<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
ECLIPSYS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 65-0632092
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
777 EAST ATLANTIC AVENUE
SUITE 200
DELRAY BEACH, FLORIDA 33483
(561) 243-1440
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
HARVEY J. WILSON
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ECLIPSYS CORPORATION
777 EAST ATLANTIC AVENUE
SUITE 200
DELRAY BEACH, FLORIDA 33483
(561) 243-1440
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
JOHN A. BURGESS, ESQ.
BRENT B. SILER, ESQ. DEANNA L. KIRKPATRICK, ESQ.
HALE AND DORR LLP DAVIS POLK & WARDWELL
1455 PENNSYLVANIA AVENUE, N.W. 450 LEXINGTON AVENUE
WASHINGTON, D.C. 20004 NEW YORK, NEW YORK 10017
TELEPHONE: (202) 942-8400 TELEPHONE: (212) 450-4000
TELECOPY: (202) 942-8484 TELECOPY: (212) 450-4800
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date hereof.
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,
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 this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
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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<CAPTION>
=================================================================================================================
Title of each Class of Proposed Maximum Amount of
Securities to be Registered Aggregate Offering Price(1)(2) Registration Fee
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share............... $100,000,000 $29,500
=================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
as amended.
(2) Includes shares to be purchased pursuant to the U.S. Underwriters'
over-allotment option.
------------------------
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.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in connection with a concurrent international
offering outside the United States and Canada (the "International Prospectus").
The U.S. Prospectus and the International Prospectus will be identical in all
respects except for the front cover pages. The form of the U.S. Prospectus is
included herein and the form of the front cover page of the International
Prospectus follows the front cover page of the U.S. Prospectus.
<PAGE> 3
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.
PROSPECTUS (Subject To Completion)
Issued April 23, 1998
Shares
[LOGO]
Eclipsys Corporation
COMMON STOCK
------------------------
OF THE SHARES OF COMMON STOCK BEING OFFERED, SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND
SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." OF THE SHARES OF COMMON
STOCK BEING OFFERED HEREBY, SHARES ARE BEING SOLD BY THE COMPANY AND
SHARES ARE BEING SOLD BY THE SELLING STOCKHOLDER. THE COMPANY WILL NOT
RECEIVE ANY PROCEEDS FROM THE SALE OF SHARES BY THE SELLING STOCKHOLDER. SEE
"PRINCIPAL AND SELLING STOCKHOLDERS." PRIOR TO THIS OFFERING, THERE HAS BEEN NO
PUBLIC MARKET FOR THE COMMON STOCK. IT IS CURRENTLY ESTIMATED THAT THE INITIAL
PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $ AND $ . SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING
THE INITIAL PUBLIC OFFERING PRICE.
------------------------
APPLICATION WILL BE MADE FOR QUOTATION OF THE COMMON STOCK ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "ECLP."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2) SELLING STOCKHOLDER
-------- -------------- ----------- -------------------
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
Total (3).................... $ $ $ $
</TABLE>
- ------------
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses of the Offering payable by the Company,
estimated at $ .
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional Shares at the price to public less underwriting
discounts and commissions, for the purpose of covering over-allotments,
if any. If the U.S. Underwriters exercise such option in full, the
total price to public, underwriting discounts and commissions and
proceeds to Company will be $ , $ and $ , respectively. See
"Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1998 at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
BANCAMERICA ROBERTSON STEPHENS
LEHMAN BROTHERS
SALOMON SMITH BARNEY
, 1998
<PAGE> 4
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.
PROSPECTUS (Subject To Completion) [INTERNATIONAL COVER PAGE]
Issued April 23, 1998
Shares
[LOGO]
Eclipsys Corporation
COMMON STOCK
------------------------
OF THE SHARES OF COMMON STOCK BEING OFFERED, SHARES ARE BEING
OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS AND SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND
CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." OF THE SHARES OF COMMON
STOCK BEING OFFERED HEREBY, SHARES ARE BEING SOLD BY THE COMPANY AND
SHARES ARE BEING SOLD BY THE SELLING STOCKHOLDER. THE COMPANY WILL NOT RECEIVE
ANY PROCEEDS FROM THE SALE OF SHARES BY THE SELLING STOCKHOLDER. SEE "PRINCIPAL
AND SELLING STOCKHOLDERS." PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMMON STOCK. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC
OFFERING PRICE PER SHARE WILL BE BETWEEN $ AND $ . SEE "UNDERWRITERS" FOR
A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC
OFFERING PRICE.
------------------------
APPLICATION WILL BE MADE FOR QUOTATION OF THE COMMON STOCK ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "ECLP."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2) SELLING STOCKHOLDER
-------- -------------- ----------- -------------------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
Total (3)........................ $ $ $ $
</TABLE>
- ------------
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses of the Offering payable by the Company,
estimated at $ .
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional Shares at the price to public less underwriting
discounts and commissions, for the purpose of covering over-allotments,
if any. If the U.S. Underwriters exercise such option in full, the
total price to public, underwriting discounts and commissions and
proceeds to Company will be $ , $ and $ , respectively. See
"Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1998 at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
BA ROBERTSON STEPHENS INTERNATIONAL LIMITED
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
SALOMON SMITH BARNEY INTERNATIONAL
, 1998
<PAGE> 5
[GRAPHIC TO BE FILED BY AMENDMENT]
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE> 6
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY THE SELLING STOCKHOLDER OR BY ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
FOR INVESTORS OUTSIDE THE UNITED STATES: No action has been or will be
taken in any jurisdiction by the Company, by the Selling Stockholder or by any
Underwriter that would permit a public offering of the Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by the Company, the Selling
Stockholder and the Underwriters to inform themselves about and to observe any
restrictions as to the offering of the Common Stock and the distribution of this
Prospectus.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary..................... 4
Risk Factors........................... 10
The Company............................ 18
Use of Proceeds........................ 20
Dividend Policy........................ 20
Capitalization......................... 21
Dilution............................... 22
Unaudited Pro Forma Financial
Information.......................... 23
Selected Consolidated Financial Data... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 29
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business............................... 36
Management............................. 47
Certain Transactions................... 54
Principal and Selling Stockholders..... 56
Description of Capital Stock........... 58
Shares Eligible for Future Sale........ 61
Underwriters........................... 63
Legal Matters.......................... 66
Experts................................ 66
Additional Information................. 67
Index to Financial Statements.......... F-1
</TABLE>
------------------------
Unless the context otherwise requires, references to the "Company" mean
Eclipsys Corporation and its direct and indirect subsidiaries, including its
predecessor, Alltel Healthcare Information Services, Inc.
------------------------
The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements examined by an independent
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing interim unaudited consolidated financial information.
------------------------
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED HEREIN UNDER "PROSPECTUS SUMMARY," "RISK
FACTORS," "THE COMPANY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," INCLUDING, WITHOUT
LIMITATION, THOSE CONCERNING THE COMPANY'S STRATEGY, THE COMPANY'S PRODUCTS AND
THE COMPANY'S EXPANSION PLANS, CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS
CONCERNING THE COMPANY'S OPERATIONS, ECONOMIC PERFORMANCE AND FINANCIAL
CONDITION. BECAUSE SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK FACTORS."
3
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," "Unaudited Pro Forma Financial
Information" and the Company's Consolidated Financial Statements and the Notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information contained in this Prospectus (i) reflects the redemption of all
outstanding shares of the Company's Series B and Series C 8.5% Cumulative
Redeemable Preferred Stock (the "Redeemable Preferred Stock") using a portion of
the net proceeds of the Offering (the "Preferred Stock Redemption") and the
conversion of all outstanding shares of the Company's Series D, E, F and G
Convertible Preferred Stock (the "Convertible Preferred Stock" and, together
with the Redeemable Preferred Stock, the "Preferred Stock") into an aggregate of
15,049,967 shares of Common Stock, par value $.01 per share (the "Common
Stock"), and Non-Voting Common Stock, par value $.01 per share (the "Non-Voting
Common Stock"), as applicable (the "Preferred Stock Conversion"), both of which
will occur concurrently with the closing of the Offering pursuant to the terms
of the Preferred Stock; (ii) treats all shares of the Company's Non-Voting
Common Stock, which are convertible at any time, subject to certain limitations,
into shares of Common Stock, as if they had been so converted; and (iii) assumes
no exercise of the Underwriters' over-allotment option. See "Description of
Capital Stock" and "Underwriters."
THE COMPANY
Eclipsys is a healthcare information technology company delivering
solutions that enable healthcare providers to achieve improved clinical,
financial and administrative outcomes. The Company offers an integrated suite of
core products in four critical areas -- clinical management, access management,
patient financial management and enterprise data warehouse and analysis. These
products can be purchased in combination to provide an enterprise-wide solution
or individually to address specific needs. The Company's products have been
designed specifically to deliver a measurable impact on outcomes, enabling the
Company's customers to quantify clinical benefits and return on investment in a
precise and timely manner. The Company's products can be integrated with a
customer's existing information systems, which the Company believes reduces
overall cost of ownership and increases the attractiveness of the Company's
products. Eclipsys also provides outsourcing, remote processing and networking
services to assist customers in meeting their healthcare information technology
requirements. The Company was formed in December 1995 and has grown primarily
through its three acquisitions, all completed since January 1997. These
acquisitions, together with internally generated growth, have resulted in total
revenues of $126.5 million in 1997 on the pro forma basis described herein.
The Company markets its products primarily to large hospitals, academic
medical centers and integrated healthcare delivery networks. As of March 31,
1998, Eclipsys had one or more of its products installed or being installed in
over 350 facilities, including large hospitals, academic medical centers and
integrated healthcare delivery networks. To provide direct and sustained
customer contact, the Company maintains decentralized sales, implementation and
customer support teams in each of its five North American regions. The Company's
field sales force has an average of 18 years of experience in the healthcare
industry.
The Company believes that its products and services, focus on physicians'
needs, leading technology, strategic relationships, management team and
well-positioned customer base are competitive strengths that will enable it to
capitalize on continued opportunities for growth.
- Comprehensive Product Offering. The Company's product strategy has
been to acquire or develop industry-leading products in each core
area -- clinical management, access management, patient financial
management and enterprise data warehouse and analysis -- and then
integrate them to provide a comprehensive healthcare information
technology solution.
- Physician-Oriented Products. The Company's clinical products are
designed to reflect and support the way physicians work, and include
features such as alerts, reminders, just-in-time clinical decision
support, sub-second response times, an intuitive graphical user
interface, continuous event monitoring and a customizable rules and
protocol engine.
4
<PAGE> 8
- Leading Technology. The Company has recently announced the
development of, and has commenced migrating its products to, its new
structured object layered architecture ("SOLA"), which is designed to
facilitate the integration of the Company's products with its
customers' existing systems, as well as with future products developed
or acquired by the Company.
- Strategic Relationships. One of the Company's important strategic
relationships is with Partners HealthCare System, Inc. ("Partners"),
including two of its hospital subsidiaries, Brigham and Women's
Hospital ("Brigham") and Massachusetts General Hospital ("MGH"). This
relationship provides intensive physician-driven research and
development and testing for new and existing products in a forum that
provides feedback from medical and administrative users.
- Proven Management Team with Successful Track Record. The Company's
senior management team averages over 22 years in the healthcare and
information technology industries and includes four former chief
executive officers. Harvey J. Wilson, the Chairman of the Board,
President and Chief Executive Officer of the Company, was a co-founder
of Shared Medical Systems Corporation ("SMS"). Upon completion of the
Offering, the senior management team will beneficially own % of the
outstanding Common Stock.
- Well-positioned Customer Base. Eclipsys' customers include large
hospitals, integrated healthcare delivery networks and academic
medical centers. The Company believes that these entities are
generally the first to adopt new technology and are the drivers of
industry consolidation. At December 31, 1997, the Company had a
backlog of approximately $108 million.
INDUSTRY
In recent years, the healthcare industry has undergone, and continues to
undergo, radical and rapid change. The increasing cost of providing healthcare
has caused the provider reimbursement environment to shift from the indemnity
model, characterized by fee-for-service arrangements and traditional indemnity
insurance, to the managed-care model, in which providers are aligned within
networks and healthcare delivery must follow plan-established rules to qualify
for reimbursement. As a result, the emphasis of healthcare providers has shifted
from providing care regardless of cost to providing high-quality care in the
most cost-effective manner possible. The pressures to achieve successful
clinical outcomes more efficiently while managing costs more effectively have
led to significant industry consolidation, resulting in the development of large
integrated healthcare delivery networks.
As these integrated healthcare delivery networks grow larger and more
dispersed, the challenge of effectively managing and delivering information
throughout the enterprise also increases. Healthcare providers are increasingly
demanding integrated solutions that offer all of the core functions -- clinical
management, access management and patient financial management -- required to
manage the entire healthcare delivery process. In addition, large and widely
spread healthcare delivery networks require data warehouse and analysis tools
that permit them to effectively extract and analyze data located throughout the
enterprise. Finally, in order to improve clinical outcomes, physicians seek
solutions they can use in their daily practice, with features such as sub-second
response times, alerts, reminders, just-in-time clinical decision support and an
intuitive graphical user interface.
The Company believes that healthcare providers are realizing that a
relatively small investment in healthcare information technology can
significantly reduce variable costs. As a result of industry trends, healthcare
providers are making significant investments in healthcare information
technology solutions that capitalize on evolving information management
technologies. Industry analysts estimate that healthcare organizations spent
approximately $17 billion in 1997 for information technology solutions, and
anticipate that such expenditures will increase to approximately $28 billion
annually by 2002.
5
<PAGE> 9
STRATEGY
The Company's objective is to become the leading provider of healthcare
information technology solutions to meet the needs of the healthcare industry as
it consolidates and evolves. Key elements of the Company's strategy to achieve
this objective include:
Provide Comprehensive, Integrated Healthcare Information Technology
Solutions. Eclipsys is focusing on providing a full suite of clinical
management, access management, patient financial management and enterprise data
warehouse and analysis solutions. The Company's products are designed to be
responsive to physicians' needs, outcomes-oriented and user-friendly. The
Company believes that its healthcare information technology solutions facilitate
the clinical and business decision process, enabling its customers to improve
their overall work processes, clinical outcomes and return on investment.
Further Penetrate Existing Customer Base. The Company believes there is a
significant opportunity to sell its integrated healthcare information technology
solutions to its existing customers, only a few of which currently have an
enterprise-wide healthcare information system.
Employ a Targeted Marketing Approach. The Company's target market
primarily includes large hospitals, integrated healthcare delivery networks and
academic medical centers. The Company believes that these entities are generally
the first to adopt new technology and are the drivers of industry consolidation.
The Company also believes that physicians are becoming increasingly involved in
the information technology selection process as recent technological
developments and the impact of managed care have increased the utility of
information systems to physicians. Accordingly, the Company believes that its
clinically oriented, physician-designed products provide it with an advantage as
it competes for this business.
Continue to Enhance and Develop New Solutions. The Company intends to
continue upgrading existing products and developing new solutions to meet the
evolving healthcare information technology needs of its customers. For example,
the Company is currently focusing on migrating its products to its new SOLA
architecture. The Company has a team of more than 300 internal research and
development and technical support professionals dedicated to developing,
enhancing, supporting and commercializing new and enhanced healthcare
information technology products. In addition, the Company's relationship with
Partners allows it to test new and existing products in a forum that provides
feedback from medical and administrative users, which the Company believes gives
it a competitive advantage in developing new products.
Pursue Selected Acquisitions and Investments. The Company intends to
continue pursuing selected acquisitions and investments that will enhance its
product line, customer base, technological capabilities and management team. The
Company believes that such transactions will provide it with the opportunity to
leverage its existing sales, marketing and development teams and offer the
potential to achieve operating synergies across the organization.
------------------------
The Company was organized in Delaware in 1995 as Integrated Healthcare
Solutions, Inc. and changed its name to Eclipsys Corporation in 1997. The
Company's principal office is located at 777 East Atlantic Avenue, Suite 200,
Delray Beach, Florida 33483, and its telephone number is (561) 243-1440.
6
<PAGE> 10
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company............................ shares(1)
The Selling Stockholder................ shares
-------
Total............................... shares(1)
=======
Common Stock offered:
U.S. Offering.......................... shares(1)
International Offering................. shares
-------
Total............................... shares(1)
=======
Common Stock to be outstanding after the
Offering............................... shares(1)(2)
Use of Proceeds.......................... Redemption of Redeemable Preferred Stock,
repayment of debt and working capital and other
general corporate purposes, including potential
acquisitions
Proposed Nasdaq National Market symbol... "ECLP"
</TABLE>
- ---------------
(1) Assumes the U.S. Underwriters' over-allotment option is not exercised. See
"Underwriters."
(2) Excludes (i) an aggregate of 6,500,000 shares of Common Stock reserved for
issuance under the Company's 1996 Stock Plan, 1998 Incentive Stock Plan and
1998 Employee Stock Purchase Plan, of which 3,935,126 shares are subject to
outstanding options at a weighted average exercise price of $7.04 per share
as of April 15, 1998, and (ii) an aggregate of 1,209,125 shares of Common
Stock issuable upon the exercise of warrants (assuming a closing date for
this Offering no later than June 30, 1998). See "Management -- Stock Plans,"
"Description of Capital Stock -- Warrants" and Note 10 of Notes to the
Company's Consolidated Financial Statements.
RISK FACTORS
Prospective purchasers should consider all of the information contained in
this Prospectus before making an investment in shares of Common Stock. In
particular, prospective purchasers should consider the factors set forth herein
under "Risk Factors."
7
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------
PRO FORMA AS
ACTUAL(1) PRO FORMA(2) ADJUSTED(3)
---------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.......................................... $ 94,077 $ 126,524 $ 126,524
---------- ---------- ---------
Costs and expenses:
Cost of revenues(4)................................... 78,287 102,242 102,242
Marketing and sales................................... 13,662 20,893 20,893
Research and development.............................. 15,714 29,312 29,312
General and administrative............................ 5,672 13,956 13,956
Depreciation and amortization(5)...................... 9,134 13,050 13,050
Write-off of in-process research and development(6)... 105,688 105,688 105,688
---------- ---------- ---------
Total costs and expenses...................... 228,157 285,141 285,141
---------- ---------- ---------
Loss from operations.................................... (134,080) (158,617) (158,617)
Interest expense, net................................... 1,154 1,941 --
---------- ---------- ---------
Net loss(7)............................................. (135,234) (160,558) (158,617)
Dividends and accretion on mandatorily redeemable
preferred stock(8).................................... (5,850) (4,761) --
Preferred stock conversion(9)........................... (3,105) (3,105) (3,105)
---------- ---------- ---------
Net loss available to common shareholders............... $ (144,189) $ (168,424) $(161,722)
========== ========== =========
Basic and diluted net loss per common share(10)......... $ (27.28) (23.52)
Weighted average common shares outstanding(10).......... 5,286,271 7,161,273
OTHER DATA:
EBITDA(11).............................................. $ 905 $ (19,312) $ (19,312)
Net cash provided by operating activities............... 1,068
Net cash used in investing activities................... (113,670)
Net cash provided by financing activities............... 112,771
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
---------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(12) ADJUSTED(3)
-------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 4,786 $ -- $ 10,819
Working capital deficit.................................. (31,504) (28,809) (2,928)
Total assets............................................. 102,591 110,211 121,030
Debt, including current portion.......................... 16,588 18,802 --
Mandatorily redeemable preferred stock................... 35,607 28,024 --
Shareholders' equity (deficit)........................... (22,495) (11,781) 45,918
</TABLE>
- ---------------
(1) The Alltel and SDK Acquisitions, described below, were accounted for using
the purchase method of accounting. Accordingly, the actual statement of
operations data reflects the results of operations from these businesses
from their respective acquisition dates. See note 2 below and "The
Company."
(2) Gives effect to the following as if they had occurred on January 1, 1997:
(i) the acquisition, effective January 24, 1997, of ALLTEL Healthcare
Information Services, Inc. ("Alltel"), a wholly owned subsidiary of ALLTEL
Information Services, Inc. ("AIS"), for an aggregate purchase price of
approximately $201.5 million after giving effect to certain purchase price
adjustments (the "Alltel Acquisition"), (ii) the acquisition, effective
June 26, 1997, of SDK Medical Computer Services Corporation ("SDK") for an
aggregate purchase price of $16.5 million (the "SDK Acquisition"),
including the issuance of $7.6 million of subordinated promissory notes
("the SDK Notes"), (iii) the acquisition, effective January 30, 1998, of
the North American operations of Emtek
8
<PAGE> 12
Healthcare Systems ("Emtek"), a division of Motorola, Inc. ("Motorola"),
for an aggregate purchase price of approximately $10.1 million (the "Emtek
Acquisition"), (iv) the renegotiation in the first quarter of 1998 of
certain matters relating to the Alltel Acquisition (the "Alltel
Renegotiation") and (v) the use of the proceeds from the 1998 Preferred
Stock Issuance (as defined below) to repay $9.0 million of borrowings under
the term loan portion of the Company's commercial credit facility (the
"Term Loan"). See "The Company," "Unaudited Pro Forma Financial
Information" and Note 6 of Notes to the Company's Consolidated Financial
Statements. Does not give effect to the buyout in the first quarter of 1998
of the Company's obligation under the Management and Services Agreement
(the "MSA") entered into in connection with the Alltel Acquisition (the
"MSA Buyout"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent Developments."
(3) Adjusted to give effect to (i) the Preferred Stock Conversion and (ii) the
sale by the Company of the shares of Common Stock offered by it at an
assumed initial public offering price of $ per share and the application
of the net proceeds to the Company therefrom as described under "Use of
Proceeds." See "Unaudited Pro Forma Financial Information."
(4) Includes $18.0 million (actual, pro forma and pro forma as adjusted)
amortization expense related to acquired technology as a result of the
Alltel, SDK and Emtek Acquisitions (collectively, the "Acquisitions"). The
acquired technology costs are being amortized annually on a straight line
basis over three to five years or, if greater, based on the ratio that
current revenues bear to total anticipated revenues attributable to the
applicable product.
(5) Includes $2.9 million (actual) and $3.6 million (pro forma and pro forma as
adjusted) amortization expense related to ongoing customer relationships
and goodwill that arose as a result of the Acquisitions. The value of
ongoing customer relationships and goodwill is being amortized over periods
that range from five to twelve years.
(6) In connection with the Alltel and SDK Acquisitions, the Company wrote off
in-process research and development of $98.7 million and $7.0 million,
respectively, reflecting the appraised values of certain in-process
research and development acquired in these acquisitions. See Note 6 of
Notes to the Company's Consolidated Financial Statements.
(7) The Company has not recorded any benefit for income taxes because
management believes, based on the evidence available at December 31, 1997,
it is more likely than not that the Company's net deferred tax assets will
not be realized. Accordingly, the Company has recorded a valuation
allowance against its total net deferred tax assets.
(8) The pro forma amount reflects an adjustment to reduce the dividends and
accretion on mandatorily redeemable preferred stock by $1.1 million
pursuant to the Alltel Renegotiation.
(9) Represents a charge related to the January 1997 conversion of Series A
Convertible Preferred Stock to Series F Convertible Preferred Stock.
(10) See Note 2 of Notes to the Company's Consolidated Financial Statements.
(11) Represents earnings before interest expense, income tax expense,
depreciation and amortization and nonrecurring charges ("EBITDA"). EBITDA
is not a measurement in accordance with generally accepted accounting
principles ("GAAP") and should not be considered an alternative to, or more
meaningful than, income from operations, net income or cash flows as
defined by GAAP or as a measure of the Company's profitability or
liquidity. All registrants do not calculate EBITDA in the same manner and
accordingly, EBITDA may not be comparable with other registrants. The
Company has included information concerning EBITDA herein because
management believes EBITDA provides useful information. The following table
summarizes EBITDA on an actual, pro forma and pro forma as adjusted basis:
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- -----------
<S> <C> <C> <C>
Net Loss.................................................... $(135,234) $ (160,558) $(158,617)
Interest expense............................................ 1,154 1,941 --
Income tax expense.......................................... -- -- --
Depreciation and amortization............................... 29,297 33,617 33,617
Write off of in-process research and development............ 105,688 105,688 105,688
--------- ---------- ---------
EBITDA...................................................... $ 905 $ (19,312) $ (19,312)
========= ========== =========
</TABLE>
(12) Gives effect to the following as if they had occurred on December 31, 1997:
(i) the Emtek Acquisition; (ii) the issuance of 900,000 shares of Series G
Convertible Preferred Stock in February 1998 for total consideration of
$9.0 million (the "1998 Preferred Stock Issuance") and the use of the
proceeds therefrom to repay $9.0 million of borrowings under the Term Loan;
(iii) the scheduled repayment in April 1998 of $3.8 million of principal on
the SDK Notes (the "SDK Partial Repayment"); (iv) the scheduled $2.0
million payment in January 1998 to AIS under the MSA; and (v) the payment
of $14.0 million to AIS (financed partially by a $9.0 million borrowing
under the revolving portion of the Company's commercial credit facility
(the "Revolver"); and (vi) the cancellation of 11,000 shares of Series C
Redeemable Preferred Stock returned by AIS as part of the Alltel
Renegotiation. See "The Company," "Unaudited Pro Forma Financial
Information" and Note 6 of Notes to the Company's Financial Statements.
9
<PAGE> 13
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors.
LIMITED COMBINED OPERATING HISTORY; HISTORY OF OPERATING LOSSES
The Company began operations in 1996 and has grown primarily through a
series of acquisitions completed since January 1997. Accordingly, the Company
and its acquired operations have a limited combined operating history upon which
an evaluation of the Company and its prospects can be based. The success of the
Company will depend, in part, on its ability to integrate the operations of
these acquired businesses and to consolidate its product offerings. There can be
no assurance that the operating results of the Company will meet or exceed the
combined individual operating results achieved by the respective businesses
prior to their acquisition, and consequently the pro forma financial information
contained herein may not be indicative of the Company's future operating results
and financial condition. In addition, the Company's senior management group has
been assembled relatively recently. There can be no assurance that the
management group will be able to oversee the combined entity and implement the
Company's operating or growth strategies effectively. See "The Company."
The Company has incurred net losses in each year since its inception,
including a net loss of approximately $135.2 million during 1997. At December
31, 1997, the Company had a shareholders' deficit of $22.5 million. The
Company's losses have resulted primarily from certain write-offs related to
acquisitions which were consummated during 1997. The Company expects to continue
to incur net losses for the foreseeable future. In addition, the Company expects
to incur certain charges in the first quarter of 1998 related to the Alltel
Renegotiation. There can be no assurance that the Company will achieve
profitability. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
MANAGEMENT OF GROWTH
The growth in the size and complexity of the Company's business as a result
of the Acquisitions has placed, and is expected to continue to place, a
significant strain on the Company's management and other resources. The
Company's ability to compete effectively and to manage future growth, if any,
will depend on its ability to continue to implement and improve operational and
financial systems on a timely basis and to expand, train, motivate and manage
its work force. There can be no assurance that the Company's personnel, systems,
procedures and controls will be adequate to support the Company's operations. If
the Company's management is unable to manage growth effectively, the Company's
business, financial condition and results of operations could be materially
adversely affected.
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS
An important element of the Company's business strategy has been, and is
expected to continue to be, expansion through acquisitions. The Company's
ability to continue to expand through acquisitions depends on many factors,
including the availability of capital to purchase other businesses and to
support such growth, the successful identification and acquisition of businesses
and management's ability to effectively integrate and operate the new
businesses. The Company currently has no commitments, understandings or
arrangements with respect to any future acquisitions. There is significant
competition for acquisition opportunities in the information technology
industry. Competition may intensify due to consolidation in the industry, which
could increase the costs of future acquisitions. The Company competes for
acquisition opportunities with other companies, some of which may have
significantly greater financial and management resources than the Company.
Further, the anticipated benefits from any acquisition may not be achieved
unless the operations of the acquired business are successfully combined with
those of the Company. The integration of acquired businesses requires
substantial attention from management. The diversion of the attention of
management and any difficulties encountered in the transition process could have
a material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
to identify suitable acquisition candidates, acquire any such candidates on
reasonable terms or integrate
10
<PAGE> 14
acquired businesses successfully. Future acquisitions could result in the
issuance of additional shares of capital stock or the incurrence of additional
indebtedness, could entail the payment of consideration in excess of book value
and could have a dilutive effect on the Company's net income per share. Many
business acquisitions must be accounted for under the purchase method of
accounting. Consequently, such acquisitions may generate significant goodwill or
other intangible assets. Consequently, acquisition of these businesses would
typically result in substantial amortization charges to the Company.
Acquisitions could also involve significant charges reflecting write-offs of
acquired in-process research and development. As a result of acquisitions, the
Company recorded amortization expenses for acquisition-related intangible assets
of $23.0 million and wrote off $105.7 million of in-process research and
development in 1997. See "The Company," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" and "Business --
Strategy."
ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL
The Company's success depends, in significant part, upon the continued
services of its key technical, marketing, sales and management personnel and on
its ability to continue to attract, motivate and retain highly qualified
employees. Competition for technical, marketing, sales and management employees
is intense and the process of recruiting personnel with the combination of
skills and attributes required to execute the Company's strategy can be
difficult, time-consuming and expensive. There can be no assurance that the
Company will be successful in attracting or retaining highly skilled technical,
management, sales and marketing personnel. The failure to attract, hire,
assimilate or retain such personnel could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company believes that its ability to implement its strategic goals
depends to a considerable degree on its senior management team. The loss of any
member of that team or, in particular, the loss of Harvey J. Wilson, the
Company's founder, Chairman of the Board, President and Chief Executive Officer,
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company maintains key person life
insurance on Mr. Wilson in the amount of $5.0 million. Although the Company has
entered into an employment agreement with Mr. Wilson, he and all other key
employees may voluntarily terminate their respective employment with the Company
at any time. See "Business -- Employees" and "Management."
POTENTIAL FLUCTUATIONS IN QUARTERLY PERFORMANCE
The Company's revenues and operating results have varied from quarter to
quarter, primarily due to acquisitions. The Company's quarterly operating
results may continue to fluctuate due to a number of factors, including the
timing and size of future acquisitions; the timing, size and nature of the
Company's product sales and implementations; the length of the sales cycle;
implementation efforts; market acceptance of new services, products or product
enhancements by the Company or its competitors; product and price competition;
the relative proportions of revenues derived from systems and services and from
hardware; changes in the Company's operating expenses; personnel changes; the
performance of the Company's products; and fluctuations in economic and
financial market conditions. The timing of revenues from product sales is
difficult to forecast because the Company's sales cycle can vary depending upon
factors such as the size of the transaction, the changing business plans of the
customer, the effectiveness of the customer's management and general economic
conditions. In addition, because revenue is recognized at various points during
the term of a contract, the timing of revenue recognition varies considerably
based on a number of factors, including the type of contract, the availability
of personnel, the implementation schedule and the complexity of the
implementation process. How and when to implement, replace, expand or
substantially modify an information system, or modify or add business processes
or lines of business, are major decisions for healthcare organizations. The
sales cycle for the Company's systems may range from six to eighteen months or
more from initial contact to contract execution. Historically, the Company's
implementation cycle has ranged from twelve to thirty-six months from contract
execution to completion of implementation. Although the Company believes that
the migration of its products to its new SOLA architecture will significantly
shorten the implementation cycle, there can be no assurance in this regard.
During the sales cycle and the implementation cycle, the Company expends
substantial time, effort and funds preparing contract proposals, negotiating the
11
<PAGE> 15
contract and implementing the solution. Because a significant percentage of the
Company's expenses are relatively fixed, a variation in the timing of sales and
implementations can cause significant variations in operating results from
quarter to quarter.
Due to the foregoing factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RAPID TECHNOLOGICAL CHANGE AND EVOLVING MARKET
The market for the Company's products and services is characterized by
rapidly changing technologies, evolving industry standards and new product
introductions and enhancements that may render existing products obsolete or
less competitive. As a result, the Company's position in the healthcare
information technology market could erode rapidly due to unforeseen changes in
the features and functions of competing products, as well as the pricing models
for such products. The Company's future success will depend in part upon the
Company's ability to enhance its existing products and services and to develop
and introduce new products and services to meet changing customer requirements.
The process of developing products and services such as those offered by the
Company is extremely complex and is expected to become increasingly complex and
expensive in the future as new technologies are introduced. The Company has
recently announced the development of, and has commenced migrating its products
to, its new SOLA architecture. There can be no assurance that the development of
SOLA or the migration of products to the SOLA architecture will be successful,
that such products will meet their scheduled release dates, that the Company
will successfully complete the development and release of other new products or
the migration of new or existing products to specific platforms or
configurations in a timely fashion or that the Company's current or future
products will satisfy the needs of potential customers or gain general market
acceptance.
RISKS ASSOCIATED WITH DEVELOPMENT OF INTEGRATED CLINICAL MANAGEMENT SUITE
The Company is currently in the process of integrating selected features
and functionalities from a number of heritage clinical management products
acquired in the Alltel and Emtek Acquisitions and licensed from Partners to
create the Sunrise Clinical Management suite, which is currently undergoing
field trials. Although most of the key functionalities of the Sunrise Clinical
Management suite are currently available in heritage products, the integrated
Sunrise Clinical Management suite is not expected to be generally available
until 1999. There can be no assurance that the Company will be successful in
completing the integration of these functionalities on a timely basis, that the
field trials will be successful or that the Sunrise Clinical Management suite,
if and when generally available, will meet the needs of the marketplace or
achieve market acceptance. Any difficulties or delays in integrating these
functionalities into the Sunrise Clinical Management suite, or the failure of
the Sunrise Clinical Management suite to gain market acceptance, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Products."
COMPETITION
The market for the Company's products and services is intensely competitive
and is characterized by rapid change in technology and user needs and the
frequent introduction of new products. The Company's principal competitors
include Cerner Corp., HBO & Company, IDX Systems Corp. and SMS. The Company also
faces competition from providers of practice management systems, general
decision support and database systems and other segment-specific applications,
as well as from healthcare technology consultants. A number of the Company's
competitors are more established, benefit from greater name recognition and have
substantially greater financial, technical and marketing resources than the
Company. The Company also expects that competition will continue to increase as
a result of consolidation in both the information technology and healthcare
industries. There can be no assurance that the Company will be able to compete
successfully against current and future competitors or that competitive
pressures faced by the Company will not materially adversely affect its
business, financial condition and results of operations. See "Business --
Competition."
12
<PAGE> 16
DEPENDENCE ON RELATIONSHIP WITH PARTNERS
The Company has an exclusive license granted by Partners (the "Partners
License") to develop, commercialize, distribute and support certain intellectual
property relating to the BICS clinical information systems software developed at
Brigham. If the Company breaches certain terms of the license, Partners has the
option to convert the license to a non-exclusive license. Such conversion by
Partners could cause the intellectual property and the ability to develop and
commercialize such intellectual property to become more widely available to
competitors of the Company, which could have a material adverse effect on the
Company's business, financial condition and results of operations. No sales have
been made and, consequently, no royalties have been paid by the Company pursuant
to the Partners License. See "Certain Transactions." The Company also works
closely with physicians and research and development personnel at Brigham and
MGH to develop and commercialize new information technology solutions for the
healthcare industry and to test and demonstrate new and existing products. A
breach of the terms of the Partners License could cause the cooperative working
relationship with Brigham and MGH, including future access to products developed
by personnel at Brigham granted under the Partners License, to become strained
or to cease altogether. The loss of good relations with Brigham or MGH could
have a material adverse impact on the Company's ability to develop new solutions
and cause delays in bringing new products to the market. Additionally, a loss of
the relationship with Brigham or MGH could result in the Company's reputation
and status in the industry being diminished. Any of these events could have a
material adverse effect on the Company's business, financial condition and
results of operations. In connection with the grant of the Partners License,
Partners acquired 1,482,436 shares of Common Stock, which will represent %
of the outstanding Common Stock following the Offering ( % if the
over-allotment option is exercised in full).
UNCERTAINTY IN THE HEALTHCARE INDUSTRY
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of healthcare industry participants. During the past several years, the U.S.
healthcare industry has been subject to an increase in governmental regulation
and reform proposals. These reforms may increase governmental involvement in
healthcare, continue to reduce reimbursement rates and otherwise change the
operating environment for the Company's customers. Healthcare industry
participants may react to these proposals and the uncertainty surrounding such
proposals by curtailing or deferring investments, including those for the
Company's products and services. In addition, many healthcare providers are
consolidating to create larger healthcare delivery enterprises with greater
market power. Such consolidation could erode the Company's existing customer
base and reduce the size of the Company's target market. In addition, the
resulting enterprises could have greater bargaining power, which may lead to
price erosion. The failure of the Company to maintain adequate price levels or
sales, or the reduction in the size of the Company's target market, as a result
of legislative or market-driven reforms or industry consolidation could have a
material adverse effect on the Company's business, financial condition and
results of operations.
POSSIBLE ADVERSE EFFECTS OF GOVERNMENT REGULATION
The United States Food and Drug Administration (the "FDA") has issued a
draft guidance document addressing the regulation of certain computer products
and computer-assisted products as medical devices under the Federal Food, Drug,
and Cosmetic Act (the "FDC Act") and has recently indicated it may modify such
draft policy or create a new policy. The Company expects that the FDA is likely
to become increasingly active in regulating computer software intended for use
in the healthcare setting. If the FDA chooses to regulate any of the Company's
healthcare software systems as medical devices, it can impose extensive
requirements upon the Company, including the requirement that the Company seek
either FDA clearance of a premarket notification submission demonstrating that
the product is substantially equivalent to a device already legally marketed or
file for and obtain FDA approval of a premarket approval application
establishing the safety and effectiveness of the product. FDA regulations also
govern, among other things, the preclinical and clinical testing, manufacture,
distribution, labeling and promotion of medical devices. In addition, the
Company would be required to comply with the FDC Act's general controls,
including establishment registration, device listing, compliance with good
manufacturing practices, reporting of certain device
13
<PAGE> 17
malfunctions and adverse device events. Noncompliance with applicable
requirements can result in, among other things, fines, injunctions, civil
penalties, recalls or product corrections, total or partial suspension of
production, failure of the government to grant premarket clearance or approval
of products, withdrawal of clearances and approvals, and criminal prosecution.
There can be no assurance that any final FDA policy governing computer products,
once issued, or future laws and regulations concerning the manufacture or
marketing of medical devices or healthcare information systems will not increase
the cost and time to market of new or existing products.
The confidentiality of patient records and the circumstances under which
such records may be released are subject to substantial regulation by state and
federal laws and regulations, which govern both the disclosure and use of
confidential patient medical record information. Regulations governing
electronic health data transmissions are evolving rapidly and are often unclear
and difficult to apply in the rapidly restructuring healthcare market. On August
22, 1996, President Clinton signed the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA"). This legislation requires the Secretary of
Health and Human Services (the "Secretary") to adopt national standards for
certain types of electronic health information transactions and the data
elements used in such transactions and to adopt standards to ensure the
integrity and confidentiality of health information. The Secretary was to issue
these standards no later than February 21, 1998, but no such standards have been
issued. Proposed standards may be issued at any time, with final standards
issued 60 days later. Final standards would become mandatory within 24 to 36
months thereafter. The HIPAA legislation also required the Secretary to submit
recommendations to Congress for legislation concerning privacy and
confidentiality of personal health information. If Congress fails to enact such
legislation by August 21, 1998, HIPAA requires the Secretary to promulgate such
standards by regulation. There can be no assurance that such laws or regulations
will not materially restrict the ability of the Company's customers to obtain or
disseminate patient information, which could adversely affect demand for the
Company's products. Legislation governing the dissemination of medical record
information is frequently proposed at both the federal and state levels. Such
legislation, if enacted, could require patient consent before even
non-individually-identifiable (e.g., coded or anonymous) patient information may
be shared with third parties and could also require that holders or users of
such information implement security measures. Any material restriction on the
ability of healthcare providers to obtain or disseminate patient information
could adversely affect the Company's business, financial condition and results
of operations.
YEAR 2000 ISSUES
The Company believes that most of its products are Year 2000 compliant.
However, products acquired by the Company in the Emtek Acquisition, including
Continuum 2000, are not Year 2000 compliant. The Company is currently developing
and testing solutions for these products. In addition, because the Company's
products are often interfaced with a customer's existing third-party
applications, the Company's products may experience difficulties resulting from
the non-compliance of such existing applications. The cost of compliance related
to interactions with non-compliant systems, if any, cannot be reasonably
estimated at this time. Any difficulties in achieving Year 2000 compliance for
the Emtek products or difficulties in interfacing with third-party products
could have a material adverse effect on the Company's business, financial
condition and results of operations.
As a result of apprehension in the marketplace over Year 2000 compliance
issues, businesses, including the Company's customers, may be reluctant to
commit to significant capital investments in programs and software, either
because of the capital expenditure necessary to bring their own systems into
compliance or because of the perception in the marketplace of difficulties in
achieving compliance. As a result, the Company may not achieve expected sales
revenues and its business, financial condition and results of operations could
be materially adversely affected.
LIMITED PROTECTION OF PROPRIETARY RIGHTS
The Company is dependent upon its proprietary information and technology.
The Company relies primarily on a combination of copyright, trademark and trade
secret laws and license agreements to establish and protect its rights in its
software products and other proprietary technology. The Company requires third-
14
<PAGE> 18
party consultants and contractors to enter into nondisclosure agreements to
limit the use of, access to and distribution of its proprietary information. In
addition, the Company currently requires that, in order to receive options under
any of its stock plans, the recipient employee must enter into a nondisclosure
agreement. There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate to prevent misappropriation. The laws of
some foreign countries may not protect the Company's proprietary rights as fully
or in the same manner as do the laws of the United States. Also, despite the
steps taken by the Company to protect its proprietary rights, it may be possible
for unauthorized third parties to copy aspects of the Company's products,
reverse engineer such products or otherwise obtain and use information that the
Company regards as proprietary. In certain limited instances, customers can
access source code versions of the Company's software, subject to contractual
limitations on the permitted use of such source code. Although the Company's
license agreements with such customers attempt to prevent misuse of the source
code, the possession of the Company's source code by third parties increases the
ease and likelihood of potential misappropriation of such software. Furthermore,
there can be no assurance that others will not independently develop
technologies similar or superior to the Company's technology or design around
the proprietary rights owned by the Company.
In addition, although the Company does not believe that its products
infringe the proprietary rights of third parties, there can be no assurance that
infringement or invalidity claims (or claims for indemnification resulting from
infringement claims) will not be asserted or prosecuted against the Company or
that any such assertions or prosecutions will not materially adversely affect
the Company's business, financial condition and results of operations.
Regardless of the validity of such claims, defending against such claims could
result in significant costs and diversion of Company resources, which could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, the assertion of such infringement claims
could result in injunctions preventing the Company from distributing certain
products, which could have a material adverse effect on the Company's business,
financial condition and results of operations. If any claims or actions are
asserted against the Company, the Company may seek to obtain a license to such
intellectual property rights. There can be no assurance, however, that such a
license would be available on reasonable terms or at all.
PRODUCT ERRORS; POTENTIAL FOR PRODUCT LIABILITY; SECURITY ISSUES
Highly complex software products, such as those offered by the Company,
often contain undetected errors or failures when first introduced or as new
versions are released. Testing of the Company's products is particularly
challenging because it is difficult to simulate the wide variety of computing
environments in which the Company's customers may deploy these products. Despite
extensive testing, the Company from time to time has discovered defects or
errors in its products. Accordingly, there can be no assurance that such
defects, errors or difficulties will not cause delays in product introductions
and shipments, result in increased costs and diversion of development resources,
require design modifications or decrease market acceptance or customer
satisfaction with the Company's products. In addition, there can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not be found after commencement of commercial shipments, resulting
in loss of or delay in market acceptance, which could have a material adverse
effect upon the Company's business, financial condition and results of
operations.
Certain of the Company's products provide applications that relate to
patient medical histories and treatment plans. Any failure of the Company's
products to provide accurate and timely information could result in liability
claims against the Company. Although the Company has not experienced any claims
to date, there can be no assurance that the Company will not be subject to such
claims in the future. The Company attempts to limit contractually its liability
for damages arising from negligent acts, errors, mistakes or omissions in
designing its products and rendering its services. Despite this precaution,
there can be no assurance that the limitations of liability set forth in its
contracts would be enforceable or would otherwise protect the Company from
liability for damages. The Company maintains general liability insurance
coverage, including coverage for errors or omissions. However, there can be no
assurance that such coverage will continue to be available on acceptable terms,
or will be available in sufficient amounts to cover one or more large claims, or
that the insurer will not disclaim coverage as to any future claim. The
successful assertion of
15
<PAGE> 19
one or more large claims against the Company that exceed available insurance
coverage or changes in the Company's insurance policies, including premium
increases or the imposition of large deductible or co-insurance requirements,
could have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, litigation with respect to
liability claims, regardless of its outcome, could result in substantial cost to
the Company, divert management's attention from the Company's operations and
decrease market acceptance of the Company's products. Any product liability
claim or litigation against the Company could, therefore, have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company has included security features in its products that are
intended to protect the privacy and integrity of customer data. Despite the
existence of these security features, the Company's software products may be
vulnerable to break-ins and similar disruptive problems. Such computer break-ins
and other disruptions may jeopardize the security of information stored in and
transmitted through the computer systems of the Company's customers. Addressing
these evolving security issues may require significant expenditures of capital
and resources by the Company, which may have a material adverse effect on the
Company's business, financial condition and results of operations.
CONTROL BY DIRECTORS AND OFFICERS
Upon completion of the Offering, the Company's officers and directors, and
their affiliates, will beneficially own approximately % of the Company's
outstanding Common Stock ( % if the over-allotment option is exercised in
full). These stockholders, if acting together, would have the ability to elect
the Company's directors and to determine the outcome of corporate actions
requiring stockholder approval, irrespective of how other stockholders of the
Company may vote. This concentration of ownership may also have the effect of
delaying or preventing a change in control of the Company. See "Management" and
"Principal and Selling Stockholders."
NO PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this Offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price will be determined by negotiations among the Company and the
Representatives of the Underwriters and may not be indicative of the market
price of the Common Stock after this Offering. The trading price of the Common
Stock is likely to be highly volatile and may be significantly affected by
factors such as actual or anticipated fluctuations in the Company's operating
results, announcements of technological innovations or acquisitions, new
products or new contracts by the Company or its competitors, developments with
respect to patents, copyrights or propriety rights, conditions and trends in the
software industry, general economic conditions and other factors. It is possible
that in some future quarter the Company's results of operations will be below
the expectations of public market analysts and investors. In addition, the
public equity markets have from time to time experienced significant price and
volume fluctuations that have particularly affected the market prices for the
stock of technology companies as a group but have been unrelated to the
performance of particular companies. These broad market fluctuations, as well as
shortfalls in sales or earnings as compared with securities analysts'
expectations, changes in such analysts' recommendations or projections and
general economic and market conditions, may materially and adversely affect the
market price of the Company's Common Stock. See "Underwriters."
DILUTION
Purchasers of shares of Common Stock in this Offering will suffer an
immediate and substantial dilution in the pro forma net tangible book value of
the Common Stock from the initial public offering price. See "Dilution."
16
<PAGE> 20
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of shares of Common Stock in the public market
following the Offering could adversely affect the market price of the Common
Stock. See "Shares Eligible for Future Sale" and "Underwriters."
DIVIDENDS
No cash dividends have been paid on the Common Stock to date and the
Company does not anticipate paying cash dividends in the foreseeable future. In
addition, there are certain restrictions on the Company's ability to declare and
pay dividends under the terms of the Company's credit facility and under
applicable state law. See "Dividend Policy" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
ANTITAKEOVER PROVISIONS
The Company's Third Restated Certificate of Incorporation and Amended and
Restated By-laws, which will be in effect immediately following the closing of
the Offering, contain certain provisions, including a staggered Board of
Directors, that could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire,
control of the Company. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of the Company's
Common Stock. In addition, certain provisions of Delaware corporate law
applicable to the Company could have the effect of delaying, deferring or
preventing a change in control of the Company. See "Description of Capital
Stock -- Delaware Law and Certain Charter and By-Law Provisions."
17
<PAGE> 21
THE COMPANY
Eclipsys is a healthcare information technology company delivering
solutions that enable healthcare providers to achieve improved clinical,
financial and administrative outcomes. The Company offers an integrated suite of
core products in four critical areas -- clinical management, access management,
patient financial management and enterprise data warehouse and analysis. These
products can be purchased in combination to provide an enterprise-wide solution
or individually to address specific needs. The Company's products have been
designed specifically to deliver a measurable impact on outcomes, enabling the
Company's customers to quantify clinical benefits and return on investment in a
precise and timely manner. The Company's products can be integrated with a
customer's existing information systems, which the Company believes reduces
overall cost of ownership and increases the attractiveness of its products.
Eclipsys also provides outsourcing, remote processing and networking services to
assist customers in meeting their healthcare information requirements. The
Company was formed in December 1995 and has grown primarily through its three
acquisitions, all completed since January 1997. These acquisitions, together
with internally generated growth, have resulted in total revenues of $126.5
million in 1997 on the pro forma basis described herein.
The Company was founded in December 1995 by Harvey J. Wilson, a co-founder
of SMS, to address an identified opportunity to commercialize integrated
healthcare information technology. In May 1996, the Company acquired the
Partners License to develop, commercialize, distribute and support certain
intellectual property relating to the BICS clinical information systems software
developed at Brigham. In consideration for this license, the Company issued
1,482,436 shares of Common Stock to Partners. See "Certain Transactions." Since
acquiring the Partners License, Eclipsys has grown primarily by acquiring
companies or operations with industry-leading products to complement its
existing product offerings and broaden its product line. These acquisitions are
summarized below:
<TABLE>
<CAPTION>
TOTAL LAST-YEAR KEY PRODUCT
ACQUISITION DATE CONSIDERATION(1) REVENUES(2) CATEGORIES
- ----------- ---- ---------------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Alltel January 1997 $201.5 $108.8 -- Clinical management
-- Enterprise data warehouse
SDK June 1997 16.5 6.8 -- Access management
-- Patient financial management
Emtek January 1998 10.1(3) 22.7 -- Clinical management
</TABLE>
- ---------------
(1) Reflects the total value of consideration paid by the Company, including
cash, stock, promissory notes and assumption of liabilities, as the case may
be and, in the case of Alltel, reflects certain purchase price adjustments.
(2) Reflects total revenues of the acquired operations for the last full fiscal
year prior to acquisition.
(3) Net of a $9.6 million receivable from Motorola.
Alltel. In January 1997, the Company acquired Alltel for a purchase price
consisting of $104.8 million in cash, 20,000 shares of Series C Redeemable
Preferred Stock (having a redemption value of $1,000 per share plus accumulated
dividends) and 2,077,497 shares of Series D Convertible Preferred Stock (each
convertible into 1.5 shares of Common Stock). Alltel's main products were the
TDS 7000, a mainframe-based clinical information program, and an enterprise data
warehouse product. Alltel enjoyed a significant customer base, consisting
primarily of large integrated healthcare delivery networks. Alltel had total
revenues of $108.8 million in its fiscal year ended December 31, 1996. In
October 1997, in connection with certain post-closing adjustments to the
purchase price for the Alltel Acquisition, AIS, the former parent corporation of
Alltel, returned 4,500 shares of Series C Redeemable Preferred Stock to the
Company for cancellation.
In March 1998, the Company and AIS renegotiated in two separate
transactions several matters relating to the Alltel Acquisition. In the Alltel
Renegotiation, AIS returned to the Company 11,000 shares of Series C Redeemable
Preferred Stock in exchange for resolving certain open issues in connection with
the Alltel Acquisition, and AIS agreed that no dividends will accrue on the
remaining 4,500 shares of stock held by AIS until July 1, 1998. In the MSA
Buyout, the Company paid AIS an aggregate of $14.0 million in exchange for
terminating all of the rights and obligations of both parties under the MSA. See
"Certain Transactions." AIS is the Selling Stockholder in the Offering and a
portion of the net proceeds of the Offering will be used to
18
<PAGE> 22
redeem the remaining Redeemable Preferred Stock held by AIS. See "Use of
Proceeds" and "Principal and Selling Stockholders."
SDK. In June 1997, the Company acquired all of the stock of SDK for
approximately $2.2 million in cash, approximately $7.6 million of SDK Notes,
valued at approximately $3.5 million of assumed liabilities and 750,000 shares
of Common Stock valued at $3.2 million. SDK's key products were a patient
information software program and a patient financial management program. SDK's
customers were primarily integrated healthcare network facilities. SDK had total
revenues of $6.8 million in its fiscal year ended April 30, 1997.
Emtek. In January 1998, the Company acquired Emtek from Motorola for total
consideration of $10.1 million. The consideration included 1,500,000 shares of
Common Stock valued at $9.1 million and the assumption of $10.6 million of
liabilities, reduced by a $9.6 million receivable due from Motorola. Emtek was a
leader in supplying clinical information solutions to the critical care
environment and its key product was Continuum 2000, a point-of-care clinical
information system. Emtek had a strong customer base, consisting primarily of
academic medical centers and large hospitals. Emtek had total revenues of $22.7
million in its fiscal year ended December 31, 1997.
19
<PAGE> 23
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered by it are estimated to be $68.0 million after deducting the estimated
underwriting discounts and commissions and offering expenses payable by the
Company and assuming an initial public offering price of $ per share. The
Company will not receive any of the net proceeds from the sale of shares by the
Selling Stockholder. See "Principal and Selling Stockholders."
The Company expects to use approximately $38.1 million of the net proceeds
from the Offering to redeem the outstanding shares of the Company's Redeemable
Preferred Stock, of which $3.6 million is accrued dividends, and approximately
$3.9 million to repay the principal balance and accrued interest on the SDK
Notes. The Company will also use a portion of the net proceeds to repay all
amounts outstanding under the Revolver. As of March 31, 1998, the outstanding
balance of the Revolver was $9.0 million, all of which was borrowed in
connection with the Alltel Renegotiation. The Redeemable Preferred Stock accrues
dividends at the rate of 8.5% annually and is mandatorily redeemable upon the
closing of the Offering. The SDK Notes bear interest at the rate of 9.5%
annually, payable quarterly. The aggregate principal balance of the SDK Notes is
$3.8 million and is due on April 1, 1999. The SDK Notes are subordinated to the
Revolver. The SDK Notes may be prepaid at any time without penalty. As of March
31, 1998, the effective interest rate for the Revolver was 6.9%. AIS, the
Selling Stockholder, holds 4,500 shares of Series C Redeemable Preferred Stock
and will receive $4.5 million from the redemption of such shares at the closing
of the Offering.
The remaining net proceeds will be used for working capital and other
general corporate purposes. In particular, the Company may seek acquisitions of
or investments in businesses, products and technologies that are complementary
to those of the Company. In the event the Company finds suitable businesses,
products or technologies, a portion of the net proceeds may also be used for
such acquisitions or investments. While the Company engages from time to time in
discussions with respect to potential acquisitions and investments, the Company
has no plans, commitments or agreements with respect to any such acquisitions
and investments and there can be no assurance that any acquisitions or
investments will be made.
Pending use of the remaining net proceeds as described above, the Company
intends to invest such proceeds in short-term, investment grade, marketable
securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying cash dividends in the foreseeable
future. In addition, there are certain restrictions on the Company's ability to
declare and pay dividends under the terms of the Company's credit facility and
under applicable state law. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 7 of Notes to the Company's Consolidated Financial
Statements.
20
<PAGE> 24
CAPITALIZATION
The following table sets forth the cash and cash equivalents, current
portion of long-term debt and capitalization of the Company as of December 31,
1997 (i) on an actual basis; (ii) on a pro forma basis giving effect to the
Emtek Acquisition, the 1998 Preferred Stock Issuance and the use of the proceeds
therefrom to repay the Term Loan, the SDK Partial Repayment, the scheduled $2.0
million payment in January 1998 to AIS under the MSA, and the Alltel
Renegotiation; and (iii) on a pro forma as adjusted basis reflecting the
Preferred Stock Conversion and the issuance and sale by the Company of
shares of Common Stock offered hereby at an assumed initial public offering
price of $ per share and the application of the net proceeds to the Company
therefrom as described under "Use of Proceeds." The information set forth in the
table below is qualified by reference to the Company's Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 4,786 $ -- $ 10,819
========= ========= =========
Current portion of long-term debt:
Revolver.................................................. $ -- $ 15,008 $ --
Term Loan................................................. 9,000 -- --
SDK Notes................................................. 3,794 -- --
--------- --------- ---------
Total current portion of long-term debt............. $ 12,794 $ 15,008 $ --
========= ========= =========
Long-term debt:
SDK Notes................................................. $ 3,794 $ 3,794 $ --
Series B 8.5% mandatorily redeemable preferred stock, $.01
par value, 30,000 shares authorized (actual and pro
forma); 30,000 shares issued and outstanding (actual and
pro forma); no shares authorized, issued or outstanding
(pro forma as adjusted)(1)(2)............................. 23,524 23,524 --
Series C 8.5% mandatorily redeemable preferred stock, $.01
par value, 25,000 shares authorized (actual and pro
forma); 15,500 shares issued and outstanding (actual);
4,500 shares issued and outstanding (pro forma); no shares
issued or outstanding (pro forma as adjusted)(1)(2)....... 12,083 4,500
Shareholders' Equity (deficit)(1)(2):
Undesignated preferred stock, $.01 par value, 5,000,000
shares authorized, no shares issued or outstanding...... -- -- --
Convertible Preferred Stock, $.01 par value; 10,650,000
shares authorized, (actual and pro forma); 9,500,000
shares issued and outstanding (actual); 10,400,000
shares issued and outstanding (pro forma); no shares
authorized, issued or outstanding (pro forma as
adjusted)............................................... 95 104 --
Common Stock, $.01 par value; 100,000,000 shares
authorized; 6,300,000 shares issued and outstanding
(actual); 7,800,000 shares issued and outstanding (pro
forma); shares issued and outstanding (pro forma
as adjusted)(3)......................................... 63 78 221
Non-Voting Common Stock, $.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding (actual and
pro forma); 1,344,647 shares issued and outstanding (pro
forma as adjusted)...................................... -- -- 13
Additional paid-in capital(4)............................. 114,274 132,310 189,957
Unearned compensation..................................... (250) (250) (250)
Cumulative foreign currency translation adjustment........ 28 28 28
Accumulated deficit....................................... (136,705) (144,051) (144,051)
--------- --------- ---------
Total shareholders' equity (deficit)(5)................. (22,495) (11,781) 45,918
--------- --------- ---------
Total capitalization................................ $ 16,906 $ 20,037 $ 45,918
========= ========= =========
</TABLE>
- ---------------
(1) Gives effect to amendments to the Company's certificate of incorporation
approved by the Company's Board of Directors on April 8, 1998 to increase
the number of shares of Common Stock, Non-Voting Common Stock and
undesignated Preferred Stock authorized and eliminate the authorized shares
of Convertible Preferred Stock and Redeemable Preferred Stock concurrent
with the closing of this Offering.
(2) See Note 5 of Notes to the Company's Consolidated Financial Statements.
(3) Excludes (i) an aggregate of 6,500,000 shares of Common Stock reserved for
issuance under the Company's 1996 Stock Plan, 1998 Incentive Stock Plan and
1998 Employee Stock Purchase Plan, of which 2,721,560 shares were subject to
outstanding options as of December 31, 1997 at a weighted average exercise
price of $2.92 per share, and (ii) an aggregate of 1,209,125 shares of
Common Stock issuable upon exercise of the Warrants. See "Management --
Stock Plans" and "Description of Capital Stock -- Warrants".
(4) Included in the adjustments to pro forma as adjusted additional paid-in
capital is a charge of approximately $10.3 million to reflect the difference
between the redemption price of Redeemable Preferred Stock and its carrying
amount. This charge will be recorded as a direct charge to additional
paid-in capital in the quarter the redemption occurs. Additionally, the
charge will result an increase in net loss available to common shareholders
in the statement of operations. For a discussion of items affecting pro
forma and pro forma as adjusted additional paid-in capital, see footnote 15
to the Unaudited Pro Forma Condensed Consolidated Balance Sheet.
(5) For a discussion of items affecting pro forma shareholder's deficit, see
footnote 12 to the Unaudited Pro Forma Condensed Consolidated Balance
Sheets.
21
<PAGE> 25
DILUTION
The pro forma net tangible book deficit of the Company as of December 31,
1997 was $(56.0) million, or $(2.44) per share of Common Stock. Pro forma net
tangible book deficit per share is determined by dividing the Company's tangible
net worth (tangible assets less liabilities including Redeemable Preferred
Stock) by the number of shares of Common Stock outstanding, after giving effect
to the Emtek Acquisition, the SDK Partial Repayment, the Alltel Renegotiation,
the 1998 Preferred Stock Issuance and the use of the proceeds therefrom to repay
the Term Loan, the borrowing of $9.0 million under the Revolver in connection
with the Alltel Renegotiation, and the Preferred Stock Conversion. After giving
effect to the sale of the shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $ per share and the
application of the net proceeds therefrom as described under "Use of Proceeds,"
the pro forma net tangible book value of the Company as of December 31, 1997
would have been $ per share. This represents an immediate increase in such
pro forma net tangible book value of $ per share to existing stockholders
and an immediate dilution of $ per share to new investors purchasing shares
in this Offering. If the initial public offering price is higher or lower, the
dilution to the new investors will be greater or less, respectively. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book deficit per share before the
Offering............................................... $
Increase per share attributable to new investors..........
Pro forma net tangible book value per share after the
Offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, as of December 31, 1997, on a pro forma
basis after giving effect to the 1998 Preferred Stock Issuance, the Preferred
Stock Conversion and the Preferred Stock Redemption, the total number of shares
of Common Stock purchased from the Company, the total consideration paid and the
average consideration paid per share by the existing stockholders and by the new
investors based (for new investors) upon an assumed initial public offering
price of $ per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)........ 22,997,763 % $89,072,034 % $3.87
New investors...................
----------- ----- ----------- -----
Total................. 100.0% $ 100.0%
=========== ===== =========== =====
</TABLE>
- ---------------
(1) Sales by the Selling Stockholder in this Offering will reduce the number of
shares held by existing stockholders to , or approximately % of
the total number of shares of Common Stock outstanding after this Offering
(or shares and approximately % if the U.S. Underwriters'
over-allotment option is exercised in full), and will increase the number of
shares held by new investors to , or approximately % of the total
number of shares of Common Stock outstanding after this Offering (or
shares and approximately % if the U.S. Underwriters'
over-allotment option is exercised in full).
22
<PAGE> 26
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information of the Company is based on
the historical audited financial statements of the Company as of and for the
year ended December 31, 1997.
The unaudited pro forma financial information of the Company as of and for
the year ended December 31, 1997 includes adjustments to give effect to (i) the
Alltel Acquisition, (ii) the SDK Acquisition, (iii) the Emtek Acquisition, (iv)
the Alltel Renegotiation, (v) the MSA Buyout, (vi) the 1998 Preferred Stock
Issuance, (vii) the use of the proceeds from the 1998 Preferred Stock Issuance
to repay $9.0 million under the Term Loan, (viii) the SDK Partial Repayment,
(ix) the January 1998 scheduled $2.0 million payment to AIS under the MSA and
(x) the borrowing of $9.0 million under the Revolver in connection with the
Alltel Renegotiation. The unaudited pro forma as adjusted financial information
includes adjustments to give effect to the Preferred Stock Conversion and the
sale by the Company of the shares of Common Stock offered hereby at an
assumed public offering price of $ per share and the application of the
net proceeds therefrom as described under "Use of Proceeds."
Alltel was acquired effective January 24, 1997 for an aggregate purchase
price of $201.5 million, including liabilities assumed of $58.4 million and
after giving effect to the cancellation of 4,500 shares of Series C Redeemable
Preferred Stock held by Alltel related to an October 1997 settlement of certain
matters related to the acquisition. Consideration paid consisted of $104.8
million in cash, 15,500 shares of Series C Redeemable Preferred Stock valued at
approximately $10.3 million, 2,077,497 shares of Series D Convertible Preferred
Stock valued at approximately $26.1 million, deferred payments due over four
years valued at $9.5 million and transaction costs of approximately $2.0
million.
SDK was acquired effective June 26, 1997 for an aggregate purchase price of
$16.5 million, including 750,000 shares of Common Stock valued at approximately
$3.2 million, $2.2 million in cash, the SDK Notes aggregating $7.6 million and
assumed liabilities of approximately $3.5 million.
Emtek was acquired effective January 30, 1998 for an aggregate purchase
price of approximately $10.1 million, including 1,500,000 shares of Common Stock
valued at $9.1 million and liabilities assumed of approximately $10.6 million.
In addition, Motorola agreed to pay the Company $9.6 million in cash for working
capital purposes.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable under the circumstances.
The unaudited pro forma financial information should be read in conjunction with
the historical financial statements of the Company, Alltel and SDK and the
respective notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the other financial information
included herein. The unaudited pro forma financial information is provided for
information purposes only and does not purport to be indicative of the results
which would have been obtained had the Offering and the other adjustments been
completed on the dates indicated or which may be expected to occur in the
future.
23
<PAGE> 27
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL ACQUISITION
------------------------------------------ AND OTHER OFFERING PRO FORMA
COMPANY ALLTEL(1) SDK(2) EMTEK(3) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
--------- --------- ------- -------- ----------- --------- ----------- -----------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Systems and services....... $ 89,722 $6,064 $3,037 $14,274 $ 113,097 $ 113,097
Hardware................... 4,355 122 486 8,464 13,427 13,427
--------- ------ ------ -------- --------- ---------
Total revenues......... 94,077 6,186 3,523 22,738 126,524 126,524
--------- ------ ------ -------- --------- ---------
Costs and expenses:
Cost of systems and
services revenues........ 75,334 4,277 2,193 9,665 $ (18)(4) 91,451 91,451
Cost of hardware
revenues................. 2,953 104 340 7,394 10,791 10,791
Marketing and sales........ 13,662 660 336 6,235 20,893 20,893
Research and development... 15,714 794 -- 12,804 29,312 29,312
General and
administrative........... 5,672 621 992 6,671 13,956 13,956
Depreciation and
amortization............. 9,134 568 -- 2,698 650(4) 13,050 13,050
Write-off of in-process
research and
development(5)........... 105,688 -- -- -- 105,688 105,688
--------- ------ ------ -------- --------- ---------
Total costs and
expenses(6).......... 228,157 7,024 3,861 45,467 285,141 285,141
--------- ------ ------ -------- --------- ---------
Loss from operations......... (134,080) (838) (338) (22,729) (158,617) (158,617)
Interest expense (income),
net........................ 1,154 379 (19) -- 427(7) 1,941 $(1,941)(8) --
--------- ------ ------ -------- --------- ---------
Loss before income tax
provision.................. (135,234) (1,217) (319) (22,729) (160,558) (158,617)
Income tax benefit........... -- 437 -- -- (437)(9) -- --
--------- ------ ------ -------- --------- ---------
Net loss(6)(10).............. (135,234) (780) (319) (22,729) (160,558) (158,617)
Dividends and accretion on
Mandatorily Redeemable
Preferred Stock............ (5,850) -- -- -- 1,089(11) (4,761) 4,761(12) --
Preferred stock
conversion(13)............. (3,105) -- -- -- (3,105) (3,105)
--------- ------ ------ -------- --------- ---------
Net loss available to common
shareholders............... $(144,189) $ (780) $ (319) $(22,729) $(168,424) $(161,722)
========= ====== ====== ======== ========= =========
Basic and diluted net loss
per common share........... $ (27.28) (23.52)
Weighted average common
shares outstanding......... 5,286,271 7,161,273
</TABLE>
- ---------------
(1) Represents the historical results of operations of Alltel for the period
from January 1, 1997 through January 23, 1997.
(2) Represents the historical results of operations of SDK from January 1, 1997
through June 26, 1997.
(3) Represents the historical results of operations of Emtek from January 1,
1997 through December 31, 1997.
(4) Represents adjustments for amortization expense related to the Acquisitions
and the Alltel Renegotiation as if they had occurred January 1, 1997 as
follows:
<TABLE>
<CAPTION>
ALLTEL SDK EMTEK TOTAL
------- ----- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Amortization of capitalized software reflected in the
historical accounts prior to the Acquisitions............. $ (377) $(197) $(1,794) $(2,368)
Acquired technology......................................... 1,604 321 425 2,350
------- ----- ------- -------
$ 1,227 $ 124 $(1,369) $ (18)
======= ===== ======= =======
Ongoing customer relationships.............................. $ 128 $ -- $ -- $ 128
Goodwill.................................................... 66 456 -- 522
------- ----- ------- -------
$ 194 $ 456 $ -- $ 650
======= ===== ======= =======
</TABLE>
The Acquisitions were accounted for using the purchase method of accounting
and accordingly the net assets acquired have been recorded at estimated
fair value on the date of acquisition and the historical statement of
operations data of the Company reflect the
24
<PAGE> 28
results of operations from these businesses from the date acquired. In
connection with the Acquisitions, the Company acquired intangible assets as
follows:
<TABLE>
<CAPTION>
VALUE FIRST YEAR AMORTIZATION
------------------------- -------------------------
ALLTEL SDK EMTEK ALLTEL SDK EMTEK
------- ------ ------ -------- ----- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Acquired technology............................. $38,500 $3,205 $2,125 $19,250 $641 $425
MSA............................................. 9,543 -- -- 2,386 -- --
------- ------ ------ ------- ---- ----
$48,043 $3,205 $2,125 $21,636 $641 $425
======= ====== ====== ======= ==== ====
Ongoing customer relationships.................. $ 7,700 $ -- $ -- $ 1,540 $ -- $ --
Goodwill........................................ 9,456 4,553 -- 788 911 --
------- ------ ------ ------- ---- ----
$17,156 $4,553 $ -- $ 2,328 $911 $ --
======= ====== ====== ======= ==== ====
</TABLE>
The acquired technology costs are being amortized annually on a straight
line basis over three to five years or, if greater, based on the ratio that
current revenues bear to total anticipated revenues attributable to the
applicable product. Ongoing customer relationships are being amortized over
five years. Goodwill is being amortized over five to twelve years.
(5) In connection with the Alltel and SDK Acquisitions, the Company wrote off
in-process research and development of $98.7 million and $7.0 million,
respectively, related to the appraised values of certain in-process
research and development acquired in these acquisitions.
(6) The total costs and expenses do not reflect the MSA Buyout which will
result in a charge in the first quarter of 1998 of approximately $7.3
million.
(7) Includes adjustments to give effect to (i) foregone interest income of
$94,000 for the period January 1, 1997 through June 25, 1997 related to the
$2.2 million of cash paid for the SDK Acquisition, (ii) interest expense of
$1.3 million for the period of January 1, 1997 through December 31, 1997 on
$15.0 million of borrowings under the Revolver to fund the MSA Buyout and
other transactions described herein as if such borrowings occurred as of
January 1, 1997, (iii) additional interest expense of $360,000 for the
period January 1, 1997 through June 25, 1997 on $3.8 million of SDK Notes,
(iv) reduction in interest expense of $563,000 related to the reduction in
payments due AIS under the MSA as a result of the MSA Buyout as if it
occurred as of January 1, 1997, (v) reduction in interest expense of
$360,000 related to the SDK Partial Repayment as if it occurred as of
January 1, 1997, and (vi) reduction in interest expense of $379,000 related
to the cancellation of payables to AIS as a result of the Alltel
Acquisition as if it occurred as of January 1, 1997.
(8) Represents the reduction in interest expense as if the proceeds of the
Offering were utilized to pay off the $15.0 million borrowings under the
Revolver and the remaining balance of the SDK Notes as if the transactions
occurred as of January 1, 1997.
(9) Represents an adjustment to reduce the income tax benefit related to Alltel
for the period from January 1, 1997 through January 23, 1997 as if the
Alltel Acquisition had occurred on January 1, 1997.
(10) The Company has not recorded any benefit for income taxes as management
believes at December 31, 1997 it is more likely than not that the Company's
net deferred tax assets will not be realized. Accordingly, the Company has
recorded a valuation allowance against its total net deferred tax assets.
(11) Represents the reduction of $1.1 million in the dividends and accretion on
Series C Redeemable Preferred Stock held by AIS after giving effect to the
Alltel Renegotiation.
(12) Represents the reduction of $4.7 million in the dividends and accretion on
the Redeemable Preferred Stock with a face value of $34.5 million as if the
proceeds of the Offering were utilized to redeem 34,500 shares of the
Redeemable Preferred Stock on January 1, 1997.
(13) Represents a charge related to the January 1997 conversion of Series A
Convertible Preferred Stock to Series F Convertible Preferred Stock.
25
<PAGE> 29
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
------------------- ACQUISITION OTHER OFFERING PRO FORMA
COMPANY EMTEK(1) ADJUSTMENTS(2) ADJUSTMENTS(3) PRO FORMA ADJUSTMENTS(4) AS ADJUSTED
-------- -------- -------------- -------------- --------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............. $ 4,786 $ -- $ -- $ (4,786)(5) $ -- $ 10,819 $ 10,819
Other current assets...... 32,949 6,906 9,600(6) -- 49,455 -- 49,455
-------- -------- -------- -------- -------- -------- --------
Total current
assets.............. 37,735 6,906 9,600 (4,786) 49,455 10,819 60,274
Property and equipment.... 9,517 2,810 -- -- 12,327 -- 12,327
Capitalized software
development cost........ 1,591 6,814 (6,814)(7) -- 1,591 -- 1,591
Acquired technology,
net..................... 23,739 -- 2,125(8) -- 25,864 -- 25,864
Intangible assets, net.... 26,177 -- -- (9,035)(9) 17,142 -- 17,142
Other assets.............. 3,832 -- -- -- 3,832 -- 3,832
-------- -------- -------- -------- -------- -------- --------
Total assets.......... $102,591 $ 16,530 $ 4,911 $(13,821) $110,211 $ 10,819 $121,030
======== ======== ======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Revolver.................. $ -- $ -- $ -- $ 15,008(5) $ 15,008 $(15,008) $ --
Current maturities of
long-term debt.......... 12,794 -- -- (12,794)(10) -- -- --
Deferred revenue.......... 25,295 6,078 (600)(11) 30,773 -- 30,773
Other current
liabilities............. 31,150 5,740 -- (4,407)(9) 32,483 (54) 32,429
-------- -------- -------- -------- -------- -------- --------
Total current
liabilities......... 69,239 11,818 (600) (2,193) 78,264 (15,062) $ 63,202
Deferred revenue.......... 6,966 -- -- -- 6,966 -- 6,966
Other long-term
liabilities............. 9,480 1,163 -- (5,699)(9) 4,944 -- 4,944
Intercompany payable to
Motorola................ -- 55,703 (55,703)(13) -- -- -- --
Long-term debt............ 3,794 -- -- -- 3,794 (3,794) --
-------- -------- -------- -------- -------- -------- --------
Total liabilities..... 89,479 68,684 (56,303) (7,892) 93,968 (18,856) 75,112
Mandatorily redeemable
preferred stock......... 35,607 -- -- (7,583)(9) 28,024 (28,024) --
Shareholders' equity
(deficit)............... (22,495) (52,154) 61,214(14) 1,654(12) (11,781) 57,699(15) 45,918
-------- -------- -------- -------- -------- -------- --------
Total liabilities and
shareholders' equity
(deficit)........... $102,591 $ 16,530 $ 4,911 $(13,821) $110,211 $ 10,819 $121,030
======== ======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Represents the financial position of Emtek as of December 31, 1997.
(2) Adjustments to give effect to the Emtek Acquisition as if it had occurred
on December 31, 1997. The Acquisition has been accounted for using the
purchase method of accounting.
(3) Reflects adjustments related to (i) the 1998 Preferred Stock Issuance and
the use of the proceeds therefrom to repay the Term Loan, (ii) the SDK
Partial Repayment, (iii) the scheduled $2.0 million payment in January 1998
to AIS under the MSA, and (iv) the Alltel Renegotiation. See "The Company"
and Note 13 of Notes to the Company's Consolidated Financial Statements.
(4) Adjusted to give effect to (i) the Preferred Stock Conversion and (ii) the
sale by the Company of the shares of Common Stock offered by it at an
assumed public offering price of $ per share and the application of the
net proceeds to the Company therefrom as described under "Use of Proceeds."
(5) Represents the net reduction of $4.8 million in cash and increase of $15.0
million of borrowings under the Revolver as a result of the following (in
thousands):
<TABLE>
<S> <C>
Cash and cash equivalents available......................... $ 4,786
1998 Preferred Stock Issuance............................... 9,000
Borrowings under the Revolver............................... 15,008
-------
Total sources....................................... $28,794
=======
MSA Buyout.................................................. $14,000
Term Loan................................................... 9,000
Scheduled January 1998 payment to AIS under the MSA......... 2,000
SDK Partial Repayment....................................... 3,794
-------
Total uses.......................................... $28,794
=======
</TABLE>
(6) Represents the recording of a $9.6 million current receivable due from
Motorola as a result of the Emtek Acquisition.
(7) Represents the reduction of the historical value of Emtek's capitalized
software development costs as the acquired asset has been valued at its
estimated fair value in connection with the Emtek Acquisition which is
reflected in acquired technology, net.
(8) Represents the amount allocated to the acquired technology, which is the
estimated fair value of the asset acquired from Emtek. The amount is being
amortized using the straight line method over five years.
(9) Adjustments to reflect the effect of the MSA Buyout as if it occurred as of
December 31, 1997 as follows (in thousands):
26
<PAGE> 30
<TABLE>
<S> <C>
MSA Buyout.................................................. $14,000
Scheduled January 1998 payment to AIS under the MSA......... 2,000
Reduction in carrying value of current deferred payment
under MSA................................................. (4,407)
Reduction in carrying value of long term deferred payment
under MSA................................................. (5,699)
-------
5,894
Write-off of MSA intangible asset........................... (7,346)
-------
Reduction in goodwill due to return of 11,000 shares of
Series C Redeemable
Preferred Stock........................................... (7,583)
-------
$(9,035)
=======
</TABLE>
(10) Represents an adjustment to reflect the repayment of the $9.0 million Term
Loan and the SDK Partial Repayment as if they occurred as of December 31,
1997.
(11) Represents the reduction of Emtek acquired deferred revenue to the amount
that reflects the estimated fair value of the contractual obligations
assumed.
(12) Represents an adjustment to shareholders' deficit as follows:
<TABLE>
<S> <C>
Sale of 900,000 shares of Series G Convertible Preferred
Stock..................................................... $ 9,000
Write-off of MSA intangible asset........................... (7,346)
-------
Increase in shareholders' deficit........................... $ 1,654
=======
</TABLE>
(13) Represents the elimination of the intercompany payable to Motorola pursuant
to the terms of the Emtek Acquisition agreement.
(14) Represents the elimination of the $52.2 million divisional deficit of Emtek
and the recording of the Company's issuance of 1,500,000 shares of Common
Stock valued at $9.1 million in connection with the Emtek Acquisition.
(15) Included in the adjustments is a charge of approximately $10.3 million to
reflect the difference between the redemption price of the Redeemable
Preferred Stock and its carrying amount. This charge will be recorded as a
direct charge to additional paid-in capital in the quarter the redemption
occurs. Additionally, the charge will result in an increase in net loss
available to common shareholders on the statement of operations in which
the redemption occurs.
<TABLE>
<S> <C>
Issuance of shares of Common Stock in the Offering..... 68,000
Charge to pro forma as adjusted additional paid-in capital
as a result of the redemption of the Redeemable
Preferred Stock........................................... (10,301)
Reduction in additional paid-in capital resulting from
Preferred Stock Conversion................................ (52)
Net increase in additional paid-in capital................. $ 57,647
Increase in Common Stock................................... 52
--------
Net increase in shareholders' equity....................... $ 57,699
========
</TABLE>
27
<PAGE> 31
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
included elsewhere in this Prospectus. The statement of operations data for the
years ended December 31, 1996 and 1997 and the balance sheet data at December
31, 1996 and 1997, under the heading "Company" set forth below, are derived
from, and are qualified by reference to, the Company's audited consolidated
financial statements, which appear elsewhere in this Prospectus. Statement of
operations data for the years ended December 31, 1995 and 1996 and the balance
sheet data at December 31, 1995 and 1996, under the heading "Predecessor" are
derived from, and are qualified by reference to, the Alltel audited financial
statements, which appear elsewhere in this Prospectus. The financial data for
the year ended and at December 31, 1994 are derived from audited financial
statements of Alltel not included in this Prospectus. The financial data for the
year ended and at December 31, 1993 are derived from unaudited financial
statements of Alltel not included in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
PREDECESSOR COMPANY
----------------------------------------- ---------------------
1993 1994 1995 1996 1996 1997(1)
-------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................................. $ 74,136 $ 80,204 $100,114 $108,800 $ -- $ 94,077
-------- -------- -------- -------- --------- ---------
Costs and expenses:
Cost of revenues.............................. 44,209 48,692 61,335 71,483 -- 78,287
Marketing and sales........................... 13,082 12,541 11,128 11,091 770 13,662
Research and development...................... 10,596 10,186 8,522 10,271 222 15,714
General and administrative.................... 7,215 7,898 8,168 7,101 603 5,672
Depreciation and amortization................. 3,032 3,788 6,735 8,135 32 9,134
Write-off of in-process research and
development(2).............................. -- -- -- -- -- 105,688
-------- -------- -------- -------- --------- ---------
Total costs and expenses................ 78,134 83,105 95,888 108,081 1,627 228,157
-------- -------- -------- -------- --------- ---------
Income (loss) from operations................... (3,998) (2,901) 4,226 719 (1,627) (134,080)
Interest expense (income), net.................. 983 1,324 2,733 3,758 (156) 1,154
-------- -------- -------- -------- --------- ---------
Income (loss) before income taxes............... (4,981) (4,225) 1,493 (3,039) (1,471) (135,234)
Income tax benefit (provision)(3)............... -- 1,373 (887) 843 -- --
-------- -------- -------- -------- --------- ---------
Net income (loss)............................... (4,981) (2,852) 606 (2,196) (1,471) (135,234)
Dividends and accretion on mandatorily
Redeemable Preferred Stock.................... -- -- -- -- -- (5,850)
Preferred stock conversion(4)................... -- -- -- -- -- (3,105)
-------- -------- -------- -------- --------- ---------
Net income (loss) available to common
shareholders.................................. $ (4,981) $ (2,852) $ 606 $ (2,196) $ (1,471) $(144,189)
======== ======== ======== ======== ========= =========
Basic and diluted net loss per common
share(5)...................................... $ (0.32) $ (27.28)
Weighted average common shares outstanding(5)... 4,533,995 5,286,271
OTHER DATA:
EBITDA(6)....................................... $ 905
Net cash provided by operating activities....... 1,068
Net cash used by investing activities........... (113,670)
Net cash provided by financing activities....... 112,771
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------
PREDECESSOR COMPANY
----------------------------------------- ---------------------
1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 2,808 $ 1,672 $ 2,599 $ 2,022 $ 4,589 $ 4,786
Working capital (deficit)....................... (4,756) (8,561) (3,923) (9,558) 3,934 (31,504)
Total assets.................................... 56,411 70,338 88,381 100,443 5,740 102,591
Debt, including current portion................. 1,983 810 250 86 -- 16,588
Mandatorily Redeemable Preferred Stock.......... -- -- -- -- -- 35,607
Shareholders' equity (deficit).................. (29,310) (23,633) (23,011) (25,387) 4,779 (22,495)
</TABLE>
- ---------------
(1) The Alltel and SDK Acquisitions were accounted for using the purchase method
of accounting and accordingly the statement of operations data of the
Company for 1997 reflect the results of operations from these businesses
from the respective acquisition dates.
(2) In connection with the Alltel and SDK Acquisitions, the Company wrote off
in-process research and development of $98.7 million and $7.0 million,
respectively, reflecting the appraised values of certain in-process research
and development acquired in these acquisitions. See Note 6 of Notes to the
Company's Consolidated Financial Statements
(3) The Company has not recorded any benefit for income taxes because management
believes, based on the evidence available at December 31, 1997, it is more
likely than not that the Company's net deferred tax assets will not be
realized. Accordingly, the Company has recorded a valuation allowance
against its total net deferred tax assets.
(4) Represents the charge related to the January 1997 conversion of Series A
Convertible Preferred Stock to Series F Convertible Preferred Stock.
(5) See Note 2 of Notes to the Company's Consolidated Financial Statements.
(6) Represents earnings before interest expense, income tax expense,
depreciation and amortization and nonrecurring charges. EBITDA is not a
measurement in accordance with GAAP and should not be considered an
alternative to, or more meaningful than, income from operations, net income
or cash flows as defined by GAAP or as a measure of the Company's
profitability or liquidity. All registrants do not calculate EBITDA in the
same manner and accordingly, EBITDA may not be comparable with other
registrants. The Company has included information concerning EBITDA herein
because management believes EBITDA provides useful information.
28
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company was formed in December 1995, but had no significant operations
until 1997. As a result, the following discussion as it relates to 1995 and 1996
reflects the operations of the Company's predecessor, Alltel, a company acquired
by Eclipsys in January 1997. The discussion as it relates to 1997 reflects the
operations of the Company for 1997, which included only 11 months of Alltel
operations. In addition to the Alltel Acquisition, the Company completed the SDK
Acquisition in June 1997 and the Emtek Acquisition in January 1998. As a result,
the following discussion regarding period to period comparisons may not be
indicative of future results.
OVERVIEW
Eclipsys is a healthcare information technology company delivering
solutions that enable healthcare providers to achieve improved clinical,
financial and administrative outcomes. The Company offers an integrated suite of
core products in four critical areas -- clinical management, access management,
patient financial management and enterprise data warehouse and analysis. These
products can be purchased in combination to provide an enterprise-wide solution
or individually to address specific needs. These solutions take many forms and
can include a combination of software, hardware, maintenance, consulting
services, remote processing services, network services and information
technology outsourcing.
