the Termination Date, or
(iii) has contacted, as of the Termination Date, for the purpose of offering to
provide services or products (all of which are hereinafter referred to as the
"Clients");
(3) Solicit or attempt to solicit those Clients for the
purposes of providing or offering to provide any services or products of a type
which the Company provides or contemplates providing as of the Termination Date,
on behalf of those Clients, whether directly or through any other persons,
partnerships, corporations or other entities; or
(4) Directly or indirectly, for himself or any other person
or entity, employ or solicit for employment, including without limitation,
recommending to any subsequent employer the solicitation for employment of any
person then employed by the Company or any person who was employed by the
Company within the preceding twelve (12) months. For purposes of this paragraph,
indirect interests shall include interests held by Employee's family members or
any partner in a partnership in which he has a twenty percent (20%) or greater
partnership interest.
b. If in any judicial proceeding, a court shall refuse to
enforce this Agreement, whether because the Noncompetition Period is too long or
because the restrictions contained herein are more extensive (whether as to
geographic area, scope of business or otherwise) than is necessary to protect
the business and goodwill of the Company, it is expressly understood and agreed
between the parties hereto that this Agreement is deemed modified to the extent
necessary to permit this Agreement to be enforced in such proceedings.
4
<PAGE>
c. If the Company or its successors in interest shall make
application to a court of competent jurisdic tion for injunctive relief, then
the Noncompetition Period specified herein shall be tolled from the time of
application for injunctive relief until the date of final adjudication of the
claim for injunctive relief. Additionally, Employee waives, to the greatest
extent permissible, any requirement that the Company post bond or other security
as a precondition to an injunction, whether temporary or permanent.
7. Remedies. Employee acknowledges that compliance with Paragraphs 5
--------
and 6 of this Agreement is necessary to protect the goodwill and other
proprietary interests of the Company and that a breach of either paragraph will
give rise to irreparable and continuing injury to the Company which is not
adequately compensable in monetary damages or at law. Accordingly, Employee
agrees that the Company, its successors and assigns may obtain injunctive relief
against the breach or threatened breach of the foregoing provisions, in addition
to any other legal remedies which may be available to it under this Agreement
without the necessity of proving actual damages. Employee also waives, to the
full extent permitted by law, any requirement that a bond be provided as a
condition of the Company obtaining temporary or permanent injunctive relief.
Employee further acknowledges that in the event of his termination or expiration
of employment with the Company, his knowledge, experience and capabilities are
such that Employee can obtain employment in business activities which are of a
different or noncompeting nature than those performed in the course of
employment with the Company, and that the enforcement of a remedy hereunder by
way of injunction will not prevent Employee from earning a reasonable
livelihood.
8. Death, Incapacity or Illness of Employee.
----------------------------------------
a. If Employee dies during the term of this Agreement, the
Company shall pay to the estate of the Employee only the compensation which is
then owing Employee. Except as herein provided, the death of Employee shall
terminate this Agreement and discharge the Company from any further liability
for the payments provided herein.
b. In the event Employee becomes disabled, ill or unable to
perform his duties under this Agreement, his salary compensation may continue as
provided under the Company's short and/or long term disability plans. After the
expiration of this time period or if Employee does not qualify under such
disability plans, Employee's salary compensation will be suspended until the
Employee can resume performance of his duties during the remaining term of this
Agreement.
9. Termination for Cause. The Company may terminate this Agreement
---------------------
immediately without liability or further obligation hereunder upon written
notice to Employee if Employee commits any one or more of the following acts:
a. Willful damaging of the Company's property, business,
reputation or goodwill;
5
<PAGE>
b. Commission of a felony;
c. Death, theft, dishonesty, fraud or embezzlement;
d. Inattention to or neglect of the duties to be performed by
Employee which is not the result of illness or accident;
e. Possession of and/or consumption of alcoholic beverages or
unprescribed drugs or narcotics or misuse of prescribed drugs, while on duty,
during work breaks or on Company property;
f. Reporting for work under the influence of alcoholic
beverages or with illegal drugs or unprescribed controlled substances in
Employee's body and/or refusing to submit to drug screening tests or failing a
drug screening test;
g. Willfully injuring of any other employee of the Company;
h. Willfully injuring any person in the course of performance
of services for the Company;
i. Disclosing to a competitor or other un authorized persons
Confidential Information;
j. Solicitation of business on behalf of a competitor or a
potential competitor;
k. Sexual harassment of any other employee of the Company or
the commission of any act which otherwise creates an offensive work environment
for other employees of the Company; or
l. Failure of Employee for any reason within five (5) days
after receipt by Employee of written notice thereof from the Company, to
correct, cease or otherwise alter any insubordination, failure to comply with
instructions or Company policies, rules or procedures or other act or omission
to act that in the opinion of the Company does or may adversely affect its
business or operations.
The Company shall not be limited to termination as a remedy for any improper or
illegal act of Employee, but may also seek damages, injunction or such other
remedy as it may deem appropriate under the circumstances.
6
<PAGE>
10. Accounting for Profits. Employee covenants and agrees that if he
----------------------
violates any of the provisions of this Agreement, the Company shall be entitled
to an accounting and repayment of all profits, compensation, commissions,
remuneration or other benefits that Employee has realized and/or may realize as
a result of or in connection with any such violation. These remedies shall be in
addition and not in limitation of any injunctive relief or other rights or
remedies to which the Company is or may be entitled at law, in equity or under
this Agreement.