Founded in 1995, the Company has grown to its current position primarily
through a series of strategic acquisitions completed since January 1997. In May
1996, the Company entered into the Partners License for the development,
commercialization, distribution and support of certain intellectual property
relating to the BICS clinical information systems software developed by
Partners. In connection with this license, the Company issued to Partners
1,482,436 shares of Common Stock.
In January 1997, the Company purchased Alltel from AIS for a total purchase
price of $201.5 million, after giving effect to certain purchase price
adjustments. The Alltel Acquisition was paid for with cash, the issuance of
Series C Redeemable Preferred Stock and Series D Convertible Preferred Stock and
the assumption of certain liabilities. The acquisition was accounted for as a
purchase, and the Company recorded total intangible assets of $154.4 million,
consisting of $98.7 million of acquired in-process research and development,
$38.5 million of acquired technology, $7.7 million to reflect the value of
ongoing customer relationships and $9.5 million of goodwill. The Company wrote
off the acquired in-process research and development as of the date of the
acquisition, and is amortizing the acquired technology over three years on an
accelerated basis. The value of the ongoing customer relationships and the
goodwill are being amortized over five years and twelve years, respectively.
In June 1997, the Company acquired SDK for a total purchase price of $16.5
million. The SDK Acquisition was paid for with cash as well as the issuance of
the SDK Notes and Common Stock. The acquisition was accounted for as a purchase,
and the Company recorded total intangible assets of $14.8 million, consisting of
$7.0 million of acquired in-process research and development, $3.2 million of
acquired technology and $4.6 million of goodwill. The Company wrote off the
acquired in-process research and development as of the date of the acquisition,
and is amortizing both the acquired technology and the goodwill over five years.
In January 1998, the Company acquired Emtek from Motorola for a total
purchase price of $10.1 million, net of a $9.6 million receivable from Motorola.
The Emtek Acquisition was paid for with the issuance of Common Stock and the
assumption of certain liabilities. The acquisition was accounted for as a
purchase, and the Company recorded total intangible assets of $2.1 million,
consisting of acquired technology which is being amortized over five years.
The write-off of acquired in-process research and development of $98.7
million and $7.0 million associated with the Alltel Acquisition and the SDK
Acquisition, respectively, together with the amortization of acquisition-related
intangible assets of $23.0 million, accounted for $128.7 million of the
Company's $135.2 million net loss in 1997.
29
<PAGE> 33
REVENUES
Revenues are derived from sales of systems and services, which include the
licensing of software, software and hardware maintenance, remote processing,
outsourcing, implementation, training and consulting, and from the sale of
computer hardware. The Company's products and services are generally sold to
customers pursuant to contracts which range in duration from five to seven
years.
For contracts in which the Company is required to make significant
production, modification or customization changes, revenues from systems and
services are recognized using the percentage-of-completion method over the
implementation period of the contracts. Other systems and services revenues are
generally recognized on a straight-line basis over the term of licensing and
maintenance agreements. Remote processing and outsourcing services are marketed
under long-term agreements and revenues are recognized monthly as the work is
performed. Revenues related to other support services, such as training,
consulting, and implementation, are recognized when the services are performed.
Revenues from the sale of hardware are recognized upon shipment of the product
to the customer.
The Company's revenues can vary from quarter to quarter due to a number of
factors. See "Risk Factors -- Potential Fluctuations in Quarterly Performance."
COST OF REVENUES
The principal costs of systems and services revenues are salaries, benefits
and related overhead costs for implementation, remote processing, outsourcing
and field operations personnel. As the Company implements its growth strategy,
it is expected that additional operating personnel will be required, which would
lead to an increase in cost of revenues on an absolute basis. Other significant
costs of systems and services revenues are the amortization of acquired
technology and capitalized software development costs. Acquired technology is
amortized over three to five years based upon the estimated economic life of the
underlying asset, and capitalized software development costs are amortized over
three years on a straight-line basis commencing upon general release of the
related product. The Company recorded amortization expenses related to acquired
technology from the Alltel and SDK Acquisitions of $18.0 million in 1997, and
expects to record additional acquired technology amortization from the
Acquisitions of approximately $13.2 million, $9.1 million and $1.7 million in
1998, 1999 and 2000, respectively. No capitalized software development costs
were amortized in 1997.
Cost of revenues related to hardware sales include only the Company's cost
to acquire the hardware from the manufacturer.
MARKETING AND SALES
Marketing and sales expenses consist primarily of salaries, benefits,
commissions and related overhead costs. Other costs include expenditures for
marketing programs, public relations, trade shows, advertising and related
communications. As the Company continues to implement its growth strategy,
marketing and sales expenses are expected to continue to increase on an absolute
basis.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of salaries, benefits
and related overhead associated with the design, development and testing of new
products by the Company. The Company capitalizes internal software development
costs subsequent to attaining technological feasibility. Such costs are
amortized as an element of cost of revenues annually on a straight line basis
over three to five years or, if greater, based on the ratio that current
revenues bear to total anticipated revenues for the applicable product. The
Company expects to continue to increase research and development spending on an
absolute basis as it migrates its products to the SOLA architecture.
30
<PAGE> 34
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries, benefits
and related overhead costs for administration, executive, finance, legal, human
resources, purchasing and internal systems personnel, as well as accounting and
legal fees and expenses. As the Company implements its business plan, general
and administrative expenses are expected to continue to increase on an absolute
basis.
DEPRECIATION AND AMORTIZATION
The Company depreciates the costs of its tangible capital assets on a
straight-line basis over the estimated economic life of the asset, which is
generally not longer than five years. Acquisition-related intangible assets,
which include the value of ongoing customer relationships and goodwill, are
amortized based upon the estimated economic life of the asset at the time of the
acquisition, and will therefore vary among acquisitions. The Company recorded
amortization expenses for acquisition-related intangible assets of $5.1 million
in 1997.
TAXES
As of December 31, 1997, the Company had operating loss carryforwards for
federal income tax purposes of $13.8 million. The carryforwards expire in
varying amounts through 2012 and are subject to certain restrictions. Based on
evidence then available, the Company did not record any benefit for income taxes
at December 31, 1997, because management believed that the Company would not
realize its net deferred tax assets. Accordingly, the Company has recorded a
valuation allowance against its total net deferred tax assets.
RECENT DEVELOPMENTS
In connection with the MSA Buyout, the Company made a $14.0 million payment
to Alltel to cancel the terms and provisions of the MSA. As a result, the
Company will recognize a charge of approximately $7 million in the first quarter
of 1998. See Note 13 of Notes to the Company's Consolidated Financial
Statements.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
In the period-to-period comparison below, the 1997 results reflect the
operations of Eclipsys and the 1996 results reflect the operations of its
predecessor, Alltel.
Following the Alltel and SDK Acquisitions in 1997, the Company's efforts
and resources were focused on integrating the acquisitions into the Company's
operations. Particular emphasis was placed on retaining customers and
integrating the acquired products into the Company's systems and services
offerings in order to position the Company for future business opportunities.
These efforts included refocusing the Company's research and development
operations, realigning the sales departments and reducing general and
administrative overhead. As a result, the Company did not actively seek to
exploit new business opportunities during 1997. The Company believes that the
investment of time and resources in improving the internal structure of the
Company and the integration of its acquisitions have positioned the Company to
capitalize on business opportunities in the future.
Total revenues decreased by $14.7 million, or 13.5%, from $108.8 million in
1996 to $94.1 million in 1997. This decrease was caused primarily by the
inclusion in 1997 of only eleven full months of the operations of Alltel, as
well as a reduction in revenues from hardware sales of $5.2 million, offset in
part by the inclusion of $3.5 million in revenues attributable to SDK. In
addition, in accounting for the Alltel Acquisition, the Company reduced deferred
revenue by $7.3 million to reflect the estimated fair value of certain
contractual obligations. This accounting adjustment had the effect of reducing
revenues by $4.5 million in 1997 compared to 1996 revenues. The Company does not
expect the deferred revenue adjustment to materially impact future periods.
Adding Alltel results for the 23 days from January 1, 1997 to the closing of the
Alltel Acquisition, 1997 total revenues would have been $100.3 million.
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Total cost of revenues increased by $6.8 million, or 9.5%, from $71.5
million, or 65.7% of total revenues, in 1996 to $78.3 million, or 83.2% of total
revenues, in 1997. The increase was due primarily to a $18.0 million increase in
amortization of acquired technology and $2.2 million of amortization of the
value of the MSA. This increase was offset, in part, by a $7.2 million decrease
in amortization of capitalized software costs, as no software costs were
amortized in 1997. Further offsetting the increase were the timing of the Alltel
Acquisition and the reduction in hardware sales. Adding Alltel results for the
period prior to the Alltel Acquisition, total cost of revenues in 1997 would
have been $82.7 million.
Marketing and sales expenses increased by $2.6 million, or 23.2%, from
$11.1 million, or 10.2% of total revenues, in 1996 to $13.7 million, or 13.8% of
total revenues, in 1997. The increase was due primarily to the addition of
marketing and direct sales personnel as part of the Company's investment in its
marketing and sales operations following the Alltel and SDK Acquisitions. This
increase was offset in part by the timing of the Alltel Acquisition. Adding
Alltel results for the period prior to the Alltel Acquisition, 1997 marketing
and sales expenses would have been $14.3 million.
Total expenditures for research and development, including both capitalized
and non-capitalized portions, decreased by $5.1 million, or 22.9%, from $22.4
million, or 20.6% of total revenues in 1996 to $17.3 million, or 17.5% of total
revenues, in 1997. These amounts exclude amortization of previously capitalized
expenditures, which are recorded as cost of revenues. The decrease was due
primarily to the refocusing of the Company's research and development
organization, and, to a lesser extent, the timing of the Alltel Acquisition. The
portion of research and development expenditures that were capitalized decreased
by $10.6 million, from $12.2 million in 1996 to $1.6 million in 1997. The
reduction in capitalized software development costs was due primarily to the
Company's emphasis on enhancing existing technology acquired in the Alltel and
SDK Acquisitions, the costs of which were expensed as incurred. As a result of
this emphasis, research and development expense increased $5.4 million, or
53.0%, from $10.3 million in 1996 to $15.7 million in 1997. Adding Alltel
results for the period prior to the Alltel Acquisition, 1997 research and
development expenses would have been $16.5 million.
General and administrative expenses decreased by $1.4 million, or 20.1%,
from $7.1 million, or 6.5% of total revenues, in 1996 to $5.7 million, or 5.7%
of total revenues, in 1997. The decrease was due primarily to the timing of the
Alltel Acquisition, as well as savings generated by the rationalization of the
Company's administrative, financial and legal organizations. Adding Alltel
results for the period prior to the Alltel Acquisition, 1997 general and
administrative expense would have been $6.3 million.
Depreciation and amortization expense increased by $1.0 million, or 12.3%,
from $8.1 million, or 7.5% of total revenues, in 1996 to $9.1 million, or 9.7%
of total revenues, in 1997. The increase was due primarily to the amortization
of the value of ongoing customer relationships and goodwill related to the
Alltel and SDK Acquisitions. Adding Alltel results for the period prior to the
Alltel Acquisition, 1997 depreciation and amortization expense would have been
$9.7 million.
Write-offs of acquired in-process research and development of $105.7
million were recorded in 1997, of which $98.7 million was attributable to the
Alltel Acquisition and $7.0 million was attributable to the SDK Acquisition.
There were no write-offs recorded in 1996.
As a result of the foregoing factors, net loss increased from $2.2 million
in 1996 to $135.2 million in 1997.
1996 COMPARED TO 1995
The period-to-period comparison below reflects the operations of Eclipsys'
predecessor, Alltel, for 1996 and 1995.
Total revenues increased by $8.7 million, or 8.7%, from $100.1 million in
1995 to $108.8 million in 1996. This increase was caused primarily by increases
in revenues related to outsourcing contracts.
Total cost of revenues increased by $10.2 million, or 16.5%, from $61.3
million, or 61.3% of total revenues, in 1995 to $71.5 million, or 65.7% of total
revenues, in 1996. The increase was due primarily to increases in staff related
to outsourcing contracts.
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Marketing and sales expenses remained constant at $11.1 million in both
periods, representing 11.1% of total revenues in 1995 and 10.2% of total
revenues in 1996.
Total expenditures for research and development, including both capitalized
and non-capitalized portions, increased by $1.0 million, or 4.7%, from $21.4
million, or 21.4% of total revenues, in 1995 to $22.4 million, or 20.6% of total
revenues, in 1996. These amounts exclude amortization of previously capitalized
expenditures, which are recorded as cost of revenues. The increase was due
primarily to wage increases for research and development personnel. The portion
of research and development expenditures that were capitalized decreased by
$735,000, from $12.9 million in 1995 to $12.2 million in 1996.
General and administrative expenses decreased by $1.1 million, or 13.1%,
from $8.2 million, or 8.2% of total revenues, in 1995 to $7.1 million, or 6.5%
of total revenues, in 1996. The decrease was due primarily to a $1.0 million
decrease in legal fees.
Depreciation and amortization expenses increased by $1.4 million, or 20.8%,
from $6.7 million, or 6.7% of total revenues, in 1995 to $8.1 million, or 7.5%
of total revenues, in 1996. The increase was due primarily to depreciation of
computer equipment acquired for research and development purposes.
As a result of the foregoing factors, net income was $606,000 in 1995 and
net loss was $2.2 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
For purposes of the following discussion, cash flow data for 1997 relate to
the Company and cash flow data for 1995 and 1996 relate to Alltel.
The Company was formed in December 1995 and has grown primarily through a
series of acquisitions completed since January 1997. The Company's principal
sources of liquidity have been equity capital contributions, borrowings from
commercial lenders and cash provided by operating activities. The funds
generated by these sources have been applied primarily to acquisitions and
research and development activities.
Cash provided by operating activities totaled $15.9 million, $15.9 million
and $1.1 million in 1995, 1996 and 1997, respectively. The decrease in cash
provided by operating activities from 1996 to 1997 was primarily the result of a
greater portion of research and development being expensed as incurred, rather
than being capitalized. Cash provided by financing activities totaled $5.5
million, $11.9 million and $112.8 million in 1995, 1996 and 1997, respectively.
The increase from 1996 to 1997 was primarily the result of $103.8 million of
proceeds from the issuance of Convertible Preferred Stock concurrently with the
Alltel Acquisition. Cash used by investing activities totaled $20.5 million,
$28.2 million and $113.7 million in 1995, 1996 and 1997, respectively. The
increase in cash used by investing activities from 1996 to 1997 was the result
of $109.0 million applied to the Alltel and SDK Acquisitions, offset in part by
a $10.6 million reduction in capitalization of software development costs. As of
December 31, 1997, the Company had $4.8 million of cash and cash equivalents.
The Company invested $7.7 million, $9.2 million and $3.1 million in
computer equipment, leasehold improvements and other capital assets in 1995,
1996 and 1997, respectively. The Company also incurred $21.4 million, $22.4
million and $17.3 million in research and development costs in 1995, 1996 and
1997. The Company expects to invest approximately $6 million and $55 million in
capital expenses and research and development, respectively, through the end of
1999.
In January 1997, the Company entered into a $30 million credit facility
with a commercial lender, consisting of a $10 million Term Loan and a $20
million Revolver. As of December 31, 1997, the Company had $9.0 million
outstanding under the Term Loan and no outstanding borrowings under the
Revolver. The Term Loan and the Revolver are secured by substantially all of the
Company's assets, and bear interest at a variable rate. See Note 7 of Notes to
the Company's Consolidated Financial Statements. In January 1998, the Term Loan
was repaid with the proceeds of the 1998 Preferred Stock Issuance. As at March
31, 1998, the effective interest rate for the Revolver was 6.93% and the amount
available for borrowing thereunder was
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$11.0 million. In March 1998, the Company borrowed $9.0 million under the
Revolver to fund a portion of the payment in connection with the MSA Buyout. The
Company will repay all amounts outstanding under the Revolver using a portion of
the proceeds from the Offering.
The Company and the commercial lender are currently negotiating the terms
of an increase in the borrowing limit for the Revolver under the Company's
credit facility.
The Company also had an outstanding balance of $7.6 million on the SDK
Notes at December 31, 1997. The SDK Notes, which bear interest at 9.5%, are
payable to the former shareholders of SDK who were issued the SDK Notes as
partial payment for the SDK Acquisition. On April 1, 1998, the Company made a
scheduled principal payment of $3.8 million on the SDK Notes, and the Company
will repay the remaining $3.8 million principal balance, which is due on April
1, 1999, with a portion of the proceeds from this Offering.
As of December 31, 1997, the Company had an outstanding balance of $35.6
million of the Redeemable Preferred Stock. Accrued dividends and accretion on
the Redeemable Preferred Stock at December 31, 1997 totaled approximately $5.9
million. In March 1998, pursuant to the Alltel Renegotiation, AIS returned to
the Company 11,000 shares of Redeemable Preferred Stock for cancellation in
January 1998. As part of this transaction, AIS agreed that no dividends will
accrue on the remaining 4,500 shares of Redeemable Preferred Stock held by it
until July 1, 1998. The Company will redeem the remaining outstanding shares of
Redeemable Preferred Stock with a carrying value of $4.5 million using a portion
of the proceeds from this Offering.
In connection with the Alltel and SDK Acquisitions, the Company wrote off
in-process research and development totaling $105.7 million. These write-offs
were necessary as the acquired technology had not yet reached technological
feasibility, and had no future alternative uses. The Company expects the
acquired products to be developed into commercially usable products over the
next several years. The Company anticipates that certain products will be
generally released during 1998, with additional product releases in subsequent
periods through 1999. It is anticipated that total costs to develop these
products will exceed $40 million during 1998 and 1999. It is management's
expectation that the acquired technology will be successfully developed, however
there can be no assurance that commercial viability of these products will be
achieved. In the event that these products are not generally released in a
timely manner, the Company will experience fluctuations in future earnings as a
result of such delays.
The Company believes that the proceeds of this Offering, together with its
existing cash balances, funds generated by operations and borrowings available
under the Revolver, as it may be amended, will be sufficient to finance the
Company's operations for at least the next twelve months. However, to the extent
acquisitions are completed or anticipated capital and operating requirements
change, the Company may be required to raise additional financing. There can be
no assurance that, if needed, such financing would be available, or would be
available on terms satisfactory to the Company.
YEAR 2000
The Company believes that all of its internal management information
systems are currently Year 2000 compliant. Most of the Company's products are
also Year 2000 compliant. However, the products acquired by the Company in the
Emtek Acquisition, including Continuum 2000, are not Year 2000 compliant. The
Company is currently developing and testing solutions for its non-compliant
products and believes that all of its products will be Year 2000 compliant by
mid-1999 at an estimated aggregate cost of $2.6 million. Because the Company's
products are often interfaced with third-party applications, there can be no
assurance that the Company will not experience difficulties resulting from the
non-compliance of such existing applications. The cost of compliance related to
interactions with non-compliant systems, if any, cannot be reasonably estimated
at this time.
BACKLOG
Backlog consists of revenues the Company expects to recognize over the
following twelve months under existing contracts. The revenues to be recognized
may relate to a combination of one-time fees for software
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licensing and implementation, hardware sales and installations and professional
services, or annual or monthly fees for licenses, maintenance, and outsourcing
or remote processing services. As of December 31, 1997, the Company had a
backlog of approximately $108 million. See "Risk Factor -- Potential
Fluctuations in Quarterly Performance."
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued FAS 130,
"Reporting for Comprehensive Income" and FAS 131, "Disclosure about Segments of
an Enterprise and Related Information." In October 1997, the American Institute
of Certified Public Accountants issued Statement of Position 97-2, "Software
Revenue Recognition." All three statements are effective for fiscal years
beginning after December 15, 1997, and are not expected to have a material
impact on the Company's results of operations or financial condition.
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BUSINESS
OVERVIEW
Eclipsys is a healthcare information technology company delivering
solutions that enable healthcare providers to achieve improved clinical,
financial and administrative outcomes. The Company offers an integrated suite of
healthcare products in four critical areas -- clinical management, access
management, patient financial management and enterprise data warehouse and
analysis. These products can be purchased in combination to provide an
enterprise-wide solution or individually to address specific needs. The
Company's products have been designed specifically to deliver a measurable
impact on outcomes, enabling the Company's customers to quantify clinical
benefits and return on investment in a precise and timely manner. The Company's
products can be integrated with a customer's existing information systems, which
the Company believes reduces overall cost of ownership and increases the
attractiveness of its products. Eclipsys also provides outsourcing, remote
processing and networking services to assist customers in meeting their
healthcare information technology requirements. The Company was formed in
December 1995 and has grown primarily through its three acquisitions, all
completed since January 1997. These acquisitions, together with internally
generated growth, have resulted in revenues of $126.5 million in 1997 on the pro
forma basis described herein.
The Company markets its products primarily to large hospitals, academic
medical centers and integrated healthcare delivery networks. As of March 31,
1998, Eclipsys had one or more of its products installed or being installed in
over 350 facilities, including large hospitals, academic medical centers and
integrated healthcare delivery networks. To provide direct and sustained
customer contact, the Company maintains decentralized sales, implementation and
customer support teams in each of its five North American regions. The Company's
field sales force has an average of 18 years of experience in the healthcare
industry.
COMPETITIVE STRENGTHS
The Company believes that its products and services, focus on physicians'
needs, leading technology, strategic relationships, management team and
well-positioned customer base are competitive strengths that will enable it to
capitalize on continued opportunities for growth.
- Comprehensive Product Offering. Through both acquisitions and internal
development, the Company has assembled a comprehensive suite of products
that perform core functions in the four areas Eclipsys believes are most
critical to its customers -- clinical management, access management,
patient financial management and enterprise data warehouse and analysis.
The Company's individual products can be integrated to provide a
comprehensive healthcare information technology solution. The Company's
product strategy has been to acquire or develop industry-leading products
in each core category and then integrate them to provide a comprehensive
healthcare information technology solution.
- Physician-Oriented Products. The Company's clinical products are
designed to reflect and support the way physicians work, and include
features such as alerts, reminders, just-in-time clinical decision
support, sub-second response times, an intuitive graphical user
interface, continuous event monitoring and a customizable rules and
protocol engine. This focus on physicians is important because the
Company believes that they are key decision makers in the trend toward
the use of healthcare information technology solutions to improve work
processes and outcomes across the continuum of healthcare delivery.
- Leading Technology. The Company has recently announced the development
of, and has commenced migrating its products to, its new SOLA
architecture. SOLA is a browser-enabled, multi-tiered, database-neutral
architecture that supports multiple platforms and can be used across a
broad range of computing environments from client-server systems to
legacy mainframes. SOLA is designed to facilitate the integration of the
Company's products with its customers' existing systems, as well as with
future products developed or acquired by the Company.
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- Strategic Relationships. One of the Company's important strategic
relationships is with Partners, including two of its hospital
subsidiaries, Brigham and MGH. This relationship provides intensive
physician-driven research and development for new and existing products,
testing and development support. In addition, Brigham and MGH, academic
medical centers affiliated with Harvard Medical School, provide forums
for training future users and customers. The Company also has
relationships with other academic medical centers, which also provide
testing and development support.
- Proven Management Team with Successful Track Record. The Company's
senior management team averages over 22 years in the healthcare and
information technology industries and includes four former chief
executive officers. Harvey J. Wilson, Chairman of the Board, President
and Chief Executive Officer of the Company, was a co-founder of SMS. The
Company believes that the range and depth of its senior management team
position it to address the evolving requirements of its customers and to
manage the growth required to meet its strategic goals. Upon completion
of the Offering, the senior management team will beneficially own
% of the outstanding Common Stock. See "Principal and Selling
Stockholders."
- Well-positioned Customer Base. Eclipsys' customers include large
hospitals, integrated healthcare delivery networks and academic medical
centers. The Company believes that these entities are generally the first
to adopt new technology and are the drivers of industry consolidation.
Management believes that the Company's commitment to quality, innovation,
rapid product implementation and ongoing customer support has enabled it
to build and maintain strong and stable customer relationships and
positions it to capitalize on the opportunities for growth within its
existing customer base. At December 31, 1997, the Company had a backlog
of approximately $108 million. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Backlog."
INDUSTRY
In recent years, the healthcare industry has undergone, and is continuing
to undergo, radical and rapid change. The increasing cost of providing
healthcare has led the government sector, followed by the private sector, to
develop new payment mechanisms that encourage healthcare providers to contain
costs. This has caused the provider reimbursement environment to shift from the
indemnity model, characterized by fee-for-service arrangements and traditional
indemnity insurance, to the managed-care model, in which providers are aligned
within networks and healthcare delivery must follow plan-established rules to
qualify for reimbursement. As a result, the emphasis of healthcare providers has
shifted from providing care regardless of cost to providing high-quality care in
the most cost-effective manner possible. Many providers are realizing that the
traditional method of cost containment -- cutting expenses -- is not by itself
enough to maintain their competitiveness in the face of these pressures.
Management believes that providers must also improve the processes by which
healthcare is provided, including improving the quality of care, the efficiency
with which it is delivered and patient satisfaction. In particular, healthcare
providers are focusing on avoiding costly adverse clinical events.
The pressures to achieve successful clinical outcomes more efficiently
while managing costs more effectively has led to significant industry
consolidation, as healthcare providers seek to offer and control the full
continuum of healthcare. The result has been the development of large integrated
healthcare delivery networks. These are comprehensive vertical networks of
healthcare providers, typically organized around an anchor hospital, and include
physicians, outpatient facilities, laboratories, radiology facilities, home
healthcare providers and long-term and rehabilitative facilities. As these
networks grow larger and more dispersed, the challenge of effectively managing
and delivering information throughout the enterprise also increases.
Traditional healthcare information systems are limited in their ability to
support restructuring of healthcare delivery processes or the evolving
requirements of integrated healthcare delivery networks. Such systems have
generally been financially oriented, focusing primarily on the ability to
capture charges and generate bills. Many information technology vendors have
attempted to apply their existing financially oriented systems to meet the
demand for clinical solutions. However, because these systems were not
originally developed to address clinical requirements, they often lack the basic
structure and functionality to
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support better overall management of costs, care quality, outcome measurement
and patient satisfaction across the healthcare delivery continuum. Moreover,
because these vendors historically developed and marketed such systems primarily
to financial managers, physicians, who influence a significant portion of
variable healthcare costs, were often excluded from the design of healthcare
information systems and from the system selection process. In addition,
traditional systems were typically designed to operate in a single facility,
which has made them less effective in today's widely dispersed integrated
healthcare delivery networks.
The growth of the managed care environment and the rise of integrated
healthcare delivery networks has created an opportunity for new healthcare
information technology products and services. Healthcare providers are
increasingly demanding integrated solutions that offer all of the core functions
required to manage the entire healthcare delivery process. These core functions
include clinical management, access management and patient financial management
functions. In addition, large and widely spread healthcare delivery networks
require data warehouse and analysis tools that permit them to effectively
extract and analyze data located throughout the enterprise, both to measure
clinical results and return on investment and to support process improvement.
These solutions must also allow providers to preserve their investment in
existing legacy applications and technologies, which often are significant and
vary from facility to facility. Finally, physician utilization is necessary for
a healthcare information technology solution to improve clinical outcomes. The
Company believes that physician utilization will increase as information
technology solutions provide greater functionality, including alerts, reminders,
sub-second response times, just-in-time clinical decision support, an intuitive
graphical user interface and the ability to log on to the system remotely.
Historically, the healthcare industry has invested relatively less in
technology compared to certain other industries. The Company believes that
healthcare providers are realizing that a relatively small investment in
healthcare information technology can significantly reduce variable costs. As a
result of industry trends, healthcare providers are making significant
investments in healthcare information technology solutions that capitalize on
evolving information management technologies. Industry analysts estimate that
healthcare organizations spent approximately $17 billion in 1997 for information
technology solutions, and anticipate that such expenditures will increase to
approximately $28 billion annually by 2002.
STRATEGY
The Company's objective is to become the leading provider of healthcare
information technology solutions to meet the needs of the healthcare industry as
it consolidates and evolves. Key elements of the Company's strategy to achieve
this objective include:
Provide Comprehensive, Integrated Healthcare Information Technology
Solutions. Eclipsys is focusing on providing a full suite of clinical
management, access management, patient financial management and enterprise data
warehouse and analysis solutions. The Company's products are designed to be:
- responsive to physicians' needs for alerts, reminders, sub-second
response times, continuous event monitoring and practice-specific
clinical information, rules, and protocols which provide just-in-
time clinical decision support;
- outcomes-oriented, so customers can easily determine clinical
benefits and return on investment; and
- user-friendly through an intuitive graphical user interface.
The Company believes that its healthcare information technology solutions
facilitate the clinical and business decision process, enabling its customers to
improve their overall work processes, clinical outcomes and return on
investment.
Further Penetrate Existing Customer Base. The Company believes there is a
significant opportunity to sell its integrated healthcare technology solutions
to its existing customers. The Company has at least one of its products
installed or being installed at over 350 facilities. Of these customers, only a
few currently have an
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enterprise-wide healthcare information system. The Company believes that it is
well-positioned to capitalize on the growth opportunity within its existing
customer base as a result of several factors:
- its broad, integrated product suite;
- the ability of its products to work with a customer's existing
information systems;
- the ability to document clinical benefits and return on investment;
- management's industry experience and relationships;
- alignment of its pricing and payment schedule with the value received
by its customers; and
- its ongoing customer support and service programs.
Employ a Targeted Marketing Approach. The Company's target market
primarily includes large hospitals, integrated healthcare delivery networks and
academic medical centers. The Company believes that these entities are the first
to adopt new technology and are the drivers of industry consolidation. As the
size and complexity of these customers grow, their need for integrated
information technology solutions increases. The Company has identified potential
new customers, including those who are currently relying on legacy systems that
lack the functions and features such customers require, and is targeting
decision makers within these entities. In particular, the Company believes that
physicians are becoming increasingly involved in the information technology
selection process as recent technological developments and the impact of managed
care have increased the utility of information systems to physicians. The
Company believes that its clinically oriented, physician-designed products
provide it with an advantage as it competes for business. The Company also
leverages the extensive industry experience of its senior management and sales
force, as well as its strategic relationships with leading institutions such as
Brigham and MGH, to pursue this opportunity.
Continue to Enhance and Develop New Solutions. The Company intends to
continue upgrading existing products and developing new solutions to meet the
evolving healthcare information needs of its customers. For example, the Company
is currently focusing on migrating its products to its new SOLA architecture,
which is designed to facilitate the integration of new and existing applications
as they are developed or acquired by the Company with legacy systems of its
customers. The Company has a team of more than 300 internal research,
development and technical support professionals dedicated to developing,
enhancing, supporting and commercializing new and enhanced healthcare
information technology products. The Company also has an exclusive right of
first offer to commercialize new information technologies developed in
connection with Partners. In addition, the Company's relationship with Partners
allows it to test new and existing products in a forum that provides feedback
from medical and administrative users, which the Company believes gives it a
competitive advantage in developing new products.
Pursue Selected Acquisitions and Investments. The Company intends to
continue pursuing selected acquisitions and investments that will enhance its
product line, customer base, technological capabilities and management team.
Historically, the Company has experienced significant growth through
acquisitions, and intends to continue to target acquisitions and investments
that will help it achieve its overall strategic goals. The Company also believes
that such transactions will provide it with the opportunity to leverage its
existing sales, marketing and development teams and offer the potential to
achieve operating synergies across the organization.
PRODUCTS
The Company's products perform the core information technology functions
required by integrated healthcare delivery networks and other healthcare
providers across the entire continuum of healthcare. These functions include (i)
clinical management, (ii) access management, (iii) patient financial management
and (iv) enterprise data warehouse and analysis.
- Clinical Management products assist the physician and other clinicians
in making clinical decisions throughout the care process. These
systems give physicians and other clinicians immediate access to
complete and up-to-date patient records at all stages, enable
physicians to
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enter on-line orders for specialized services, such as radiology or
laboratory testing and prescriptions, provide clinical rules to
facilitate clinical decisions and alert the physician to potential
adverse reactions.
- Access Management products provide access to patient information from
any point in the healthcare delivery system and coordinate the
gathering of additional patient data at each stage of the patient
encounter. Access management also coordinates the scheduling of
patient appointments throughout the treatment process.
- Patient Financial Management products coordinate compliance with
managed-care contract reimbursement terms, patient billing and
collection and third-party reimbursement. These products support the
growing trend toward the centralized business office, which manages
compliance with managed-care contracts across the entire healthcare
enterprise and for all stages of the healthcare continuum.
- Enterprise Data Warehouse and Analysis products facilitate the
extraction and analysis of all data collected throughout the
organization to support reporting, strategic planning and
decision-making functions.
Eclipsys offers products under the Sunrise name in each of these four core
areas. These products enable the Company to offer a comprehensive line of core
applications that can be purchased individually or combined to form a fully
integrated single-source information technology solution. Most of the Company's
products are functional in several different healthcare settings, including
ambulatory care, critical care and acute care.
The Sunrise Access Management suite, the Sunrise Patient Financial
Management suite and the Sunrise Enterprise Data Warehouse are generally
available to the Company's customers. Most of the key functionalities of the
Sunrise Clinical Management suite are currently available in the Company's
heritage products. The Company is in the process of integrating these key
functionalities into the Sunrise Clinical Management suite, which is currently
in field trials and is expected to be generally available to customers in 1999.
SUNRISE CLINICAL MANAGEMENT
Sunrise Clinical Management is a physician-oriented application that
provides patient information to the physician and other clinicians at the
point-of-care anywhere in the healthcare continuum, allows a physician to
quickly and efficiently enter orders directly into the system and provides
clinical decision support at the time of order entry. The functionality of the
Sunrise Clinical Management suite is derived from the Alltel TDS 7000 Series,
Emtek's Continuum 2000 application and the BICS program developed at Brigham and
licensed from Partners. The Company has selected the best features of these
heritage programs to integrate into its Sunrise Clinical Management suite. The
Company continues to enhance and support these heritage products for its
installed customer base in order to allow these customers to make the transition
to the Sunrise Clinical Management suite over time. Sunrise Clinical Management
includes the following features:
- Clinical Data Repository, which permanently stores clinical and
financial information into patient care records that are easily and
quickly accessible in ambulatory, acute care and other healthcare
settings.
- Clinical View, which provides physicians with access to patient
information, such as complete patient records covering treatments at
both ambulatory and acute care facilities, whether they are accessing
the records from within the healthcare facility or a remote location.
- Clinical Documentation, which gathers and presents organized, accurate
and timely patient information. The application creates an electronic
patient chart, accepting and arranging input from caregivers,
laboratories or monitoring equipment.
- Order Entry, Communication and Management, which enables physicians to
enter on-line prescriptions and orders for laboratory or diagnostic
tests or procedures. The application also routes the order to the
appropriate department or party within the organization for
fulfillment.
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- SOLAssistant, which is a clinical decision support system that is
activated automatically during the order entry process. This
sophisticated system provides real-time guidance to physicians by
alerting them to possible problems with or conflicts between newly
entered orders and existing patient information using the system's
rules database. A comprehensive set of clinical rules developed by
physicians is available with SOLAssistant. Customers can modify
these existing rules or can develop their own clinical rules.
- SOLAsentry, which is a continuous event monitoring system.
SOLAsentry triggers alerts, which can include e-mail or pager
notification, upon the occurrence of a specified change in a
patient's condition or any other physician-designated event, such as
the delivery of unfavorable laboratory results. The application
tracks new patient data, relates it to information already in the
system for that patient, identifies significant new relationships,
alerts the physician to the changed relationship and prompts
corrective actions on a real-time basis.
- Clinical Pathways and Scheduled Activities List, which provide
access to standardized patient care profiles and assist in the
scheduling and monitoring of procedures. These applications provide
listings of clinical treatment procedures for individual patient
care and generates scheduled activities lists in each department
based on information from those lists. This allows the resources of
a department to be deployed in the most effective and efficient
manner.
The Company is currently developing a clinical reporting application, which
will provide periodic reports to physicians enabling them to identify their
practice group's clinical performance. The Company is also developing referral
and medical management features, which will allow a physician to refer a patient
instantly to another healthcare provider with appropriate patient information
attached to the referral.
As of March 31, 1998, the Company's heritage clinical management products
were installed in over 200 facilities and in the process of being installed in
more than 50 facilities.
SUNRISE ACCESS MANAGEMENT
Sunrise Access Management enables the healthcare provider to identify the
patient at any point in the healthcare delivery system and to collect and
maintain patient information throughout the entire continuum of patient care on
an enterprise-wide basis. The single database structure of Sunrise Access
Management permits simultaneous access to the entire patient record from any
terminal on the system. The Sunrise Access Management suite is based primarily
on the products acquired in the SDK Acquisition, which the Company has
integrated with its other product offerings and has continued to enhance. The
elements of Sunrise Access Management include:
- Patient Registration/ADT, which is used to register a patient in an
ambulatory setting, and to admit, discharge and transfer patients in
an acute care setting. Patient information -- such as demographics,
personal contacts, primary-care provider, allergies or medications,
health history, employment and insurance coverage -- is taken at the
patient's initial visit and is immediately accessible on-line to all
authorized personnel across the enterprise. Subsequent visits
require only confirmation and updates as necessary. Visit-specific
information, such as the date and the reason for the visit, the care
provided and the caregivers providing service, is collected at each
visit.
- Patient Scheduling and Resource Management, which is used to
schedule patient appointments across an organization from any
location within the enterprise. The application has the flexibility
to provide for patient preferences and resource availability.
- Enterprise Master Person Index, which is a single index of all
patients and healthcare plan members within a healthcare provider's
system. Records can be accessed from the index by searching a
variety of characteristics, such as name, Social Security number or
other demographic data, including a combination of several
characteristics.
Sunrise Access Management also includes managed care support features such
as verifying insurance eligibility on-line and compliance with managed care plan
rules and procedures, as well as medical records
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abstracting, which compiles patient data into statistical information. The
integrated nature of Sunrise Access Management allows healthcare providers to
complete pre-registration as part of the scheduling process and view patient
records from multiple sites within an enterprise. This eliminates the generation
of redundant records, thereby saving both patient and caregiver time, and
permits the efficient scheduling of resources throughout the organization.
As of March 31, 1998, the Company's access management products were
installed in over 60 facilities and in the process of being installed in 13
additional facilities.
SUNRISE PATIENT FINANCIAL MANAGEMENT
Sunrise Patient Financial Management uses a single, integrated database for
patient accounting processes, including the automatic generation of patient
billing and accounts receivable functions, a system of reimbursement management
to monitor receivables, the automation of collection activities and contract
compliance analysis, as well as follow-up processing and reporting functions.
Billing and receivables management activities are automated through rules-based
processing and can be customized to reflect each organization's specific
procedures. This product suite supports the growing trend toward the centralized
business offices for multiple entities, which improves compliance with managed
care contracts across the entire enterprise and at all stages of the healthcare
delivery continuum. The Sunrise Patient Financial Management suite is based
primarily on the products acquired in the SDK Acquisition, which the Company has
integrated with its other product offerings and has continued to enhance.
Sunrise Patient Financial Management includes the following functions:
- Patient Accounting, which automates the patient billing and accounts
receivable functions. For bill generation, the application
incorporates rules-based calculations of expected reimbursement and
provides users with the option for automatic generation of
contractual allowances at the time of billing or the time of
payment. Rules may be generated for each insurance plan accepted by
an organization. Receivables management functions include account
write-offs, on-line work lists of accounts requiring follow-up,
extensive account comments and standard and ad hoc reporting.
Paperless processing is achieved through real-time inquiry, editing,
sorting, reporting, commenting and updating from other applications,
including modules in Sunrise Access Management and Sunrise Clinical
Management.
- Contract Management, which includes a repository for the payment
terms, restrictions, approval requirements and other rules and
regulations of each insurance plan and managed care contract
accepted by an organization. Contract Management is used in
conjunction with other Sunrise products to ensure that patient care
complies with these rules and regulations.
- Reimbursement Management, which facilitates monitoring receivables,
performing collection activity, reconciling with third parties and
analyzing contract compliance and performance.
- Executive Information System, which provides immediate access to the
data contained in the Patient Financial Management database.
Executive Information System provides reports in tabular or graphic
formats.
As of March 31, 1998, the Company's patient financial management products
were installed at over 60 facilities and in the process of being installed in an
additional 17 facilities.
SUNRISE ENTERPRISE DATA WAREHOUSE
Sunrise Enterprise Data Warehouse, which consolidates data from different
systems, including all of a client's legacy and third-party systems, into a
single database to facilitate and support data gathering and analysis throughout
an organization. This application enables users to analyze collected data,
identify sources of the data, automate data extraction, map and load data into
relational tables for detailed analysis, assure the consistency of data across
systems and support timely, accurate analysis and reporting of data for specific
applications. Enterprise Data Warehouse is able to house data from other systems
and supports data-mining techniques, allowing a customer to gather data from all
of the organization's systems. Customers can build
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customized reports using the collected data, reducing the need for additional
software and training. Sunrise Enterprise Data Warehouse is an important
component of the customers' ability to measure and document improved clinical
outcomes and return on investment.
OTHER PRODUCTS
The Company's other products include OpenHUB and Orion, both of which the
Company distributes under a license. OpenHUB is the Company's interface engine,
which provides a fast, flexible means of integrating systems and data, allowing
an organization to select the best data processing solution regardless of the
hardware or software platforms. Orion is an electronic document and workflow
management product that permits providers to reduce their dependency on paper
communications, thereby improving workflow processes and reducing the risk of
lost or inaccurate records.
In connection with providing healthcare information technology solutions,
the Company also sells hardware to its customers.
SOLA ARCHITECTURE
The Company has recently announced the development of, and has commenced
migrating its products to, its new SOLA architecture, which the Company believes
will facilitate integration, enhance automation, increase reliability and
improve security and workflow processes. SOLA draws on a thin-client
architecture to integrate business logic with an intuitive graphical user
interface thereby enhancing automation and reducing the cost of ownership. This
thin-client architecture enables the user interface to be improved without
disturbing the core application set and facilitates integration of the Company's
products with new operating systems, display environments and devices. SOLA also
features a high performance rules engine to implement a sizable portion of the
business logic for the Company's products. These rules guide clinical and
business workflow, clinical decision support for order entry, clinical and
financial event monitoring and screen logic, enabling structured development of
new applications while maintaining consistency across applications. Because the
rules are managed and stored as data, customers are able to update the business
logic without modifying and distributing new code. This enables customers to
reduce programming expenses, while enhancing the flexibility of the Company's
applications and facilitating their rapid adoption. SOLA features a seamless and
consistent architecture which promotes reliability for mission-critical
applications and fault tolerance. The SOLA architecture also uses advanced
technology to maintain security across the Internet and organization Intranets.
This ability to support secure communications and incorporate reliable protocols
for authenticating users and services permits the confidentiality of patient
information to be maintained. Certain products being migrated to the SOLA
architecture are currently undergoing field trials in several locations.
SERVICES
Drawing on the functionality and flexibility of its software products, the
Company offers a range of professional services as part of its healthcare
information technology solutions. These services include outsourcing, remote
processing and network services.
OUTSOURCING SERVICES
Outsourcing Services typically involve the Company assuming the management
of the customer's entire information technology function on-site using the
Company's employees. Outsourcing Services include Facilities Management, Network
Outsourcing and Transition Management.
Facilities Management enables customers to improve their information
technology operations by having the Company assume responsibility for all
aspects of the customer's information technology operations, from equipment to
human resources.
Network Outsourcing provides customers with total healthcare information
network support, relieving the customer of the need to secure and maintain
expensive resources in a rapidly changing technological environment.
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Transition Management offers customers a solution for migrating their
information technology to new processes, technologies or platforms without
interfering with the existing rules and initiatives critical to the delivery of
healthcare.
REMOTE PROCESSING SERVICES
Remote Processing Services include complete processing of an enterprise's
applications from the Company's site using the Company's equipment and
personnel. This service frees an organization from having to maintain the
environment, equipment and technical staff required for systems processing and
offers support for an organization's fault management, configuration management
and utilization management processes.
NETWORK SERVICES
Network Services is a comprehensive package of services allowing the
Company's customers to receive critical data quickly and accurately without
incurring a substantial increase in cost. The Company assesses changes in
network utilization and function, forecasts any necessary upgrades to
accommodate growth of the customer and designs any changes necessary to provide
the customer with the required performance and functionality.
The Company offers its services in various forms ranging from on-site
assistance on a time and expense basis to complete turnkey project deliveries
with guaranteed fixed price rates and outcomes.
IMPLEMENTATION, PRODUCT SUPPORT AND TRAINING
The Company believes that a high level of service and support is critical
to its success. Furthermore, the Company believes that a close and active
service and support relationship is important to customer satisfaction and
provides the Company with important information regarding evolving customer
requirements and additional sales opportunities. To facilitate successful
product implementation, the Company's consultants assist customers with initial
installation of a system, conversion of a customer's historical data and ongoing
training and support. This also includes Year 2000 consulting, programming and
conversion services to help customers prepare for transition and to address Year
2000 compliance and performance issues. In addition, 24-hour telephone support
is available and the Company offers electronic distribution to provide clients
the latest information regarding the Company's products. The Company also
provides regular maintenance releases to its customers. The Company's service
and support activities are supplemented by comprehensive training programs,
including introductory training courses for new customers and seminars for
existing customers, to educate them about the capabilities of the Company's
systems.
PRICING
Historically, the Company has employed a traditional software pricing and
payment model in which the entire software license fee is payable upon
commencement of the license, service fees are paid as performed and maintenance
fees, typically equal to a fixed percentage of the license fee, are paid over
the life of the license. More recently, the Company has begun to offer a variety
of creative pricing models in furtherance of its philosophy that pricing and
payment schedules should be closely aligned with the value received by the
customer. The Company encourages customers to elect a payment schedule that
spreads software license payments, together with service fees and maintenance
fees on a bundled basis, regularly over the life of the license. In addition,
the Company has commenced offering software license and maintenance fees that
vary with the amount of patient traffic serviced by the customer, enabling the
customer to analyze the cost on a per-case basis. The Company also encourages
customers to consider pricing models in which the Company's primary compensation
takes the form of sharing in cost savings or other performance benefits realized
by the customer. The pricing of the Company's contracts can vary significantly,
depending upon the pricing model, product configuration and features, and
implementation.
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CUSTOMERS, MARKETING AND SALES
The Company's marketing and sales efforts focus on large hospitals,
integrated healthcare delivery networks and academic medical centers. At March
31, 1998, the Company had installed or was in the process of installing its
products at more than 325 facilities in North America, including large
hospitals, integrated healthcare delivery network facilities and academic
medical centers. In addition, the Company's products were installed or being
installed at more than 25 facilities outside North America, predominantly in
Europe.
The Company sells its products and services in North America exclusively
through its direct sales force. To provide direct and sustained customer
contact, management of the sales force is decentralized, with the five Regional
Presidents having primary responsibility for sales and marketing within their
regions. Some multi-region accounts are managed by national account
representatives. Within each region, the direct sales force is generally
organized into two groups, one focused principally on generating sales to new
customers and the other focused on additional sales to existing customers. The
direct sales force works closely with the Company's implementation and product
line specialists. The Company's field sales force has an average of 18 years of
experience in the healthcare industry. A significant component of compensation
for all direct sales personnel is performance based, although the Company bases
quotas and bonuses on a number of factors in addition to actual sales, including
customer satisfaction and accounts receivable performance.
The Company has customers in Belgium, France, the Netherlands, the United
Kingdom and Japan. International sales representatives generally report to the
Regional President of the International Region and are responsible for all
customers within their sales regions. The Company may also use sales agents to
market its products internationally.
RESEARCH AND DEVELOPMENT
The Company believes that its future success depends in large part on its
ability to maintain and enhance its current product line, develop new products,
maintain technological competitiveness and meet an expanding range of customer
requirements. A significant portion of the Company's research and development
and product testing effort is performed by or in conjunction with physicians at
Brigham, MGH and other academic medical centers. The Company's current
development efforts are focused on the migration of its products to the SOLA
architecture and the development of additional functionality and applications
for its existing products. The Company believes that the open, integrated nature
of its SOLA architecture will facilitate the development of applications without
the need for major rewriting or reconfiguration of code. As of March 31, 1998,
the Company's research, development and technical support organization consisted
of more than 300 employees. The Company's research and development expenses were
$29.3 million for 1997, on the pro forma basis described herein.
COMPETITION
The market for the Company's products and services is intensely competitive
and is characterized by rapidly changing technology, evolving user needs and the
frequent introduction of new products. The Company's principal competitors
include Cerner Corp., HBO & Company, IDX Systems Corp. and SMS. The Company also
faces competition from providers of practice management systems, general
decision support and database systems and other segment-specific applications,
as well as from healthcare technology consultants. A number of the Company's
competitors are more established, benefit from greater name recognition and have
substantially greater financial, technical and marketing resources than the
Company. The Company also expects that competition will continue to increase as
a result of consolidation in both the information technology and healthcare
industries. The Company believes that the principal factors affecting
competition in the healthcare information technology market include product
functionality, performance, flexibility and features, use of open standards
technology, quality of service and support, company reputation, price and
overall cost of ownership. See "Risk Factors -- Competition."
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PROPRIETARY RIGHTS
The Company is dependent upon its proprietary information and technology.
The Company relies primarily on a combination of copyright, trademark and trade
secret laws and license agreements to establish and protect its rights in its
software products and other proprietary technology. The Company requires third-
party consultants and contractors to enter into nondisclosure agreements to
limit use of, access to and distribution of its proprietary information. In
addition, the Company currently requires employees who receive option grants
under any of its stock plans to enter into nondisclosure agreements. There can
be no assurance that the Company's means of protecting its proprietary rights
will be adequate to prevent misappropriation. The laws of some foreign countries
may not protect the Company's proprietary rights as fully or in the same manner
as do the laws of the United States. Also, despite the steps taken by the
Company to protect its proprietary rights, it may be possible for unauthorized
third parties to copy aspects of the Company's products, reverse engineer such
products or otherwise obtain and use information that the Company regards as
proprietary. In certain limited instances, customers can access source code
versions of the Company's software, subject to contractual limitations on the
permitted use of such source code. Although the Company's license agreements
with such customers attempt to prevent misuse of the source code, the possession
of the Company's source code by third parties increases the ease and likelihood
of potential misappropriation of such software. Furthermore, there can be no
assurance that others will not independently develop technologies similar or
superior to the Company's technology or design around the proprietary rights
owned by the Company. See "Risk Factors -- Limited Protection of Proprietary
Rights."
EMPLOYEES
As of March 31, 1998, the Company employed 997 people, including 318 in
research, development and technical support, 471 in operations, 128 in marketing
and sales, 62 in finance and administration and 18 in international operations.
The success of the Company depends on its continued ability to attract and
retain highly skilled and qualified personnel. Competition for such personnel is
intense in the information technology industry, particularly for talented
software developers, service consultants, and sales and marketing personnel.
There can be no assurance that the Company will be able to attract and retain
qualified personnel in the future. See "Risk Factors -- Ability to Attract and
Retain Key Personnel."
The Company's employees are not represented by any labor unions. The
Company considers its relations with its employees to be good.
FACILITIES
The Company is headquartered in Delray Beach, Florida, where it leases
office space under two separate leases expiring in March 2000 and July 2002. In
addition, the Company maintains leased office space in Tempe, Arizona; Little
Rock, Arkansas; Newport Beach, California; San Jose, California; Atlanta,
Georgia; Oak Brook, Illinois; Boston, Massachusetts; Albany, New York; Saratoga
Springs, New York; Roseland, New Jersey; Malvern, Pennsylvania; and Pittsburgh,
Pennsylvania within the United States and Brussels, Belgium; Paris, France; and
London, United Kingdom.
LEGAL PROCEEDINGS
The Company is involved from time to time in routine litigation that arises
in the ordinary course of its business, but is not currently involved in any
litigation that the Company believes could reasonably be expected to have a
material adverse effect on the Company.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and other key employees of the Company,
their respective ages as of March 31, 1998 and their positions with the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Executive Officers and Directors:
Harvey J. Wilson............................. 59 President, Chief Executive Officer and Chairman
of the Board of Directors
James E. Hall................................ 64 Senior Vice President, Field Operations and
Chief Operating Officer
Robert J. Vanaria............................ 52 Senior Vice President, Administration, Chief
Financial Officer and Treasurer
T. Jack Risenhoover, II...................... 32 Vice President, General Counsel and Secretary
Steven A. Denning(1)......................... 49 Director
G. Fred DiBona(1)............................ 47 Director
Eugene Fife(1)............................... 57 Director
William E. Ford(2)........................... 36 Director
Jeffrey H. Fox(3)............................ 36 Director
Jay B. Pieper(2)............................. 54 Director
Richard D. Severns(2)........................ 52 Director
Other Key Employees:
Peter J. Camp................................ 39 Regional President, Mid-Atlantic Region
James Carter................................. 54 Senior Vice President, Customer Support and
Research & Development
John Depierro................................ 61 Regional President, International Region
Michael B. Kaufman........................... 46 Senior Vice President, Business Development
Terrence S. Macaleer......................... 47 Senior Vice President, Field Support
Richard D. Mager............................. 48 Regional President, Midwest Region
Stephanie P. Massengill...................... 57 Senior Vice President, Corporate Development
John Munley.................................. 56 Regional President, Northeast Region
John T. Patton, Jr. ......................... 48 Regional President, Western Region
Robert C. Robbins, Jr. ...................... 47 Regional President, Southeast Region
Anthony Stefanis............................. 58 Senior Vice President, Sales
Gregory L. Wilson............................ 29 Vice President, Mergers and Acquisitions
</TABLE>
- ---------------
(1) Member of the Executive Development and Compensation Committee.
(2) Member of the Audit Committee.
(3) It is anticipated that Mr. Fox will not continue to serve as a director
following the effectiveness of this Offering.
Harvey J. Wilson, the Company's founder, has served as President, Chief
Executive Officer and Chairman of the Board of Directors of the Company since
the Company was formed in December 1995. From January 1993 to December 1995, Mr.
Wilson invested privately in software and technology companies. Mr. Wilson was a
co-founder of SMS, a healthcare information systems provider. Mr. Wilson is a
director of Philadelphia Suburban Corporation, a water utility company.
James E. Hall has served as Senior Vice President, Field Operations and
Chief Operating Officer since January 1997. From August 1995 to January 1997,
Mr. Hall was Senior Vice President of Sales and Marketing for Multimedia Medical
Systems, Inc., a telemedicine company ("MMS"). From January 1991 to August 1995,
Mr. Hall was President of Asia Pacific Partners Ltd., a consulting firm.
Robert J. Vanaria has served as Senior Vice President, Administration,
Chief Financial Officer and Treasurer since December 1997. From March 1995 to
December 1997, Mr. Vanaria was Senior Vice
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President and Chief Financial Officer of Greenwich Air Services, Inc., an
aviation services subsidiary of General Electric Company. From September 1994 to
February 1995, Mr. Vanaria was a self-employed business consultant. From March
1982 to August 1994, Mr. Vanaria was Senior Vice President and Chief Financial
Officer of Foamex International, Inc., a manufacturing company.
T. Jack Risenhoover, II has served as Vice President and General Counsel
since February 1997. From May 1994 to January 1997, Mr. Risenhoover was general
counsel for The Right Angle, Inc., a marketing firm. Mr. Risenhoover was awarded
his J.D. from Vanderbilt University School of Law in April 1994.
Steven A. Denning has served on the Company's Board of Directors since
March 1997. Mr. Denning is a Managing Member of General Atlantic Partners, LLC,
a private investment company, and has been with General Atlantic since 1980. Mr.
Denning is also a director of GT Interactive Software Corp., an interactive
entertainment software development company.
G. Fred DiBona has served on the Company's Board of Directors since May
1996. Since 1990, Mr. DiBona has been the President and Chief Executive Officer
of Independence Blue Cross and its subsidiaries. Mr. DiBona is also a director
of Magellan Health Services, Inc., a specialized managed healthcare company;
PEPCO Energy Company, a public energy company; Philadelphia Suburban
Corporation, a water utility company; Tasty Baking Company, a packaged foods
company; and the Pennsylvania Savings Bank.
Eugene Fife has served on the Company's Board of Directors since May 1997.
Since September 1996, Mr. Fife has been the President and Chief Executive
Officer of MMS. Mr. Fife was a general partner in Goldman Sachs & Co. from June
1970 to November 1995, at which time he became a limited partner. Mr. Fife
remains a limited partner in Goldman Sachs & Co. Mr. Fife is also a director of
Baker, Fentress Company, an investment company.
William E. Ford has served on the Company's Board of Directors since May
1996. Mr. Ford is a Managing Member of General Atlantic Partners, LLC and has
been with General Atlantic since 1991. Mr. Ford also serves as a director of GT
Interactive Software Corp., an interactive entertainment software company;
MAPICS, Inc., a resources planning software applications company; Envoy
Corporation, an electronic data processing company; LHS Group Inc., a billing
solutions company; SS&C Technologies, Inc., a financial software company; and
E-Trade Group, Inc., an on-line discount broker.
Jeffrey H. Fox has served on the Company's Board of Directors since January
1997. Mr. Fox has been with AIS since February 1996, serving as President since
August 1996. From June 1986 to February 1996, Mr. Fox was an investment banker
with Stephens Inc.
Jay B. Pieper has served on the Company's Board of Directors since May
1996. Since May 1995, Mr. Pieper has served as Vice President of Corporate
Development and Treasury Affairs for Partners. From March 1986 to May 1995, Mr.
Pieper was Senior Vice President and Chief Financial Officer for Brigham.
Richard D. Severns has served on the Company's Board of Directors since
January 1998. Mr. Severns has been Senior Vice President and Director of Finance
for the GM Network Services and Strategy Group of Motorola since August 1991.
Peter J. Camp joined the Company in April 1996 and has served as Regional
President, Mid-Atlantic Region since April 1997. From October 1983 to March
1996, Mr. Camp served in a variety of positions with SMS including Regional
Marketing Manager and Regional Manager.
James Carter has served as Senior Vice President, Customer Support and
Research & Development since April 1997. From August 1996 to April 1997, Mr.
Carter was a healthcare information technology consultant. From 1970 to August
1996, Mr. Carter was employed by SMS, where he last served as Vice President of
Operations/Development.
John Depierro has been Regional President, International Region since
January 1997. From October 1994 to January 1997, Mr. Depierro served as Senior
Vice President of Alltel. From October 1980 through
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October 1994, Mr. Depierro served as President of Medical Data Technology, Inc.,
which was acquired by Alltel in October 1994.
Michael B. Kaufman, Senior Vice President, Business Development, joined the
Company in June 1997 following the SDK Acquisition. Mr. Kaufman was employed by
SDK beginning in 1972 and served as its President from 1988 until the SDK
Acquisition.
Terrence S. Macaleer has served as Senior Vice President, Field Support
since March 1996. From January 1973 to January 1996, Mr. Macaleer was Vice
President of Field Operations for SMS.
Richard D. Mager has been Regional President, Midwest Region since April
1997. From July 1989 to April 1997, Mr. Mager was a partner at Ernst & Young,
LLP, where he served as a healthcare consulting partner.
Stephanie P. Massengill has served as Senior Vice President, Corporate
Development since September 1996. From July 1988 to September 1996, Ms.
Massengill was the Chief Executive Officer of Imaging Concepts, Inc., an
electronic document management company.
John Munley has been Regional President, Northeast Region since April 1997.
From August 1995 to April 1997, Mr. Munley was Vice President, Sales for
Compucare, a healthcare information technology company. From April 1990 to July
1995, Mr. Munley was Senior Vice President of Sales for First Data Health
Services, a healthcare information technology company.
John T. Patton, Jr. has been Regional President, Western Region since May
1997. From June 1976 to May 1997, Mr. Patton served as a Regional Manager for
SMS.
Robert C. Robbins, Jr. joined the Company in April 1996 and has served as
Regional President, Southeast Region since April 1997. From January 1994 to
March 1996, Mr. Robbins served as Chief Operating Officer of Mainline Physicians
Org., a management services organization, and Atlantic Physicians Systems, an
independent practitioners association. Mr. Robbins worked for SMS from January
1983 to January 1994, serving in a variety of positions.
Anthony Stefanis has served as Senior Vice President, Sales since December
1997. From June 1997 to November 1997, Mr. Stefanis was self-employed as a
healthcare information technology consultant. From July 1992 to June 1997, Mr.
Stefanis served as Chairman and Chief Executive Officer of High Integrity
Systems Inc., an information services division of EQUIFAX Information Services,
Inc.
Gregory L. Wilson has served as Vice President, Mergers and Acquisitions
since April 1997. From March 1996 to April 1997 Mr. Wilson was a Vice President
of Lehman Brothers, where he worked as an equity analyst. From May 1995 to March
1996, Mr. Wilson was a Vice President of Needham & Co. From May 1994 to May
1995, Mr. Wilson also served as Senior Vice President of Brean Murray & Co., an
investment bank. Mr. Wilson was awarded his J.D. from Vanderbilt University
School of Law in April 1994.
Following this Offering, the Board of Directors of the Company will be
divided into three classes, each of whose members will serve for a staggered
three-year term. The Board will consist of two Class I Directors (Messrs. Fife
and Ford), two Class II Directors (Messrs. Pieper and Severns) and three Class
III Directors (Messrs. Denning, DiBona and Wilson). At each annual meeting of
stockholders, a class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then expiring. The terms
of the Class I Directors, Class II Directors and Class III Directors expire upon
the election and qualification of successor directors at the annual meeting of
stockholders held during the calendar years 1999, 2000 and 2001, respectively.
Each officer serves at the discretion of the Board of Directors and holds
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Other than Mr. Harvey J. Wilson and Mr. Gregory
L. Wilson, who are father and son, there are no family relationships among any
of the directors, executive officers or key employees of the Company.
STOCKHOLDERS' AGREEMENT
Pursuant to the Second Amended and Restated Stockholders' Agreement dated
January 24, 1998, by and among the Company and certain stockholders of the
Company (the "Stockholders Agreement"), such
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stockholders were granted the right, subject to certain conditions, to designate
representatives to the Company's Board of Directors. Under this agreement, Mr.
Pieper was elected as the representative of Partners, Mr. Fox was elected as the
representative of AIS, Mr. Severns was elected as the representative of Motorola
and Mr. Wilson was elected as the representative of certain stockholders,
including Mr. Wilson, Wilfam Ltd. ("Wilfam") and Michael B. Kaufman.
In addition, after the Offering and subject to certain conditions, Motorola
has the right under the Stockholders Agreement to have an observer present at
all regular and special meetings of the Board of Directors so long as it owns at
least 3.5% of the total number of shares of Common Stock outstanding (on an as
converted and as exercised basis).
Mr. Ford and Mr. Denning were elected as the representatives of General
Atlantic Partners, LLC and its affiliates pursuant to rights granted to the
holders of Series D Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock in the Second Amended and Restated Certificate of Incorporation.
In the event the Second Amended and Restated Certificate of Incorporation is
amended to terminate the representation rights of the holders of Series D
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock, General
Atlantic Partners, LLC and its affiliates would have the ability to designate
two representatives to the Board of Directors pursuant to the Stockholders
Agreement.
All rights to designate representatives to the Board of Directors granted
under the Stockholders Agreement terminate upon the closing of the Offering.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Executive Development and Compensation
Committee composed of Messrs. Denning (Chairman), DiBona and Fife, which makes
recommendations concerning salaries and incentive compensation for executive
officers of the Company and administers and grants stock options and awards
pursuant to the Company's stock option plans, and an Audit Committee composed of
Messrs. Pieper (Chairman), Ford and Severns, which reviews the results and scope
of the audit and other services provided by the Company's independent public
accountants. Mr. Harvey J. Wilson is an ex-officio member of both the Audit
Committee and the Executive Development and Compensation Committee.
DIRECTOR COMPENSATION
Directors of the Company are reimbursed for any expenses incurred in
connection with attendance at meetings of the Board of Directors or any
committee of the Board of Directors, but are not otherwise compensated for such
service. On April 8, 1998, the seven non-employee directors of the Company were
each granted a non-qualified stock option to purchase 20,000 shares of Common
Stock at a purchase price of $9.00 per share under the Company's 1998 Stock
Incentive Plan. These options vest annually over a four year period. See
"-- Stock Plans."
50
<PAGE> 54
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1997 for the Company's Chief Executive Officer and
its two other executive officers whose total annual salary and bonus exceeded
$100,000 for 1997 (together, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(1)
--------------------------- -------- -------- ------------
<S> <C> <C> <C>
Harvey J. Wilson.......................................... $150,000(2) -- --
Chairman of the Board, President and Chief Executive
Officer
James E. Hall............................................. 177,971 $ 50,000 75,000
Senior Vice President, Field Operations and Chief
Operating Officer
Robert J. Vanaria......................................... 7,692(3) 150,000 150,000
Senior Vice President, Administration and Chief Financial
Officer
</TABLE>
- ---------------
(1) Represents the number of shares covered by options to purchase shares of the
Company's Common Stock granted during 1997.
(2) Includes $84,000 of deferred compensation.
(3) Mr. Vanaria joined the Company in December 1997.
Option Grants During 1997
The following table sets forth grants of stock options to each of the Named
Executive Officers during the year ended December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ------------ ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Harvey J. Wilson............................. -- -- -- -- -- --
James E. Hall................................ 6,000 0.3% $0.13 1/20/07 $ 491 $ 1,243
69,000 3.5 4.33 1/25/07 187,895 976,162
Robert J. Vanaria............................ 150,000 7.6 5.00 2/8/07 471,671 1,195,307
</TABLE>
- ---------------
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (5% and 10%) on
the market value of the Common Stock on the date of option grant over the
term of the options. These numbers are calculated based on rules promulgated
by the Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the timing of such
exercise and the future performance of the Common Stock. There can be no
assurance that the rates of appreciation assumed in this table can be
achieved or that the amounts reflected will be received by the individuals.
51
<PAGE> 55
Year-End Option Values
The following table sets forth certain information concerning the number
and value of unexercised options held by each of the Named Executive Officers on
December 31, 1997. None of the Named Executive Officers exercised any stock
options during the year ended December 31, 1997.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT THE-MONEY OPTIONS
FISCAL YEAR END AT FISCAL YEAR END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Harvey J. Wilson............................... -- -- -- --
James E. Hall.................................. -- 75,000 -- $75,450
Robert J. Vanaria.............................. 50,000 100,000 -- --
</TABLE>
- ---------------
(1) Represents the difference between the exercise price and the fair market
value of the Common Stock at fiscal year end as determined by the Board of
Directors of the Company.
EMPLOYMENT AGREEMENT
Pursuant to an Employment Agreement between Harvey J. Wilson and the
Company dated as of May 1, 1996, the Company agreed to employ Mr. Wilson as the
Company's Chief Executive Officer until May 1, 1999, with an annual salary of
$150,000, subject to deferral until the Company has reached certain milestones
and subject to adjustment from time to time thereafter. In January 1998, Mr.
Wilson's annual salary was increased to $200,000. Upon termination of his
employment, unless terminated for cause, Mr. Wilson shall be entitled to payment
of his salary and continuation of his benefits for a period of months determined
by the Board of Directors which is consistent with its practice for senior
executives. Mr. Wilson has agreed not to compete with the Company during his
term of employment and for three years thereafter.
STOCK PLANS
A total of 6,500,000 shares of Common Stock have been reserved for issuance
in the aggregate under the Company's three stock plans described below.
The Company's 1996 Stock Plan (the "1996 Stock Plan") provided for grants
of stock options and awards of restricted and unrestricted Common Stock. As of
April 15, 1998, options to purchase 3,295,126 shares of Common Stock were
outstanding and 188,500 restricted shares of Common Stock had been granted under
the 1996 Stock Plan. Following the Offering, the Board of Directors has provided
that no additional grants or awards will be made under the 1996 Stock Plan.
Under the Company's 1998 Stock Incentive Plan (the "Incentive Plan"), a
variety of awards, including incentive stock options intended to qualify under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
nonstatutory stock options, stock appreciation rights, restricted and
unrestricted stock awards and other stock-based awards, may be granted to
officers, employees, directors, consultants and advisors of the Company and its
subsidiaries. The Board of Directors has authorized the Executive Development
and Compensation Committee to administer the Incentive Plan. While the Company
currently anticipates that most grants under the Incentive Plan will consist of
stock options, the Company may also grant stock appreciation rights, which
represent the right to receive any excess in value of the shares of Common Stock
over the exercise price; restricted stock awards, which entitle recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their purchase price in the event that
the conditions specified in the award are not satisfied; or unrestricted stock
awards, which represent grants of shares to participants free of any
restrictions under the Incentive Plan. Options or other awards that are granted
under the Incentive Plan but expire unexercised are available for future grants.
To date, options to purchase 640,000 shares of Common Stock have been granted
under the Incentive Plan,
52
<PAGE> 56
including a nonstatutory option to purchase up to 500,000 shares of Common Stock
granted to Harvey J. Wilson on April 8, 1998. Mr. Wilson's option covers (i)
100,000 shares at a purchase price of $10.00 per share, vesting over three years
following the grant date, (ii) 100,000 shares at a purchase price of $20.00 per
share, vesting over four years, (iii) 150,000 shares at a purchase price of
$30.00 per share, vesting over five years, and (iv) 150,000 shares at a purchase
price of $40.00, vesting over five years. Vesting under Mr. Wilson's option is
subject to acceleration at the discretion of the Board of Directors under
certain circumstances.
Under the Company's 1998 Employee Stock Purchase Plan (the "Purchase
Plan"), employees of the Company, including directors of the Company who are
employees are eligible to participate in quarterly plan offerings in which
payroll deductions may be used to purchase shares of Common Stock. The purchase
price of such shares is the lower of 85% of the fair market value of the Common
Stock on the day the offering commences and 85% of the fair market value of the
Common Stock on the day the offering terminates. The first offering period under
the Purchase Plan will not commence until after the completion of the Offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Denning, Mr. DiBona and Mr. Fife served during the year ended December
31, 1997 as members of the Executive Development and Compensation Committee of
the Board of Directors. Mr. Harvey J. Wilson, an executive officer of the
Company, was an ex-officio member of the Executive Development and Compensation
Committee and in such capacity participated in certain deliberations of the
Committee. Mr. Wilson was a director of MMS during the year ended December 1997.
Mr. Fife, one of the Company's directors and a member of the Executive
Development and Compensation Committee, is, and was during 1997, the President
and Chief Executive Officer of MMS. None of Mr. Denning, Mr. DiBona or Mr. Fife
was at any time during the year ended December 31, 1997, or at any other time,
an officer or employee of the Company. See "Certain Transactions" for a
description of certain relationships and transactions between the Company and
affiliates of Mr. Denning and Mr. Wilson.
53
<PAGE> 57
CERTAIN TRANSACTIONS
In May 1996, the Company acquired the Partners License. In consideration
for this license, the Company issued to Partners 1,482,436 shares of Common
Stock ( % of the Common Stock to be outstanding at the close of the
Offering) and agreed to pay to Partners a royalty in connection with sales of
the BICS system until the Company completes an initial public offering of Common
Stock with a per share offering price of $6.67 or higher. Under the terms of the
Partners License, the Company may further develop, commercialize, distribute and
support the original technology and license it, as well as sell related
services, to other healthcare providers and hospitals throughout the world (with
the exception of the Boston, Massachusetts metropolitan area). No sales of the
BICS system have been made and, consequently, no royalties have been paid by the
Company pursuant to the Partners License. The Company is obligated to offer to
Partners and certain of its affiliates an internal use license, granted on most
favored customer terms, to all new software applications developed by the
Company, whether or not derived from the licensed technology, and major
architectural changes to the licensed technology. After May 3, 1998, Partners
and certain of its affiliates are also entitled to receive internal use licenses
for any changes to any module or application included in the licensed technology
requiring at least one person year of technical effort. The Company has an
exclusive right of first offer to commercialize new information technologies
developed in connection with Partners. If the Company fails to pay the royalties
required under the license or breaches any material term of the license, or if
Mr. Harvey J. Wilson voluntarily terminates his employment with the Company
prior to May 1999, the license may become non-exclusive, at Partners' option. If
Partners converts the current license to a non-exclusive license, it must return
555,913 shares of Common Stock to the Company. The Company has the option to
purchase the technology it licenses from Partners upon the completion by the
Company of an initial public offering. The Company has decided that it will not
exercise such option. As part of the Partners License, the Company provided
certain development services to Partners. Fees for these development services
paid by Partners to the Company totaled $2.0 million and $2.5 million for 1996
and 1997, respectively. Mr. Jay Pieper, a director of the Company, is Vice
President of Corporate Development and Treasury Affairs for Partners and was
elected as Partners' representative pursuant to the Stockholders Agreement.
In January 1997, the Company completed the Alltel Acquisition for aggregate
consideration of $201.5 million (after giving effect to certain purchase price
adjustments) consisting of $104.8 million in cash and 20,000 shares of Series C
Redeemable Preferred Stock (with a redemption value of $1,000 per share plus
accumulated dividends) and 2,077,497 shares of Series D Convertible Preferred
Stock (each convertible into 1.5 shares of Common Stock) issued to AIS. In
connection with the Alltel Acquisition, the Company entered into the MSA with
AIS pursuant to which AIS was to receive an aggregate of $11.0 million in fees
from the Company over a period of three years, ending December 31, 2000. In
October 1997, AIS returned for cancellation 4,500 shares of Series C Redeemable
Preferred Stock as part of an adjustment of the purchase price for the Alltel
Acquisition. Jeffrey H. Fox, the President of AIS, is a director of the Company
and was elected as AIS' representative pursuant to the Stockholders Agreement.
AIS is the Selling Stockholder in the Offering.
In March 1998, the Company and AIS entered into the Alltel Renegotiation.
Pursuant to a Settlement of Claims Agreement dated as of March 13, 1998 between
AIS and the Company of Alltel Healthcare Information Services, Inc., AIS
returned to the Company for cancellation 11,000 shares of Series C Redeemable
Preferred Stock in return for the Company extinguishing claims against AIS
asserted pursuant to the Merger Agreement dated January 24, 1997 relating to the
Alltel Acquisition. The Company will use $4.5 million of the net proceeds of the
Offering to redeem the remaining shares of Series C Redeemable Preferred Stock
held by AIS. AIS has agreed that, until July 1, 1998, no dividends will accrue
on shares of Redeemable Preferred Stock held by AIS. The Company also has paid
$14.0 million for the MSA Buyout. In connection with the Alltel Renegotiation,
AIS has agreed that it will not effect any public sale or distribution of any of
the Common Stock or securities convertible into or exchangeable for such Common
Stock for a period of 360 days following the effective date of the Offering
subject to certain conditions.
In January 1998, the Company completed the Emtek Acquisition for aggregate
consideration of $10.1 million (net of a $9.6 million receivable from Motorola),
consisting of 1,500,000 shares of Common Stock issued to Motorola and the
assumption of $10.6 million in liabilities. In connection with the Emtek
54
<PAGE> 58
Acquisition, the Company entered into a software and support agreement with
Motorola pursuant to which the Company agreed to provide certain software and
support services to Motorola's international customers for a minimum period of
one year in exchange for negotiated annual payments. As of March 31, 1998, such
payments from Motorola totaled $3.0 million. Mr. Richard Severns, a Senior Vice
President of Motorola, is a director of the Company and was elected as
Motorola's representative pursuant to the Stockholders Agreement.
Mr. Harvey J. Wilson, President, Chief Executive Officer and Chairman of
the Board of the Company, is the managing general partner of Wilfam, a limited
partnership whose limited partners are members of Mr. Wilson's immediate family.
Mr. Gregory L. Wilson, a general partner, is the investment manager for Wilfam.
In December 1995, upon the incorporation of the Company, Wilfam purchased
3,034,051 shares of Common Stock and Mr. Harvey J. Wilson purchased 758,512
shares of Common Stock for a purchase price of $.07 per share. In January 1997,
Wilfam purchased 103,588 shares of Series D Convertible Preferred Stock (each
convertible into 1.5 shares of Common Stock) at a purchase price of $12.55 per
share of Preferred Stock.
Affiliates of General Atlantic Partners, LLC purchased (i) in May 1996, an
aggregate of $5.0 million of Series A Convertible Participating Preferred Stock
of the Company, which were subsequently converted into 1,231,747 shares of
Series F Convertible Preferred Stock (each convertible into 1.5 shares of Common
Stock), (ii) in January 1997, 4,423,509 shares of Series D Convertible Preferred
Stock (each convertible into 1.5 shares of Common Stock) for an aggregate of
$55.5 million and (iii) in February 1998, an aggregate of 900,000 shares of
Series G Convertible Preferred Stock (each convertible on a one-for-one basis
into Common Stock) for an aggregate of $9.0 million. Messrs. William Ford and
Steven Denning, both of whom are directors of the Company, are Managing Members
of General Atlantic Partners, LLC, and were elected as representatives of the
affiliates of General Atlantic Partners, LLC pursuant to the terms of the
Convertible Preferred Stock.
Wilfam is a limited partner in certain affiliates of General Atlantic
Partners, LLC. As such, Wilfam participated in the May 1996 and February 1998
investments. The Wilfam indirect investments were approximately $12,500 in
shares of Series A Convertible Participating Preferred Stock, which were
subsequently converted into shares of Series F Convertible Preferred Stock, and
$165,000 in Series G Convertible Preferred Stock.
In 1997, the Company from time to time chartered an airplane for corporate
purposes from an aircraft charter company. The Company paid $336,000 to the
charter company during 1997. The aircraft provided for the Company's use was
leased by the charter company from RMSC of West Palm Beach ("RMSC"), a company
that is wholly owned by Mr. Harvey J. Wilson. RMSC received $219,000 in
connection with these charters. Mr. Wilson has no ownership interest in the
charter company. The Company believes that the terms of the charters were at
least as favorable to the Company as those that could have been negotiated with
unaffiliated third parties.
During 1997, the Company paid AIS $1.7 million for certain transition
services provided by AIS related to accounting services, computer processing and
other various activities.
During 1997, the Company paid a total of $348,000 to certain subsidiaries
of AIS and ALLTEL Corporation, the parent of AIS, related to the purchase of
various goods and services.
See "Description of Capital Stock -- Registration Rights" for a description
of registration rights granted to certain significant stockholders by the
Company.
See "Management -- Stockholders' Agreement" for a description of the
Stockholders Agreement among the Company and certain of its significant
stockholders.
See "Management -- Employment Agreement" for a description of Mr. Harvey J.
Wilson's employment agreement with the Company.
The Company has adopted a policy that future transactions between the
Company and its executive officers, directors and affiliates must (i) be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties and (ii) be approved by a majority of the members of the Company's
Board of Directors and by a majority of the disinterested members of the
Company's Board of Directors.
55
<PAGE> 59
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of April 15, 1998, by (i) each
person or entity known to the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) each of the directors of the Company, (iii) each of
the Named Executive Officers, (iv) all directors and executive officers as a
group and (v) the Selling Stockholder. The information contained in the
following table reflects the beneficial ownership of such persons, treating all
shares of the Company's Non-Voting Common Stock, which are convertible at any
time, subject to certain limitations, into shares of Common Stock, as if they
had been so converted. Unless otherwise indicated, each person or entity named
in the table has sole voting power and investment power (or shares such power
with his or her spouse) with respect to all shares of capital stock listed as
owned by such person or entity.
<TABLE>
<CAPTION>
SHARES SHARES TO BE
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(1) SHARES AFTER OFFERING(1)(2)
----------------------- BEING -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
------------------------ ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
General Atlantic Partners, LLC(3).......... 9,382,883 40.8 -- 9,382,883 %
c/o General Atlantic Service Corporation
Three Pickwick Plaza
Greenwich, CT 06830
Steven A. Denning(3)....................... 9,382,883 40.8 -- 9,382,883
c/o General Atlantic Service Corporation
Three Pickwick Plaza
Greenwich, CT 06830
William E. Ford(3)......................... 9,382,883 40.8 -- 9,382,883
c/o General Atlantic Service Corporation
Three Pickwick Plaza
Greenwich, CT 06830
Wilfam Ltd................................. 3,189,433 13.9% -- 3,189,433
c/o Eclipsys Corporation
777 East Atlantic Avenue
Suite 200
Delray Beach, FL 33483
Alltel Information Services, Inc. ......... 3,116,245 13.5
4001 Rodney Parham Road
Little Rock, AR 72212
First Union Corporation.................... 2,407,839 10.1 -- 2,407,839
One First Union Center
Floor 18
Charlotte, NC 28288
Motorola, Inc.............................. 1,500,000 6.5 -- 1,500,000
1303 East Algonquin Road
Schaumburg, IL 6019
Partners HealthCare System, Inc............ 1,482,436 6.4 -- 1,482,436
Prudential Tower, Suite 1150
800 Boylston Street
Boston, MA 02199
BT Investment Partners, Inc. .............. 1,355,057 5.8 -- 1,355,057
130 Liberty Street
New York, NY 10006
</TABLE>
56
<PAGE> 60
<TABLE>
<CAPTION>
SHARES SHARES TO BE
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(1) SHARES AFTER OFFERING(1)(2)
----------------------- BEING -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
------------------------ ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Harvey J. Wilson(6)........................ 3,940,445 17.1% -- 3,940,445 %
James E. Hall(7)........................... 24,998 * -- 24,998
Robert J. Vanaria(8)....................... 62,499 * -- 62,499
T. Jack Risenhoover, II(9)................. 3,757 * -- 3,757
G. Fred DiBona............................. 47,500 * -- 47,500
Eugene Fife................................ 47,500 * -- 47,500
Jeffrey H. Fox(10)......................... 3,116,245 13.5
Jay B. Pieper(11).......................... 1,482,436 6.4 -- 1,482,436
Richard D. Severns(12)..................... 1,500,000 6.5 -- 1,500,000
All executive officers and directors as a
group
(11 persons)............................... 19,608,263 85.0
</TABLE>
- ---------------
* Less than 1%.
(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares
as to which the individual or entity has sole or shared voting power or
investment power and any shares as to which the individual or entity has
the right to acquire beneficial ownership within 60 days after April 15,
1998 through the exercise of any stock option, warrant or other right. The
inclusion herein of such shares, however, does not constitute an admission
that the named stockholder is a direct or indirect beneficial owner of such
shares.
(2) Assumes no exercise of the U.S. Underwriters' over-allotment option.
(3) Consists of 1,578,991 shares held by General Atlantic Partners 28, L.P.
("GAP 28"), 5,653,245 shares held by General Atlantic Partners 38, L.P.
("GAP 38"), 757,012 shares held by General Atlantic Partners 47, L.P. ("GAP
47") and 1,393,635 shares held by GAP Coinvestment Partners, L.P. ("GAP
Coinvestment"). The general partner of GAP 28, GAP 38 and GAP 47 is General
Atlantic Partners, LLC, a Delaware limited liability company. The managing
members of General Atlantic Partners, LLC are the general partners of GAP
Coinvestment. Messrs. Denning and Ford are both managing members of General
Atlantic Partners, LLC. Messrs. Denning and Ford disclaim beneficial
ownership of shares owned by GAP 28, GAP 38, GAP 47 and GAP Coinvestment.
(4) Includes 755,704 shares of Non-Voting Common Stock issuable upon the
exercise of a warrant, all of which Non-Voting Common Stock is convertible
into Common Stock on a one-for-one basis.
(5) Includes 453,421 shares of Non-Voting Common Stock issuable upon the
exercise of a warrant, all of which Non-Voting Common Stock is convertible
into Common Stock on a one-for-one basis.
(6) Includes 3,189,433 shares held by Wilfam, Ltd. for which Mr. Wilson is the
managing general partner.
(7) Consists of 24,998 shares issuable upon exercise of stock options which are
exercisable within 60 days of April 15, 1998.
(8) Includes 12,499 shares issuable upon exercise of stock options which are
exercisable within 60 days of April 15, 1998.
(9) Consists of 3,749 shares issuable upon the exercise of stock options which
are exercisable within 60 days of April 15, 1998.
(10) These shares are held by AIS. Mr. Fox is President of AIS. Mr. Fox
disclaims beneficial ownership of these shares.
(11) These shares are held by Partners. Mr. Pieper is a Vice President of
Partners. Mr. Pieper disclaims beneficial ownership of these shares.
(12) These shares are held by Motorola. Mr. Severns is a Senior Vice President
of Motorola. Mr. Severns disclaims beneficial ownership of these shares.
57
<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
After the filing of the Company's Third Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") upon the closing of
the Offering, the authorized capital stock of the Company will consist of
200,000,000 shares of Common Stock, 5,000,000 shares of Non-Voting Common Stock
and 5,000,000 shares of Preferred Stock, $.01 par value per share. As of April
15, 1998 (after giving effect to the Preferred Stock Redemption and the
Preferred Stock Conversion to be effected concurrently with the closing of the
Offering), there were outstanding (i) 21,653,117 shares of Common Stock held by
49 stockholders of record, (ii) 1,344,647 shares of Non-Voting Common Stock held
by two stockholders of record and (iii) no shares of Preferred Stock. Shares of
Non-Voting Common Stock may generally be converted at any time into shares of
Common Stock on a one-for-one basis, except as described below.
The following summary of certain provisions of the Common Stock, Non-Voting
Common Stock, Preferred Stock, Warrants, Restated Certificate of Incorporation
and Amended and Restated By-laws (the "By-laws") is not intended to be complete
and is qualified by reference to the provisions of applicable law and to the
Restated Certificate of Incorporation and By-laws and the Warrants included as
exhibits to the Registration Statement of which this Prospectus is a part. See
"Additional Information."
COMMON STOCK AND NON-VOTING 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. Holders of Non-Voting Common Stock do not have voting rights other than
as provided by statute. 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 and Non-Voting 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 outstanding Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock and Non-Voting 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 and Non-Voting Common Stock have no preemptive, subscription or
redemption rights. The outstanding shares of Common Stock and Non-Voting Common
Stock are, and the shares of Common Stock 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. Certain holders of Common Stock and Non-Voting Common Stock have the
right to require the Company to effect the registration of their shares of
Common Stock, or the Common Stock into which the Non-Voting Common Stock is
convertible, as the case may be, in certain circumstances. See "-- Registration
Rights."
Shares of Non-Voting Common Stock may be converted, at the holder's option,
into shares of Common Stock at the rate of one share of Common Stock for each
share of Non-Voting Common Stock surrendered for conversion, subject to certain
adjustments. The holder can elect to convert all or any part of its Non-Voting
Common Stock at any time, except that, if the holder is subject to certain
federal banking regulations, the holder may only convert in connection with
specified sales of the Common Stock to be issued upon the conversion.
PREFERRED STOCK
Under the terms of the Restated Certificate of Incorporation, the Board of
Directors is authorized, subject to any limitations prescribed by law, without
stockholder approval, to issue up to 5,000,000 shares of Preferred Stock in one
or more series. Each such series of Preferred Stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as
shall be determined by the Board of Directors. The purpose of authorizing the
Board of Directors to issue Preferred Stock and determine its rights and
preferences is to eliminate delays associated with a stockholder vote on
specific issuances. The issuance of Preferred Stock, while providing
58
<PAGE> 62
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
WARRANTS
In January 1997, the Company issued two warrants (the "Warrants"), each
exercisable at a purchase price of $.01 per share, to purchase up to 1,687,233
and up to 1,012,339 shares of Non-Voting Common Stock, respectively, to First
Union Corporation and BT Investment Partners, Inc. The number of shares
purchasable pursuant to each Warrant is subject to adjustment based on the
timing of the redemption of the Series B Redeemable Preferred Stock, which will
occur upon the closing of the Offering. If the Offering is closed on or prior to
June 30, 1998, the Warrants will be exercisable for an aggregate of 1,209,125
shares. If the Offering is closed after June 30, 1998 and on or before December
31, 1998, the Warrants will be exercisable for an aggregate of 1,444,249 shares.
In lieu of payment of the exercise price, each warrantholder may elect to
convert its Warrant, in whole or in part, into shares of Non-Voting Common Stock
equal to quotient obtained by dividing (i) the value of the shares issuable at
the time the conversion is exercised by (ii) the current market price of one
share immediately prior to the execution of the conversion right. Both Warrants
expire on the earlier of the third anniversary of the effective date of the
registration statement for the Offering or January 2007.
REGISTRATION RIGHTS
Pursuant to a Second Amended and Restated Registration Rights Agreement
(the "Registration Rights Agreement") dated January 28, 1998 among the Company
and certain of its stockholders (the "Rightsholders"), such Rightsholders will
be entitled, commencing six months after the effective date of the Offering, to
certain rights with respect to the registration under the Securities Act of a
total of approximately 23,694,912 shares of Common Stock (the "Registrable
Shares"), including shares issuable upon exercise of the Warrants. In general,
the Registration Rights Agreement provides the Rightsholders with demand and
incidental registration rights beginning no earlier than six months after the
Company has completed an initial public offering.
Certain of the Rightsholders, holding approximately 22,644,097 Registrable
Shares, may require the Company to prepare and file a registration statement
under the Securities Act with respect to their Registrable Shares if such
registration would result in an offering with net proceeds to the requesting
Rightsholder or Rightsholders of at least $5.0 million. In addition, one of the
Rightsholders may compel registration for a smaller amount if the offering is to
include all the shares of Company stock then owned by such Rightsholder, none of
which are then available for sale pursuant to Rule 144 under the Securities Act.
Two of the Rightsholders may each require the Company to prepare and file two
registration statements. Each of five other Rightsholders are entitled to one
such registration request. The Company is not required to file a demand
registration statement for six months after the effective date of this Offering
or within three months after the effective date of any other registration
statement, subject to certain restrictions.
Following the Offering, if the Company proposes to register any of its
securities under the Securities Act, the Rightsholders will be entitled to
include Registrable Shares in such offering, subject to the right of the
managing underwriter of any underwritten offering to limit for marketing reasons
the number of shares of Registrable Shares included in the offering. See "Shares
Eligible for Future Sale."
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 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
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<PAGE> 63
the interested stockholder. 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.
The Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management -- Executive Officers, Directors and
Key Employees." In addition, the Restated Certificate of Incorporation provides
that directors may be removed only for cause by the affirmative vote of the
holders of 75% of the shares of capital stock of the Company entitled to vote.
Under the Restated Certificate of Incorporation, any vacancy on the Board of
Directors, however occurring, including a vacancy resulting from an enlargement
of the Board of Directors, may only be filled by vote of a majority of the
directors then in office. The limitations on the removal of directors and
filling of vacancies could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, control
of the Company.
The Restated Certificate of Incorporation also provides that any action
required or permitted to be taken by the stockholders of the Company at an
annual meeting or special meeting of stockholders may only be taken if it is
properly brought before such meeting and may not be taken by written action in
lieu of a meeting. The Restated Certificate of Incorporation further provides
that special meetings of the stockholders may only be called by the Chairman of
the Board, the President or the Board of Directors. Under the Company's By-
laws, in order for any matter to be considered "properly brought" before a
meeting, a stockholder must comply with certain requirements regarding advance
notice to the Company. The foregoing provisions could have the effect of
delaying, until the next 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, 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 by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. The Restated Certificate of Incorporation and
the By-laws require the affirmative vote of the holders of at least 75% of the
shares of capital stock of the Company issued and outstanding and entitled to
vote, to amend or repeal any of the provisions described in the prior two
paragraphs.
The Restated 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. Further, the Restated Certificate of Incorporation contains provisions to
indemnify the Company's 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.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is BankBoston, N.A.
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<PAGE> 64
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the securities
of the Company. Upon completion of the Offering, based upon the number of shares
outstanding at April 15, 1998, there will be shares of Common Stock of
the Company outstanding (assuming no exercise of the U.S. Underwriters'
over-allotment option or outstanding warrants or options of the Company). Of
these shares, the shares sold in the Offering will be freely tradeable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), except that any shares purchased by "affiliates"
of the Company, as that term is defined in Rule 144 ("Rule 144") under the
Securities Act ("Affiliates"), may generally only be sold in compliance with the
limitations of Rule 144 described below.
The remaining 22,997,764 shares of Common Stock are deemed "restricted
securities" under Rule 144. Of the restricted securities, approximately
shares of Common Stock, which are not subject to the 180-day lock-up agreements
(the "Lock-up Agreements") with the Representatives of the Underwriters, will be
eligible for immediate sale in the public market pursuant to Rule 144(k) under
the Securities Act. Approximately additional shares of Common Stock,
which are not subject to Lock-up Agreements, will be eligible for sale in the
public market in accordance with Rule 144 or Rule 701 under the Securities Act
beginning 90 days after the date of this Prospectus. Upon expiration of the
Lock-up Agreements 180 days after the date of this Prospectus, approximately
additional shares of Common Stock will be available for sale in the
public market, subject to the provisions of Rule 144 under the Securities Act.
The Company and certain stockholders, who will hold approximately
shares of Common Stock in the aggregate immediately following the closing of the
Offering, have agreed that, without the prior written consent of Morgan Stanley
& Co. Incorporated on behalf of the Underwriters, they will not, during the
period ending 180 days after the date of this Prospectus, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (other than any such transaction between any such stockholder and
any affiliate thereof so long as, on or before the date of such transaction,
such affiliate has also agreed to be bound by the restrictions set forth in this
paragraph) or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. As part of the Alltel Renegotiation, AIS has agreed that, for
a period of 360 days from the effective date of the Offering, it will not effect
any public sale or distribution of any Common Stock or securities convertible
into or exchangeable or exercisable for Common Stock. See "Certain
Transactions." The restrictions described in this paragraph do not apply to the
sale of Shares to the Underwriters by the Selling Stockholder.
In accordance with the terms of the Stockholders Agreement, Motorola may
not sell or transfer any shares of the Company's capital stock owned by it until
January 28, 2000, except that Motorola may sell or transfer its shares pursuant
to incidental registration rights granted under the Registration Rights
Agreement beginning on October 28, 1999. As of April 15, 1998, Motorola held
1,500,000 shares of Common Stock.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an Affiliate, who has beneficially owned his or
her restricted securities (as that term is defined in Rule 144) for at least one
year from the later of the date such securities were acquired from the Company,
or (if applicable) the date they were acquired from an Affiliate, is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately shares immediately after the Offering) or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under Rule 144(k),
if a period of at least two years has elapsed between the later of the date
restricted securities were acquired from the Company, or (if applicable) the
date they were acquired from an Affiliate of the Company, a stockholder who is
not an Affiliate of the Company at the time of sale and
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<PAGE> 65
has not been an Affiliate of the Company for at least three months prior to the
sale is entitled to sell the shares immediately without compliance with the
foregoing requirements under Rule 144.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
acquired pursuant to the exercise of certain options granted under the Company's
stock plans) are also restricted securities and, beginning 90 days after the
effective date of the Registration Statement of which this Prospectus is a part,
may be sold by stockholders other than Affiliates of the Company subject only to
the manner of sale provisions of Rule 144 and by Affiliates under Rule 144
without compliance with its one-year holding period requirement.
The Company intends to file registration statements on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under the 1996
Stock Plan, the Incentive Plan and the Purchase Plan. Shares issued upon the
exercise of stock options after the effective date of the Form S-8 registration
statements will be eligible for resale in the public market without restriction,
subject to Rule 144 limitations applicable to Affiliates and the lock-up
agreements noted above, if applicable.
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that market sales
of shares of Common Stock or the availability of shares for sale will have on
the market price of the Common Stock prevailing from time to time. Nevertheless,
sales of significant numbers of shares of the Common Stock in the public market
could adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
Pursuant to the Registration Rights Agreement, certain holders of the
Company's stock, holding an aggregate of 23,694,912 shares including shares
issuable on exercise of the Warrants, will have the ability to require the
Company to register their shares of Common Stock, subject to certain
restrictions. See "Description of Capital Stock -- Registration Rights."
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<PAGE> 66
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below for whom Morgan Stanley & Co. Incorporated, BancAmerica Robertson
Stephens, Lehman Brothers Inc. and Smith Barney Inc. are acting as U.S.
Representatives, and the International Underwriters named below for whom Morgan
Stanley & Co. International Limited, BA Robertson Stephens International
Limited, Lehman Brothers International (Europe), and Smith Barney Inc. are
acting as International Representatives, have severally agreed to purchase, and
the Company and the Selling Stockholder have agreed to sell to them, the
respective number of shares of Common Stock set forth opposite the names of such
Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated ........................
BancAmerica Robertson Stephens............................
Lehman Brothers Inc. .....................................
Smith Barney Inc. ........................................
---------
Subtotal...............................................
---------
International Underwriters:
Morgan Stanley & Co. International Limited................
BA Robertson Stephens International Limited...............
Lehman Brothers International (Europe)....................
Smith Barney Inc. ........................................
---------
Subtotal...............................................
---------
Total.............................................
=========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the U.S.
Underwriters' over-allotment option described below) if any such shares are
taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United
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<PAGE> 67
States or Canada or to any United States or Canadian Person. With respect to any
Underwriter that is a U.S. Underwriter and an International Underwriter, the
foregoing representations and agreements (i) made by it in its capacity as a
U.S. Underwriter apply only to it in its capacity as a U.S. Underwriter and (ii)
made by it in its capacity as an International Underwriter apply only to it in
its capacity as an International Underwriter. The foregoing limitations do not
apply to stabilization transactions or to certain other transactions specified
in the Agreement between U.S. and International Underwriters. As used herein,
"United States or Canadian Person" means any national or resident of the United
States or Canada, or any corporation, pension, profit-sharing or other trust or
other entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
Underwriters under the Underwriting Agreement are referred to herein as the
"Shares."
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares sold shall be the public offering price set forth on the cover page
hereof, in U.S. dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Shares in, from, or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares, a notice stating in substance that, by purchasing
such Shares, such dealer represents and agrees that it has not offered or sold,
and will not offer
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<PAGE> 68
or sell, any of such Shares, directly or indirectly, in Japan or to or for the
account of any resident thereof except for offers or sales to Japanese
International Underwriters or dealers and except pursuant to any exemption from
the registration requirements of the Securities and Exchange Law and otherwise
in compliance with applicable provisions of Japanese law, and that such dealer
will send to any other dealer to whom it sells any of such Shares a notice
containing substantially the same statement as is contained in this sentence.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of $ a
share to other Underwriters or to certain other dealers. After the initial
offering of the shares of Common Stock, the offering price and other selling
terms may from time to time be varied by the Representatives.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an aggregate of additional shares of Common
Stock at the public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The U.S. Underwriters may exercise such
option to purchase solely for the purpose of covering overallotments, if any,
made in connection with the Offering. To the extent such option is exercised,
each U.S. Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Common
Stock as the number set forth next to such U.S. Underwriter's name in the
preceding table bears to the total number of shares of Common Stock set forth
next to the names of all U.S. Underwriters in the preceding table.
Application will be made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ECLP."
The Company and certain stockholders, who will hold approximately
shares of Common Stock in the aggregate immediately following the closing of the
Offering, have agreed that, without the prior written consent of Morgan Stanley
& Co. Incorporated on behalf of the Underwriters, they will not, during the
period ending 180 days after the date of this Prospectus, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (other than any such transaction between any such stockholder and
any affiliate thereof so long as, on or before the date of such transaction,
such affiliate has also agreed to be bound by the restrictions set forth in this
paragraph) or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. As part of the Alltel Renegotiation, the Selling Stockholder
has agreed that, for a period of 360 days from the effective date of the
Offering, it will not effect any public sale or distribution of any Common Stock
or securities convertible into or exchangeable or exercisable for Common Stock,
subject to certain conditions. See "Shares Eligible for Future Sale." The
restrictions described in this paragraph do not apply to the sale of Shares to
the Underwriters by the Selling Stockholder.
At the request of the Company, the Underwriters have reserved up to
shares of Common Stock offered hereby for sale to directors, officers,
employees, business associates and related persons of the Company at the initial
public offering price. The number of shares available in the Offering will be
reduced to the extent any such persons purchase such reserved shares. Any
reserved shares not so purchased will be offered by the Underwriters on the same
basis as the other shares of Common Stock offered hereby.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot in connection
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<PAGE> 69
with the Offering, creating a short position in the Common Stock for their own
account. In addition, to cover over-allotments or to stabilize the price of the
Common Stock, the Underwriters may bid for, and purchase, shares of Common Stock
in the open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an Underwriter or a dealer for distributing the Common
Stock in the Offering, if the syndicate repurchases previously distributed
Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Company, the Selling Stockholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
PRICING OF OFFERING
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiation between the Company and the Representatives. Among the factors to be
considered in determining the initial public offering price will be the
Company's record of operations, the Company's current financial condition and
future prospects, the experience of its management, the economics of the
industry in general, the general condition of the equity securities markets and
the market prices of similar securities of companies considered comparable to
the Company. There can be no assurance that a regular trading market for the
shares of Common Stock will develop after the Offering or, if developed, that a
public trading market can be sustained. There can be no assurance that the
prices at which the Common Stock will sell in the public market after the
Offering will not be lower than the price at which it is offered by the
Underwriters in the Offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby
will be passed upon for the Company by Hale and Dorr LLP, Washington, D.C., and
for the Underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
The financial statements of Eclipsys Corporation as of December 31, 1997
and 1996 and for each of the two years in the period ended December 31, 1997
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of ALLTEL Healthcare Information Services, Inc. as
of January 23, 1997, December 31, 1996 and 1995 and for the period from January
1, 1997 through January 23, 1997 and each of the two years in the period ended
December 31, 1996 included in this Prospectus have been so included in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of SDK Healthcare Information Systems as of April
30, 1997 and 1996 and for each of the years in the two-year period ended April
30, 1997 included in this registration statement have been examined by KPMG Peat
Marwick LLP, independent certified public accountants. Such financial statements
have been included in the registration statement in reliance upon the reports
with respect thereto of KPMG Peat Marwick LLP, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all amendments,
exhibits, schedules and supplements thereto) on Form S-1 under the Securities
Act with respect to the shares of Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission, to
which Registration Statement reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and the exhibits thereto may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., 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
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
In addition, the Company is required to file electronic versions of these
documents with the Commission through the Commission's Electronic Data
Gathering, Analysis, and Retrieval (EDGAR) system. The Commission maintains a
World Wide Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Eclipsys Corporation:
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997.................................................. F-3
Consolidated Statements of Operations for the years
ended December 31, 1996 and 1997...................... F-4
Consolidated Statements of Stockholders' Equity
(Deficit) for the years ended December 31, 1996 and
1997.................................................. F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1996 and 1997...................... F-6
Notes to Consolidated Financial Statements............. F-7
ALLTEL Healthcare Information Services, Inc.:
Report of Independent Accountants...................... F-23
Consolidated Balance Sheets as of December 31, 1995 and
1996.................................................. F-24
Consolidated Statements of Operations for the years
ended December 31, 1995 and
1996 and the period from January 1, 1997 through
January 23, 1997...................................... F-25
Consolidated Statements of Shareholder's Deficit for
the years ended December 31,
1995 and 1996........................................ F-26
Consolidated Statements of Cash Flows for the years
ended December 31, 1995 and
1996 and the period from January 1, 1997 through
January 23, 1997...................................... F-27
Notes to Consolidated Financial Statements............. F-28
SDK Healthcare Information Systems:
Independent Auditors' Report........................... F-35
Balance Sheets as of April 30, 1997 and 1996........... F-36
Statements of Operations and Retained Earnings for the
years ended April 30, 1997 and 1996................... F-37
Statements of Cash Flows for the years ended April 30,
1997 and 1996......................................... F-38
Notes to Financial Statements.......................... F-39
</TABLE>
F-1
<PAGE> 72
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Eclipsys Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of changes in
shareholders' equity (deficit) present fairly, in all material respects, the
financial position of Eclipsys Corporation and its subsidiaries at December 31,
1996 and 1997, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Atlanta, Georgia
April 20, 1998
F-2
<PAGE> 73
ECLIPSYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------- UNAUDITED
1996 1997 PRO FORMA
------- --------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,589 $ 4,786 $ 4,786
Accounts receivable, net of allowance for doubtful
accounts of $0, $1,739 and $1,739...................... 190 30,969 30,969
Inventory................................................. -- 866 866
Other current assets...................................... 59 1,114 1,114
------- --------- ---------
Total current assets................................... 4,838 37,735 37,735
Property and equipment, net................................. 322 9,517 9,517
Capitalized software development costs...................... -- 1,591 1,591
Acquired technology, net.................................... -- 23,739 23,739
Intangible assets, net...................................... -- 26,177 26,177
Other assets................................................ 580 3,832 3,832
------- --------- ---------
Total assets........................................... $ 5,740 $ 102,591 $ 102,591
======= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt...................... $ -- $ 12,794 $ 12,794
Deferred revenue.......................................... -- 25,295 25,295
Other current liabilities................................. 882 31,150 31,150
------- --------- ---------
Total current liabilities.............................. 882 69,239 69,239
Deferred revenue............................................ 57 6,966 6,966
Other long-term liabilities................................. -- 9,480 9,480
Long-term debt.............................................. -- 3,794 3,794
------- --------- ---------
Total liabilities...................................... 939 89,479 89,479
------- --------- ---------
Mandatorily redeemable preferred stock (Note 5)............. -- 35,607 35,607
------- --------- ---------
Commitments and contingencies (Note 11)
Shareholders' equity (deficit)
Preferred stock:
Series A, $.01 par value, 1,000,000 shares authorized;
issued and outstanding 1,000,000, $6 per share
liquidation preference............................... 10 -- --
Series D, $.01 par value, 7,200,000 shares authorized;
issued and outstanding 7,058,787, $12.55 per share
liquidation preference............................... -- 71 --
Series E, $.01 par value, 920,000 shares authorized;
issued and outstanding 896,431, $12.55 per share
liquidation preference............................... -- 9 --
Series F, $.01 par value, 1,530,000 shares authorized;
issued and outstanding 1,478,097, $6 per share
liquidation preference............................... -- 15 --
Common stock:
Voting, $.01 par value, 30,000,000 and 50,000,000
authorized; issued and outstanding 5,439,999 and
6,296,858 and ................................... 54 63 191
Non-Voting, $.01 par value, 3,000,000 shares
authorized; issued and outstanding 0, 0 and
1,344,646............................................ -- -- 13
Additional paid-in capital................................ 6,474 114,274 114,228
Unearned compensation..................................... (266) (250) (250)
Accumulated deficit....................................... (1,471) (136,705) (136,705)
Cumulative foreign currency translation adjustment........ -- 28 28
------- --------- ---------
Total shareholders' equity (deficit)................... 4,801 (22,495) (22,495)
------- --------- ---------
Total liabilities and shareholders' equity (deficit)... $ 5,740 $ 102,591 $ 102,591
======= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 74
ECLIPSYS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Revenues:
Systems and services...................................... $ -- $ 89,722
Hardware.................................................. -- 4,355
---------- ----------
Total revenues......................................... -- 94,077
---------- ----------
Costs and expenses:
Cost of systems and services revenues..................... -- 75,334
Cost of hardware revenues................................. -- 2,953
Marketing and sales....................................... 770 13,662
Research and development.................................. 222 15,714
General and administrative................................ 603 5,672
Depreciation and amortization............................. 32 9,134
Write off of in-process research and development (Note
6)..................................................... -- 105,688
---------- ----------
Total costs and expenses............................... 1,627 228,157
---------- ----------
Loss from operations........................................ (1,627) (134,080)
Interest expense (income), net.............................. (156) 1,154
---------- ----------
Net loss.................................................... (1,471) (135,234)
Dividends and accretion on mandatorily redeemable preferred
stock..................................................... -- (5,850)
Preferred stock conversion.................................. -- (3,105)
---------- ----------
Net loss available to common shareholders................... $ (1,471) $ (144,189)
========== ==========
Basic and diluted net loss per common share................. $ (0.32) $ (27.28)
========== ==========
Weighted average common shares outstanding.................. 4,533,995 5,286,271
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 75
ECLIPSYS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK
-----------------------------------------------------------
COMMON STOCK SERIES A SERIES D SERIES E
------------------ ------------------- ------------------ ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ ---------- ------ --------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital contribution at December
22, 1995 (inception date)..... 780,000 $ 8
--------- --- ---------- ---- --------- --- ------- --
Balance at December 31, 1995..... 780,000 8
Capital contribution............ 3,012,563 30
Stock grants.................... 165,000 1
Issuance of Series A Preferred
stock......................... 1,000,000 $ 10
Issuance of common stock........ 1,482,436 15
Issuance of stock options.......
Compensation expense
recognized....................
Net loss........................
--------- --- ---------- ---- --------- --- ------- --
Balance at December 31, 1996..... 5,439,999 54 1,000,000 10
Issuance of Series D Preferred
stock......................... 4,981,290 $50
Acquisition of Alltel........... 2,077,497 21
Issuance of Series E Preferred
stock......................... 896,431 $9
Issuance of common stock
warrants......................
Conversion of Series A to Series
F............................. (1,000,000) (10)
Acquisition of SDK.............. 750,000 8
Stock option exercises.......... 84,359 1
Stock grants.................... 22,500
Dividends and accretion on
mandatorily redeemable
preferred stock...............
Issuance of stock options.......
Compensation expense
recognized....................
Net loss........................
Foreign currency translation
adjustment....................
--------- --- ---------- ---- --------- --- ------- --
Balance at December 31, 1997..... 6,296,858 $63 -- $ -- 7,058,787 $71 896,431 $9
========= === ========== ==== ========= === ======= ==
<CAPTION>
PREFERRED STOCK
------------------
SERIES F ADDITIONAL FOREIGN
------------------ PAID-IN UNEARNED ACCUMULATED CURRENCY
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TRANSLATION TOTAL
--------- ------ ---------- ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital contribution at December
22, 1995 (inception date)..... $ 42 $ 50
--------- --- --------- ---- --------- --- ---------
Balance at December 31, 1995..... 42 50
Capital contribution............ 168 198
Stock grants.................... 1
Issuance of Series A Preferred
stock......................... 5,991 6,001
Issuance of common stock........ (15) --
Issuance of stock options....... 288 (288) --
Compensation expense
recognized.................... 22 22
Net loss........................ $ (1,471) (1,471)
--------- --- --------- ---- --------- --- ---------
Balance at December 31, 1996..... 6,474 (266) (1,471) 4,801
Issuance of Series D Preferred
stock......................... 62,464 62,514
Acquisition of Alltel........... 26,051 26,072
Issuance of Series E Preferred
stock......................... 11,241 11,250
Issuance of common stock
warrants...................... 10,501 10,501
Conversion of Series A to Series
F............................. 1,478,097 $15 (5) --
Acquisition of SDK.............. 3,240 3,248
Stock option exercises.......... 6 7
Stock grants.................... 97 97
Dividends and accretion on
mandatorily redeemable
preferred stock............... (5,850) (5,850)
Issuance of stock options....... 55 (55) --
Compensation expense
recognized.................... 71 71
Net loss........................ (135,234) (135,234)
Foreign currency translation
adjustment.................... $28 28
--------- --- --------- ---- --------- --- ---------
Balance at December 31, 1997..... 1,478,097 $15 $ 114,274 (250) $(136,705) $28 $ (22,495)
========= === ========= ==== ========= === =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 76
ECLIPSYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1996 1997
------- ---------
<S> <C> <C>
Operating activities:
Net loss.................................................. $(1,471) $(135,234)
------- ---------
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation and amortization.......................... 32 29,297
Provision for bad debts................................ -- 600
Loss on disposal of property and equipment............. -- 557
Write off of in-process research and development....... -- 105,688
Stock compensation expense............................. 22 168
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................. (190) (816)
Inventory............................................ -- 655
Other current assets................................. (59) (276)
Other assets......................................... (34) (71)
Deferred revenue..................................... -- (2,044)
Other current liabilities............................ 882 2,196
Other long-term liabilities.......................... 57 348
------- ---------
Total adjustments................................. 710 136,302
------- ---------
Net cash provided (used) by operating activities....... (761) 1,068
------- ---------
Investing activities:
Purchase of property and equipment, net of acquisitions... (354) (3,096)
Capitalized software development costs.................... -- (1,591)
Acquisitions, net of cash acquired........................ -- (108,983)
Changes in other assets................................... (546) --
------- ---------
Net cash used in investing activities.................. (900) (113,670)
------- ---------
Financing activities:
Borrowings................................................ -- 10,000
Payments on borrowings.................................... -- (1,000)
Sale of common stock...................................... 199 7
Sale of convertible preferred stock....................... 6,001 73,764
Sale of mandatorily redeemable preferred stock............ -- 30,000
------- ---------
Net cash provided by financing activities.............. 6,200 112,771
------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... -- 28
------- ---------
Net increase in cash and cash equivalents.............. 4,539 197
Cash and cash equivalents, beginning of year................ 50 4,589
------- ---------
Cash and cash equivalents, end of year...................... $ 4,589 $ 4,786
======= =========
Cash paid for interest...................................... $ -- $ 978
======= =========
Cash paid for income taxes.................................. $ -- $ --
======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 77
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Eclipsys Corporation ("Eclipsys") and its subsidiaries (collectively, the
"Company") is a healthcare information technology solutions provider which was
formed in December 1995 and commenced operations in January 1996. The Company
provides, on an integrated basis, enterprise-wide, clinical patient care and
financial software solutions to healthcare organizations. Additionally, Eclipsys
provides other information technology solutions including outsourcing, remote
processing, networking technologies and other related services.
Subsequent to December 31, 1996, the Company made the following
acquisitions (Note 6):
Effective January 24, 1997, ALLTEL Healthcare Information Services, Inc.
("Alltel"), a wholly-owned subsidiary of ALLTEL Information Services,
Inc. ("AIS")
Effective June 26, 1997, SDK Healthcare Information Systems ("SDK")
These acquisitions have been accounted for as purchases and accordingly the
accompanying financial statements reflect the results of operations of these
businesses from the date acquired.
Effective January 30, 1998, the Company acquired the net assets of the
North American operations of the Emtek Healthcare Division of Motorola, Inc.
("Emtek").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Eclipsys and its
wholly-owned subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.
FINANCIAL STATEMENT PRESENTATION
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosures of contingent assets and liabilities. The
estimates and assumptions used in the accompanying consolidated financial
statements are based upon management's evaluation of the relevant facts and
circumstances as of the date of the financial statements. Actual results could
differ from those estimates.
The unaudited pro forma balance sheet as of December 31, 1997 gives effect
to the conversion of the Company's Series D, E and F Convertible Preferred Stock
as if such conversion occurred as of December 31, 1997. Such preferred stock is
automatically convertible upon an initial public offering ("IPO") of the
Company's Common Stock (Notes 5 and 13).
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents.
REVENUE RECOGNITION
The Company's products are sold to customers based on long-term contractual
agreements. Revenues are derived from the licensing of computer software,
software and hardware maintenance, remote processing and outsourcing, training,
implementation assistance, consulting, and the sale of computer hardware.
F-7
<PAGE> 78
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SYSTEMS AND SERVICES
For contracts in which the Company is required to make significant
production, modification, or customization changes, revenues from software
license fees are recognized using the percentage-of-completion method over the
implementation period of the contracts based on implementation hours incurred.
Other software license fees are generally recognized on a straight-line basis
over the term of the licensing and maintenance agreements, which range from five
to seven years. Remote processing and outsourcing services are marketed under
long-term agreements generally over periods from five to seven years and
revenues are recognized monthly as the work is performed. Software maintenance
fees are marketed under annual and multi-year agreements and are recognized
ratably over the term of the agreements. Implementation revenues are recognized
as the services are performed or on a percentage-of-completion basis for fixed
fee arrangements. Hardware maintenance revenues are billed and recognized
monthly over the term of agreements. Revenues related to other support services,
such as training, consulting, and implementation, are recognized when the
services are performed.
HARDWARE SALES
Hardware sales are recognized upon shipment of the product to the customer.
UNBILLED ACCOUNTS RECEIVABLE
Unbilled accounts receivable represent amounts owed to the Company under
noncancelable agreements for software license fees with extended payment terms
and computer hardware purchases which have been financed over extended payment
terms. The current portion of unbilled accounts receivable of $3.2 million as of
December 31, 1997 is included in accounts receivable in the accompanying
financial statements. The non-current portion of unbilled accounts receivable of
$1.5 million as of December 31, 1997 is included in other assets in the
accompanying financial statements.
Additionally, included in unbilled accounts receivable are costs and
earnings in excess of billings related to certain software license fee
arrangements which are being recognized on a percentage-of-completion basis.
These amounts totaled approximately $1.0 million as of December 31, 1997.
INVENTORY
Inventory consists of computer parts and peripherals and is stated at the
lower of cost or market. Cost is determined using the first-in, first-out
method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives,
which range from two to ten years. Computer equipment is depreciated over two to
five years. Office equipment is depreciated over two to ten years. Purchased
software for internal use is amortized over three to five years. Leasehold
improvements are amortized over the shorter of the useful lives of the assets or
the remaining term of the lease. When assets are retired or otherwise disposed
of, the related costs and accumulated depreciation are removed from the accounts
and any resulting gain or loss is reflected in income. Expenditures for repairs
and maintenance not considered to substantially lengthen the property and
equipment lives are charged to expense as incurred.
F-8
<PAGE> 79
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes a portion of its internal computer software
development costs incurred. Salaries, benefits, and other directly related costs
incurred in connection with programming and testing software products are
capitalized subsequent to establishing technological feasibility. Capitalization
ceases when the products are generally released for sale to customers.
Management monitors the net realizable value of all capitalized software
development costs to ensure that the investment will be recovered through
margins from future sales. These costs are amortized over the greater of the
ratio that current revenues bear to total and anticipated future revenues for
the applicable product or the straight line method over three to five years.
Capitalized costs related to software development were approximately $1.6
million for the year ended December 31, 1997.
ACQUIRED TECHNOLOGY AND INTANGIBLE ASSETS
The intangible assets arose from the Company's acquisitions (Note 6) and
consist of the following as of December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK USEFUL
GROSS AMORTIZATION VALUE LIFE
------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Acquired Technology........................ $41,705 $17,966 $23,739 3 - 5 Years
Ongoing customer relationships............. 7,700 1,412 6,288 5 Years
Management and services agreement.......... 9,543 2,197 7,346 4 Years
Goodwill................................... 14,009 1,466 12,543 5 - 12 Years
------- ------- -------
$72,957 $23,041 $49,916
======= ======= =======
</TABLE>
The carrying value of the excess of cost over fair value of net assets
acquired is reviewed if the facts and circumstances suggest that it may be
impaired. This review indicates if the assets will not be recoverable as
determined based on future expected cash flows. Based on its review, the Company
does not believe that an impairment of its excess of cost over fair value of net
assets acquired has occurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, and other current liabilities,
approximate fair value. The recorded amount of long-term debt approximates fair
value as the debt bears interest at a floating market rate.
INCOME TAXES
The Company accounts for income taxes utilizing the liability method, and
deferred income taxes are determined based on the estimated future tax effects
of differences between the financial reporting and income tax basis of assets
and liabilities and tax carryforwards given the provisions of the enacted tax
laws.
STOCK-BASED COMPENSATION
The Company has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", and related
Interpretations and to elect the disclosure option of Statement of Financial
Accounting Standards ("FAS") No. 123, "Accounting for Stock-Based Compensation".
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the estimated market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock.
F-9
<PAGE> 80
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIC AND DILUTED NET LOSS PER SHARE
For all periods presented, basic net loss per common share is presented in
accordance with FAS 128, "Earnings per Share", which provides for new accounting
principles used in the calculation of earnings per share and was effective for
financial statements for both interim and annual periods ended after December
15, 1997. Basic net loss per common share is based on the weighted average
number of shares of common stock outstanding during the period. Stock options to
acquire 986,250 and 2,671,560 shares of common stock in 1996 and 1997,
respectively, warrants to acquire up to 2,699,572 shares of common stock in
1997, and convertible preferred stock (convertible into 1,500,000 and 14,149,971
shares of common stock in 1996 and 1997, respectively) were the only securities
issued which would have been included in the diluted earnings per share
calculation had they not been antidilutive due to the net loss reported by the
Company. The Company has excluded 555,913 contingently returnable shares of
common stock from basic and diluted earnings per share computations (Note 4).
CONCENTRATION OF CREDIT RISK
The Company's customers operate primarily in the healthcare industry. The
Company sells its products and services under contracts with varying terms. The
accounts receivable amounts are unsecured. Management believes the allowance for
doubtful accounts is sufficient to cover credit losses.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of foreign subsidiaries
are measured using the currency of the respective countries as the functional
currency. Assets and liabilities are translated at the foreign exchange rate in
effect at the balance sheet date, while revenue and expenses for the year are
translated at the average exchange rate in effect during the year. Translation
gains and losses are not included in determining net income or loss but are
accumulated and reported as a separate component of shareholders' equity
(deficit). The Company has not entered into any hedging contracts during the two
year period ended December 31, 1997.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued FAS 130,
"Reporting for Comprehensive Income" and FAS 131, "Disclosure about Segments of
an Enterprise and Related Information". In October 1997, the American Institute
of Certified Public Accountants issued Statement of Position 97-2 ("SOP 97-2"),
"Software Revenue Recognition". All three statements are effective for fiscal
years beginning after December 15, 1997, and are not expected to have a material
impact on the Company's financial statements.
F-10
<PAGE> 81
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
---- -------
<S> <C> <C>
Computer equipment.......................................... $107 $ 8,467
Office equipment and other.................................. 199 1,834
Purchased software.......................................... -- 3,382
Leasehold improvements...................................... 48 2,122
---- -------
354 15,805
Less: Accumulated depreciation and amortization............. (32) (6,288)
---- -------
$322 $ 9,517
==== =======
</TABLE>
Depreciation of property and equipment totaled approximately $32,000 and
$6.3 million in 1996 and 1997, respectively.
4. LICENSING ARRANGEMENT
In May 1996, the Company entered into an exclusive licensing arrangement
with Partners HealthCare System, Inc. ("Partners") to develop, commercialize,
distribute and support certain intellectual property which was being developed
at Partners. In consideration for the license, the Company issued 1,482,436
shares of Common Stock of the Company and agreed to pay royalties to Partners on
sales of the developed product until the Company completes an initial public
offering of common stock with a per share offering price of $6.67 or higher. The
licensing arrangement was recorded by the Company at Partners' historical basis
which was zero. There was no revenue recognized by the Company or royalties paid
to Partners under the arrangement in 1996 or 1997. Under the terms of the
license, the Company may further develop, market, distribute and support the
original technology and license it, as well as market related services, to other
healthcare providers and hospitals throughout the world (other than in the
Boston, Massachusetts metropolitan area). The Company is obligated to offer to
Partners and certain of their affiliates an internal use license, granted on
most favored customer terms, to any new software applications developed by the
Company, whether or not derived from the licensed technology, and major
architectural changes to the licensed software. After May 3, 1998, Partners and
certain of their affiliates are entitled to receive internal use licenses for
any changes to any modules or applications included in the licensed technology,
as defined. The Company has a right of first offer to commercialize new
information technologies developed in connection with Partners. If the Company
fails to pay the required royalties, breaches any material term under the
licensing arrangement or if the current Chairman of the Board, President and
Chief Executive Officer of the Company voluntarily terminates his employment
with the Company prior to May 1999, the license may become non-exclusive, at the
option of Partners. If Partners elects to convert the license to non-exclusive,
it must return 555,913 shares of Common Stock to the Company. The Company has
the option to purchase the technology it licenses from Partners upon the
completion of an IPO.
As part of the agreement, the Company provided development services to
Partners related to commercializing the intellectual property; fees for these
development services totaled $2.0 million and $2.5 million for the years ended
December 31, 1996 and 1997, respectively, and are included as a reduction in
research and development expenses in the accompanying consolidated statements of
operations.
F-11
<PAGE> 82
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 -- (CONTINUED)
5. SHAREHOLDERS' EQUITY AND MANDATORILY REDEEMABLE PREFERRED STOCK
STOCK SPLIT
In May 1997, the Company declared a three-for-two split for all Common
Stock and Non-Voting Common Stock issued and outstanding. In addition, the
shareholders approved an increase in the number of authorized shares of Common
Stock from 30,000,000 to 50,000,000. The accompanying consolidated financial
statements give retroactive effect to the May 1997 stock split as if it occurred
at inception of the Company.
MANDATORILY REDEEMABLE PREFERRED STOCK
In connection with its acquisition of Alltel (Note 6), the Company sold
30,000 shares of Series B 8.5% Cumulative Redeemable Preferred Stock ("Series
B") and warrants to purchase up to 2,699,572 shares of Non-Voting Common Stock
at $.01 per share for total consideration of $30.0 million. The number of
warrants to be issued is subject to adjustment in the event the Company redeems
all or a portion of the Series B prior to its mandatory redemption date. The
Series B is non-voting and is entitled to a liquidation preference of $1,000 per
share plus any unpaid dividends. Dividends are cumulative and accrue at an
annual rate of 8.5%. In the event that dividends are not paid when due for
quarters ending after December 31, 1999, the dividend rate will increase to
12.5%.
The Series B is redeemable by the Company at its redemption price at any
time on or before the mandatory redemption date of December 31, 2001. The
redemption price, as defined, equals the liquidation preference amount plus all
accrued and unpaid dividends. With respect to liquidation preferences, the
Series B ranks equal to the Series C 8.5% Cumulative Redeemable Preferred Stock
("Series C") and senior to all other equity instruments. In the event that
certain shareholders cease to continue to own a specified percentage of common
or convertible preferred stock of the Company, the holders of the Series B may
elect to put the securities back to the Company at their redemption price, as
defined. Additionally, the Series B may be put back to the Company at their
redemption value in the event of a change of control, as defined.
In January 1997, 20,000 shares of the Series C were issued to AIS as part
of the consideration paid for Alltel (Note 6). The Series C contains the same
terms, including voting rights, ability to redeem and liquidation preferences as
the Series B. The Series C redemption price is determined the same as Series B.
The Series C must be redeemed on or before December 31, 2001. The Series C
may be put back to the Company at their redemption value in the event of a
change in control, as defined.
The Company has accounted for the Series B and C as mandatorily redeemable
preferred stock. Accordingly, the Company is accruing dividends and amortizing
any discount over the redemption period with a charge to additional paid-in
capital ("APIC"). The Company recorded a discount on the Series B at the time of
its issuance for the estimated fair value of the warrants ($10.5 million). The
Company valued the maximum amount of warrants that would be issued up to the
mandatory redemption date of the Series B as of the acquisition date and
December 31, 1997. The Company recorded the Series C on the date of acquisition
of Alltel at $10.3 million (after adjustment for the 4,500 shares returned by
AIS (Note 6)), which included a discount from its face amount of $5.2 million.
The amount charged to APIC related to the Series B and C for the year ended
December 31, 1997 was $4.1 million and $1.8 million, respectively.
F-12
<PAGE> 83
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 -- (CONTINUED)
5. SHAREHOLDERS' EQUITY AND MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
The Series B and Series C consist of the following (in thousands):
<TABLE>
<CAPTION>
DATE OF ISSUE DECEMBER 31, 1997
-------------------------------------- --------------------------------------
FACE VALUE DISCOUNT CARRYING VALUE FACE VALUE DISCOUNT CARRYING VALUE
---------- -------- -------------- ---------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Series B.................... $30,000 $10,501 $19,499 $30,000 $6,476 $23,524
Series C.................... 15,500 5,242 10,258 15,500 3,417 12,083
------- ------- ------- ------- ------ -------
$45,500 $15,743 $29,757 $45,500 $9,893 $35,607
======= ======= ======= ======= ====== =======
</TABLE>
SERIES A CONVERTIBLE PREFERRED STOCK
In May 1996, concurrent with entering into the Partners' licensing
arrangement, the Company sold 1,000,000 shares of Series A Convertible Preferred
Stock ("Series A") for $6.0 million to outside investors. The Series A was
convertible on a one-to-one basis to shares of Common Stock of the Company at
the discretion of the outside investors. The Series A had voting rights
equivalent to Common Stock on an as converted basis, a liquidation preference of
$6 per share. The Company did not declare or pay any dividends on Series A. In
January 1997, the Series A was converted into 1,478,097 shares of Series F
Convertible Preferred Stock ("Series F"). The Company recorded a charge of $3.1
million to additional paid in capital at the date of the conversion. In
addition, the charge is recorded as an increase to net loss available to common
shareholders in the accompanying statement of operations.
SERIES D CONVERTIBLE PREFERRED STOCK
In January 1997, the Company sold 4,981,290 shares of the Series D
Convertible Preferred Stock ("Series D") for $62.5 million to private investors
and issued 2,077,497 shares to AIS in connection with the acquisition of Alltel.
Each share of Series D is convertible into 1.5 shares of Common Stock. The
Series D contains voting rights as if it were converted into Common Stock and
has a liquidation preference of $12.55 per share plus any declared but unpaid
dividends. The Series D is equivalent to Series E Convertible Preferred Stock
("Series E") with respect to liquidation preference and rank.
Both the Series D and E rank junior to the Series B and C and senior to
Series F. To date, the Company has not declared or paid any dividends on the
Series D.
SERIES E CONVERTIBLE PREFERRED STOCK
In January 1997, the Company sold 896,431 shares of Series E for $11.3
million. The Series E is non-voting and is identical to the Series D with
respect to liquidation preference and rank. Each share of Series E is
convertible into 1.5 shares of Non-Voting Common Stock. To date, the Company has
not declared or paid any dividends on the Series E.
SERIES F CONVERTIBLE PREFERRED STOCK
As described above, in January 1997, each share of outstanding Series A was
converted into 1.478 shares of Series F. The Series F contains a liquidation
preference of $6 per share. The Series F ranks junior to the Company's other
classes of preferred stock with respect to liquidation preferences. Each share
of Series F is convertible into 1.5 shares of Common Stock. To date, the Company
has not declared or paid any dividends on the Series F.
F-13
<PAGE> 84
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 -- (CONTINUED)
5. SHAREHOLDERS' EQUITY AND MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
COMMON STOCK AND NON-VOTING COMMON STOCK
Holders of Common Stock are entitled to one vote per share. Holders of
Non-Voting Common Stock do not have voting rights other than as provided by
statute.
UNDESIGNATED PREFERRED STOCK
The Company has available for issuance, 1,000,000 shares of undesignated
preferred stock (the "Undesignated Preferred"). The liquidation, voting,
conversion and other related provisions of the Undesignated Preferred will be
determined by the Board at the time of issuance. Currently, there are no
outstanding shares.
6. ACQUISITIONS
Effective January 24, 1997, Eclipsys completed the acquisition of Alltel.
As consideration for this transaction, Eclipsys paid AIS $104.8 million cash,
issued 15,500 (after consideration of the return of 4,500 shares by AIS in
October 1997) shares of Series C valued at approximately $10.3 million and
2,077,497 shares of Series D valued at approximately $26.1 million. Concurrent
with the acquisition, the Company and Alltel entered into the Management and
Services Agreement ("MSA") whereby Alltel agreed to provide certain services to
the Company and its customers together with certain non-compete provisions. In
exchange, the Company agreed to pay Alltel $11.0 million in varying installments
through December 2000. The obligation and equivalent corresponding asset were
recorded at its net present value of $9.5 million at the date of signing. To
finance the transaction, the Company sold, for $30.0 million, 30,000 shares of
Series B and warrants to purchase up to 2,699,572 shares of Non-Voting Common
Stock to private investors. Additionally, the Company sold 4,981,290 shares of
Series D and 896,431 shares of Series E for total proceeds of $73.8 million.
The transaction was accounted for as a purchase and accordingly, the
purchase price was allocated based on the fair value of the net assets acquired.
The purchase price is composed of and allocated as follows (in thousands):
<TABLE>
<S> <C>
Cash, net of cash acquired.................................. $104,814
Issuance of Series D........................................ 26,072
Issuance of Series C........................................ 10,258
Transaction costs........................................... 2,008
Liabilities assumed......................................... 58,397
--------
201,549
--------
Current assets.............................................. 31,803
Property and equipment...................................... 12,242
Other assets................................................ 3,148
Identifiable intangible assets (including in-process
research and development)................................. 144,900
--------
192,093
--------
Goodwill.................................................... $ 9,456
--------
</TABLE>
The acquisition agreement contains certain provisions whereby the purchase
price could be adjusted within twelve months from the acquisition date based on
certain criteria defined in the agreement. Based on these provisions, in October
1997, AIS returned 4,500 shares of Series C to Eclipsys. In December 1997, the
Company presented its final analysis to AIS of items for which, under the
agreement, the Company believed it was entitled to consideration. In March 1998,
the Company negotiated an agreement with AIS, which settled
F-14
<PAGE> 85
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 -- (CONTINUED)
6. ACQUISITIONS (CONTINUED)
these issues related to any adjustments that could be made pursuant to the
provisions in the acquisition agreement (Note 13). After accounting for this
adjustment, the Company's total consideration paid for this acquisition was
$201.5 million, including liabilities assumed, net of cash acquired.
In connection with the recording of the acquisition of Alltel, the Company
reduced the predecessor's reported deferred revenue by $7.3 million to the
amount that reflects the estimated fair value of the contractual obligations
assumed. This adjustment results from the Company's requirement, in accordance
with generally accepted accounting principles, to record the fair value of the
obligation assumed with respect to arrangements for which the related revenue
was previously collected by the predecessor company. The Company's liability at
acquisition includes its estimated costs in fulfilling those contract
obligations.
Effective June 26, 1997, the Company acquired all of the common stock of
SDK in exchange for 750,000 shares of Common Stock valued at approximately $3.2
million, $2.2 million in cash and acquisition debt due to SDK shareholders
totaling $7.6 million. The transaction was accounted for as a purchase and,
accordingly, the purchase price was allocated based on the estimated fair value
of the net assets acquired.
The purchase price is composed of and allocated as follows (in thousands):
<TABLE>
<S> <C>
Cash, net of cash acquired.................................. $ 2,161
Issuance of Common Stock.................................... 3,248
SDK acquisition debt........................................ 7,588
Liabilities assumed......................................... 3,514
-------
16,511
-------
Current assets.............................................. 1,061
Property and equipment...................................... 671
Other assets................................................ 33
Identifiable intangible assets.............................. 10,193
-------
11,958
-------
Goodwill.................................................... $ 4,553
=======
</TABLE>
In connection with the Alltel and SDK acquisitions, the Company wrote off
in-process research and development charges of $98.7 million and $7.0 million,
respectively, related to the appraised values of certain in-process research and
development acquired in these acquisitions.
Unaudited pro forma results of operations for the years ended December 31,
1996 and 1997, as if the aforementioned acquisitions had occurred on January 1,
1996 is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
Revenues.................................................... $ 115,606 $ 103,786
Net loss.................................................... (4,215) (145,288)
Basic and diluted loss per share............................ $ (0.80) $ (27.25)
</TABLE>
Effective January 30, 1998, the Company acquired the net assets of Emtek
for an aggregate purchase price of approximately $10.1 million, including
1,500,000 shares of Common Stock valued at $9.1 million and liabilities assumed
of approximately $10.6 million. In addition, Motorola agreed to pay the Company
$9.6 million in cash due within one year for working capital purposes.
F-15
<PAGE> 86
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
Term Loan................................................... $ 9,000
SDK acquisition debt, interest payable quarterly at 9.5%,
principal due in two annual installments of $3,794,
commencing April 1998..................................... 7,588
--------
16,588
Less current portion........................................ (12,794)
--------
Long-term debt.............................................. $ 3,794
========
</TABLE>
In connection with the Alltel acquisition, the Company entered into a $30
million credit facility (the "Facility") with a bank. The Facility included a
$10 million term loan (the "Term Loan") and a $20 million revolving credit
facility (the "Revolver"). Borrowings under the Facility are secured by
substantially all of the assets of the Company. The Term Loan was payable in
varying quarterly installments through January 2000. As more fully discussed in
Note 13, the Term Loan was repaid in full with the proceeds of the sale of
Series G Convertible Preferred Stock in February 1998. As such, the entire
balance of the Term Loan is classified as current in the accompanying financial
statements.
Borrowings under the Facility bear interest, at the Company's option, at
(i) LIBOR plus 1% to 3% or (ii) the higher of a) the banks prime lending rate or
b) the Federal Funds Rate plus 0.5%; plus 0% to 1.75%. The interest rates vary
based on the Company's ratio of earnings to consolidated debt, as defined. At
December 31, 1997, the Company's borrowing rate under the Facility was 6.85%.
Under the terms of the Facility, the Company is required to maintain certain
financial covenants related to consolidated debt to earnings, consolidated
earnings to interest expense and consolidated debt to capital. In addition, the
Company has limitations on the amounts of certain types of expenditures and is
required to obtain certain approvals related to mergers and acquisitions, as
defined. The Company was in compliance with all provisions of the Facility as of
December 31, 1997.
As of December 31, 1997, the Company has $20 million available for future
borrowings under the Revolver. The Revolver expires on the third anniversary of
the Facility. Under the terms of the Revolver, the Company pays an annual
commitment fee of .375% for any unused balance, as defined. Additionally, the
Company pays a fee of .125% for any Letters of Credit issued under the
agreement. As of December 31, 1997, unused Letters of Credit totaling
approximately $5.0 million were outstanding against the Revolver.
8. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
---- -------
<S> <C> <C>
Accounts payable............................................ $120 $ 4,606
Accrued compensation and incentive.......................... 237 7,847
Customer deposits........................................... -- 7,959
Payment due AIS under MSA................................... -- 2,000
Accrued acquisition costs................................... 501 --
Accrued interest............................................ -- 672
Other....................................................... 24 8,066
---- -------
$882 $31,150
==== =======
</TABLE>
F-16
<PAGE> 87
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 -- (CONTINUED)
9. INCOME TAXES
The Company has no current or deferred income tax provision due to the net
losses reported by the Company.
A reconciliation of the federal statutory rate and the effective income tax
rate follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Statutory federal income tax rate (34%)..................... $(500) $(45,481)
SDK in-process research and development..................... -- 2,376
Meals and entertainment..................................... 8 460
State income taxes.......................................... (58) (5,163)
Non-deductible amortization................................. -- 747
Valuation allowance......................................... 550 46,976
Other....................................................... -- 85
----- --------
Income tax benefit (provision).............................. $ -- $ --
===== ========
</TABLE>
The significant components of the Company's net deferred tax asset were as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Alltel in-process research and development.................. $ -- $ 34,969
Intangible assets........................................... -- 5,353
Deferred revenue............................................ -- 3,990
Allowance for doubtful accounts............................. -- 660
Compensation related accrued liabilities.................... 58 249
Accrued expenses............................................ -- 3,569
Depreciation and amortization............................... -- 1,257
Net operating loss carryforwards............................ 504 5,220
----- --------
562 55,267
----- --------
Deferred tax liabilities:
Capitalization of software development costs.............. -- 604
Depreciation and amortization............................. 12 --
Other..................................................... -- --
----- --------
Net deferred tax asset...................................... 550 54,663
----- --------
Valuation allowance......................................... (550) (54,663)
----- --------
$ -- $ --
===== ========
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $13.8 million. The carryforwards
expire in varying amounts through 2012.
In addition, under the Tax Reform Act of 1986, the amounts of, and the
benefits from, net operating loss carryforwards may be impaired or limited in
certain circumstances. The Company experienced an ownership change as defined
under Section 382 of the Internal Revenue Code in January, 1997. As a result of
the ownership change, net operating loss carryforwards of approximately $1.5
million, which were incurred prior to the date of change, are subject to annual
limitation on their future use. As of December 31, 1997, a valuation
F-17
<PAGE> 88
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 -- (CONTINUED)
9. INCOME TAXES (CONTINUED)
allowance has been established against the deferred tax assets which the Company
does not believe are more likely than not to be realized. The future reduction
of the valuation allowance, up to $7.2 million, will be reflected as a reduction
of goodwill.
10. EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN
In April 1996, the Board of Directors of the Company (the "Board") adopted
the 1996 Stock Plan (the "1996 Stock Plan"). The 1996 Stock Plan, as amended,
provides for grants of stock options, awards of Company stock free of any
restrictions and opportunities to make direct purchases of restricted stock of
the Company. The 1996 Stock Plan allows for the issuance of options or other
awards to purchase up to 3,750,000 shares of Common Stock. Pursuant to the terms
of the 1996 Stock Plan, a committee of the Board is authorized to grant awards
to employees and non employees and establish vesting terms. The options expire
ten years from the date of grant. The following table summarizes activity under
the Plan:
<TABLE>
<CAPTION>
1996 1997
------------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year......... -- $ -- 986,250 $0.08
Granted................................ 986,250 0.08 1,964,969 4.32
Exercised.............................. -- -- (84,359) 0.08
Forfeited.............................. -- -- (145,300) 3.74
------- ----- --------- -----
Outstanding at end of year............... 986,250 0.08 2,721,560 2.92
------- ----- --------- -----
Options exercisable at end of year....... -- 296,968
------- ---------
Weighted average fair value of options
granted during the year................ $ -- $ .90
===== =====
</TABLE>
During 1996 and 1997, pursuant to the 1996 Stock Plan, the Board issued
165,000 and 22,500 shares of Common Stock, respectively, to employees and
nonemployees for services. Compensation expense of approximately $1,000 and
$97,000 was recorded in 1996 and 1997, respectively, related to these
transactions.
In addition, during 1996 and 1997, the Company recorded compensation
expense of $22,000 and $71,000, respectively, related the granting of certain
stock options to employees with exercise prices below the estimated fair market
value of the Common Stock at the date of grant.
The Company has adopted the disclosure only provision of FAS 123. Had
compensation cost for the Company's stock option grants described above been
determined based on the fair value at the grant date for
F-18
<PAGE> 89
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 -- (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
awards in 1996 and 1997 consistent with the provisions of FAS 123, the Company's
net loss and loss per share would have been increased to the pro forma amounts
indicated below (in thousands, except share data):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1996 1997
-------- ---------
<S> <C> <C>
Net loss:
As reported............................................... $(1,471) $(135,234)
Pro forma................................................. (1,494) (135,757)
Basic and diluted net loss per share:
As reported............................................... $ (0.32) $ (27.28)
Pro forma................................................. (0.33) (27.37)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1997, respectively: dividend yield of 0%
for all years, expected volatility of 0% for all years, risk-free interest rate
of 5.90% and 6.07% and expected life of 4.3 years for all years.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICE AT 12/31/97 LIFE PRICE 12/31/97 PRICE
- --------------------------------- ----------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$0.07 to $0.13................... 941,641 8.36 $0.08 246,968 $0.08
$4.33 to $5.00................... 1,779,919 9.53 $4.47 50,000 $5.00
</TABLE>
EMPLOYEE SAVINGS PLAN
During 1997, the Company established a Savings Plan (the "Plan") pursuant
to Section 401(k) of the Internal Revenue Code (the "Code"), whereby employees
may contribute a percentage of their compensation, not to exceed the maximum
amount allowable under the Code. At the discretion of the Board, the Company may
elect to make matching contributions, as defined in the Plan. For the year end
December 31, 1997, the Board authorized matching contributions totaling
$780,000.
11. COMMITMENTS AND CONTINGENCIES
NONCANCELABLE OPERATING LEASES
The Company leases its office space and certain equipment under
noncancelable operating leases. Rental expense under operating leases was
approximately $70,000 and $6.2 million for the years ended December 31,
F-19
<PAGE> 90
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
1996 and 1997, respectively. Future minimum rental payments for noncancelable
operating leases as of December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1998........................................................ $ 5,801
1999........................................................ 4,930
2000........................................................ 2,616
2001........................................................ 1,877
2002........................................................ 1,632
Thereafter.................................................. 4,575
-------
$21,431
=======
</TABLE>
LITIGATION
The Company is involved in litigation incidental to its business. In the
opinion of management, after consultation with legal counsel, the ultimate
outcome of such litigation will not have a material adverse effect on the
Company's financial position or results of operations or cash flows.
12. RELATED PARTY TRANSACTIONS
During 1997, the Company paid AIS $1.7 million for certain transition
services provided by AIS related to accounting services, computer processing and
other various activities.
During 1997, Eclipsys paid a total of $348,000 to certain subsidiaries of
AIS and Alltel Corporation related to the purchase of various goods and
services.
The Company leases office space from the former owner of SDK. During the
year ended December 31, 1997 the Company paid $178,000 under this lease. The
lease is noncancelable and expires in 2009.
In 1997, the Company paid $336,000 to a charter company for the use of an
aircraft for corporate purposes. The aircraft provided for the Company's use was
leased by the charter company from a company owned by the Chairman of the Board,
President and Chief Executive Officer of the Company (the "Chairman"). The
Chairman's company received $219,000 for these transactions. The Chairman has no
interest in the charter company. In the opinion of management, the Company
believes that the terms of charters were comparable to rates that would be
charged by unaffiliated parties.
The Company has an employment agreement with the Chairman through May 1,
1999. Under the provisions of the agreement, the Chairman earns an annual salary
of $150,000, subject to adjustment from time to time. The payment of amounts
earned under the agreement were to be deferred until certain earnings were
attained by the Company. During 1997, $66,000 was paid under the agreement.
Effective January 1, 1998, the Chairman's annual salary was increased to
$200,000.
13. SUBSEQUENT EVENTS
SHAREHOLDERS' EQUITY (DEFICIT)
In January 1998, the Company amended its Certificate of Incorporation (the
"Certificate"). Under the amended Certificate, the Company increased the number
of authorized shares of Undesignated Preferred to 1,100,000 and created Series G
Convertible Preferred Stock ("Series G"). There are 900,000 authorized shares of
Series G. The Series G is convertible on a one-to-one basis to shares of Common
Stock. The conversion rate is subject to adjustment in certain circumstances.
The Series G has a liquidation preference of
F-20
<PAGE> 91
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 -- (CONTINUED)
13. SUBSEQUENT EVENTS (CONTINUED)
$10 per share. In the event of an involuntary liquidation of the Company, the
Series G will participate on a pro rata basis with the Series D and E. In
February 1998, the Company sold 900,000 shares of Series G to outside investors
for total consideration of $9 million. The proceeds were utilized to repay the
outstanding Term Loan balance.
In addition, the Company amended the terms of (i) all of its convertible
preferred stock to require that it automatically be converted into Common Stock
or Non-Voting Common Stock, as applicable, upon a qualifying IPO and (ii) all of
its Mandatorily Redeemable Preferred Stock to require that it be mandatorily
redeemed upon a qualifying IPO.
CREDIT FACILITY
In March 1998, the Company borrowed $9.0 million under the Revolver to pay
a portion of the AIS settlement, described herein.
The Company has entered into negotiations to increase the available
borrowings under the Revolver (Note 7) from $20.0 million to $50.0 million.
1998 STOCK INCENTIVE PLAN
In January 1998, the Board adopted the 1998 Stock Incentive Plan (the
"Incentive Plan"). The Incentive Plan provides for the granting of stock
options, stock appreciation rights, restricted stock awards or unrestricted
stock awards. Under the provisions of the Incentive Plan, no options or other
awards may be granted after April 2008. There are currently 6,500,000 shares of
common stock reserved under the Incentive Plan, together with the 1996 Stock
Plan and the 1998 Employee Stock Purchase Plan. Options granted under the
Incentive Plan will be granted at the fair market value of the stock as of the
date of grant.
1998 EMPLOYEE STOCK PURCHASE PLAN
Under the Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan")
(implemented in April 1998), employees of the Company, including directors of
the Company who are employees are eligible to participate in quarterly plan
offerings in which payroll deductions may be used to purchase shares of Common
Stock. The purchase price of such shares is the lower of 85% of the fair market
value of the Common Stock on the day the offering commences and 85% of the fair
market value of the Common Stock on the day the offering terminates. The first
offering period under the Purchase Plan will not commence until after the
completion of the Offering.
INITIAL PUBLIC OFFERING
In April 1998, the Company's Board of Directors authorized the Company to
file a Form S-1 with the Securities and Exchange Commission under the Securities
Act of 1933 with respect to an IPO.
AIS SETTLEMENT
In the first quarter of 1998, the Company and AIS renegotiated, in two
separate transactions, certain matters relating to the acquisition of Alltel. In
one transaction, AIS returned to the Company, for cancellation, 11,000 shares of
Series C in exchange for resolving certain open issues in connection with the
Alltel acquisition, and the Company agreed, at AIS' option, to redeem the
remaining 4,500 shares of Series C held by AIS for an aggregate price of $4.5
million at the time of the IPO and for a period of 30 days thereafter. The
Company will use a portion of the net proceeds of the IPO to redeem the
remaining Series C held by AIS. In the second transaction, the Company paid AIS
an aggregate of $14.0 million in exchange for terminating all of the rights and
obligations of both parties under the MSA.
F-21
<PAGE> 92
ECLIPSYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 -- (CONTINUED)
13. SUBSEQUENT EVENTS (CONTINUED)
In the first quarter of 1998, the Company will record a charge of
approximately $7 million related to the write-off of the MSA intangible asset.
In addition, the Company will record a reduction to goodwill of approximately
$7.5 million related to the final settlement of certain issues related to the
Alltel acquisition resulting in the return of the 11,000 shares of Series C.
F-22
<PAGE> 93
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Eclipsys Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of changes in
shareholder's deficit present fairly, in all material respects, the financial
position of ALLTEL Healthcare Information Services, Inc. (the Company) (a
Delaware corporation, wholly-owned by ALLTEL Information Services, Inc., an
Arkansas corporation) and its subsidiaries at December 31, 1995 and 1996, and
the results of their operations and their cash flows for the years then ended
and for the period from January 1, 1997 through January 23, 1997 in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 10, effective January 24, 1997, the Company was acquired by
Eclipsys Corporation.
PRICE WATERHOUSE LLP
Atlanta, Georgia
June 27, 1997
F-23
<PAGE> 94
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,599 $ 2,022
Accounts receivable, net of allowance for doubtful
accounts of $749 and $1,274 at December 31, 1995 and
1996, respectively..................................... 29,435 29,713
Inventory................................................. 2,081 1,576
Deferred tax asset........................................ 3,676 3,682
Other current assets...................................... 678 634
-------- --------
Total current assets................................... 38,469 37,627
Property and equipment, net................................. 10,168 10,739
Purchased software, net of accumulated amortization of
$2,985 and $4,453 at December 31, 1995 and 1996,
respectively.............................................. 4,098 2,882
Capitalized software development costs, net of accumulated
amortization of $4,671 and $11,880 at December 31, 1995
and 1996, respectively.................................... 27,632 35,306
Intangible assets, net of accumulated amortization of $1,129
and $2,101 at December 31, 1995 and 1996, respectively.... 5,670 4,698
Other assets................................................ 2,344 9,191
-------- --------
Total assets........................................... $ 88,381 $100,443
======== ========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Deferred revenue.......................................... $ 24,724 $ 26,807
Other current liabilities................................. 17,668 20,378
-------- --------
Total current liabilities.............................. 42,392 47,185
Deferred revenue............................................ 15,913 10,148
Other long-term liabilities................................. 1,250
Deferred income taxes....................................... 7,002 9,294
Intercompany payable to parent.............................. 46,085 57,953
-------- --------
Total liabilities...................................... 111,392 125,830
Shareholder's deficit:
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding................................. 1 1
Additional paid-in capital................................ 15,678 15,678
Accumulated deficit....................................... (38,236) (40,432)
Cumulative foreign currency translation adjustment........ (454) (634)
-------- --------
Total shareholder's deficit............................ (23,011) (25,387)
-------- --------
Total liabilities and shareholder's deficit....... $ 88,381 $100,443
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 95
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1, 1997
------------------- THROUGH
1995 1996 JANUARY 23, 1997
-------- -------- ----------------
<S> <C> <C> <C>
Revenues:
Service and systems..................................... $ 90,737 $ 99,213 $6,064
Hardware................................................ 9,377 9,587 122
-------- -------- ------
Total revenues....................................... 100,114 108,800 6,186
-------- -------- ------
Costs and expenses:
Cost of service and systems revenues.................... 53,385 63,572 4,277
Cost of hardware revenues............................... 7,950 7,911 104
Marketing and sales..................................... 11,128 11,091 660
Research and development................................ 8,522 10,271 794
General and administrative.............................. 8,168 7,101 621
Depreciation and amortization........................... 6,735 8,135 568
-------- -------- ------
Total costs and expenses............................. 95,888 108,081 7,024
-------- -------- ------
Income (loss) from operations............................. 4,226 719 (838)
Interest expense, net..................................... (2,733) (3,758) (379)
-------- -------- ------
Income (loss) before income taxes......................... 1,493 (3,039) (1,217)
Income tax benefit (provision)............................ (887) 843 437
-------- -------- ------
Net income (loss)......................................... $ 606 $ (2,196) $ (780)
======== ======== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 96
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S DEFICIT
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
FROM
COMMON STOCK ADDITIONAL FOREIGN
--------------- PAID-IN ACCUMULATED CURRENCY
SHARES AMOUNT CAPITAL DEFICIT TRANSLATION TOTAL
------ ------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994........ 1,000 $1 $15,678 $(38,842) $ (470) $(23,633)
Net income.......................... 606 606
Foreign translation adjustment...... 16 16
----- -- ------- -------- -------- --------
Balance at December 31, 1995........ 1,000 1 15,678 (38,236) (454) (23,011)
Net loss............................ (2,196) (2,196)
Foreign translation adjustment...... (180) (180)
----- -- ------- -------- -------- --------
Balance at December 31, 1996........ 1,000 1 15,678 (40,432) (634) (25,387)
Net loss............................ (780) (780)
Foreign translation adjustment...... 3 3
----- -- ------- -------- -------- --------
Balance at January 23, 1997......... 1,000 $1 $15,678 $(41,212) $ (631) $(26,164)
===== == ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 97
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1, 1997
------------------- THROUGH
1995 1996 JANUARY 23, 1997
-------- -------- ----------------
<S> <C> <C> <C>
Operating activities:
Net income (loss)....................................... $ 606 $ (2,196) $ (780)
-------- -------- -------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................ 13,205 15,344 945
Deferred income taxes................................ 6,040 2,286 (52)
Changes in assets and liabilities
Accounts receivable................................ (6,574) (278) 325
Inventory.......................................... 566 505 55
Other current assets............................... (74) 44 10
Deferred revenue................................... 1,090 (3,682) 1,951
Other current liabilities.......................... 906 2,710 2,351
Other long term liabilities........................ -- 1,250 (1,250)
Other assets....................................... 162 (43) (81)
-------- -------- -------
Total adjustments............................... 15,321 18,136 4,254
-------- -------- -------
Net cash provided by operating activities..... 15,927 15,940 3,474
-------- -------- -------
Investing activities:
Purchase of property, equipment and software, net....... (7,716) (9,231) (323)
Capitalized software development costs.................. (12,905) (12,170) (661)
Changes in other assets................................. 96 (6,804) 27
-------- -------- -------
Net cash used in investing activities................ (20,525) (28,205) (957)
-------- -------- -------
Financing activities:
Net change in intercompany payable to parent............ 5,509 11,868 (1,855)
-------- -------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................. 16 (180) 3
-------- -------- -------
Net (decrease) increase in cash and cash equivalents...... 927 (577) 665
Cash and cash equivalents, beginning of year.............. 1,672 2,599 2,022
-------- -------- -------
Cash and cash equivalents, end of year.................... $ 2,599 $ 2,022 $ 2,687
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 98
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Alltel Healthcare Information Services, Inc. ("AHIS") and its subsidiaries
(collectively, the "Company") are engaged in one business segment primarily
providing enterprise-wide clinical, patient care and financial software
solutions, as well as outsourcing, remote processing, networking technologies
and other services to healthcare organizations throughout the United States and
Western Europe.
The Company is a wholly owned subsidiary of Alltel Information Services,
Inc. ("AIS") which is a wholly owned subsidiary of Alltel Corporation
("Alltel").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of AHIS and its wholly owned
subsidiaries. All significant intercompany transactions have been eliminated in
consolidation.
FINANCIAL STATEMENT PRESENTATION
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosure of contingent assets and liabilities. The
estimates and assumptions used in the accompanying consolidated financial
statements are based upon management's evaluation of the relevant facts and
circumstances as of the date of the financial statements. Actual results could
differ from those estimates.
The consolidated statements of operations include all revenues and costs
directly attributable to the operations of AHIS, including the costs of
facilities, administration, and other various costs. As more fully described in
Notes 8 and 11, certain costs related to interest, benefits, and other costs
were allocated to AHIS based on usage and other defined criteria.
All of the allocations utilized in the consolidated financial statements
are based on assumptions that AHIS management believes are reasonable under the
circumstances. However, these allocations are not necessarily indicative of the
costs which would have resulted had AHIS been a separate entity.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents.
REVENUE RECOGNITION
The Company's products are sold to customers based on contractual
agreements. Revenues are derived from the licensing of computer software, the
sale of computer hardware, hardware and software maintenance, remote processing
and outsourcing, training, implementation assistance, custom development, and
consulting.
SERVICE AND SYSTEMS
Revenues from software license fees are recognized using the
percentage-of-completion method for contracts in which the Company is required
to make significant production, modification, or customization changes over the
implementation period of the contracts based on implementation hours incurred.
Other software license fees are generally recognized on a monthly basis over the
term of the licensing and
F-28
<PAGE> 99
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
maintenance agreements which are generally five years. Remote processing and
outsourcing services are marketed under long-term agreements generally over
periods from five to seven years and revenues are recognized monthly as the work
is performed. Software maintenance fees are marketed under annual and multiyear
agreements and are recognized ratably over the term of the agreements.
Implementation revenues are recognized as the services are performed or on a
percentage-of-completion basis for fixed fee arrangements. Hardware maintenance
revenues are billed and recognized monthly over the term of the agreements.
Revenues related to other support services, such as training, consulting, and
custom development, are recognized when the services are performed.
HARDWARE SALES
Hardware sales are recognized upon shipment of the product to the customer.
UNBILLED ACCOUNTS RECEIVABLE
Unbilled accounts receivable represent amounts owed to the Company under
noncancelable agreements for software license fees with extended payment terms
and computer hardware purchases which have been financed over extended payment
terms. The current portion of unbilled accounts receivable of $4,883,000 and
$3,245,000 as of December 31, 1995 and 1996, respectively, is included in
accounts receivable in the accompanying financial statements. The non-current
portion of unbilled accounts receivable of $2,109,000 and $2,151,000 as of
December 31, 1995 and 1996, respectively, is included in other assets in the
accompanying financial statements.
Additionally, included in unbilled accounts receivable are costs and
earnings in excess of billings related to certain software license fee
arrangements which are being recognized on a percentage-of-completion basis.
These amounts totaled approximately $1,572,000 and $1,240,000 as of December 31,
1995 and 1996, respectively.
INVENTORY
Inventory consists of computer parts and peripherals and is stated at the
lower of cost or market. Cost is determined using the first-in, first-out
method.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of foreign subsidiaries
are measured using the currency of the respective countries as the functional
currency. Assets and liabilities are translated at the foreign exchange rate in
effect at the balance sheet date, while revenues and expenses for the year are
translated at the average exchange rate in effect during the year. Translation
gains and losses are not included in determining net income or loss but are
accumulated and reported as a separate component of shareholder's deficit. The
Company has not entered into any hedging contracts during the two year period
ended December 31, 1996.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. For financial reporting
purposes, depreciation and amortization are provided using the straight-line
method over the estimated useful lives, which range from two to ten years.
Computer equipment is depreciated over useful lives which range from two to five
years. Office furniture and equipment is depreciated over two to ten years.
Leasehold improvements are amortized over the shorter of the useful lives of the
assets or the remaining term of the lease. When assets are retired or otherwise
disposed of, the related costs and accumulated depreciation are removed from the
accounts and any resulting gain or
F-29
<PAGE> 100
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
loss is reflected in income. Expenditures for repairs and maintenance not
considered to substantially lengthen the property lives are charged to expense
as incurred.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes a portion of the internal computer software
development costs incurred. Salaries, overhead, and other related costs incurred
in connection with programming and testing software products are capitalized
subsequent to establishing technological feasibility. Management monitors the
net realizable value of all capitalized software development costs to ensure
that the investment will be recovered through margins from future sales. These
costs are amortized utilizing the straight-line method over periods of 36-60
months. Capitalized costs related to software development were approximately
$12,905,000 and $12,170,000, for the years ended December 31, 1995 and 1996,
respectively and $750,000 for the period from January 1, 1997 through January
23, 1997. Amortization of capitalized software development costs amounted to
approximately $6,470,000 and $7,209,000 for the years ended December 31, 1995
and 1996, respectively, and $377,000 for the period from January 1, 1997 through
January 23, 1997 and is included in operating expenses in the accompanying
statements of operations.
INTANGIBLE ASSETS
The intangible assets arose from the acquisition of Medical Data
Technology, Inc. (see Note 5), are stated at cost less accumulated amortization,
and consist of contracts and the excess of cost over fair value of net assets
acquired. The intangible assets are being amortized using the straight-line
method over seven years.
The carrying value of the excess of cost over fair value of net assets
acquired is reviewed if the facts and circumstances suggest that it may be
impaired. This review indicates if the asset will not be recoverable as
determined based on future expected cash flows. Based on its review, the Company
does not believe that an impairment of its excess of cost over fair value of net
assets acquired has occurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, and other current liabilities
approximate fair value. The carrying amount of the intercompany payable to
parent balance approximates fair value based on current rates of interest
available to Alltel, and accordingly, the Company, for loans of similar
maturities.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Computer equipment.......................................... $ 21,106 $ 25,093
Office furniture and equipment.............................. 2,815 4,198
Leasehold improvements and other............................ 2,407 3,461
-------- --------
26,328 32,752
Less: Accumulated depreciation and amortization............. (16,160) (22,013)
-------- --------
$ 10,168 $ 10,739
======== ========
</TABLE>
F-30
<PAGE> 101
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 -- (CONTINUED)
4. OTHER ASSETS
During 1996, the Company entered into a marketing agreement with Integrated
Medical Networks, Inc. ("IMN") for the marketing rights of certain software
which will provide financial and managed care applications for entities within
the healthcare industry. Under the terms of the agreement, IMN will perform
significant enhancements to existing technology over a three year period. AHIS
will retain worldwide, perpetual marketing rights, as defined, for the resulting
technology. For the year ended December 31, 1996, AHIS made payments totaling
approximately $5,811,000 under this agreement and is included in other assets in
the accompanying financial statements. As discussed in Note 12, this agreement
and related asset was transferred to Alltel in conjunction with the sale of the
Company.
5. OTHER CURRENT LIABILITIES
Included in other current liabilities were the following as of December 31,
1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Accrued compensation and incentives......................... $ 6,434 $ 6,603
Accrued hardware costs...................................... 3,700 3,326
Accrued royalty costs....................................... 1,045 648
Current portion of long-term debt........................... 260 86
Other....................................................... 6,229 9,715
------- -------
$17,668 $20,378
======= =======
</TABLE>
6. INCOME TAXES
The Company files its income tax return with AIS which files as part of the
consolidated Alltel group. Income tax expense and related balances shown in the
accompanying financial statements have been determined as if the Company filed
its tax return on a separate company basis.
The income tax benefit (provision) consists of the following (in
thousands):
<TABLE>
<CAPTION>
PERIOD ENDED
1995 1996 JANUARY 23, 1997
------- ------- ----------------
<S> <C> <C> <C>
Current
Federal........................................ $ 4,123 $ 2,503 $ --
State and other................................ 1,030 626 --
------- ------- ----
Deferred......................................... 5,153 3,129 --
------- ------- ----
Federal........................................ (4,833) (1,829) 377
State and other................................ (1,207) (457) 69
------- ------- ----
(6,040) (2,286) 446
------- ------- ----
$ (887) $ 843 $446
======= ======= ====
</TABLE>
F-31
<PAGE> 102
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 -- (CONTINUED)
6. INCOME TAXES (CONTINUED)
A reconciliation of the federal statutory rate and the effective income tax
rate follows (in thousands):
<TABLE>
<CAPTION>
PERIOD ENDED
1995 1996 JANUARY 23, 1997
----- ------ ----------------
<S> <C> <C> <C>
Statutory federal income tax rate (34%)......... $(508) $1,033 $413
Meals and entertainment....................... (128) (164) (14)
State income taxes............................ (141) 76 46
Non-deductible amortization................... (91) (101) (8)
Other......................................... (19) (1) --
----- ------ ----
Income tax benefit (provision)................ $(887) $ 843 $437
===== ====== ====
</TABLE>
The significant components of the Company's net deferred tax liability were
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets
Deferred revenue.......................................... $ 4,009 $ 3,596
Inventory and accounts receivable allowances.............. 710 846
Compensation related accrued expenses..................... 584 806
Accrued expenses.......................................... 1,627 1,624
Deferred rent............................................. 660 484
Other..................................................... 1,949 844
-------- --------
9,539 8,200
-------- --------
Deferred tax liabilities
Capitalization of software development costs.............. (10,298) (11,475)
Depreciation.............................................. (1,039) (856)
Other..................................................... (1,528) (1,481)
-------- --------
(12,865) (13,812)
-------- --------
Net deferred tax liability.................................. $ (3,326) $ (5,612)
======== ========
</TABLE>
7. EMPLOYEE BENEFIT PLANS
Effective January 1, 1995, through Alltel, employees of the Company may
participate in a noncontributory, trusteed profit-sharing plan which covers
substantially all employees who meet certain length-of-service requirements.
Company contributions are determined annually by the Board of Directors of
Alltel. Contributions to the plan approximated $1,516,000 and $1,781,000 for the
years ended December 31, 1995 and 1996, respectively. During 1994, the Company
maintained a defined contribution profit-sharing plan. This plan was merged into
the Alltel trusteed thrift plan, discussed below during 1995.
Also, effective January 1, 1995, through Alltel, substantially all
employees of the Company may participate in the Alltel trusteed thrift plan.
Employees may contribute up to 10% of the employee's salary and the employer's
matching contribution is the lesser of 25% of the employee's contribution or
1.5% of the employee's salary. The trusteed thrift plan is intended to meet all
requirements of qualifications under Section 401(k) of the Internal Revenue
Code. Company contributions to the trusteed thrift plan were approximately
$412,000 and $452,000 for the years ended December 31, 1995 and 1996,
respectively.
During 1995, employees of the Company became eligible to participate in the
AIS Employee Stock Purchase Plan (the "ESPP") which has reserved for issuance
1,000,000 shares of Alltel common stock. The
F-32
<PAGE> 103
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 -- (CONTINUED)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
ESPP provides for the purchase of shares of common stock by employees through
payroll deductions which may not exceed five percent of employee compensation,
as defined. The employee contributes 85% of the prevailing market price of the
shares, which are purchased on the open market. The remaining 15% is expensed by
the Company in the period the contribution is made. Company contributions to the
ESPP were approximately $104,000 and $48,000 for the years ended December 31,
1995 and 1996, respectively. On June 30, 1996, the ESPP was terminated.
During 1995, the employees of the Company became eligible to participate in
various benefit plans which were administered by Alltel. In addition to the
trusteed profit-sharing plan and trusteed thrift plan, employees were also
eligible to participate in certain benefit plans including group medical, dental
and other various plans. Total expenses related to these plans were
approximately $2,196,000 and $2,328,000 for the years ended December 31, 1995
and 1996, respectively and $194,000 for the period from January 1, 1997 through
January 23, 1997.
8. COMMITMENTS AND CONTINGENCIES
NONCANCELABLE OPERATING LEASES
The Company leases offices and certain equipment under noncancelable
operating leases. Rental expense under operating leases was approximately
$7,014,000 and $5,531,000 for the years ended December 31, 1995 and 1996,
respectively, and $461,000 for the period from January 1, 1997 through January
23, 1997. Future minimum rental payments for noncancelable operating leases as
of December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997................................................... $ 4,877
1998................................................... 4,818
1999................................................... 3,625
2000................................................... 1,535
2001................................................... 1,414
Thereafter............................................. 1,798
-------
$18,067
=======
</TABLE>
LITIGATION
The Company is involved in litigation incidental to its business. In the
opinion of management, after consultation with legal counsel, the ultimate
outcome of such litigation will not have a material adverse effect on the
Company's financial position or results of operations or cash flows.
9. RELATED PARTY TRANSACTIONS
The intercompany payable to parent balance represents amounts owed to
Alltel related to cash disbursements and receipts activity and certain other
transactions. All vendor related invoices are charged to this account at the
time an invoice is processed and, consequently, the accompanying financial
statements do not reflect an accounts payable balance. The intercompany balance
is reduced upon the posting of cash receipts. Intercompany interest of
approximately $2,833,000 and $3,858,000 for the years ended December 31, 1995
and 1996, respectively, and $379,000 for the period from January 1, 1997 through
January 23, 1997 was charged to this account at interest rates which ranged from
3.5% to 8.0% which represented the incremental borrowing rates of Alltel. As
more fully discussed in Note 12, the intercompany payable balance was converted
to equity on January 24, 1997 in connection with the sale of the Company.
F-33
<PAGE> 104
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 -- (CONTINUED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
For the years ended December 31, 1995 and 1996, Alltel charged the Company
approximately $2,277,000 and $2,100,000, respectively, and $175,000 for the
period January 1, 1997 through January 24, 1997 for costs related to providing
certain data center charges in conjunction with an outsourcing contract between
the Company and one of its customers.
During 1995 and 1996, legal services and external fees were provided and
paid by Alltel. These costs were approximately $1,869,000 and $964,000 for the
years ended December 31, 1995 and 1996, respectively, and are reflected in
general and administrative expenses in the accompanying financial statements.
During 1996 certain administrative services were performed by AIS, the cost
of which was estimated to be approximately $585,000 and is reflected in general
and administrative expenses in the accompanying financial statements. Prior to
1996, these functions were performed directly by employees of the Company and,
accordingly, the related costs are reflected in the accompanying financial
statements.
10. SUBSEQUENT EVENT
On January 24, 1997, the Company was purchased by Eclipsys Corporation
(formerly Integrated Healthcare Solutions, Inc.) for cash and other
consideration totaling approximately $201,500,000, including liabilities
assumed. Pursuant to the acquisition agreement, Alltel will retain the rights to
certain assets of the Company. These assets include the IMN marketing rights
(Note 4) with a balance of approximately $5,811,000 as of December 31, 1996 and
one of the Company's software products with related net capitalized software
costs as of December 31, 1996 of approximately $6,543,000.