11. Assignment of Proprietary Information.
-------------------------------------
a. Except as may be required in the course of employment by the
Company, Employee agrees that any and all Proprietary Information and/or Trade
Secrets which Employee has made, conceived of, developed or originated, either
individually or jointly with any other person or persons at any time during the
term of this Agreement, including the Noncompetition Period, whether during
working hours or any other time, which relate in any way to the business or the
type of business now or hereafter engaged in or contemplated by the Company
during the period of Employee's employment or which result from or may be
suggested by any work Employee does for the Company or at the Company's request,
shall be the property of the Company.
b. Employee shall promptly disclose and assign such Proprietary
Information and/or Trade Secrets to the Company's representatives and do all
such acts, and execute and deliver all such documents, as may be necessary to
vest in the Company the title to all such Proprietary Information and/or Trade
Secrets and enable the Company to properly prepare and prosecute any and all
applications for patents, trademarks or copyrights thereon as well as all
reissues, renewals and extensions thereof, so that the Company shall be the sole
and absolute owner of all right, title and interest in said proprietary
property. It is understood and agreed that the words "which relate in any way
to the business or the type of business now or hereafter carried on or
contemplated by the Company" shall properly cover any reasonable development or
extension of the Company's field of operation. These obligations shall continue
beyond the termination or expiration of Employee's employment with respect to
inventions, discoveries and developments conceived or made by Employee during
the period of employment and shall be binding on Employee's assigns, executors,
heirs, administrators and other legal representatives. Employee agrees that all
correspondence, drawings, reports, ideas, blueprints, manuals, letters, notes,
analyses, notebooks, reports, charts, programs, proposals or any other documents
concerning the Company's customers or products or processes, whether or not
prepared by and in the course of employment, alone or in conjunction with
others, is the property of the Company. Employee further agrees that upon
termination or expiration of employment for any reason, Employee shall promptly
return to the Company any such documents in his possession, custody or control.
c. Employee will, without expense to himself, give such true
information and testimony under oath as may be requested of him by the Company
relative to any Proprietary Information that is subject to disclosure to the
Company under the terms hereof.
7
<PAGE>
12. Dissolution, Merger or Sale of Company.
--------------------------------------
a. In the event the Company should be dissolved during the term
of this Agreement, the balance of the payments due under Paragraph 4 shall be
considered a debt of the Company and shall not be discharged by reason of such
dissolution.
b. In the event of the sale, merger or consolidation of the
Company, Employee agrees that the Company may assign its rights and obligations
hereunder to its successor or purchaser.
13. Limitations on Other Employment. During Employee's employment
-------------------------------
with the Company, Employee shall not enter into the services of or be employed
in any capacity or for any purposes whatsoever, whether directly or indirectly,
by any person, firm, corporation or entity other than Company, and will not be
engaged in any business, enterprise or undertaking other than employment by the
Company, without prior written permission from the Board of Directors of the
Company.
14. Return of Records. On termination of employment, Employee shall
-----------------
deliver all records, notes, data, memoranda, models, and equipment of any nature
that are in Employee's possession or under his control and that are the property
of the Company or relate to the employment or to the business of the Company.
15. Waiver or Modification. No waiver or modification of this
----------------------
Agreement or of any covenant, condition, or limitation herein contained shall be
valid unless in writing and duly executed by the party to be charged therewith.
Furthermore, no evidence of any modification or waiver shall be offered or
received as evidence in any proceeding, arbitration or litigation between the
parties arising out of or affecting this Agreement or the rights or obligations
of any party hereunder, unless such waiver or modification is in writing, duly
executed as aforesaid. The provisions of this paragraph may not be waived except
as herein set forth.
16. Complete Agreement. This written Agreement contains the sole and
------------------
entire agreement between the parties as to the matters contained herein, and
supersedes any and all other agreements between them. The parties acknowledge
and agree that neither of them has made any representation with respect to such
matters of this Agreement or any representations except as are specifically set
forth herein, and each party acknowledges that he or it has relied on her or its
own judgment in entering into this Agreement. The parties further acknowledge
that statements or representations that may have been heretofore made by either
of them to the other are void and of no effect and that neither of them has
relied thereon in connection with him or its dealing with the other.
8
<PAGE>
17. Choice of Law. This Agreement and the performance hereunder and
-------------
all suits and special proceedings hereunder shall be construed in accordance
with the laws of the State of Virginia. In any action, special proceeding or
other proceeding that may be brought arising out of, in connection with, or by
reason of this Agreement, the laws of the State of Virginia shall be applicable
and shall govern to the exclusion of the law of any other forum, without regard
to the jurisdiction in which the action or special proceeding may be instituted.
All actions under this Agreement shall be taken in a court of competent
jurisdiction within Fairfax County, Virginia and Employee hereby waives and
agrees that he shall not assert that such forum is inconvenient.
18. Binding Effect of Agreement. This Agreement shall be binding
---------------------------
upon and inure to the benefit of the parties hereto and their respective heirs,
successors, assigns and legal representatives.
19. Life Insurance. Inasmuch as the services of Employee are
--------------
important to the success or failure of the Company, the Company may, by its sole
discretion, purchase disability insurance or insurance on the life of Employee
during the term hereof in such amounts as Company shall determine appropriate.
Such insurance shall be owned by the Company, the Company shall be the sole
beneficiary, and all premiums therefor shall be paid by the Company. Employee
agrees to cooperate with the reasonable requirements of the Company and/or its
insurance carriers as necessary to obtain such insurance, including submitting
to any and all necessary medical examinations.
20. Invalid Provision. The invalidity or unenforceability of a
-----------------
particular provision of this Agreement shall not effect the other provisions
hereto, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
21. Costs of Enforcement. In the event either party initiates action
--------------------
to enforce his, her or its rights hereunder, the substantially prevailing party
shall recover from the substantially non-prevailing party its reasonable
expenses, court costs, including taxed and untaxed costs, and reasonable
attorneys' fees, whether suit be brought or not (jointly referred as to
"Expenses"). As used herein, Expenses include expenses incurred in any appellate
or bankruptcy proceeding. All such Expenses shall bear interest at the highest
rate allowable under the laws of the State of Virginia from the date the
substantially prevailing party pays such Expenses until the date the
substantially non-prevailing party repays such Expenses. Expenses incurred in
enforcing this paragraph shall be covered by this paragraph. For this purpose,
the court is requested by the parties to award actual costs and attorneys' fees
incurred by the substantially prevailing party, it being the manifest intention
of the parties that the substantially prevailing party be completely reimbursed
for all such costs and fees. The parties request that inquiry by the court as to
the fees and costs shall be limited to a review of whether the fees charged and
hourly rates for such fees are consistent with the fees and hourly rates
routinely charged by the attorneys for the substantially prevailing party.
9
<PAGE>
22. Assignment. This Agreement shall be construed as a contract for
----------
personal services by Employee to the Company and shall not be assignable by
Employee.
23. Strict Construction. This Agreement was the joint, negotiated
-------------------
product of the parties. Therefore, neither party shall advance a position that
any provision hereof should be more strictly construed against the other party
on the basis that such other party prepared such provision.
24. Cumulative Rights. Unless otherwise provided herein, all rights,
-----------------
powers and privileges conferred upon the parties by law, this Agreement or
otherwise shall be cumulative.
25. Waiver. No failure of any party to exercise any power given such
------
party hereunder or to insist upon strict compliance by any party with its
obligations hereunder, and no custom or practice of the parties in variance with
the terms hereof shall constitute a waiver of the parties' right to demand exact
compliance with the terms hereof.
26. Survival. The provisions of this Agreement shall continue and
--------
survive the closing hereof unless or until there is a completion and fulfillment
of all the conditions, covenants and warranties herein.
27. Time. Time is of the essence of this
----
Agreement.
28. Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand or when mailed by certified registered
mail, return receipt requested, with postage prepaid to the parties' current
addresses or to such other addresses as the parties request in writing.
29. Singular/Plural Feminine/Masculine, Successors or Assigns. All
---------------------------------------------------------
references as used herein shall include male and female, singular and plural,
and successors or assigns in the use of a corporation, partnership, individual
or entity in any place or places herein in which the context may require or
permit such substitution, substitutions or designations.
DELIBERATELY LEFT BLANK
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first written above.
Witnesses: /s/ Curtis M. Shepherd
-----------------------------------
Curtis M. Shepherd
/s/ Kathy Jacobs
- ------------------------------
Print Name: Kathy Jacobs Date: June 13, 1996
------------------- -----------------------------
St. Anthony Publishing, Inc.
Witness:
/s/ Kathy Jacobs By: /s/
- ------------------------------ -------------------------------
Print Name: Kathy Jacobs Its:
------------------- ------------------------------
"COMPANY"
11
<PAGE>
EXHIBIT 10.9
EXHIBIT A
ST. ANTHONY PUBLISHING, INC.
NON-QUALIFIED STOCK APPRECIATION RIGHTS PLAN
FOR KEY EMPLOYEES
As of January 1, 1990, St. Anthony Publishing, Inc. hereby establishes
a Stock Appreciation Rights Plan for its Key Employees.
1. Purpose of Plan. The Non-Qualified Stock Appreciation Rights Plan
---------------
for Key Employees ("Plan") created hereby is intended to advance the interest of
St. Anthony Publishing, Inc. a Delaware Corporation ("Company"),by encouraging
and enabling selected key employees upon whose judgment and initiative the
Company is dependent for the successful conduct of its business, to acquire an
interest in the Company by ownership of the Units granted under the Plan
("Units).
2. Administration of Plan. The Plan shall be administered by the Board
----------------------
of Directors of the Company ("Board"), which shall consist of Eugene W. Lorenz,
Richard C. Henry and a third person mutually agreeable to them. Currently, such
third person is Ronald D. West, Esq. The Board shall have full and final
authority in its discretion, subject to the provisions of the Plan, to determine
the individuals to whom and the time or times at which Units shall be granted,
to construe and interpret the Plan, and to make all other determinations and
take all other actions deemed necessary or advisable for the proper
administration of the Plan. All Such
<PAGE>
actions and determinations shall be conclusively binding for all purposes and
upon all persons.