F-34
<PAGE> 105
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SDK Healthcare Information Systems:
We have audited the accompanying balance sheets of SDK Healthcare
Information Systems as of April 30, 1997 and 1996, and the related statements of
operations and retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SDK Healthcare Information
Systems at April 30, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
June 12, 1997 (except for note 10 which is as of June 26, 1997)
F-35
<PAGE> 106
SDK HEALTHCARE INFORMATION SYSTEMS
BALANCE SHEETS
APRIL 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 674,047 $ 384,920
Accounts receivable, trade, less allowance for doubtful
accounts of $148,522 in 1997 and 1996 (note 9)......... 1,038,868 1,314,429
Revenue in excess of billings............................. 230,456 473,264
Current portion of notes receivable....................... 72,236 85,836
Prepaid expenses.......................................... 14,480 13,998
---------- ----------
Total current assets.............................. 2,030,087 2,272,447
---------- ----------
Property, plant and equipment (notes 3 and 5)............... 5,268,787 5,210,881
Less accumulated depreciation and amortization............ 4,444,571 4,236,990
---------- ----------
Net property, plant and equipment...................... 824,216 973,891
---------- ----------
Software production costs, net (note 2c).................... 780,829 719,367
Notes receivable, net of current portion.................... 14,264 86,500
Other assets................................................ 32,766 32,356
---------- ----------
Total assets...................................... $3,682,162 $4,084,561
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current capital lease obligation, building (note 5)....... $ 182,499 $ 149,705
Accounts payable.......................................... 285,665 310,275
Accrued expenses.......................................... 332,951 295,467
Income taxes payable...................................... 164,703 232,504
Deferred revenue............................................ 525,186 263,320
Deferred income taxes (note 6).............................. 60,236 47,344
---------- ----------
Total current liabilities......................... 1,551,240 1,298,615
---------- ----------
Capital lease obligation, building, excluding current
installment (note 5)...................................... 264,035 446,534
Deferred income taxes (note 6).............................. 144,210 279,001
---------- ----------
Total liabilities................................. 1,959,485 2,024,150
---------- ----------
Stockholders' equity (note 7):
Preferred stock, $6 noncumulative, no par. Authorized,
issued and outstanding 2,500 shares ($100 per share
liquidation preference)................................ 250,000 250,000
Common stock, voting, no par. Authorized 10,000; issued
and outstanding 5,000 shares........................... 10,000 10,000
Common stock, nonvoting, $.01 par. Authorized 700,000
shares; issued and outstanding 505,500 shares.......... 5,055 5,055
Additional paid-in capital................................ 52,046 52,046
Retained earnings......................................... 1,405,576 1,743,310
---------- ----------
Total stockholders' equity........................ 1,722,677 2,060,411
---------- ----------
Total liabilities and stockholders' equity... $3,682,162 $4,084,561
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE> 107
SDK HEALTHCARE INFORMATION SYSTEMS
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED APRIL 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revenues (note 9)........................................... $6,801,412 $9,545,114
Operating expenses:
Cost of revenues.......................................... 4,624,029 5,775,035
Sales and marketing....................................... 916,891 1,013,875
General and administrative................................ 1,334,808 1,270,825
Research and development.................................. 308,570 378,574
---------- ----------
Total operating expenses............................... 7,184,298 8,438,309
---------- ----------
Income (loss) from operations.......................... (382,886) 1,106,805
---------- ----------
Other (income) expense:
Interest income........................................... (24,825) (14,077)
Interest expense -- capital leases........................ 105,871 132,773
Interest expense -- other................................. 866 8,144
---------- ----------
Total other expense.................................... 81,912 126,840
---------- ----------
Income (loss) before income taxes...................... (464,798) 979,965
---------- ----------
Income tax expense (benefit) (note 6):
Current................................................... (5,165) 287,315
Deferred.................................................. (121,899) 119,867
---------- ----------
(127,064) 407,182
---------- ----------
Net income (loss)...................................... (337,734) 572,783
Retained earnings at beginning of year...................... 1,743,310 1,170,527
---------- ----------
Retained earnings at end of year............................ $1,405,576 $1,743,310
========== ==========
Earnings (loss) per common share............................ $ (.66) $ 1.12
========== ==========
Weighted average common shares outstanding.................. 510,500 510,500
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE> 108
SDK HEALTHCARE INFORMATION SYSTEMS
STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(337,734) $ 572,783
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 609,405 644,518
Recovery of losses on accounts receivable.............. -- (20,971)
Deferred income taxes.................................. (121,899) 86,855
Changes in operating assets and liabilities:
Accounts receivable, trade........................... 275,561 400,350
Prepaid expenses..................................... (482) 72
Other current assets................................. 242,808 (445,347)
Accounts payable..................................... (24,610) (159,748)
Accrued expenses..................................... 37,484 36,312
Income taxes payable................................. (67,801) 232,504
Deferred revenue..................................... 261,866 85,350
--------- ----------
Net cash provided by operating activities......... 874,598 1,432,678
--------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment................ (65,737) (155,817)
Additions to software production costs.................... (455,455) (448,031)
Other assets.............................................. (410) (988)
--------- ----------
Net cash used for investing activities............ (521,602) (604,836)
--------- ----------
Cash flows from financing activities:
Net repayments under line-of-credit agreement............. -- (633,114)
Payments on obligations under capital leases.............. (149,705) (122,803)
Decrease in notes receivable.............................. 85,836 86,491
--------- ----------
Net cash used for financing activities............ (63,869) (669,426)
--------- ----------
Net increase in cash and cash equivalents................... 289,127 158,416
Cash and cash equivalents at beginning of year.............. 384,920 226,504
--------- ----------
Cash and cash equivalents at end of year.................... $ 674,047 $ 384,920
========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................... $ 106,737 $ 140,917
========= ==========
Income taxes........................................... $ 19,725 $ 88,118
========= ==========
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE> 109
SDK HEALTHCARE INFORMATION SYSTEMS
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 AND 1996
(1) NATURE OF BUSINESS
The Company designs, markets, installs and supports a totally integrated
Patient Financial Management System. This turnkey software solution provides
single facility and multi-entity organizations with the ability to track and
process billing for traditional and managed care patients from initial patient
scheduling through final account resolution. The Company additionally offers
complete installation and training services, as well as facilities management
and remote processing from its corporate based data center. The Company does
business as SDK Healthcare Information Systems; however, its legal name is SDK
Medical Computer Services Corporation. The Company has offices in Boston,
Massachusetts (corporate headquarters) and Albany, New York.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition
Revenue from software licensing fees is recognized: (a) upon delivery of
the software, if no significant obligations remain; (b) when the software has
been delivered and the obligations have been performed, if significant
obligations are required; and (c) under the percentage-of-completion method of
accounting, if significant production, modification or customization of the
software is required.
The Company recognizes service revenue from its remote data processing
services upon delivery of the service.
Revenues from maintenance agreements are recognized over the term of the
agreement. Advance billings to customers are recorded as deferred revenue until
earned. The Company recognizes revenues from hardware sales upon shipment of the
hardware.
(b) Property, Plant and Equipment
Property, plant and equipment is stated at cost. Property under capital
leases is stated at the lower of the present value of minimum lease payments at
the beginning of the lease term or fair value at the inception of the lease.
Depreciation on property, plant and equipment is calculated using
straight-line and accelerated methods over the estimated useful lives of the
assets. Property held under capital lease and leasehold improvements are
amortized on the straight-line method over the shorter of the lease term or
estimated useful life of the asset.
In accordance with Financial Accounting Standards Board Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, the Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If it is determined that the carrying amount of
an asset cannot be fully recovered, an impairment loss is recognized.
(c) Software Production Costs
The Company capitalizes the costs of producing software product masters,
which include coding and testing. Direct costs of establishing technological
feasibility (planning and designing, including detailed program design) are
charged to research and development expense as incurred.
The total amount of software production costs capitalized during fiscal
1997 and 1996 amounted to $445,455 and $448,031, respectively. Such costs are
amortized on a product-by-product basis at the greater of the amount computed
using (a) the ratio that current revenues for the product bear to the total of
current and anticipated future revenues for that product or (b) the
straight-line method over the estimated economic life
F-39
<PAGE> 110
SDK HEALTHCARE INFORMATION SYSTEMS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1997 AND 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of the product, generally three years. The recoverability of such costs is
reviewed on an ongoing basis. Amortization totaled $393,993 and $450,251 for
1997 and 1996, respectively.
(d) Research and Development Costs
Research and development costs are charged to operations as incurred. For
the years ended April 30, 1997 and 1996, research and development costs incurred
were $308,570 and $378,574, respectively.
(e) Cash and Cash Equivalents
For purposes of the statement of cash flows, all highly liquid debt
instruments with an original maturity of three months or less are considered to
be cash equivalents.
(f) Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(g) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(h) Fair Value of Financial Instruments
Financial instruments of the Company consist of cash and cash equivalents,
accounts receivable, notes receivable, accounts payable and notes payable. The
carrying amount of these financial instruments approximates their fair value.
(i) Earnings per share
Net income (loss) per share is computed based on the weighted average
number of equivalent shares of the Company's common stock outstanding during
each period. Fully diluted net income (loss) per share is not significantly
different from primary net income (loss) per share amounts.
(j) Reclassifications
Certain reclassifications were made to the 1996 financial statements to
conform to the 1997 presentation.
F-40
<PAGE> 111
SDK HEALTHCARE INFORMATION SYSTEMS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1997 AND 1996
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at April 30:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land and buildings.......................................... $1,101,702 $1,101,702
Building improvements....................................... 730,370 730,370
Equipment................................................... 3,113,776 3,071,653
Furniture and fixtures...................................... 236,263 220,480
Motor vehicles.............................................. 86,676 86,676
---------- ----------
$5,268,787 $5,210,881
========== ==========
</TABLE>
(4) FINANCING ARRANGEMENT
The Company has available a bank line-of-credit which provides for
unsecured borrowings of up to $1,250,000. There were no borrowings outstanding
at April 30, 1997 or 1996. Interest is payable monthly at an annual rate equal
to the prime rate plus .75%. At April 30, 1997 and 1996, this rate was 8.5% and
9.0%, respectively.
(5) LEASE OBLIGATIONS
The Company leases its principal operating facilities from a trust, the
beneficiaries of which are certain stockholders of the Company. The original
lease, entered into in June 1984, called for expiration in July 1989 and allowed
for renewal of three five-year terms. In April 1990, the lease was revised to
extend the expiration date through July 1999 and reduce the monthly rental
payments. In addition to the basic annual rent, as adjusted for changes in the
Consumer Price Index, the Company is obligated to pay all real estate taxes. The
lease has been accounted for as a capital lease.
The Company leased computer equipment under capital leases which expired at
various dates through 1996. The Company also leases equipment under leases
expiring through 1999, which have been accounted for as operating leases.
The present value of future minimum capital lease payments and the future
minimum lease payments under noncancelable operating leases as of April 30,
1997, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ---------
<S> <C> <C>
Year ending April 30:
1998...................................................... $ 255,576 $26,270
1999...................................................... 255,576 3,160
2000...................................................... 42,596 --
--------- -------
Minimum future lease payments.......................... 553,748 $29,430
=======
Less amounts representing interest.......................... (107,214)
---------
Present value of minimum future lease payments......... 446,534
Less current installments................................... (182,499)
---------
Obligations under capital leases, excluding current
installments......................................... $ 264,035
=========
</TABLE>
Rent expense under operating leases amounted to $33,787 in 1997 and $61,825
in 1996.
F-41
<PAGE> 112
SDK HEALTHCARE INFORMATION SYSTEMS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1997 AND 1996
(5) LEASE OBLIGATIONS (CONTINUED)
The related assets and accumulated amortization thereon under capital lease
obligations are included in property, plant and equipment at April 30, 1997, as
follows:
<TABLE>
<S> <C>
Building.................................................... $ 1,101,702
Equipment................................................... 148,157
-----------
1,249,859
Less accumulated amortization............................... (1,087,775)
-----------
$ 162,084
===========
</TABLE>
(6) INCOME TAXES
Income tax expense (benefit) consists of the following at April 30:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- --------- ---------
<S> <C> <C> <C>
1997:
Federal........................................... $ 3,668 $ (93,221) $ (89,553)
State............................................. (8,833) (28,678) (37,511)
-------- --------- ---------
$ (5,165) $(121,899) $(127,064)
======== ========= =========
1996:
Federal........................................... $195,370 $ 117,104 $ 312,474
State............................................. 91,945 2,763 94,708
-------- --------- ---------
$287,315 $ 119,867 $ 407,182
======== ========= =========
</TABLE>
Total income tax expense (benefit) differs from the amounts computed by
applying the U.S. federal income tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Computed "expected" tax expense (benefit)................... $(136,611) $333,188
State and local income taxes (benefit), net of federal tax
benefit................................................... (23,539) 62,507
Research and development credit............................. -- --
Nondeductible expenses...................................... 8,968 5,765
Other....................................................... 24,118 5,722
--------- --------
$(127,064) $407,182
========= ========
</TABLE>
F-42
<PAGE> 113
SDK HEALTHCARE INFORMATION SYSTEMS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1997 AND 1996
(6) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at April 30 are
presented below:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current deferred tax assets (liabilities):
Deferred revenues......................................... $ 16,315 $ 45,634
Accounts receivable due to allowance for doubtful
accounts............................................... 59,810 45,716
Cash basis adjustment..................................... (153,438) (153,438)
Other..................................................... 17,077 14,744
--------- ---------
Total net current deferred tax liabilities............. (60,236) (47,344)
--------- ---------
Noncurrent deferred tax assets (liabilities):
Capital lease treated as operating lease for tax
purposes............................................... 117,141 147,302
State net operating loss carryforward..................... 7,176 --
Research credit and alternative minimum tax credits....... 45,119 21,539
Cash basis adjustment..................................... -- (153,438)
Software capitalized for books, expensed for tax
purposes............................................... (314,440) (289,688)
Property, plant and equipment, principally depreciation... 794 (4,716)
--------- ---------
Total net noncurrent deferred tax liabilities.......... (144,210) (279,001)
--------- ---------
Net deferred tax liabilities........................... $(204,446) $(326,345)
========= =========
</TABLE>
The Company has research credit carryovers of approximately $45,000
expiring in various amounts through the year 2010 which can be used to offset
future federal taxable income and income taxes.
(7) COMMON STOCK
At April 30, 1986, options to purchase 7,500 shares of nonvoting common
stock of the Company were held by certain key employees under Nonqualified Stock
Option Agreements. The options were exercised in 1987 at prices of $.99-1.39 per
share, the fair market value at the date of grant. Shares issued under these
agreements must be offered to the Company for repurchase at the then current
book value as of the immediately preceding April 30 upon termination of
employment or upon the occurrence of certain other events. There was no activity
during 1996 or 1997 under the agreements.
(8) PROFIT-SHARING PLAN
The Company maintains a profit-sharing plan for the benefit of eligible
employees. The Plan provides that the Company's contribution be determined by a
resolution of the board of directors, and there is no minimum contribution
required. The Company incurred profit-sharing expense of $137,921 and $100,000
in 1997 and 1996, respectively.
(9) BUSINESS AND CREDIT CONCENTRATION
Substantially all of the Company's sales for 1997 and 1996 were to medical
facilities. Accordingly, all of the Company's accounts receivable at April 30,
1997 and 1996, are due from medical facilities.
F-43
<PAGE> 114
SDK HEALTHCARE INFORMATION SYSTEMS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1997 AND 1996
(9) BUSINESS AND CREDIT CONCENTRATION (CONTINUED)
The following table summaries sales to major customers as a percentage of
total sales for the period:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Customer A.................................................. 15% --
Customer B.................................................. 13% 21%
Customer C.................................................. 10% 17%
Customer D.................................................. -- 12%
</TABLE>
(10) SUBSEQUENT EVENT
On June 26, 1997, the Company was acquired by Eclipsys Corporation.
F-44
<PAGE> 115
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $29,500
NASD filing fee............................................. 10,500
Nasdaq National Market listing fee.......................... *
Blue Sky fees and expenses.................................. *
Transfer Agent and Registrar fees........................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and mailing expenses............................... *
Miscellaneous............................................... *
-------
Total....................................................... $ *
=======
</TABLE>
- ---------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article EIGHTH of the Registrant's Third Amended and Restated Certificate
of Incorporation (the "Restated Certificate of Incorporation"), which will be
filed immediately following the closing of this offering, provides that no
director of the Registrant shall be personally liable for monetary damages for
breach of his or her fiduciary duty as a director, except for (i) any breach of
such director's duty of loyalty to the Registrant, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) any transaction from which such director derived an improper person
benefit or (iv) actions under Section 174 of the Delaware General Corporation
Law and otherwise to the extent that the Delaware General Corporation Law
prohibits the elimination or limitation of liability of directors.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have 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, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section 9 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). Reference is made to
the form of Underwriting Agreement filed as Exhibit 1 hereto.
Messrs. Denning and Ford, the elected representatives of General Atlantic
Partners 28, L.P. ("GAP 28"), General Atlantic Partners 38, L.P. ("GAP 38"),
General Atlantic Partners 47, L.P. ("GAP 47") and GAP Coinvestment Partners,
L.P. to the Company's Board of Directors, are indemnified against liability they
may incur in their capacity as directors of the Company pursuant to the limited
partnership agreements of each of GAP 28, GAP 38 and GAP 47.
II-1
<PAGE> 116
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information regarding shares of Common Stock and
Preferred Stock issued, warrants issued and options granted by the Registrant
since its incorporation in December 1995 (adjusted to give effect to the 3-for-2
stock split effected in May 1997).
(a) Issuances of Capital Stock and Warrants
In December 1995, the Registrant issued 3,792,563 shares of Common Stock in
exchange for initial capitalization of the Company in the amount of $250,000.
In April 1996, the Registrant issued 165,000 shares of Common Stock to
private investors for $.01 per share.
In May 1996, the Company issued to Partners HealthCare System, Inc.
("Partners"), in connection with the license of certain technology from
Partners, 1,482,436 shares of Common Stock.
In May 1996, the Company sold 1,000,000 shares of Series A Convertible
Participating Preferred Stock to private investors for an aggregate purchase
price of $6.0 million.
In January 1997, the Company issued to AIS as partial consideration in
connection with the acquisition of a wholly owned subsidiary of AIS, (i) 20,000
shares of Series C 8.5% Cumulative Redeemable Preferred Stock (having a
redemption value of $1,000 per share plus accumulated dividends) and (ii)
2,077,497 shares of Series D Convertible Preferred Stock.
In January 1997, the Company sold to private investors (i) for an aggregate
of $30.0 million, 30,000 shares of Series B 8.5% Cumulative Redeemable Preferred
Stock (having a redemption value of $1,000 per share plus accumulated dividends)
and two warrants to purchase up to an aggregate of 2,699,572 shares of
Non-Voting Common Stock (which number is reduced under certain circumstances) at
a purchase price of $.01 per share and (ii) 4,981,290 shares of Series D
Convertible Preferred Stock and 896,431 shares of Series E Convertible Preferred
Stock for an aggregate of $73.8 million. At the same time, all of the issued and
outstanding shares of Series A Convertible Participating Preferred Stock were
exchanged for Series F Convertible Preferred Stock at the rate of 1.478097
shares of Series F Convertible Preferred Stock for each share of Series A
Convertible Participating Preferred Stock.
In June 1997, the Company issued to the former stockholders of SDK Medical
Computer Services Corporation ("SDK"), as partial consideration in connection
with the acquisition of SDK, an aggregate of 750,000 shares of Common Stock.
In January 1998, the Company issued to Motorola, Inc. ("Motorola"), as
consideration in connection with the acquisition of a division of Motorola,
1,500,000 shares of Common Stock.
In January 1998, the Company sold 900,000 shares of Series G Convertible
Preferred Stock to private investors for an aggregate purchase price of $9.0
million.
At the closing of this Offering, each share of Series D and Series F
Convertible Preferred Stock will be converted into 1.5 shares of Common Stock
(an aggregate of 12,805,321 shares of Common Stock), each share of Series G
Convertible Preferred Stock will be converted into one share of Common Stock (an
aggregate of 900,000 shares of Common Stock) and each share of Series E
Convertible Preferred Stock will be converted into 1.5 shares of Non-Voting
Common Stock (an aggregate of 1,344,646 shares of Non-Voting Common Stock). In
addition, at the closing of this Offering, all outstanding shares of the Series
B Redeemable Preferred Stock and the Series C Redeemable Preferred Stock will be
redeemed by the Company.
(b) Grants and Exercises of Stock Options
The Registrant's 1996 Stock Plan was adopted by the Board of Directors in
April 1996. As of April 15, 1998, options to purchase an aggregate of 3,295,126
shares of Common Stock were outstanding under this plan, 188,500 shares of
restricted stock had been granted under this plan and the Registrant had issued
shares of Common Stock upon the exercise of options granted under such plan.
II-2
<PAGE> 117
The Registrant's 1998 Stock Incentive Plan was adopted by the Board of
Directors on April 8, 1998. Options to purchase 640,000 shares of Common Stock
at prices ranging from $9.00 per share to $40.00 per share have been granted
under the Incentive Plan.
The Registrant's 1998 Employee Stock Purchase Plan was adopted by the Board
of Directors, subject to stockholder approval, on April 8, 1998. No stock has
been issued or options granted under this plan.
The securities issued in the foregoing transactions in paragraphs (a) and
(b) above were either (i) offered and sold in reliance upon exemptions from
Securities Act registration set forth in Sections 3(b) and 4(2) of the
Securities Act, or any regulations promulgated thereunder, relating to sales by
an issuer not involving any public offering, or (ii) in the case of certain
shares of restricted stock and options to purchase shares of Common Stock and
shares of Common Stock issued upon the exercise of such options, such offers and
sales were made in reliance upon an exemption from registration under Rule 701
of the Securities Act. No underwriters were involved in the foregoing sales of
securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
1* Form of Underwriting Agreement.
2.1 Agreement of Merger among Alltel Healthcare Information
Services, Inc., Alltel Information Services, Inc., Eclipsys
Corporation and Eclipsys Solutions Corp. dated as of January
24, 1997.
2.2 Amended and Restated Stock Purchase Agreement among Eclipsys
Corporation, SDK Medical Computer Services Corporation and
the Selling Stockholders listed therein dated June 26, 1997.
2.3 Asset Purchase Agreement by and among Motorola, Inc.,
Eclipsys Corporation and Emtek Healthcare Corporation dated
January 30, 1998.
3.1* Second Amended and Restated Certificate of Incorporation of
the Registrant, as amended.
3.2* Third Amended and Restated Certificate of Incorporation of
the Registrant, to be filed upon the closing of this
Offering.
3.3* By-Laws of the Registrant, as amended.
3.4* Amended and Restated By-Laws of the Registrant, to be
effective upon the closing of this Offering.
4.1* Specimen certificate for shares of Common Stock.
5* Opinion of Hale and Dorr LLP.
10.1 Second Amended and Restated Registration Rights Agreement.
10.2 Second Amended and Restated Stockholders Agreement.
10.3 Warrant to Purchase Non-Voting Common Stock, dated January
24, 1997, granted to First Union Corporation.
10.4 Warrant to Purchase Non-Voting Common Stock, dated January
24, 1997, granted to BT Investment Partners, Inc.
10.5+ Information Systems Technology License Agreement, dated as
of May 3, 1996, by and among Partners Healthcare System,
Inc., Brigham and Women's Hospital, Inc. and Integrated
Healthcare Solutions, Inc.
10.6 Preferred Stock Purchase Agreement by and among Eclipsys
Corporation, General Atlantic Partners 47, L.P. and GAP
Coinvestment Partners, L.P. dated February 4, 1998.
10.7 1996 Stock Plan.
10.8 1998 Stock Incentive Plan.
10.9 1998 Employee Stock Purchase Plan.
10.10 Employment Letter, dated as of May 1, 1996, to Harvey J.
Wilson from Integrated Healthcare Solutions, Inc.
10.11* Credit Agreement dated January 24, 1997, by and among
Eclipsys Corporation and First Union National Bank, f/k/a
First Union National Bank of North Carolina as Agent.
11 Computation of earnings per common share.
21 Subsidiaries of the Registrant.
</TABLE>
II-3
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
23.1 Consent of Price Waterhouse LLP (to use of the Financial
Statements of the Company).
23.2 Consent of Price Waterhouse LLP (to use of the Financial
Statements of Alltel Healthcare Information Services, Inc.).
23.3 Consent of KPMG Peat Marwick.
23.4* Consent of Hale and Dorr LLP (included in Exhibit 5).
24 Power of Attorney (included on page II-5).
27 Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Registrant's Consolidated
Financial Statements or Notes thereto.
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 provisions contained in the Restated Certificate of
Incorporation of the Registrant and the laws of the State of Delaware, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to 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.
The undersigned Registrant hereby undertakes that:
(1) 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.
(2) 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> 119
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 Delray Beach, Florida, on this 23rd
day of April, 1998.
ECLIPSYS CORPORATION
By: /s/ HARVEY J. WILSON
------------------------------------
Harvey J. Wilson
President and Chief Executive
Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Eclipsys Corporation, hereby
severally constitute and appoint Harvey J. Wilson, Robert J. Vanaria and Brent
B. Siler, and each of them singly, our true and lawful attorneys with full power
to them, and each of them singly, to sign for us and in our names in the
capacities indicated below, the Registration Statement on Form S-1 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement, and any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b), and generally to do all such
things in our names and on our behalf in our capacities as officers and
directors to enable Eclipsys Corporation to comply with the provisions of the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said Registration Statement
and any and all amendments thereto or to any subsequent Registration Statement
for the same offering which may be filed under Rule 462(b).
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ HARVEY J. WILSON President and Chief Executive April 23, 1998
- --------------------------------------------- Officer (Principal Executive
Harvey J. Wilson Officer), Director
/s/ ROBERT J. VANARIA Senior Vice President, April 23, 1998
- --------------------------------------------- Administration and Chief Financial
Robert J. Vanaria Officer (Principal Financial and
Accounting Officer)
/s/ STEVEN A. DENNING Director April 23, 1998
- ---------------------------------------------
Steven A. Denning
/s/ G. FRED DIBONA Director April 23, 1998
- ---------------------------------------------
G. Fred DiBona
/s/ EUGENE FIFE Director April 23, 1998
- ---------------------------------------------
Eugene Fife
/s/ WILLIAM E. FORD Director April 23, 1998
- ---------------------------------------------
William E. Ford
</TABLE>
II-5
<PAGE> 120
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JEFFREY H. FOX Director April 23, 1998
- ---------------------------------------------
Jeffrey H. Fox
/s/ JAY B. PIEPER Director April 23, 1998
- ---------------------------------------------
Jay B. Pieper
/s/ RICHARD D. SEVERNS Director April 23, 1998
- ---------------------------------------------
Richard D. Severns
</TABLE>
II-6
<PAGE> 121
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ECLIPSYS CORPORATION
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ADDITIONS
---------------------
CHARGED
BALANCE AT TO COSTS ACCOUNTS BALANCE AT
BEGINNING AND ACQUIRED WRITTEN OFF END OF
DESCRIPTION OF PERIOD EXPENSES RESERVES /RELEASED PERIOD
- ----------- ---------- --------- --------- ------------ ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts.............. $ -- $ 600 $1,473 $(334) $ 1,739
==== ======= ====== ===== =======
Tax asset valuation allowance................ $550 $54,113 $ -- $ -- $54,663
==== ======= ====== ===== =======
</TABLE>
ECLIPSYS CORPORATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONS
---------------------
CHARGED
BALANCE AT TO COSTS BALANCE AT
BEGINNING AND ACQUIRED ACCOUNTS END OF
DESCRIPTION OF PERIOD EXPENSES RESERVES WRITTEN OFF PERIOD
- ----------- ---------- --------- --------- ------------ ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts.............. $ -- $ -- $ -- $ -- $ --
==== ==== ====== ===== ====
Tax asset valuation allowance................ $ -- $550 $ -- $ -- $550
==== ==== ====== ===== ====
</TABLE>
S-1
<PAGE> 122
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
SDK HEALTHCARE INFORMATION SYSTEMS
FOR THE YEAR ENDED APRIL 30, 1997
<TABLE>
<CAPTION>
CHARGED ACCOUNTS
BALANCE AT TO COSTS WRITTEN BALANCE AT
BEGINNING AND OFF END OF
DESCRIPTION OF PERIOD EXPENSES /RELEASED PERIOD
- ----------- ---------- -------- --------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts......................... $149 $ -- $ -- $149
==== ==== ==== ====
</TABLE>
SDK HEALTHCARE INFORMATION SYSTEMS
FOR THE YEAR ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
ADDITIONS
---------
CHARGED
BALANCE AT TO COSTS ACCOUNTS BALANCE AT
BEGINNING AND WRITTEN END OF
DESCRIPTION OF PERIOD EXPENSES OFF PERIOD
- ----------- ---------- --------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts......................... $165 $35 $(51) $149
==== === ==== ====
</TABLE>
S-2
<PAGE> 123
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
FOR THE PERIOD ENDED JANUARY 23, 1997
<TABLE>
<CAPTION>
ADDITIONS
---------
CHARGED ACCOUNTS
BALANCE AT TO COSTS WRITTEN BALANCE AT
BEGINNING AND OFF END OF
DESCRIPTION OF PERIOD EXPENSES /RELEASED PERIOD
- ----------- ---------- --------- --------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts........................ $1,274 $50 $ -- $1,324
====== === ======= ======
</TABLE>
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONS
---------
CHARGED
BALANCE AT TO COSTS ACCOUNTS BALANCE AT
BEGINNING AND WRITTEN END OF
DESCRIPTION OF PERIOD EXPENSES OFF PERIOD
- ----------- ---------- --------- --------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts........................ $749 $910 $(385) $1,274
==== ==== ===== ======
</TABLE>
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ADDITIONS
---------
CHARGED
BALANCE AT TO COSTS ACCOUNTS BALANCE AT
BEGINNING AND WRITTEN END OF
DESCRIPTION OF PERIOD EXPENSES OFF PERIOD
- ----------- ---------- --------- --------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts........................ $1,264 $988 $(1,503) $749
====== ==== ======= ====
</TABLE>
S-3
<PAGE> 1
EXHIBIT 2.1
AGREEMENT OF MERGER
AMONG
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
ALLTEL INFORMATION SERVICES, INC.
ECLIPSYS CORPORATION
AND
ECLIPSYS SOLUTIONS CORP.
Dated as of January 24, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
PAGE
<S> <C> <C>
ARTICLE I. DEFINITIONS...........................................................................1
1.1. Meeting Date..........................................................................1
1.2. Subsidiary............................................................................1
1.3. Parent................................................................................1
1.4. Definition Cross-Reference Index......................................................2
ARTICLE II. MERGER AND CLOSING....................................................................3
2.1. Merger................................................................................3
2.2. Closing...............................................................................3
2.3. Effects of the Merger .......................................................4
2.4. Certificate of Incorporation; By-Laws.................................................4
2.5. Directors.............................................................................4
2.6. Officers..............................................................................4
ARTICLE III. EFFECTS OF THE MERGER ON THE SECURITIES OF THE
CONSTITUENT CORPORATIONS..............................................................4
3.1. Effect on Capital Stock...............................................................4
3.2. Exchange of Certificates..............................................................5
ARTICLE IV. COVENANTS AND AGREEMENTS..............................................................6
4.1. Notice................................................................................6
4.2. Reasonable Best Efforts; Contracts....................................................8
4.3. Tax Returns and Audits...............................................................10
4.4. Insurance............................................................................11
4.5. Hart-Scott-Rodino Antitrust Improvements Act of 1976.................................11
4.6. Litigation...........................................................................12
4.7. Minimum Net Worth and Working Capital; Cash And
Accounts Payable at the Effective Time..........................................12
4.8. Pro Ration of Revenues and Expenses..................................................12
4.9. Transition Services ......................................................13
4.10 Adjustments Relating to Cash Receipts and Cash Payment
for January Period to the Effective Time........................................13
ARTICLE V. REPRESENTATIONS AND WARRANTIES.......................................................15
5.1. Representations and Warranties of Seller and the
Company.........................................................................15
5.2. Representations and Warranties of Buyer..............................................26
5.3. No Other Representations and Warranties by the
Company and Seller; Etc. .......................................................29
5.4. No Other Representations and Warranties by
Buyer and Acquisition Sub.......................................................30
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VI. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
SELLER AND THE COMPANY...............................................................31
6.1. Representations and Warranties True..................................................31
6.2. Performance of Obligations and Agreements............................................31
6.3. Resolutions of Buyer.................................................................31
6.4. Resolutions of Acquisition Sub.......................................................31
6.5. No Casualty..........................................................................32
6.6. Closing Certificate..................................................................32
6.7. No Litigation........................................................................32
6.8. Preferred Stock and Warrant Purchase Agreement.......................................32
ARTICLE VII. CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF BUYER AND ACQUISITION SUB....................................................32
7.1. Representations and Warranties True..................................................33
7.2. Performance of Obligations and Agreements............................................33
7.3. Resolutions..........................................................................33
7.4. No Casualty..........................................................................33
7.5. Closing Certificate..................................................................33
7.6. No Litigation........................................................................33
ARTICLE VIII. RECIPROCAL CONDITIONS PRECEDENT......................................................34
8.1. No Injunctions or Restraints.........................................................34
8.2. Amended and Restated Certificate of Incorporation of Buyer...........................34
8.3. Registration Rights Agreement........................................................34
8.4. Stockholders Agreement...............................................................34
8.5. Management and Services Agreement....................................................34
8.6. HSR..................................................................................35
ARTICLE IX. AMENDMENTS...........................................................................35
ARTICLE X. SURVIVAL AND INDEMNIFICATION.........................................................35
10.1. Survival.............................................................................35
10.2. Seller Indemnification...............................................................35
10.3. Buyer Indemnification................................................................36
10.4. Indemnification Procedure............................................................37
10.5. Indemnification as Sole Remedy.......................................................39
10.6. Indemnification Limitations..........................................................39
10.7. Indemnification Payments in Preferred Stock..........................................40
ARTICLE XI. EMPLOYEES AND EMPLOYEE MATTERS.......................................................40
11.1. General Provisions...................................................................40
11.2. Service..............................................................................41
11.3. No Duplicate Benefits................................................................41
11.4. Benefits.............................................................................41
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
11.5. Welfare Plans........................................................................42
11.6. Severance............................................................................43
11.7. Third-Party Rights...................................................................43
11.8. WARN Act and Health Care Continuance ...........................43
11.9. LTD Recipients.......................................................................43
11.10. WC Recipients........................................................................44
11.11. Pension Plans........................................................................35
11.12. Certain Rights to Distributions......................................................35
11.13. Withdrawal from Plans................................................................35
11.14. Seller Assistance....................................................................35
ARTICLE XII. NON-COMPETITION......................................................................46
12.1. Acknowledgments......................................................................46
12.2. Non-Compete..........................................................................46
12.3. Confidential Information.............................................................47
12.4. Rights and Remedies Upon Breach......................................................48
12.5. Severability of Covenants............................................................48
12.6. Blue Penciling.......................................................................49
12.7. Enforceability in Jurisdictions......................................................49
ARTICLE XIII. GENERAL PROVISIONS...................................................................49
13.1. Notices..............................................................................49
13.2. Choice of Law........................................................................50
13.3. Successors...........................................................................50
13.4. Assignment...........................................................................50
13.5. Counterparts.........................................................................50
13.6. Entire Agreement.....................................................................50
13.7. No Third-Party Beneficiaries.........................................................51
13.8. Remedies.............................................................................51
13.9. Severability.........................................................................51
13.10. Headings.............................................................................51
13.11. Indemnification of Directors and Officers............................................51
13.12. Taxes................................................................................51
13.13. Publicity............................................................................52
13.14. Expenses.............................................................................52
13.15. Trademark Phaseout and Corporate Name Change.........................................52
13.16. Preferred Stock Valuation............................................................53
</TABLE>
-iii-
<PAGE> 5
EXHIBITS
EXHIBIT A CERTIFICATE OF MERGER
EXHIBIT B AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF BUYER
EXHIBIT C REGISTRATION RIGHTS AGREEMENT
EXHIBIT D STOCKHOLDERS AGREEMENT
EXHIBIT E MANAGEMENT AND SERVICES AGREEMENT
EXHIBIT F PREFERRED STOCK AND WARRANT PURCHASE
AGREEMENT
-iv-
<PAGE> 6
AGREEMENT OF MERGER
This AGREEMENT OF MERGER (the "Agreement"), is entered into as of
January 24, 1997, by and among ALLTEL Healthcare Information Services, Inc., a
Delaware corporation (the "Company"), the Company's sole stockholder, ALLTEL
Information Services, Inc., an Arkansas corporation ("Seller"), Eclipsys
Corporation, a Delaware corporation ("Buyer"), and Eclipsys Solutions Corp., a
Delaware corporation ("Acquisition Sub").
The Company and Buyer are collectively referred to as the "Constituent
Corporations". The respective Boards of Directors of the Constituent
Corporations consider the acquisition by Buyer of the Company through a merger
in accordance with this Agreement to be in the respective best interests of the
Constituent Corporations and their stockholders. To that end, each of the Board
of Directors of the Constituent Corporations has approved this Agreement and the
form of Certificate of Merger attached hereto as Exhibit A (the "Certificate of
Merger").
THEREFORE, in consideration of their respective agreements and
undertakings, the Company, Seller, Buyer and Acquisition Sub agree as follows:
ARTICLE I
DEFINITIONS
1.1. Meeting Date. The term "Meeting Date" means the date upon which
the stockholders of the Company meet to vote upon the Merger (as defined herein)
or, in lieu thereof, the effective date of the requisite written consents in
favor of the Merger under Section 228 of the General Corporation Law of the
State of Delaware (the "DGCL").
1.2. Subsidiary. The term "Subsidiary" means any corporation,
partnership, limited liability company or other entity of which the Company or
the Buyer, as the case may be, beneficially owns, directly or indirectly, 50% or
more of the outstanding voting securities ordinarily entitled to vote for the
election of directors (or persons performing similar functions).
1.3. Parent. The term "Parent" means any corporation or other entity
that beneficially owns, directly or indirectly, 50% or more of the outstanding
voting securities of the Company or Buyer, as the case may be, or any Parent
thereof, if any, ordinarily entitled to vote for the election of directors (or
persons performing similar functions).
<PAGE> 7
1.4. Definition Cross-Reference Index. As used in this Agreement, the
following terms are defined in the following sections of the Agreement:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Acquisition Sub Preamble
Act 5.1(x)
Agreement Preamble
Buyer Preamble
Buyer Indemnitees 10.2
Certificate of Merger Preamble
Closing 2.2
Code 5.1(n)
Company Preamble
Company Affiliate 5.1(n)
Company Indemnitees 10.3
Company Plans 5.1(n)
Company Reports 5.1 (f)
Company Software 5.1(r)
Constituent Corporations Preamble
Debtor Relief Laws 5.1(a)
DGCL 1.1
Effective Date 2.2
Effective Time 2.1
Equipment Leases 5.1(j)
Excluded Employees 11.1
ERISA 5.1(n)
HSR Act 4.5
Indemnifying Party 10.4(a)
Indemnitee 10.4(a)
Leases 5.1(j)
Licenses 5.1(t)
Liens 5.1(d)
LTD Recipients 11.1
Material Adverse Effect 5.1(a)
Meeting Date 1.1
Merger 2.1
Non-transferred Marks 13.15(a)
Parent 1.3
Real Property Leases 5.1(j)
Recent Company Balance Sheet 5.1 (f)
Restricted Seller 12.1
Restrictive Covenants 12.4
Seller Preamble
Subsidiary 1.2
Surviving Corporation 2.1
Tax Return 4.3(a)
Taxes 4.3(j)
Third Party Claim 10.4(a)
</TABLE>
-2-
<PAGE> 8
<TABLE>
<S> <C>
Transferred Employees 11.1
WARN Act 11.8
WC Recipients 11.1
</TABLE>
ARTICLE II
MERGER AND CLOSING
2.1. Merger. In accordance with the provisions of this Agreement and in
accordance with the DGCL and the form of the Certificate of Merger, at the
Effective Time (as defined herein), the Company shall be merged with and into
Acquisition Sub, the separate existence of the Company shall cease and
Acquisition Sub shall be the surviving corporation (the "Surviving
Corporation"). The merger effected at the Effective Time is referred to herein
as the "Merger". On the Effective Date (as defined herein) (or on such other
date as the Company and the Buyer may agree in writing), the Certificate of
Merger or other appropriate documents shall, in accordance with the DGCL, be
executed by the parties thereto and filed with the Secretary of State of
Delaware. The term "Effective Time", as used in this Agreement, means the date
and time on which the Merger becomes effective under Delaware law.
2.2. Closing. The closing of the Merger (the "Closing") shall take
place at the offices of the Buyer's attorneys in New York, New York, commencing
at 10:00 A.M. local time on the business day in which all of the necessary
conditions of the parties to Closing set forth in Articles VI, VII and VIII
shall have been waived or satisfied (other than conditions with respect to
actions the respective parties will take at the Closing itself) or such other
place, time and date as the parties may mutually agree (the "Effective Date").
For purposes of this Agreement, Buyer shall be deemed to own the Company and the
Company Subsidiaries for the entire 24-hour period of the Effective Date,
notwithstanding the fact that the Effective Time shall occur sometime other than
at 12:00 a.m. of the Effective Date.
2.3. Effects of the Merger. The Merger shall have the effects set forth
in Section 259 of the DGCL.
2.4. Certificate of Incorporation; By-Laws.
(a) The Certificate of Incorporation of Acquisition Sub, as in
effect immediately prior to the Effective Time, shall, from and after the
Effective Time, be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided therein or by applicable law.
(b) The By-laws of the Acquisition Sub as in effect at the
Effective Time shall, from and after the Effective Time, be the By-laws of the
Surviving Corporation until thereafter amended as provided therein or by
applicable law.
-3-
<PAGE> 9
2.5. Directors. The directors of Acquisition Sub at the Effective Time
shall, from and after the Effective Time, be the directors of the Surviving
Corporation, until the earlier of their death, resignation or removal or until
their respective successors are duly elected and qualified, as the case may be.
2.6. Officers. The officers of Acquisition Sub at the Effective Time
shall, from and after the Effective Time, be the officers of the Surviving
Corporation, until the earlier of their death, resignation or removal or until
their respective successors are duly elected and qualified, as the case may be.
ARTICLE III
EFFECTS OF THE MERGER ON THE SECURITIES OF THE CONSTITUENT
CORPORATIONS
3.1. Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the holders of (a) any shares of
Common Stock, par value $.01 per share, of the Company (the "Company Common
Stock") or any other shares of capital stock of the Company or (b) any shares of
capital stock of Acquisition Sub:
(a) Common Stock of Acquisition Sub. Each share of Common
Stock, par value $.01 per share, of Acquisition Sub (the "Acquisition Sub Common
Stock") issued and outstanding immediately prior to the Effective Time shall
remain outstanding as one share, par value $.01 per share, of the Surviving
Corporation, which will be duly authorized, validly issued, fully paid and
nonassessable.
(b) Conversion of Company Common Stock. Each share of Company
Common Stock outstanding and issued to the Seller immediately prior to the
Effective Time (other than shares to be canceled in accordance with Section
3.1(c)) shall be converted into the right to receive (i) $107,500.00 per share,
without interest, which shall be payable by Acquisition Sub to Seller at the
Effective Time by wire transfer of immediately available funds to an account
specified by Seller, (ii) 2,077,497 shares, par value $.01 per share, of Series
D Convertible Preferred Stock of the Buyer (the "Series D Preferred Stock"),
which will be duly authorized, validly issued, fully paid and nonassessable and
(iii) 20.0 shares, par value $.01 per share, of Series C 8.5% Cumulative
Redeemable Preferred Stock of the Buyer (the "Series C Preferred Stock"), which
will be duly authorized, validly issued, fully paid and non assessable (clauses
(i), (ii) and (iii) are hereinafter referred to as the "Merger Consideration").
(c) Cancellation of Treasury Stock. Each share of the Company
Common Stock that is owned by the Company, any Subsidiary of the Company, ALLTEL
Corporation, a Delaware corporation ("ALLTEL Corporation"), or any Subsidiary of
ALLTEL Corporation (other than the shares of Company Common Stock owned by the
Seller), if any, shall automatically
-4-
<PAGE> 10
be canceled and retired and shall cease to exist, and no cash or other
consideration shall be delivered or deliverable in exchange therefor.
(d) Cancellation and Retirement of Company Common Stock. At
the Effective Time, all certificates representing shares of Company Common Stock
(other than certificates representing shares canceled in accordance with Section
3.1(c)) issued and outstanding immediately prior to the Effective Time, shall no
longer be deemed outstanding, and each holder of a certificate representing any
such shares of Company Common Stock shall cease to have any rights with respect
thereto, upon payment of the Merger Consideration.
3.2. Exchange of Certificates. The Merger Consideration paid upon the
surrender for exchange of certificates previously representing shares of Company
Common Stock in accordance with this Article III shall be deemed to have been
issued and paid in full satisfaction of all rights pertaining to the shares of
Company Common Stock previously represented by such certificates.
ARTICLE IV
COVENANTS AND AGREEMENTS
The Seller, the Company, Buyer and Acquisition Sub covenant and agree
as follows:
4.1. Notice. Buyer shall immediately notify Seller and the Company, if
its senior management (as defined below) learns or discovers on the basis of
actual knowledge that any of Seller's, the Company's, Buyer's, or Acquisitions
Sub's representations, warranties, agreements or conditions to Closing become
untrue or incapable of fulfillment. Seller shall immediately notify Buyer if its
senior management (as defined below) learns or discovers on the basis of actual
knowledge that-any of Buyer' s, Acquisition Sub's, the Company's, or Seller's
representations, warranties, agreements or conditions to Closing become untrue
or incapable of fulfillment. For purposes of this Section, Buyer's senior
management shall consist of Harvey J. Wilson, William E. Ford and Steve
Kinderman, and Seller's senior management shall consist of Michael E.
Montgomery, William B. Macdonald, Robert J. Colletti, Lawrence A. Krassner and
Charles P. Sutphin (Seller's senior management is hereinafter referred to
collectively as the "Executive Group").
4.2. Reasonable Best Efforts: Contracts.
(a) The Company, Seller, Buyer and Acquisition Sub shall take
all necessary action and use their respective reasonable best efforts to obtain
all necessary consents, authorizations and approvals and to make all necessary
filings required to carry out the Merger and transactions contemplated by this
Agreement and the Certificate of Merger, to satisfy the conditions specified in
Articles VI, VII and VIII hereof at the earliest practicable date and otherwise
to perform their respective obligations under this Agreement; provided, however,
that the foregoing shall not impose upon any of the parties hereto any
obligation to effect any payment
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(except as otherwise owed) or to incur any further or additional liability to
any third party in order to obtain any such consent, approval or authorization.
In the event any third party requests a payment or additional liability, the
appropriate party shall notice all other parties to this Agreement about the
specific nature of the request and work together to otherwise obtain such
consent.
(b) To the extent any of the consents that are set forth in
Schedule 5.1 (b) are not obtained as of the Effective Time, Seller shall
continue to use its reasonable best efforts to obtain such consents after the
Effective Time for a period of not less than 12 months after the Effective Time.
Seller's failure to obtain any one or more of the consents set forth on Schedule
5.1(b) by the Effective Date shall not be the basis of any party hereto not
closing the Merger.
Except as otherwise provided in Section 4.2(d), if (i) at any time during such
12-month period, a third party refuses or has failed to provide its consent as
required by Schedule 5.1 (b) with respect to any contract involving the receipt
of money and such third party terminates, or ceases to make payments under, any
such contract involving the receipt of money by virtue of the failure to obtain
such consent, then Seller shall pay to Buyer not later than 30 days after such
termination or cessation , the amount representing fair compensation to Buyer
for the harm caused by the failure to obtain such consent, which amount the
Seller and Buyer covenant and agree shall be not less than, with respect to each
such contract, the product of (x) the present value of the amount of lost
revenue to the Surviving Corporation and/or its Subsidiaries arising out of the
termination of, or cessation of payment under, such contract multiplied by (y)
.25 and (ii) at any time during such 12-month period, a third party refuses or
has failed to provide its consent as required by Schedule 5.1(b) with respect to
any contract (other than any contract involving the receipt of money) and such
third party terminates, or ceases to make payments under, any such contract with
the Surviving Corporation and/or its Subsidiaries by virtue of the failure to
obtain such consent, then Seller and Buyer shall, during the 30 days after such
termination or cessation, negotiate in good faith to agree upon and Seller shall
pay to Buyer, an amount representing fair compensation to Buyer for the harm
caused by the failure to obtain such consent. Except as otherwise provided in
Section 4.2(d), if at any time after the first anniversary of the Effective
Date, a third party refuses or has failed to provide its consent as required by
Schedule 5.1(b) and such third party terminates, or ceases to make payments
under, its contracts with the Surviving Corporation and/or its Subsidiaries by
virtue of the failure to obtain such consent, then Seller shall have no
obligation to pay the Buyer any amount for the harm caused by the failure to
obtain such consent.
(c) Notwithstanding anything to the contrary set forth in this
Agreement, on and after the Effective Date, by virtue of the Merger, neither the
Asset Purchase Agreement, dated as of July 1, 1994, between Advanced Medical
Information Technologies, Inc. and TDS Healthcare Systems Corporation, as
amended (the "ADMIT Contract"), the Development, License and Marketing
Agreement, dated as of June 26, 1996, between IMN LLC and the Company, and the
Option Agreement, dated as of June 26, 1996, between Whisenhunt Investments,
Inc. and the Company (collectively, the Development, License and Marketing
Agreement and the Option Agreement shall be referred to hereinafter as the "IMN
Contracts") shall be vested in, and none of the liabilities arising thereunder
shall be attached to or be the
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obligations of, the Buyer, Acquisition Sub, the Surviving Corporation and its
Subsidiaries and the Seller shall enjoy all of the rights, including, without
limitation, all products, documents, and other assets, and be subject to all of
obligations and liabilities, thereunder. notwithstanding the immediately
preceding sentence, Buyer, the Surviving Corporation and its Subsidiaries (and
not the Seller) shall be responsible for providing alternative solutions to the
customers of the Surviving Corporation and its Subsidiaries under each
appropriate customer contract with respect to the products that were to be
developed under the ADMIT Contract and the IMN Contracts, including, without
limitation, being solely responsible and liable for the failure to timely
deliver any such alternative solution, and, except for each of the individuals
identified as an Excluded Employee (as hereinafter defined) on Schedule 11.1,
all of the employees of the Company and the Company Subsidiaries who are
performing services with respect to the ADMIT Contract and the IMN Contracts
shall constitute Transferred Employees (as hereinafter defined). Seller, in its
sole discretion, shall have the right to terminate, continue or restructure the
ADMIT Contract and the IMN Contracts without violation of Section 11.1 hereof.
Seller and the Company each represents to Buyer and the Acquisition Sub that the
software described in the ADMIT Contract and IMN Contracts are not imbedded
within the TDS 7000 Series software, and, in accordance with the terms of the
ADMIT Contract and IMN Contracts can be separately licensed by the Company.
Additionally, if required by Seller, Buyer or the Surviving Corporation will
make available the services of the Transferred Employees who were dedicated to
the performance of the services under the ADMIT Contract and/or IMN Contracts,
if and for so long as such Transferred Employees remain employed with the
Surviving Corporation for the period from the Effective Date through the end of
the time period requested by Seller, which period shall not be greater than 180
days, provided that if Seller requires an extension of such period and makes a
request to Buyer therefor, then Buyer may extend such period by not greater than
an additional 180 days, which extension shall not be unreasonably withheld. In
return, Seller agrees to reimburse Buyer or the Surviving Corporation for the
cost of any requested Transferred Employee's salary (including commissions) and
benefits, which shall be calculated on the basis of 20% of the cost of such
person's salary and commissions, and all out-of-pocket travel-related expenses
of such requested Transferred Employees.
(d) Notwithstanding that Systematics Telecommunications
Services, Inc. now known as Seller is the party whose name is on the Data
Processing Agreement, Software License Agreement and Disaster Recovery
Agreement, each dated August 1, 1992 (collectively, the "Beverly Agreements")
with Beverly California Corporation ("Beverly"), the parties agree to treat
these agreements as included in the Merger. If Beverly attempts to terminate,
declares a breach or stops making any payments under one or more of the Beverly
Agreements solely by virtue of the failure to obtain Beverly's consent to
Seller's assignment to the Company or to the Merger, Buyer agrees to immediately
notify Seller of this occurrence or, if Seller receives notice of such
occurrence, it shall immediately notify Buyer, and in either case, Buyer and
Seller shall work jointly to convince Beverly to revoke the termination or
breach and resume making payments. Additionally, in order to cure any possible
default or breach, Buyer may or, if requested by the Seller, shall assign one or
more of the Beverly Agreements to Seller, as well as all other necessary
personnel and assets dedicated to the performance of the Beverly Agreements in
order to enable Seller to be able to perform under the Beverly Agreements. In
the event of such assignment, Seller
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shall remit to Buyer $2.0 million (face amount) of Series C Preferred Stock and
Buyer shall be entitled to reduce the Management Services Fees (as such term is
defined in the Services Agreement) by $1,000,000.00 from the December 15, 1997
payment and $250,000.00 from each of the March 31, 1998 through and including
the June 30, 1999 payments. Further, in the event that despite Seller's and
Buyer's efforts to work together, Beverly is able to terminate any one or more
of the Beverly Agreements, regardless of whether Seller requested and Buyer
assigned that Beverly Agreement to Seller, Buyer and Seller agree to share the
loss associated with such termination equally, based on a mutually agreeable
combination of Series C Preferred Stock and changes in the amount of payments
made by Buyer to Seller under the Services Agreement, including, without
limitation, any loss of revenue or profit with respect to Buyer's and Seller's
ongoing services for Beverly and/or other out-of. pocket direct damages actually
incurred by Seller and its affiliates and Buyer and its affiliates. For purposes
of this Agreement, this subsection (d) and not Section 4.2(b) or any other
section of this Agreement shall govern the parties handling of the Beverly
Agreements with respect to the subject matter hereof. Also, any payments by one
party to the other under this subsection (d) shall not be included in any
calculation of either the Basket Amount (as hereinafter defined) or the
aggregate amounts for indemnification as provided for in Section 10.6.
Notwithstanding anything to the contrary set forth in this Agreement, this
Section 4.2(d) shall terminate on the first anniversary of the date hereof.
4.3. Tax Returns and Audits.
(a) Any return, report, information return or other document
(each a "Tax Return") with respect to Taxes (as defined below) that is required
to be filed with respect to the Company or its Subsidiaries for a taxable period
ending on or before the Effective Date will be prepared and filed by the Seller
(or Seller's Parent (as appropriate)) on behalf of the Company or such Company
Subsidiary, in a manner consistent with prior years' tax returns using, to the
extent permitted by law, consistent methods, conventions and elections to those
previously used by such Company or Company Subsidiary. Buyer will prepare and
file all Tax Returns with regard to the operations and assets of the Company and
its Subsidiaries for all tax periods after the Effective Date.
(b) The Company and Seller shall consult with Buyer and
Acquisition Sub on a timely basis regarding any Tax Return filed prior to the
Effective Date and all actions to be taken or decisions to be made in the course
of any audit or examination, or any subsequent proceedings, including settlement
or other dispositions thereof, with respect to any Taxes relating to taxable
periods of the Company or Company Subsidiaries ending on or before the Effective
Date.
(c) Each of the parties hereto shall provide the other parties
with such assistance as may reasonably be requested by such other parties in
connection with the preparation of any Tax Return (including an amendment
thereof), any audit or other examination by any taxing authority, and any
judicial or administrative proceedings related to the liability of the Company
or the Company Subsidiaries for Taxes with respect to taxable periods of the
Company or Company Subsidiaries ending on or before the Effective Date; and each
of the parties shall retain, until the expiration of all applicable statutes of
limitation (including extensions), and provide
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the other parties with copies of; any records or information which may be
relevant to such return, claim for refund, audit or examination, proceedings or
determination.
(d) Any refunds or credits of Taxes other than Assumed Taxes
(as hereinafter defined), to the extent that such refunds or credits relate to a
taxable year or tax period of the Company or the Company Subsidiaries ending on
or prior to the Effective Date, shall be for the account of Seller, and, to the
extent that such refunds or credits relate to a taxable year or tax period
beginning after the Effective Date, shall be for the account of Buyer. Buyer
shall cause the Surviving Corporation and its Subsidiaries to use their
reasonable best efforts to seek and shall cause the Surviving Corporation and
its Subsidiaries promptly to forward to or reimburse Seller for any such refunds
or credits due Seller after receipt thereof; and Seller shall promptly forward
or reimburse Buyer for any refunds or credits due Buyer after receipt thereof.
Beginning after the Effective Date, within 30 days after the payment by the
Surviving Corporation and its Subsidiaries of all Taxes due by the Company and
the Company Subsidiaries for any tax period ending on or prior to the Effective
Date, Seller shall pay to Buyer the amount of Taxes, if any, other than the
Assumed Taxes, paid by the Surviving Corporation and its Subsidiaries. For
purposes of this Agreement, "Assumed Taxes" shall mean those taxes referred to
on Schedule 4.10 under the captions "State Unemployment Taxes," "Federal
Unemployment Taxes," "Property Tax Payable," "Sales and Franchise Taxes
Payable," "Personal Property Taxes Accrual" and "Provision for Expat Tax."
(e) Seller agrees effective on the Effective Date, to cause
the Company and the Company Subsidiaries to be excluded from any tax sharing
agreements and from and after such date neither the Surviving Corporation nor
any of its Subsidiaries shall have any rights or obligations thereunder.
(f) Seller agrees to cause the Company and the Company
Subsidiaries to make an election pursuant to Section 197(f)(9)(B)(ii) of the
Internal Revenue Code of 1986, as amended (the "Code"), with respect to the
disposition of their assets pursuant to the Merger.
(g) Seller and Buyer covenant and agree that the fair market
value of the Merger Consideration received by Seller in the Merger shall be
allocated among the assets of the Company in the manner required by Section 1060
of the Code, as determined by Buyer in its sole and absolute discretion. Each
party shall file all necessary income tax returns and execute such elections
and/or agreements as may be required by federal, state and local taxing
authorities in a manner consistent with such allocation.
(h) To the extent applicable, the current fiscal year of the
Company and the Company Subsidiaries will be treated as two separate tax years,
one beginning on January 1, 1996 (or, in the event of an Effective Date after
December 31, 1996, January 1, 1997) and ending on the Effective Date and the
other beginning on the date after the Effective Date and ending at the end of
the 1996 (or, in the event of an Effective Date after December 31, 1996, 1997)
fiscal year of the Company and the Company Subsidiaries. The books and records
of the Company and the
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Company Subsidiaries will be closed at the close of business on the day
immediately prior to the Effective Date.
(i) Subject to Section 11.4(d), Seller shall have the right,
at its expense, to conduct the contest and/or settlement of any issue raised in
any official inquiry, examination or proceeding that could result in an official
determination with respect to Taxes due or payable for any taxable year or
period ending on or before the Effective Date with respect to which Seller has
an obligation to indemnify Buyer, the Company and the Company Subsidiaries;
provided, that, any contest and/or settlement of any issue raised in an official
inquiry, examination or proceeding that could reasonably be expected to result
in an official determination with respect to Taxes due or payable that relate to
a period beginning before and ending after the Effective Date will be conducted
by Buyer and Seller, jointly; provided, further, that neither Buyer nor Seller
shall settle, compromise or consent to any such official determination without
obtaining the consent of the other, which consent shall not be unreasonably
withheld.
(j) For purposes of this Section, "Taxes" means all taxes,
charges, fees, levies or other assessments, including deficiencies, interest,
additions to tax and penalties with respect thereto, imposed by any United
States federal, state or local taxing authority or by any foreign taxing
authority, including, but not limited to, income, gross receipts, excise,
property, sales, transfer, payroll, license, ad valorem, value added,
withholding, social security, national insurance (or other similar contributions
or payments), franchise and other taxes.
4.4. Insurance. In the event the Company or its Subsidiaries suffer any
loss prior to the Closing or attributable to events or activities prior to the
Closing that is covered by insurance, the Seller will bear the risk thereof, and
the parties will cooperate in seeking indemnification for such loss from the
applicable insurer.
4.5. Hart-Scott-Rodino Antitrust Improvements Act of 1976. Seller and
Buyer have previously filed with the Pre-merger Notification Office of the
Federal Trade Commission and the Antitrust Division of the Department of
Justice, Notification Pre-merger Reports (if applicable), as required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rulings promulgated thereunder (the "HSR Act") with respect to the Merger. Buyer
and Seller shall cooperate with each other to the extent reasonably necessary to
supply any information to the Federal Trade Commission or the Antitrust Division
of the Department of Justice relating to the Merger as required under the HSR
Act. Seller and Buyer agree to split equally the costs and expenses (including
filing fees) relating to the foregoing.
4.6. Litigation. From and after the Effective Date, (a) the Seller
shall (i) defend the Surviving Corporation and its Subsidiaries from and against
all of the lawsuits, governmental investigations and proceedings set forth on
Schedule 5.1 (l) and (ii) bear all of the expenses (including, without
limitation, the fees, charges and other disbursements of counsel) incurred by
the Seller or otherwise with respect thereto and (b) any settlement, compromise
or consent to the entry of any judgment with respect to such lawsuits,
governmental investigations and proceedings (i) shall include an unconditional
release of the Surviving Corporation and its Subsidiaries and (ii) shall not
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require the consent of the Surviving Corporation or its Subsidiaries unless such
settlement, compromise or judgment creates an obligation of the Surviving
Corporation and/or its Subsidiaries. notwithstanding the foregoing, Buyer and
the Surviving Corporation shall be responsible for responding to, defending (if
necessary) and bearing all expenses after the Effective Date with respect to the
"Written Claim Regarding Intellectual Property" described in paragraph II of
Schedule 5.1(r). Each of Seller and Buyer and the Surviving Corporation shall
provide, when and if requested by the other party, without cost, all reasonably
requested assistance to the other party to assist such other party in resolving
each of the above matters. The Seller, the Company, the Buyer and Acquisition
Sub covenant and agree that the $250,000 payable prior, on or after January 15,
1997 pursuant to the release and settlement agreement entered into in connection
with the matter ALLTEL Healthcare Information Services Inc. v. Davies Medical
Center described on Schedule 5.1(w) shall be for the account of the Seller and
all of such amount shall be forwarded promptly to the Seller if and to the
extent it is received by the Buyer.
4.7. Minimum Net Worth and Working Capital: Cash and Accounts Payable
at the Effective Time. At December 31, 1996, the Company had a net worth of not
less than $ 11 million, working capital of not less than $4 million and an
intercompany payable to the Seller of not less than $50 million.
4.8. Pro Ration of Revenues and Expenses. With respect to all revenues
earned and routine and ordinary course expenses incurred by the Company during
those days in January 1997 prior to the Effective Date and by the Surviving
Corporation during those days in January 1997 on and after the Effective Date,
(a) all of the revenues and routine and ordinary course expenses for such month
shall be pro rated (based on 31 days elapsed), (b) Seller shall be entitled to
receive the amount of revenues earned during such month equal to the product of
(i) the amount of revenues earned by the Company during those days in January
1997 prior to the Effective Date and the Surviving Corporation during those days
in January 1997 on and after the Effective Date multiplied by (ii) a fraction,
the numerator of which shall be the number of days between January 1 and the
Effective Date (excluding the Effective Date) and the denominator of which shall
be 31, (c) Seller shall incur the amount of routine and ordinary course expenses
incurred during such month equal to the product of (i) the amount of such
expenses incurred by the Company during those days in January 1997 prior to the
Effective Date and the Surviving Corporation during those days in January 1997
on and after the Effective Date multiplied by (ii) a fraction, the numerator of
which shall be the number of days between the Effective Date and January 31
(excluding the Effective Date) and the denominator of which shall be 31, (d) the
Surviving Corporation shall be entitled to receive the amount of revenues earned
during such month equal to the product of (i) the amount of revenues earned by
the Company during those days in January 1997 prior to the Effective Date and
the Surviving Corporation during those days in January 1997 on and after to the
Effective Date multiplied by (ii) a fraction, the numerator of which shall be
the number of days between the Effective Date and January 31 (including the
Effective Date) and the denominator of which shall be 31 and (e) the Surviving
Corporation shall incur the amount of routine and ordinary course expenses
incurred during such month equal to the product of (i) the amount of such
expenses incurred by the Company during those days in January 1997 prior to the
Effective Date and the Surviving Corporation during those days in January 1997
on and after the Effective Date
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<PAGE> 17
multiplied by (ii) a fraction the numerator of which shall be the number of days
between the Effective Date and January 31 (including the Effective Date) and the
denominator of which shall be 31. This Section 4.8 is for financial, tax and
accounting purposes only, and is not intended to influence how cash is exchanged
between the parties relating to the month of January, 1997.
4.9. Transition Services. From and after the Effective Date and for
the period of time set forth in Schedule 4.9 for each specific transition
service described therein, Seller shall provide the Surviving Corporation and
its Subsidiaries a general ledger accounting system and an accounts payable
system, administer and maintain payroll processing and systems and certain other
transition services for the Surviving Corporation and its Subsidiaries, in each
case (a) as currently provided to the Company and the Company Subsidiaries as
more fully described on Schedule 4.9 and (b) for a fee as set forth on Schedule
4.9.
4.10 Adjustments Relating to Cash Receipts and Cash Payments for
January Period to the Effective Time.
(a) On or prior to the Effective Time, the Company shall
transfer the accrued liabilities as of the Effective Time referred to on
Schedule 4.10 under the captions "Profit Sharing Contribution Payable," "Money
Maker Contribution Payable," "Executive Parachutes," "Monitored Care (ADMIT)
Reserve" and "Accounts Payable - Jacque Andre" to Seller, and Seller shall be
solely responsible for paying or otherwise resolving all such liabilities except
as provided in the following sentence with respect to the Profit Sharing
Contributions Payable. Unless otherwise provided for in this Agreement
(including without limitation, the pursuant to this Article IV, Article V,
Article X and Article XI to the extent applicable), Buyer and the Surviving
Corporation, in accordance with Section 259 of the DGCL, shall be solely
responsible for paying or reimbursing Seller for all of the liabilities of the
Company and its Subsidiaries as such liabilities exist as of the Effective Date,
whether accrued, unaccrued, contingent, known, or unknown, including, without
limitation those categories of liabilities which are set forth o the Accounts
Payable Detail and Accrued Liabilities Detail of Schedule 4.10 as of the
Effective Date. In addition, (i) Buyer or the Surviving Corporation shall be
responsible for paying or reimbursing, as the case may be, Seller for the cost
of all payroll deductions, salaries, commissions, bonuses, deferred compensation
and all other related payments made by the Company and the Company Subsidiaries
to its employees with respect to their January 24, 1997 payroll and (ii) Buyer
or the Surviving Corporation shall pay the Seller $1.0 million toward the Profit
Sharing Contribution Payable on or before March 31, 1997. For purposes of the
immediately preceding sentence, Buyer agrees to reimburse Seller for the total
amount disbursed by the Company and the Company Subsidiaries with respect to the
January 24, 1997 payroll on or prior to January 31, 1997. Buyer represents and
warrants to Seller that the above two described payments to Seller shall not
constitute Subordinated Debt (as such term is defined in the Subordination
Agreement dated as of the date hereof between Buyer and its stockholders).
(b) No later than January 30, 1997, Seller shall provide to
Buyer a certificate executed by a senior accounting officer of Seller
(accompanied by reasonable supportive documentation and calculations) (the
"Section 4.10 Certificate") showing, on a daily basis, all cash
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<PAGE> 18
collected by Seller for the account of the Company's and the Company
Subsidiaries' United States operations during the period from January 1, 1997
through the Effective Date (excluding the Effective Date) (the "Cash Received")
and all cash disbursed by or for the account of the Company's and the Company
Subsidiaries' United States operations during the period from January 1, 1997
through the Effective Date (excluding the Effective Date) (the "Cash
Disbursed"). Any cash collected by the Company's and the Company Subsidiaries'
United States operations before (but not including) the Effective Date which has
not been distributed to Seller shall not be included in the Section 4.10
Certificate calculation and shall be for the account of the Surviving
Corporation and the Company Subsidiaries to keep. Similarly, any invoices which
either have been received by the Company and its Subsidiaries before (but not
including) the Effective Date but which have not been received by Seller in
Little Rock for processing or have been received by Seller in Little Rock but
not processed or paid by Seller before the Effective Date shall not be included
in the Section 4.10 Certificate and shall be for the account of the Surviving
Corporation and its Subsidiaries to pay. Seller agrees to use its reasonable
best efforts to pay all invoices up to the amount of Cash Received.
(c) If Cash Received is greater than Cash Disbursed as set
forth in the Section 4.10 Certificate, then Seller shall pay this excess to
Buyer on the date on which Buyer reimburses Seller for the total amount
disbursed by the Company and the Company Subsidiaries with respect to the
January 24, 1997 payroll pursuant to subsection (a) above.
(d) As of the Effective Date, the intercompany payable due
from the Company to Seller shall be converted to capital and the balance shall
be reduced to zero.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of Seller and the Company. Seller
and the Company jointly and severally represent and warrant to Buyer and
Acquisition Sub as follows, except in each case as set forth in a disclosure
schedule attached hereto as Schedule 5.1.
(a) Due Organization. The Seller and the Company each is duly
incorporated, validly existing and in good standing under the laws of the State
of Arkansas and the State of Delaware, respectively. The Company and each
Company Subsidiary has the necessary corporate power and authority to own its
properties and to carry on its business as now being conducted, is qualified to
do business and is in good standing in all jurisdictions in which it is required
to be so qualified, and has received all necessary authorizations, consents and
approvals of governmental authorities necessary to the ownership of its
properties and assets and to the conduct of its business, except where the
failure to be so qualified or to have such authorizations, consents and
approvals would not have a material adverse effect on the financial condition,
operating results, assets or services (a "Material Adverse Effect") of the
Seller, the Company and the Company Subsidiaries. Schedule 5.1(a) lists each
state in which the Company or any Subsidiary thereof is qualified as a
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foreign corporation. The Company has delivered to the Buyer complete and correct
copies of its Certificate of Incorporation and Bylaws and those of each Company
Subsidiary. This Agreement has been, and the Certificate of Merger will be, duly
executed by the Company and Seller and constitutes or will constitute, as the
case may be, a valid and binding obligation of the Company and Seller,
enforceable against each of them in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally and by general principles of equity
(collectively, "Debtor Relief Laws").
(b) Power and Authority and Conflict. Each of the Company and
the Seller has the necessary corporate power and authority to enter into and
carry out the terms of this Agreement and, to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
the Company and Seller and the consummation by the Company and the Seller of the
transactions contemplated hereby and the Certificate of Merger have been duly
authorized by all necessary corporate action on the part of the Company and the
Seller (including, without limitation, all necessary corporate action of the
stockholders of each of the Company and the Seller). The execution and delivery
of this Agreement by the Company and the Seller do not, and the consummation of
the transactions contemplated hereby will not, violate any provision of the
Certificate of Incorporation or the Bylaws of the Company or the Seller, in each
case as amended, or, except as identified on the list attached hereto as
Schedule 5.1(b), violate or require any consent or approval of any governmental
authority or any third party under any mortgage, indenture, loan agreement,
note, debenture, security agreement, lease, contract, agreement, instrument,
order, arbitration award, judgment or decree to which the Company, the Seller or
any of their respective Subsidiaries or Parents is a party or by which the
Company, the Seller or any of their respective Subsidiaries or Parents is bound.
(c) Capital Stock. The Company's authorized, issued,
outstanding and reserved capital stock is, as of the date of this Agreement, as
set forth on Schedule 5.1(c) hereto, and all of the outstanding shares of its
capital stock have been duly authorized and validly issued and are fully paid
and nonassessable. There are no outstanding options, warrants, convertible
securities, subscriptions or other rights or agreements providing for the
issuance or delivery of any additional shares of capital stock of the Company or
obligating the Company to issue, deliver or sell any option, warrant,
convertible security, subscription or similar right. Seller is the record and
beneficial owner of all of the Company's issued and outstanding stock.
(d) Other Interests. Attached hereto as Schedule 5.1(d) is a
list true and complete as of the date hereof, which sets forth the name and
jurisdiction of incorporation or organization of each Company Subsidiary and the
percentage of each class of securities or equity interests of each such Company
Subsidiary that is owned by the Company, any Company Subsidiary or any Company
Parent. Each Company Parent, the Company, and each Company Subsidiary, as
appropriate, own such percentages of each class of securities or equity
interests of such Subsidiary, free and clear of all liens, security interests,
charges and encumbrances (collectively, "Liens"). All of the issued and
outstanding shares of capital stock of each Company Subsidiary are duly
authorized and validly issued and are fully paid and non-assessable, and each
Company Subsidiary is duly incorporated, validly existing and in good standing
under the laws of
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<PAGE> 20
the jurisdiction of its incorporation. There are no outstanding options,
warrants, convertible securities, subscriptions or other rights or agreements
providing for the issuance or delivery of any shares of capital stock of any
Company Subsidiary, and no authorized but unissued or treasury shares of capital
stock of any Company Subsidiary are subject to any existing option, warrant,
call or put.
(e) Dividends and Distributions. Except as set forth on
Schedule 5.1(e), the Company has not, since December 31, 1995, declared or paid
any dividends (whether in cash, stock or other assets of the Company) on its
capital stock.
(f) Financial Statements. The Company has delivered to Buyer
true and complete copies of(i) unaudited balance sheets of the Company and its
Subsidiaries as of December 31, 1994 and 1995 and the related unaudited
statement of operations for the years then ended, and (ii) an unaudited balance
sheet of the Company as of December 31, 1996 (the "Recent Company Balance
Sheet"), and the related unaudited statement of operations for the year then
ended (collectively the "Company Reports"). Each of the balance sheets included
in the Company Reports fairly presents the financial position of the Company and
its Subsidiaries as of its date, and each of the statements of operations
included in the Company Reports fairly presents the results of operations of the
Company and its Subsidiaries for the periods set forth therein (subject to
normal year-end adjustments), in each case in accordance with generally accepted
accounting principles consistently applied during the period involved (except as
otherwise noted in the Company Reports). The parties hereto each agrees and
acknowledges that Buyer has informed Seller that after the Effective Date, Buyer
plans to restate the balance sheet of the Company in accordance with the
adjustments described on the September 30, 1996 draft balance sheet attached
hereto as Schedule 5.1(f) (the "Adjustments") and that such Adjustments are
being made in accordance with generally accepted accounting principles as
recommended by Buyer's accountants based on Buyer's plan to operate the
Surviving Corporation and its Subsidiaries after the Effective Date and not
because the Company's representations and warranties set forth in the
immediately preceding sentence or this Section 5.1 are not true and correct.
(g) Due Authorization. The Board of Directors of the Company
and Seller have duly authorized this Agreement, the Certificate of Merger, and
the transactions contemplated hereby and thereby in accordance with the DGCL
(with respect to the Company) and Arkansas law (with respect to the Seller) and
the Bylaws of the Company. The Board of Directors of ALLTEL Corporation has duly
authorized the Merger and the transactions contemplated hereby in accordance
with the DGCL and the bylaws of ALLTEL Corporation.
(h) No Ownership of Real Estate; Assets. The Company and each
Company Subsidiary (i) do not own any land, buildings or other interests of any
kind in any real property (regardless of where located) and (ii) hold an
interest as a lessee under the leasehold interests disclosed in Schedule 5.1(j).
Except as set forth on Schedule 5.1(h), the Company and the Company Subsidiaries
own and have good and marketable title to all of their respective assets and
properties used in its business as reflected as owned in the Company Reports, in
each case free and
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<PAGE> 21
clear of any Liens, except for Liens described in the notes to the Company
Reports or created by the Buyer and/or the Surviving Corporation.
(i) Accounts Receivable. Schedule 5.1(i) sets forth a true and
complete list of all accounts receivable of the Company as of the Recent Company
Balance Sheet, which includes an aging of sh accounts receivable. All accounts
receivable of the Company have arisen from bona fide transactions in the
ordinary course of the Company's business and except as set forth on Schedule
5.1(i), to the knowledge of Messrs. Montgomery and Colletti, no payor is
contesting or disputing, and the Company has not received any notice in writing
or, to the knowledge of Messrs. Montgomery and Colletti, orally of any contest
or dispute with respect to, such accounts receivable.
(j) Leases. Schedule 5.1(j) sets forth all leases of real
property to which the Company and each Subsidiary thereof are a party (the "Real
Property Leases"). Schedule 5.1(j) also sets forth all leases of equipment to
which either the Company and each Subsidiary are a party that obligate the
Company to expend more than $100,000.00 during 1996 (the "Equipment Leases" and,
together with the Real Property Leases, the "Leases"). The Company has
heretofore delivered to Buyer true and complete copies of all instruments listed
on Schedule 5.1(j). Except as set forth on Schedule 5.1(j), all of such leases
to which either the Company or any of its Subsidiaries is a party are legal,
valid and binding; neither the Company nor, to the best of Seller's and the
Company's knowledge, any other party is in default thereunder, nor has any
notice of default been received; the Company and each Company Subsidiary has
paid in full or accrued all amounts due thereunder as of the Effective Date and
the Company's or Company Subsidiary's, as the case may be, interest in the
leasehold interest thereunder are free and clear of any and all liens,
mortgages, security interests or other encumbrances, except as set forth on
Schedule 5.1(j).
(k) Liabilities. The Company has no liabilities of any kind,
other than:
(i) those set forth, reserved against or described
on or in the Recent Company Balance Sheet;
(ii) those incurred by the Company in the ordinary
course of business since the date of the Recent Company Balance Sheet;
(iii) those liabilities not required by generally
accepted accounting principles to be set forth on a financial statement
or the notes thereto; and
(iv) those described or disclosed on, or which may
arise out of or with respect to the matters or contracts described or
disclosed on, the Schedules to this Agreement, or those which may arise
out of or with respect to matters or contracts that would be required
to be disclosed on such Schedules but for the limitations on such
disclosure contained in the representations and warranties relating to
such Schedules.
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<PAGE> 22
(l) Investigation or Litigation. Except as set forth on
Schedule 5.1(1), there is no pending or, to the best of Seller's and the
Company's knowledge, threatened lawsuit or governmental investigation or
proceeding against Seller, the Company or any Company Subsidiary, which would,
if adversely determined, have (i) a Material Adverse Effect on the Company or
any Company Subsidiary or (ii) have a Material Adverse Effect on the ability of
the Company or Seller to perform their obligations under this Agreement. There
is no outstanding order, injunction, judgment, or decree of any court or
government agency against Seller, the Company or any Company Subsidiary which
purports to enjoin or restrain the execution, delivery or performance by Seller
or the Company of this Agreement or any action taken or to be taken by Seller or
the Company pursuant to this Agreement.
(m) Arrangements for Compensation or Benefits. Except as set
forth on Schedule 5.1(m), neither the Company nor any Company Subsidiary is a
party to or bound by any written employment, "change of control", bonus,
incentive compensation, deferred compensation, profit sharing, stock option,
stock purchase, employee benefit, welfare benefit or other agreement, plan or
arrangement providing for compensation or benefits to any employee or any
director of the Company or any Company Subsidiary.
(n) Employee Benefits. Each "employee benefit plan" and
"welfare benefit plan" and any related trusts subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and any other material plan or
arrangement, to which the Company, any Company Subsidiary or Company Parent or
any other trade or business, whether or not incorporated, that would be
aggregated with any of the foregoing for any purpose relevant to ERISA or the
Code provisions referenced below (a "Company Affiliate") is a party or subject
(the "Company Plans"), complies in all material respects in form and operation
with the requirements of ERISA and any other applicable statutes, orders,
governmental rules and regulations, and there is no material liability with
respect to any failure to file any required reports with respect to the Company
Plans. Except as set forth on Schedule 5.1(n), there are no actions, suits or
claims, other than routine claims for benefits in the ordinary course, with
respect to the Company Plans, pending or to the best knowledge of the Company
threatened. Neither the Company nor any Company Affiliate is or has been under
any obligation to make any payment or contribution to any Multiemployer Plan (as
defined in ERISA), and neither the Company nor any Company Affiliate has any
accrued or contingent liability under ERISA for any complete or partial
withdrawal from any such Multiemployer Plan. Neither the Company nor any Company
Affiliate has incurred any material liability for any tax or civil penalty
imposed by the Code or ERISA with respect to any Company Plan. With respect to
each Company Plan that is a Defined Benefit Plan or a Defined Contribution Plan
(in each case, as defined in ERISA) (i) if intended to be tax-qualified, the
plan complies in all material respects with the requirements of a "qualified
plan" under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"); (ii) all applicable contributions for all periods ending prior to the
Effective Date (including periods from the first day of the then current plan
year to the Effective Date) have been made or accrued and reflected on the
Company's consolidated financial statements (to the extent required); (iii) all
reporting requirements under ERISA and the Code have been satisfied in all
material respects; (iv) no Company Plan subject to Title IV of ERISA has been
terminated, nor has any proceeding been
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<PAGE> 23
initiated to terminate any such Company Plan, nor is there any fact, event or
circumstance existing with respect to any such Company Plan that is subject to a
notice requirement that has not been waived other than the transaction
contemplated by this Agreement; (v) no Company Plan has incurred any
"accumulated funding deficiency" (as defined in the Code), whether or not
waived; and (vi) neither the Company, nor, to the best of Seller's and the
Company's knowledge, any administrator or fiduciary of any Company Plan has
engaged in any transaction subject to, nor is the Company or any Company
Affiliate subject to, any potential material liability under ERISA.
(o) Tax Matters. Except as set forth on Schedule 5.1(o), the
Company and each Company Subsidiary have timely filed all Tax Returns with
respect to Taxes required to have been filed by them to the date hereof, or, in
the alternative, have obtained extensions for filing in accordance with
established procedures. All such Tax Returns correctly set forth the Tax
liability of taxpayers filing such returns or reports as of the dates of their
filing. The Company and each of its Subsidiaries have paid all Taxes (including
interest and penalties) shown as due on the Tax Returns. Except as set for the
Schedule 5.1(o), no audit is in progress, no extension of time is in force with
respect to any date on which any Tax Return was or is to be dated and no waiver
or agreement is in force for the extension of time for the assessment or payment
of any Tax. Except as set forth in Schedule 5.1(o), neither the Company nor its
Subsidiaries has agreed to or is required to make any adjustments under Section
481(a) of the Code by reason of a change in accounting method or otherwise.
(p) Absence of Certain Changes. Since September 30, 1996, the
Company and each Company Subsidiary have conducted their business only in, and
have not engaged in any transaction other than according to, the ordinary and
usual course of such businesses consistent with past practices and, except as
set forth on the list attached hereto as Schedule 5.1 (p), there has not been
any Material Adverse Effect on the Company or any Company Subsidiary.
(q) Legal and Contractual Compliance. The Company and each
Company Subsidiary have complied in all respects with all applicable laws,
rules, regulations, and ordinances of any government or governmental agency
having jurisdiction, including, without limitation, all Trademark (as defined
hereinafter) or Copyright (as defined hereinafter) rules and regulations, zoning
and occupational safety laws, any antitrust, trade regulation and trade
practices laws, environmental laws and laws relating to employment, except to
the extent that the failure to comply with such laws, rules, regulations and
ordinances would not have a Material Adverse Effect on the Company or the
applicable Company Subsidiary. Except as set forth on Schedule 5.1(q), neither
the Company nor any Company Subsidiary is and, to the knowledge of the Company,
no other party thereto is, in violation of or in default under any terms or
provisions of any mortgage, indenture, loan agreement, note, debenture, security
agreement, Lease, license, contract, agreement, instrument, order, arbitration
award, judgment or decree, except to the extent that such violation or default
would not have a Material Adverse Effect on the Company or the applicable
Company Subsidiary.
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<PAGE> 24
(r) Intellectual Property.
(i) Set forth on Schedule 5.1(r) is a correct and
complete list of all Company Software, Copyrights, Patents, Trademarks,
Internet Assets, Mask Works and other proprietary rights that are
necessary for the conduct of the business as presently conducted
(collectively, "Intellectual Property") by the Company and each Company
Subsidiary. The Company and each Company Subsidiary, as appropriate,
own the entire right, title and interest in, or is licensed or
otherwise has the right to use, sell, license and dispose of; the
Intellectual Property, free and clear of all Liens. Except as set forth
in Schedule 5.1(r), neither the Intellectual Property nor the Company's
or the Company Subsidiaries' use or licensing thereof infringes upon or
violates any Intellectual Property rights of any third party. No claim
with respect to the Intellectual Property by or against any employee of
the Company or any Company Subsidiary, as the case may be, who has or
has had access to any of the Intellectual Property has been made or now
exists. Neither the Company nor the Seller is aware of any breach of
any confidentiality agreement in favor of the Company or any Company
Subsidiary relating to the Intellectual Property by employees or former
employees of the Company or the Company Subsidiaries or by third
parties which would have a Material Adverse Effect on the Company or
the Company Subsidiaries.
(ii) None of the Intellectual Property listed on
Schedule 5.1(r) is subject to any outstanding writ, order, injunction
or decree, and no action, suit, proceeding, hearing, investigation,
litigation is pending or to the knowledge of the Company or the Seller,
threatened, which challenges the validity, enforceability, use or
ownership of the item.
(iii) Except as set forth on Schedule 5.1(r), no
litigation is pending and no written claim has been made against the
Company or any Company Subsidiary or, to the knowledge of the Company
or the Seller, is threatened, contesting the right of the Company or
any Company Subsidiary to use the Intellectual Property or to sell or
license to any third party the Intellectual Property presently sold or
licensed to such third party.
(iv) The Company and the Company Subsidiaries have
not either received any written notice or, to the knowledge of Michael
E. Montgomery, oral notice from any third party indicating that any
other third party is infringing upon or otherwise violating the
Intellectual Property rights of the Company or any Company Subsidiary,
or sent any written notice or, to the knowledge of Michael E.
Montgomery, oral notice to any third party claiming that such third
party is infringing upon or otherwise violating the Intellectual
Property rights of the Company or any Company Subsidiary. To the
knowledge of Michael E. Montgomery, no third party is infringing upon
or otherwise violating the Intellectual Property rights of the Company
or any Company Subsidiary.