3. Eligibility. The Board shall, from time to time, determine the key
-----------
employees of the Company who shall be granted Units under the Plan
("Participants"). A Participant may be granted an additional Unit or Units if
the Board shall so determine. The granting of a Unit shall not effect any
outstanding Unit previously granted to a Participant under the Plan.
4. Units Subject to the Plan. The aggregate number of Units which may be
-------------------------
issued under the Plan is Two Thousand Five Hundred (2500).
5. Stock Appreciation Rights.
-------------------------
(a) A stock appreciation right is the right of the holder of each Unit to
receive, as additional compensation for services rendered to the Company,
payments based upon the appreciation in the value of the Company after the date
of grant of such Unit. The value of each Unit shall be one one-hundreth of one
percent (0.01%) of the excess of the Fair Market Value of the Company over the
Base Value of the Company as established by the Board for the year in which the
Unit is issued. This excess shall be referred to as the "Appreciation Value."
If all Two Thousand Five Hundred (2,500) Units are issued, the Participants
shall collectively be entitled to twenty percent (20%) of the Appreciation Value
of the Company. For Units issued effective January 1, 1990, the Base Value of
-2-
<PAGE>
the Company shall be Forty Million ($40,000,000.00) Dollars. The Base Value of
the Company subsequent to that date shall be as set forth in the most recent
Base Value Certificate executed by the Company and the Principal Shareholders
prior to the date of issuance of the Units. The first $40 million of proceeds
of principal payments received upon a sale of the Company shall be distributed
or paid to Eugene Lorenz and Richard Henry.
(b) The Base Value of the Company shall be reduced One Dollar ($1.00) for
each One Dollar ($1.00) of cash and the fair market value of property (i)
distributed by the Company to Eugene Lorenz or Richard Henry (collectively,
"Principal Shareholders") in excess of the Company's Accumulated Current
Distributable Cash Profits, or (ii) received by the Principal Shareholders in
exchange for any portion of their stock in the Company.
The intent of this paragraph 5(b) is to provide a mechanism for adjustment
of the values used in determining payments due to the Participants in the event
that the Principal Shareholders (i) sell off less than all of the stock of the
Company, or (ii) withdraw cash from the Company in excess of the cumulative cash
profits produced by the Company beginning with the date of grant of the Units.
Cash profits that the Principal Shareholders may withdraw without affecting Base
Value do not include any profits realized on the sale of assets other than in
the ordinary course of business, such as a sale of a newsletter or a group of
newsletter.
<PAGE>
(c) As used in this paragraph, the term "Accumulated Current Distributable
Cash Profits" shall mean the cumulative net profit of the Company as
consistently reflected on the Company's internal financial statements beginning
with the statement for the calendar year 1990, without taking account of gains
or losses realized by the Company in connection with the sale, exchange or
other transfer of assets other than in the ordinary course of business. For
example, the sale by the Company of all of its rights in a particular newsletter
shall not be taken into account in determining Accumulated Current Distributable
Cash Profits. The Company and the Participants acknowledge that such financial
statements reflect publishing income as received (not by the deferred
subscription method) and consulting income as invoiced, and expenses, including
circulation costs, as they are incurred, and that the accounting methods used in
preparing such financial statements may be changed from time to time to take
account of changes in the Company's internal accounting policies and practices.
(d) For example, if a Participant is granted two hundred (200) Units
effective January 1, 1990, he or she would be entitled to receive payments from
the Company upon the occurrence of the events discussed in paragraphs 6 and 8 of
this Plan equal to two percent (0.01 percent per Unit times 200 Units) of the
increase in the value of the Company over $40 million, so that if the Company
were sold for $60 million, the Participant would, subject to the terms hereof,
receive two percent (2%) of $20 million, or $400,000.
-4-
<PAGE>
If, however, prior to the occurrence of an event entitling a Participant to
payments for his or her Units, the Company sold a group of newsletters for $5
million and distributed the proceeds of the sale to the Principal Shareholders
(in addition to distributions to the Principal Shareholders of all of the
Accumulated Current Distributable Cash Profits), the Base Value would be
decreased to $35 million, and, upon the subsequent sale of the Company for $60
million, the Participant would be entitled to receive two percent (2%) of $25
million, or $500,000.
6. Payment Upon Retirement, Disability, Death or Involuntary Termination.
---------------------------------------------------------------------
(a) In the event a Participant becomes Disabled, retires from the Company
after attaining the then current retirement age of the Company as determined by
the Board ("Normal Retirement"), dies, or is involuntarily terminated by the
Company other than for Cause, the Company shall pay to such Participant or his
or her estate, an amount equal to the Applicable Fraction (as defined in
paragraph 6(d)) of the Appreciation Value of the Units of such Participant. The
Appreciation Value is the excess of the current Fair Market Value of the Company
over the Base Value at the time the Units were issued to the Participant. Such
amount shall be payable pursuant to the provisions of paragraph 6(b). For
example, assume that a Participant who is granted 100 Units effective January 1,
1990 is terminated by the Company other than for
-5-
<PAGE>
Cause effective February 1, 1993. If the Fair Market Value of the Company at
such date were $100 million, and the Base Value at such time remained at $40
Million. Appreciation Value would be $60 million, and the Participant's estate
would be entitled to receive a payment equal to 1% x 3/7 x $60 million, or
$257,142.
(b) in the event that payments are due to a Participant pursuant to
paragraph 6(a) (i.e. as a result of his or her death, Disability, Normal
Retirement or involuntary termination of employment other than for Cause), such
payments shall be made as follows:
(i) Ten percent (10%) of the Appreciation Value shall be paid to the
Participant, or his or her estate, within sixty (60) days of Participant's
Disability, Normal Retirement, termination of employment other than for
Cause or the appointment of a personal representative of the Participant's
estate, whichever applicable.
(ii) The remaining Appreciation Value of the Units of such Participant
shall be paid in one hundred twenty (120) equal monthly payments of
principal, together with interest on the unpaid principal balance at ten
percent (10%) per annum, with the first payment due thirty (30) days after
the date of the down payment pursuant to paragraph 6(b)(i).
-6-
<PAGE>
(iii) In the event that a Participant becomes entitled to
payments pursuant to this paragraph 6, such Participant shall not be
entitled to any payments pursuant to any other provision of this Plan,
and his or her Units shall be deemed cancelled.
(c) For purposes of determining Appreciation Value in the event that
payments are required to be made pursuant to this paragraph 6, the Fair Market
Value of the Company shall be the value of the Company as set forth in the most
recently executed Certificate of Value as of the date of the Participant's
death, onset of Disability Normal Retirement or involuntary termination of
employment other than for Cause.
(d) For purposes of this Plan, the terms set forth below shall be
defined as follows:
(i) A Participant shall be deemed "Disabled" or under a
"Disability" when a duly qualified physician appointed by the Company certifies
that the Participant is unable to perform the normal and regular duties of his
or her employment with the Company on a substantially full-time basis by reason
of any physical or mental impairment, provided that such disability has extended
for a continuous period of at least twelve (12) months prior to such
certification, which period shall not be deemed interrupted by a return to work
for less than sixty (60) consecutive days.
-7-
<PAGE>
(ii) "Termination Without Cause" of a Participant prior to a Sale of
the Company shall mean the termination by the Company of the Participant's
employment with the Company without Cause. For purposes of this paragraph
6(d)(ii), "Cause" shall mean the failure of an employee to perform the
duties reasonably assigned him or her by the Board in an efficient and
competent manner, repeated unexcused absence from work, the commission of
an act of insubordination in connection with employment with the Company
or the commission of an act involving moral turpitude or indictable as a
felony.
(iii) Applicable Fraction shall mean one-seventh (1/7) multiplied by
the number of complete years that have elapsed after the date of the grant
of Units with respect to a Participant as of the earlier of the date of
death, onset of disability, Normal Retirement or Termination Without Cause.
7. Termination of Employment for Cause or Voluntary Termination. In the
-------------------------------------------------------------
event that a Participant's employment with the Company is terminated for Cause,
or if the Participant terminates his or her employment with the Company for any
reason other than death, Disability or Normal Retirement, all Units held by such
Participant shall lapse and be of no further force and effect, and the Employee
shall be entitled to no payments with respect to such Units.
-8-
<PAGE>
8. Payments Upon a Sale of the Company.
-----------------------------------
(a) The Principal Shareholders agree that in the event of a Sale of the
Company, they will reserve and set aside, or cause the Company to reserve and
set aside, the aggregate of the Appreciation Value for all Units issued under
the Plan for which payments are required to be made pursuant to this paragraph
8. For purposes of this Plan, "Sale of the Company" shall include either:
(i) the sale or other disposition by the Company to a third party of all or any
portion of the Company's assets other than in the ordinary course of business
("Sale of Assets"); or (ii) the sale, transfer or other disposition (other than
by gift or testamentary transfer) by the Principal Shareholders of any portion
of the Company's issued and outstanding capital stock ("Sale of Stock").
(b) After the Principal Shareholders have received principal payments
equal to the then applicable Base Value, the Company (or the Principal
Shareholders) shall reserve and set aside one one-hundredth of one percent
(0.01%) of each other cash payment of principal received from the sale of the
Company with respect to each Unit then outstanding. A Participant entitled to
payments under paragraph 6 shall not be entitled to additional Appreciation
Value resulting from a Sale of the Company. The Principal Shareholders shall be
entitled to receive the balance of each such payment. Each Participant shall
have as his or her unvested interest in the amount so
-9-
<PAGE>
reserved and set aside a percentage, the numerator of which is the total number
of Units owned by the Participant, and the denominator of which is the total
number of Units with respect to which payments are made pursuant to this
paragraph 8. In the event of a Sale of the Company calling for payments to be
made other than by cash in full at settlement, the Principal Shareholders shall
be entitled to receive the Base Value plus interest at the rate of ten percent
(10%) per annum in addition to the principal payments required hereunder, before
any amount shall be payable to or set aside for the Participants.
(c) The interest of each Participant in the amount reserved as set
aside under paragraph 8(b) shall vest upon the earliest to occur of: (i) when he
or she renders to the Company or the purchaser of the Company's business
("Purchaser") or an entity created or existing to manage the Purchaser's
business ("Management Entity"), for a period of three (3) years after a Change
in the Control of the Company (as defined in paragraph 8(g)), services
substantially the same as those rendered to the Company by such Participant
prior to such closing; (ii) when he or she dies, becomes Disabled, is Terminated
Without Cause (as defined in paragraph 8(h)) or retires after attaining the then
current retirement age of the Company, the Purchaser or the Management Entity,
as the case may be, on any date subsequent to the Change of Control; or (iii)
the time set forth in the notice of grant of Units with respect to such
Participant. Upon vesting, a Participant's interest in the amount reserved.