(v) For the purposes of the Agreement, the
following terms shall have the following meanings:
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<PAGE> 25
"Company Software" means all of the computer software
products, including, without limitation, source code, object code and
documentation of the Company and the Company Subsidiaries (whether or not such
software product has been released), but excluding any computer software
products under the ADMIT Contract and the IMN Contracts.
"Copyrights" means any foreign or United States
copyright registrations and applications for registration thereof, and any
non-registered copyrights of the Company and the Company Subsidiaries.
"Internet Assets" means any internet domain names and
other computer user identifiers and any rights in and to sites on the Worldwide
Web, including right in and to any test, graphics, audio and video files or
other code incorporated in such sites, of the Company and the Company
Subsidiaries.
"Mask Works" means any mask works and registrations
and applications or registrations thereof of the Company and the Company
Subsidiaries.
"Patents" means any foreign or United States patents
and patent applications, including any divisions, continuations,
continuations-in-part, substitutions or reissues thereof, whether or not patents
are issued on such applications and whether or not such applications are
modified, withdraw or resubmitted of the Company and the Company Subsidiaries.
"Trademarks" means any foreign or United States
trademarks, service marks, trade dress, trade names, brand names, designs and
logos, corporate names, product or service identifiers, whether registered or
unregistered, and all registrations and applications for registration thereof of
the Company and the Company Subsidiaries.
(s) Customer Agreements. All licenses, assignments and other
agreements (other than nondisclosure agreements) pursuant to which the Company
or any Company Subsidiary has made any of the Company Software, equipment or
services available to any of its customers are listed on Schedule 5.1(s). Each
such license, assignment or other agreement is valid, enforceable and in full
force and effect, subject to the terms and conditions of each such license,
assignment and other agreement, except as enforcement may be limited by Debtor
Relief Laws; neither the Company nor any Subsidiary thereof is and, to the
knowledge of the Company, no other party thereto is, in default thereunder where
the effect of such default would have a Material Adverse Effect on the Company
or the applicable Company Subsidiary; no event has occurred which, with the
passage of time or the giving of notice, would result in a default (where such
default would have a Material Adverse Effect) by the Company, or any Company
Subsidiary. The relationships of the Company and the Company Subsidiaries with
its customers are good commercial working relationships and, except as set forth
on the Schedule 5.1(s), as of the date of the Agreement, no person has
threatened in writing or, to the knowledge of Messrs. Montgomery and Sutphin,
orally to cancel or otherwise terminate the relationship of such person with the
Company or any of the Company Subsidiaries.
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<PAGE> 26
(t) Governmental Licenses. Set forth on Schedule 5.1(t) is a
true and complete list of all licenses, permits, certificates, franchises,
ordinances, registrations or other rights, applications and authorizations filed
with, granted or issued by or entered by any governmental agency or authority
that are currently held by the Company or any of its Subsidiaries (collectively,
"Licenses"). The Company or its Subsidiary is the exclusive holder of the
Licenses identified on Schedule 5.1(t). The Licenses are in full force and
effect and are not subject to any restrictions or conditions that would have a
Material Adverse Effect on the Company or any of its Subsidiaries. All of such
Licenses are necessary for the reasonable conduct of the business of the Company
and the Company Subsidiaries and neither the Seller nor the Company has been
informed in writing or received written notice that the Company or any Company
Subsidiary is required to obtain any additional License to conduct its business.
(u) Brokers or Finders. Except as set forth on Schedule
5.1(u), neither the Seller, the Company nor any of its Subsidiaries has incurred
any liability for any brokerage fees, commissions, finders' fees or similar fees
or expenses in connection with this Agreement or the transactions contemplated
hereby.
(v) Questionable Payments. Neither Seller, the Company, any of
the Company Subsidiaries, nor to the best of Seller's and the Company's
knowledge, any of their respective present respective directors, officers or
employees or any other person associated with or acting on behalf of the Company
or any of its Subsidiaries has, directly or indirectly (i) used any of the
Company's or any of its Subsidiaries' funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity; (ii)
made any unlawful payment to government officials or employees or to political
parties or campaigns; (iii) established or maintained any unlawful or unrecorded
fund of monies or other assets; (iv) made any false or fictitious entry on the
books or records of the Company or any of its Subsidiaries; (v) made any bribe,
rebate, payoff influence payment, kickback or other unlawful payment; or (vi)
made any bribe or other payment of a similar or comparable nature to any person
or entity, private or public, regardless of form, to obtain favorable treatment
in securing business or to obtain special concessions or treatment.
(w) Contracts. Except as set forth on Schedules 5.1 (j),
5.1(s) and 5.1(w), there are no written or, to the knowledge of the Executive
Group, oral contracts, licenses, commitments or undertakings, with which the
Company or any Company Subsidiary is bound which will be in effect after the
Effective Date:
(i) extending for a period of longer than 12
months,
(ii) involving expenditures or receipts in excess of
$100,000 per year, or
(iii) relating to the borrowing of money or
guaranteeing of any obligation for borrowed money.
All of the contracts, licenses, commitments or undertakings identified on
Schedule 5.1(w) are valid, enforceable and in full force and effect, except as
enforcement may be limited by Debtor Relief
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<PAGE> 27
Laws; each of the Company and each Company Subsidiary that is a party thereto
has paid in full or accrued all applicable amounts due thereunder. Neither the
Company nor any Subsidiary thereof, nor any other party thereto, is in default
thereunder where the effect of such default would have a Material Adverse Effect
on the Company or the applicable Company Subsidiary; and no event has occurred
which, with the passage of time or the giving of notice, would result in a
default (where such default would have a Material Adverse Effect on the Company
or the applicable Subsidiary) by the Company, any Company Subsidiary or any
other party thereto; and are not subject to any restrictions or conditions that
would have a Material Adverse Effect on the business of the Company or any of
its Subsidiaries as presently conducted.
(x) Investment Intent. Seller understands that the Series C
Preferred Stock and the Series D Preferred Stock to be received from Buyer in
the Merger has not been registered under the Securities Act of 1933, as amended
(the "Act"), in reliance upon exemptions contained in the Act or interpretations
thereof, and cannot be offered for sale, sold or otherwise transferred unless
such Preferred Stock subsequently is so registered or qualified for exemption
from registration under the Act. Such Preferred Stock is being acquired under
this Agreement by Seller in good faith solely for its own account, for
investment and not with a view toward resale or other distribution within the
meaning of the Act. Such Preferred Stock will not be offered for sale, sold or
otherwise transferred by Seller without either registration or exemption under
the Act and applicable state securities laws. Seller has such knowledge and
experience in financial and business matters that Seller is capable of
evaluating the merits and risks of Seller's investment in the Preferred Stock.
Seller has had the opportunity to review financial and other materials of Buyer
and to ask questions and obtain information from officers of Buyer. Seller
understands and is able to bear any economic risks associated with such
investment (including the necessity of holding such Preferred Stock for an
indefinite period of time, inasmuch as such Preferred Stock has not been
registered under the Act). The Seller agrees to the imprinting, so long as
required by law, of a legend on certificates representing its Series C Preferred
Stock, Series D Preferred Stock and shares of common stock issuable upon
conversion of its Series D Preferred Stock, to the following effects:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS
OR PURSUANT TO A WRITTEN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THE CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
AMENDED
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<PAGE> 28
AND RESTATED STOCKHOLDERS AGREEMENT, DATED JANUARY 24, 1997, AMONG
ECLIPSYS CORPORATION, PARTNERS HEALTHCARE SYSTEM, INC., GENERAL
ATLANTIC PARTNERS 38, L.P., GENERAL ATLANTIC PARTNERS 28, L.P., GAP
COINVESTMENT PARTNERS, L.P., HARVEY J. WILSON, WILFAM LTD., ALLTEL
INFORMATION SERVICES, INC., FIRST UNION CORPORATION, BT INVESTMENT
PARTNERS, INC., BREAN MURRAY ASSOCIATES IHS L.P., GERALD MANOLOVICI,
ST. PAUL VENTURE CAPITAL IV, L.L.C. AND PETER KARMANOS, JR., A COPY OF
WHICH MAY BE INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE. THE COMPANY
WILL NOT REGISTER THE TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE
COMPANY UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH
THE TERMS OF THE STOCKHOLDERS AGREEMENT.
(y) Outstanding Borrowing. Schedule 5.1(y) sets forth (i) the
amount of all indebtedness of the Company and each Company Subsidiary, (ii) the
Liens that relate to such indebtedness and that encumber the assets of the
Company and each Company Subsidiary and (iii) the name of each lender thereof.
(z) Insurance. The Company and its Subsidiaries are covered by
insurance policies reasonably sufficient for all applicable requirements of law
and provide insurance in such amounts and against such risks as the Company
believes is reasonably customary for companies engaged in its business.
5.2. Representations and Warranties of Buyer. Buyer and Acquisition Sub
jointly and severally represent and warrant to the Company and Seller as
follows, except in each case as set forth in a disclosure schedule attached
hereto as Schedule 5.2.
(a) Due Organization. Buyer and Acquisition Sub each is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, has the necessary corporate power and authority
to own its properties and to carry on its business as it is now being conducted,
is qualified to do business and is in good standing in all jurisdictions in
which it is required to be so qualified except where the failure to be so
qualified would not have a Material Adverse Effect on the Buyer or Acquisition
Sub, as the case may be. This Agreement has been, and the Certificate of Merger
will be, duly executed by Buyer and Acquisition Sub, and constitutes or will
constitute, as the case may be, a valid and binding obligation of Buyer and
Acquisition Sub enforceable against each of them in accordance with its terms,
except as enforcement may be limited by Debtor Relief Laws.
(b) Power and Authority; Conflict. Buyer and Acquisition Sub
each has the necessary corporate power and authority to enter into and carry out
the terms of this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the Certificate of
Merger by Buyer and Acquisition Sub and the consummation by
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<PAGE> 29
Buyer and Acquisition Sub of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of Buyer
and Acquisition Sub (including, without limitation, all necessary corporate
action of the stockholders of each of the Buyer and the Acquisition Sub). The
execution and delivery of this Agreement by Buyer and Acquisition Sub do not,
and the consummation of the transactions contemplated hereby will not, violate
any provision of the Certificate of Incorporation or the Bylaws of Buyer or
Acquisition Sub in each case as amended, and will not violate or require any
consent or approval of (other than the filing of a notification and report form
with the Federal Trade Commission and the Antitrust Division of the Justice
Department under the HSR Act in accordance with Section 4.8 hereof) any
government authority or of any third party under any mortgage, indenture, loan,
agreement, note, debenture, security agreement, lease, contract, agreement,
instrument, order, arbitration award, judgment or decree to which Buyer is a
party or by which Buyer is bound.
(c) Capitalization. At the Effective Time, after giving effect
to the transactions contemplated by this Agreement and the Preferred Stock and
Warrant Purchase Agreement, dated the date hereof (the "Preferred Stock
Agreement"), among Buyer, General Atlantic Partners 38, L.P. ("GAP LP"), General
Atlantic Partners 28, L.P. ("GAP 28"), GAP Coinvestment Partners, L.P., ("GAP
Coinvestment"), First Union Corporation ("FUCP"), BT Investment Partners, Inc.
("BT"), Wilfam Ltd. ("Wilfam"), Brean Murray Associates IHS, L.P. ("Brean
Murray"), Gerald Manolovici ("Manolovici"), St. Paul Venture Capital IV, L.L.C.
("St. Paul"), Peter Karmanos, Jr. ("Karmanos") and Seller, the authorized
capital stock of Buyer consists of (i) 30,000,000 shares, par value $.0l per
share, of Common Stock of Buyer (the "Class A Common Stock"), of which 3,626,667
shares are issued and outstanding, (ii) 3,000,000 shares, par value $.01 per
share, of Non-Voting Common Stock of Buyer (the "Class B Common Stock"), of
which no shares are issued and outstanding, (iii) 30,000 shares, par value $.01
per share, of Series B 8.5% Cumulative Redeemable Preferred Stock of Buyer (the
"Series B Preferred Stock"), all of which are outstanding and issued to FUCP and
BT, (iv) 25,000 shares of Series C Preferred Stock, of which 20,000 shares are
outstanding and issued to Seller, (v) 7,200,000 shares of Series D Preferred
Stock, of which 7,058,786 shares are outstanding and issued to GAP LP, GAP
Coinvestment, Wilfam, Brean Murray, Manolovici, St. Paul, Karmanos and Seller,
(vi) 920,000 shares, par value $.01 per share, of Series B Convertible Preferred
Stock of Buyer, of which 896,431 shares are outstanding and issued to FUCP and
BT, (vii) 1,530,000 shares, par value S.01 per share, of Series F Convertible
Preferred Stock of Buyer (the "Series F Preferred Stock"), of which 1,478,097
shares shall be outstanding and issued to GAP 28, GAP Coinvestment, Brean Murray
and Manolovici and (viii) 2,000,000 shares, par value $.01 per share, of
undesignated preferred stock of Buyer, of which 1,000,000 shares were previously
designated as Series A Preferred Stock and issued to GAP 28, GAP Coinvestment,
Brean Murray and Manolovici and have been retired in accordance with the
Certificate of Incorporation of Buyer upon the exchange of shares of Series A
Preferred Stock for shares of Series F Preferred Stock as more fully described
in Section 2.6 of the Preferred Stock Agreement. Schedule 5.2(c) sets forth a
true and complete list of the stockholders of the Buyer and, opposite the name
of each stockholder, the amount of all outstanding capital stock and common
stock equivalents owned by such stockholder. Buyer has reserved (1) an aggregate
of 7,058,786 shares of Class A Common Stock for issuance upon conversion of the
Series D Preferred Stock, (2) an aggregate of 2,696,146 shares of Class A Common
Stock for issuance upon conversion of the
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Class B Common Stock, (3) an aggregate of 896,431 shares of Class B Common Stock
for issuance upon conversion of the Series B Preferred Stock, (4) an aggregate
of 1,478,097 shares of Class A Common Stock for issuance upon conversion of the
Series F Preferred Stock and (5) an aggregate of 1,799,715 shares of Class B
Common Stock for issuance upon exercise of certain warrants issued to FUCP and
BT pursuant to the Preferred Stock Agreement. Except as set forth on Schedule
5.2(c), there are no other options, warrants, conversion privileges,
subscription or purchase rights or other rights presently outstanding to
purchase or otherwise acquire (i) any authorized but unissued, unauthorized or
treasury shares of Buyer's capital stock, (ii) any common stock equivalents or
(iii) other securities of Buyer. The Series C Preferred Stock and the Series D
Preferred Stock are duly authorized, and on the Effective Date, will be validly
issued, fully paid and nonassessable and will be issued in compliance with the
registration and qualification requirements of all applicable federal and
Arkansas securities laws. The shares of Class A Common Stock issuable upon
conversion of the Series D Preferred are duly authorized and, when issued in
compliance with the provisions of the Amended and Restated Certificate of
Incorporation of Buyer, will be validly issued, fully paid and nonassessable.
(d) Other Interests. Buyer owns all of the issued and
outstanding capital stock of Acquisition Sub, free and clear of all Liens.
Acquisition Sub is Buyer's only Subsidiary. All of the issued and outstanding
shares of capital stock of Acquisition Sub are duly authorized and validly
issued and are fully paid and non-assessable. There are no outstanding options,
warrants, convertible securities, subscriptions or other rights or agreements
providing for the issuance or delivery of any shares of capital stock of any
Acquisition Sub, and no authorized but unissued treasury shares of capital stock
of any Acquisition Sub are subject to any existing option, warranty, call or
put.
(e) Due Authorization. The Board of Directors of Buyer and
Acquisition Sub have duly authorized this Agreement, the Certificate of Merger
and the transactions contemplated hereby and thereby in accordance with the DGCL
and the Bylaws of Buyer and Acquisition Sub.
(f) No Litigation. Except as set forth on Schedule 5.2(f),
there is no pending or, to the best of Buyer's or Acquisition Sub's knowledge,
threatened lawsuit or governmental investigation or proceeding against Buyer or
Acquisition Sub which would if adversely determined (i) have a Material Adverse
Effect on Buyer or any Buyer Subsidiary or (ii) have a Material Adverse Effect
on the ability of Buyer or Acquisition Sub to perform their obligations under
this Agreement. There is no outstanding order, injunction, judgment, or decree
of any court or governmental agency against Buyer or Acquisition Sub which
purports to enjoin or restrain the execution, delivery or performance by Buyer
or Acquisition Sub of this Agreement, or any action taken or to be taken by
Buyer or Acquisition Sub pursuant to this Agreement.
(g) Brokers or Finders. Neither the Buyer nor Acquisition Sub
has incurred any liability for any brokerage fees, commissions, finders' fees or
similar fees or expenses in connection with this Agreement or the transactions
contemplated hereby. General Atlantic Partners, LLC is not receiving from the
Buyer or Acquisition Sub a brokerage fee or commission in connection with this
transaction.
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(h) Acquisition Sub. Other than the actions referred to in
this Agreement, Acquisition Sub has taken no other action and conducted no other
business and owns no other assets or incurred no other liabilities or
obligations.
5.3. No Other Representations and Warranties by the Company and Seller,
Etc.
(a) NO ADDITIONAL REPRESENTATIONS OR WARRANTIES. EXCEPT AS
PROVIDED IN SECTION 5.1(a) THROUGH 5.1(z), EACH OF SELLER, THE COMPANY, AND THE
COMPANY SUBSIDIARIES IS MAKING NO REPRESENTATION OR WARRANTY OF ANY KIND
EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSES AND ANY
WARRANTIES PROVIDED UNDER APPLICABLE ENVIRONMENTAL LAWS IN CONNECTION WITH THIS
AGREEMENT, SELLER (INCLUDING THE ASSETS AND BUSINESS THEREOF), THE COMPANY
(INCLUDING THE ASSETS AND BUSINESS THEREOF) THE COMPANY SUBSIDIARIES,(INCLUDING
THE ASSETS AND BUSINESS THEREOF), AND BUYER AGREES AND ACKNOWLEDGES THAT ALL
SUCH REPRESENTATIONS AND WARRANTIES ARE EXCLUDED AND DISCLAIMED.
(b) Without limiting the generality of the foregoing, but
subject to the express representations and warranties made by the Company and
Seller in Section 5.1, neither the Company nor Seller makes any representation
and warranty to Buyer with respect to:
(i) Any projections, estimates or budgets heretofore
delivered to or made available to Buyer of future revenues, future
expenses or future expenditures, future results of operations (or any
component thereof) or future financial condition (or any component
thereof) of the Company or its Subsidiaries or the business and
operations of the Company or its Subsidiaries; or
(ii) Any other information or documents made
available to Buyer with respect to the Company or the business and
operations of the Company, except to the extent that such information
or documents is set forth, listed, disclosed or described on, or
attached to, any Schedule hereto.
5.4. No Other Representations and Warranties by Buyer and Acquisition
Sub.
(a) NO ADDITIONAL REPRESENTATIONS OR WARRANTIES. EXCEPT AS
PROVIDED IN SECTION 5.2(a) THROUGH 5.2(h), EACH OF BUYER AND ACQUISITION SUB IS
MAKING NO REPRESENTATION OR WARRANTY OF ANY KIND EXPRESS, IMPLIED OR STATUTORY,
INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSES AND ANY WARRANTIES PROVIDED UNDER APPLICABLE
ENVIRONMENTAL LAWS IN CONNECTION WITH THIS AGREEMENT, BUYER (INCLUDING THE
ASSETS AND BUSINESS THEREOF), AND ACQUISITION SUB,
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(INCLUDING THE ASSETS AND BUSINESS THEREOF), AND THE COMPANY AND SELLER EACH
AGREE AND ACKNOWLEDGES THAT ALL SUCH REPRESENTATIONS AND WARRANTIES ARE EXCLUDED
AND DISCLAIMED.
(b) Without limiting the generality of the foregoing, but
subject to the express representations and warranties made by Buyer in Section
5.2, Buyer makes no representation and warranty to the Company and Seller with
respect to:
(i) Any projections, estimates or budgets heretofore
delivered to or made available to the Company and Seller of future
revenues, future expenses or future expenditures, future results of
operations (or any component thereof) or future financial condition (or
any component thereof) of Buyer or the Surviving Corporation and its
Subsidiaries or the business and operations of Buyer or the Surviving
Corporation and its Subsidiaries; or
(ii) Any other information or documents made
available to the Company and Seller with respect to Buyer or the
business and operations of Buyer except to the extent that such
information or documents is set forth, listed, disclosed or described
on, or attached to, any Schedule hereto.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF SELLER AND THE COMPANY
The obligations of Seller and of the Company to effect the Merger are
subject to and shall be conditioned upon the satisfaction, or waiver (in whole
or in part) in writing by Seller and the Company, of each of the following
conditions:
6.1. Representations and Warranties True. The representations and
warranties of Buyer and Acquisition Sub contained in Section 5.2 hereof shall be
true and correct in all material respects on and as of the Effective Date,
except insofar as any of those representations and warranties relate solely to a
particular date or period, in which case they shall be true and correct in all
material respects on and as of the Effective Date with respect to such date or
period.
6.2. Performance of Obligations and Agreements. Buyer and Acquisition
Sub shall have performed in all material respects all of its obligations and
agreements and fulfilled all conditions contained in this Agreement to be
performed or complied with by it on or before the Effective Date.
6.3. Resolutions of Buyer. Buyer shall have delivered to Seller and the
Company copies of the resolutions of the Board of Directors and stockholders
holding the requisite number of shares of Buyer, authorizing and approving the
execution of this Agreement, the Certificate of Merger,
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and the consummation of the transactions contemplated hereby, certified as true
and correct on the Effective Date by its Secretary or an Assistant Secretary of
Buyer.
6.4. Resolutions of Acquisition Sub. Acquisition Sub shall have
delivered to Seller and the Company copies of the resolutions of the Board of
Directors and stockholders of Acquisition Sub holding the requisite number of
shares of Acquisition Sub, authorizing and approving the execution of this
Agreement, the Certificate of Merger, and the consummation of the transactions
contemplated thereby, certified as true and correct on the Effective Date by its
Secretary or Assistant Secretary of Acquisition Sub.
6.5. No Casualty. Prior to the Effective Date, there shall not have
occurred any fire, flood, hurricane or other casualty to any of the facilities
of Buyer or any of its Subsidiaries (whether or not insured) as a result of
which Buyer's or any of its Subsidiaries' ability to conduct its operations is
materially diminished.
6.6. Closing Certificate. Each of Buyer and Acquisition Sub shall have
delivered to Seller and the Company (a) a certificate in form and substance
reasonably satisfactory to the Seller and the Company dated as of the Effective
Date and signed by its President or a Vice President, certifying as to the
matters set forth in Sections 6.1 and 6.2, and (b) a certificate of the
Secretary or an Assistant Secretary of each of Buyer and Acquisition Sub
certifying as to the incumbency of the officers of Buyer and Acquisition Sub.
6.7. No Litigation. No action, suit, proceeding, claim or dispute shall
have been brought or otherwise arisen at law, in equity, in arbitration or
before any governmental authority against the Buyer or Acquisition Sub, which
would, if adversely and finally determined, (a) have a Material Adverse Effect
on the Buyer or Acquisition Sub or (b) have a Material Adverse Effect on the
ability of the Buyer or Acquisition Sub to perform its obligations under this
Agreement and to effect the Merger.
6.8. Preferred Stock and Warrant Purchase Agreement. On the date
hereof, Buyer, GAP LP, GAP 28, GAP Coinvestment, FUCP, BT, Wilfam, Brean Murray,
Manolovici, St. Paul and Karmanos shall have executed and delivered the
Preferred Stock Agreement, and such Preferred Stock Agreement shall be in full
force and effect with no defaults thereunder.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER AND
ACQUISITION SUB
The obligations of Buyer and Acquisition Sub to effect the Merger are
subject to and shall be conditioned upon the satisfaction, or waiver (in whole
or in part) in writing by Buyer and Acquisition Sub, of each of the following
conditions:
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7.1. Representations and Warranties True. The representations and
warranties of the Company and Seller contained in Section 5.1 shall be true and
correct in all material respects on and as of the Effective Date, and except
insofar as any of those representations and warranties relate solely to a
particular date or period, in which case they shall be true and correct in all
material respects on and as of the Effective Date with respect to such date or
period.
7.2. Performance of Obligations and Agreements. The Company and Seller
each shall have performed in all material respects all of their respective
obligations and agreements and fulfilled all conditions contained in this
Agreement to be performed or complied with by it on or before the Effective
Date.
7.3. Resolutions. The Company shall have delivered to Buyer and
Acquisition Sub copies of the resolutions of the Company's Board of Directors
and resolutions of the Company's stockholders and resolutions of the Board of
Directors and stockholders of Seller authorizing and approving the execution of
this Agreement, the Certificate of Merger and the consummation of the
transactions contemplated hereby, certified as true and correct on the Effective
Date by its Secretary or an Assistant Secretary of the Company (in the case of
resolutions delivered by the Company) and the Seller (in the case of resolutions
delivered by the Seller).
7.4. No Casualty. Prior to the Effective Date, there shall not have
occurred any fire, flood, hurricane or other casualty to any of the facilities
of the Company or any of its Subsidiaries (whether or not insured) as a result
of which the Company's or any of its Subsidiaries' ability to conduct its
operations is materially diminished.
7.5. Closing Certificate. Each of Seller and the Company shall have
delivered to Buyer and Acquisition Sub (a) a certificate, in form and substance
reasonably satisfactory to Buyer and Acquisition Sub, dated as of the Effective
Date and signed on its behalf by its President or a Vice President, certifying
as to the matters set forth in Sections 7.1 and 7.2 and (b) a certificate of the
Secretary or an Assistant Secretary of each of Seller and the Company certifying
as to the incumbency of the officers of Seller and the Company.
7.6. No Litigation. No action, suit, proceeding, claim or dispute shall
have been brought or otherwise arisen at law, in equity, in arbitration or
before any governmental authority against the Company or Seller, which would, if
adversely and finally determined, (a) have a Material Adverse Effect on the
Company or the Company Subsidiaries or (b) have a Material Adverse Effect on the
ability of the Company or Seller to perform its obligations under this Agreement
and to effect the Merger.
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ARTICLE VIII
RECIPROCAL CONDITIONS PRECEDENT
The obligations of each of Seller and the Company and each of Buyer and
Acquisition Sub to effect the Merger are subject to and shall be conditioned
upon the satisfaction, or waiver (in whole or in part) in writing by the
Company, Seller, Buyer, and Acquisition Sub of each of the following conditions
prior to the Effective Date:
8.1. No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction prohibiting the consummation of the transactions
contemplated by this Agreement (each party agreeing to use its reasonable best
efforts, including appeals to higher courts, to have any such order, injunction,
legal restraint or prohibition set aside or lifted), and no action shall have
been taken, and no statute, rule or regulation shall have been enacted, by any
state or federal government or governmental agency or regulatory body having
jurisdiction that would prevent the consummation of the Merger.
8.2. Amended and Restated Certificate of Incorporation of Buyer. Buyer
shall have filed and the Delaware Secretary of State shall have accepted Buyer's
Amended and Restated Certificate of Incorporation in the form attached hereto as
Exhibit B, and such Amended and Restated Certificate of Incorporation shall not
have been further amended.
8.3. Registration Rights Agreement. On the Effective Date, Buyer and
Seller shall have executed and delivered the Registration Rights Agreement, in
the form attached hereto as Exhibit C, and such Registration Rights Agreement
shall be in full force and effect with no defaults thereunder.
8.4. Stockholders Agreement. On the Effective Date, Buyer and Seller
shall have executed and delivered a Stockholders Agreement of Buyer, in the form
attached hereto as Exhibit D, and such Stockholders Agreement shall be in full
force and effect with no defaults thereunder.
8.5. Management and Services Agreement. On the Effective Date, Buyer
and Seller shall have executed and delivered a Management and Services Agreement
(the "Services Agreement"), in the form attached hereto as Exhibit E, and such
Services Agreement shall be in full force and effect with no defaults
thereunder.
8.6. HSR. The parties shall have received confirmation or notice that
all waiting periods under the HSR Act with respect to the filing contemplated by
Section 4.5 shall have terminated or expired by their own terms.
ARTICLE IX
AMENDMENTS
Subject to applicable law, this Agreement may be amended in any respect
by an instrument in writing authorized by Seller, the Company, the Buyer and
Acquisition Sub.
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ARTICLE X
SURVIVAL AND INDEMNIFICATION
10.1. Survival. All representations and warranties contained in this
Agreement shall survive the Effective Date until December 31, 1997, except that
the representations and warranties contained in (i) Section 5.1(c), (u), and
(x), Sections 5.2(c), and (g), Section 5.3 and Section 5.4 shall survive the
Effective Date, without limitation as to time, and (ii) with respect to any
claim based upon, arising out of; or otherwise in respect of; any inaccuracy in
or any breach of any representation or warranty of Seller contained in this
Agreement related to Taxes (a "Tax Claim"), on the later of (x) the date upon
which the liability to which any such Tax Claim may relate is barred by all
applicable statutes of limitation or (y) the date upon which any claim for
refund or credit related to such Tax Claim is barred by all applicable statutes
of limitations.
10.2. Seller Indemnification. Subject to the provisions of this Article
X, Seller agrees to indemnify, defend, and hold harmless Buyer, Acquisition Sub,
the Surviving Corporation and its Subsidiaries and each of their respective
officers, directors, employees, and affiliates (the "Buyer Indemnitees") against
and in respect of:
(i) Any and all loss, cost, liability, claim
(including any claim brought through a derivative action by an person
claiming through or in ALLTEL Corporation's name) and expense
(including, without limitation, reasonable attorneys' fees and costs
incurred by the Buyer Indemnitees in any action between the
indemnifying party and the Buyer Indemnitees or between the Buyer
Indemnitees and any third party) resulting from, relating to, or
arising out of (1) any breach of the representations and warranties on
the part of Seller or the Company made in this Agreement; (2) any
breach of any agreement, covenant, or obligation on the part of Seller
or the Company made in this Agreement or in any certificate or document
delivered by Seller or the Company under this Agreement; and (3) all of
the matters set forth on Schedule 5.1(1).
(ii) Any and all Taxes due or payable by (1) the
Company, the Company Subsidiaries or any member of any affiliated
group, within the meaning of Section 1504 of the Code or any comparable
provision of state, local or foreign law, of which the Company or any
Company Subsidiary is or has been a member (the "Affiliated Groups")
for any taxable year or tax period ending on or prior to the Effective
Date other than Assumed Taxes, and (2) any member of the Affiliated
Groups (other than the Company and the Company Subsidiaries) for any
taxable year or tax period. Taxes for which Seller and the Company
shall be liable pursuant to the preceding sentence shall include,
without limitation, any liability for Taxes that arises because the
Company and/or the Company Subsidiaries cease on the Effective Date to
be a member of the Affiliated Groups of which they had been members.
(iii) Any and all loss, cost, liability and expense
(including, without limitation, reasonable attorneys' fees and costs)
resulting from, relating to or arising out of
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any Tax sharing agreement to which the Company and/or a Company
Subsidiary is or has been a party prior to the Effective Date.
(iv) Any and all loss, cost, liability, claim
(including any claim brought through a derivative action by an person
claiming through or in ALLTEL Corporation's name) and expense
(including, without limitation, reasonable attorneys' fees and costs
incurred by the Buyer Indemnitees in any action between the
indemnifying party and the Buyer Indemnitees or between the Buyer
Indemnitees and any third party) resulting from, relating to, or
arising out of the ADMIT Contract and the IMN Contracts, including,
without limitation, any breach of any representation, warranty,
covenant or obligation therein.
10.3. Buyer Indemnification. Subject to the provisions of this Article
X, Buyer, Acquisition Sub, the Surviving Corporation and its Subsidiaries,
jointly and severally, agree to indemnify, defend, and hold harmless Seller and
each of the Seller's officers, directors, employees, and affiliates (the
"Company Indemnitees") against and in respect of:
(i) Any and all loss, cost, liability claim and
expense (including, without limitation, reasonable attorneys' fees and
costs) incurred by the Company Indemnitees in any action between the
indemnifying party and the Company Indemnitees or between the Company
Indemnitees and any third party resulting from, relating to or arising
out of any breach of(1) the representations or warranties on the part
of Buyer made under this Agreement; and (2) any agreement, covenant, or
obligation on the part of Buyer or Acquisition Sub made in this
Agreement or in any certificate or document delivered by Buyer or
Acquisition Sub under this Agreement.
(ii) Any and all loss, cost, liability claim of
expense (including without limitation, reasonable attorneys' fees and
costs) incurred by the Company Indemnities resulting from, relating to
or arising out of Seller's guaranty obligations under the guaranty
agreements set forth on Schedule 5.1(b) based on any actions or
inactions of the Surviving Corporation or its Subsidiaries after the
Effective Date.
10.4. Indemnification Procedure.
(a) If a Buyer Indemnitee or a Company Indemnitee, as the case
may be, entitled to assert a claim for breach of a representation, warranty,
agreement, covenant or obligation contained in this Agreement (an "Indemnitee")
receives notice of the assertion by a third party of any claim or of the
commencement by any such person of any investigation, action or proceeding (a
"Third Party Claim") with respect to which another party hereto (an
"Indemnifying Party") may have liability based on a breach of a representation,
warranty, agreement, covenant or obligation contained in this Agreement, the
Indemnitee shall give the Indemnifying Party prompt notice thereof after receipt
of such notice of such Third Party Claim in reasonable detail and shall indicate
the amount (estimated if necessary) of the damage that has been or may be
sustained by the Indemnitee. The receipt of such notice shall be a condition
precedent to any liability of the
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Indemnifying Party for any Third Party Claim under the provisions contained in
this Agreement; provided, however, that the rights of the Indemnitee to be
indemnified or compensated hereunder in respect of any Third Party Claim will
only be affected by its failure to give prompt notice to the Indemnifying Party
of such Third Party Claim if and to the extent that such failure prejudices that
Indemnifying Party in the defense of such Third Party Claim.
(b) If the Indemnifying Party elects to compromise or defend
such Third Party Claim, it shall do so at its own expense with counsel
reasonably satisfactory to the Indemnitee, and it shall within ten (10) business
days notify the Indemnitee of its intent to do so, it shall consult with the
Indemnitee and keep the Indemnitee informed as to matters concerning such Third
Party Claim during the course of such compromise or defense and the Indemnitee
shall cooperate, at the expense (including, without limitation, out-of-pocket
expenses and reasonable attorneys' fees) of the Indemnifying Party, in the
compromise of; or defense against, such Third Party Claim; provided, however,
that the Indemnitee may, at its own expense, retain separate counsel to
participate in its defense at the Indemnitee's own expense. Notwithstanding the
foregoing, in any Third Party Claim in which both the Indemnifying Party, on the
one hand, and the Indemnitee, on the other hand, are, or are reasonably likely
to become, a party, the Indemnitee shall have the right to employ separate
counsel at its own expense and to control its own defense of such Third Party
Claim.
(c) If the Indemnifying Party elects not to compromise or
defend against the Third Party Claim, or fails to notice the Indemnitee of its
election as herein provided or fails to defend any such Third Party Claim, the
Indemnitee may pay (without prejudice of any of its rights as against the
Indemnifying Party), compromise or defend such Third Party Claim The
Indemnifying Party shall give the Indemnitee thirty (30) days notice of its
intent to cease defending the Indemnitee with respect to such Third Party Claim
and the Indemnitee shall be fully indemnified hereunder for any additional
damages suffered by the Indemnitee.
(d) The Indemnifying Party may not settle, compromise or
consent to the entry of any judgment with respect to any pending or threatened
Third Party Claim unless such settlement, compromise or consent includes an
unconditional release of the Indemnitee from all liability arising out of or
that may arise out of such Third Party Claim.
(e) Any claim which does not result from a Third Party Claim
shall be asserted by written notice given by the party claiming indemnity to the
party from which indemnity is claimed.
(f) In connection with the obligation of the Indemnifying
Party to indemnifying for expenses as set forth above, the Indemnifying Party
shall, upon presentation of appropriate invoices containing reasonable detail,
reimburse each Indemnitee for all such expenses (including reasonable fees,
disbursements and other charges of counsel incurred by the Indemnitee in any
action between the Indemnifying Party and the Indemnitee or between the
Indemnitee and any third party or otherwise) as they are incurred by such
Indemnitee; provided, however, that if such expenses arise out of any Third
Party Claim commenced by the Indemnitee, the Indemnifying
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Party shall reimburse such Indemnitee for all such expenses only (1) after the
final resolution or disposition of such Third Party Claim and (2) if such
Indemnitee prevails in such Third Party Claim; provided further, that the
Indemnifying Party shall not be liable for the fees, disbursements and charges
of more than one counsel to all Indemnitees; and provided further, that if an
Indemnitee is reimbursed hereunder for any expenses, such reimbursement of
expenses shall be refunded to the extent it is finally judicially determined
that the Losses in questions primarily from the misconduct or negligence of such
Indemnitee.
(g) If and to the extent that such indemnification is
unenforceable for any reason, the Indemnifying Party shall make contribution to
the payment and satisfaction of such Losses to the extent permissible under
applicable laws, but not otherwise greater than provided for herein.
(h) To the extent the matter which serves as the basis for a
claim hereunder may be covered by insurance carriers under applicable insurance
policies covering such matter, the indemnitee shall use its reasonable best
efforts to seek recovery in good faith for such matter from such insurers.
Notwithstanding the foregoing, the Indemnitee shall not be obligated to exhaust
its remedies against such insurance carriers in the event such carriers fail to
accept responsibility for such matter and the Indemnitee shall be able to fully
assert its rights of indemnification against the Indemnifying Party hereunder;
provided, that in such event the Indemnitee shall assign its right of recovery
with respect to such matter against such insurance carrier to the Indemnifying
Party. Any claim hereunder shall be reduced by the amounts actually recovered by
the Indemnitee from its insurance carriers and any amounts recovered by the
Indemnitee subsequent to the payment by the Indemnifying Party with respect to
the same claim shall be remitted to the Indemnifying Party; provided, that such
remittance shall not exceed the amount of such indemnification payment by the
Indemnifying Party.
10.5. Indemnification as Sole Remedy. The parties agree that, except as
specifically provided in Section 13.8 and Article XII, the indemnification
provided in this Article X is the sole and exclusive remedy available to the
parties hereto for any claims arising under this Agreement and for the
transaction contemplated thereby, regardless whether a remedy otherwise would
have been sought on the basis of contract, quasi-contract, tort, strict
liability, or absolute liability (whether statutory or common law) and
regardless whether or to that extent any statute or common law rule (including,
without limitation, under any of the environmental laws) permits the waiver or
exclusion thereof in the case of any party to this Agreement or its successors
or assigns.
10.6. Indemnification Limitations. Notwithstanding the foregoing
provisions of this Article X and the other provisions of this Agreement, Seller
shall not be obligated to indemnify any one or more of the Buyer Indemnitees
under Section 10.2(i) and Buyer, Acquisition Sub, the Surviving Corporation and
its Subsidiaries shall not be obligated to indemnify any one or more of the
Company Indemnitees under Section 10.3(i) unless, until, and then only to the
extent that the losses, costs, liabilities, claims, and expenses (including,
without limitation, reasonable attorneys' fees and costs) with respect to which
indemnification is sought by all Buyer Indemnitees or by all Company
Indemnitees, as the case may be, exceed in the aggregate $1,000,000.00 (the
"Basket
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Amount") whereupon the Indemnifying Party shall be obligated to pay in full all
amounts for indemnification, including the Basket Amount; provided, however,
that in no event shall the aggregate amounts for indemnification under this
Article X exceed $13,000,000.00 in the aggregate; provided further, that the
obligation of Seller to indemnify the Buyer Indemnitees with respect to a breach
of Section 4.7 shall not be subject to the Basket Amount; and provided further,
that the indemnification obligations of Seller under Section 4.2(d) and the
foregoing indemnification obligations of Seller under Section 10.2(i) with
respect to a breach of Sections 5.1(c), (u), and (x) shall not be limited by
this Section 10.6 and of Buyer, Acquisition Sub, the Surviving Corporation and
its Subsidiaries under Section 10.3(i) with respect to a breach of Sections
5.2(c) and (g) shall not be limited by this Section 10.6. In the event of any
breach of a representation and warranty that is qualified by materiality, the
full amount of the appropriate party's losses, costs, liabilities, claims and
expenses shall be subject to indemnification reimbursement in accordance with
Section 10.2 or 10.3.
10.7. Indemnification Payments in Preferred Stock. With respect to the
amount of any indemnification obligations of Seller under Section 10.2 to any of
the Buyer Indemnitees, 100% of such amount shall be paid by Seller to such Buyer
Indemnitees in Series C Preferred Stock. For purposes of determining the number
of shares of Series C Preferred Stock to be paid pursuant to the preceding
sentence, the fair market value of each share of Series C Preferred Stock shall
be equal to the face amount thereof Similarly, with respect to the amount of any
indemnification obligations of Buyer, Acquisition Sub, the Surviving Corporation
and its Subsidiaries under Section 10.3 to any of the Company Indemnitees, 100%
of such amount shall be paid to such Company Indemnitees through the issuance by
Buyer of additional fully paid and nonassessable shares of Series C Preferred
Stock. For purposes of determining the number of shares of Series C Preferred
Stock to be issued by Buyer pursuant to the preceding sentence, the fair market
value of each share of Series C Preferred Stock shall be equal to the face
amount thereof.
ARTICLE XI
EMPLOYEES AND EMPLOYEE MATTERS
11.1. General Provisions. On the Effective Date, Buyer shall cause the
Surviving Corporation and its Subsidiaries to continue to employ all of the
active employees of the Company and the Company Subsidiaries (the "Transferred
Employees"), other than the individuals listed on Schedule 11.1 (the "Excluded
Employees"), at and with reasonably comparable, industry competitive salaries
and employee benefit plans. For purposes of this Article XI, Transferred
Employees include those employees who are on military leave, other approved
leaves of absence, short-term disability, non-occupational disability, and
employees on layoff with recall rights as of the Effective Date, the names of
which are listed on Schedule 11.1 (excluding employees on long-term disability
"LTD Recipients") or workers' compensation ("WC Recipients"). Sections 11.9 and
11.10 sets forth the obligations of Buyer and Seller with regard to WC
Recipients and LTD Recipients. Upon Closing, all Transferred Employees shall
cease benefit accrual under any Company Plans described in Section 5.1(n). As of
the Effective Date, all Transferred Employees
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shall become fully vested, if not already so, in their accrued benefits under
the ALLTEL Corporation Profit Sharing Plan and ALLTEL Corporation Thrift Plan
(collectively, the "Pension Plans"). As of the Effective Date, all stock options
granted by the Company to certain of the Transferred Employees under the
Company's 1987 Stock Option Plan for Employees. and 1989 Stock Option Plan for
Non-Employees are fully vested and fully exercisable in accordance with the
terms of such 1987 Stock Option Plan for Employees and/or 1989 Stock Option Plan
for Non-Employees and the related stock option agreements under both plans. As
of the Effective Date, the Company's 1987 Stock Option Plan for Employees and
1989 Stock Option Plan for Non-Employees shall be terminated, except that. such
termination shall not adversely affect any options heretofore granted by the
Company under each such stock option plan. As of the Effective Date, all stock
options granted by ALLTEL Corporation to certain of the Transferred Employees
under the ALLTEL Corporation 1991 Stock Option Plan for Employees and/or ALLTEL
Corporation 1994 Stock Option Plan for Employees are neither fully vested nor
fully exercisable, but only vested and exercisable for each applicable
Transferred Employee in accordance with the terms of the ALLTEL Corporation 1991
Stock Option Plan for Employees and/or ALLTEL Corporation 1994 Stock Option Plan
for Employees and the related stock option agreements under both plans. No
provision of this Agreement shall be construed to prohibit the Surviving
Corporation, its Subsidiaries or its Parent from having the right to terminate
the employment of any Transferred Employee, with or without cause, after the
Effective Date, or to amend or terminate any employee benefit plan, established,
maintained or contributed to by the Surviving Corporation or its Subsidiaries or
its Parent after the Effective Date.
11.2. Service. Buyer will recognize the Transferred Employees' service
with the Company and the Company Subsidiaries as if such service had been
rendered to Buyer for purposes of vacation, severance, group insurance, welfare
benefit plan and pension vesting and eligibility for all such benefits as are
offered by Buyer.
11.3. No Duplicate Benefits. Nothing in this Agreement shall cause
duplicate benefits to be paid or provided to a Transferred Employee, including
under any employee pension, benefit, or welfare plan or bonus plan. Nothing in
this Section shall cause severance to be provided to or with respect to the
Transferred Employees.
11.4. Benefits. Transferred Employees shall not accrue benefits under
any employee benefit policies, plans, arrangements, programs, practices and
agreements of Seller or Seller's Parent or any Subsidiaries of Seller's Parent
on and after the Effective Date, except that, Transferred Employees who on the
Effective Date would be immediately eligible for retiree medical coverage under
the terms of the ALLTEL Corporation Health and Dental Care Plan, as in effect on
the Effective Date, shall be eligible to elect to continue coverage under the
retiree medical provisions of the ALLTEL Corporation Health and Dental Care Plan
for up to 31 days immediately after the Effective Date, subject to all
requirements of the ALLTEL Corporation Health and Dental Care Plan.
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11.5. Welfare Plans.
(a) On or prior to February 1, 1997, each Transferred Employee
will be covered under the applicable medical, dental, accident, life, short and
long-term disability, non-occupational disability, and other employee welfare
benefit plans of Buyer or the Surviving Corporation as set forth on Schedule
11.5, which shall be in effect on or prior to February 1, 1997 without change
from the plans set forth on Schedule 11.5 and which may be changed from time to
time after February 1, 1997 with respect to each Transferred Employee, without
regard to any applicable eligibility and coverage requirements of such plans.
(b) Seller shall have responsibility for any claims arising
from disabilities, losses, or any other expenses resulting from covered losses,
incurred under their welfare plans which occurred prior to the Effective Date.
Buyer shall be responsible for any claims arising from disabilities, losses or
any other expenses resulting from covered losses, or losses under Buyer's
welfare plans occurring to the Transferred Employees on or after the Effective
Date. Subject to Section 11.8 (relating to COBRA), Seller shall have no
obligation or liability to maintain or keep in force any welfare or other plans
for Transferred Employees, including but not limited to retiree medical, health,
dental, accident, life, retiree life, short and long-term disability, or
non-occupational disability on or subsequent to the Effective Date. Buyer shall
not be liable for and shall refer to Seller any claim made by a Transferred
Employee on or after the Effective Date, arising from a disability or any other
expense resulting from a loss incurred on or prior to the Effective Date. Seller
shall not be liable for and shall refer to Buyer any claim made by a Transferred
Employee on or after the Effective Date, arising from a disability or any other
expense resulting from a loss incurred on and after the Effective Date.
(c) Subject to the provisions of this Agreement, Seller and
Buyer each shall assist and cooperate with the other in the disposition of
claims made under their respective welfare plans and in providing each other
with any records, documents or other information within its control or to which
it has access that is reasonably requested by the other as is necessary or
appropriate to the disposition, settlement, or defense of claims.
11.6. Severance. Seller shall be responsible for any termination or
severance payments to any of its employees arising because of termination of
employment with the Seller prior to the Effective Date except as expressly
provided herein. Buyer shall be responsible for any termination severance
payments (including, without limitation, payments attributable to accrued or
unaccrued vacation benefits) to any Transferred Employee arising because of
termination of employment with Buyer or Buyer's Subsidiaries on or after the
Effective Date.
11.7. Third-Party Rights. Nothing in this Agreement, express or
implied, shall confer upon any employee of Buyer, the Company, the Company
Subsidiaries, Seller or any of their affiliates or any legal representatives
thereof or any collective bargaining agent any rights or remedies, including any
right to employment, or continued employment for any specific period. Nothing in
this Agreement, express or implied, shall be deemed to confer upon any person
(or any beneficiary) any rights under or with respect to any plan, program, or
arrangement described in or contemplated by this Agreement, and each person (or
any beneficiary) shall be entitled to look only to the express terms of any such
plan, program, or agreement. Nothing in this Agreement, express
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or implied, shall create a third-party beneficiary relationship or otherwise
confer any benefit, entitlement, or right upon any person or entity other than
the parties to this Agreement and their respective corporate affiliates.
11.8. WARN Act and Health Care Continuance. Buyer shall be responsible
for providing or discharging any and all notifications, benefits, and
liabilities to Transferred Employees, those employees listed on Schedule 11.1,
and government agencies required by the Worker Adjustment and Retraining
Notification Act of 1988 ("WARN Act") or by any other applicable law relating to
plant closings or employee separations or severance pay that are first required
to be provided or discharged on or after the Effective Date, including
pre-closing notice or liabilities if actions by Buyer after the Effective Date
result in a notice requirement or liability under such laws. Seller and its
employee benefit plans shall comply with the requirements of COBRA for all
Transferred Employees who are qualified COBRA beneficiaries with respect to the
ALLTEL Corporation Health and Dental Care Plan as a result of the Merger. Buyer
and its employee benefit plans shall comply with the requirements of COBRA for
all Transferred Employees who are qualified COBRA beneficiaries with respect to
any healthcare plan of Buyer, the Surviving Corporation or its Subsidiaries
beginning on or after the Effective Date.
11.9. LTD Recipients. Schedule 11.9 sets forth all Transferred
Employees who constitute LTD Recipients. All LTD Recipients shall continue to
receive (or to be eligible to receive) benefits under Seller's long-term
disability plan after the Effective Date. As long as the LTD Recipient remains
eligible to receive benefits under Seller's long-term disability plan, the
following provisions shall apply: (a) the LTD Recipient shall be treated as a
disabled individual who is not a Transferred Employee under Seller's other
employee benefit plans or programs and (b) Buyer shall not be required to
provide coverage or benefits to the LTD Recipient under the employee benefit
plans or programs maintained by Buyer.
If any LTD Recipient recovers from his or her disabling condition,
Seller shall have no obligation to offer or provide any employment to such LTD
Recipient. If the LTD Recipient begins active service with Buyer, such LTD
Recipient shall be a Transferred Employee under this Agreement and the following
provisions shall apply: (a) the LTD Recipient shall cease to be eligible for
coverage and benefits under any employee benefit plans or programs maintained by
Seller; (b) the LTD Recipient shall become eligible for coverage and benefits
under any employee benefit plans or programs maintained by Buyer under the same
terms and conditions that apply to other Transferred Employees; and (c) if the
LTD Recipient received disability benefits under Seller's long-term disability
plan' the LTD Recipient's period of disability shall be treated as a period of
service under the employee benefit plans and programs of Buyer to the same
extent as if it had been a period of disability covered by a long-term
disability plan of Buyer.
11.10. WC Recipients. Schedule 11.10 sets forth all Transferred
Employees who constitute WC Recipients. All WC Recipients shall continue to
receive workers' compensation benefits under Seller's workers' compensation
insurance policy after the Effective Date. As long as the WC Recipient remains
eligible to receive workers' compensation benefits under Seller's workers'
compensation insurance (or the applicable Seller's Pension Plan), the following
provisions
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shall apply: (a) the WC Recipient shall be treated as an individual who is not a
Transferred Employee under Seller's other employee benefit plans or programs
except Seller's separation pay policy; (b) Buyer shall not be required to
provide coverage or benefits to the WC Recipient under the comparable employee
benefit plans or programs maintained by Buyer except WC Recipients shall be
covered by the Buyer separation or severance pay policy as of the Effective
Date.
If any WC Recipient recovers from his or her disabling condition,
Seller shall have no obligation to offer or provide any employment to such WC
Recipient. Buyer shall employ any WC Recipient who is able to return to active
work and who has a contractual or legal right to reemployment or reinstatement.
If the WC Recipient returns to active service with Buyer, such WC Recipient
shall be a Transferred Employee under this Agreement and the following
provisions shall apply: (a) the WC Recipient shall cease to be eligible for
coverage and benefits under any employee benefit plans or programs maintained by
Seller; (b) the WC Recipient shall become eligible for coverage and benefits
under any employee benefit plans or programs maintained by Buyer, under the same
terms and conditions that apply to other Transferred Employees; and (c) the WC
Recipient's period on workers' compensation shall be treated as a period of
service under the employee benefits plans and programs of Buyer to the same
extent as if the WC Recipient received benefits under a workers' compensation
policy of Buyer.
11.11. Pension Plans. All contributions to Pension Plans in respect of
Transferred Employees relating to periods on or prior to the Closing shall be
made by the Seller in accordance with the terms of each such Pension Plan.
11.12. Certain Rights to Distributions.
(a) Each Transferred Employee shall be entitled after the
Effective Date to a distribution of his or her benefits under the ALLTEL
Corporation Profit Sharing Plan and ALLTEL Corporation Thrift Plan only as
permitted under applicable provisions of the Code, and the rules and regulations
thereunder, regarding the permissibility of Plan distributions in the
circumstances of the transaction contemplated by this Agreement, the
permissibility of which shall be determined by, and in the sole discretion of,
the plan administrator or administrative committee under the Plans.
(b) Each eligible person, including, without limitation,
Transferred Employees, Excluded Employees and employees of the Company and the
Company Subsidiaries who resigned or were terminated between January 1, 1997 and
the Effective Date, shall be entitled after the Effective Date to a distribution
of his or her benefits under the bonus, commission and deferred compensation
plan of the Company and the Company Subsidiaries only as permitted under such
applicable plans or as otherwise agreed to by the President, Healthcare
Division, of the Company using his sole and reasonable discretion, up to but not
exceeding the respective amounts of bonus accrual, commission accrual (plus the
amount of under-accrual of commission liability up to a maximum of $35,000.00
which shall be funded from any bonus accrual liability as of December 31, 1996)
and deferred compensation accrual as of December 31, 1996 set forth on Schedule
4.10
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(Accrued Liabilities Detail). The payment of such bonuses, commissions and
deferred compensation is described in Schedule 4.11 (b)(iii) and (iv).
11.13. Withdrawal from Plans. Prior to the Effective Date, Seller shall
cause the Company and the Company Subsidiaries to withdraw from any plan or
arrangement maintained by ALLTEL Corporation or any of its Subsidiaries in which
each of the Company and the Company Subsidiaries is a participating employer as
of the Effective Date, in the manner, if any, that such plan or arrangement
specifies for withdrawal of a participating employer.
11.14. Seller Assistance. From and after the Effective Date and for a
period of three months thereafter, Seller shall, if requested by Buyer, (a)
provide Buyer with Company and Company Subsidiary employee census information
and medical claims experience information to the extent available to Seller; (b)
provide Buyer with current premium and administrative service fee information
for the Company's welfare plans; (c) introduce Buyer to Seller's insurance
company vendors and account managers and request that these vendors cooperate in
providing insurance quotes to Buyer; and (d) cooperate with Buyer and its
selected insurance companies by providing pre-Effective Date claim and benefit
information for Transferred Employees to enable Buyer to process claims and
provide credits for deductibles and co-payments within Buyer's plans.
ARTICLE XII
NON-COMPETITION
12.1. Acknowledgments. Each of Seller and their respective Subsidiaries
(other than the Company and the Company Subsidiaries) (each, a "Restricted
Seller") acknowledges that (i) the Company and the Company Subsidiaries are
engaged in, among other things, the business of outsourcing comprehensive
information systems and software to medium and large hospitals (over 150 beds)
and developing, selling and implementing clinical, financial and administrative
software for application in the medium and large hospital (over 150 beds) market
and (ii) its relationship with the Company and the Company Subsidiaries has
given it, and the Seller's relationship with the Buyer, the Surviving
Corporation and its Subsidiaries will continue to give it, trade secrets of and
confidential information concerning the Buyer, the Surviving Corporation and its
Subsidiaries.
12.2. Non-Compete. For a period of two years from and after the
Effective Date (the "Restricted Period"), each Restricted Seller shall not on a
worldwide basis engage in the business of outsourcing comprehensive information
systems and software to medium and large hospitals (over 150 beds) and
developing, selling and implementing clinical, financial, administrative and
decision support software for application in the medium and large hospital (over
150 beds) market and developing, selling and implementing physician billing
services in the physician practice management market (the "Restricted
Business"), including, without limitation, developing the Restricted Business on
its own or acquiring, partnering with or otherwise contracting with any third
party to acquire the Restricted Business; provided, however, that
notwithstanding the foregoing, a Restricted Seller may acquire a corporation,
partnership, limited liability company or
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other entity engaged in, or owning or having a Subsidiary, segment or division
engaged in, the Restricted Business so long as less than 15% of the revenues of
such corporation, partnership, limited liability company or other entity on a
consolidated basis (including such Subsidiary, segment or division, if any) are
derived from the Restricted Business; provided further, that at no time after
the consummation of any acquisition permitted by the preceding proviso shall the
Restricted Sellers on a consolidated basis derive greater than 10% of their
aggregate revenues from the Restricted Businesses so acquired; and provided
further, that this Section 12.2 shall not prevent or otherwise limit each
Restricted Seller's ability to (a) provide the Network Services, the
Professional Services, the Software Services, the Computing Services and the
Carrier Services (as each such term is defined in the Services Agreement) to the
medium and large hospital (over 150 beds) market and the physician practice
management market, (b) provide any service or activity requested by or sold to
any customer of any Restricted Seller, including, without limitation, any of the
exclusions set forth in the foregoing clause (a), (c) provide the services
currently provided by such Restricted Seller to support its products, (d)
provide all products and services pursuant to the ADMIT Contract and/or the IMN
Contracts to the medium and large hospital (over 150 beds) market and the
physician practice management market, (e) engage in the Restricted Business to
the extent necessary to perform under the Contracts (as that term is defined in
that certain letter between Seller and Buyer dated as of the date hereof (the
"Letter")), in the event Seller exercises its right to cause Buyer to assign the
Contracts to Seller under the Letter or (f) engage in the Restricted Business in
the event (i) there shall occur (x) the voluntary or involuntary liquidation,
dissolution or winding up of Buyer or the Surviving Corporation, (y) the sale of
all or substantially all of the assets of Buyer or the Surviving Corporation or
(z) the acquisition by any person, directly or indirectly, in one or a series of
related transactions, of 50% or more of the voting securities of Buyer pursuant
to, without limitation, a sale of voting securities, merger, tender offer,
exchange offer, reorganization or other business combination and (ii) Harvey
Wilson shall cease to be the President of the Buyer. This Section 12.2 shall in
no way restrict Seller from engaging in a transaction that would cause a Change
of Control (as such term is defined in the Services Agreement), in which case
Buyer would be able to exercise its rights under Section 18 of the Services
Agreement.
12.3. Confidential Information.
(a) Confidential Information; Personal Relationships. Each
Restricted Seller promises and agrees that, during the Restricted Period and at
any time thereafter, it will not disclose to any person not authorized by the
Buyer, the Surviving Corporation or their respective Subsidiaries, and that it
will not use for the benefit of itself or others, any confidential information
or trade secrets of the Buyer, or any confidential information or trade secrets
of the Surviving Corporation or any of its Subsidiaries and other affiliates
thereof obtained by it while the Surviving Corporation and its Subsidiaries
were, directly or indirectly, Subsidiaries of such Restricted Sellers.
Additionally, each of Buyer, the Surviving Corporation and its Subsidiaries
promises and agrees that, during the Restricted Period and at any time
thereafter, it will not disclose to any person not authorized by Seller or its
respective Subsidiaries, and that it will no use for the benefit of itself or
others, any confidential information or trade secrets of the Seller and any of
its Subsidiaries (other than the Company and the Company Subsidiaries) and other
affiliates thereof obtained by it. The
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above two sentences, however, shall not preclude the Restricted Sellers or
Buyer, the Surviving Corporation and its Subsidiaries, as the case may be, from
use or disclosure of information if (i) use or disclosure of such information
shall be required by applicable law or order of any governmental body, (ii) use
or disclosure of such information is reasonable required in connection with any
bona fide third party claim against or involving such Restricted Seller or
Buyer, the Surviving Corporation and its Subsidiaries, (iii) such information is
readily ascertainable from public or published information or trade sources
(other than information known generally to the public as a result of a violation
of this Section 12.3 by any Restricted Seller or Buyer, the Surviving
Corporation and its Subsidiaries) or is known or subsequently developed by such
Restricted Seller or Buyer, the Surviving Corporation and its Subsidiaries
outside of its affiliation with the Surviving Corporation or (iv) use or
disclosure thereof to customers is necessary pursuant to or contemplated by the
Services Agreement.
12.4. Rights and Remedies Upon Breach. If any Restricted Seller
breaches (or threatens to commit a breach) any of the provisions of Sections
12.2 and 12.3 (the "Restrictive Covenants") or Buyer, the Surviving Corporation
and its Subsidiaries breaches (or threatens to commit a breach) Section 12.3,
the non-breaching party shall have the following rights and remedies, each of
which rights and remedies shall be independent of the others and severally
enforceable, and each of which is in addition to, and not in lieu of; any other
rights and remedies available to the non-breaching party at law or in equity:
(a) Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants may cause irreparable injury to the non- breaching party
and that money damages would not provide an adequate remedy to the non-breaching
party.
(b) Accounting. The right and remedy to require each breaching
party to account for and pay over to the non-breaching party all profits,
derived or received by such breaching party as the result of any transactions by
such breaching party constituting a breach of the Restrictive Covenants.
12.5. Severability of Covenants. Each party acknowledges and agrees
that as to it the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof; is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect without regard to the invalid portions.
12.6. Blue Penciling. If any court determines that any of the
Restrictive Covenants, or any part thereof; is unenforceable because of the
duration or geographic scope of such provision, such court shall have the power
to reduce the duration or scope of such provision, as the case may be, and, in
its reduced form, such provision shall then be enforceable.
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12.7. Enforceability in Jurisdictions. If the course of any one or more
of such jurisdictions hold the Restrictive Covenants unenforceable by reason of
the breadth of such scope or otherwise, it is the intention of the parties that
such determination not bar or in any way affect each party's right to the relief
provided above in the courts of any other jurisdiction within the geographical
scope of the Restrictive Covenants in such other respective jurisdictions, the
Restrictive Covenants as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent covenants.
ARTICLE XIII
GENERAL PROVISIONS
13.1. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given (and shall be deemed to
have been duly received if so given) if personally delivered or sent by
facsimile transmission, receipt confirmed, or by registered or certified mail,
return receipt requested, postage prepaid, to Seller, or to the chief executive
officer of the Company, at the following address:
If to Buyer:
Eclipsys Corporation
777 East Atlantic Avenue
Suite 200
Delray Beach, Florida 33483
Telecopy: 561-243-9390
Attention: Mr. Harvey J. Wilson
and if to Seller, to the President of Seller, with a copy to the General Counsel
of Seller, at the following address
ALLTEL Information Services, Inc.
4001 Rodney Parham Road
Little Rock, AR 72212
Phone: (501)220-5100
Telecopy: (501) 220-4637
13.2. Choice of Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, regardless of the laws
that might otherwise govern under applicable principles of conflict of laws
(except to the extent that the provisions of Delaware law shall be mandatorily
applicable to this Agreement). Any action, suit or other proceeding initiated by
any party hereto against any other party under or in connection with this
Agreement shall be brought exclusively in any Federal or state court in the
State of Delaware, as the party bringing such action, suit or proceeding shall
elect, having jurisdiction over the subject matter thereof In
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accordance with Title 6, Section 2708 of the Delaware Code Annotated, the
parties hereto hereby submit themselves to the jurisdiction of any such court
for the purpose of any such action and agree that service of process on them in
any such action, suit or proceeding may be effected by the means by which
notices are to be given to it under this Agreement.
13.3. Successors. References in this Agreement to particular persons,
firms, agencies, statutes, regulations and the like shall be considered as
references to any successors thereto.
13.4. Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder is otherwise assignable, or
shall be assigned, by any of the parties without the prior written consent of
the other parties, which consent shall not be unreasonably withheld, provided
that Buyer and Acquisition Sub may assign its rights under this Agreement as
collateral security to its lenders.
13.5. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
13.6. Entire Agreement. This Agreement (together with the Exhibits and
Schedules hereto) constitute the entire agreement among the parties with respect
to the subject matter hereof and supersedes all prior agreements and
understandings relating thereto. Any waiver of any term or condition of this
Agreement, or any amendment or supplementation of this Agreement, shall be
effective only if in writing. A waiver of any breach or failure to enforce any
of the terms or conditions of this Agreement shall not in any way affect, limit
or waive a party's rights hereunder at any time to enforce strict compliance
thereafter with every term or condition of this Agreement.
13.7. No Third-Party Beneficiaries. Subject to Article X, this
Agreement and any other agreement attached hereto as a schedule or exhibit do
not and are not intended to confer any rights or remedies upon any person other
than the parties who are signatories hereto or thereto.
13.8. Remedies. The parties hereto acknowledge that the remedy at law
for any breach of the obligations undertaken by the parties hereto is and will
be insufficient and inadequate and the parties hereto shall be entitled to
equitable relief; in addition to remedies at law. In the event of any action to
enforce the provisions of this Agreement, each of the parties hereto waive the
defense that there is an adequate remedy at law. Without limiting any remedies
any party may otherwise have, in the event any other party refuses to perform
its obligations under this Agreement, the parties shall have, in addition to any
other remedy at law or in equity, the right to specific performance.
13.9. Severability. In the event that any provision contained in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and the remaining provisions of this Agreement
shall not be in any way impaired.
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13.10. Headings. The headings of the Sections and Articles of this
Agreement are inserted for convenience only and will not affect the Agreement's
construction or interpretation.
13.11. Indemnification of Directors and Officers. Each of Acquisition
Sub and the Surviving Corporation agree that for a period of not less than three
years after the Effective Time, it shall not amend the existing provisions of
the Certificate of Incorporation or the Bylaws of the Surviving Corporation and
its Subsidiaries relating to the indemnification of the Company's or any of the
Company Subsidiaries' (whether based on actions or omissions prior to the
Effective Date) current officers and directors, provided that such officers and
directors shall pursue all of their rights under applicable directors and
officers liability insurance policies and assign any such rights and payments
thereunder to the Surviving Corporation to the extent of any indemnification
(including payment of legal expenses) paid by the Surviving Corporation.
13.12. Taxes. All stamp, transfer, documentary, sales, use,
registration and other such Taxes and fees (including, without limitation, any
penalties and interest) incurred in connection with this Agreement and the
transactions contemplated by this Agreement ("Transfer Taxes"), if any, will be
paid by Seller. Seller will, at its own expense, prepare and properly file true,
complete and accurate Tax Returns and other documentation with respect to
Transfer Taxes on a timely basis. Buyer will cooperate with Seller in the
preparation of such Tax Returns.
13.13. Publicity. Buyer, the Company and Seller will consult with one
another before issuing, and provide one another the opportunity to review,
comment upon and consent to (which consent shall not be unreasonably withheld)
any press release or other public statements with respect to the transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such public statement prior to such consultation and consent, except as
may be required by applicable law, court process or by any stock exchange rule
or regulation.
13.14. Expenses. Except as otherwise provided for in Section 4.9 of
this Agreement each party shall pay any expenses (including, without limitation,
attorneys' fees) incurred by it incident to this Agreement, the Certificate of
Merger, and in consummating the transactions provided for herein.
13.15. Trademark Phaseout and Corporate Name Change.
(a) Buyer acknowledges that Seller or its affiliates are the
owners of; and have permitted the Company and the Company Subsidiaries to use,
the trade names, trade dress, trademarks, service marks, logos and related
intangible property (collectively, the "Non-transferred Marks") used in
connection with the business, as listed on Schedule 13.15 (I), and Buyer
understands and agrees that the Non-transferred Marks, or any right or license
of the Surviving Corporation and its Subsidiaries to the Non-transferred Marks
are not being transferred to the Surviving Corporation pursuant to this
Agreement. Buyer acknowledges Seller's exclusive and proprietary rights in the
use of the Non-transferred Marks, and Buyer agrees that it shall cause the
Surviving Corporation and its Subsidiaries not to use the Non-transferred Marks
(or any names or Non-transferred Marks confusingly similar to the Non-
transferred Marks) except as expressly set
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<PAGE> 51
forth in this Section 13.15. After the Effective Date, Buyer shall cause the
Surviving Corporation and its Subsidiaries to replace all Non-transferred Marks
of Seller not later than 12 months after the Effective Date for Non-transferred
Marks affixed to items used in the Surviving Corporation and its Subsidiaries'
conduct of their business, including, without limitation, buildings, vehicles,
tools, tool boxes, kits (safety and others), signs, manual covers and notebooks,
provided that the Buyer shall have no such obligations to replace any
Non-transferred Marks on (i) any items that remain in the files of the Surviving
Corporation or its Subsidiaries, (ii) any items that are used or circulated
internally by the Buyer, the Surviving Corporation and its Subsidiaries and are
not circulated to third parties, (iii) any contracts and agreements of the
Company or the Company Subsidiaries in force and effect on and after the
Effective Date that were entered into by the Company or the Company Subsidiaries
on or prior to the Effective Date or (iv) any brochures, handouts or marketing
materials printed, created or developed by the Company or the Company
Subsidiaries on or prior to the Effective Date that are distributed or
disseminated by the Company or the Company Subsidiaries on or prior to the
Effective Date or by the Surviving Corporation or its Subsidiaries at any time
prior to the first anniversary of the Effective Date. Buyer recognizes the value
of the goodwill associated with the Non-transferred Marks, and acknowledges that
the Non-transferred Marks and all rights therein and the goodwill pertaining
thereto belong exclusively to Seller.
(b) Buyer and Seller understand and agree that the trade
names, trade dress, trademarks, service marks, logos, and related intangible
property (collectively the "Transferred Marks") used in connection with the
Company's and Company Subsidiaries' business as listed on Schedule 13.15(II) are
being transferred to the Surviving Corporation pursuant to this Agreement.
(c) Within two business days after the Effective Date, Buyer
shall take all action necessary to change the corporate name of the Surviving
Corporation and its Subsidiaries so as to reflect that the Surviving Corporation
and its Subsidiaries are no longer affiliates of Seller.
13.16. Preferred Stock Valuation. Seller covenants and agrees with
Buyer and Acquisition Sub that Seller shall deliver to Buyer and the Surviving
Corporation, not later than 90 days after the Effective Date, the written
determination by an investment banking firm selected by Seller of the aggregate
fair market value of each of the Series C Preferred Stock and the Series D
Preferred Stock, and such determination shall be binding upon Seller, Buyer and
the Surviving Corporation.
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<PAGE> 52
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
duly executed as of the date first above written, and such party's signature
constitutes the affirmation of such party, under penalties of perjury, that this
Agreement is such party's act and deed, and that the facts stated herein by such
party are true.
ALLTEL INFORMATION SERVICES, INC.
By: /s/ Jeffrey H. Fox
--------------------------------------------
Name: Jeffrey H. Fox
Title: President
ALLTEL HEALTHCARE INFORMATION SERVICES, INC.
By: /s/ Jeffrey H. Fox
--------------------------------------------
Name: Jeffrey H. Fox
Title: President
ECLIPSYS CORPORATION
By: /s/ Harvey J. Wilson
--------------------------------------------
Name: Harvey J. Wilson
Title: President and Chief Executive Officer
ECLIPSYS SOLUTIONS CORP.
By: /s/ Harvey J. Wilson
--------------------------------------------
Name: Harvey J. Wilson
Title: President and Chief Executive Officer
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<PAGE> 53
Exhibits to Exhibit 2.1, the Agreement of Merger among the Registrant
ALLTEL Healthcare Information Services, Inc., and Eclipsys Solutions Corp.,
dated as of January 24, 1997, have been omitted pursuant to Item 601(b)(2) of
Commission Regulation S-K. The following is a list of omitted Exhibits, which
the Registrant agrees to furnish supplementally to the Commission upon request:
EXHIBITS:
A Certificate Of Merger
B Amended And Restated Certificate Of Incorporation Of Buyer
C Registration Rights Agreement
D Stockholders Agreement
E Management And Services Agreement
F Preferred Stock And Warrant Purchase Agreement
<PAGE> 1
EXHIBIT 2.2
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
among
ECLIPSYS CORPORATION,
SDK MEDICAL COMPUTER SERVICES CORPORATION
and
the Selling Stockholders, as defined herein
June 26, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 DEFINITIONS 1
ARTICLE 2 STOCK PURCHASE CLOSING 1
2.1 Sale and Purchase of SDK Stock 1
2.2 The Closing 2
2.3 Consideration 2
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ECLIPSYS 3
3.1 Organization of Eclipsys 3
3.2 Authorization of Transaction 3
3.3 Noncontravention 4
3.4 Brokers' Fees 4
3.5 Capitalization 4
3.6 Financial Statements 5
3.7 Litigation 5
3.8 Alltel Transaction 6
3.9 Events Subsequent to Most Recent Fiscal Quarter End 6
3.10 Undisclosed Liabilities 7
3.11 Intellectual Property 7
3.12 Contracts 8
3.13 Certain Business Relationships with Eclipsys 8
3.14 Disclosure 8
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SDK 8
4.1 Organization, Qualification, Corporate Power, Competence, Etc. 9
4.2 Capitalization 9
4.3 Noncontravention 10
4.4 Title to Assets 11
4.5 Subsidiaries 11
4.6 Financial Statements 11
4.7 Events Subsequent to Most Recent Fiscal Year End 11
4.8 Undisclosed Liabilities 12
4.9 Legal Compliance 13
4.10 Tax Matters 13
4.11 Real Property 14
4.12 Intellectual Property 14
</TABLE>
(ii)
<PAGE> 3
<TABLE>
<S> <C> <C>
4.13 Distributions to Shareholders 16
4.14 Contracts, Etc. 16
4.15 Notes and Accounts Receivable 16
4.16 Powers of Attorney 16
4.17 Insurance 17
4.18 Litigation 17
4.19 Product Liability 17
4.20 Employees 18
4.21 Employee Benefits 18
4.22 Brokers 19
4.23 Guaranties 19
4.24 Certain Business Relationships with SDK 20
4.25 Environmental Liabilities 20
4.26 Investment Representations and Warranties 20
4.27 Disclosure 21
ARTICLE 5 COVENANTS: CONDITIONS PRECEDENT TO CLOSING:
CLOSING DELIVERIES 21
5.1 Conduct of Business 21
5.2 Efforts 22
5.3 Discussion with Others 22
5.4 Conditions Precedent to Closing by Eclipsys 22
5.5 Conditions Precedent to Closing by SDK and the
Selling Stockholders 23
5.6 Deliveries at Closing 23
5.7 Waiver of Condition Precedent 26
5.8 Termination Prior to Closing 26
5.9 Material Adverse Change in SMS Litigation 27
ARTICLE 6 COVENANTS 27
6.1 General 27
6.2 Transition 28
6.3 Confidentiality 28
6.4 Eclipsys Common Shares 28
6.5 Announcement 29
6.6 Repurchase by Eclipsys of Eclipsys Common Shares 30
6.7 Payment of Professional Fees 31
6.8 Subordination 31
</TABLE>
(iii)
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 7 INDEMNIFICATION 32
7.1 Indemnity Obligations of the Selling Stockholders 32
7.2 Indemnity Obligations of Eclipsys 33
7.3 Decisions by the Selling Stockholders 33
7.4 Survival of Representations and Warranties 34
7.5 Limitations 34
7.6 Procedures for Claims; Setoff 38
7.7 Subrogation Rights 38
7.8 Release of SDK After Closing 38
ARTICLE 8 MISCELLANEOUS 38
8.1 Nature of Certain Obligations 38
8.2 No Third Party Beneficiaries 38
8.3 Entire Agreement 38
8.4 Succession and Assignment 39
8.5 Counterparts 39
8.6 Headings 39
8.7 Notices 39
8.8 Governing Law 40
8.9 Amendments and Waivers 40
8.10 Severability 41
8.11 Expenses 41
8.12 Construction 41
8.13 Incorporation of Exhibits, Annexes, and Schedules 41
8.14 Submission to Jurisdiction 41
8.15 No Personal Liability of Michael M. Davis 41
8.16 Special Provisions Regarding Trusts 43
Annex A Definitions
Exhibit A Instrument of Adherence
Exhibit B Form of Buyer Notes
Exhibit C Form of Allocation Certificate
Exhibit D-l Form of Employment Agreement among Eclipsys, SDK and Michael B.
Kaufman
Exhibit D-2 Form of Incentive Stock Option Agreement between Eclipsys and
Michael B. Kaufman
Exhibit D-3 Form of Non-Qualified Stock Option Agreement between Eclipsys and
Michael B. Kaufman
Exhibit E Form of Amendment No. 1 to Stockholders Agreement
Exhibit F Form of Amendment No. 1 to Registration Rights Agreement
Exhibit G Memorandum of Terms for Lease
</TABLE>
(iv)
<PAGE> 5
Exhibit H Form of Tax Agreement
Exhibit I Form of Kaufman Reimbursement Agreement
Exhibit J Form of Release
Exhibit K Form of Eclipsys Share Repurchase Notes
Eclipsys Disclosure Schedule - Exceptions to Representations and Warranties
Concerning Eclipsys
SDK Disclosure Schedule - Exceptions to Representations and Warranties
Concerning the Selling Stockholders and SDK
(v)
<PAGE> 6
ECLIPSYS
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
This Amended and Restated Stock Purchase Agreement (the "Agreement")
is entered into as of this __ day of June, 1997, and amends and restates that
certain Stock Purchase Agreement, dated May 23, 1997, by and among Eclipsys
Corporation, a Delaware Corporation ("Eclypsis"), SDK Medical Computer Services
Corporation, a Massachusetts corporation ("SDK") and the stockholders of SDK who
had executed the signature pages thereto (the "Signing Stockholders"). This
Amended and Restated Stock Purchase Agreement is made among the foregoing
parties and the other stockholders of SDK (the "Other Stockholders" and,
together with the Signing Stockholders, the "Selling Stockholders"). Eclipsys,
SDK and each of the Selling Stockholders are referred to collectively herein as
the "Parties" and individually as a "Party."
RECITALS:
WHEREAS, Eclipsys desires to purchase, and the Selling Stockholders
desire to sell, all of the issued and outstanding capital stock of SDK upon the
terms and subject to the conditions of this Agreement (the "Acquisition"); and
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
Agreement:
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings set
forth on Annex A to this Agreement.
ARTICLE 2
STOCK PURCHASE CLOSING
2.1 Sale and Purchase of SDK Stock. Subject to the terms and conditions
of this Agreement, Eclipsys agrees to purchase, and the Selling Stockholders
agree to sell, the SDK Shares, constituting all of the outstanding capital stock
of SDK. At the Closing, each of the
<PAGE> 7
Signing Stockholders covenants and agrees to sell to Eclipsys all of the SDK
Shares owned by such Signing Stockholder on the terms and conditions set forth
in this Agreement, and, if at the Closing the Signing Stockholders do not own
all of the SDK Shares, Michael Kaufman, Claudia Kaufman and Pearl Kaufman shall
use diligent efforts to cause the Other Stockholders to become Party to this
Agreement at or prior to the Closing by signing an Instrument of Adherence to
this Agreement, which shall be in the form of Exhibit A hereto. Eclipsys shall
not have any obligation to purchase any SDK Shares pursuant to this Agreement
unless all stockholders of SDK (other than the Signing Stockholders) have
executed and delivered an Instrument of Adherence and all shares of the capital
stock of SDK are tendered at the Closing by the Selling Stockholders.
2.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Goulston & Storrs,
400 Atlantic Avenue, Boston, MA 02110, commencing at 9:00 a.m. local time on
June 13, 1997, or such other date as the parties may mutually determine (the
"Closing Date").
2.3 Consideration. The aggregate purchase price payable by Eclipsys
for all the SDK Shares shall be (a) $10,232,000 of cash consideration (the "Cash
Consideration"), and (b) 750,000 Eclipsys Common Shares (the "Share
Consideration") (the number of Eclipsys Common Shares constituting the Share
Consideration having already been adjusted for purposes of this Agreement to
reflect the three-for-two stock split by way of dividend declared by the Board
of Directors on May 19, 1997). Subject to the following paragraph, the Cash
Consideration shall be paid to each Selling Stockholder as follows: (i) one
quarter ($2,558.000) of the Cash Consideration shall be payable in immediately
available funds at the Closing (the "First Installment"), and (ii) three
quarters ($7,674,000) of the Cash Consideration shall be paid with several
subordinated, two-year promissory notes (the "Later Installments"),
substantially in the form of Exhibit B hereto, made by Eclipsys to the Selling
Stockholders, the principal of which notes shall be payable in two equal
installments on April 1, 1998 and April 1, 1999, respectively, with interest
thereon payable quarterly in arrears at the fixed rate of Prime as in effect at
the time of the Closing plus 1.0% (the "Buyer Notes").
Notwithstanding any provisions to the contrary in the immediately
preceding paragraph, the amount of the First Installment payable to the
Specified Employee Stockholders shall be increased, and the amount of the Later
Installments payable to the Specified Employee Stockholders decreased, by such
amount as may be necessary so that, at the Closing, the Specified Employee
Stockholders shall receive a First Installment equal to forty-five percent (45%)
of the total Cash Consideration payable to them.
Eclipsys shall allocate at Closing the Cash Consideration and the
Share Consideration among the Selling Stockholders in such manner as the Selling
Stockholders shall jointly instruct Eclipsys, by delivery to Eclipsys at Closing
of an Allocation Certificate in the form of Exhibit C, executed by all Selling
Stockholders, provided that only Selling Stockholders who are employees of SDK
(and trusts for the benefit of themselves, their spouses and/or their children)
shall be entitled to receive any Share Consideration. The Selling Stockholders
acknowledge and agree.
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<PAGE> 8
that the allocation set forth in the Allocation Certificate is and shall be
solely the responsibility of the Selling Stockholders and Eclipsys shall have
no, liability to any of the Selling Stockholders on account thereof.
ARTICLE 3
REPRESENTATIONS AND
WARRANTIES OF ECLIPSYS
Eclipsys represents and warrants to each of the Selling Stockholders
and SDK that the statements contained in this Article 3 are correct and complete
as of the date hereof except as set forth in the disclosure schedule delivered
by Eclipsys to the Selling Stockholders on the date hereof (the "Eclipsys
Disclosure Schedule"):
3.1 Organization of Eclipsys. Eclipsys is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware. Eclipsys is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required, except where the failure to so qualify or obtain authorization would
not have a Material Adverse Effect on Eclipsys. Eclipsys has full corporate
power and authority and all licenses, permits, and authorizations necessary to
carry on the businesses in which it is engaged and to own and use the properties
owned and used by it.
3.2 Authorization of Transaction. Eclipsys has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and each of the other Acquisition Documents, the Employment and
the Option Agreements and to perform its obligations hereunder and thereunder.
This Agreement and the other Acquisition Documents. the Employment and the
Option Agreements, have been duly executed and delivered by Eclipsys, and
constitute, and will at Closing constitute, the legal, valid and binding
obligations of Eclipsys, enforceable against it in accordance with their
respective term. Eclipsys does not need to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by this
Agreement, except in connection with the federal securities laws and any
applicable "Blue Sky" or state securities laws.
3.3 Noncontravention. Neither the execution and the delivery of this
Agreement and the other Acquisition Documents, nor the consummation of the
transactions contemplated hereby or thereby, will (a) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
Eclipsys is subject or, except as disclosed on Schedule 3.3 hereto, any
provision of its charter or bylaws or (b) except as otherwise disclosed on
Schedule 3.3 hereto, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract,
-3-
<PAGE> 9
lease, license, instrument, or other arrangement to which Eclipsys is a party or
by which it is bound or to which any of its assets is subject.
3.4. Brokers' Fees. Eclipsys has no obligation to pay any fees or
commissions to any broker, finder, or similar agent with respect to the
transactions contemplated by this Agreement.
3.5 Capitalization. The entire authorized capital stock of Eclipsys
(after giving effect to the three-for-two stock dividend to holders of its
Common Stock authorized by its Board of Directors May 19, 1997) consists of (a)
50,000,000 shares of Common Stock, of which 5,440,000 shares are issued and
outstanding, (b) 3,000,000 shares of Non-Voting Common Stock, no shares of which
are issued and outstanding, (c) 30,000 shares of Series B 8.5% Cumulative
Redeemable Preferred Stock, of which 30,000 shares are issued and outstanding,
(d) 25,000 shares of Series C 8.5% Cumulative Redeemable Preferred Stock, of
which 20,000 shares are issued and outstanding, (e) 7,200,000 shares of Series D
Convertible Preferred Stock, of which 7,058,786 shares (convertible into
10,588,179 shares of voting Common Stock) are issued and outstanding, (f)
920,000 shares of Series E Convertible Preferred Stock, of which 896,431 shares
(convertible into 1,344,646 shares of non-voting Common Stock) are issued and
outstanding, (g) 1,530,000 shares of Series F Convertible Preferred Stock, of
which 1,478,097 shares (convertible into 2,21 7,145 shares of voting Common
Stock) are issued and outstanding, and (h) 2,000,000 shares of undesignated
Preferred Stock, no shares of which are issued and outstanding. The numbers set
forth above for the issued and outstanding shares of Common Stock and the common
stock equivalents of the Series D, E and F Convertible Preferred Stock are
subject to minor adjustment to avoid issuance of fractional shares in the stock
dividend noted above, and the adjustments to conversion ratios of the series of
convertible preferred stock necessitated thereby. All of the outstanding shares
of capital stock of Eclipsys are validly issued, fully paid and nonassessable.
The designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of each class and series of authorized capital stock of
Eclipsys are as set forth in the Amended and Restated Certificate of
Incorporation of Eclipsys, a copy of which has been furnished to SDK, and all
such designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in accordance with all
applicable laws. Except as set forth in the Amended and Restated Certificate of
Incorporation of Eclipsys, the Stockholders Agreement and the Registration
Rights Agreement, or as otherwise disclosed on Section 3.5 of the Eclipsys
Disclosure Schedule, (i) no subscription, warrant, option, convertible security,
or other right (contingent or other) to purchase or otherwise acquire from
Eclipsys equity securities of Eclipsys is authorized or outstanding, (ii) there
is no commitment by Eclipsys to issue shares, subscriptions, warrants, options,
convertible securities, or other such rights or to distribute to holders of any
of its equity securities any evidence of indebtedness or asset, (iii) Eclipsys
has no obligation (contingent or other) to purchase, redeem or otherwise acquire
any of its equity securities or any interest therein or to pay any dividend or
make any other distribution in respect thereof, and (iv) to the Knowledge of
Eclipsys there are no voting trusts or agreements, stockholders agreements,
pledge agreements, rights of first refusal, preemptive rights or proxies
relating to any securities of Eclipsys (whether or not Eclipsys is a party
thereto). Sufficient shares of Common Stock have been, or will be prior to
Closing, reserved for issuance upon exercise of options granted pursuant to the
Option Agreements, and
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<PAGE> 10
upon exercise of options in accordance with the terms of the Option Agreements,
the shares issued thereby will be validly issued, fully paid and nonassessable.
3.6 Financial Statements. Eclipsys has delivered separately to SDK and
the Selling Stockholders the following Eclipsys financial statements
(collectively the "Eclipsys Financial Statements"): (i) balance sheets and
statements of income, changes in stockholders' equity, and cash flow as of and
for the fiscal years ended December 31, 1995 and December 31, 1996 certified as
to accuracy by the chief financial officer of Eclipsys; and (ii) unaudited
consolidated balance sheets and statements of income, statements of
stockholders' equity, and cash flow as of and for the quarter ended March 31,
1997. The Eclipsys Financial Statements (including the notes thereto) have been
prepared on a consistent cash basis throughout the periods covered thereby,
present fairly the financial condition of Eclipsys as of such dates and the
results of operations of Eclipsys for such periods, and are consistent with the
books and records of Eclipsys (which books and records are correct and complete
in all material respects).
3.7 Litigation. Section 3.7 to the Eclipsys Disclosure Schedule sets
forth each instance in which Eclipsys (a) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (b) is a party or is
threatened to be made a party to any material action, suit, proceeding, hearing,
or investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in Schedule 3.7 could result in any Material Adverse
Effect or seeks to restrain or prevent the transactions contemplated by this
Agreement. Eclipsys has no Knowledge of any reason that any such action, suit,
proceeding, hearing, or investigation may be brought or threatened against
Eclipsys that would result in any Material Adverse Effect.
3.8 Alltel Transaction. Eclipsys has not notified Alltel of any claims
for breaches of representations, warranties or covenants of Alltel in connection
with the Alltel Merger and has not otherwise asserted a claim for
indemnification against Alltel in connection with the Alltel Merger although no
representation or warranty is herein made as to whether there is a Basis for any
such claim.
3.9 Events Subsequent to Most Recent Fiscal Quarter End. Except with
regard to the Alltel Merger, the transactions and financings in connection with
the Alltel Merger and the business of Alltel Healthcare acquired pursuant to the
Alltel Merger (with respect to which no representation or warranty is hereby
given), since March 31, 1997 there has not been any Material Adverse Effect in
the business, financial condition, operations, results of operations, or future
prospects of Eclipsys and Eclipsys has not engaged in or been party to any
agreement or occurrence outside the Ordinary Course of Business, and without
limiting the generality of the foregoing, since that date:
(a) No Person (including Eclipsys) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) to which Eclipsys
is a Party or by which it is bound;
-5-
<PAGE> 11
(b) Eclipsys has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of Business;
(c) Eclipsys has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims) outside the
Ordinary Course of Business;
(d) Except for the three-for-two stock split by way of
dividend adopted by the Board of Directors on May 19, 1997, Eclipsys has not (i)
issued, sold, or otherwise disposed of any of its capital stock, or (ii) granted
any options, warrants, or other rights to purchase or obtain (including upon
conversion, exchange, or exercise) any of its capital stock, or (iii) declared,
set aside, or paid any dividend or made any distribution with respect to its
capital stock (whether in cash or in kind) or (iv) redeemed, purchased, or
otherwise acquired any of its capital stock;
(e) Eclipsys has not made any loan to or agreement with any of
its directors, officers, or employees and it has not entered into any other
transaction with any of its directors, officers or employees outside the
Ordinary Course of Business;
(f) Except for stock options granted in the Ordinary Course of
Business pursuant to its stock option plan, and the adoption by the Board of
Directors on May 19, 1997 of the 1997 Management Incentive Compensation Plan,
Eclipsys has not granted any increase in the base compensation of, or bonuses
out of the Ordinary Course of Business to, or made any other changes in the
employment or consulting terms of any of its directors or officers;
(g) Eclipsys has not made or pledged to make any charitable or
other capital contribution;
(h) Eclipsys has performed in all material respects all of its
obligations under agreements, contracts, leases, licenses and instruments
relating to or affecting its properties, assets and business and has not changed
materially the prices or offer terms of sale or license of any of its products;
(i) Eclipsys has maintained its books of account and records
in the usual, regular and ordinary manner; and
(j) Eclipsys is not under any legal obligation, whether
written or oral, to do any of the foregoing.
3.10 Undisclosed Liabilities. Except with regard to the Alltel Merger,
the transactions and financings in connection with the Alltel Merger and the
business of Alltel Healthcare acquired pursuant to the Alltel Merger (with
respect to which no representation or warranty is hereby given), and except as
disclosed on Section 3.7 to the Eclipsys Disclosure Schedule, Eclipsys does not
have any Liability (and to the Knowledge of Eclipsys, there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against it giving rise to any Liability), except for
(i) Liabilities set forth on the face of the
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<PAGE> 12
most recent balance sheet included in the Eclipsys Financial Statements and (ii)
Liabilities which have arisen after March 31, 1997 in the Ordinary Course of
Business (none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
3.11 Intellectual Properly. Except for the software acquired pursuant
to the Alltel Merger, Eclipsys' software products consist principally of
software licensed to Eclipsys pursuant to a certain Information Systems
Technology License, dated May 3, 1996, by and among Partners HealthCare System,
inc., a Massachusetts not for profit corporation, Brigham and Women's Hospital,
Inc., a not for profit Massachusetts corporation and Eclipsys (f/k/a Integrated
Healthcare Solutions, inc.) (the "Partners' License"), Eclipsys has the
continuing valid and legal right to use pursuant to the Partners License the
software licensed thereby for the operation of its businesses as presently
conducted and as proposed to be conducted. No action, suit, proceeding, hearing,
investigation, charge, complaint or demand is pending or, to the Knowledge of
Eclipsys, threatened which challenges the legality, validity, or enforceability
of the Partners' License. Neither Eclipsys nor, to the Knowledge of Eclipsys,
the licensors under the Partners' License, are in any material respect in breach
or default, and no event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination, modification or
acceleration, thereunder.
3.12 Contracts. With respect to each contract, agreement and
instrument of Eclipsys which involves on the part of any Person provision of
goods or services or payment of money in excess of $20,000, excluding any and
all contracts, agreements and instruments acquired in connection with the Alltel
Merger, each such contract, agreement and instruments (A) is legal, valid,
binding, enforceable, and in full force and effect, (B) neither Eclipsys, nor to
Eclipsys' Knowledge any other Party thereto, is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under such
contract and agreement, and (C) no Party has repudiated any provision of such
contract or agreement.
3.13 Certain Business Relationships with Eclipsys. None of the
stockholders, employees, officers or directors of Eclipsys have been involved in
any business arrangement or relationship with Eclipsys within the past 12 months
with regard to the business of Eclipsys (other than the business acquired
pursuant to the Alltel Merger), and none of such Persons owns any asset,
tangible or intangible, which is used in the business (other than the business
acquired pursuant to the Alltel Merger) of Eclipsys, except for the Partners'
License and a certain Technical Services Agreement, and a certain Partners'
Affiliates Assistance Agreement, both dated May 3, 1996, by and among the
parties to the Partners License, and certain affiliates.
3.14 Disclosure. The representations and warranties contained in this
Article 3 do not, in light of the other information regarding Eclipsys made
available to SDK and the Selling Stockholders, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make a
statement or information contained in this Article 3 not misleading.
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ARTICLE 4
REPRESENTATIONS AND
WARRANTIES OF SDK
SDK, Michael B. Kaufman and Claudia Kaufman each jointly and severally
represents, and each of the other Selling Stockholders, together with SDK,
Michael B. Kaufman and Claudia, jointly and severally warrants, to Eclipsys that
the statements contained in this Article 4 are correct and complete as of the
date hereof, except as set forth in the disclosure schedule delivered by the
Selling Stockholders and SDK to Eclipsys on the date hereof (the "SDK Disclosure
Schedule"). In addition, subject to Section 8.15 below, each Selling Stockholder
other than Michael B. Kaufman and Claudia Kaufman represents that, as applied to
such Selling Stockholder, the statements made in Sections 4.1(a), 4.1(b), 4.2,
4.3, 4.9, 4.10(e), 4.18, 4.24 and 4.26 with respect to "Selling Stockholders" or
any "Selling Stockholder," are complete and correct. Nothing in the Disclosure
Schedule shall be deemed adequate to disclose an exception to a representation
or warranty made herein unless the Disclosure Schedule identifies the exception
with particularity. The Disclosure Schedule will be arranged in paragraphs
corresponding to the numbered paragraphs contained in this Article 4.
4.1 Organization. Qualification. Corporate Power. Competence. Etc.
(a) SDK is a corporation duly organized, validly existing, and
in good standing under the laws of The Commonwealth of Massachusetts. SDK is
duly authorized to conduct business and is in good standing under the laws of
each jurisdiction where such qualification is required, except where the failure
to so qualify or obtain authorization would not have a Material Adverse Effect
on SDK. SDK has full corporate power and authority and all licenses, permits,
and authorizations necessary to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it and to execute, deliver
and perform this Agreement and each of the other Acquisition Documents to which
it is a Party. Each of the Selling Stockholders that is a natural person has the
requisite legal and mental capacity to execute, deliver and perform this
Agreement and each of the other Acquisition Documents to which it is a Party.
Each of the Selling Stockholders that is a trust has full power and authority,
acting through the trustee or trustees who have executed this Agreement on its
behalf, to execute, deliver and perform this Agreement and each of the other
Acquisition Documents to which it is a Party.
(b) This Agreement and the other Acquisition Documents have
been duly executed and delivered by SDK and each of the Selling Stockholders,
and constitute the legal, valid and binding obligations of SDK and the Selling
Stockholders, enforceable against each of them in accordance with their
respective terms.
(c) Section 4.1 of the Disclosure Schedule lists the directors
and officers of SDK. SDK has delivered to Eclipsys correct and complete copies
of the Articles of Organization, by-laws of SDK (each as amended to date),
minute books, stock certificate books and stock
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record books of SDK. The minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors) are, to the Knowledge of the Selling Stockholders, correct and
complete, and the stock certificate books and the stock record books of SDK are
correct and complete. SDK is not in default under or in violation of any
provision of its Articles of Organization or bylaws.
4.2 Capitalization. The entire authorized capital stock of SDK
consists of (a) 5,000 SDK Voting Common Shares, of which 5,000 shares are issued
and outstanding, (b) 700,000 SDK Non-Voting Common Shares, of which 505,500
shares are issued and outstanding, and (c) 2,500 SDK Preferred Shares, of which
2,500 shares are issued and outstanding. Section 4.2 of the Disclosure Schedule
lists each stockholder of SDK and the number of shares of each class or series
of stock owned by each stockholder. All of the SDK Voting Common Shares, SDK
Non-Voting Common Shares and SDK Preferred Shares (collectively, the "SDK
Shares") have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record and officially and lawfully by the
respective Selling Stockholders as set forth in Section 4.2 of the Disclosure
Schedule, free and clear of all pledges, liens, encumbrances, charges or other
security interests. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class and series
of authorized capital stock of SDK are as set forth in SDK's Articles of
Organization, a copy of which has been furnished to Eclipsys, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in accordance with all
applicable laws. Except as set forth in Section 4.2 of the Disclosure Schedule,
(i) no person owns of record or is known to SDK or the Selling Stockholders to
own beneficially any shares of capital stock of SDK, (ii) no subscription,
warrant, option, convertible security, or other right (contingent or other) to
purchase or otherwise acquire equity securities of SDK is authorized or
outstanding, (iii) there is no commitment by SDK to issue shares, subscriptions,
warrants, options, convertible securities, or other such rights or to distribute
to holders of any of its equity securities any evidence of indebtedness or
asset, and (iv) there is no written or oral agreement by any Selling Stockholder
to sell or transfer any SDK Shares to any third Person. SDK has no obligation
(contingent or other) to purchase, redeem or otherwise acquire any of its equity
securities or any interest therein or to pay any dividend or make any other
distribution in respect thereof. To the Knowledge of SDK and the Selling
Stockholders, there are no voting trusts or agreements, stockholders,
agreements, pledge agreements, buy-sell agreements, rights of first refusal,
preemptive rights or proxies relating to any securities of SDK (whether or not
SDK is a party thereto). All of the outstanding securities of SDK were issued in
compliance with all applicable Federal and state securities laws.
4.3 Noncontravention. Neither the execution and the delivery of this
Agreement or the other Acquisition Documents, nor the consummation of the
transactions contemplated hereby or thereby, will (a) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
SDK or any Selling Stockholder is subject or any provision of the charter or
bylaws of SDK or trust instrument of any Selling Stockholder that is a trust (b)
result in a breach of, constitute a default under, result in the acceleration
of, create in any Person the right to accelerate, terminate, modify, or cancel,
or require any notice or consent under any agreement,
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contract, lease, license, instrument, or other arrangement to which SDK or any
Selling Stockholder is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Security Interest upon any
of its assets). Neither SDK nor any Selling Stockholder is required to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
4.4 Title to Assets. SDK has good title to, or a valid leasehold
interest in or license to, all properties and assets (a) used by it on the
operations of its business, (b) located on its premises (except personal items
not material to the operations of the business), (c) shown on the Most Recent
Balance Sheet or (d) acquired after the date thereof, free and clear of all
Security Interests, except for properties and assets disposed of in the Ordinary
Course of Business since the date of the Most Recent Balance Sheet.
4.5 Subsidiaries. SDK does not have any Subsidiaries, operating or
otherwise, and does not own any capital stock or other equity interest in any
Person, and is not a partner, joint venturer or member in any joint venture,
partnership or other enterprise.
4.6 Financial Statements. SDK has delivered separately to Eclipsys the
following SDK financial statements (collectively the "SDK Financial
Statements"): (i) audited balance sheets and statements of operations and
retained earnings, and cash flow as of and for the fiscal years ended April 30,
1995 and April 30, 1996 (the last being the "Most Recent Audited Fiscal Year
End"); and (ii) unaudited balance sheets and statements of operations and
retained earnings, and cash flow (the "Most Recent Financial Statements") as of
and for the fiscal year ended April 30, 1997 (the "Most Recent Fiscal Year
End"). The SDK Financial Statements (including the notes thereto) have been
prepared in accordance with generally accepted accounting principles (except, in
the case of the Most Recent Financial Statements, for the lack of footnotes and
normal audit adjustments) applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of SDK as of such dates
and the results of operations of SDK for such periods.
4.7 Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any Material Adverse Effect in the
business, financial condition, operations, results of operations, or future
prospects of SDK and SDK has not engaged in or been party to any agreement or
occurrence outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, since that date:
(a) No Person (including SDK) has accelerated, terminated,
modified, or canceled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) to which SDK is a Party or
by which it is bound;
(b) SDK has not delayed or postponed the payment of accounts
payable and other Liabilities outside the Ordinary Course of Business;
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(c) SDK has not canceled, compromised, waived, or released any
right or claim (or series of related rights and claims) outside the Ordinary
Course of Business;
(d) Except for profit sharing distributions and bonuses not in
excess of $425,000 in the aggregate, SDK has not (i) issued, sold, or otherwise
disposed of any of its capital stock, or (ii) granted any options, warrants, or
other rights to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock, or (iii) declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock (whether in
cash or in kind) or (iv) redeemed, purchased, or otherwise acquired any of its
capital stock;
(e) SDK has not made any loan to or agreement with any of its
directors, officers, or employees and it has not entered into any other
transaction with any of its directors, officers or employees outside the
Ordinary Course of Business;
(f) Except for profit sharing distributions and bonuses not in
excess of $425,000 in the aggregate, SDK has not granted any increase in the
base compensation of, or bonuses out of the Ordinary Course of Business to, or
made any other changes in the employment or consulting terms of any of its
directors, officers, employees or independent contractors;
(g) SDK has not made or pledged to make any charitable or
other capital contribution;
(h) SDK has performed in all material respects all of its
obligations under agreements, contracts, leases, licenses and instruments
relating to or affecting its properties, assets and business and has not changed
materially the prices or offer terms of sale or license of any of its products;
(i) SDK has maintained its books of account and records in the
usual, regular and ordinary manner; and
(j) SDK is not under any legal obligation, whether written or
oral, to do any of the foregoing.
4.8 Undisclosed Liabilities. SDK does not have any Liability (and to
the Knowledge of SDK and the Selling Stockholders there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against it giving rise to any Liability), except for
(i) Liabilities set forth on the face of the Most Recent Balance Sheet and (ii)
Liabilities which have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
4.9 Legal Compliance. SDK has complied (including without limitation
in its capacity as a tenant), with all applicable laws (including rules,
regulations, codes, plans,. injunctions, judgments, orders, decrees, rulings,
and charges thereunder) of federal, state, local,
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and foreign governments, (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against it alleging any failure so to comply. Except
as set forth on Section 4.9 of the Disclosure Schedule, no consent, approval or
authorization of, or registration, qualification or filing with, any
governmental agency or authority is required for the execution and delivery of
this Agreement by SDK or any Selling Stockholder or for the consummation by SDK
of the transactions contemplated hereby or thereby. All of SDK's rights under
all of its permits, approvals and licenses, both governmental and private,
related to the operation of its business will continue unimpaired by the merger
contemplated hereby, except as set forth in Section 4.9 of the Disclosure
Schedule.
4.10 Tax Matters.
(a) SDK has filed all Tax Returns that it was required to
file, including, without limitation, any Tax Returns required to be filed with
any state. All such Tax Returns were correct and complete in all respects. All
Taxes owed by SDK (whether or not shown on any Tax Return) have been paid. SDK
currently is not the beneficiary of any extension of time within which to file
any Tax Return. No claim has ever been made by an authority in a jurisdiction
where SDK does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Security Interests on any of the assets of SDK
that arose in connection with any failure (or alleged failure) to pay any Tax.
(b) SDK has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other Third Party.
(c) Neither SDK nor any Selling Stockholder expects or has
reason to believe that any authority may assess any additional Taxes for any
period for which Tax Returns have been filed. There is no dispute or claim
concerning any Tax Liability of SDK either (i) claimed or raised by any
authority in writing or (ii) as to which SDK or any of the Selling Stockholders
has Knowledge. Section 4.10 of the Disclosure Schedule lists all federal, state,
local, and foreign income Tax Returns filed with respect to SDK for taxable
periods ended on or after April 30, 1991, indicates those Tax Returns that have
been audited, and indicates those Tax Returns that currently are the subject of
audit SDK has delivered to Eclipsys correct and complete copies of all federal
income Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by SDK since April 30, 1991.
(d) SDK has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) None of the Selling Stockholders is a person other than a
United States person within the meaning of the Code and the transactions
contemplated hereby are not subject to the withholding provisions of Section
3406 or Subchapter A of Chapter 3 of the Code.
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4.11 Real Property. Except for the leases described in Section 4.14 of
the Disclosure Schedule and the Lease, SDK does not own or lease any real
property.
4.12 Intellectual Property.
(a) List of Intellectual Property. Section 4.12(a) of the
Disclosure Schedule lists or describes the following Intellectual Property owned
or used by SDK and material to the operations of its business: (i) all Patents;
(ii) all Trademarks; (iii) all copyrightable works, all copyrights, rights and
interests in copyrights and all applications, registrations, recordings and
renewals in connection therewith; (iv) all mask works and all applications,
registrations, recordings and renewals in connection therewith; (v) all computer
software and applications, including all versions, new releases and/or
enhancements thereof, and all user documentation and manuals in connection
therewith except "off-the-shelf' software products sold by third parties; (vi)
each license, agreement or other permission which SDK has granted to or received
from any third Person with respect to any of its Intellectual Property; and
(vii) each agreement or arrangement under which SDK uses Intellectual Property
of another Person pursuant to license, sublicense, distribution agreement or
permission.
(b) Sufficiency and Ownership of Intellectual Property. SDK
owns or has the continuing valid and legal right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property used in the
operation of its business. Except as set forth in Section 4.12(b) of the
Disclosure Schedule, with respect to each item of Intellectual Property: (i) SDK
either possesses all right, title, and interest in and to the item, free and
clear of any encumbrance, license or other restriction or otherwise has
sufficient rights to use such items pursuant to license or permission as may be
necessary in connection with the operation of SDK's business; (ii) the item is
not subject to any outstanding injunction, judgment, order, decree, ruling or
charge; (iii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand is pending or is, to the Knowledge of SDK or any
Selling Stockholder, threatened which challenges the legality, validity,
enforceability, use or ownership of the item; (iv) SDK has not agreed to
indemnify any Person for or against any interference, infringement,
misappropriation or other conflict with respect to the item; and (v) SDK has not
granted any exclusive license of any kind in and to such item of Intellectual
Property to any Third Person. Each Trademark application and registration and
each Patent application and issued patent is being diligently prosecuted or
exists in good standing.
(c) Non-infringement of intellectual Property. SDK has not in
the conduct of its business and its Intellectual Property has not interfered
with, infringed upon, or misappropriated any patent, copyright, trade secret or
other intellectual property rights of third persons, and SDK has never received
any claim, demand or notice alleging any such interference, infringement,
misappropriation or violation (including any claim that it must license or
refrain from using any such rights of any third party). Except as set forth in
Section 4.12(c) of the Disclosure Schedule, to the Knowledge of SDK and the
Selling Stockholder, no Third Person has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
or
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license and distribution rights of SDK with respect to or in connection with
the business of SDK as currently or previously conducted.
(d) Copyrightable Materials. All persons who have worked on
copyrightable material developed by or for SDK, including without limitation
software programs which are used in or are material to the conduct of the
business of SDK, have either (i) been employees of SDK at the time such
materials were conceived, authored, designed, created or reduced to practice,
(ii) duly assigned to SDK all right, title and interest in such materials, or
(iii) duly executed work-for-hire agreements vesting in SDK title to such
materials under applicable provisions of U.S.
copyright law.
(e) Enforceability of Licenses. Etc. With respect to each item
of Intellectual Property that is the subject of any license, sublicense,
agreement or permission: (i) each such license, sublicense, agreement or
permission covering the item is legal, valid, binding, enforceable, and in full
force and effect against SDK and, to the knowledge of SDK and the Selling
Stockholders, any other parties thereto; (ii) no breach, default, termination or
loss or change of rights or benefits shall occur with respect to such license,
sublicense, agreement or permission as a result of the consummation of the
transactions contemplated by this Agreement; (iii) neither SDK nor, to the
knowledge of SDK and the Selling Stockholders, any other party to the license,
sublicense, agreement or permission is in any material respect in breach or
default, and no event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination, modification or
acceleration thereunder; (iv) SDK has not received any notice that a party to
the license, sublicense, agreement or permission has repudiated any provision
thereof; (v) with respect to each sublicense, the representations and warranties
set forth in clauses (i) through (iv) above are true and correct with respect to
the underlying license; (vi) SDK has not received any notice that the underlying
item of intellectual Property is subject to any outstanding injunction,
judgment, order, decree, ruling or charge; (vii) SDK has not received any notice
that any action, suit' proceeding, hearing, investigation, charge, complaint,
claim or demand is pending or is threatened which challenges the legality,
validity or enforceability of the underlying item of intellectual Property; and
(viii) SDK has not granted any sublicense or similar right with respect to the
license, sublicense, agreement or permission.
4.13 Distributions to Shareholders. Section 4.13 of the Disclosure
Schedule sets forth the amount of the distributions made by SDK to shareholders
(including any bonuses paid or accrued to Selling Stockholders who are employees
or SDK) for the fiscal years ended April 30, 1997, April 30, 1996 and April 30,
1995 and for the period from April 30, 1997 through the Closing.
4.14 Contracts, Etc. Section 4.14 of the Disclosure Schedule lists and
briefly describes all contracts, agreements and instruments, written and oral,
to which SDK is a Party and which involve on the part of any Person provision of
goods or services or payment of money in excess of $20,000 or which, if
breached, could result in damages or loss of benefits to SDK in excess of
$20,000 (the "SDK Contracts"), and sets forth, as to each contract, agreement or
instrument, whether consummation of the transactions contemplated hereby will
require consent of any
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Third Person to avoid the occurrence of a breach or default of, or termination
or change of rights or benefits under such contract, agreement or instrument.
SDK has delivered to Eclipsys a correct and complete copy of each written
agreement listed in Section 4.14 of the Disclosure Schedule (as amended to date)
and a written summary setting forth the terms and conditions of each oral
agreement referred to in Section 4.14 of the Disclosure Schedule. With respect
to each SDK Contract: (A) the SDK Contract is legal, valid, binding,
enforceable, and in full force and effect; (B) no breach, default, termination
or loss or change of rights or benefits shall occur with respect to such SDK
Contract as a result of the consummation of the transactions contemplated
hereby; (C) SDK is not, and to SDK and the Selling Stockholder's Knowledge, no
other Party is in breach or default, and no event has occurred which with notice
or lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the SDK Contract; (D) no Party has
repudiated any provision of the SDK Contract; and (E) SDK does not owe (and to
the Knowledge or SDK and the Selling Stockholders there is no Basis for) any
penalty or similar changes for delays in delivery of any product or service or
any indemnification obligations under such SDK Contract.
4.15 Notes and Accounts Receivable. All notes and accounts receivable
of SDK are reflected properly on its books and records, are valid receivables
subject to no setoffs or counterclaims, and are current and collectible in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of SDK.
4.16 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of SDK.
4.17 Insurance. SDK has delivered to Eclipsys each insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which SDK has been a
party, a named insured, or otherwise the beneficiary of coverage at any time
within the past two years. With respect to each such insurance policy: (i) the
policy is legal, valid, binding, enforceable, and in full force and effect; (ii)
the policy will not be in default or breach, and no loss or change of benefits
or rights shall occur with respect to such policy as a result of the
consummation of the transactions contemplated hereby; (iii) neither SDK nor any
other party to the policy is in breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred which,
with notice or the lapse of time, would constitute such a breach or default, or
permit termination, modification, or acceleration, under the policy; and (iv) no
party to the policy has repudiated any provision thereof. SDK has been covered
during the past five years by insurance in the amounts set forth in Section A.17
of the Disclosure Schedules. Section 4.17 of the Disclosure Schedule describes
any self-insurance arrangements affecting SDK.
4.18 Litigation. Section 4.18 of the Disclosure Schedule sets forth
each instance in which SDK (a) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (b) is a party or is threatened in
writing (or to the Knowledge of SDK or the Selling
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Stockholders, threatened orally) to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. None of the actions, suits, proceedings,
hearings, and investigations set forth in Section 4.20 of the Disclosure
Schedule could result in any Material Adverse Effect or attempts to restrain or
prevent or could interfere with the transactions contemplated by this Agreement
None of the Selling Stockholders has any Knowledge of any reason that any such
action, suit, proceeding, hearing, or investigation may be brought or threatened
against SDK, and no Selling Stockholder (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or is
threatened in writing (or to the Knowledge of such Selling Stockholder,
threatened orally) to be made a party to any action, suit, proceeding, hearing,
or investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator, that attempts to restrain or prevent or could interfere with the
transactions contemplated by this Agreement.
4.19 Product Liability. SDK does not have any Liability (and there is
no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against it giving rise to any
Liability) arising out of any injury to individuals or property as a result of
the ownership, possession, or use of any product manufactured, sold, leased,
licensed or delivered by SDK.
4.20 Employees. SDK is not a party to or bound by any collective
bargaining agreement, nor has it experienced during the last five years any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. SDK has not during the last five years committed any unfair
labor practice. Neither SDK nor the Selling Stockholders has any Knowledge of
any organizational effort presently being made or threatened by or on behalf of
any labor union with respect to employees of SDK. During the last five years, no
former employee of SDK has asserted any claims against either the Selling
Stockholders or SDK arising from his or her termination of employment, and none
of the Selling Stockholders or SDK has any Knowledge of facts that would give
rise to or reason to believe of the existence of any such claims that might be
asserted in the future.
4.21 Employee Benefits.
(a) Section 4.21 of the Disclosure Schedule lists each
Employee Benefit Plan that SDK maintains or to which SDK contributes. (i) Each
such Employee Benefit Plan (and each related trust, insurance contract, or fund)
complies in form and in operation in all respects with the applicable
requirements of ERISA, the Code, and other applicable laws. (ii) All required
reports and descriptions (including Form 5500 Annual Reports, Summary Annual
Reports, PBGC-1s, and Summary Plan Descriptions) have been filed or distributed
appropriately with respect to each such Employee Benefit Plan. The requirements
of Part 6. of Subtitle B of Title 1 of ERISA and of Code ss.4980B have been met
with respect to each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan. (iii) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to
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each such Employee Benefit Plan which is an Employee Pension Benefit Plan and
all contributions for any period ending on or before the Closing Date which are
not yet due have been paid to each such Employee Pension Benefit Plan or accrued
in accordance with the past custom and practice of SDK. All premiums or other
payments for all periods ending on or before the Closing Date have been paid
with respect to each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan. (iv) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code ss.401(a)
and has received a favorable determination letter from the Internal Revenue
Service applicable to such Plan in its current form and no events have occurred
since issuance of such letter which would cause it to no longer remain in full
force and effect (v) The market value of assets under each such Employee Benefit
Plan which is an Employee Pension Benefit Plan (other than any Multi-employer
Plan) equals or exceeds the present value of all vested and nonvested
Liabilities thereunder determined in accordance with PBGC methods, factors, and
assumptions applicable to an Employee Pension Benefit Plan terminating on the
date for determination. (vi) SDK has delivered to Eclipsys correct and complete
copies of the plan documents and summary plan descriptions, the most recent
determination letter received from the internal Revenue Service, the most recent
Form 5500 Annual Report, and all related trust agreements, insurance contracts,
and other funding agreements which implement each such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that SDK
maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute: (i) No such Employee
Benefit Plan which is an Employee Pension Benefit Plan (other than any
Multi-employer Plan) has been completely or partially terminated or been the
subject of a Reportable Event as to which notices would be required to be filed
with the PBGC. No proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multi-employer Plan) has been instituted or
threatened. (ii) To the best of SDK's Knowledge, after diligent inquiry, there
have been no Prohibited Transactions with respect to any such Employee Benefit
Plan. No Fiduciary has any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or investment of
the assets of any such Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the administration or the investment
of the assets of any such Employee Benefit Plan (other than routine claims for
benefits) is pending or threatened. Neither SDK nor any of the Selling
Stockholders has any Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation. (iii) SDK has not incurred, and none of
the Selling Stockholders and the directors or officers (or employees with
responsibility for employee benefits matters) of SDK has no Basis to expect that
SDK will incur, any Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal Liability) or under
the Code with respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan.
(c) SDK does not contribute to, ever has contributed to, or
ever has been required to contribute to any Multi-employer Plan or has any
Liability (including withdrawal Liability) under any Multi-employer Plan.
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(d) SDK does not maintain or ever has maintained or
contributes, ever has contributed, or ever has been required to contribute to
any Employee Welfare Benefit Plan providing medical, health, or life insurance
or other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Code ss.4980B).
4.22 Brokers. SDK has not retained, utilized or been represented by
any broker or finder in connection with the transactions contemplated by this
Agreement
4.23 Guaranties. SDK is not a guarantor or otherwise is liable for any
Liability or obligation (including indebtedness) of any other Person.
4.24 Certain business Relationships with SDK. Except for employment
arrangements and the lease of its premises, none of the Selling Stockholders or
any of their Affiliates has been involved in any business arrangement or
relationship with SDK within the past 12 months, and none of the Selling
Stockholders or any of their Affiliates owns any asset, tangible or intangible,
which is used in the business of SDK.
4.25 Environmental Liabilities.
(a) Except as set forth in Section 4.25 to the Disclosure
Schedule, SDK has not used, stored, treated, transported, manufactured, refined,
handled, produced or disposed of any Hazardous Materials or Petroleum Products,
as hereinafter defined, on, under, at, from or in any way affecting real
property owned or leased by SDK or otherwise, in any manner which at the time of
the action in question violated any Environmental Law, as defined hereinafter,
governing the use, storage, treatment, transportation, manufacture, refinement,
handling, production or disposal of Hazardous Materials or Petroleum Products,
or created a condition of contamination on such real property, and, to the
Knowledge of SDK and the Selling Stockholders, no prior owner of such real
estate or any tenant, subtenant, prior tenant, prior subtenant, abutter or prior
abutter thereof has used Hazardous Materials or Petroleum Products on, under,
at, from or in any way affecting such real estate, in any manner which at the
time of the action in question violated any Environmental Law governing the use,
storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials or Petroleum Products, or created
a condition of contamination on such real estate.
(b) Neither SDK nor any Selling Stockholder has any Knowledge
of any obligations or liabilities of SDK, matured or not matured, absolute or
contingent, assessed or unassessed, arising from or relating to any
Environmental Laws, which could now reasonably be expected to have a Material
Adverse Effect upon its business, and there are no pending claims against SDK,
and no currently outstanding citations, notices or orders including, without
limitation, notice letters, administrative orders, information requests or
notices of potential responsibility, have been issued against SDK, which, in the
case of any of the foregoing, have been or are imposed by reason of or based
upon any provision of any Environmental Laws.
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(c) SDK has complied with all requirements of the
Environmental Laws; including, without limitation, any notification requirements
under such laws; SDK has obtained all necessary permits and licenses with
respect to the operation of its business that are required by such Environmental
Laws; and such permits and licenses are in full force and effect.
4.26 Investment Representations and Warranties. Each Selling
Stockholder who will be receiving any Share Consideration in connection with the
transactions contemplated hereby represents, warrants, acknowledges and
covenants as follows:
(a) he, she or it has sufficient knowledge and experience so
as to be able to evaluate the risks and merits of its investment in Eclipsys,
and he, she or it is able financially to bear the risks thereof;
(b) he, she or it has had an opportunity to discuss Eclipsys'
business, management and financial affairs with its management, and to ask such
questions of Eclipsys as he, she or it deems necessary or appropriate;
(c) the Eclipsys Common Shares being purchased by him, her or
it are being acquired for his, her or its own account for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof;
(d) he, she or it understands that (i) the Eclipsys Common
Shares have not been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) or other exemption therefrom, (ii) the
Eclipsys Common Shares must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration, (iii) the stock certificates evidencing the Eclipsys Common Shares
will bear a legend to such effect and (iv) Eclipsys will make a notation on its
transfer books to such effect; and
(e) he, she or it is a resident of or domiciled in
Massachusetts and received the offer constituted by this Agreement, and
negotiated this Agreement, in Massachusetts.
4.27 Disclosure. The representations and warranties contained in this
Article 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 4 not misleading.
ARTICLE 5
COVENANTS: CONDITIONS PRECEDENT TO CLOSING: CLOSING DELIVERIES
5.1 Conduct of Business. From the date hereof until the earlier of the
Closing or the termination of this Agreement pursuant to Section 5.8 below, and
except as otherwise consented to or approved by Eclipsys in writing, which
consent shall not be unreasonably withheld or
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delayed, SDK shall not engage in any practice, take an action, embark on any
course of action, or enter into any transaction outside the Ordinary Course of
Business, except that it may pay a bonus to Michael B. Kaufman and
profit-sharing payments to its employees in aggregate amounts not to exceed
$425,000.
5.2 Efforts: Access. Without limiting the specific obligations of any
Party hereto under any agreement or covenant hereunder, each of the Parties
hereto shall use its respective reasonable efforts to take all action and do
such acts and things necessary in order to consummate and make effective the
transactions contemplated by this Agreement (including satisfaction, but not
waiver, of the conditions to Closing set forth in Sections 5.4 and 5.5 below).
Until the Closing or termination of this Agreement, each of Eclipsys and SDK
agrees to provide to the other such access and information with regard to its
business and affairs, and books and records, as the other may reasonably request
from time to time.
5.3 Discussion with Others. From the date hereof until the earlier of
June 30, 1997 or the termination of this Agreement pursuant to Section 5.8
below, neither SDK nor any of the Selling Stockholders shall: (a) discuss,
solicit, initiate, or encourage the submission of any proposal or offer from any
third Person concerning the sale or acquisition of any capital stock or other
voting securities, or any significant assets of, SDK (including any acquisition
structured as a merger, consolidation, or share exchange); or (b) engage or
participate in any discussions or negotiations regarding, enter into any
agreement with respect to, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
third Person to do or seek any of the foregoing. SDK shall immediately notify
Eclipsys if any third Person makes any proposal, offer, inquiry, or contact with
respect to any of the foregoing.
5.4 Conditions Precedent to Closing by Eclipsys. The obligation of
Eclipsys to consummate the transactions contemplated hereby is subject to the
satisfaction of each of the following conditions prior to or at the Closing: (a)
The representations and warranties of SDK and the Selling Stockholders made
hereunder (including the Disclosure Schedule and all other Schedules hereto)
shall be true in all material respects at and as of the Closing Date, with the
same force and effect as though made at and as of the Closing Date, except for
updates or changes agreed to in writing by Eclipsys; (b) No injunction,
restraining order or decree of any nature of any court or governmental or
regulatory authority, or any claim, controversy or allegation of any third
Person shall exist against Eclipsys, SDK or any Selling Stockholder that
restrains, prevents, challenges or materially adversely changes any of the
transactions contemplated hereby; (c) The consummation of the transactions
contemplated hereunder shall not be in violation of (i) any applicable
agreement, law, statute, rule or regulation for which a waiver or consent has
not been obtained by Eclipsys or SDK if such violation would make illegal or
otherwise impair or prevent the consummation of the Acquisition or have a
Material Adverse Effect on the business, prospects, operations or financial
condition of Eclipsys or SDK (including without limitation, as to Eclipsys, the
consent and waiver of the holders of the Series B and Series C 8.5% Cumulative
Redeemable Preferred Stock under its corporate charter, the consent and waiver
of First Union National Bank, and the consent of the requisite parties to the
Stockholders Agreement and Registration Rights Agreement necessary
for the effectiveness of the amendments
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thereto contemplated by Section 5.6(j) and (k) below) or (ii) its corporate
charter unless such violation has been waived; (d) SDK and the Selling
Stockholders shall have executed and/or delivered all of the agreements,
instruments and other documents, and other deliveries, required of each of them
under Section 5.6 below or elsewhere expressly required of any of them under
this Agreement, and such other agreements, instruments and documents as Eclipsys
may reasonably request in order to fulfill the intents and purposes of this
Agreement; and (e) Eclipsys shall have received such comfort from its auditors
as it shall have deemed reasonably necessary to the effect that the
non-qualified stock options to be granted to Michael B. Kaufman pursuant to his
employment agreement shall not cause Eclipsys to incur a charge to earnings.
5.5 Conditions Precedent to Closing by SDK and the Selling
Stockholders. The obligation of SDK and the Selling Stockholders to consummate
the transactions contemplated hereby is subject to the satisfaction of each of
the following conditions prior to or at the Closing: (a) The representations and
warranties of Eclipsys made hereunder (including all Schedules hereto) shall be
true in all material respects at and as of the Closing Date, with the same force
and effect as though made at and as of the Closing Date, except for updates or
changes agreed to in writing by SDK and the Stockholder Representative; (b) No
injunction, restraining order or decree of any nature of any court or
governmental or regulatory authority, or any claim, controversy or allegation of
any third Person, shall exist against Eclipsys, SDK or any Selling Stockholder
that restrains, prevents, challenges or materially adversely changes any of the
transactions contemplated hereby; (c) The consummation of the transactions
contemplated hereunder shall not be in material violation of any applicable
agreement, law, statute, rule or regulation for which a waiver has not been
obtained if such violation would make illegal or otherwise impair or prevent the
consummation of the Acquisition or have a Material Adverse Effect on the
business, prospects, operations or financial condition of Eclipsys or SDK; (d)
Eclipsys shall have executed and/or delivered all of the agreements, instruments
and other documents, and other deliveries, required of it under Section 5.6
below or elsewhere expressly required of it under this Agreement; (e) Michael B.
Kaufman shall have obtained the execution by the other Selling Stockholders of
an SDK Selling Stockholders Agreement substantially in the form made available
to Eclipsys on or about the date hereof, and (f) the documents required by
Section 5.6(e)(r) and (s) shall have been delivered.
5.6 Deliveries at Closing. The following executed agreements,
instruments and other documents, and other deliveries, shall be made or
delivered, as the case may be, at or prior to the Closing, delivery of which by
the Party or Parties required to deliver such shall be a condition precedent to
the other Party's obligation to close the transactions contemplated hereby.
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(a) Performance Certificates. Eclipsys and the Selling
Stockholders shall deliver a certificate of a proper officer of Eclipsys and
SDK, as the case may be, each dated as of the Closing Date, each certifying to
the effect that the respective Parties' representations and warranties,
conditions and covenants contained in Articles 3 and 4 hereof are true and
correct as of the Closing Date;
(b) Allocation Certificate. The Selling Stockholders shall
deliver the Allocation Certificate executed by each Selling Stockholder;
(c) Opinion of Counsel for Eclipsys. Eclipsys shall deliver an
opinion of Goulston & Storrs, counsel for Eclipsys, dated as of the Closing
Date, addressed to SDK and the Selling Stockholders, in a form reasonably
satisfactory to the Selling Stockholders;
(d) Opinions of Counsel for the Michael Kaufman Group. The
Selling Stockholders shall deliver an opinion of Goldstein & Manello, P.C.,
special counsel to the Michael Kaufman Group, dated as of the Closing Date and
addressed to Eclipsys, in a form reasonably satisfactory to Eclipsys but
including without limitation a satisfactory opinion as to the enforceability of
the Kaufman Reimbursement Agreement;
(e) Opinion of Counsel for other Selling Stockholders. ln the
case of each Selling Stockholder that is a trust (a "Selling Stockholder
Trust"), the Selling Stockholders shall cause such trust to deliver an opinion
of counsel to the trust, dated as of the Closing Date and addressed to Eclipsys,
and opining, among other things, that the transaction will not violate the terms
of the governing trust instrument or any provisions of law applicable to the
trust, which opinion shall be satisfactory in form and substance to Eclipsys and
shall be from counsel acceptable to Eclipsys;
(f) Cash Consideration. Eclipsys shall deliver (i) immediately
available funds in the amount of $2,558.000 payable as set forth on the
Allocation Certificate (or, in the absence of an Allocation Certificate, pro
rata); and (ii) the Buyer Notes;
(g) Share Consideration. Eclipsys shall deliver stock
certificates of Eclipsys evidencing the Share Consideration, in the respective
names and amounts as are set forth on the Allocation Certificate;
(h) Employment and Options Agreements. Eclipsys and Michael B.
Kaufman shall execute and deliver an Employment Agreement in the form of Exhibit
D-1 hereto (the "Employment Agreement"), and an Incentive Stock Option Agreement
and Non-Qualified Stock Option Agreement between Eclipsys and Michael B. Kaufman
in the form of Exhibits D-2 and D-3, respectively (collectively the "Option
Agreements");
(i) Noncompete, Confidentiality and Non-Disclosure Agreements.
The Selling Stockholders shall deliver Noncompete, Confidentiality and
Non-Disclosure Agreements
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between SDK and each of its employees who is a Selling Stockholder, m a form
satisfactory to Eclipsys;
(j) Amendment No 1 to Stockholders Agreement. Eclipsys and the
Michael Kaufman Group shall execute and deliver Amendment No. 1 to the
Stockholders Agreement in substantially the form attached as Exhibit E hereto,
and Eclipsys shall have obtained the consent thereto of the other parties to the
Stockholders Agreement necessary for the effectiveness of such amendment;
(k) Amendment No. 1 to Registration Rights Agreement. Eclipsys
and the Michael Kaufman Group shall execute and deliver Amendment No. 1 to the
Registration Rights Agreement in substantially the form attached as Exhibit F
hereto, and Eclipsys shall have obtained the consent thereto of the other
parties to the Stockholders Agreement necessary for the effectiveness of such
amendment;
(l) Lease or Lease Guaranty. Eclipsys shall execute and deliver,
and the Selling Stockholders shall cause to be executed and delivered, a lease
agreement in substantially the form of the current lease agreement between SDK
and New Realty Trust, as amended to incorporate the terms set forth in the
memorandum attached as Exhibit G hereto (as so amended, the "Lease");
(m) Tax Agreement. Eclipsys and those Selling Stockholders
receiving Share Consideration shall deliver a Tax Agreement in the form of
Exhibit H hereto;
(n) Kaufman Reimbursement Agreement. The Kaufman Group shall have
delivered the Kaufman Reimbursement Agreement in the form of Exhibit I hereto;
(o) Subordination Agreement. Eclipsys and the Selling
Stockholders shall deliver a Subordination Agreement (the "Subordination
Agreement"), if any, satisfactory in form and substance to Eclipsys' senior
lenders (such Subordination Agreements shall permit payment of installments
under the Buyer Notes as long as there is no Event of Default under Eclipsys'
credit agreement with its senior lenders);
(p) Stock Certificates. The Selling Stockholders shall deliver
stock certificates evidencing the SDK Shares, which shall constitute all of the
outstanding capital stock of SDK, together with duly executed stock powers
therefor;
(q) Release. Each of the Selling Stockholders shall execute and
deliver a Release in the form of Exhibit J hereto;
(r) Consent of Settlors of Trusts. With respect to each Selling
Stockholder Trust, the Selling Stockholders shall deliver the written consent of
the settlor of each such trust to the transactions contemplated hereby and by
the other Acquisition Documents and an affidavit by
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such settlor that such transactions are consistent with his or her intention in
establishing such trust;
(s) Consent of Trust Beneficiaries. With respect to each Selling
Stockholder Trust, the Selling Stockholders shall deliver the written consents
of the current beneficiary (or beneficiaries) of such trust who are of legal
capacity; and
(t) Miscellaneous Closing Deliveries. Each Party shall deliver
such evidence as each other Party may reasonably request in order to establish:
(i) the power and authority of each Party to consummate the transactions
contemplated by this Agreement; (ii) compliance with the conditions of Closing
set forth herein; and (iii) satisfactory completion of all corporate and
stockholder proceedings to be taken in connection with the transactions
contemplated by this Agreement.
5.7 Waiver of Condition Precedent.. Either Party may waive any
condition specified in Section 5.4 or 5.5, as applicable, if it executes a
writing so stating at or prior to the Closing or agrees to proceed with the
Closing.
5.8 Termination Prior to Closing. Notwithstanding any other provision
to the contrary herein, this Agreement may be terminated at any time:
(a) without liability on the part of any Party hereto (unless
occasioned by reason of failure of one of the Parties hereto to perform its
obligations hereunder), by mutual consent of all Parties to this Agreement;
(b) without liability on the part of any Party hereto (unless
occasioned by reason of failure of one of the parties hereto to perform its
obligations hereunder), by either Eclipsys or SDK, if the transactions
contemplated hereby are not consummated on or before June 15, 1997, or such
later date as may be agreed upon in writing by the Parties hereto (the
"Termination Date");
(c) by Eclipsys if: (i) SDK and/or any of the Selling Stockholders
shall breach in any material respect any of their respective representations,
warranties, covenants or other obligations hereunder; (ii) Eclipsys shall have
notified SDK and the Selling Stockholders in writing of such breach; (iii) such
breach shall not have been cured in all material respects or waived by Eclipsys;
and (iv) SDK or the Selling Stockholders, as the case may be, shall not have
provided reasonable assurance that such breach shall be cured in all material
respects on or before the Closing Date; or
(d) by SDK or the Selling Stockholders if: (i) Eclipsys shall
breach in any material respect any of its representations, warranties or
obligations hereunder; (ii) SDK shall have notified Eclipsys in writing of such
breach; (iii) such breach shall not have been cured in all material respects or
waived; and (iv) Eclipsys shall not have provided reasonable assurance that such
breach shall be cured in all material respects on or before the Closing Date.
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Notwithstanding anything herein to the contrary, if this Agreement
shall be terminated prior to the Closing, no Party hereto shall have any
liability to any other Party unless such termination results from a material
breach of the representations and warranties contained in Articles 3 or 4 or of
the covenants in this Article 5. In the event any Party fails to consummate the
transactions contemplated hereby in accordance with the terms of this Agreement,
or breaches any representations, warranty, covenant or other obligation
contained herein which is a condition precedent to the other Party's obligation
to close, the damaged Party shall have the right to pursue all available
remedies at law or in equity, including specific performance. Each Party
acknowledges that, in light of the unique benefit to it of its rights under this
Agreement, such remedies shall be available in respect of any such breach or
violation by it in any proceeding properly instituted in a court of competent
jurisdiction.
5.9 Material Adverse Change in SMS Litigation. Notwithstanding
anything in this Agreement to the contrary, if prior to the Closing there is a
material adverse development (other than as disclosed in the Eclipsys Disclosure
Schedule hereto) in the dispute between Shared Medical Systems and Eclipsys
which would, as mutually agreed by Harvey J. Wilson and Michael B. Kaufman,
materially interfere with Eclipsys' ability to sell its products generally, then
SDK may elect to delay the Closing until such development no longer results in
such material interference provided, however, that if such material interference
continues for sixty (60) days, then SDK and the Selling Stockholders shall be
entitled to terminate and abandon this Agreement.
ARTICLE 6
COVENANTS
The Parties agree as follows with respect to the period following the
Closing.-
6.1 General. In the event that at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor under
Article 7 below). In furtherance and not in limitation of the foregoing, (a)
each of the Parties hereto shall furnish to the other Parties hereto, such
reasonably necessary information and reasonable assistance as such other Party
or Parties may reasonably request in connection with its or their preparation of
necessary filings or submissions to any governmental agency. The Selling
Stockholders shall each give any notices to third Persons, and shall use their
respective best efforts to obtain any third Person consents, modifications or
amendments of agreements, or other approvals, that Eclipsys may request.
6.2 Transition. None of the Selling Stockholders will take any action
that is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other
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business associate of SDK from maintaining the same business relationships with
SDK after the Closing as it maintained with SDK prior to the Closing.
6.3 Confidentiality. The Selling Stockholders agree that they will
treat and hold. as such all of the Confidential Information (including
Confidential Information of SDK), refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
the Eclipsys or destroy, at the request and option of Eclipsys, all tangible
embodiments (and all copies) of the Confidential Information which are in their
possession. Notwithstanding the foregoing, the Selling Stockholders may disclose
Confidential Information (i) to attorneys and accountants involved in this
transaction, (ii) as may by required by law, governmental regulation or court or
administrative order, (iii) to the extent use of such Confidential Information
is reasonably required in connection with litigation involving such Selling
Stockholder, or (iv) if such Confidential Information is readily ascertainable
from public or published information or trade sources provided, however, that in
the event that any Selling Stockholder is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, such Selling Stockholder will notify the
other Selling Stockholder promptly of the request or requirement so that the
other Selling Stockholder may seek an appropriate protective order or waive
compliance with the provisions of this Section 6.3. If, in the absence of a
protective order or the receipt of a waiver hereunder, any Selling Stockholder
is, on the advice of counsel, compelled to disclose any Confidential Information
to any tribunal or else stand liable for contempt, then such Selling Stockholder
may disclose the Confidential Information to such tribunal; provided, however,
that such Selling Stockholder shall use reasonable best efforts to obtain, at
the request and expense of Eclipsys, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as Eclipsys shall designate. The foregoing
provisions shall not apply to any Confidential Information which is generally
available to the public immediately prior to the time of disclosure. All
obligations contained in this Section 6.3 shall survive for a period of five
years termination of this Agreement.
6.4 Eclipsys Common Shares. Each certificate issued to the Selling
Stockholders representing the Eclipsys Common Shares will be imprinted with a
legend substantially in the following form, as well as the legend required by
the Stockholders Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), IN
RELIANCE UPON THE EXEMPTION FROM REGISTRATION CONTAINED IN SECTION
4(2) OF THE 1933 ACT OR REGULATION D OF THE RULES AND REGULATIONS
PROMULGATED UNDER THE 1933 ACT, AND IN RELIANCE UPON THE
REPRESENTATION BY THE HOLDER THAT THEY HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW
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<PAGE> 32
TO RESALE OR FURTHER DISTRIBUTION. SUCH SHARES MAY NOT BE OFFERED FOR
SALE, SOLD, DELIVERED AFTER SALE, HYPOTHECATED, NOR WILL ANY ASSIGNEE
OR ENDORSEE HEREOF BE RECOGNIZED AS AN OWNER HEREOF BY THE ISSUER FOR
ANY PURPOSE, UNLESS A REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION WITH RESPECT TO SUCH SHARES SHALL THEN BE IN
EFFECT OR UNLESS THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION
SHALL BE ESTABLISHED TO THE REASONABLE SATISFACTION OF COUNSEL OF THE
ISSUE.
Each Stockholder desiring to transfer any of the Eclipsys Common Shares received
as part of the Share Consideration, other than in a registered offering or
pursuant to a sale which counsel for Eclipsys confirms is in compliance with
Rule 144 of the Securities Act of 1933, must first furnish Eclipsys with a
written opinion satisfactory to Eclipsys in form and substance from counsel
reasonably satisfactory to Eclipsys to the effect that such Stockholder may
transfer the Eclipsys Common Shares as desired without registration under the
Securities Act
6.5 Announcement. Upon or after the Closing, the Parties shall issue a
press release regarding the transactions contemplated hereby which shall be
mutually satisfactory in form and substance. Except for the foregoing, in no
event will any Party hereto make any public announcement of the existence or
contents of this Agreement or any of he other documents or transactions
contemplated hereby except with the prior written consent of the other Parties,
except as may be required under applicable law or regulation.
6.6 Repurchase by Eclipsys of Eclipsys Common Shares.
(a) If Eclipsys (or a successor-in-interest to Eclipsys) has
not effected a Qualified IPO on or before the third anniversary of the Closing
Date, then during the six-month period following the third anniversary of the
Closing Date (the "Repurchase Period") Eclipsys shall have the obligation to
purchase, at a cash purchase price equal to the "fair market value" (as
hereinafter defined), all or any portion of the Eclipsys Common Shares (a
"Repurchase"), provided that Eclipsys receives during the Repurchase Period a
written notice of Selling Stockholders holding a majority of the Eclipsys Common
Shares requesting such a repurchase (the "Repurchase Notice") specifying the
number of shares each such Selling Stockholder desires Eclipsys to repurchase.
(b) The fair market value of the Eclipsys Common Shares shall
be equal to the highest purchase price paid for shares of the same class as the
Eclipsys Common Shares in any bona fide, arms-length transaction by unaffiliated
third parties which is closed within 90 days prior to the date of the notice of
the Selling Stockholders specified in Section 6.7(a) above. If such transaction
has not taken place during the requisite time period, then Eclipsys and the
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Stockholder Representative shall, for a period of 30 days, negotiate the fair
market value of the Eclipsys Common Shares. If the Parties are unable to reach
agreement on such fair market value during such 30 day period, then they shall
jointly designate one of the so-called "big six" national accounting firms to
make such determination, with the costs of such determination to be borne
equally by Eclipsys and the Selling Stockholders requesting a repurchase. If the
Parties cannot agree on which accounting firm to select the for the foregoing
determination, each will select a "big six" national accounting firm, and the
two accounting firms will jointly select one of the "big six" national
accounting firms to make such determination. Each of Eclipsys and the
Stockholder Representative shall be required to provide to the accounting firm
such Party's final offer as to an acceptable fair market value of the Eclipsys
Common Shares. The designated accounting firm will be instructed to select,
within 45 days, which of the two final offers it believes closest to the fair
market value of the Eclipsys Common Shares, and such selected offer will be
deemed the fair market value of the Eclipsys Common Shares for purposes of this
Section 6.6 and will be a final and binding determination upon the Parties.
(c) A closing of the repurchase shall occur within 30 days of
such final determination, at a time and place reasonably mutually acceptable to
the Parties. At the closing, (i) the Selling Stockholders shall tender the stock
certificates and signed stock powers with respect to the shares designated in
the Repurchase Notice, and (ii) Eclipsys (or its nominee) shall tender the
consideration therefor, either in immediately available fluids or certified or
cashiers' checks, or, at Eclipsys' option, promissory notes maturing in six
months or less and in the form of Exhibit K hereto (the "Repurchase Notes"),
provided, however, that if such promissory notes are made by A nominee, Eclipsys
shall guaranty them in A guaranty, the form and substance of which shall be
reasonably acceptable to the Stockholder Representative. Such promissory notes
shall be secured by a pledge of the shares of Common Stock being purchased.
(d) Notwithstanding the provisions of subsection (c) above,
Eclipsys and the Specified Employee Stockholders agree that (i) the closing of a
Repurchase, as among themselves, will occur within 90 days of the final
determination described above, and (ii) Eclipsys (or its nominee) shall tender
the consideration due the Specified Employee Stockholders only in immediately
available funds or certified or cashiers' checks. Such repurchase shall be
subject to the same subordination provisions as are applicable to repurchases
made pursuant to Section 6.6(c), which subordination provisions are referenced
in the form of promissory note attached as Exhibit K hereto. In addition, and
notwithstanding anything to the contrary contained in the proviso of Subsection
(a) above and the provisions of subsection (b) above, (i) each Specified
Employee Stockholder shall have the right, individually, to tender a Repurchase
Notice to Eclipsys and cause Eclipsys to repurchase such Specified Employee
Stockholder's shares, and (ii) in the event one or more Specified Employee
Stockholders elects to cause a Repurchase and a Repurchase Notice has not been
given in accordance with the proviso of Subsection (a) above, Eclipsys shall
negotiate and otherwise deal with such Specified Employee Stockholder(s)
directly in lieu of negotiating or dealing with the Stockholder Representative.
6.7 Payment of Professional Fees. Eclipsys agrees that,
notwithstanding the representations and warranties of SDK contained in Sections
4.7 and 4.8 hereof, the legitimate
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legal and accounting fees of SDK incurred in connection with the transactions
contemplated hereby and by the other Acquisition Documents, not to exceed in the
aggregate $ 100,000, shall be for the account of SDK.
6.8 Subordination. Each Selling Stockholder acknowledges that the
Buyer Notes, the Repurchase Notes and the obligations of Eclipsys to the
Specified Employee Stockholders arising under Section 6.6(d) above
(collectively, the "Subordinate Obligations", are subordinate to Eclipsys'
obligations to its existing bank lenders pursuant to the Subordination
Agreement, and shall be subordinate to any of Eclipsys' obligations to any
future bank or institutional lenders on the same terms as are contained in the
Subordination Agreement. Each Selling Stockholder covenants and agrees that upon
the request of Eclipsys from time to time in the future, he, she or it, as the
case may be, will execute and deliver a subordination agreement or agreements
with any of Eclipsys' banks or other institutional lenders with respect to the
Subordinate Obligations, provided, however, that any such future subordination
agreement shall be on substantially the same terms and conditions as the
Subordination Agreement. Eclipsys agrees that if, under the Subordination
Agreement or any future subordination agreement, it-is allowed to make only a
partial payment (i) that is otherwise due and payable under the Buyer Notes or
the Repurchase Notes, or (ii) required under Section 6.6(d) of this Agreement,
then it shall make any partial payments as to any such obligations on a pro rata
basis among all Selling Stockholders. The obligations of this Section 6.8 shall
survive the periods set forth in Section 7.5.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnity Obligations of the Selling Stockholders. Subject to
Section 8.15 below, each of the Selling Stockholders hereby jointly and
severally agrees to indemnify and hold Eclipsys and SDK (after the closing)
harmless from, and to reimburse Eclipsys and SDK (after the closing) for, any
and all losses, damages, deficiencies, claims, liabilities, obligations, suits,
actions, fees, costs, penalties charges and expenses (including without
limitation all reasonable legal and accounting fees) of any nature whatsoever
suffered or incurred by Eclipsys or any of its Affiliates or to which any of
them become subject, resulting from or in connection with:
(i) any breach of any representation and warranty of the
Selling Stockholders or SDK which is contained in this Agreement or
the other Acquisition Documents or any Schedule, Disclosure Schedule,
Exhibit or certificate delivered pursuant hereto or thereto;
(ii) any breach or non-fulfillment of, or any failure to
perform, any of the covenants, agreements or undertakings of the
Selling Stockholders or SDK which are contained in or made pursuant to
this Agreement or the other Acquisition Documents;
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(iii) breach, default, termination or loss or change of rights
or benefits under any of the SDK Contracts which arises from or in
connection with the consummation of the transactions contemplated by
this Agreement;
(iv) claims arising from the operation of SDK prior to the
Closing Date for exposure to, or the use or release of, Hazardous
Materials or Petroleum Products or any violation of any Environmental
Laws; and
(v) all legal, accounting and other expenses incurred by the
Selling Stockholders in connection with the negotiation, approval and
making and performance of this Agreement and the other Acquisition
Documents and the transactions contemplated hereby and thereby.
Any claim for indemnification on account of any of the foregoing is referred to
herein as an "Eclipsys Indemnity Claim."
7.2 Indemnity Obligations of Eclipsys. Eclipsys hereby agrees to
indemnify and hold each of the Selling Stockholders harmless from, and to
reimburse each of the Selling Stockholders for, any and all losses, damages,
deficiencies, claims, liabilities, suits, actions, fees, costs, penalty charges
and or expense (including without limitation all reasonable legal and accounting
fees) of any nature whatsoever suffered or incurred by the Selling Stockholders
resulting from (a) any breach of any representation and warranty of Eclipsys
which is contained in this Agreement or the other Acquisition Documents or any
Schedule, Exhibit or certificate delivered pursuant hereto or thereto; and (b)
any breach or nonfulfillment of, or failure to perform, any of the covenants,
agreements or undertakings of Eclipsys which are contained in or made pursuant
to the terms and conditions of this Agreement or the other Acquisition Documents
(any claim for indemnification on account of any of the foregoing, a
"Stockholder indemnity Claim").
7.3 Decisions by the Selling Stockholders.
(a) Subject to the following subsections (a) and (b), any
Selling Stockholder may make a Stockholder Indemnity Claim, whether or not any
other Selling Stockholder joins in such claim, provided, however, that no
Stockholder Indemnity Claim may be made unless it is made by a Selling
Stockholder or Selling Stockholders who in the aggregate would, if such claim
were successful, receive an amount equal to at least 15% of the amount that
would be received by all Selling Stockholders if all Selling Stockholders had
joined in such claim.
(b) In the event a Stockholder Indemnity Claim is made or
asserted by or on behalf of fewer than all of the Selling Stockholders, then
Eclipsys may at any time prior to resolution of such claim notify in writing the
Selling Stockholders (either directly or through the Stockholder Representative)
who have not made or asserted such Claim of Eclipsys' desire to join such
Selling Stockholders in such Stockholder Indemnity Claim, and in any
arbitration, court proceedings or other proceeding or resolution process
pursuant to which such Stockholder
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indemnity Claim is being, or is to be, resolved or adjudicated. Each such
Selling Stockholder shall have ten (10) business days from the date of such
notification by Eclipsys to elect to join in such Claim, in which event it shall
be joined with the other Selling Stockholders in such arbitration, court
proceeding or other proceeding or resolution process, and shall take all
actions, including filing all documents, as may be necessary to join such
Selling Stockholder in such arbitration, court proceeding or resolution process.
in the event a Selling Stockholder fails to elect to join in a Stockholder
indemnity Claim within such ten (10) business day period, such Selling
Stockholder shall thereafter be barred from asserting, and agrees that it shall
not assert or institute suit on account of, such Stockholder Indemnity Claim in
any manner, including without limitation in any arbitration, court proceeding or
other proceeding or resolution process.
(c) The decisions of the Selling Stockholders with respect to
defending all Eclipsys Indemnity Claims, consenting to, prosecuting,
compromising or settling all Stockholder Indemnity Claims as to which joinder
has occurred under Section 7.3(b), compromising or settling all Eclipsys
Indemnity Claims, conducting negotiations with Eclipsys and its representatives
regarding such claims, taking any and all other actions specified in or
contemplated by this Agreement and engaging counsel, accountants or other
representatives in connection with the foregoing shall be determined by the
Stockholder Representative. The decisions, actions and omissions of the
Stockholder Representative shall be binding on all of the Selling Stockholders,
as if the Stockholder Representative was acting on behalf of each such Selling
Stockholder. Eclipsys shall have the right to rely upon all actions taken or
omitted as a result of the decisions of the Stockholder Representative pursuant
to this Agreement, all of which actions or omissions shall be legally binding
upon each of the Selling Stockholders, and shall be entitled to make all claims
against and deliver all notices to the Selling Stockholders by making such
claims and delivering such notices to the Stockholder Representative.
(d) Each Selling Stockholder hereby irrevocably constitutes
and appoints the Stockholder Representative and any agent thereof, with full
power of substitution, as his, her or its (as the case may be) true and lawful
attorneys-in-fact with full irrevocable power and authority in the place and
stead of such Selling Stockholder's own name, for the purpose of carrying out
the terms of Section 7.3(c). To the extent permitted by law, each Selling
Stockholder hereby ratifies all that said attorney or attorneys shall lawfully
do or cause to be done by virtue hereof. This power of attorney is a power
coupled with an interest and shall be irrevocable.
7.4 Survival of Representations and Warranties.
(a) All representations and warranties, and, except as
otherwise provided in this Agreement, all covenants and agreements of the
parties contained in or made pursuant to this Agreement, and the rights of the
parties to seek indemnification with respect thereto, shall survive the Closing
and shall, subject to subparagraph (b) below, expire on the last day pursuant to
Section 7.5 below when a Party may make an indemnification claim for a breach of
such representation and warranty, provided, however, that any representation and
warranty that is the subject of an outstanding written indemnification claim on
such date shall survive beyond such date for purposes of such claim until the
resolution of such claim.
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(b) The representations and warranties contained in Section
4.2 above shall survive the Closing indefinitely.
7.5 Limitations. The provisions of Sections 7.1 through 7.3 are
subject to the limitations set forth in this Section 7.5.
(a) Neither Party shall be liable to the other under Article 7
unless the claim is asserted in writing by the Party or Parties seeking
indemnification (the "Indemnified Party") to the Party or Parties against whom
indemnification is sought (the "Indemnifying Party"), stating the nature of the
losses and the basis for indemnification therefor, and (i) in - the case of any
claim related to the representations and warranties in Section 4.10 (a "Tax
Claim"), no later than three months after the expiration of the applicable tax
statute of limitations with respect to the tax matter to which the Tax Claim
relates, as such limitation period may be extended from time to time, (ii) with
respect to any claim relating to a breach of a representation or warranty in
Section 4.25, within six years after the Closing Date, (iii) with respect to a
claim relating to a breach of a representation or warranty in Section 4.2,
within the applicable statute of limitations, and (iv) in the case of any claim
other than any claims referred to in (i), (ii) and (iii) above, within two years
after the Closing Date.
(b) Eclipsys shall not be liable to the Selling Stockholders,
and the Selling Stockholders shall not be liable to Eclipsys, unless the
aggregate of all net losses, costs, expenses and liabilities (collectively,
"Losses") suffered by either such Party exceed $500,000, upon which, the
Indemnifying Party shall be liable to the Indemnified Party for all Losses
suffered by the indemnified Party (including those Losses which were previously
below the foregoing threshold of $500,000). in no event shall the aggregate
liability of' either the Selling Stockholders or Eclipsys under this Article 7
exceed the aggregate amount of $3,000,000; provided, however, that such amount
shall not be deemed to limit Eclipsys' obligation to make the payments specified
in the following instruments and agreements: the Buyer Notes (except in
accordance with Section 7.6), the Employment Agreement, the Option Agreements,
the Lease or the Tax indemnity Agreement.
(c) In the event that, on or after the second anniversary of
the date of this Agreement, Eclipsys asserts an Eclipsys Indemnity Claim arising
out of or relating to a breach of Section 4.2 above, (i) Michael B. Kaufman
agrees that he shall be solely liable for, and hereby assumes sole liability
for, any such Eclipsys indemnity Claim, whether it arises out of or relates to a
breach by himself, SDK or any other Selling Stockholder, and (ii) in
consideration for such agreement and assumption by Michael B. Kaufman, Eclipsys
agrees that it shall only pursue such claim against Michael B. Kaufman and not
against any other Selling Stockholder.
7.6 Procedure for Claims; Setoff.
(a) Procedure for Claims. The indemnified Party shall deliver
to the indemnified Party a certificate (a "Claim Certificate") stating that the
Indemnified Party has a claim for indemnification pursuant to this Article 7 and
setting forth the basis for such claim. If the
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indemnified Party does not receive, within thirty (30) days after delivery of a
Claim Certificate to the indemnifying Party, a notice of objection (a "Notice of
Objection") from the lndemnifying Party objecting to the indemnified Party's
claim for indemnification and setting forth the basis for such objection, the
indemnified Party shall have the absolute and unconditional right to
reimbursement of such claim. if the indemnified Party receives a Notice of
Objection within such thirty (30) day period, the indemnified and indemnifying
Parties shall use their best efforts to reach mutual agreement as to the amount
which the Indemnified Party is entitled to reimbursement under this Article 7.
If the Parties fail to reach agreement within such thirty (30) day period, the
dispute shall be submitted to arbitration in Boston, Massachusetts, in
accordance with the then existing Commercial Arbitration Rules of the American
Arbitration Association, before a single arbitrator selected by mutual agreement
of the Parties. If the Parties cannot agree on the selection of an arbitrator,
the arbitrator shall be selected by the President of the Boston Bar Association.
(b) Payment of Claims. The reimbursement due an lndemnified
Party with respect to any Claim shall become due and payable by the Indemnifying
Party immediately upon mutual agreement by the Parties as the amount of
reimbursement due the Indemnified Party or upon decision of an arbitrator
pursuant to Section 7.6(a) above.
(c) Setoff. To satisfy the obligations of the Selling
Stockholders arising under this Article 7, but without limiting the right of
Eclipsys to seek any other remedy or recourse which may be available to it' each
of the Selling Stockholders hereby consents that Eclipsys shall have the right,
exercisable in its sole discretion as provided below, to set-off against any and
all payment obligations of Eclipsys under the Buyer Notes amounts that become
payable by any of the Selling Stockholders to Eclipsys under this Article 7.
Eclipsys' right to set-off pursuant to the preceding sentence shall become
immediately exercisable in its sole discretion upon any mutual agreement by the
Parties as to a reimbursement amount owed to Eclipsys under this Article 7, or
upon a decision by an arbitrator awarding reimbursement to Eclipsys pursuant to
Section 7.6(a) above. Eclipsys agrees that to the extent the unpaid balance of
the Buyer Notes against which no set-offs (or suspensions of payment pursuant to
the following subsection (d)) have been previously made do not exceed the
aggregate amount for which Eclipsys is entitled to set-off hereunder, it shall
first exercise its set-off rights prior to instituting any other claims or
procedures for payment or collection of such amount, and such set-offs shall be
asserted by Eclipsys against all of the Buyer Notes (except as otherwise
provided in the last sentence of this subsection (c)) on a Pro Rata (as
hereinafter defined) basis, and may be made, at Eclipsys' discretion, against
principal or interest due thereunder, and against any installment thereof, in
such priorities as Eclipsys may elect, provided however, that at such time as
all remaining principal and interest under any Buyer Note has been set-off or
suspended, Eclipsys shall not be limited to set-off against the Buyer Notes on a
Pro Rata basis and may at its sole discretion institute any claims or procedures
for payment or collection against any of the Selling Stockholders. "Pro Rata,"
as used in this Section, shall mean, as to any Selling Stockholder, such Selling
Stockholder's pro rata share of the total Consideration. Set-offs with regard to
Eclipsys Indemnification Claims arising from a breach of the Kaufman
Reimbursement Agreement shall be made against the Buyer Notes of the
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Parties who are party to the Kaufman Reimbursement Agreement pro rata in
proportion to the unpaid principal against which no set-off or suspension has
previously been made.
(d) Suspension of Payment. Until any such claims of Eclipsys
for indemnity shall have been fully discharged by payment to Eclipsys or by
set-off allowed pursuant to Section 7.6(c) above, Eclipsys may withhold payment
of principal and interest under the Buyer Notes to the extent such claim for
indemnity remains outstanding and not resolved by payment, permitted set-off or
arbitration, as aforesaid, with interest thereon at the applicable legal rate.
(e) Third Party Claims. In the event that Eclipsys or SDK
receives notice of the filing of a claim, suit, action or proceeding by a third
person or taxing authority or commencement of an examination by a taxing
authority which may give rise to a claim for indemnity pursuant to Section 7.1
hereof, it shall give the Stockholder Representative reasonable notice thereof
and shall permit the Stockholder Representative to have reasonable access to
relevant information in its possession or control. The Stockholder
Representative shall have the right to take all reasonable action, at his own
expense, as he deems desirable in order to minimize or eliminate such third
person or taxing authority claim, provided that such action shall not have any
adverse effect upon, nor result in any liability to Eclipsys or SDK greater than
such claim. In the event of a claim by a third person or a taxing authority
against Eclipsys or SDK which requests solely monetary amounts or damages with
respect to which Eclipsys claims to be entitled to the benefits of Section 7.1,
and if the payment of any pan or all of the amount claimed (whether by
compromise, settlement, judgment or otherwise) will have no other adverse effect
upon nor result in any liability to Eclipsys greater than or apart from such
claim, and the Selling Stockholders acknowledge in writing their joint and
several liability for such claim as between the parties hereto, the Selling
Stockholders shall have the right, at their own expense, acting through the
Stockholder Representative to appoint counsel to handle the defense of such
matter, and the Selling Stockholders shall have the exclusive right to
prosecute, defend, compromise, settle or pay such third party or taxing
authority claim, subject to their obligation to act in good faith. Eclipsys may
appoint, at its own expense, associate counsel to participate in the joint
defense of such matter, subject to the foregoing rights of the Selling
Stockholders. Except as aforesaid, Eclipsys reserves the right to control,
defend and settle any and all claims, subject only to its obligation to act in
good faith; provided, however, that Eclipsys shall not so settle any such claim
for an amount exceeding $10,000 without the prior approval of the Stockholder
Representative, which shall not be unreasonably withheld or delayed. If the
Stockholder Representative shall fail so to approve any such settlement proposed
by Eclipsys then. notwithstanding anything in this Agreement to the contrary,
the indemnity of the Selling Stockholders shall be fully applicable to that
portion of such claim in excess of the amount of such proposed settlement and
the indemnity of the Selling Stockholders for such excess shall not be subject
to any of the limitations on such indemnity which may be provided in this
Article 7 and shall be in addition thereto.
7.7 Subrogation Rights. Subject to Section 8.15 below, any
indemnifying Party which indemnifies any Indemnified Party for any matter
pursuant to this Article 7 shall, upon payment in full of the amount owed with
respect to such matter pursuant to this Article 7, be
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subrogated to the rights of such Indemnified Party against all other Persons
with respect to the matter for which indemnification was provided and, in its
own name or in the name of the Indemnified Party, may assert any claim against
any such Person which the Indemnified Party may have with respect thereto.
7.8 Release of SDK After Closing. The Selling Stockholders agree that
after the closing the Selling Stockholders alone, and not SDK, shall be
responsible for all of the obligations contained in this Article 7 to indemnify
and hold Eclipsys harmless for Eclipsys Indemnity Claims. In furtherance and not
in limitation of the foregoing, each Selling Stockholder hereby (a) waives any
and all rights of contribution such Selling Stockholder might otherwise have
against SDK in connection with any indemnification obligations paid. or
otherwise satisfied by such Selling Stockholder, and (b) agrees that if SDK
makes any payment on account of any matter that provides the basis for an
Eclipsys Indemnity Claim, such payment shall not relieve the Selling
Stockholders to any extent from their indemnification obligations to Eclipsys
under this Article 7.
ARTICLE 8
MISCELLANEOUS
8.1 Nature of Certain Obligations. The representations and warranties
of each of the Selling Stockholders in this Agreement are joint and several
obligations.
8.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
8.3 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
8.4 Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his or her rights, interests, or obligations hereunder without the prior
written approval of Eclipsys and the Stockholder Representative; provided,
however ,that Eclipsys may (i) assign any or all of its rights and interests
hereunder to one or more of its Affiliates and (ii) designate one or more of its
Affiliates to perform its obligations hereunder (in any or all of which cases
Eclipsys nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
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8.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same agreement.
8.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.7 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given upon transmission if
sent by telecopy to the telecopy number set forth below or if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Selling Stockholders:
Michael B. Kaufman
Stockholder Representative
367 Dudley Road
Newton, MA 02159
Fax: (617) 343-3099
With copy to:
Stephen M. Honig, Esq.
Goldstein & Manello, P.C.
265 Franklin Street
Boston, MA 02110-3192
Fax: (617) 439-8988
If to Eclipsys:
Eclipsys Corporation
777 East Atlantic Avenue
Suite 200
Delray Beach, FL 33483
Fax: (561)243-9390
Attn: Harvey J. Wilson and Jack Risenhoover, Esq.
With copies to:
Lester J. Fagen, Esq.
Goulston & Storrs
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400 Atlantic Avenue
Boston, MA 02110
Fax: (617) 574-4112
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telex, ordinary mail, or electronic mail), but no such notice, request, demand,
claim, or other communication shall be deemed to have been duly given unless and
until it actually is received by the intended recipient. Any Party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
8.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW, PROVISION OR RULE
(WHETHER OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY OTHER JURISDICTION) THAT
WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
COMMONWEALTH OF MASSACHUSETTS.
8.9 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
Eclipsys and the Stockholder Representative. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
8.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
8.11 Expenses. Except as otherwise set forth in this Agreement, each
of the Parties will bear his, her or its own costs and expenses (including legal
fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby. The Selling Stockholders agree that SDK has
not borne or will bear any of the Selling Stockholders' costs and expenses
(including any of their legal fees and expenses) in connection with this
Agreement or any of the transactions contemplated hereby.
8.12 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. in the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or
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law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
8.13 Incorporation of Exhibits. Annexes and Schedules. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
8.14 Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in The Commonwealth of
Massachusetts, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court.
8.15 No Personal Liability of Michael M. Davis.
(a) Notwithstanding any other provision of this Agreement or
the Acquisition Documents to the contrary, each Party acknowledges that Michael
M. Davis is a party to this Agreement or to such other Acquisition Documents
solely in the capacity as a trustee of The Michael B. Kaufman Family Trust u/t/a
dated 9/3/93 (the "Family Trust") and not personally, that Mr. Davis makes no
representation, warranty, covenant or agreement of any kind, other than in his
capacity as such trustee, and that no Party hereto shall make or assert any
claim of any kind against Mr. Davis relating to, arising out of or in connection
with this Agreement or such other Acquisition Documents in any capacity other
than as trustee of the Family Trust (other than a claim of his conscious and
intentional fraud). All Parties to this Agreement, other than Mr. Davis, agree
that if they have any claims against the Family Trust or the trustees of the
Family Trust or otherwise for any misrepresentation, breach of warranty or
covenant or of any other kind arising under or relating to this Agreement or the
other Acquisition Documents (including without limitation any Eclipsys Indemnity
Claim):
(i) such claim shall be asserted only against, and shall be
limited to, the assets of the Family Trust (other than claims that Mr.
Davis in his capacity as trustee of the Family Trust has willfully
failed pursuant to this Agreement to deliver and properly endorse to
Eclipsys the SDK Shares listed as owned by the Family Trust in Section
4.2 of the SDK Disclosure Schedule);
(ii) Mr. Davis shall have no personal obligations or liability
for any such claim (other than for his conscious and intentional
fraud); and
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(iii) Mr. Davis shall be entitled to have the defense against
any such claim conducted by the Family Trust and to have the expenses
of such defense (including without limitation the fees and
disbursements of counsel) defrayed out of the assets of the Family
Trust, in priority to the satisfaction of any such claim, and if the
Family Trust shall fail, neglect or refuse, in whole or in part, to
conduct such defense and defray the expenses thereof (including
without limitation the fees and disbursements of counsel) the Signing
Stockholders shall assume and pursue the conduct of such defense, and
shall indemnify and hold harmless Mr. Davis in respect of such
expenses thereof; provided, however, that all Parties to this
Agreement, to the extent any such Party is a beneficiary or contingent
beneficiary of the Family Trust, agree that Eclipsys' rights with
respect to any Eclipsys Indemnity Claim shall follow any assets of the
Family Trust that may be distributed from time to time after the date
of this Agreement, and that, subject to the other limitations
contained in this Agreement, Eclipsys may pursue an Eclipsys Indemnity
Claim against, any beneficiary or contingent beneficiary of the Family
Trust up to the amount of any such future distributions.
(b) The Selling Stockholders other than Michael M. Davis as
Trustee of the Family Trust acknowledge and agree, and each of them by signing
this Agreement or an Instrument of Adherence hereto, shall be conclusively
deemed to have acknowledged and agreed, that any claim for subrogation that he,
she, it or they may have against Mr. Davis or the Family Trust under Section 7.7
of this Agreement shall be limited to, and shall be asserted only against, the
assets of the Family Trust (subject to the proviso in paragraph (a)(ii) above),
and that Mr. Davis shall have no personal obligation or liability to them, or
any of them, in respect of this Agreement or the subject matter hereof or the
other Acquisition Documents, whether under Section 7.7 or otherwise, other than
for his conscious and intentional fraud or willful misconduct.
8.16 Special Provisions Regarding Trusts. In the event that any
Selling Stockholder that is a trust dissolves or otherwise distributes to its
beneficiaries or other parties Buyer Notes, Share Consideration or other
Consideration payable hereunder, the parties hereto agree that Eclipsys may
require as a condition to transferring the Buyer Notes, Share Consideration or
other Consideration to any such beneficiary or other party, that such
beneficiary or other party agree in a writing satisfactory to Eclipsys to the
terms of this Agreement is if he or she were a Selling Stockholder hereunder,
and, thereupon, such beneficiary or other party shall have all of the rights and
obligations of a Selling Stockholder hereunder.
IN WITNESS WHEREOF, the Parties hereto have executed this Amended and
Restated Stock Purchase Agreement as of the date first above written.
ECLIPSYS:
ECLIPSYS CORPORATION
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By: /s/ Harvey J. Wilson
-----------------------------------
Its: President
-----------------------------------
SDK:
SDK MEDICAL COMPUTER
SERVICES CORPORATION
By: /s/ Michael B. Kaufman
---------------------------------------
Name: Michael B. Kaufman
Title: President
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<PAGE> 46
SIGNING STOCKHOLDERS:
/s/Michael B. Kaufman
------------------------------------------
Michael B. Kaufman
/s/ Claudia Kaufman
------------------------------------------
Claudia Kaufman
/s/ Pearl S. Kaufman
------------------------------------------
Pearl S. Kaufman
Pearl S. Kaufman as Trustee of The Michael
B. Kaufman Trust pursuant to a Trust
Agreement dated June 30, 1976
/s/ Pearl S. Kaufman
------------------------------------------
Pearl S. Kaufman, Trustee
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Annex A
Definitions
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Acquisition" has the meaning set forth in the Recitals hereof.
"Acquisition Documents" means this Agreement, the Buyer Notes, the
Stockholders' Agreement, the Registration Rights Agreement, the Lease, the
Kaufman Reimbursement Agreement, the Tax Agreement and any other agreement or
instrument delivered by any of the Parties hereto at or in connection with the
Closing.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code ss.1504, or any similar group defined under a similar provision of state,
local or foreign law.
"Agreement" means the Stock Purchase Agreement, dated May 23, 1997,
among Eclipsys, SDK and the Selling Stockholders.
"Allocation Certificate" shall mean a certificate to be executed by
all Selling Stockholders and delivered at the Closing which shall set forth the
amount of Cash Consideration and Share Consideration to be allocated to each
Selling Stockholder. "Alltel" means Alltel Information Services, Inc., an
Arkansas Corporation.
"Alltel Healthcare" means Alltel Healthcare lnformation Systems, Inc.,
a Delaware Corporation, which merged into Eclipsys Solutions Corp. a Delaware
corporation, in connection with the Alltel Merger.
"Alltel Merger" means the merger of Alltel Healthcare into Eclipsys
Solutions Corp. pursuant to the Agreement of Merger, dated as of January 24,
1997, by and among Alltel, Alltel Healthcare, Eclipsys and Eclipsys Solutions
Corp.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms the basis for any specified
consequence.
"Buyer Notes" has the meaning set forth in Section 2.3 of the
Agreement.
"Cash Consideration" has the meaning set forth in Section 2.3 of the
Agreement.
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"Claim Certificate" has the meaning set forth in Section 7.6(a) of the
Agreement.
"Closing" has the meaning set forth in Section 2.2 of the Agreement.
"Closing Date" has the meaning set forth in Section 2.2 of the
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the
businesses and affairs of SDK or Eclipsys, as the case may be, including without
limitation each such Party's trade secrets, know-how, processes, systems,
formulae, data, functional specifications, computer programs, blue prints,
discoveries, improvements, developments, designs, inventions, techniques,
marketing plans, strategies, forecasts, new products, business plans, financial
data, budgets, projections, licenses, prices, costs and customer and supplier
lists.