-10-
<PAGE>
and set aside shall be distributed immediately to such Participant or his or her
estate.
In the event a Participant's interest does not vest because he or she
either voluntarily terminates his or her employment with the Company, the
Purchaser or a Management Entity (other than as a result of death or
Disability), or the participant is Terminated for Cause, within the above
mentioned three (3) year period, such Participant shall have no further interest
in the company, the Units or the amount so reserved and set aside with respect
to his or her Units and his or her interest in the amount so reserved and set
aside shall be distributed immediately to the Principal Shareholders.
(d) For purposed of determining Appreciation Value in the event that
payments are required to be made pursuant to this paragraph 8, the Fair Market
Value of the Company shall be deemed to be the aggregate net proceeds (excluding
interest payments) received by the Company (in the case of a Sale of Assets) or
the Principal Shareholders (in the case of a Sale of Stock) for such assets or
stock, reduced by all expenses and liabilities of the Company (in the case of a
Sale of Assets) not assumed by the Purchaser and such other liabilities and
expenses the Purchaser requires the Principal Shareholders to pay.
In the case of a sales or exchange of less than all of the issued and
outstanding capital stock of the Company, Appreciation Value shall be determined
by multiplying the then
-11-
<PAGE>
applicable Base Value by a percentage, the numerator of which shall be the
number of shares of the Company's stock sold or exchanged, and the denominator
of which shall be the total number of shares of the Company's stock issued and
outstanding immediately before such sale or exchange. The Base Value for all
future transactions shall be equal to the Base Value prior to the Sale of the
Company, less the reduction in Base Value attributable to the partial sale. In
the event of a subsequent sale or exchange of the capital stock of the Company
held by the Principal Shareholders, or of a sale of all or substantially all of
the assets of the Company, the Participants shall be entitled (subject to the
provisions of this Paragraph 8) to additional payments, but only to the extent
attributable their percentage ownership interest immediately prior to such
subsequent sale or exchange.
For example, if the Principal Shareholders were to sell 70,000 of the
100,000 issued and outstanding shares of capital stock of the Company for an
amount yielding net proceeds of $70 million, and if the Base Value as of the
date of the transaction was $40 million, the Base Value payments to the
Principal Shareholder would be $28 million ($40 million x 70,000/100,000), the
Appreciation Value at such time would be $42 million ($70 million minus $28
million). The remaining Base Value to be applied to future transactions would
be adjusted to $12 million ($40 million original Base Value less $28 million
applied in the Sale of the Company.) If the
-12-
<PAGE>
Principal Shareholders subsequently sold the remaining 30% of the capital stock
for $50 million, the Participants would be entitled to payments based upon
additional Appreciation Value of $38 million ($50 million minus $12 million.)
If, however, instead of a sale of the remaining thirty percent (30%) of the
capital stock, the Company were to sell all or substantially all of its assets,
the Participants would be entitled to payments based upon thirty percent (30%)
of the net proceeds received with respect to such assets. For example, if the
sale price of all of the assets of the Company were $150 million, the
Participants would be entitled to payments based upon an additional Appreciation
Value of $33 million [$45 million (30% x $150 million) of consideration
allocable to the Principal Shareholders, less $12 million of remaining Base
Value.]
(e) The following example illustrates the disposition of payments in the
event of a Sale of the Company which involves deferred or contingent
consideration. Assume that the Company were sold for a total purchase price of
$70 million, but that under the terms of the acquisition $50 million was to be
paid in cash at the closing and the remaining $20 million over the following
three (3) years in equal quarterly installments of principal with interest on
the unpaid balance. If the applicable Base Value at such time were $40 million,
and Two Thousand (2,000) Units were then outstanding, the Principal Shareholders
would receive, in cash, at the closing, $40 million. Two million would be
reserved and set aside for the
-13-
<PAGE>
Participants (2,000 Units x .01% per Unit = 20% x $10 million = $2 million) and
the remaining $8 million would be paid to the Principal Shareholders. Upon
receipt of payments under the deferred payment obligation, twenty percent (20%)
of each payment would be reserved, set aside and paid as set forth in paragraphs
8(b) and 8(c), and the remainder would be paid to the Principal Shareholders. If
for any reason outside the control of the Company or the Principal Shareholders
the full amount of a payment due on a deferred obligation were not received when
due, the Participants would receive only their share based on the amount
actually received, less attorneys fees and other costs incident to collection.
(f) In the event all or a portion of the net proceeds received by the
Company or the Principal Shareholder upon a Sale of the Company is in the form
of marketable securities, the value of such securities for the purpose of
determining the Appreciation Value shall be (i) the last sale price of the
security on the stock exchange on which the security was primarily traded, but
if no securities were traded on such date, then the last previous date on which
the security was so traded, or if none of the above is applicable, the value of
the security as established by an appraiser appointed by the Company in
accordance with generally accepted valuation principles; or (ii) the average of
the bid and asked prices at which the security is traded on the over-the-counter
market, as reported on the National Association of Securities Dealers Automated
Quotation System.
-14-
<PAGE>
(g) "Change of Control" as used herein shall occur as of the date that
the Principal Shareholders, in the aggregate, cease to own at least fifty
percent (50%) of the Company's issued and outstanding capital stock, or the date
of closing of a Sale of Assets comprising all or substantially all of the assets
of the Company.
(h) "Termination Without Cause" of a Participant subsequent to a
Change of Control shall mean the termination of the Participant's employment
with the Company, the Purchaser or an entity created or existing to manage the
Purchaser's business, without Cause. For purposes of this paragraph 8(c),
"Cause" shall mean the conviction of the employee of a crime involving moral
turpitude or chronic and repeated unexcused absences from work.
9. Payments Upon a Public Offering. In the event the Company elects
-------------------------------
to register a class of its equity securities for sale to the public ("Public
Offering"), the Company shall have the option, exercisable at its sole
discretion, to make payments to the Participants in full satisfaction of the
obligations created hereunder, with respect to all Units outstanding as of the
date of the closing of the Public Offering. In the event that the Company makes
payments pursuant to this paragraph 9, the recipients of such payments shall not
be entitled to any payments pursuant to any other provision of the Plan, and
such Participants' Units shall be deemed cancelled.
-15-
<PAGE>
The amount payable with respect to each Unit satisfied pursuant to this
paragraph shall be the Appreciation Value of such Unit. In calculating
Appreciation Value the Fair Market Value of the Company shall equal the price
that the Company's shares are sold in the Public Offering multiplied by the
total number of shares of the Company's issued and outstanding capital stock
after the closing of the offering. The Company shall have the option to make
payments pursuant to this paragraph 9 over a ten (10) year period in accordance
with the provisions of paragraph 6(b) hereof.
10. Insurance. If requested by the Company, a Participant shall submit to
---------
such physical examinations and otherwise take such actions and execute and
deliver such documents as may be reasonably necessary to enable the Company to
obtain life, health or disability insurance on the Participant for the benefit
of the Company. At the election of the Company, such insurance shall be held in
trust.
11. Granting of Units. The granting of a Unit shall take place upon the
-----------------
approval of the Board, the delivery to the Participant of Notice of such grant
and the execution and delivery by the Participant to the Company of an agreement
to be bound by the terms and provisions of this Plan.
12. Issuance of Unit Certificates. Each Participant shall be entitled to
-----------------------------
receive an appropriate Certificate evidencing his or her Unit(s) and referring
to the terms and conditions of this Plan.
-16-
<PAGE>
13. No Claim to Stock Ownership or Employment Rights. No person shall
------------------------------------------------
have any claim or right to be granted Units under this Plan. No Participant
shall be entitled to voting rights, dividends, claims upon liquidation or other
incidents of stock ownership except as otherwise provided in this Plan. Neither
this Plan nor any action taken hereunder shall be construed as giving any
current or future employee of the Company any right to be retained in the employ
of the Company.
14. Tax Withholding. The Company, as appropriate, shall have the right
---------------
to deduct from cash payments made to any Participant, all federal, state or
local taxes required by law to be withheld with respect to such cash payments.
15. Expenses of Plan. The expenses of administering the Plan shall be
----------------
borne by the Company.
16. Reliance on Reports. Each member of the Board shall be fully
-------------------
justified in relying or acting in good faith upon any report made by the
independent public accountants of the Company and upon any other information
furnished in connection with the Plan by any person or persons other than
himself or herself. In no event shall any person who is or shall have been a
member of the Board be liable for any determination made or other action taken
or any omission to act and reliance upon any such report or any action including
the furnishing of information taken or failure to act, if in good faith.
-17-
<PAGE>
17. Indemnification. Each person who is or shall have been a member of
---------------
the Board shall be indemnified and held harmless by the Company against and from
any loss, cost, liability or expense, including attorney's fees, that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit or proceeding to which he or she may be
a party or which he or she may be involved by reason of any action taken in good
faith under the Plan and against and from any and all amounts paid by him or her
in settlement thereof, with the Company's approval, or paid by him or her in
satisfaction of judgment in any action, suit or proceeding against him or her,
provided he or she shall give the Company an opportunity, at its own expense,
to handle and defend the same before he or she undertakes to handle and defend
it on his or her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such person may be
entitled under the Company's Article of Incorporation or Bylaws, as a matter of
law or otherwise, or any power that the Company may have to indemnify them or
hold them harmless.
18. Effective Date of the Plan. The effective date of the Plan shall be
--------------------------
January 1, 1990.
19. Amendments or Termination of the Plan:
-------------------------------------
Variances. All provisions of the Plan (including the form of the Unit
- ---------
certificate(s)) may at any time, or from time to time, be terminated, modified
or amended by the Board; provided
-18-
<PAGE>
however, that no Unit at any time outstanding under the Plan, may be cancelled
or modified in a manner detrimental to a Participant without the consent of such
Participant.