"Consideration" means the Share Consideration and the Cash
Consideration, together.
"Disclosure Schedule" has the meaning set forth in Article 4 of the
Agreement.
"Eclipsys" has the meaning set forth in the preface of the Agreement
but shall not be deemed to include any direct or indirect subsidiary of Eclipsys
Corporation.
"Eclipsys Common Shares" shall mean the shares of the Common Stock,
par value $.01 per share, of Eclipsys (which is the voting common stock of
Eclipsys) received by the Selling Stockholders as Share Consideration.
"Eclipsys Financial Statements" has the meaning set forth in Section
3.6 of the Agreement.
"Eclipsys Indemnity Claim" has the meaning set forth in Section 7.1 of
the Agreement.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
ss.3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
ss.3(1).
"Employment Agreement" has the meaning set forth in Section 5.6(h).
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"Environmental Laws" shall mean any and all federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
administrative orders, decrees or requirements of any federal, state, municipal,
or other governmental department, commission, board, bureau, agency or
instrumentality, or court or arbitrator, in each case whether of the United
States or foreign, now in effect and applicable to any of the Sellers and
regulating, relating to, or imposing liability or standards of conduct
concerning any Hazardous Materials or Petroleum Products or environmental
protection, as are now in effect, including without limitation, the Clean Water
Act, also known as the Federal Water Pollution Control Act, 33 U.S.C. ss. 1251
et seq., the Clean Air Act, 42 U.S.C. ss. 7401 et seq., the Federal Insecticide,
Fungicide and Rodenticide Act, 7 U.S.C. ss. 300F et seq., the Surface Mining
Control and Reclamation Act ss. 1201 et seq., 30 U.S.C. ss. 1291 et seq., the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
ss. 9601 et seq., the Superfund Amendment and Reauthorization Act of 1986,
Public Law 99-499, 100 Stat. 1613, the Emergency Planning and Community Right to
Know Act, 42 U.S.C. 1101 et seq., the Resource Conservation and Recovery Act, 42
U.S.C. 6901 et seq., and the regulations adopted and publications promulgated
thereunder and all substitutions thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fiduciary" has the meaning set forth in ERISA ss.3(21).
"First Installment" has the meaning set forth in Section 2.3 of the
Agreement.
"Hazardous Materials" shall mean any hazardous materials, hazardous
wastes, infectious medical wastes, hazardous or toxic substances, asbestos,
asbestos fibers, friable asbestos, PCB'S, waste or used oil, cleaning solvents,
or constituents of any of the foregoing, defined or regulated as such in or
under any Environmental Law, including, without limitation, materials exhibiting
the characteristics of ignitability, corrosiveness, reactivity or leaching
procedure toxicity, as such terms are defined in connection with hazardous
materials or hazardous wastes or hazardous or toxic substances in any
Environmental Law.
"Indemnified Party" has the meaning set forth in Section 7.5(a) of the
Agreement.
"Indemnifying Party" has the meaning set forth in Section 7.5(a) of
the Agreement.
"Intellectual Property" means (i) All Patents, (ii) all Trademarks,
(iii) all copyrightable works, all copyrights, rights and interests in
copyrights and all applications, registrations, recordings and renewals in
connection therewith; (iv) all mask works and all applications, registrations,
recordings and renewals in connection therewith; (v) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulae, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals); (vi) all computer software including all computer programming
codes, object codes, source codes, associated procedural codes and designs
directly
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or indirectly associated therewith; all manuals, books, documents and
specifications directly or indirectly related thereto; all versions,
modifications, changes, improvements, updates, new releases and/or enhancements
thereof; all applications thereof, existing, currently under development or
conceived of; all algorithms, formulae and protectable concepts embodied therein
as well as all cards, tapes, disks, other media, documentation, specifications
or other physical embodiments, or modifications, improvements and enhancements
embodying, relating to or containing any of the foregoing; (vii) all other
proprietary rights; (viii) all copies and tangible embodiments thereof (in
whatever form or medium); (ix) all income, royalties, damages or payments now
and hereafter due and/or payable under any of the foregoing with respect to any
of the foregoing and the right to sue for past, present or future infringements
of any of the foregoing; (x) all licenses, agreements and permissions with
respect to any of the foregoing; (xi) all rights corresponding to any of the
foregoing throughout the world; and (xii) all of the foregoing items provided or
licensed by third parties to SDK pursuant to any agreement or arrangement,
including without limitation any VAR, OEM, development, distribution, license or
sublicense agreement or arrangement.
"IRS" means the Internal Revenue Service.
"Knowledge" means knowledge after reasonable investigation. For the
purposes of this Agreement, the knowledge of one Selling Stockholder shall be
attributed to the other Selling Stockholders. The Selling Stockholders shall be
deemed to have "Knowledge" of any matter which can be traced to the books,
records, files, contracts or other documents of SDK.
"Later Installments" has the meaning set forth in Section 2.3 of the
Agreement.
"Lease" has the meaning set forth in Section 5.6(m) of the Agreement.
"Liability" means any liability or obligation (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether due or to
become due), including any liability or obligation for Taxes.
"Losses" has the meaning set forth in Section 7.5(b) of the Agreement.
"Material Adverse Effect" means any and all action, suit, proceeding,
hearing, investigations charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, which requires Eclipsys or SDK to expend $50,000 or more or impairs
the business, financial condition, operations, results of operations, or future
prospects of Eclipsys or SDK by $50,000 or more.
"Michael Kaufman Group" means: (i) Michael B. Kaufman; (ii) Claudia
Kaufman; (iii) Michael M. Davis and Michael B. Kaufman as Trustees of the
Michael B. Kaufman Family
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Trust u/t/a dated September 3, 1993; (iv) Michael B. Kaufman as Trustee of the
Amy R. Kaufman 1990 Trust u/t/a dated December 28, 1990; (v) Michael B. Kaufman
as Trustee of the Kim E. Kaufrnan 1990 Trust u/t/a dated December 28, 1990; and
(vi) Pearl S. Kaufman as Trustee of the Michael B. Kaufman Trust pursuant to a
Trust Agreement dated June 30, 1976.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in
Section 4.6 of the Agreement.
"Most Recent Fiscal Month End" has the meaning set forth in Section
4.6 of the Agreement.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4.6
of the Agreement.
"Multiemployer Plan" has the meaning set forth in ERISA ss.3(37).
"New Realty Trust" means New Realty Trust, a Massachusetts trust, and
the owner of the premises currently leased by SDK.
"Notice of Objection" has the meaning set forth in Section 7.6(a) of
the Agreement.
"Option Agreements" has the meaning set forth in Section 5.1 (g) of
the Agreement.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Other Stockholders" has the meaning set forth in the introductory
paragraph to this Agreement.
"Party" or "Parties" has the meaning set forth in the preface of the
Agreement.
"Patents" means all patents, patent applications and patent disclosures
of SDK, together with all reissuances, decisions, continuations, renewals,
continuations-in-part, revisions, extensions, and reexaminations of any of the
Patents.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
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"Petroleum Products" shall mean gasoline, diesel fuel, motor oil,
heating oil, kerosene and any other petroleum products.
"Prime Rate" means the prime rate published as such by The Wall Street
Journal.
"Prohibited Transaction" has the meaning set forth in ERISA ss.406 and
Code ss.4975.
"Proprietary Information" has the meaning set forth in Section 4.12(f)
of the Agreement.
"Qualified IPO" means the closing of an initial public offering
pursuant to an effective registration statement on Form S-1 or a successor form
under the Securities Act covering the offer and sale by Eclipsys and/or any
selling stockholders of Eclipsys capital stock to the public which results in
aggregate gross proceeds to Eclipsys and/or the selling stockholders of at least
$ 10,000,000.
"Registration Rights Agreement" means that certain Amended and
Restated Registration Rights Agreement, dated January 24, 1997, by and among
Eclipsys and certain of its stockholders, as amended in accordance with Section
5.1(i).
"Reportable Event" has the meaning set forth in ERISA ss.4043.
"Repurchase" has the meaning set forth in Section 6.6(e).
"Repurchase Notice" has the meaning set forth in Section 6.6(a) of the
Agreement.
"Repurchase Period" has the meaning set forth in Section 6.6(a) of the
Agreement.
"SDK" has the meaning set forth in the first paragraph of the
Recitals.
"SDK Contracts" has the meaning set forth in Section 4.16 of the
Agreement.
"SDK Financial Statements" has the meaning set forth in Section 4.6 of
the Agreement.
"SDK Non-Voting Common Shares" means the shares of the Non-Voting
Common Stock, $.01 par value, of SDK.
"SDK Per Share Consideration" has the meaning set forth in Section
4(a) of the Agreement.
"SDK Preferred Shares" means the shares of the Preferred Stock, $.01
par value, of SDK.
"SDK Shares" has the meaning set forth in Section 4.2 of the
Agreement.
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"SDK Voting Common Shares" means the shares of the Voting Common
Stock, $.01 par value, of SDK.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Selling Stockholders" has the meaning set forth in the preface of the
Agreement.
"Share Consideration" has the meaning set forth in Section 2.3 of the
Agreement.
"Share Consideration Taxes" has the meaning set forth in Section 6.6
of the Agreement.
"Signing Stockholders" has the meaning set forth in the introductory
paragraph to this Agreement
"Specified Employee Stockholders" means Charles Carp, Dolores Jolly
and J. Alan Whitney.
"Stockholder Agreement" means the Amended and Restated Stockholders
Agreement, dated January 24, 1997, among Eclipsys and certain of its
stockholders, as amended in accordance with Section 5.1(i).
"Stockholder Indemnity Claim" has the meaning set forth in Section 7.2
of the Agreement. "Stockholder Representative" means Michael B. Kaufman.
"Subordination Agreement" has the meaning set forth in Section 5.6(b)
of the Agreement.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code ss.59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use,
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transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Claim" has the meaning set forth in Section 7.5(a) of the
Agreement.
"Tax Loans" has the meaning set forth in Section 6.6 of the Agreement.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Termination Date" has the meaning set forth in Section 5.8 of the
Agreement.
"Trademarks" means all trademarks, trade names, service marks, trade
dress, trade style, logos, company names and corporate names of SDK, and SDK's
corporate names, and all rights and goodwill associated with the foregoing, and
all applications, registrations, recordings and renewals in connection
therewith.
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Exhibits to Exhibit 2.2, the Amended and Restated Stock Purchase Agreement
among the Registrant, SDK Medical Computer Services Corporation and the Selling
Stockholders defined therein dated June 26, 1997, have been omitted pursuant to
Item 601(b)(2) of Commission Regulation S-K. The following is a list of omitted
Exhibits and Schedules which the Registrant agrees to furnish supplementally to
the Commission upon request:
Exhibits:
A Instrument of Adherence
B Form of Buyer Notes
C Form of Allocation Certificate
D-1 Form of Employment Agreement among Eclipsys, SDK and Michael B. Kaufman
D-2 Form of Incentive Stock Option Agreement between Eclipsys and Michael B.
Kaufman
D-3 Form of Non-Qualified Stock Option Agreement between Eclipsys and Michael
B. Kaufman
E Form of Amendment No. 1 to Stockholders Agreement
F Form of Amendment No. 1 to Registration Rights Agreement
G Memorandum of Terms for Lease
Schedules:
Eclipsys Disclosure Schedule - Exception to Representations and Warranties
Concerning Eclipsys
SDK Disclosure Schedule - Exceptions to Representations and Warranties
Concerning the Selling Stockholders and SDK
<PAGE> 1
EXHIBIT 2.3
- ------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
BETWEEN
ECLIPSYS CORPORATION
EMTEK HEALTHCARE CORPORATION
AND
MOTOROLA, INC.
- -------------------------------------------------------------------------------
January 30, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Definitions.....................................................................................1
2. Basic Transaction...............................................................................8
(a) Purchase and Sale of Acquired Assets...................................................8
(b) Excluded Assets.......................................................................10
(c) Assumption of Liabilities.............................................................12
(d) Excluded Liabilities..................................................................13
(e) Purchase Price........................................................................16
(f) The Closing...........................................................................16
(g) Deliveries at the Closing.............................................................16
3. Representations and Warranties of the Seller...................................................17
(a) Organization of the Seller............................................................17
(b) Authorization of Transaction..........................................................17
(c) Noncontravention......................................................................17
(d) Brokers' Fees.........................................................................18
(e) Title to Tangible Assets..............................................................18
(f) Sufficiency of Acquired Assets; Machinery and Equipment...............................18
(g) Financial Statements..................................................................19
(h) Events Subsequent to December 31, 1997................................................20
(i) Legal Compliance......................................................................23
(j) Tax Matters...........................................................................23
(k) Real Property.........................................................................23
(l) Intellectual Property.................................................................25
(m) Contracts.............................................................................26
(n) Litigation............................................................................27
(o) Employee Benefits.....................................................................28
(p) Environmental, Health, and Safety Matters.............................................28
(q) Investment............................................................................29
(r) Absence of Undisclosed Liabilities....................................................29
(s) Insurance Policies....................................................................29
(t) Consents..............................................................................29
(u) Labor Matters.........................................................................30
(v) Licenses, Permits, and Authorizations.................................................30
(w) Customers and Suppliers...............................................................30
(x) Officers' and Key Employees' Salaries.................................................31
(y) Inventory.............................................................................31
(z) Absence of Certain Payments...........................................................31
(aa) Location of Assets....................................................................31
(bb) Accounts Receivable...................................................................31
</TABLE>
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<TABLE>
<S> <C>
(cc) Warranty Policies.....................................................................32
(dd) Disclaimer of other Representations and Warranties....................................32
4. Representations and Warranties of the Buyer....................................................32
(a) Organization..........................................................................33
(b) Authorization of Transaction..........................................................33
(c) Noncontravention......................................................................33
(d) Brokers' Fees.........................................................................34
(e) Eclipsys Stock........................................................................34
(f) The Buyer.............................................................................34
5. Certain Covenants..............................................................................35
(a) Notices and Consents; Assignment of Acquired Contracts;
Material Contracts....................................................................35
(b) Customer Commitment Reimbursement.....................................................36
(c) Confidentiality.......................................................................36
6. Certain Other Covenants........................................................................36
(a) General...............................................................................36
(b) Litigation Support....................................................................36
(c) Transition Services...................................................................37
(d) Training..............................................................................37
(e) Use of Names..........................................................................37
(f) Endorsements; Bank Accounts...........................................................37
(g) Possession and Control of Assets; Access to Information...............................38
(h) Certain Payments......................................................................38
(i) Non-Competition and Non-Solicitation Agreement........................................38
(j) Wireless Agreement....................................................................38
(k) Eclipsys Investor Rights Agreement....................................................38
(l) Eclipsys Registration Rights Agreement................................................38
(m) Support for International Business Customers..........................................39
(n) Guaranty by Eclipsys..................................................................39
(o) Further Provisions With Respect to Intellectual Property..............................39
(p) Grant-Back License to Seller..........................................................39
(q) Further Cooperation and Assistance With Respect to Audi
Matters...............................................................................39
(r) Additional Agreements With Respect to Performance Bonds,
Guarantees............................................................................41
(s) Post-Closing Deliveries...............................................................41
7. Employment and Employee Benefit Matters........................................................41
(a) Transferred Employees.................................................................41
(b) Construction..........................................................................42
(c) Recognition of Service; Pre-Existing Conditions; Deductible
Fulfillment...........................................................................43
(d) No Duplicate Benefits.................................................................43
(e) Severance Arrangements................................................................43
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
(f) Compensation; Salary Increase Set-Aside...............................................44
(g) Welfare Plans.........................................................................44
(h) Other Benefit Matters.................................................................45
(i) Third Party Rights....................................................................46
(j) Reimbursement of Tuition Expenses.....................................................46
(k) Seller Assistance.....................................................................46
(l) Assumed and Excluded Liabilities......................................................47
(m) Profit Sharing and Investment Plan Asset Transfer.....................................47
8. Tax Matters....................................................................................47
(a) Seller Tax Returns....................................................................47
(b) Buyer Tax Returns.....................................................................47
(c) Transfer Taxes........................................................................47
(d) Apportioned Obligations...............................................................48
9. Conditions to Obligation to Close..............................................................48
(a) Conditions to Obligation of the Buyer.................................................48
(b) Conditions to Obligation of the Seller................................................50
10. Remedies for Breaches of this Agreement........................................................51
(a) Survival of Provisions................................................................51
(b) Indemnification Provisions for Benefit of the Buyer...................................51
(c) Indemnification Provisions for Benefit of the Seller..................................52
(d) Matters Involving Third Parties.......................................................53
(e) Determination of Adverse Consequences.................................................54
(f) Exclusive Remedy......................................................................54
(g) Satisfaction of Seller Indemnification................................................54
11. Miscellaneous..................................................................................54
(a) Press Releases and Public Announcements...............................................54
(b) No Third-Party Beneficiaries..........................................................55
(c) Entire Agreement......................................................................55
(d) Succession and Assignment.............................................................55
(e) Counterparts..........................................................................55
(f) Headings..............................................................................55
(g) Notices...............................................................................55
(h) Governing Law.........................................................................57
(i) Amendments and Waivers................................................................57
(j) Severability..........................................................................57
(k) Expenses..............................................................................57
(l) Construction..........................................................................57
(m) Incorporation of Exhibits and Schedules...............................................58
(n) Bulk Transfer Laws....................................................................58
</TABLE>
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<TABLE>
<S> <C>
Exhibit A - Form of Bill of Sale
Exhibit B - Form of Undertaking
Exhibit C-1 - Most Recent Balance Sheet
Exhibit C-2 - Financial Statements
Exhibit D - Form of Transition Services Agreement
Exhibit E - Form of Non-Competition/Non-Solicitation Agreement
Exhibit F - Form of International Software and Support Agreement
Exhibit G - Form of Eclipsys Guaranty
Exhibit H - Form of Motorola-Eclipsys Profit Sharing Transfer Agreement
</TABLE>
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<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is entered into as
of January 30, 1998, by and between EMTEK HEALTHCARE CORPORATION, a Delaware
corporation (the "Buyer"), ECLIPSYS CORPORATION, a Delaware corporation
("Eclipsys") and MOTOROLA, INC., a Delaware corporation (the "Seller"). The
Buyer, Eclipsys and the Seller are referred to collectively herein as the
"Parties."
This Agreement contemplates a transaction in which the Buyer
will purchase substantially all of the assets (and assume certain agreed upon
liabilities which are specified in this Agreement) of the Emtek Healthcare
Division of the Seller in return for the Eclipsys Stock.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Definitions.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Acquired Assets" has the meaning set forth in Section 2(a) of
this Agreement.
"Acquired Contracts" has the meaning set forth in Section
2(a)(vii) of this Agreement.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
liabilities, obligations, taxes, liens, losses, expenses, and fees, including
court costs and reasonable fees and expenses of attorneys and other
professionals.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Applicable Law" means any statute, law, rule or regulation or
any judgment, order, writ, injunction or decree of any governmental authority to
which either the Seller, the Division, the Buyer, Eclipsys, or any of their
respective Affiliates or properties, as applicable, is subject.
"Applicable Rate" means the corporate base rate of interest
publicly announced from time to time by Chase Manhattan Bank, New York (or any
successor thereto).
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<PAGE> 7
"Assumed Liabilities" has the meaning set forth in Section 2(c)
of this Agreement.
"Bill of Sale" means that certain Bill of Sale dated as of the
date hereof in the form of Exhibit A attached hereto.
"Business" means the business of providing computer software
products and related services to the Healthcare Industry and other similar
activities conducted by the Division as at the date of this Agreement and as at
the Closing Date.
"Buyer" means Emtek Healthcare Corporation, a Delaware
corporation, and a wholly-owned subsidiary of Eclipsys.
"Cash" means cash and cash equivalents (including marketable
securities and short term investments).
"Closing" has the meaning set forth in Section 2(f) below.
"Closing Balance Sheet" means the unaudited balance sheet of the
Division as of January 24, 1998 as updated by the "Updated Closing Balance
Sheet." Once the Updated Closing Balance Sheet has been delivered, the term
"Closing Balance Sheet" shall mean such Updated Closing Balance Sheet.
"Closing Date" has the meaning set forth in Section 2(f) below.
"Code" means the Internal Revenue Code of 1986, as amended, and
all rules and regulations promulgated pursuant thereto.
"Competing Uses" means the direct or indirect use of computer
software designed for the Healthcare Industry with applications used to gather,
analyze or provide information for healthcare professionals or providers with
any of the following characteristics: (i) clinical information systems, (ii)
laboratory information systems, (iii) financial information systems for the
Healthcare Industry, (iv) managed care information systems, (v) resource
scheduling systems, (vi) clinical orders, (vii) clinical data repository, (viii)
point-of-care systems, (ix) database for clinical imaging, (x) clinical and
financial decision support systems, (xi) point of care charting, or (xii)
document management.
"Confidential Information" means any software programs, trade
secrets, confidential files or data, customer and supplier lists and all other
material information concerning the Business and affairs of the Division that is
not currently available to the public, or is otherwise designated as
"confidential" or "proprietary" by one or more of the Parties hereto.
"Deferred Intercompany Transaction" has the meaning set forth in
Reg. ss. 1.1502-13 of the code.
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<PAGE> 8
"Disclosure Schedules" has the meaning set forth in Section 3 of
this Agreement.
"Division" means the Emtek Healthcare Division of Seller and the
Business conducted by the Seller in respect of that Division; provided, that it
is understood and agreed by the parties to this Agreement that the Buyer is not
acquiring any of the International Business of the Emtek Healthcare Division of
Seller and, consequently, unless otherwise expressly set forth in writing to the
contrary for purposes of this Agreement (and any other agreement into which this
definition is incorporated by reference) the term "Division" shall only be
construed to mean the Business operations of the Emtek Healthcare Division of
Seller which are conducted in the United States, its territories and
possessions, and in the Dominion of Canada.
"Eclipsys Common Stock" means the shares of Class A Common
Stock, $.01 par value per share of Eclipsys.
"Eclipsys Equity Documents" means, collectively the Eclipsys
Investors Rights Agreement and the Eclipsys Registration Rights Agreement.
"Eclipsys Investors Rights Agreement" means that certain Second
Amended and Restated Stockholders Agreement, dated as of the date hereof by and
among Eclipsys and the stockholders named therein, including Seller.
"Eclipsys Registration Rights Agreement" means that certain
Second Amended and Restated Registration Rights Agreement dated as of the date
hereof by and among Eclipsys and the stockholders named therein, including
Seller.
"Eclipsys Stock" means the 1,500,000 shares of Eclipsys Common
Stock to be issued to the Seller at the Closing.
"Employee Benefit Plan" has the meaning set forth in Section
3(3) of ERISA.
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, and ordinances
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances of wastes, as such requirements are enacted and in effect
on or prior to the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all rules and regulations promulgated thereunder.
"Excluded Assets" has the meaning set forth in Section 2(b) of
this Agreement.
"Excluded Liabilities" has the meaning set forth in Section 2(d)
of this Agreement.
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<PAGE> 9
"Financial Statements" has the meaning set forth in Section 3(g)
of this Agreement.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Healthcare Industry" means the direct or indirect providing,
insuring, facilitating or improving of physical, mental or other care for any
Person, including through any hospital, physician's clinic, health maintenance
organization, physician, integrated delivery network, home health care,
psychiatric care, pharmaceutical company, managed care, health insurance
company, skilled nursing facility or similar provider.
"Income Tax" means any federal, state, local, or foreign income
tax, including any interest, penalty, or addition thereto, whether disputed or
not.
"Income Tax Return" means any return, declaration, report claim
for refund, or information return or statement relating to Income Taxes,
including any schedule or attachment thereto.
"Indebtedness" means, as to the any Person, at any date, without
duplication, but EXCLUDING all current trade payables and accrued expenses
incurred in the ordinary course of such Person's business, all of the following
obligations: (a) all indebtedness of such Person for borrowed money, (b) all
obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
Property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such Property), (e) all capitalized lease obligations
(including the future payment obligations of thereunder discounted to their
present value in accordance with GAAP for the purposes hereof), of such Person,
(f) all obligations of such Person, contingent or otherwise, as an account party
under acceptance, to purchase, redeem, retire or otherwise acquire for value any
capital stock (other than common stock) of such Person, (g) all guarantee
obligations of such Person in respect of obligations of the kind referred to in
clauses (a) through (f) above; and (h) all obligations of the kind referred to
in clauses (a) through (g) above secured by (or for which the holder of such
obligations has an existing right, contingent or otherwise, to be secured by)
any Lien on Property or any asset (including, without limitation, accounts and
contract rights) owned or held by such Person, whether or not such Person has
assumed or become liable for the payment of such obligation, in each case that
matures more than one year from the date of its creation or matures within one
year from such date but is renewable or extendible, at the option of such
Person, to a date more than one year from such date or arises under a revolving
credit or similar agreement that obligates the lender or lenders to extend
credit during a period of more than one year from such date including, without
limitation, all current
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<PAGE> 10
maturities and current sinking fund payments in respect of any of the items in
clauses (a) through (i) whether or not required to be paid within one year from
the date of its creation.
"Indemnified Party" has the meaning set forth in Section 10(d)
of this Agreement.
"Indemnifying Party" has the meaning set forth in Section 10(d)
of this Agreement.
"Intercompany Obligations" means, as the case may be (i) all
Indebtedness, accounts payable, accrued expenses and other obligations owed by
Seller or any of Seller's Affiliates (other than the Division) to the Division,
and/or (ii) all Indebtedness, accounts payable, accrued expenses and other
obligations owed by the Division to the Seller or any of Seller's Affiliates
(other than the Division).
"International Business" has the meaning set forth in Section
2(b)(vi) of this Agreement.
"Knowledge" means, where any representations or warranties of
any Person are qualified to such person's or entity's "knowledge" (or words to
that effect) the actual knowledge (after reasonable inquiry of key employees in
the ordinary course of business) of any executive officer or director of such
Person (including, in respect of the Division, the executive officers of the
Division and such other persons as are listed on Schedule 1(b) hereto).
"Material Adverse Effect" means, with respect to the Division or
any entity (or group of entities taken as a whole), such state of facts, events,
change or effect as has had, or would reasonably be expected to have, a material
adverse effect on the Acquired Assets, the Business or the financial condition
of the Division, taken as a whole, or, such entity (or group of entities, taken
as a whole), or with respect to the transactions contemplated hereby, on the
ability of Buyer and Seller to consummate the transactions contemplated hereby.
"Most Recent Balance Sheet" means the unaudited balance sheet of
the Division at December 31, 1997 attached hereto as Exhibit C-1 and included in
the Financial Statements attached hereto as Exhibit C-2.
"Ordinary Course of Business" or "ordinary course of business"
means, with respect to any Person, the ordinary course of business consistent
with immediately past custom and practice (including with respect to quantity
and frequency of any item or action) of such Person.
"Party" has the meaning set forth in the preface above.
"Permitted Liens" means any (a) mechanic's, materialmen's, and
similar liens for work performed in the Division's ordinary course of business
with respect to the asset against which such lien exists, which amounts are not
yet due and payable in the ordinary course of business, (b) liens for Taxes not
yet due and payable or for taxes that the Taxpayer is contesting in good faith
through appropriate proceedings and has taken adequate reserves for in
accordance
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<PAGE> 11
with GAAP, (c) purchase money liens and liens securing rental payments under
capital lease arrangements, and (d) other liens identified on Schedule 3(e).
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
Pre-Closing Tax Period" means any Tax period, or portion
thereof, ending on or before the close of business on the Closing Date.
"Profit Sharing Transfer Agreement" means that certain
Motorola-Eclipsys Profit Sharing transfer agreement in the form of Exhibit H
attached hereto.
"Purchase Price" has the meaning set forth in Section 2(e) of
this Agreement.
"Residual License" means that license granted by Seller to Buyer
under Section 6(p).
"Securities Act" means the Securities Act of 1933, as amended,
and the regulations promulgated thereunder.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, and the regulations promulgated thereunder.
"Security Interest" means any mortgage, pledge, lien,
encumbrance, charge, claim, levy, lease, or other security interest as defined
in Article 9 of the Uniform Commercial Code.
"Seller" has the meaning set forth in the preface above.
"Seller Benefit Plan" has the meaning set forth in Section 3(o)
of this Agreement.
"Taxes" means any and all Taxes, levies, imposts, duties,
assessments, charges and withholdings imposed or required to be collected by or
paid over to any federal, state, local, supra-national or foreign governmental
authority or any political subdivision thereof, including without limitation,
income, gross receipts, ad valorem, value added, minimum Tax, franchise, sales,
use, excise, mortgage recording, estimated, withholding or other Tax,
governmental fee or other like assessment or charge of any kind whatsoever, and
including any interest, penalties, fines, assessments or additions to Tax
imposed in respect of the foregoing, or in respect of any failure to comply with
any requirement regarding Tax returns or other information statement, payee
statement or other information required to be provided to any federal, state
local or foreign governmental authority with respect to Taxes or Employee
Benefit Plans.
"Third Party Claim" has the meaning set forth in Section 10(d)
below.
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<PAGE> 12
"Transaction Documents" means the collective reference to this
Agreement, the International Support Agreement, the Bill of Sale, the
Undertaking, the Non-Competition and Non-Solicitation Agreement, the Transition
Services Agreement and the Profit Sharing Transfer Agreement.
"Undertaking" means that certain Undertaking dated as of the
date hereof in the form of Exhibit B attached hereto.
"Updated Closing Balance Sheet" means the unaudited balance
sheet of the Division as of the close of Business on January 30, 1998 delivered
to Buyer in accordance with Section 6(s).
2. Basic Transaction.
(a) Purchase and Sale of Acquired Assets. On and subject to the
terms and conditions of this Agreement, at the Closing, Seller hereby sells,
conveys, transfers, delivers, assigns and sets over to Buyer, and Buyer hereby
purchases and accepts from Seller, free and clear of any Security Interest,
except Permitted Liens, the Business and all of the properties, assets, rights
and interests (but excluding all Excluded Assets) of or in respect of the
Division owned by Seller of every kind and description whatsoever and wherever
located, tangible and intangible, real, personal and mixed, as they shall exist
at the time of the Closing (the "Acquired Assets"), including the following
assets, properties and rights of the Division:
(i) all goodwill and going concern value associated with
the Division and the Business;
(ii) all inventories of raw materials (whether or not in
transit), work-in-process and finished goods and
products inventory and consigned goods of the
Division, including therein all packaging materials
and other items designated as inventory
(collectively, the "Inventory");
(iii) all leaseholds and subleaseholds in respect of real
property, improvements, fixtures, and fittings
thereon, and easements, rights-of-way, and other
appurtenances thereto (such as appurtenant rights in
and to public streets), and the other real property
owned by, or used in respect of, the Division, all as
more particularly described in Schedule 3(k) attached
hereto (the "Real Property");
(iv) all tangible personal property, including all
machinery and other equipment, tools and dies,
furniture, fixtures, vehicles and other
transportation equipment, computer equipment, office
supplies and all other fixed assets which are not
included within the Real Property but are reflected
on the Most Recent Balance Sheet and the Closing
Balance Sheet or are primarily utilized in the
conduct of the Business;
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<PAGE> 13
(v) all United States and Canadian patents and patent
applications as set forth in Schedule 3(1) subject to
license granted to Seller pursuant to Section 6(p);
all copyrights (registered and unregistered) and
copyright applications in the United States and
Canada with respect or relating to the software
identified in Schedule 3(1) which are owned by the
Division or by Seller, subject to the license granted
to Seller pursuant to Section 6(p); all trademarks,
trademark applications, service marks, trade names
and trade name applications in the United States and
Canada as set forth in Schedule 3(1), including all
rights to use the name "Emtek" and all other names,
logos and slogans used by the Division or by Seller
in the operation of the Business of the Division, and
the goodwill associated therewith; and all licenses
and sublicenses granted and obtained with respect to
each of the foregoing patents, copyrights and
trademarks, and rights thereunder, remedies against
infringements thereof, and rights to protection of
interests therein under the laws of all
jurisdictions;
(vi) all intellectual property rights within the United
States, its territories and possessions, and Canada
not otherwise covered by Section 2(a)(v) hereof owned
by the Division or by Seller that were developed
and/or used primarily in respect of the Division,
including all customer lists, know-how, trade
secrets, drawings, processes, engineering data,
directions, software, computer programs, databases
and other technical information and specifications
owned by the Division or by Seller in the operation
of the Business of the Division (the assets described
in Sections 2(a)(v) and 2(a)(vi) are sometimes
hereinafter collectively referred to as "Proprietary
Rights"), subject to the license granted to Seller
pursuant to Section 6(p);
(vii) the full benefit of all leases, subleases, and all
other agreements (other than this Agreement),
contracts, indentures, mortgages, instruments,
security interests, surety bonds, performance bonds,
guarantees, and letters of credit in favor of the
Division or the Seller primarily in respect of the
Division, other similar arrangements, and all rights
thereunder (including warranties and
indemnifications) to which the Division is a party or
a third party beneficiary or Seller is a party
primarily on behalf of the Division or the Business,
including all purchase orders, purchase contracts,
agreements to provide products or services to
customers, sales orders and sales contracts, and
which are identified or otherwise referred to on
Schedule 2(a)(vii) (collectively, the "Acquired
Contracts");
(viii) all accounts, notes, and other receivables or rights
of the Division or the Business to receive payments
from Persons, other than
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<PAGE> 14
Intercompany Obligations of the Seller or its
Affiliates (the "Receivables");
(ix) all rights to the extent the Division (or the Seller
in respect of the Division) has prepaid expenses, and
all claims, refunds, causes of action, causes in
action, rights of recovery and rights of set-off of
every kind and nature, except to the extent the same
relate to liabilities which (i) are not included
within the Assumed Liabilities, or (ii) are related
to the Excluded Assets;
(x) all franchises, approvals, permits, licenses, orders,
registrations, certificates, variances,
authorizations, and similar rights obtained from
governments and governmental agencies by the Division
or by the Seller in respect of the Division;
(xi) all books, records, ledgers, files (including
personnel files as to which Seller has received
direction to transfer to Buyer from the related
Transferred Employee) documents, correspondence,
lists, plats, architectural plans, drawings, and
specifications, creative materials, advertising and
promotional materials, studies, reports, and other
printed or written materials of the Division or of
the Seller primarily in respect of the Division,
whether in tangible form, or in electronic or other
media, all to the extent that the same relate
primarily to the Acquired Assets or the Business;
provided that at all times Seller shall have the
right to maintain a copy of and (so long as such use
shall not violate any covenant or agreement of Seller
contained herein or in the other Transaction
Documents) utilize the information associated with
such materials; and
(xii) assets in Seller's Profit Sharing and Investment Plan
that relate to the total account balances of
Transferred Employees that will be transferred to
Buyer's 401(k) Plan pursuant to the Profit Sharing
Transfer Agreement.
(b) Excluded Assets. Notwithstanding anything in this Agreement
to the contrary, the Acquired Assets shall not include the following assets of
the Division (collectively, the "Excluded Assets"):
(i) any patents or patent applications owned by Seller,
whether or not used in the Business which are not
being transferred to Buyer and not listed on Schedule
3(1) attached hereto;
(ii) all trademarks, trademark applications, service
marks, trade names and trade name applications,
copyrights and copyright applications owned or (if
any) licensed by the Division or by Seller whether or
not in respect of the Division or the Business and
the goodwill associated therewith, and all licenses
and sublicenses granted and obtained with respect
thereto, and rights thereunder,
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<PAGE> 15
remedies against infringements thereof, and rights to
protection of interests therein under the laws of the
United States which are not being transferred to the
Buyer pursuant to Schedule 3(1) attached hereto;
(iii) information contained in the assets described in
Section 2(a)(xi) above which is confidential and/or
proprietary to Seller but only to the extent that the
same are not required or necessary in order for the
Buyer to conduct the Business in all material
respects as conducted by Seller immediately prior to
the Closing;
(iv) any of the rights of the Seller under this Agreement
or any Exhibit hereto, and any agreement executed in
connection herewith, including any agreement in the
form of an Exhibit hereto;
(v) all Tax refunds and other rights (including, without
limitation, rights to indemnification) and claims of
the Division, of the Seller in respect of the
Division or of the Seller, in respect of or relating
to (i) Tax liabilities not assumed by the Buyer and
any other liabilities not assumed by the Buyer or
(ii) any other Excluded Assets;
(vi) subject at all times to Buyer's covenants and
agreements set forth in Section 6(m) hereof, all
other assets, properties, and rights of the Seller in
connection with that portion of the Business which is
conducted with customers located outside of the
United States of America, its territories and
possessions and the Dominion of Canada (the
"International Business"), and as further if any,
identified on Schedule 2(b)(vi) hereto;
(vii) any Cash;
(viii) any assets or properties of Seller not related to the
Business or the Division;
(ix) the security interests, surety bonds, performance
bonds, guarantees, and letters of credit in favor of
the Division or the Seller primarily in respect of
the Division which are provided by Seller or one of
Seller's Affiliates, including those listed on
Schedule 2(b)(ix);
(x) all Intercompany Obligations owed by the Seller or
any of Seller's Affiliates to the Division; and
(xi) all plan assets of all Seller Benefit Plans with
respect to participants employed by the Division
other than assets in Seller's Profit Sharing and
Investment Plan that relate to the total account
balances of Transferred Employees that will be
transferred to Buyer's 401(k) Plan, as provided in
the Profit Sharing Transfer Agreement.
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<PAGE> 16
(c) Assumption of Liabilities. On the subject to the terms and
conditions of this Agreement, the Buyer agrees to assume and become responsible
for, only the following liabilities and obligations of the Division or of the
Seller in respect of the Division (the "Assumed Liabilities"). The Assumed
Liabilities shall consist of and be limited to:
(i) all obligations required to be performed following
the Closing Date pursuant to the terms of the
Acquired Contracts;
(ii) those specific assumed items of Indebtedness
identified on Schedule 2(c)(ii);
(iii) those pro-ration items for which the Buyer is
responsible which are identified on Schedule
2(c)(iii);
(iv) those obligations of the Division to indemnify any
Person by reason of the fact that he or it was a
director, officer, employee, or agent of the Division
or was serving at the request of the Division as a
partner, trustee, director, officer, employee, or
agent of another entity (whether such indemnification
is for judgments, damages, penalties, fines, costs,
amounts paid in settlement, losses, expenses, or
otherwise and whether such indemnification is
pursuant to any statute, charter document, bylaw,
agreement, or otherwise); provided, that all such
indemnification obligations are identified in
Schedule 2(c)(iv);
(v) those outstanding warranty, service or support
liabilities as reflected in the Most Recent Balance
Sheet and the Closing Balance Sheet with respect to
products sold by the Division (but for purposes of
this clause (v) in an amount not in excess of the
amounts set forth therein), or otherwise identified
on Schedule 2(c)(v);
(vi) those other specific liabilities and obligations of
the Division, but only to the extent expressly set
forth in Schedule 2(c)(vi);
(vii) fifty percent (50%) of all liabilities for transfer,
sales, use, and other non-income taxes arising in
connection with the consummation of the transactions
contemplated hereby (collectively, the "Transaction
Taxes", it being understood that the parties intend
to split equally the costs of such Transaction
Taxes); and
(viii) all trade payables of the Division (other than
Intercompany Obligations) existing as at the Closing
Date which were incurred in the Ordinary Course of
Business and are reflected on the Closing Balance
Sheet (but for purposes of this clause (viii) in an
amount not in excess of the amount set forth
therein).
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<PAGE> 17
(d) Excluded Liabilities. Notwithstanding anything to the
contrary, expressed or implied, contained in this Agreement, neither the Buyer
nor Eclipsys shall assume any liabilities or obligations of the Division, other
than the Assumed Liabilities specified in Section 2(c) above. Without limiting
the generality of the foregoing, the Assumed Liabilities shall not include any
of the following (the "Excluded Liabilities"):
(i) any liability of the Seller for unpaid Taxes (with
respect to the Division or otherwise) for periods
prior to the Closing;
(ii) any liability of the Seller for any Income Taxes
arising because the Seller is transferring the
Acquired Assets or because the Seller has deferred
gain on any Deferred Intercompany Transaction;
(iii) any liability or obligation of the Seller under this
Agreement or any liability or obligation of the
Seller under any side agreement between the Seller on
the one hand and the Buyer on the other hand entered
into on or after the date of this Agreement
including, without limitation, agreement in the form
of any Exhibit attached hereto;
(iv) any obligation or liability of Seller arising out of
or incurred in respect of any transaction occurring
on or after the Closing Date unrelated to the
Acquired Assets, the Division, or the Buyer's
operation of the Business;
(v) any obligation or liability arising out of or in
respect of any and all events, circumstances, acts of
omission or commission which shall have occurred at
any time on or prior to the Closing Date and which
shall constitute or otherwise result in a violation
of any Environmental, Health and Safety Requirements,
ERISA, the Code or any other Applicable Law binding
upon any of the Parties except to the extent
expressly set forth as a liability on the Closing
Balance Sheet reflected (but not in excess of the
amounts set forth therein) or on Schedule 2(c)(vi);
(vi) any obligation or liability to pay any wages,
salaries, bonuses, commissions, pension, profit
sharing, or other forms of remuneration to any
salaried, hourly or commissioned employee of the
Seller or the Division for all periods, through and
including the Closing Date, including, without
limitation, all senior executive retention plans and
agreement of the Seller or the Division (collectively
the "Seller Remuneration") other than accrued
payments (such as sales commissions) reflected on the
Closing Balance Sheet (but for purposes of this
clause (vi) in an amount not in excess of the amounts
set forth therein) or on Schedule 2(c)(vi), or
obligations to pay to Transferred Employees the
assets transferred to Buyer's 401(k) Plan from
Seller's Profit Sharing and Investment Plan, as
provided in the Profit Sharing Transfer Agreement;
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<PAGE> 18
(vii) any Indebtedness of the Seller, the Division or the
Business of any kind, except as set forth as a
liability reflected on the Closing Balance Sheet (but
for purposes of this clause
(vii) in an amount not in excess of the amounts set forth
therein) and expressly identified on Schedule
2(c)(ii) hereto;
(viii) any unpaid fees and expenses of Seller's investment
bankers, counsel, accountants or other experts
incurred in connection with the negotiation,
execution, delivery, and performance of this
Agreement and related documentation and the closing
of the transactions contemplated hereby and thereby;
(ix) other than accrued payments (such as sales
commissions) reflected on the Closing Balance Sheet
(but for purposes of this clause (ix) in an amount
not in excess of the amounts set forth therein) or on
Schedule 2(c)(vi) or obligations to pay to
Transferred Employees the assets transferred to
Buyer's 401(k) Plan from Seller's Profit Sharing and
Investment Plan, as provided in the Profit Sharing
Transfer Agreement, any liability or obligation of
the Seller, regardless of whether any such liability
or obligation is currently in existence or inchoate,
conditional or nonconditional or direct or indirect,
relating to any Employee Benefit Plan, written or
oral employment or consulting agreement, severance
pay plan, employee relations policy (or practice,
agreement or arrangement), agreement with respect to
leased or temporary employees, vacation plan or
arrangement, sick pay plan, stock purchase plan,
stock option plan, fringe benefit plan, incentive
plan, bonus plan and any deferred compensation
agreement (or plan, program, or arrangement) to the
extent any such agreement is not included within the
definition of "Acquired Contracts" and which is, or
at any time was, sponsored or maintained by (or to
which contributions are, were, or at any time were
required to have been, made by) (i) Seller or (ii)
any other organization which is a member of a
controlled group of organizations (within the meaning
of Sections 414(b), (c), (m) or (o) of the Code of
which Seller is a member (the "Controlled Group");
(x) any liabilities or obligations of any kind or
description relating to the International Business of
the Seller;
(xi) those pro-ration items for which the Seller is
responsible pursuant to Schedule 2(c)(iii);
(xii) any liabilities or obligations of any kind or
description which are owed by the Division or the
Business to the Seller or any other Affiliate of the
Seller on the Closing Date (the "Intercompany
Obligations"), all of which shall be extinguished as
at the Closing Date;
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<PAGE> 19
(xiii) fifty percent (50%) of the Transaction Taxes;
(xiv) any liabilities relating to litigation pending
against Seller and/or the Division with respect to
the Division or the Business, including the
litigation identified on Schedule 3(n);
(xv) any liability with respect to the Division's
relationship prior to the Closing Date with St.
Francis Medical Center, Cape Ghirardeaux, Mississippi
(it being understood that the related contract
associated with such relationship is not an "Acquired
Contract").
The Buyer acknowledges that it is assuming the Assumed Liabilities and that
Buyer has the sole responsibility to pay, discharge and perform all of the
Assumed Liabilities promptly when due. The Seller hereby acknowledges that it is
retaining the Excluded Liabilities and that Seller has the sole responsibility
to pay, discharge and perform all such liabilities and obligations promptly when
due.
(e) Purchase Price. At the Closing, the Buyer hereby assumes the
Assumed Liabilities and shall pay the other consideration to Seller described in
this Section 2(e) (the "Purchase Price") by delivery of 1,500,000 shares of
Eclipsys Stock, against performance by the Seller of its obligations to sell and
transfer the Acquired Assets to the Buyer at the Closing.
(f) The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") is taking place at the offices of Motorola, Inc.
in Schaumburg, Illinois commencing at 10:00 a.m. local time on the date hereof
(the "Closing Date"). For all purposes hereof the transfer of the Acquired
Assets and the assumption of the Assumed Liabilities shall be effective as of
the close of business on January 30, 1998 (5:00 p.m. Mountain time).
(g) Deliveries at the Closing. At the Closing, (i) the Seller
herewith delivers to the Buyer the various certificates, instruments, and
documents referred to in Section 9(a) below; (ii) the Buyer herewith delivers to
the Seller the various certificates, instruments, and documents referred to in
Section 9(b) below; (iii) the Seller herewith executes, acknowledges (if
appropriate), and delivers to the Buyer (A) the Bill of Sale in the form of
Exhibit A hereto and (B) such other instruments of sale, transfer, conveyance,
and assignment as the Buyer and its counsel reasonably have requested; (iv) the
Buyer herewith executes, acknowledges (if appropriate), and delivers to the
Seller (A) an undertaking in the form attached as Exhibit B hereto and (B) such
other instruments of assumption as the Seller and its counsel reasonably have
requested; and (v) the Buyer is delivering herewith to the Seller certificates
evidencing the shares of Eclipsys Stock identified as the consideration
specified in Section 2(e) above.
3. Representations and Warranties of the Seller. The Seller
represents and warrants to the Buyer that the statements contained in this
Section 3 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
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<PAGE> 20
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3), except as set forth in the disclosure
schedules attached to this Agreement (the "Disclosure Schedule"). The Seller
acknowledges and agrees that the Buyer is relying upon these representations and
warranties, and such reliance shall not be diminished in any fashion by any due
diligence which may be performed by the Buyer. The disclosure in any portion of
the Disclosure Schedules is incorporated by reference into other portions of the
Disclosure Schedules provided, that the information so incorporated is disclosed
in the other portion of the Disclosure Schedule(s) with sufficient specificity
and clarity so as to make its incorporation and relevance to the portion of the
Disclosure Schedule(s) in which it is incorporated by reference reasonably
clear.
(a) Organization of the Seller. The Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware.
(b) Authorization of Transaction. The Seller has full power and
authority (including full corporate power and authority) to execute and deliver
each of this Agreement and the other Transaction Documents and to perform its
obligations hereunder and thereunder. Each of this Agreement and the other
Transaction Documents constitutes a valid and legally binding obligation of the
Seller, enforceable against the Seller in accordance with its terms and
conditions, except as enforceability may be limited by the laws of bankruptcy,
reorganization and creditors' rights generally and except as enforcement thereof
may be limited as to certain equitable remedies.
(c) Noncontravention. Neither the execution and the delivery of
this Agreement, the other Transaction Documents, nor the consummation of the
transactions contemplated hereby or thereby (including the assignments and
assumptions referred to in Section 2 above), will (i), to the Knowledge of
Seller, violate any statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which Seller is subject or any provision of the charter or
bylaws of Seller or (ii), to the Knowledge of Seller, conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Seller is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets); in each case except (i) for any such notices, filings,
authorizations consents or approvals which will be obtained prior to Closing, or
(ii) where the violation, conflict, breach, default, acceleration, termination,
modification, cancellation, failure to give notice, or Security Interest would
not have a Material Adverse Effect. To the Knowledge of Seller, the Seller does
not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement (including the assignments and assumptions referred to in Section 2
above) or the other Transaction Documents, other than as may be required for
compliance with the provision of the Hart-Scott-Rodino Act and except where the
failure to give
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<PAGE> 21
notice, to file, or to obtain any authorization, consent, or approval would not
have a Material Adverse Effect.
(d) Brokers' Fees. The Seller has no liability or obligation to
pay any fees or commissions to any broker, finder, investment banker, financial
advisor or agent with respect to the transactions contemplated by this Agreement
for which Eclipsys or the Buyer could become liable or obligated. The fees of
Merrill Lynch & Co., whom the Seller has retained in connection with this
transaction, shall be borne by Seller.
(e) Title to Tangible Assets. With respect to the Division's
tangible assets, Seller has good title to, or a valid leasehold interest in, the
material tangible assets used regularly in the conduct of its businesses free
and clear of any Security Interest other than Permitted Liens, provided that the
Indebtedness secured by any such Permitted Liens, in the aggregate, does not
exceed $50,000.
(f) Sufficiency of Acquired Assets; Machinery and Equipment.
(i) The Acquired Assets together with the assets being
provided by Seller on a transitional basis pursuant to the
Transition Services Agreement and the assets which will be
provided by Eclipsys or the Buyer to replace such assets
constitute all of the assets required to conduct the
Business of the Division on the date hereof as presently
conducted by Seller (it is understood that the Seller
conducted the Business of the Division as a "division",
providing corporate assets and services, and it is
expected Eclipsys as the parent of the Buyer would provide
similar assets and services) without which the Business of
the Division would suffer a Material Adverse Effect
provided, that it is understood and agreed that as
materials are used up or machinery, equipment, plant and
property suffer wear and tear following the Closing Date,
additional materials and services as may be required for
the conduct of the Business of the Division from time to
time.
(ii) All items of machinery, equipment, and other fixed assets
(exclusive of real property) included in the Acquired
Assets are set forth in Schedule 3(f) of the Disclosure
Schedule, except only for such items as have been disposed
of in the ordinary course of the Division's business and
not in breach of this Agreement.
(g) Financial Statements. Attached hereto as Exhibit E-2 are
the following financial statements (collectively, the "Financial Statements"):
unaudited income statements and unaudited balance sheets as of and for the
fiscal years ended December 31, 1997, December 31, 1996 and December 31, 1995
for Seller's Emtek Healthcare Systems Division. The Financial Statements
(including the notes thereto) have been prepared in accordance with GAAP
consistently applied (except to the extent such generally accepted principles
changed during the periods presented), are consistent with the books and records
of the Emtek Healthcare Systems
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<PAGE> 22
Division (and of Seller in respect of the Division) taken as a whole, and
present fairly and accurately, in all material respects, the financial position
of the Seller's Emtek Healthcare Systems Division as of such dates and the
results of operations of the Seller's Emtek Healthcare Systems Division for such
periods. The Closing Balance Sheet is the unaudited balance sheet of the
Division as of January 24, 1998 and presents fairly and accurately, in all
material respects, the financial position of the Division as at the Closing
Date. When delivered the Updated Closing Balance Sheet shall be deemed the
Closing Balance Sheet and shall present fairly and accurately, in all material
respects, the financial position of the Division as at the close of business on
January 30, 1998. Further, without limiting the generality of the foregoing, the
financial information presented on the Updated Closing Balance Sheet:
(i) shall not differ in method or manner of compilation
or presentation from the information contained in the
Closing Balance Sheet;
(ii) shall not present a condition of the Business
(financial or otherwise) which has materially changed
from the condition of the Business presented in the
Closing Balance Sheet; and
(iii) shall not reflect any changes which would not be
consistent with the activities conducted in the
Ordinary Course of Business for a one week period.
(h) Events Subsequent to December 31, 1997. Since December 31,
1997, there has not been any material adverse change in the business, assets,
liabilities, condition (financial or otherwise) or operations of the Division
taken as a whole, other than changes occasioned by the announcement of the
transactions contemplated hereby. Without limiting the generality of the
foregoing, since December 31, 1997, except for the announcement of the
transactions contemplated hereby and the arrangements made for the consummation
of the transactions contemplated hereby and as otherwise expressly set forth in
Schedule 3(h), Seller has not done any of the following in respect of the
Division or the Business or permitted the Division to do any of the following,
and the Division has not done any of the following:
(i) engaged in any practice, taken any action, or entered
into any transaction outside the Ordinary Course of
Business the primary purpose or effect of which has
been to generate or preserve Cash;
(ii) Incurred any Indebtedness or incurred, or become
subject to, any other absolute or contingent
obligation or liability, or guaranteed any
liabilities or obligations of any other Person,
except obligations and liabilities incurred or
guaranteed in the ordinary course of business;
(iii) created any mortgage, assignment, pledge, lien,
Security Interest, encumbrance, restriction or charge
of any kind with respect to its properties, business
or assets except (i) the equitable lien created by
this Agreement or (ii) as permitted without breach of
the representation set forth in Section 3(e);
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<PAGE> 23
(iv) sold, transferred or otherwise disposed of, or agreed
to sell, transfer or otherwise dispose of any of
material portion of its assets, properties or rights,
except as permitted pursuant to this Agreement or in
the ordinary course of business;
(v) experienced any general work stoppage or labor strike
or any other material labor dispute, or executed or
modified in any material or non-ministerial fashion
any collective bargaining agreement or arrangement;
(vi) incurred or become subject to any claim or liability
for any damages, material to the Division or the
Acquired Assets, for negligence or other tort or
breach of contract;
(vii) except for the senior executive retention program
disclosed to Eclipsys which has been established in
connection with this transaction, (A) made or granted
any increase in the benefits of or compensation
payable or to become payable to officers or employees
who will become "Transferred Employees" (including
any such increase pursuant to any welfare, bonus,
pension, profit-sharing or other plan or commitment)
or granted any severance or termination pay to any
officer, or employee who will be "Transferred
Employees" (as defined below) other than increases in
the ordinary course of business (including merit
increases) or as otherwise required by law and
increases scheduled under Acquired Contracts entered
into prior to January 1, 1998 and increases pursuant
to promotions of employees in accordance with
Seller's normal employment practices and Seller's
customary incentive programs disclosed to Buyer
pursuant to this Agreement, or (B) entered into any
employment agreements other than the employment
contracts identified on Schedule 3(g);
(viii) written down the value of any material amount of
inventory included in the Acquired Assets other than
in the ordinary course of business and in amounts
consistent with the Division's practice in its three
(3) most recent fiscal years or, in any event, in
excess of the greater of (a) the amount of such
writedowns during the Seller's most recent fiscal
year or (b) the average amount of such writedowns
during Seller's three (3) most recent fiscal years;
or
(ix) written off as uncollectible any notes or accounts
receivable included in the Acquired Assets other than
in the ordinary course of business and in amounts
consistent with the Division's practice in its three
(3) most recent fiscal years or, in any event, in
excess of the greater of (a) the amount of
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<PAGE> 24
such write-offs during the Seller's most recent
fiscal year or (b) the average amount of such
write-offs during Seller's three (3) most recent
fiscal years; or
(x) suffered any condemnation, damage, destruction or
loss (by theft or otherwise), not covered by
insurance, to the real property or tangible personal
property included in the Acquired Assets in excess of
$50,000 in the aggregate, or to any of the Acquired
Assets of a nature that would have a Material Adverse
Effect in respect of the Division, and continues to
do so on and as of the Closing Date; or
(xi) made any change in any method of accounting or
accounting practice employed by the Division or by
Seller in respect of the Division; or
(xii) forgiven or cancelled debts or claims, or waived or
permitted to lapse any rights, other than in the
ordinary course of business or as otherwise permitted
by this Agreement or as would otherwise not have a
Material Adverse Effect in respect of the Division;
or
(xiii) entered into any contract or agreement other than in
the ordinary course of business or as otherwise
permitted by this Agreement; or
(xiv) accepted any purchase order or entered into any
contract for the sale of any product with the
intention to sell the same at a loss; or
(xv) sold, otherwise disposed of, or acquired inventory
except in the ordinary course of business or as
permitted by this Agreement; or
(xvi) committed any act or omitted to do any act which
would cause a breach of any Acquired Contract to
which Seller is a party or by which it is bound on
the date hereof, which breach would have a Material
Adverse Effect in respect of the Division.
Further, without limiting the generality of the foregoing,
since October 31, 1997 Seller has not done any of the following in respect of
the Division or the Business or permitted the Division to do any of the
following, and the Division has not done any of the following:
(i) made any changes in the payment terms related to
accounts receivable, or entered into, or amended, any
contracts constituting Acquired
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<PAGE> 25
Contracts on terms not substantially similar to terms
for such accounts receivable or contracts in effect
prior to October 31, 1997;
(ii) processed any trade accounts payable in a manner
outside of the ordinary course of business or in a
manner not consistent with terms in effect prior to
October 31, 1997; or
(iii) executed any contracts or amendments to contracts
constituting Acquired Contracts which are not listed
on Schedule 3(h)(iii) and, in any event, entered into
any contract or amendment to a contract constituting
an Acquired Contract on terms and conditions not
substantially the same as those applicable to
contracts and amendments executed prior to October
31, 1997.
(iv) Legal Compliance. The Division has complied with all
applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies
thereof), except where the failure to comply would
not have a Material Adverse Effect on the Division;
provided, that no representation is made under this
Section 3(i) with respect to laws pertaining to
matters covered by Section 3(j), Section 3(o) and
Section 3(p).
(j) Tax Matters.
(i) Seller has timely paid, and will timely pay, all real
and personal property tax liabilities which relate to
the Acquired Assets and which are incurred in or
attributable to the Pre-Closing Tax Period, other
than Transfer Taxes as defined in Section 8(c), the
non-payment of which would result in a lien on any
Acquired Asset, would otherwise adversely affect the
Division or would result in the Buyer becoming liable
therefor.
(ii) There are no material claims or investigations
pending or threatened in writing with respect to any
real and personal property taxes applicable to the
Division which would materially impair the ability of
Seller to perform its obligations under this
Agreement or prevent or materially delay the
consummation of the purchase and sale of the Acquired
Assets contemplated by this Agreement.
(k) Real Property.
(i) The Division does not own any real property and the
Seller does not own any real property which is
primarily utilized by the Division or the Business,
and the Division is not a party to any mortgage of
real property and the Seller is not a party to any
mortgage of real property primarily in respect of the
Division. Schedule 3(k) lists all real property that
the Division leases or subleases or that the Seller
leases or subleases on behalf of the Division.
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<PAGE> 26
(ii) The Seller or the Division has good leasehold title
to all leases and subleases to premises occupied by
the Division or the Business except to the extent
absence of such leasehold title would not have a
Material Adverse Effect. All such leases or subleases
to real property occupied by the Division are part of
the Acquired Contracts and shall be transferred by
the Seller to Buyer on the Closing Date free and
clear of any Security Interest whatsoever (other than
liens, if any, arising by operation of law in favor
of a landlord).
(iii) The Seller has delivered to the Buyer correct and
complete copies of the leases and subleases listed in
Schedule 3(k) (as amended to date). Each lease and
sublease listed in Schedule 3(k) is legal, valid,
binding, enforceable, and in full force and effect,
except where the illegality, invalidity, nonbinding
nature, unenforceability, or ineffectiveness would
not have a Material Adverse Effect on the Division.
The Division, or the Seller on behalf of the
Division, is in actual possession of the properties
demised under each such lease or sublease and has
good and marketable title to the leasehold estates
conveyed under each such lease or sublease, free and
clear of any lien or encumbrance whatsoever.
(iv) Seller has the right of ingress and egress
through a public road or street, to and from the
properties demised under the leases and subleases.
(v) There is no pending proceeding for the taking or
condemnation of all or any portion of the properties
demised under the leases or subleases or pending
taking or condemnation proceeding which would result
in a termination of any lease or sublease of real
property and, to the Knowledge of Seller, none of the
same is threatened.
(vi) Seller has received no uncured notice from
applicable governmental authorities of any
outstanding violations of any building or zoning
laws, codes or regulations, or governmental or
judicial orders issued pursuant thereto, with respect
to the real property or the property covered by the
leases and subleases and, except for violations that
would not have a Material Adverse Effect on the
Division, there are no such violations.
(l) Intellectual Property. Schedule 3(l) identifies all patents
(issued and applied for), copyrights (registered and unregistered), common law,
applied for and registered trademarks, trade names and service marks, and
licenses of the same, owned or, to Seller's best knowledge used primarily by,
the Division or by Seller primarily in respect of the Division. Seller is
transferring title of the Proprietary Rights to Buyer on the Closing, free and
clear of any lien or encumbrance whatsoever, other than licenses for
commercially available software, database and other products. Except as set
forth on Schedule 3(l), and except as would not have a Material Adverse Effect
in respect of the Division: (i) Seller has not received any written notice by or
from
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<PAGE> 27
any other person of any infringement or misappropriation of, or contesting the
validity, enforceability, use or ownership of any of the aforesaid intellectual
property and Proprietary Rights, and to the Knowledge of Seller there is no
basis for any such claim or contest and no misappropriation of the same by any
third party; and (ii) the Division or Seller in respect of the Division owns all
right, title and interest in and to, or has a valid and enforceable license to
use and to transfer to Buyer in accordance with the terms and conditions of this
Agreement, all the aforesaid intellectual property and Proprietary Rights
necessary for the operation of the Division's business as currently conducted,
free and clear of security interests. The Proprietary Rights are valid,
subsisting, and fully enforceable, and neither Seller nor the Division know or
have reason to know of any impending threat of loss or expiration of any of the
Proprietary Rights. Other than as set forth in Schedule 3(l), Seller and/or the
Division has the right to use the Proprietary Rights in any manner and to
transfer the Proprietary Rights to Buyer free of any claims by third parties.
All leases and licenses of Proprietary Rights of which Seller and/or The
Division is (i) lessor or lessee or (ii) licensor or licensee are set forth in
Schedule 3(l) and are in full force and effect according to their terms and
there are no outstanding defaults by either Seller or the Division thereunder.
Upon consummation of the transaction contemplated by this Agreement, Buyer will
be entitled to continue to use the Proprietary Rights licensed or leased to it
without the payment of any additional license fees (except as indicated on
Schedule 3(l)) or other payments or any material modification of any license or
lease applicable to such Proprietary Rights. Seller represents that the Residual
License is valid, subsisting, and fully enforceable, and neither Seller nor the
Division know or have reason to know of any impending loss of rights being
conveyed under the Residual License and further that Seller has the right to
convey such Residual License.
(m) Contracts. Schedule 3(m) lists all of the following
contracts and other agreements of the Division or of the Seller primarily in
respect of the Division in effect as of the date hereof, if any are so in
effect: (i) contracts for the employment or engagement of any employee, agent or
independent contractor of the Division or of Seller primarily in respect of the
Division which is not terminable without penalty on notice of not more than 90
days; (ii) license, royalty, franchise, distributorship, remarketing agreement,
value added reseller ("VAR") agreement, dealer, manufacturer's representative,
agency and advertising agreements; (iii) each sales contract (other than
purchase orders entered into in the ordinary course of business) which contract
covers the sale by the Business of products or services having an aggregate
value in excess of $50,000 under which delivery of goods and payment therefor
has not been completed; (iv) each contract for the purchase of supplies,
equipment and materials (other than purchase orders for supplies entered into in
the ordinary course of business) which contract covers the purchase by the
Business of products having an aggregate value in excess of $50,000 under which
delivery of goods and payment therefor has not been completed; (v) any contract
with any collective bargaining unit; (vi) any mortgage of real property; (vii)
any financing or factoring agreement with respect to the accounts receivable of
the Division; (viii) any pledge or other security agreement by the Division or
by the Seller in respect of the Division, as debtor, covering the Acquired
Assets other than guaranties entered into in the ordinary course of business
which are not material to the Division; (ix) any contract by the Division or the
Seller in respect of the Division (other than this Agreement) for the sale or
lease of any of the Acquired Assets to third
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<PAGE> 28
parties (other than the disposition of inventory in the ordinary course of
business; (x) each contract for capital expenditures, not yet incurred, which
contract is for an amount in excess of $50,000; (xi) each joint venture; (xii)
each letter of credit issued to or for the benefit of the Division or the Seller
primarily in respect of the Division; (xiii) each lease whereby the Division or
the Seller primarily in respect of the Division, as lessee, leases personal
property for annual rental payments in excess of $50,000; (xiv) each contract or
agreement creating an Indebtedness, obligation or liability of the Division or
of the Seller primarily in respect of the Division for borrowed money, or
liability of the Division or of the Seller in respect of the Division for the
deferred purchase price of property, in excess of $50,000 (excluding normal
trade and other accounts payable which are owed by the Division (or by the
Seller in respect of the Division) which are owed to any Person (including
without limitation the Seller or any Affiliate of the Seller) for goods or
services of any type or description) and any instrument by which the Division or
of the Seller in respect of the Division currently guarantees any indebtedness,
obligation or liability for borrowed money or deferred purchase price of
property (other than any such guarantees entered into in the ordinary course of
business of the Division); and (xvi) any of the aforesaid contracts which can
not be assigned by the Division or by the Seller without the consent of another
party thereto (all of the foregoing hereinafter collectively referred to as the
"Division Contracts"). True, correct, and accurate copies of each of the
aforesaid Division Contracts have been made available to the Buyer by the
Seller.
Except as set forth in Schedule 3(m), (x) all of the aforesaid Division
Contracts are in full force and effect; and (y) there is no default, or event or
fact which, with or without the passage of time or the giving of notice, or
both, would result in a default, on the part of the Division or Seller or, to
Seller's Knowledge, on the part of any other party thereto except, in the case
of clauses (x) and (y), to the extent that the failure of the same to be in full
force and effect or defaults under which would not have a Material Adverse
Effect in respect of the Division. Except as set forth in Schedule 3(l) or
except to the extent a Material Adverse Effect would not exist with respect to
the Division, all Acquired Contracts listed on Schedule 2(a)(vii) of the
Disclosure Schedule and included in such Division Contracts and the benefits
thereof will be freely assignable to the Buyer on the Closing Date and will
remain in full force and effect upon and after such assignment. To Seller's
Knowledge, the outstanding purchase commitments of the Division and of the
Seller in respect of the Division are not, in any material respect, in excess of
the normal, ordinary, and usual requirements of the Division.
(n) Litigation. Except as set forth in Schedule 3(n), there are
no private or governmental orders, claims, actions, suits, proceedings or
investigations (as to which investigations Seller has received written notice)
pending or, to Seller's Knowledge, threatened, against the Division or against
Seller relating to the Division's business or affecting the Acquired Assets, at
law or in equity or before or by any court or federal, state, municipal or other
governmental department, commission, board, agency or instrumentality which, if
determined adversely to the Division's interests, would have a Material Adverse
Effect in respect of the Division. Neither the Division, any of the Division's
employees, nor the Seller in respect of the Division is a named party with
respect to any court or administrative agency order, writ, injunction or decree
of any court or foreign, federal, state, municipal or other governmental
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<PAGE> 29
department, commission, board, agency or instrumentality as to which it is in
default, except for any default which would not itself have a Material Adverse
Effect in respect of the Division. A list of workmen's compensation claims made
by employees of the Division January 1, 1994 through November 30, 1997 is set
forth in Schedule 3(n). Schedule 3(n) also lists all product liability claims
made in writing received by Seller for amounts in excess of $200,000 from
January 1, 1994 through November 30, 1997, and all lawsuits filed during such
period (as to which Seller has received service not later than five business
days prior to the date hereof) against the Division or Seller for product
liability claims with respect to products manufactured or sold by Seller or the
Division. On or prior to Closing, Schedule 3(n) shall be amended by Seller to
list all such product liability claims since that date with respect to which
Seller shall have received service not later than five business days prior to
the Closing.
(o) Employee Benefits. Included on Schedule 3(o) to the
Disclosure Schedule is a list of each Seller Benefit Plan covering any present
employee (or any of their dependents or beneficiaries) of the Seller working at
or for the Division. Each and every such Seller Benefit Plan included on the
list set forth under Schedule 3(o) is hereinafter referred to as a "Seller
Benefit Plan". With respect to any Seller Benefit Plan: (i) there are no
actions, suits or claims (other than routine claims for benefits in the ordinary
course) pending or, to the Knowledge of Seller, threatened, and Seller does not
have any Knowledge of any facts which could give rise to any such actions, suits
or claims (other than routine claims for benefits in the ordinary course), which
could subject the Division or Buyer to any liability from and after the Closing
Date; (ii) to the Knowledge of Seller, none of Seller, any member of the
Controlled Group or any other person has engaged in a prohibited transaction, as
such term is defined in Code Section 4975 or ERISA Section 406, which would
subject the Division or Buyer to any taxes, penalties or other liabilities
resulting from prohibited transactions under Code Section 4975 or under ERISA
Sections 409 or 502(i); (iii) to the Knowledge of Seller, no event has occurred
and no condition exists that could subject the Division or Buyer to any tax or
penalty under Code Sections 511, 4971, 4972, 4977, 4978, 4978A, 4979, 4979A,
4980B, or 5000, or to a fine under ERISA Section 502(c); (iv) to the Knowledge
of Seller, Seller is not subject to (A) any liability or lien under any
agreement imposing secondary liability on Seller or on any member of the
Controlled Group as a seller of the assets of a business in accordance with
Section 4204 of ERISA or under any other provision of Title IV of ERISA or
Section 412 of the Code, (B) contingent liability under Title IV of ERISA to the
PBGC or to any plan, participant, or other person, (C) a lien under Section 4068
of ERISA, or (D) any liability pursuant to Section 4069 of ERISA, in any such
cases referred to in this clause (iv) which would impose liability on the
Division or the Buyer from and after the Closing Date; (v) to the Knowledge of
Seller, neither the Division nor Buyer is, or will be, subject to any liability
(including, but not limited to, benefits, penalties or other costs) for the
failure of Seller to satisfy requirements set forth under Part 6 of Title I of
ERISA, Section 4980B of the Code or any similar federal, state or local law;
(vi) to the Knowledge of Seller, to the extent applicable, neither the Division
nor Buyer shall be subject to liability for the failure of Seller or any member
of a Controlled Group in which Seller is a member, to comply with the secondary
payor requirements of Section 1862(b)(1) of the Social Security Act; and (vii)
Seller's Profit Sharing and Investment Plan is intended to qualify under Section
401(a) of the Code and it has received a favorable determination letter issued
by the Internal Revenue Service.
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(p) Environmental, Health, and Safety Matters. The Division is
in full compliance with all Environmental, Health, and Safety Requirements and
there are no violations of any Environmental, Health and Safety Requirements
pending or, to Seller's Knowledge, threatened against the Division or the
Business, except for such noncompliance or violations as are listed on Schedule
3(p) to the Disclosure Schedule or which would not have a Material Adverse
Effect in respect of the Division or the Business. This Section 3(p) contains
the sole and exclusive representations and warranties of the Seller with respect
to any Environmental, Health, and Safety Requirements.
(q) Investment. The Seller (i) understands that the Eclipsys
Stock has not been, and will not be, registered under the Securities Act, or
under any state securities laws (except as may be required in the future
pursuant to the Eclipsys Registration Rights Agreement, if at all, but there is
no assurance that any such registration will be effected), and is being offered
and sold in reliance upon federal and state exemptions for transactions not
involving any public offering, and that the Eclipsys Stock may not be offered
for sale, sold, or otherwise disposed of unless it is subsequently so registered
or qualifies for exemption from registration under the Securities Act, and it
will be appropriately legended to reflect the same and subjected to stop
transfer orders when appropriate; (ii) is a sophisticated investor with
Knowledge and experience in business and financial matters and transactions of
the nature of the transactions contemplated by this Agreement; (iii) has
received certain information concerning the Buyer and has had the opportunity to
obtain additional information as desired in order to evaluate the merits and the
risks inherent in holding the Eclipsys Stock; (iv) is able to bear the economic
risk and lack of liquidity inherent in holding the Eclipsys Stock and, if
adverse circumstance should ensue, the loss of the Seller's entire investment in
the Eclipsys Stock, and is acquiring the Eclipsys Stock for its own account and
not with a view to distribution thereof within the meaning of Section 2(1) of
the Securities Act; and (v) is an Accredited Investor within the meaning of the
Securities Act.
(r) Absence of Undisclosed Liabilities. Except as set forth in
the Closing Balance Sheet, neither the Division nor the Acquired Assets are
subject to any liabilities or obligations, whether absolute, accrued, contingent
or otherwise and whether due or to become due, material to the Division or the
Acquired Assets, that were not reflected in accordance with GAAP consistently
applied in accordance with past practice in the Most Recent Balance Sheet (for
periods reflected therein) and the Closing Balance Sheet or notes thereto.
(s) Insurance Policies. The Division or the Seller primarily on
behalf of the Division maintains the policies of insurance listed on Schedule
3(s) to the Disclosure Schedule. Such Schedule contains a correct description of
all such policies, including the basis of each such policy (i.e., "claims made"
or "occurrences") and the policy limits and deductibles thereof. All such
policies are in full force and effect and neither Seller nor the Division is in
default thereunder except for any such default as would not have a Material
Adverse Effect in respect of the Division.
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(t) Consents. Schedule 3(t) to the Disclosure Schedule lists all
of the approvals, consents, filings, registrations and releases of third parties
(including, without limitation, any government or governmental or regulatory
agency) which are required for the execution or delivery by Seller of this
Agreement or any other agreements or instruments contemplated hereby, or the
consummation of the transactions contemplated therein, including, without
limitation, the sale, transfer or assignment of the Acquired Assets to the Buyer
and the transfer and assignment to Buyer of the licenses, permits and
authorizations specified on Schedule 3(t), except for those approvals, consents,
filings, registrations and releases as to which failure to make or obtain the
same would not have a Material Adverse Effect in respect of the Division.
(u) Labor Matters. Neither the Division nor the Seller in
respect of the Division is a party to any collective bargaining agreement. Since
January 1, 1994, no general work stoppage by employees of the Division or by
employees of Seller in respect of the Division or concerted work stoppage by a
group of employees engaged in the Division's business has occurred and, to the
Knowledge of Seller, none is threatened. Except as set forth in Schedule 3(u),
there are no material charges or grievances against or assumed by the Division
or by Seller in respect of the Division of unfair labor practices or employment
discrimination with respect to employees of the Division or the Seller in
respect of the Division pending, and, to the Knowledge of Seller, none is
threatened before any governmental or regulatory agency or authority. There are
no pending labor negotiations with or to the Knowledge of Seller, union
organization efforts by any employees of the Division or of the Seller in
respect of the Division or with any union representing or attempting to
represent any employees of the Division or of the Seller in respect of the
Division.
(v) Licenses, Permits, and Authorizations. Seller has obtained
all approvals, authorizations, consents, licenses, franchises, orders or other
permits of all governmental or regulatory agencies, whether federal, state,
local or foreign (collectively, the "Approvals") necessary for the operation of
the Division as presently conducted and presently contemplated to be conducted,
except for any such Approvals as to which failure to obtain the same has not and
would not have a Material Adverse Effect in respect of the Division. Schedule
3(v) to the Disclosure Schedule lists all such Approvals. Such Approvals are in
full force and effect and good standing and Seller has not received written
notice that revocation is being considered with respect to any such Approvals,
except for any such Approvals, if any, as to which failure to maintain the same
has not and would not have a Material Adverse Effect in respect of the Division.
(w) Customers and Suppliers. Schedule 3(w) to the Disclosure
Schedule sets forth a list of the ten (10) customers and ten (10) vendors with
whom the Division has had the greatest dollar volume of business during each of
the years ended December 31, 1996 and December 31, 1997. Except as set forth on
Schedule 3(w), since December 31, 1997, there has not been any change or notice
of any prospective change in the business relationship of the Division or the
Seller in respect of the Division with any such customers or suppliers which
change has had or would reasonably be expected to have a Material Adverse Effect
in respect of the Division.
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(x) Officers' and Key Employees' Salaries. Schedule 3(x) to the
Disclosure Schedule sets forth a list of the salaries paid from January 1, 1996
through December 31, 1996, and from January 1, 1997 through December 31, 1997,
and all bonuses and other compensation paid in respect of such period, and all
current salaries and aggregate commissions of all executive officers, key
employees and salesmen of the Division or of the Seller in respect of the
Division whose current salaries, bonuses and aggregate commissions exceed
$50,000 per year.
(y) Inventory. Except as indicated in Schedule 3(y) to the
Disclosure Schedule or to the extent write-downs or reserves are reflected on
the Closing Balance Sheet, if at all, (i) the raw materials, work-in-process,
merchantable finished goods and packaging materials suitable for filling orders
in the ordinary course of business included in the Acquired Assets are
substantially at the Division's normal working levels of the same in the current
conduct of its business in the ordinary course; and (ii) the goods identified on
the Closing Balance Sheet as "Inventory" were owned by Seller as of such dates
and, since December 31, 1997, Seller has not sold or otherwise disposed of, or
shipped any Inventory except in bona fide arm's length transactions, or acquired
the same, except in the ordinary course of business consistent with past
practice; and (iii) all such inventories are of merchantable quality at the
Division's customary prices for such goods. Except as indicated in Schedule
3(y), Seller has not, since December 31, 1997, written down the value of any
material amount of inventory included in the Acquired Assets other than in the
ordinary course of business and in amounts consistent with the Division's
practice in its three (3) most recent fiscal years or, in any event, in excess
of the greater of (a) the amount of such writedowns during the Seller's most
recent fiscal year or (b) the average amount of such writedowns during Seller's
three (3) most recent fiscal years.
(z) Absence of Certain Payments. Neither the Division, nor the
Seller acting primarily on behalf of the Division, nor any Person acting with
the Seller's knowledge in respect of the Division or the Business, has made any
payment to, or conferred any benefit, directly or indirectly, on suppliers,
customers, employees, or agents of suppliers or customers, or officials or
employees of any government or agency or instrumentality of any government
(domestic or foreign) or any political parties or candidates for office, which
is or was unlawful.
(aa) Location of Assets. Except as set forth on Schedule 3(aa)
to the Disclosure Schedule, all of the tangible personal property included
within the Acquired Assets are, or as at the Closing Date will be, located at or
in transit to the Division's leased facilities in Arizona.
(bb) Accounts Receivable. The trade and other accounts
receivable reflected in the Closing Balance Sheet and the trade and other
accounts receivable arising in connection with the Division since December 31,
1997 (including the trade and other accounts receivable of the Division at the
Closing Date, all of which are reflected in the Closing Balance Sheet), (i)
represent bona fide receivables due to the Division and are recorded correctly
on the applicable books and records of the Division; (ii) have arisen and will
arise in the ordinary course of business; (iii) are not subject to any
contracts, set-offs, credits, allowances, or discounts of any kind pursuant to
any agreements with customers except for such agreements which are in the
Ordinary Course of Business of the Division; and (iv) no notice has been
received from any account debtor that the
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same are subject to any pending or threatened counterclaims, set-offs,
allowances or discounts of any kind other than consistent with the Division's
past practices. Schedule 3(bb) sets forth an aging schedule of the Division's
accounts receivable as at December 31, 1997 by account and amount.
(cc) Warranty Policies. The existing warranties of the Division
and of the Seller in respect of the Division which are being transferred to
Buyer are set forth in the text of the customer contracts contained in the
Acquired Contracts. Schedule 3(cc) sets forth an example of such warranty
policies applicable to a number of such contracts; however not all warranty
policies are in this form and Buyer is specifically referred to the text of each
customer contract for a statement of the warranty policy contained therein.
(dd) Disclaimer of other Representations and Warranties. Except
as expressly set forth in this Section 3, the Seller makes no representation or
warranty, express or implied, at law or in equity, in respect of any of its
assets (including, without limitation, the Acquired Assets), liabilities or
operations, including, without limitation, with respect to merchantability or
fitness for any particular purpose, and any such other representations or
warranties are hereby expressly disclaimed. BUYER HEREBY ACKNOWLEDGES AND AGREES
THAT, EXCEPT TO THE EXTENT SPECIFICALLY SET FORTH IN THIS SECTION 3, THE BUYER
IS PURCHASING THE ACQUIRED ASSETS ON AN "AS-IS, WHERE-IS" BASIS. Without
limiting the generality of the foregoing, except as expressly set forth in this
Agreement, the Seller makes no representation or warranty regarding any assets
other than the Acquired Assets or any liabilities other than the Assumed
Liabilities, and none shall be implied at law or in equity.
4. Representations and Warranties of the Buyer. The Buyer and
Eclipsys jointly and severally represent and warrant to the Seller that the
statements contained in this Section 4 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section 4), except as set forth in the Disclosure
Schedule. The Buyer and Eclipsys each acknowledge and agree that the Seller is
relying upon these representations and warranties, and such reliance shall not
be diminished in any fashion by any due diligence which may be performed by the
Seller. The Disclosure Schedule will be arranged in paragraphs corresponding to
the lettered and numbered paragraphs contained in this Section 4.
(a) Organization. Each of Eclipsys and the Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware.
(b) Authorization of Transaction. Each of Eclipsys and the Buyer
has full power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes, and the other agreements or instruments contemplated
to be executed and delivered in connection herewith by either the Buyer or
Eclipsys shall constitute when so executed and delivered as contemplated
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hereby, the valid and legally binding obligations of the Buyer and of Eclipsys,
as applicable, enforceable against the Buyer and Eclipsys, as applicable, in
accordance with their respective terms and conditions, except as enforceability
may be limited by the laws of bankruptcy, reorganization and creditors' rights
generally and except as enforcement thereof may be limited as to certain
equitable remedies.
(c) Noncontravention. Neither the execution, delivery, and
performance of this Agreement, or the consummation of the transactions
contemplated hereby (including the assignments and assumptions referred to in
Section 2 above and other instruments of transfer executed and delivered in
connection herewith), will (i) violate any statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Eclipsys or the Buyer is
subject or any provision of the charter or bylaws of Eclipsys or the Buyer, or
(ii) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under, any agreement, contract, lease,
license, instrument, or other arrangement to which Eclipsys or the Buyer is a
party or, to the Knowledge of Eclipsys or the Buyer, by which it is bound or to
which any of its assets is subject, or require any payment of any prepayment or
other premium or penalty with respect thereto or permit any party to
re-negotiate or receive a refund with respect thereto, or result in the
imposition of any Security Interest upon any of its assets; in each case except
(x) for any such notices, filings, authorizations consents or approvals which
will be obtained prior to Closing, or (y) where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, failure to give
notice, or Security Interest would not have a Material Adverse Effect. Neither
Eclipsys or the Buyer needs to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement (including the assignments and assumptions referred to in Section
2 above), other than as may be required for compliance with the provisions of
the Hart-Scott-Rodino Act and except where the failure to give notice, to file,
or to obtain any authorization, consent, or approval would not have a Material
Adverse Effect.
(d) Brokers' Fees. Neither Eclipsys nor the Buyer has any
liability or obligation to pay any fees or commissions to any broker, finder,
investment banker, financial advisor, or agent with respect to the transactions
contemplated by this Agreement for which the Seller could become liable or
obligated.
(e) Eclipsys Stock. Eclipsys has taken all action necessary to
authorize and approve the issuance of the Eclipsys Stock in connection with the
transactions contemplated hereby.
As of the Closing Date the Eclipsys Stock to be delivered at such times will be
validly issued, unregistered, fully paid and nonassessable. There are no
statutory or contractual stockholders preemptive rights or rights of refusal
with respect to the issuance of the Eclipsys Stock pursuant to the terms hereof,
other than as set forth in the Eclipsys Investors Rights Agreement or on
Schedule 4(e). Assuming all of the representations and warranties set forth in
Section 3(q)
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(Investment Representations) are true and correct in all respects, the issuance
of the Eclipsys Stock hereunder is being made in full compliance with all
federal and state laws, and the shares are free of any restrictions on transfer
other than as set forth in Section 3(q), the Eclipsys Investors Rights Agreement
and Schedule 4(e) to the Disclosure Schedule.
(f) The Buyer. The Buyer is a wholly-owned subsidiary of
Eclipsys, formed solely for the purpose of purchasing the Acquired Assets and
the Business of the Division pursuant to this Agreement, and prior to the date
hereof, has conducted no business operations of any kind.
Except as expressly set forth in this Section 4 or in the Eclipsys Investors
Rights Agreement, neither Eclipsys nor the Buyer makes any representation or
warranty, express or implied, at law or in equity, in respect of any of its
assets, liabilities or operations, including, without limitation, with respect
to merchantability or fitness for any particular purpose, and any such other
representations or warranties are hereby expressly disclaimed. Without limiting
the generality of the foregoing, except as expressly set forth in this
Agreement, neither Eclipsys nor the Buyer makes any representation or warranty
regarding any matter whatsoever, and none shall be implied at law or in equity.
Notwithstanding the foregoing, it is understood that Eclipsys and Buyer are
making, and Seller is relying upon, separate representations contained in the
Eclipsys Investors Rights Agreement.
5. Certain Covenants.
(a) Notices and Consents; Assignment of Acquired Contracts;
Material Contracts.
(i) On or prior to the Closing Date each of the Parties shall
have given notices to, make any filings with, and use its
best efforts to obtain any authorizations, consents, and
approvals of governments and governmental agencies in
connection with the matters referred to in Section 3(c)
and Section 4(c) above.