20. Non-Transferability of Units. No Unit shall be transferable or
----------------------------
assignable, voluntarily or involuntarily, by a Participant under any
circumstances whatsoever including by operation of law or in accordance with the
laws of descent and distribution. No Unit shall be pledged or hypothecated in
any way and no Unit shall be subject to execution, attachment or similar
process. Any such prohibited transfer, assignment, pledge or hypothecation,
shall be null and void and shall entitled the Company, at the discretion of the
Board, to purchase all Unit(s) owned by such Participant for a price equal to
One Dollar ($1.00) per Unit.
21. Federal Income Tax Consequences of Unit Issuance and Ownership. Units
--------------------------------------------------------------
granted under the Plan are intended by the Company to be a form of unfunded
deferred compensation to the Participant, and shall not constitute "property" as
that term is used in Internal Revenue Code Section 83 or the regulations
promulgated thereunder. As such, the Company understands that, upon grant of
Units to Participants, the Company will not be entitled to any tax deduction and
the Participants will not be required to recognize any income. At the time that
payments are made to Participants pursuant to this Plan, the Company understands
that it will be entitled to deduct the payments made to the Participants as
compensation
-19-
<PAGE>
for services rendered, and that the Participants will be required to recognize
compensation, taxable as ordinary income and subject to normal tax withholding
requirements. Participants are encouraged to consult their own tax advisors with
regard to proper reporting of the tax consequences of their rights under this
Plan.
22. Notices. Any notice required or permitted hereunder shall be deemed
-------
validly given if delivered by hand, facsimile transmission or by certified mail,
return receipt requested, to the Company at its principal place of business and
to each Participant at the address of his or her principal residence as the same
shall appear in the books and records of the Company.
23. Gender. Where the context so requires, the masculine gender shall be
------
construed to include the feminine and/or neuter and vice versa, and the singular
shall be construed to include the plural and the plural the singular.
24. Invalid Provision. In the event that any term of the Plan shall be held
-----------------
invalid, illegal or unenforceable, in whole or in part, neither the validity of
the remaining part of such term nor the validity of the remaining terms of the
Plan shall in any way be affected thereby.
25. Governing Law. The plan shall be interpreted, construed, and enforced
-------------
in accordance with the laws of the Commonwealth of Virginia, notwithstanding
that state's choice of law principles and statutes.
-20-
<PAGE>
26. Entire Agreement. This writing constitutes the entire Non-Qualified
----------------
Stock Appreciation Rights Plan for Key Employees of the Company, and any other
representation, inducement, promise or agreement, whether oral or written, which
pertains to the Plan or the rights granted herein and not embodied herein shall
be of no force and effect.
27. Binding Effect. The provisions of this Plan shall be binding upon and
--------------
inure to the benefit of the Company and its successors and assigns and to the
Participants and their heirs and personal representative.
IN WITNESS WHEREOF, St. Anthony Publishing, Inc. has caused this instrument
to be executed in its name and on its behalf this 9th day of April, 1996.
ATTEST: St. Anthony Publishing, Inc.,
a Delaware Corporation
/s/ signature appears here By: /s/ Richard C. Henry, PRESIDENT
- ---------------------------------- -----------------------------------
Secretary Richard C. Henry, President
WITNESS:
/s/ signature appears here /s/ Richard C. Henry
- ---------------------------------- ------------------------------------
Richard C. Henry
/s/ signature appears here /s/ Eugene W. Lorenz
- ---------------------------------- ------------------------------------
Eugene W. Lorenz
-21-
<PAGE>
Exhibit 21
<TABLE>
<CAPTION>
Subsidiaries of the Registrant
------------------------------
Name under which
Subsidiary Jurisdiction Subsidiary does business
- ---------- ------------ ------------------------
<S> <C> <C>
St. Anthony Publishing, Inc. Delaware - St. Anthony Publishing
- Center for Healthcare
Industry Performance Studies
- CHIPS
St. Anthony Healthcare Resource Group, Inc. Delaware ST. Anthony Consulting Group
St. Anthony Outsourcing, Inc. Delaware
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We have issued our reports dated June 10, 1996, accompanying the
consolidated financial statements of NexUS Healthcare Information Corporation
and Subsidiaries and the accompanying schedule, and the financial statements
of The Center for Healthcare Industry Performance Studies, included in this
Registration Statement. We consent to the use of the aforementioned reports in
this Registration Statement and the related Prospectus and to the use of our
name as it appears under the caption "Experts."
Grant Thornton LLP
June 20, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<CASH> 163,767
<SECURITIES> 0
<RECEIVABLES> 8,999,047
<ALLOWANCES> 770,592
<INVENTORY> 1,614,852
<CURRENT-ASSETS> 10,334,681
<PP&E> 5,013,394
<DEPRECIATION> 2,567,039
<TOTAL-ASSETS> 18,684,618
<CURRENT-LIABILITIES> 11,283,224
<BONDS> 9,988,908
0
0
<COMMON> 76,821
<OTHER-SE> 4,703,375
<TOTAL-LIABILITY-AND-EQUITY> 18,684,618
<SALES> 40,729,625
<TOTAL-REVENUES> 40,729,625
<CGS> 16,623,596
<TOTAL-COSTS> 37,055,823
<OTHER-EXPENSES> 990,391
<LOSS-PROVISION> 187,000
<INTEREST-EXPENSE> 915,391
<INCOME-PRETAX> 2,683,411
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,683,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,683,411
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