(ii)From and after the Closing Date, Seller will use its best
efforts (but, except as set forth below, shall be under no
obligation to make any payments to any third party or to
incur any expenses, which payments and expenses together
in the aggregate, are material) to obtain the necessary
approvals, consents and releases of other Persons who are
parties to the Acquired Contracts set forth in Schedule
2(a)(vii). To the extent that the assignment of the
rights, payments and benefits (the "Rights") under any
Acquired Contract requires the consent of another Person
which, despite Seller's best efforts, is not obtained on
the Closing Date, this Agreement shall not constitute an
assignment thereof. Notwithstanding the foregoing, it is
expressly understood and agreed by and among the Parties
that:
(A) Seller and Buyer shall, during the
remaining term of such Rights, use their best efforts to
cooperate in any reasonable and lawful arrangements
designed to provide the benefits of such Rights (economic
or
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otherwise) to Buyer as if such consent, waiver or approval
had been obtained; in which case Buyer shall promptly
perform or satisfy the corresponding liabilities and
obligations under such Acquired Contracts to the extent
Buyer would have been responsible therefor if such consent,
waiver or approval had been obtained and such Rights had
been transferred to Buyer;
(B) Seller shall enforce, at the request and
account of Buyer, any rights or benefits of Seller arising
from such Rights against such issuer thereof or the other
party or parties thereto (including the right to elect to
terminate any such Rights in accordance with the terms
thereof with the consent of Buyer).
(C) Seller shall promptly remit and pay over
to the Buyer all amounts and other Rights or benefits
applicable to such Acquired Contracts (if and to the
extent received by Seller), as though Buyer was a party
to such Acquired Contract or the same had been duly
assigned by the other party thereto to Buyer;
(D) from and after the Closing, the Seller
shall continue to be obligated to cooperate with the Buyer
to obtain any necessary approvals, consents and releases
to assure the Buyer of the benefits of all such Rights.
(b) Customer Commitment Reimbursement. Seller shall make such
compensating payments as are necessary, but in no event more than $1,500,000 in
the aggregate, to reimburse Eclipsys or Buyer for (x) any accounts receivables
credits actually established, (y) any refunds to customers actually made or (z)
any costs paid by Eclipsys or Buyer to hire third-party consultants or
programmers to complete services committed to customers prior to Closing, as a
result of product problems or customer complaints; provided that such payments
shall only be made by Motorola if a claim for such payment with supporting
documentation is made prior to December 31, 1998 personally by Mr. Harvey Wilson
to Seller; provided, further, that it is understood that any amount up to
$300,000 paid by Seller, Eclipsys or Buyer to St. Francis Hospital shall reduce
the $1,500,000 amount set forth above (it being understood that the St. Francis
Hospital contract is not an "Acquired Contract" and, accordingly, no liability
associated with that contract is otherwise transferred to Buyer).
(c) Confidentiality. The terms of that certain Non-Disclosure
Agreement dated August 18, 1997 by and between Seller and Eclipsys Corporation
are hereby incorporated by reference as though fully set forth herein and the
obligations of Buyer thereunder shall continue in full force and effect through
Closing; it being understood that if, for any reason, this Agreement is
terminated and Closing does not occur, such obligations shall continue in force
and effect for a period of two years after termination hereof.
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6. Certain Other Covenants.
(a) General. In case at any time after the Closing any further
action is necessary to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as the other Party may request, all the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Section 10 below).
(b) Litigation Support. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand by or against any
third party in connection with (i) any transaction contemplated under this
Agreement or (ii) any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act,
or transaction on or prior to the Closing Date involving the Division, the other
Party will cooperate with the contesting or defending Party and its counsel in
the contest or defense, make available its personnel, and provide such testimony
and access to its books and records as shall be reasonably necessary in
connection with the contest or defense, all at the sole cost and expense of the
contesting or defending Party (unless the contesting or defending Party is
entitled to indemnification therefor under Section 10 below).
(c) Transition Services. Seller shall provide Buyer with certain
services for a transitional period of time subject to the terms and conditions
set forth in a separate Transition Services Agreement to be entered into at
Closing in the form of Exhibit D attached hereto.
(d) Training. The Land Mobile Products Sector of Motorola, Inc.
("LMPS") shall arrange with Motorola University to make an instructor available
to provide up to eighty (80) hours of six sigma training at no cost to Eclipsys
or Buyer (other than travel related expenses, if any, of an instructor providing
such training). Further, LMPS shall use its best efforts to assist Eclipsys to
obtain the most favorable training rates offered to similar entities by Motorola
University.
(e) Use of Names. Buyer acknowledges that the name "Motorola"
and any logos of Seller (excluding, however, the Acquired Assets comprising the
name, style and logo of "Emtek" and such other names, styles and logos related
to the Business of the Division and listed on Schedule 3(1)) are not included in
the Acquired Assets (the aforesaid name and logos of Seller are sometimes
hereinafter referred to as "Seller's Names"). Buyer will not use such Seller's
Names in connection with the sale of any products or services of the Business,
or otherwise and, if any of the Acquired Assets, including without limitation,
any catalogs, invoices or packaging material, being sold to Buyer hereunder
bears any such Seller's Names, either Buyer shall, prior to the use or sale of
such Acquired Assets, remove such Seller's Name therefrom or clearly and
prominently mark the name of Buyer thereon; provided, that Seller grants to the
Buyer a right to distribute the existing supply of pre-printed literature and
existing products utilizing Seller's Names or other Motorola marks until the
earlier of the exhaustion of the current supply or the expiration of six (6)
months from the Closing Date.
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(f) Endorsements; Bank Accounts. Set forth in Schedule 6(f), is
a list of all bank accounts and escrow arrangements relating exclusively to the
Division. Any moneys received by the Seller after the Closing Date on account of
any Acquired Assets sold by the Seller to the Buyer pursuant hereto, including
on account of accounts receivable, will be promptly paid over to the Buyer.
(g) Possession and Control of Assets; Access to Information.
Promptly upon Closing, the Seller shall take all requisite steps to put the
Buyer immediately in actual possession and operating control of the Acquired
Assets and all of the Division's business records, books and other data relating
to its assets, properties and Business other than records, books and other data
not included in the Acquired Assets; provided that with respect to transferred
records, books or other data, Seller may retain copies of the same and, in the
case of records, if any, which the Seller is required by law to maintain or
which are not readily separable from the Seller's own records, the Seller shall
maintain the originals thereof and furnish copies of the same to the Buyer.
(h) Certain Payments. From and after the Closing, the Buyer
shall allocate a certain amount of its resources to satisfy certain obligations
of the Seller relative to the Acquired Assets of the Division. The Seller
agrees, unconditionally and irrevocably, without any right of setoff or
counterclaim, to pay to Buyer the sums set forth below on the dates indicated:
(A) $1.5 million on the first business day of
each of the first three months after the
Closing Date;
(B) $1.0 million on the first business day of
each of the fourth, fifth and sixth months
after the Closing Date; and
(C) $700,000 on the first business day of each
of the seventh, eighth and ninth months
after the Closing Date.
(i) Non-Competition and Non-Solicitation Agreement. On the date
hereof, Buyer and the Seller shall enter into a Non-Competition and
Non-Solicitation Agreement, substantially in the form of Exhibit E hereto, to
evidence the agreement of the Seller not to compete with the Division, or
solicit customers or employees from the Division, from and after the Closing, on
the terms and conditions set forth in said Non-Competition and Non-Solicitation
Agreement.
(j) Wireless Agreement. After the Closing Date Buyer and Seller
shall promptly use their best efforts to seek to negotiate the terms of an
agreement with respect to sales of LMPS wireless equipment, including
notification systems on a right of first refusal basis, suitable for use by
customers of the Business.
(k) Eclipsys Investor Rights Agreement. On the date hereof,
Eclipsys and the Seller shall enter into the Eclipsys Investors Rights
Agreement.
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(l) Eclipsys Registration Rights Agreement. On the date hereof,
Eclipsys and the Seller shall enter into the Eclipsys Registration Rights
Agreement.
(m) Support for International Business Customers. On the date
hereof, the Buyer and the Seller shall enter into the International Software and
Support Agreement for the Seller's International Business customers (the
"International Support Agreement") which shall be substantially in the form of
Exhibit F annexed hereto. The parties hereto undertake to use their best efforts
to facilitate the negotiation, execution and delivery as soon as practicable
after the Closing Date of a remarketing agreement between Buyer and Nippon
Motorola Limited and a remarketing agreement between Buyer and Siemens
Corporation.
(n) Guaranty by Eclipsys. On the date hereof, Eclipsys shall
execute and deliver to the Seller a Guaranty of all obligations of Buyer under
this Agreement or any Exhibit hereto in the form of Exhibit G attached hereto.
(o) Further Provisions With Respect to Intellectual Property. If
any U.S. or Canadian patent rights or intellectual property of Seller and/or
Division which are not being transferred to Buyer under Sections 2(a)(v) or
2(a)(vi) are utilized in connection with the Business, then, Seller hereby
grants to Buyer an irrevocable, royalty-free, perpetual license (herein referred
to as the "Residual License") under such U.S. and Canadian patent rights and
other intellectual property. This Residual License shall apply to the benefit of
customers of Buyer who purchase software, equipment or services covered by any
of the intellectual property licensed to Buyer under the Residual License.
(p) Grant-Back License to Seller. Buyer hereby grants back to
Seller a non-exclusive, royalty-free, license to make, use, sell, offer for sale
and import products under the patents, patent applications, copyrights
(registered or unregistered) and copyright applications set forth on Schedule
3(l) for all purposes other than Competing Uses (the "Grant Back License");
provided, however, that such Grant Back License may be terminated by Buyer in
the event that Seller, or any individual or entity acting under authority of
Seller, makes, uses, sells, offers for sale or imports products under the
patents, patent applications, copyrights (registered or unregistered) set forth
on Schedule 3(l) for Competing Uses and all such activity is not ceased within
ten (10) days of receipt by Seller of notice thereof from Buyer.
(q) Further Cooperation and Assistance With Resect to Audit
Matters.
(i) The Seller acknowledges that Eclipsys presently intends to
engage in a transaction or filing regarding Eclipsys that
will require the creation of pro forma and historical
audited financial statements for the Business of the
Division, individually or in some combination, for periods
prior to the Closing Date and for interim periods from the
Closing Date through the date of such transaction or
filing; which audited, unaudited and proforma financial
statements must be filed with the United States Securities
and Exchange
<PAGE> 40
Commission and prepared in accordance with Regulation S-X
promulgated under the Securities Act of 1933, as amended
("Regulation S-X"). The Seller further acknowledges and
agrees that the full and timely performance by the Seller
of the covenants and agreements set forth in this Section
6(p) are essential and material elements of the
consideration required by the Buyer and Eclipsys for their
agreement to enter into the transactions contemplated by
this Agreement.
(ii) On and after the Closing, (A) the Seller shall continue
to provide, shall instruct and cause its officers and
employees to provide to Eclipsys, its officers, employees
and representatives, such schedules and other data in the
possession of such Person in respect of the Business and
the Division as are reasonably requested and can be
provided without undue burden for all periods prior to the
Closing through and including the Closing Date in
connection with the preparation of the financial statements
set forth above, and (B) the Seller shall, and shall cause
its employees and officers to, and shall request that its
auditors and other representatives cooperate fully with all
reasonable requests by Eclipsys, its officers, employees
and representatives in connection with the preparation of
pro forma and historical financial statements for such
periods. Seller shall use its best efforts to cause the
customary management representation letters and other
documents or opinions as Eclipsys's independent certified
public accountants may reasonably request for the purposes
of the preparation of the pro formas and financial
statements contemplated by this Section for periods prior
to the Closing Date to be executed and delivered to such
independent certified public accountants in timely fashion
upon request.
(iii) In connection with furnishing the foregoing information,
the Seller shall request the Seller's independent certified
public accountants to give to Eclipsys and its
representatives (including its independent certified public
accountants), in accordance with AICPA guidelines,
reasonable access to portions of Sellers' independent
certified public accountants work papers and other relevant
data and schedules with respect to the Business and the
Division. Eclipsys and its representatives, including its
independent certified public accountants, shall also have
reasonable access to Seller's supporting documentation with
respect thereto. Seller shall give to Eclipsys and its
representatives, including its independent certified public
accountants, reasonable access to all such papers prepared
by Sellers, or otherwise relied upon by Sellers'
independent certified public accountants, in connection
therewith.
(iv) Eclipsys shall pay the fees and expenses of its independent
certified public accountants in connection with the matters
covered by this Section. The Seller shall pay the fees and
expenses of its independent certified public accountants in
connection with the matters covered by this Section.
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(r) Additional Agreements With Respect to Performance Bonds,
Guarantees. It is acknowledged that from and after Closing certain surety bonds,
performance bonds or guarantees provided by Seller or its Affiliates in respect
of the Business and identified on Schedule 2(b) (xi) may remain outstanding.
Buyer and Eclipsys agree to use their best efforts to replace such bonds or
guarantees within thirty (30) days after Closing such that Seller or its
Affiliates are no longer liable therefor. Notwithstanding anything to the
contrary set forth herein, Buyer and Eclipsys shall hold Seller and its
Affiliates harmless from and against any loss (including any presentment or draw
upon such bonds or guarantees) relating to such bonds or guarantees for defaults
arising from and after the Closing Date.
(s) Post-Closing Deliveries. Within ten business days after the
Closing Seller will deliver to Buyer: (a) the Updated Closing Balance Sheet and
(b) a schedule of non-material items of pro-ration, if any, mutually agreed
between the parties to be allocated. Within five business days after Closing
Seller will deliver to Buyer executed assignments suitable for recordation of
the trademarks and patents (including applications therefor) which are being
transferred hereunder.
7. Employment and Employee Benefit Matters.
(a) Transferred Employees. Seller has previously delivered to
Eclipsys a list of all of the employees of the Division who are eligible for
transfer to the Buyer or Eclipsys pursuant to the terms set forth below in this
Section 7(a). Such list is included in Schedule 7(a). Effective upon
consummation of the Closing on the Closing Date, the Buyer shall offer
employment to each Person identified on Schedule 7(a)(i). Schedule 7(a)(i) lists
all active employees of the Division as of the date of such list, and Schedule
7(a)(ii) lists each Person who is an inactive employee of the Division
immediately prior to the Closing Date and who is ready to return in a timely
manner from an approved leave of absence, such as short-term disability,
military leave, non-occupational disability, personal leave and employees on
layoff with recall rights as of the Closing, and employees who, as of the
Closing, are on any other leave covered by the Family and Medical Leave Act or
any comparable applicable law (the "Return Date"). All such individuals on
Schedule 7(a)(ii) shall remain employees of the Seller until their applicable
Return Date. As of each such individual's Return Date, the employment of each
such individual will be terminated by the Seller and, subject to the following
provisions of this Section 7(a), the Buyer shall offer employment to each such
individual. At least three business days prior to the Closing Buyer shall have
provided to Seller a list of those persons on Schedule 7(a) to whom Buyer will
make an offer of employment (Buyer shall have the discretion to make offers to
as many people on that list as it deems necessary; provided, however it shall
not exclude more than 75 persons from employment offers). Each Division employee
who has been offered and has accepted such offer of employment by Buyer and who
has commenced such employment with Buyer is hereinafter referred to as a
"Transferred Employee," and all such Persons, upon acceptance of such offer of
employment and commencement of such employment with Buyer are collectively
referred to as "Transferred Employees". The employment of each Person who is a
Transferred Employee shall be terminated by Seller effective January 31, 1998,
or the Return Date with respect to individuals listed on Schedule 7(a)(ii), and
each such Transferred Employee shall commence employment
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<PAGE> 42
with Buyer effective February 1, 1998, or if applicable the date immediately
following the Return Date with respect to individuals listed on Schedule
7(a)(ii). At Closing Buyer shall provide Seller a definitive list of Transferred
Employees. Effective January 31, 1998, all Transferred Employees, other than
those listed on Schedule 7(a)(ii), shall cease benefit accrual under any Seller
Benefit Plan. Effective January 31, 1998, all Transferred Employees other than
those listed on Schedule 7(a)(ii) shall cease benefit accrual under any Seller
Benefit Plan and effective February 1, 1998, such Transferred Employees shall be
eligible to participate in Buyer's employee benefit plans as provided in this
Section 7. All Transferred Employees listed on Schedule 7(a)(ii) shall cease
benefit accrual under any Seller Benefit Plan on the date such Transferred
Employees' employment with Seller is terminated and such individuals shall be
immediately eligible to participate in Buyer's benefit plans on the date such
individuals commence employment with Buyer as provided in this Section 7.
(b) Construction. Nothing contained in this Agreement, including
the foregoing, shall be construed to require the Buyer or Eclipsys to continue
the employment of any Transferred Employee for any period following the Closing
or the applicable Return Date, as the case may be, at any particular salary or
benefit level, or to limit or restrict the Buyer or Eclipsys from terminating
any such Transferred Employee for any lawful reason whatsoever, with or without
cause, or lawfully amending or terminating any employee benefit plan
established, maintained, or contributed to by the Buyer or Eclipsys on or after
the Closing. Buyer and Eclipsys shall hold Seller and its Affiliates harmless
from any liability associated with any action by Buyer relating to any employee
benefit plan established, maintained or contributed to by Buyer or Eclipsys on
or after the Closing including the amendment and termination of any such plan.
(c) Recognition of Service; Pre-Existing Conditions; Deductible
Fulfillment. Buyer will recognize the Transferred Employees' service with
Seller, but only to the extent that the same has hereto been recognized by the
Seller, as if such service had been rendered to Buyer for purposes of vacation,
severance, group insurance, welfare benefit plans, and pension benefit accrual,
vesting and eligibility for all such benefits as are offered by Buyer from time
to time, but only to the extent such recognition of service (i) does not result
in any duplication of benefits and (ii) does not adversely affect the
tax-qualified status of any retirement plan. Furthermore, with respect to the
Code Section 401(k) plan maintained by Eclipsys, such recognition of service
shall be taken into account only to determine each Transferred Employee's
eligibility to participate and non-forfeitable interest in such plan by
reference to the participation rules and vesting schedule contained in such plan
(or as may otherwise be required by applicable law). Transferred Employees
listed on Schedule 7(a)(i) who commence employment with Buyer shall be eligible
to participate in Buyer's 401(k) Plan effective February 1, 1998. Transferred
Employees listed on Schedule 7(a)(ii) who commence employment with Buyer shall
be eligible to participate in Buyer's 401(k) Plan on the first day they commence
employment with Buyer. Further, notwithstanding anything to the contrary set
forth herein, the Employee Benefit Plans of Buyer shall not contain any
pre-existing conditions exclusion with respect to Transferred Employees and the
deductibles and out-of-pocket expenses under all such Buyer Employee Benefit
Plans shall be reduced by any deductibles and out-of-pocket expenses satisfied
by the
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<PAGE> 43
Transferred Employees under the Seller's Employee Benefit Plans with
respect to the Transferred Employees for the plan year in which the Closing
occurs.
(d) No Duplicate Benefits. Nothing in this Agreement shall cause
duplicate benefits to be paid or provided to a Transferred Employee, including
under any employee pension, benefit, or welfare plan.
(e) Severance Arrangements. Seller shall be responsible for all
termination or severance payments to any of its employees arising because of
termination of employment with the Seller prior to the consummation of the
Closing consistent with the terms of Seller's existing benefit plans. Buyer
shall be responsible for any termination or severance payments (including,
without limitation, payments attributable to accrued vacation benefits, if any)
to any Transferred Employee arising because of the termination of employment
with the Buyer on or after the Closing. No provision contained in this Article 7
shall in any way, form or fashion be considered an assumption by the Buyer of
any liability or obligation of the Seller to pay severance benefits to any
individual, nor shall any such provision be deemed to obligate the Buyer to
establish or maintain any severance plan or program for the benefit of any
Person with respect to the termination by the Buyer or Eclipsys of any Person's
employment on or after the Closing Date.
(f) Compensation; Salary Increase Set-Aside. Except as otherwise
expressly provided herein, the Buyer shall offer employment to the Transferred
Employees, on such terms and conditions as shall be determined by Buyer, but
each such Transferred Employee who commences employment with the Buyer shall do
so at an initial base salary not less than the base salary paid to such employee
during the last full year of employment by the Division. Buyer or Eclipsys shall
increase the base salary of the Transferred Employees to offset additional
out-of-pocket expenses of certain benefit plans in an aggregate amount of up to
$115,000.
(g) Welfare Plans. Effective February 1, 1998, each Transferred
Employee other than Transferred Employees listed in Schedule 7(a)(ii) shall be
eligible to participate in and be covered under the applicable medical, dental,
accident, life, short and long-term disability, non-occupational disability, and
other employee welfare benefit plans of the Buyer, if any, which may be changed
from time to time thereafter with respect to each and any Transferred Employee,
without regard to any applicable eligibility and coverage requirements of such
plans; provided, however that the following rules apply:
(i) Medical and Dental Plans: If the Transferred Employee,
other than a Transferred Employee listed on Schedule
7(a)(ii), previously elected coverage under Seller's
medical and dental plans as of January 31, 1998, such
Transferred Employee shall be deemed to have elected
coverage under Buyer's PPO medical and dental indemnity
plans effective February 1, 1998 with the same type of
coverage (i.e. family or individual) the Transferred
Employee previously elected under Seller's medical and
dental plans as of January 31, 1998. Coverage under
Buyer's medical and dental indemnity plans shall continue
as aforesaid until the Transferred Employee submits the
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<PAGE> 44
appropriate election form changing medical or dental
coverage, which change shall be effective (i) in the event
of any Transferred Employee who executes an election form
and submits it to the Buyer within 31 days of commencement
of such Transferred Employee's employment by the Buyer,
such change shall be effective as of the date such form was
executed by the Transferred Employee; and (ii) if the
Transferred Employee does not execute and deliver such form
to the Buyer within 31 days of the commencement of the
Transferred Employee's employment by the Buyer, such change
will be effective as of the next applicable open enrollment
period. If a Transferred Employee listed on Schedule
7(a)(ii) previously elected coverage under Seller's medical
and dental plans as of the date his or her employment with
Seller terminates and such Transferred Employee becomes
employed by Buyer, then such individual shall be deemed to
have elected coverage under Buyer's PPO medical and dental
indemnity plans effective the date his or her employment
commences with the Buyer with the same type of coverage
(i.e. family or individual) the Transferred Employee
previously elected under the Seller's medical and dental
plans as of the date such individual's employment with
Seller terminated. Coverage under Buyer's medical and
dental indemnity plans shall continue until the Transferred
Employee submits the appropriate form changing medical or
dental coverage, which change shall be effective in the
same manner as set forth in this Section 7(g) with respect
to Transferred Employees listed on Schedule 7(a)(i).
(ii) Life Insurance and Long Term Disability Plan: Coverage will
not commence unless the Transferred Employee, including a
Transferred Employee listed on Schedule 7(a)(ii), completes
and submits the appropriate benefit enrollment form no
later than 31 days after he or she commences employment
with Buyer and once elected, coverage will be effective the
date the enrollment form is executed;
(iii) Dependent Care and Medical Reimbursement Account Plans:
Coverage will not commence unless the Transferred Employee,
including a Transferred Employee listed on Schedule
7(a)(ii), completes and submits the appropriate benefit
enrollment form no later than 31 days after he or she
commences employment with Buyer and once elected, coverage
will become effective the following payroll period.
(h) Other Benefit Matters. On and after the Closing Date, Seller
(or any insurer at Seller's cost) shall continue to process and pay (or cause to
be processed and paid) in an expeditious manner and with respect to all
Transferred Employees other than Transferred Employees listed on Schedule
7(a)(ii) (and, to the extent applicable, their spouses, dependents and
beneficiaries): (A) all claims under such Seller Benefit Plans that provide
health and medical, or other welfare benefits submitted for covered expenses
incurred on or prior to January 31, 1998, including, but not limited to, (1)
covered hospital benefits for any confinements that commenced
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<PAGE> 45
on or before January 31, 1998, including any covered charges of health care
professionals relating to such confinements and (2) any other covered medical or
health expenses incurred on or before January 31, 1998; (B) short-term and
long-term disability benefits, if any, for disability benefits that commenced on
or before January 31, 1998 for the period that each of such affected individuals
remain disabled; (C) life and survivor income benefits, if any, for deaths which
occur on or prior to the later of (x) January 31, 1998 or (y) the date which is
31 days after the date such Transferred Employee's employment terminates with
Seller; (D) workers' compensation benefits for disabilities resulting from a
work-related accident which benefit payments have commenced on or prior to
January 31, 1998; (E) all benefits that are being, or that may be, paid to, or
with respect to, any of such employees who are on medical, personal or other
leaves of absence as of January 31, 1998 pursuant to the terms of such Plans as
in effect immediately prior to such date (including any subsequent benefit
increases); (F) benefits under any spending account," or similar arrangement,
under any "cafeteria plan" (as defined under Section 125 of the Code) in
accordance with the terms of such plans maintained by Seller, to the extent such
benefits are incurred on or before January 31, 1998; and (G) benefits under all
other such Seller Benefit Plans which are payable on or before January 31, 1998.
With respect to Transferred Employees listed on Schedule 7(a)(ii), Seller shall
continue to process and pay the benefits listed in this Paragraph through the
date such individuals terminate employment with Seller, provided, however that
Seller shall continue to provide life and survivor income benefits, if any, for
deaths which occur on or prior to 31 days after the date such Transferred
Employee's employment terminates with Seller.
(i) Third Party Rights. Nothing in this Agreement, express or
implied, shall confer upon any employee of the Buyer, Eclipsys, the Division, or
the Seller, or any of their respective affiliates or any legal representative
thereof or any collective bargaining agent any rights or remedies, including any
right to employment, or continued employment for any specific period. Nothing in
this Agreement, express or implied, shall be deemed to confer upon any person
(or any beneficiary) any rights under or with respect to any plan, program, or
arrangement described in or contemplated by this Agreement, and each person (or
any beneficiary) shall be entitled to look only to the express terms of any such
plan, program, or agreement. Nothing in this Agreement, express or implied,
shall create a third-party beneficiary relationship or otherwise confer any
benefit, entitlement, or right upon any person or entity other than the parties
to this Agreement and their respective corporate affiliates.
(j) Reimbursement of Tuition Expenses. Certain Transferred
Employees are currently enrolled in educational programs pursuant to which
Seller had agreed to reimburse such employees for their tuition expenses
(pursuant to Seller's tuition-reimbursement policies for such employees). Buyer
agrees to reimburse any such employee for tuition expenses relating to courses
in which such employee was enrolled for any semester that commenced (but did not
terminate) prior to the Closing Date to the extent Seller would have similarly
reimbursed such expenses in accordance with Seller's policies (which provides
for 100% tuition reimbursement). Any courses in which an employee of Buyer
enrolls after the Closing Date shall be reimbursed, if at all, in accordance
with Buyer's policies.
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<PAGE> 46
(k) Seller Assistance. If Buyer requests from Seller pre-Closing
benefit information for Transferred Employees to enable the Buyer to provide
credits for deductibles and out-of-pocket limitations with the Buyer's plans
within thirty (30) days after the Closing Date, the Seller shall cooperate with
the Buyer and its selected insurance companies by providing such information.
(l) Assumed and Excluded Liabilities. All Liabilities assumed by
Buyer under this Section 7 shall be Assumed Liabilities; all Liabilities
retained by the Seller under this Section 7 shall be Excluded Liabilities.
(m) Profit Sharing and Investment Plan Asset Transfer. The
parties shall execute the Profit Sharing Transfer Agreement, in the form
provided in Exhibit H, within ten business days after the Closing. Thereafter,
assets in Seller's Profit Sharing and Investment Plan that relate to the total
account balances of Transferred Employees shall be transferred in accordance
with the Profit Sharing Transfer Agreement.
8. Tax Matters.
(a) Seller Tax Returns. The Seller will be responsible for the
preparation and filing of all tax returns for the Seller for all periods as to
which tax returns are due after the Closing Date (including the consolidated,
unitary, and combined tax returns for the Seller which include the operations of
the Division for any period ending on or before the Closing Date). The Seller
will make all payments required with respect to any such tax returns.
(b) Buyer Tax Returns. The Buyer will be responsible for the
preparation and filing of all tax returns for the Division for all periods as to
which tax returns are due after the Closing Date (other than for taxes with
respect to periods for which the consolidated, unitary, and combined tax returns
of the Seller will include the operations of the Division). The Buyer will make
all payments required with respect to any such tax return; provided, however,
that the Seller will reimburse the Buyer concurrently therewith to the extent
any payment the Buyer is making relates to the operations of any of the Division
for any period ending on or before the Closing Date.
(c) Transfer Taxes. All excise, sales, use, value added,
registration stamp, recording, documentary, conveyancing, franchise, property,
transfer, gains and similar taxes, levies, charges and fees including any
deficiencies, interest, penalties, additions to tax or additional amounts
excluding any Income Taxes (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated by this Agreement shall be borne
equally by the parties. Buyer and Seller shall use reasonable efforts to
minimize the amount of all Transfer Taxes and shall cooperate in providing each
other with any appropriate resale exemption certifications and other similar
documentation. The party that is required by applicable law to make the filings,
reports, or returns and to handle any audits or controversies with respect
to any applicable Transfer Taxes shall do so, and the other party shall
cooperate with respect thereto as necessary.
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(d) Apportioned Obligations. All real property taxes, personal
property taxes and similar ad valorem obligations levied with respect to the
Acquired Assets for a taxable period which includes (but does not end on) the
Closing Date (collectively, the "Apportioned Obligations") shall be apportioned
between Seller and Buyer based on the number of days of such taxable period
included in the Pre-Closing Tax Period and the number of days of such taxable
period after the Closing Date (with respect to any such taxable period, the
"Post-Closing Tax Period"). Seller shall be liable for the proportionate amount
of such taxes that is attributable to the Pre-Closing Tax Period, and Buyer
shall be liable for the proportionate amount of such taxes that is attributable
to the Post-Closing Tax Period. Upon receipt of any bill for real or personal
property taxes relating to the Acquired Assets, each of Seller and Buyer shall
present a statement to the other setting forth the amount of reimbursement to
which each is entitled under this Section 8(d) together with such supporting
evidence as is reasonably necessary to calculate the proration amount. The
proration amount shall be paid by the party owing it to the other within 30 days
after delivery of such statement. In the event that either Seller or Buyer shall
make any payment for which it is entitled to reimbursement under this Section
8(d), the other party shall make such reimbursement promptly but in no event
later than 10 days after the presentation of a statement setting forth the
amount of reimbursement to which the presenting party is entitled along with
such supporting evidence as is reasonably necessary to calculate the amount of
reimbursement.
9. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in
Section 3 above shall be true and correct in all
material respects at and as of the Closing Date;
(ii) the Seller shall have performed and complied with
all of its covenants hereunder in all material
respects through the Closing including the execution
and delivery of all agreements required to be
executed in the form of Exhibits attached hereto
(including the agreements specified in Section 6(c),
and Sections 6(h)-(n));
(iii) there shall not be any injunction, judgment, order,
decree, ruling, or charge in effect preventing
consummation of any of the transactions contemplated
by this Agreement;
(iv) the Seller shall have delivered to the Buyer a
certificate to the effect that each of the
conditions specified above in Sections 9(a)
(i)-(iii) is satisfied in all respects;
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(v) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have
expired or otherwise been terminated and the Seller and
the Buyer shall have received all other authorizations,
consents, and approvals of governments and governmental
agencies referred to in Section 3(c) and Section 4(c)
above;
(vi) on or prior to the Closing Date, with respect to any
Acquired Assets which cannot be physically delivered to
Buyer because they are in possession of third parties,
the Seller shall have given irrevocable instructions to
the parties in possession thereof that all right, title
and interest in and to the same have been vested in the
Buyer and that the same are to be held for the Buyer's
exclusive use and benefit from and after the Closing, the
form of the irrevocable instructions, and the procedures
for obtaining acknowledgment of the same from the parties
in possession, being satisfactory in form and in
substance to the Buyer;
(vii) at least three days prior to the Closing, the Seller shall
deliver to the Buyer UCC lien and judgment and tax lien
searches, dated not more than twenty-one (21) days prior
to the Closing, for "Emtek Healthcare Systems" at the
State level for the States in which the Division has
facilities or in which any of the material Acquired
Assets are located. Such searches shall be conducted
under the name "Emtek Healthcare Systems", which is the
name the Seller has used with respect to the Division
during the past five years;
(viii) Seller shall have paid or arranged (on terms and
conditions satisfactory to the Buyer) for the payment of
all Seller Remuneration, including all severance pay and
related benefits for non-Transferred Employees who are
entitled to such pay and benefits;
(ix) Seller shall have executed letters of instruction
furnished by Buyer, satisfactory in form and in substance
to Seller and Buyer, sufficient to permit the Buyer to
deposit such checks or other evidences of indebtedness
received by the Buyer on account of any Acquired Asset
sold by the Seller to the Buyer pursuant to this
Agreement in Buyer's bank accounts in the name of the
Buyer for collection on behalf of the Buyer;
(x) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other
documents required o effect the transactions contemplated
hereby will be reasonably satisfactory in form and
substance to the Buyer.
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The Buyer may waive any condition specified in this Section 9(a)
if it executes a writing so stating at or prior to the Closing or by proceeding
to close the transactions contemplated hereby.
(b) Conditions to Obligation of the Seller. The obligation of
the Seller to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in
Section 4 above shall be true and correct in all
material respects at and as of the Closing Date;
(ii) the Buyer shall have performed and complied with all
of its covenants hereunder in all material respects
through the Closing including the execution and
delivery of all agreements required to be executed
in the form of Exhibits attached hereto (including
the agreements specified in Section 6(c), and
Sections 6(h)-(o));
(iii) there shall not be any injunction, judgment, order,
decree, ruling, or charge in effect preventing
consummation of any of the transactions contemplated
by this Agreement;
(iv) the Buyer shall have delivered to the Seller a
certificate to the effect that each of the
conditions specified above in Sections 9(b)(i)-(iii)
is satisfied in all respects;
(v) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have
expired or otherwise been terminated and the Seller
and the Buyer shall have received all other
authorizations, consents, and approvals of
governments and governmental agencies referred to in
Section 3(c) and Section 4(c) above; and
(vi) all actions to be taken by the Buyer in connection
with consummation of the transactions contemplated
hereby and all certificates, opinions, instruments,
and h other documents required to effect the
transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Seller.
The Seller may waive any condition specified in this Section
9(b) if it executes a writing so stating at or prior to the Closing or by
proceeding to close the transactions contemplated hereby.
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<PAGE> 50
10. Remedies for Breaches of this Agreement.
(a) Survival of Provisions.
The representations and warranties of the Seller and the Buyer
contained in this Agreement shall survive the Closing for a period of two (2)
years; provided, that (i) the representations and warranties of the Seller in
Section 3(a)-(e) of this Agreement (and any other representation herein as to
Seller's conveyance of title to the Acquired Assets) shall survive the Closing
indefinitely and (ii) the representations and warranties of Buyer contained in
Sections 4(a)-(e) shall survive the Closing indefinitely. All of the covenants
and agreements of the Parties contained herein shall survive the Closing
indefinitely unless the terms of any such covenant or agreement otherwise
provide.
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event the Seller breaches any of its
representations, warranties, and covenants contained
in this Agreement, and, if there is an applicable
survival period pursuant to Section 10(a) above,
provided that the Buyer makes a written claim for
indemnification against the Seller pursuant to
Section 11(g) below within such survival period,
then the Seller agrees to indemnify the Buyer from
and against the entirety of any Adverse Consequences
the Buyer shall suffer through and after the date of
the claim for indemnification (but excluding any
Adverse Consequences the Buyer shall suffer after
the end of any applicable survival period) caused
proximately by the breach; provided, however that
Seller shall have no obligation to indemnify the
Buyer from and against any Adverse Consequence
relating to or caused by the breach of any
representation or warranty of the Seller contained
in Sections 3(f)-(bb) of the Agreement until the
Buyer has suffered Adverse Consequences by reason of
all such breaches in excess of a $500,000 aggregate
threshold (prior to which point Buyer cannot bring a
claim against Seller but after which point the
Seller will be obligated to indemnify the Buyer from
and against all such Adverse Consequences from the
first dollar of Adverse Consequences) and (B) there
will be a $2,500,000 aggregate ceiling on the
obligation of the Seller to indemnify the Buyer from
and against Adverse Consequences relating to or
caused by breaches of any representations,
warranties or covenants of the Seller contained in
the Agreement.
(ii) Notwithstanding the foregoing, the Seller agrees to
indemnify the Buyer from and against the entirety of
any Adverse Consequences from the first dollar of
such Adverse Consequences that the Buyer shall
suffer caused proximately by any liability of the
Seller which is an Excluded Liability.
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<PAGE> 51
(c) Indemnification Provisions for Benefit of the Seller.
(i) In the event the Buyer breaches any of its
representations, warranties, and covenants contained in
this Agreement, and, if there is an applicable survival
period pursuant to Section 10(a) above, provided that the
Seller makes a written claim for indemnification against
the Buyer pursuant to Section 11(g) below within such
survival period, then the Buyer agrees to indemnify the
Seller from and against the entirety of any Adverse
Consequences the Seller shall suffer through and after the
date of the claim for indemnification (but excluding any
Adverse Consequences the Seller shall suffer after the end
of any applicable survival period) caused proximately by
the breach; provided, however, that Buyer shall have no
obligation to indemnify the Seller from and against any
Adverse Consequence relating to or caused by the breach of
any representation or warranty of the Buyer contained in
this Agreement until the Seller has suffered Adverse
Consequences by reason of all such breaches in excess of a
$500,000 aggregate threshold (prior to which point Seller
cannot bring a claim against Buyer but after which point
the Buyer will be obligated to indemnify the Seller from
and against all such Adverse Consequences from the first
dollar of Adverse Consequences) and (B) there will be a
$2,500,000 aggregate ceiling on the obligation of the
Buyer to indemnify the Seller from and against Adverse
Consequences relating to or caused by breaches of any
representations, warranties or covenants of the Buyer
contained in the Agreement.
(ii) Notwithstanding the foregoing, the Buyer agrees to
indemnify the Seller from and against the entirety of any
Adverse Consequences from the first dollar of such
Adverse Consequences that the Seller shall suffer caused
by any liability of the Seller which is an Assumed
Liability.
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third
Party Claim") which may give rise to a claim for
indemnification against the other Party (the "Indemnifying
Party") under this Section 10, then the Indemnified Party
shall promptly (and in any event within five business days
after receiving notice of the Third Party Claim) notify
the Indemnifying Party thereof in writing.
(ii) The Indemnifying Party will have the right at any time to
assume and thereafter conduct the defense of the Third
Party Claim with counsel of its choice reasonably
satisfactory to the Indemnified Party; provided, however,
that the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent
of the Indemnified Party (not to be withheld unreasonably)
unless the judgment or proposed settlement involves only
the
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<PAGE> 52
payment of money damages and does not impose an injunction
or other equitable relief upon the Indemnified Party.
(iii) Unless and until the Indemnifying Party assumes the defense
of the Third Party Claim as provided in Section 10(d)(ii)
above, however, the Indemnified Party may defend against
the Third Party Claim in any manner it reasonably may deem
appropriate.
(iv) In no event will the Indemnified Party consent to the entry
of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent
of the Indemnifying Party (not to be withheld
unreasonably).
(e) Determination of Adverse Consequences. The Parties shall
make appropriate adjustments for tax benefits and insurance coverage and take
into account the time cost of money (using the Applicable Rate as the discount
rate) in determining Adverse Consequences for purposes of this Section 10. All
indemnification payments under this Section 10 shall be deemed adjustments to
the Purchase Price.
(f) Exclusive Remedy. The Buyer and the Seller acknowledge and
agree that the foregoing indemnification provisions in this Section 4 shall be
the exclusive remedy of the Buyer and the Seller with respect to the Division
and the transactions contemplated by this Agreement.
(g) Satisfaction of Seller Indemnification. Notwithstanding
anything to the contrary set forth herein, in the event Seller is required to
satisfy any indemnification claim brought by Buyer pursuant to Section 10(b)
hereof, such claim may be satisfied by surrender to Buyer (or Eclipsys) of
Eclipsys common stock equal in value to the amount of such claim Seller is
obligated to pay. For purposes of the foregoing the value of Eclipsys common
stock surrendered in satisfaction of a claim shall be equal to the greater of
(x) the value as of the Closing Date which, for purposes of this Section 10(g)
only (and for no other purposes, including valuation of assets or otherwise) is
deemed to be $18.00 per share, subject to equitable adjustment for stock splits,
stock dividends, recapitalizations and the like, or (y) (A) the average closing
prices of the Eclipsys Common Stock as reported on the primary national
securities exchange or automated inter-dealer quotation system on which the
Eclipsys Common Stock is then listed on each of the five (5) trading days on
which it actually traded immediately preceding the date Seller becomes obligated
to satisfy such indemnification claim brought by Buyer, or, (B) if such stock
does not trade through the foregoing means, the value determined by an appraiser
requested by either Eclipsys or Seller (and paid for by the requesting party),
which appraiser shall be mutually acceptable to both Eclipsys and Seller,
provided, that if such appraiser cannot determine the value within 30 days of
such appraiser's retention, then the value in clause (x) above shall be used for
purposes hereof.
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<PAGE> 53
11. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written approval
of the other Party; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its best efforts to advise the other Party
prior to making the disclosure and permit the other Party to participate in the
preparation of such release).
(b) No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the agreements
executed in the form of Exhibits hereto) constitutes the entire agreement
between the Parties and supersedes any prior understandings, agreements, or
representations by or between the Parties, written or oral, to the extent they
related in any way to the subject matter hereof, other than that certain
Non-Disclosure Agreement dated as of August 18, 1997 by and between Motorola,
Inc. and Eclipsys (which agreement shall survive the Closing).
(d) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Party; provided, however. that the Buyer may (i) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases Eclipsys nonetheless shall
remain responsible for the performance of all of Buyer's obligations hereunder).
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given (i) when delivered
personally, (ii) after five (5) business days if it is sent by registered or
certified mail, return receipt requested, postage prepaid, and addressed to the
intended recipient as set forth below or (iii) after one business day if it is
sent by a reputable overnight courier via a reputable overnight courier service
with confirmation of receipt and addressed to the intended recipient as set
forth below:
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<PAGE> 54
If to the Seller:
Mr. Richard D. Severns
Land Mobile Products Sector
Motorola, Inc.
1301 East Algonquin Road
Schaumburg, Illinois 60196
Fax: (847) 538-3491
Copy to:
Donald F. McLellan, Esq.
Corporate Law Department
Motorola, Inc.
1303 East Algonquin Road
Schaumburg, Illinois 60196
Fax: (847) 576-3628
If to the Buyer:
Mr. Harvey J. Wilson
President and Chief Executive Officer
Eclipsys Corporation
777 East Atlantic Avenue
Suite 200
Delray Beach, Florida 33483
Copy to:
Jack Risenhoover, Esq.
General Counsel
Eclipsys Corporation
777 East Atlantic Avenue
Suite 200
Delray Beach, Florida 33483
and
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<PAGE> 55
Andrew J. Cosentino, Esq. and Stephen A. Weiss, Esq.
Greenberg, Traurig, Hoffman, Lipoff, Rosen, & Quentel
200 Park Avenue
15th Floor
New York, New York 10166
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE WHOLLY IN SUCH STATE WITHOUT GIVING EFFECT TO ANY
CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR
ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
(i) Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) Expenses. Each of the Seller and the Buyer will bear its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the authorship of
any of the provisions of this Agreement. Any reference to any federal, state,
local, or foreign statue
-50-
<PAGE> 56
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation.
(m) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
(n) Bulk Transfer Laws. Each of the Buyer and the Seller hereby
waive the requirements of applicable bulk transfer or bulk sales laws.
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
ECLIPSYS CORPORATION
By: /s/ Greg Wilson
-------------------------------------
Name: Greg Wilson
Title: Vice President
EMTEK HEALTHCARE CORPORATION
By: /s/ Greg Wilson
-------------------------------------
Name: Greg Wilson
Title: Vice President
MOTOROLA, INC.
By: /s/ Richard D. Severns
-----------------------------------
Name: Richard D. Severns
Title: Senior Vice President
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<PAGE> 57
Exhibits to Exhibit 2.3, the Asset Purchase Agreement between the
Registrant, Emtek Healthcare Corporation and Motorola, Inc. dated January 30,
1998, have been omitted pursuant to Item 601(b)(2) of Commission Regulation
S-K. The following is a list of omitted Exhibits, which the Registrant agrees
to furnish supplementally to the Commission upon request:
Exhibits:
A Form of Bill of Sale
B Form of Undertaking
C-1 Most Recent Balance Sheet
C-2 Financial Statements
D Form of Transition Services Agreement
E Form of Non-Competition/Non-Solicitation Agreement
F Form of International Software and Support Agreement
G Form of Eclipsys Guaranty
H Form of Motorola-Eclipsys Profit Sharing Transfer Agreement
<PAGE> 1
EXHIBIT 10.1
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
among
ECLIPSYS CORPORATION
and
CERTAIN OF ITS STOCKHOLDERS
----------------------------
Dated: January __, 1998
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions............................................................................5
2. General: Securities Subject to this Agreement.........................................10
(a) Grant of Rights......................................................10
(b) Registrable Securities...............................................10
(c) Holders of Registrable Securities....................................11
(d) Wilson Stockholders and Kaufman
Stockholders.........................................................11
3. Demand Registration...................................................................11
(a) Request for Demand Registration......................................11
(b) Incidental or "Piggy-Back" Rights With
Respect to a Demand Registration.....................................13
(c) Effective Demand Registration........................................14
(d) Expenses.............................................................14
(e) Underwriting Procedures..............................................14
(f) Selection of Underwriters............................................15
4. Piggy-Back Registration...............................................................15
(a) Piggy-Back Rights....................................................15
(b) Expenses.............................................................16
5. Form S-3 Registration.................................................................16
(a) Request for a Form S-3 Registration..................................16
(b) Form S-3 Underwriting Procedures.....................................16
(c) Limitations on Form S-3 Registrations................................17
(d) Expenses.............................................................18
(e) No Demand Registration...............................................18
6. Holdback Agreements...................................................................18
(a) Restrictions on Public Sale by
Designated Holders...................................................18
(b) Restrictions on Public Sale by the Company...........................18
7. Registration Procedures...............................................................19
(a) Obligations of the Company...........................................19
(b) Seller Information...................................................22
(c) Notice to Discontinue................................................22
(d) Registration Expenses................................................23
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C> <C>
8. Indemnification: Contribution.........................................................23
(a) Indemnification by the Company.......................................23
(b) Indemnification by Designated Holders................................24
(c) Conduct of Indemnification Proceedings...............................24
(d) Contribution.........................................................25
9. Rule 144..............................................................................25
10. Miscellaneous.........................................................................26
(a) Recapitalizations, Exchanges, etc....................................26
(b) No Inconsistent Agreements...........................................26
(c) Remedies.............................................................26
(d) Amendments and Waivers...............................................26
(e) Notices..............................................................27
(f) Successors and Assigns; Third Party
Beneficiaries........................................................31
(g) Counterparts.........................................................32
(h) Headings.............................................................32
(i) GOVERNING LAW........................................................33
(j) Severability.........................................................33
(k) Entire Agreement.....................................................33
(l) Further Assurances...................................................33
</TABLE>
3
<PAGE> 4
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
AGREEMENT, dated as of January __, 1998 (this "Agreement"), among
Eclipsys Corporation, a Delaware corporation (the "Company"), Partners
HealthCare Systems, Inc., a Massachusetts not-for-profit corporation
("Partners"), General Atlantic Partners 38, L.P., a Delaware limited partnership
("GAP 38"), General Atlantic Partners 28 L.P., a Delaware limited partnership
("GAP 28"), GAP Coinvestment Partners, L.P., a New York limited partnership
("GAP Coinvestment"), General Atlantic partners 47, L.P., a Delaware limited
partnership ("GAP 47"), Harvey J. Wilson ("Wilson"), Wilfam Ltd., a Florida
limited partnership ("Wilfam"), ALLTEL Information Services, Inc., an Arkansas
corporation ("Alltel"). First Union Corporation, a North Carolina corporation
("FUCP"), BT Investment Partners, Inc., a Delaware corporation ("BT"), Brean
Murray Associates IHS L.P., a Delaware limited partnership ("Brean Murray"),
Gerald Manolovici ("Manolovici"), St. Paul Venture Capital IV, L.L.C., a
Delaware limited liability company ("St. Paul"), Peter Karmanos, Jr.
("Karmanos"), the Kaufman Stockholders (as hereinafter defined) and Motorola,
Inc., a Delaware corporation ("Motorola").
WHEREAS, the Company, Partners, GAP 28, GAP Coinvestment, Wilson,
Wilfam, Brean Murray and Manolovici had previously entered into a Registration
Rights Agreement, dated May 3, 1996 (the "Original Registration Rights
Agreement"); and
WHEREAS, the Company, Partners, GAP 38, GAP 28, GAP Coinvestment,
Wilson, Wilfam, Alltel, FUCP, BT, Brean Murray, Manolovici, St. Paul and
Karmanos amended and restated the Original Registration Rights Agreement as of
January 24, 1997 (the "First Restated Registration Rights Agreement"); and
WHEREAS, the parties to the First Restated Registration Rights
Agreement, together with the Kaufman Stockholders (as hereinafter defined),
amended such agreement as of June 27, 1997; and
WHEREAS, the parties to the First Restated Registration Rights
Agreement, as amended, wish to amend and restate such agreement, as set forth
herein, as to (i) include Motorola as a party hereto and as an inducement to
Motorola to enter into a certain asset purchase agreement with the Company to be
dated on or about January 30, 1998 and (ii) include GAP 47 as a party hereto and
as an inducement to GAP 47 and GAP Coinvestment to enter into a certain
preferred stock purchase agreement with the Company to acquire Series G
Preferred Stock (as defined below), which agreement the Company expects to enter
into.
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the adequacy of which are hereby acknowledged, the parties
hereto agree as follows:
1. Definitions. As used in this Agreement the following terms
have the meanings indicated:
4
<PAGE> 5
"Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. In
addition, the following shall be deemed to be Affiliates of GAP 38: (a) GAP LLC,
the members of GAP LLC, the limited partners of GAP 38, the limited partners of
GAP 28 and the limited partners of GAP 47; (b) any Affiliate of GAP LLC, the
members of GAP LLC, the limited partners of GAP 38, the limited partners of GAP
28 and the limited partners of GAP 47; and (c) any limited liability company or
partnership a majority of whose members or partners, as the case may be, are
members, former members, consultants or key employees of GAP LLC. In addition,
GAP 38, GAP 28, GAP 47 and GAP Coinvestment shall be deemed to be Affiliates of
one another.
"Alltel" has the meaning assigned to such term in the recital
to this Agreement.
"Alltel Stockholders" means Alltel and any Affiliate thereof
to which Registrable Securities are transferred.
"Approved Underwriter" has the meaning assigned to such term
in Section 3(f) of this Agreement.
"Brean Murray" has the meaning assigned to such term in the
recital to this Agreement.
"Brean Murray Stockholders" means Brean Murray and any
Affiliate thereof to which Registrable Securities are transferred.
"BT" has the meaning assigned to such term in the recital to
this Agreement.
"BT Stockholders" means BT and any Affiliate thereof to which
Registrable Securities are transferred.
"Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation of the Company, substantially in the form attached
to the Stock Purchase Agreement as Exhibit C.
"Class A Common Stock" means the common stock, $.01 par value
per share, of the Company.
"Class B Common Stock" means the non-voting common stock,
$.01 par value, of the Company.
"Closing Price" means, with respect to the Registrable
Securities, as of the date of determination, (a) the closing price per share of
a Registrable Security on such date
5
<PAGE> 6
published in the Wall Street Journal or, if no such closing price on such date
is published in the Wall Street Journal, the average of the closing bid and
asked prices on such date, as officially reported on the principal national
securities exchange (including, without limitation, The Nasdaq Stock Market,
Inc.) on which the Registrable Securities are then listed or admitted to
trading; or (b) if the Registrable Securities are not then listed or admitted to
trading on any national securities exchange but are designed as national market
system securities by the NASD, the last trading price per share of a Registrable
Security on such date; or (c) if there shall have been no trading on such date
or if the Registrable Securities are not so designated, the average of the
reported closing bid and asked prices of the Registrable Securities on such date
as shown by The Nasdaq Stock Market, Inc. (or its successor) and reported by any
member firm of the New York Stock Exchange, Inc. selected by the Company; or (d)
if none of (a), (b) or (c) is applicable, a market price per share reasonably
satisfactory to the Designated Holder for whom such determination is being made,
by a nationally recognized investment banking firm selected by the Company and
such Designated Holder, the expenses for which shall be borne equally by the
Company and such Designated Holder.
"Common Stock" means the Class A Common Stock, the Class B
Common Stock and any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"Company Underwriter" has the meaning assigned to such term
in Section 4(a) of this Agreement.
"Demand Registration" has the meaning assigned to such term
in Section 3(a) of this Agreement.
"Designated Holder" means each of the Partners Stockholders,
the General Atlantic Stockholders, the Wilson Stockholders, the Alltel
Stockholders, the FUCP Stockholders, the BT Stockholders, the Brean Murray
Stockholders, the Manolovici Stockholders, the St. Paul Stockholders, the
Karmanos Stockholders, the Kaufman Stockholders and the Motorola Stockholders
and any transferee of any of them to whom Registrable Securities have been
transferred in accordance with the provisions of this Agreement, other than a
transferee to whom such securities have been transferred pursuant to a
registration statement under the Securities Act or Rule 144 or Regulation S
under the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"First Restated Registration Rights Agreement" has the
meaning assigned to such term in the recital to this Agreement.
"FUCP" has the meaning assigned to such term in the recital
to this Agreement.
6
<PAGE> 7
"FUCP Warrant" has the meaning assigned to such term in the
recital to this Agreement.
"FUCP Stockholders" means FUCP and any Affiliate thereof to
which shares are transferred.
"GAP Coinvestment" has the meaning assigned to such term in
the recital to this Agreement.
"GAP 47" has the meaning assigned to such term in the recital
to this Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware
limited liability company and the general partner of GAP 38, GAP 28 and GAP 47,
and any successor to such entity.
"GAP 38" has the meaning assigned to such term in the recital
to this Agreement.
"GAP 28" has the meaning assigned to such term in the recital
to this Agreement.
"General Atlantic Stockholders" means GAP 38, GAP 28, GAP 47,
GAP Coinvestment and any Affiliate thereof to which Registrable Securities are
transferred.
"Holders' Counsel" has the meaning assigned to such term in
Section 4(a) of this Agreement.
"Initiating Holder" has the meaning assigned to such term in
Section 3(a) of this Agreement.
"Inspector" has the meaning assigned to such term in Section
7(a)(viii) of this Agreement.
"IPO Effectiveness Date" means the date upon which the
Company consummates its initial offer for sale of shares of Common Stock
pursuant to an effective Registration Statement filed under the Securities Act.
"Karmanos" has the meaning assigned to such term in the
recital to this Agreement.
"Karmanos Stockholders" means Karmanos and any Permitted
Transferee (as defined in the Stockholders Agreement) thereof to which
Registrable Securities are transferred.
7
<PAGE> 8
"Kaufman Stockholders" means, collectively, (i) Michael B.
Kaufman: (ii) Claudia Kaufman; (iii) Michael M. Davis and Michael B. Kaufman as
Trustees of the Michael B. Kaufman Family Trust u/t/a dated September 3, 1993;
(iv) Michael B. Kaufman as Trustee of the Amy R. Kaufman 1990 Trust u/t/a dated
December 28, 1990; (v) Michael B. Kaufman as Trustee of the Kim E. Kaufman 1990
Trust u/t/a dated December 28, 1990; and (vi) Pearl S. Kaufman as Trustee of the
Michael B. Kaufman Trust pursuant to a Trust Agreement dated June 10, 1976; and
any Permitted Transferee (as defined in the Stockholders Agreement) thereof to
which Registrable Securities are transferred.
"Manolovici" has the meaning assigned to such term in the
recital to this Agreement.
"Manolovici Stockholders" means Manolovici and any Permitted
Transferee (as defined in the Stockholders Agreement) thereof to which
Registrable Securities are transferred.
"Market Price" means, on any date of determination, the
average of the daily Closing Price of the Registrable Securities for the
immediately preceding thirty (30) days on which the national securities
exchanges are open for trading.
"Motorola" has the meaning assigned to such term in the
recital to this Agreement.
"Motorola Stockholders" means Motorola and any Affiliate
thereof to which Registrable Securities are transferred and any other Person
deemed a Motorola Stockholder pursuant to Section 10(f) of this Agreement.
"NASD" has the meaning assigned to such term in Section
7(a)(xiii) of this Agreement.
"Original Registration Rights Agreement" means the
Registration Rights Agreement, dated May 3, 1996, among the Company, Partners,
GAP 28, GAP Coinvestment, Wilson, Wilfam, Brean Murray and Manolovici.
"Partners" has the meaning assigned to such term in the
recital to this Agreement.
"Partners Stockholders" mean Partners and any Affiliate
thereof to which Registrable Securities are transferred.
"Person" means any individual, firm, corporation,
partnership, limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company, limited liability company,
government (or an agency or political subdivision thereof) or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
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"Registrable Securities" means each of the following: (a) any
and all shares of Class A Common Stock owned by the Designated Holders or issued
or issuable upon conversion of shares of Class B Common Stock, Series D
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock, (b) any
other shares of Class A Common Stock acquired or owned by any of the Designated
Holders prior to the IPO Effectiveness Date, or acquired or owned by any of the
Designated Holders after the IPO Effectiveness Date, if such Designated Holder
is an Affiliate of the Company and (c) any shares of Class A Common Stock or
voting common stock of the Company issued or issuable to any of the Designated
Holders with respect to shares of Class A Common Stock, Class B Common Stock,
Series D Preferred Stock or Series F Preferred Stock by way of stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise shares of Class A
Common Stock or voting common stock issuable upon conversion, exercise or
exchange thereof.
"Registration Expenses" has the meaning assigned to such term
in Section 7(d) of this Agreement.
"Registration Statement" means a registration statement filed
pursuant to the Securities Act.
"S-3 Initiating Holder" has the meaning assigned to such term
in Section 5(a) of this Agreement.
"SEC" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Securities Act" means the Securities Act of 193, as amended,
and the rules and regulations promulgated thereunder.
"Series B Preferred Stock" means the Series B 8.5% Cumulative
Redeemable Preferred Stock, par value $.01 per share, of the Company.
"Series C Preferred Stock" means the Series C 8.5% Cumulative
Redeemable Preferred Stock, par value $.01 per share, of the Company.
"Series D Preferred Stock" means the Series D Convertible
Preferred Stock, par value $.01 per share, of the Company.
"Series E Preferred Stock" means the Series E Convertible
Preferred Stock, par value $.01 per share, of the Company.
"Series F Preferred Stock" means the Series F Convertible
Preferred Stock, par value $.01 per share, of the Company.
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"Series G Preferred Stock" means the Series G Convertible
Preferred Stock, par value $.01 per share, of the Company.
"Stockholder Agreement" means the Second Amended and Restated
Stockholders Agreement, dated as of the date hereof among the Company and
certain of its Stockholders.
"Wilson" has the meaning assigned to such term in the recital
to this Agreement.
"Wilson Stockholders" means Wilson, Wilfam, the Kaufman
Stockholders and any Permitted Transferee (as defined in the Stockholders
Agreement) thereof to which Registrable Securities are transferred.
2. General: Securities Subject to this Agreement.
(a) Grant of Rights. The Company hereby grants
registration rights to the Partners Stockholders, the General Atlantic
Stockholders, the Wilson Stockholders, the Alltel Stockholders, the FUCP
Stockholders, the BT Stockholders, the Brean Murray Stockholders, the Manolovici
Stockholders, the St. Paul Stockholders, the Karmanos Stockholders and the
Motorola Stockholders upon the terms and conditions set forth in this Agreement.
(b) Registrable Securities. For the purpose of this
Agreement, Registrable Securities will cease to be Registrable Securities when
(i) a registration statement covering such Registrable Securities has been
declared effective under the Securities Act by the SEC and such Registrable
Securities have been disposed of pursuant to such effective registration
statement, (ii) the entire amount of such Registrable Securities proposed to be
sold in a single sale are or, in the opinion of counsel satisfactory to the
Company and the Designated Holder, each in their reasonable judgement, may be
distributed to the public without any limitation as to volume pursuant to Rule
144 (or any successor provision then in effect) under the Securities Act or
(iii) such Registrable Securities are proposed to be sold or distributed by a
Person not entitled to the registration rights granted by this Agreement.
(c) Holders of Registrable Securities. A Person is deemed
to be a holder of Registrable Securities whenever such Person owns of record
Registrable Securities, or holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities
whether or not such acquisition or conversion has actually been effected and
disregarding any legal restrictions upon the exercise of such rights. If the
Company receives conflicting instructions, notices or elections from two or more
Persons with respect to the same Registrable Securities, the Company may act
upon the basis of the instructions, notice or election received from the
registered owner of such Registrable Securities. Registrable Securities issuable
upon exercise of an option or upon conversion of another security shall be
deemed outstanding for the purposes of this Agreement.
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(d) Wilson Stockholders and Kaufman Stockholders. With
respect to any rights or obligations of the Wilson Stockholders, the Kaufman
Stockholders shall share such rights or obligations with the other Wilson
Stockholders, allocated among all the Wilson Stockholders (including Kaufman
Stockholders) as a group on a pro rata basis, calculated with reference to the
total number of Shares owned by the Kaufman Stockholders as compared to the
total number of shares owned by the Wilson Stockholders as a group. As among the
Wilson Stockholders, including the Kaufman Stockholders, all decisions to be
made by the Wilson Stockholders with respect to the exercise of rights under
this Agreement shall be made by Wilson Stockholders holding a majority of the
Registrable Securities held by all Wilson Stockholders.
3. Demand Registration.
(a) Request for Demand Registration. At any time after
six months following the IPO Effectiveness Date, the Wilson Stockholders, the
General Atlantic Stockholders, the Partners Stockholders, the Alltel
Stockholders, the FUCP Stockholders, the BT Stockholders or the Motorola
Stockholders may make a written request to the Company to register (each of such
Wilson Stockholders, General Atlantic Stockholders, Partners Stockholders,
Alltel Stockholders, FUCP Stockholders, BT Stockholders or Motorola Stockholders
making such request being referred to hereinafter as the "Initiating Holder"),
under the Securities Act and under the securities or "blue sky" laws of any
jurisdiction reasonably designated by such holder or holders, the number of
Registrable Securities, the offer and sale of which shall result in net proceeds
(after expenses and underwriting commissions and discounts) to such Initiating
Holder of at least $5,000,000 (a "Demand Registration"), and the Company shall
use its reasonable efforts to cause such Demand Registration to become and
remain effective not later than three (3) months after it receives a request for
a Demand Registration; provided, however, that the Company shall not be required
to effect more than one Demand Registration at the request of the Wilson
Stockholders, two Demand Registrations at the request of the General Atlantic
Stockholders, one Demand Registration at the request of the Partners
Stockholders, one Demand Registration at the request of the Alltel Stockholders,
one Demand Registration at the request of the FUCP Stockholders, one Demand
Registration at the request of the BT Stockholders and two demands at the
request of the Motorola Stockholders, and provided further that, if (x) the
Initiating Holder is a Motorola Stockholder, (y) the Motorola Stockholders'
Registrable Securities may not then be sold pursuant to Rule 144 under the
Securities Act (whether or not subject to the volume limitations thereof), and
(z) the Motorola Stockholders request the registration of all of their
Registrable Securities, then the Company shall be required to effect a Demand
Registration at the request of the Motorola Stockholders even if the offer and
sale of all of the Motorola Stockholders' Registrable Securities shall result in
end proceeds to the Motorola Stockholders of less than $5,000,000. For purposes
of the preceding sentence, two or more registration statements filed in response
to one demand shall be counted as one registration statement. If at the time of
any request to register Registrable Securities pursuant to this Section 3(a),
the Company is engaged in, or has fixed plans to engage in within three months
of the time of such request, a registered public offering or is engaged in any
other activity which, in the good faith determination of the Board of Directors
of the Company, would be adversely affected by
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<PAGE> 12
the requested registration to the material detriment of the Company, then the
Company may at is option direct that such request be delayed for a reasonable
period not in excess of three months from the effective date of such offering or
the date of completion of such other material activity, as the case may be, such
right to delay a request to be exercised by the Company not more than once in
any one-year period. In addition, the Company shall not be required to effect
any Demand Registration within three months after the effective date of any
other Registration Statement of the Company. Notwithstanding the foregoing, a
Demand Registration may not be initiated by:
(i) (x) the Partners Stockholders within 12
months of the effective date of any Registration Statement of the Company in
which (1) the Partners Stockholders were offered an opportunity to register
Registrable Securities pursuant to Section 3(b) or Section 4 and (2) none of the
Registrable Securities requested by the Partners Stockholders for inclusion in
such Registration Statement were excluded pursuant to the last sentence of
Section 3(e) or Section 4(a), or (y) the Motorola Stockholders within 12 months
of the effective date of any Registration Statement of the Company in which (1)
the Motorola Stockholders were offered an opportunity to register Registrable
Securities pursuant to Section 3(b) or Section 4 and were eligible to
participate in such registration, and (2) none of the Registrable Securities
requested by the Motorola Stockholders for inclusion in such Registration
Statement were excluded pursuant to the last sentence of Section 3(e) or Section
4(a), or
(ii) any of the Wilson Stockholders, the General
Atlantic Stockholders, the FUCP Stockholders or the BT Stockholders within 12
months of the effective date of any Registration Statement of the Company (x)
filed in response to a request for a Demand Registration pursuant to this
Section 3(a) and (y) in which the Designated Holders were offered an opportunity
to register Registrable Securities in such Demand Registration pursuant to
Section 3(b), or
(iii) by the Motorola Stockholders before the
second anniversary of this Agreement.
Each request for a Demand Registration by the Initiating Holders shall state the
amount of the Registrable Securities proposed to be sold and the intended method
of disposition thereof. Upon a request for a Demand Registration, the Company
shall promptly take such steps as are necessary or appropriate to prepare for
the registration of the Registrable Securities to be registered.
(b) Incidental or "Piggy-Back" Rights With
Respect to a Demand Registration. Each of the Designated Holders (other than the
Initiating Holder) may offer its Registrable Securities under any Demand
Registration pursuant to this Section 3. Within 10 days after the receipt from
an Initiating Holder of a request for a Demand Registration, the Company shall
(i) give written notice thereof to all of the Designated Holders (other than the
Initiating Holder) and (ii) subject to Section 3(e), include in such
registration all of the Registrable Securities held by such Designated Holders
from whom the Company has received a written
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<PAGE> 13
request for inclusion therein within 10 days of the receipt by such Designated
Holders of such written notice referred to clause (i) above. Each such request
by such Designated Holders shall specify the number of Registrable Securities
proposed to be registered and the intended method of disposition thereof. The
failure of any Designated Holder to respond within such 10-day period referred
to in clause (ii) above shall be deemed to be a waiver of such Designated
Holder's rights under this Section 3, provided that any Designated Holder may
waive its rights under this Section 3 prior to the expiration of such 10-day
period by giving written notice to the Company, with a copy to the Initiating
Holder. Notwithstanding the foregoing, none of the Motorola Stockholders may
exercise any "piggy-back" registration rights before the second anniversary of
this Agreement, except that Motorola may exercise its "piggyback" registration
rights prior to such date if the Company initially files a registration
statement under the Securities Act during the ninety-day period immediately
prior to the second anniversary of this Agreement pursuant to a Demand
Registration made under Section 3(a) of this Agreement.
(c) Effective Demand Registration. A
registration shall not constitute a Demand Registration until it has become
effective and remains continuously effective for the lesser of (i) the period
during which all Registrable Securities registered in the Demand Registration
are sold and (ii) three months; provided, however, that a registration shall not
constitute a Demand Registration if (x) after such Demand Registration has
become effective, such registration or the related offer, sale or distribution
of Registrable Securities thereunder is interfered with by any stop order,
injunction or other order or requirement of the SEC or other governmental agency
or court for any reason not attributable to the Initiating Holders and such
interference is not thereafter eliminated or (y) the conditions to closing
specified in the underwriting agreement, if any, entered into in connection with
such Demand Registration are not satisfied or waived, other than by reason of a
failure by the Initiating Holders.
(d) Expenses. In any registration initiated as a
Demand Registration, the Company shall pay all Registration Expenses (other than
underwriting discounts and commissions) in connection therewith, whether or not
such Demand Registration becomes effective; provided, however, that the
Initiating Holder and each Designated Holder participating in such registration
shall bear the fees, charges and disbursements of its own legal counsel.
(e) Underwriting Procedures. If the Initiating
Holders holding a majority of the Registrable Securities held by all of the
Initiating Holders to which the requested Demand Registration relates so elect,
the Company shall use its reasonable efforts to cause the offering of such
Registrable Securities pursuant to such Demand Registration to be in the form of
a firm commitment underwritten offering and the managing underwriter or
underwriters selected for such offering shall be the Approved Underwriter (as
hereinafter defined) selected in accordance with Section 3(f). In connection
with any Demand Registration under this Section 3 involving an underwriting,
none of the Registrable Securities held by any Designated Holder making a
request for inclusion of such Registrable Securities pursuant to Section 3(b)
hereof shall be included in such underwriting unless such Designated Holder
accepts the terms of the underwriting as agreed upon by the Company, the
Initiating Holder and the Approved
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Underwriter, and then only in such quantity as will not, in the opinion of the
Approved Underwriter, jeopardize the success of such offering by the Initiating
Holder. If the Approved Underwriter advises the Company in writing that in its
opinion the aggregate amount of such Registrable Securities request to be
included in such offering is sufficiently large to have a material adverse
effect on the success of such offering, then the Company shall include in such
registration only the aggregate amount of Registrable Securities that in the
opinion of the Approved Underwriter may be sold without any such material
adverse effect and shall reduce, first as to the Designated Holders (who are not
Initiating Holders) as a group, if any, and second as the Initiating Holders as
a group, pro rata within each group based on the number of Registrable
Securities included in the request for Demand Registration, the amount of
Registrable Securities to be included in such registration; provided, however,
that if the number of Registrable Securities to be included in a Demand
Registration by an Initiating Holder is reduced by the Approved Underwriter,
then such Initiating Holder shall be entitled to retain a Demand Registration
with respect to such number of Registrable Securities excluded by the Approved
Underwriter, provided that such Initiating Holder may not initiate such Demand
Registration within 12 months of the effective date of the Registration
Statement with respect to the Demand Registration in which the Approved
Underwriter excluded such Initiating Holder's Registrable Securities.
(f) Selection of Underwriters. If any Demand
Registration of Registrable Securities is in the form of an underwritten
offering, the Initiating Holders holding a majority of the Registrable
Securities held by all such Initiating Holders shall select and obtain an
investment banking firm of national reputation to act as the managing
underwriter of the offering (the "Approved Underwriter"); provided, however,
that the Approved Underwriter shall, in any case, be acceptable to he Company in
its reasonable judgment.
4. Piggy-Back Registration.
(a) Piggy-Back Rights. At any time after the IPO
Effectiveness Date, if the Company proposes to file a registration statement
under the Securities Act (other than pursuant to Section 5) with respect to an
offering by the Company for its own account or for the account of any
stockholder of the Company (in connection with a Demand Registration requested
by a Designated Holder, which shall be governed by Section 3(b)) of any class of
security (other than a registration statement on Form S-4 or S-8 or any
successor thereto), then the Company shall give written notice of such proposed
filing to each of the Designated Holders of Registrable Securities at least 30
days before the anticipated filing date, and such notice shall describe in
detail the proposed registration and distribution and offer such Designated
Holders the opportunity to register the number of Registrable Securities as each
such holder may request. The Company shall, and shall use reasonable efforts to
cause the managing underwriter or underwriters of a proposed underwriter
offering (the "Company Underwriter") to, permit the Designated Holders of
Registrable Securities who have requested in writing to participate in the
registration for such offering to include such Registrable Securities in such
offering on the same terms and conditions as the securities of the Company
included therein. In connection with any offering under this Section 4(a)
involving an underwriting, the Company shall not be required to
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<PAGE> 15
include any Registrable Securities in such underwriting unless the holders
thereof accept the terms of the Underwriting as reasonably agreed upon between
the Company and the Company Underwriter, and then only in such quantity as will
not, in the opinion of the Company Underwriter, jeopardize the success of the
offering by the Company. If in the written opinion of the Company Underwriter
the registration of all or part of the Registrable Securities which the
Designated Holders have requested to be included would materially adversely
affect such public offering, then the Company shall be required to include in
the underwriting, to the extent of the amount that the Company Underwriter
believes may be sold without causing such adverse effect, first, all of the
securities to be offered for the account of the Company; second, the Registrable
Securities to be offered for the account of the Designated Holders pursuant to
this Section 4, pro rata based on the number of Registrable Securities proposed
to be offered for the account of such Designated Holders; and third, any other
securities requested to be included in such underwriting. Notwithstanding the
foregoing, none of the Motorola Stockholders may exercise any "piggy-back"
rights before the second anniversary of this Agreement.
(b) Expenses. The Company shall bear all
Registration Expenses (other than underwriting discounts and commissions) in
connection with any registration pursuant to this Section 4; provided, however,
that each Designated Holder participating in such registration shall bear the
fees, charges and disbursements of its own legal counsel.
5. Form S-3 Registration.
(a) Request for a Form S-3 Registration. In the
event that the Company shall receive from any Designated Holder (the "S-3
Initiating Holder") a written request that the Company register, under the
Securities Act and the securities and "blue sky" laws of any jurisdiction
reasonably designated by such Designated Holder, on Form S-3 (or any successor
form then in effect), all or a portion of the Registrable Securities owned by
such S-3 Initiating Holder, the Company shall give written notice of such
request to each of the other Designated Holders at least 30 days before the
anticipated filing date of such Form S-3, and such notice shall describe the
proposed registration and offer such other Designated Holders the opportunity to
register the number of Registrable Securities as each such Designated Holder may
request in writing to the Company, given within 15 days after their receipt from
the Company of the written notice of such registration. The Company shall (i)
take such steps as are necessary or appropriate to prepare for the registration
of the Registrable Securities to be registered and (ii) use its reasonable best
efforts to (x) cause such registration pursuant to this Section 5(a) to become
and remain effective as soon as practicable, but in any event not later than
three months after it receives a request therefor and (y) cause the Company
Underwriter to permit the Designated Holders who have requested in writing to
participate in such registration to include their Registrable Securities in such
offering on the same terms and conditions as the Registrable Securities of the
S-3 Initiating Holder included therein.
(b) Form S-3 Underwriting Procedures. If the S-3
Initiating Holder so elects, the Company shall use reasonable efforts to cause
the offering on Form S-3 pursuant to this Section 5 to be in the form of a firm
commitment underwritten offering and the S-3
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Initiating Holder shall select an investment banking firm of national reputation
to act as the managing underwriter of such offering; provided, however, that
such underwriter shall, in any case, be acceptable to the Company in its
reasonable judgment. In connection with any offering under Section 5(a)
involving an underwriting, the Company shall not be required to include any
Registrable Securities in such underwriting unless the Designated Holders
thereof accept the terms of the underwriting as agreed upon between the Company,
such underwriter selected by the S-3 Initiating Holder and the S-3 Initiating
Holder, and then only in such quantity as will not, in the opinion of such
underwriter, jeopardize the success of the offering by the S-3 Initiating
Holder. If in the written opinion of such underwriter the registration of all or
part of the Registrable Securities within the S-3 Initiating Holder and the
other Designated Holders have requested to be included would materially
adversely affect such public offering, then the Company shall be required to
include in the underwriting, to the extent of the amount that such underwriter
believes may be sold without causing such adverse effect, first, all of the
Registrable Securities to be offered for the account of the S-3 Initiating
Holder; second, the Registrable Securities to be offered for the account of the
other Designated Holders who requested inclusion of their Registrable Securities
pursuant to Section 5(a), pro rata based on the number of Registrable Securities
proposed to be offered for the account of such Designated Holders; and third,
any other securities requested to be included in such underwriting.
(c) Limitations on Form S-3 Registrations. If at
the time of any request to register Registrable Securities pursuant to Section
5(a), the Company is engaged in, or has fixed plans to engage in within three
months of the time of such request, a registered public offering or is engaged
in any other activity which, in the good faith determination of the Board of
Directors of the Company, would be adversely affected by the requested
registration on Form S-3 (or any successor form then in effect) to the material
detriment of the Company, then the Company may at its option direct that such
request be delayed for a reasonable period not in excess of three months from
the effective date of such offering or the date of completion of such other
material activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once in any one-year period. In addition,
the Company shall not be required to effect any registration pursuant to Section
5(a): (i) within three months after the effective date of any other Registration
Statement of the Company, (ii) as to any S-3 Initiating Holder, if within the
12-month period preceding the date of such request, the Company has effected two
registrations on Form S-3 pursuant to Section 5(a) and all of the Registrable
Securities registered therein have been sold and the S-3 Initiating Holder was
eligible to participate in such registrations, (iii) if Form S-3 is not
available for such offering by the Initiating S-3 Holder or (iv) if the S-3
Initiating Holder, together with the Designated Holders (other than the S-3
Initiating Holder) registering Registrable Securities in such registration,
propose to sell their Registrable Securities at an aggregate price (calculated
based upon the Market Price of the Registrable Securities on the date of
filing of the Form S-3 with respect to such Registrable Securities) to the
public of less than $2,500,000; provided, however, the if (x) the S-3 Initiating
Holder is a Motorola Stockholder, and (y) the Motorola Stockholders' Registrable
Securities may not then be sold pursuant to Rule 144 under the Securities Act
(whether or not subject to the volume limitations thereof), and (z) Motorola
requests registration of all of the Motorola Stockholders' Registrable
Securities, then the Company shall be required to effect a registration pursuant
to Section 5(a) upon Motorola's request, notwithstanding the foregoing subclause
(iv).
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(d) Expenses. In connection with any
registration pursuant to this Section 5, the Company shall pay all Registration
Expenses (other than underwriting discounts and commissions), whether or not
such registration becomes effective; provided, however, that the S-3 Initiating
Holder and each Designated Holder participating in such registration shall bear
the fees, charges and disbursements of its own legal counsel; and provided
further, that the Company shall not be required to pay the Registration Expenses
of an S-3 Initiating Holder for a registration pursuant to this Section 5 if the
Company has paid the Registration Expenses of another registration pursuant to
this Section 5 in the preceding 12-month period and such S-3 Initiating Holder
was eligible to participate in such prior registration. All Registration
Expenses incurred in connection with any registration pursuant to this Section 5
for which the Company has no obligation to pay such Registration Expenses shall
be borne by the Designated Holders who participate in such registration on a pro
rata basis according to the number of Registrable Securities owned by the
Designated Holders that are included in such registration at the time that such
registration becomes effective.
(e) No Demand Registration. No registration
requested by any Designated Holder pursuant to this Section 5 shall be deemed a
Demand Registration pursuant to Section 3.
6. Holdback Agreements.
(a) Restrictions on Public Sale by Designated
Holders. If and to the extent requested by the Company, the Initiating Holders
or the S-3 Initiating Holder, as the case may be, in the case of a
non-underwritten public offering or if and to the extent requested by the
Approved Underwriter, the Company Underwriter or the underwriter selected by the
S-3 Initiating Holder, as the case may be, in the case of an underwritten public
offering, each Designated Holder of Registrable Securities agrees not to effect
any public sale or distribution of any Registrable Securities being registered
or of any securities convertible into or exchangeable or exercisable for such
Registration Securities, including a sale pursuant to Rule 144 under the
Securities Act, during the 180-day period or such shorter period agreed upon by
such Designated Holder and the requesting party beginning on the effective date
of such registration statement (except as part of such registration).
(b) Restrictions on Public Sale by the Company.
The Company agrees not to effect any public sale or distribution of any of its
securities, or any securities convertible into or exchangeable or exercisable
for such securities (except pursuant to registrations on Form S-4 or S-8 or any
successor thereto), during the period beginning on the effective date of any
registration statement in which the Designated Holders of Registrable Securities
are participating and ending on the earlier of (i) the date on which all
Registrable Securities registered on such registration statement are sold and
(ii) 180 days after the effective date of such registration statement.
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7. Registration Procedures.
(a) Obligations of the Company. Whenever
registration of Registrable Securities has been requested pursuant to Section 3,
Section 4 or Section 5 of this Agreement, the Company shall use its reasonable
efforts to effect the registration and sale of such Registrable Securities in
accordance with the intended method of distribution thereof as quickly as
practicable, and in connection with any such request, the Company shall, as
expeditiously as possible:
(i) use its reasonable efforts to
prepare and file with the SEC a registration statement on any form for which the
Company then qualifies or which counsel for the Company shall reasonably deem
appropriate and which form shall be available for the sale of such Registrable
Securities in accordance with the intended method of distribution thereof, and
use its reasonable efforts to cause such registration statement to become
effective; provided, however, that (x) before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company shall provide
counsel selected by the Designated Holders holding a majority of the Registrable
Securities being registered in such registration ("Holders' Counsel") and any
other Inspector (as hereinafter defined) with an adequate and appropriate
opportunity to participate in the preparation of such registration statement and
each prospectus included therein (and each amendment or supplement thereto) to
be filed with the SEC, which documents shall be subject to the review of
Holders' Counsel, and (y) the Company shall notify the Holders' Counsel and each
seller of Registrable Securities of any stop order issued or threatened by the
SEC and take all reasonable action required to prevent the entry of such stop
order or to remove it if entered;
(ii) prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for the lesser of (x) three months and (y) such shorter
period which will terminate when all Registrable Securities covered by such
registration statement have been sold, and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(iii) as soon as reasonable possible,
furnish to each seller of Registrable Securities, prior to filing a registration
statement, copies of such registration statement as it proposed to be filed, and
thereafter such number of copies of such registration statement, each amendment
and supplement thereto (in each case including all exhibits thereto), the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as each such seller may reasonably request
in order to facilitate the disposition of the Registrable Securities owned by
such seller;
(iv) use its reasonable efforts to
register or qualify such Registrable Securities under such other securities or
"blue sky" laws of such jurisdictions as any
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seller of Registrable Securities may reasonably request, and to continue such
qualification in effect in such jurisdiction for the lesser of (x) three months
and (y) such shorter period which will terminate when all Registrable Securities
covered by such registration statement have been sold, and do any and all other
acts and things which may be reasonably necessary or advisable to enable any
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller; provided, however, that the Company
shall not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 7(a)(iv), (y) subject itself to taxation in any such jurisdiction or (z)
consent to general service of process in any such jurisdiction;
(v) use its reasonable efforts to cause
the Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary by virtue of the business and operations of the Company to
enable the seller or sellers of Registrable Securities to consummate the
disposition of such Registrable Securities;
(vi) upon discovery that, or upon the
happening of any event as a result of which, the prospectus included in a
registration statement covering Registrable Securities contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, (x) promptly prepare a
supplement or amendment to such prospectus and furnish to each seller of
Registrable Securities a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, after delivery to the
purchasers of such Registrable Securities, such prospectus shall not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they were made and (y) immediately
prior to the preparation of such amendment or supplement to such prospectus,
notify each seller of Registrable Securities of the anticipated preparation
thereof;
(vii) enter into and perform customary
agreements (including an underwriting agreement in customary form with the
Approved Underwriter or Company Underwriter, if any, selected as provided in
Section 3, Section 4 or Section 5) and take such other actions as are prudent
and reasonably required in order to expedite or facilitate the disposition of
such Registrable Securities;
(viii) make available for inspection by
any seller of Registrable Securities, any managing underwriter participating in
any disposition pursuant to such registration statement, Holders' Counsel and
any attorney, accountant or other agent retained by any such seller or any
managing underwriter (each, an "Inspector" and collectively, the "Inspectors"),
all financial and other records, pertinent corporate documents and properties of
the Company and its subsidiaries (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's and its subsidiaries' officers,
directors and employees, and the independent public accountants of the
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<PAGE> 20
Company, to supply all information reasonably requested by any such Inspector in
connection with such registration statement. Records that the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless (x)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in the Registration Statement, (y) the release of such Records if
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction or (z) the information in such Records was known to the Inspectors
on a non-confidential basis prior to its disclosure by the Company or has been
made generally available to the public. Each seller of Registrable Securities
agrees that it shall, upon learning that disclosure of such Records is sought in
a court of competent jurisdiction, give notice to the Company and allow the
Company, at the Company's expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
(ix) if such sale is pursuant to an
underwritten offering, use its reasonable efforts to obtain a "cold comfort"
letter from the Company's independent public accountants in customary form and
covering such matters of the type customarily covered by "cold comfort" letters
as Holders' Counsel or the managing underwriter reasonably request;
(x) use its reasonable efforts to
furnish, at the request of any seller of Registrable Securities on the date such
securities are delivered to the underwriters for sale pursuant to such
registration or, if such securities are not being sold through underwriters, on
the date the registration statement with respect to such securities becomes
effective, an opinion, dated such date, of counsel representing the Company for
the purposes of such registration, addressed to the underwriters, if any, and to
the seller making such request, covering such legal matters with respect to the
registration in respect of which such opinion is being given as such seller may
reasonably request and are customarily included in such opinions;
(xi) otherwise use its reasonable
efforts to comply with all applicable rules and regulations of the SEC, and make
available to its security holders, as soon as reasonably practicable but no
later than 15 months after the effective date of the registration statement, an
earnings statement covering a period of 12 months beginning after the effective
date of the registration statement, in a manner which satisfies the provisions
of Section 11(a) of the Securities Act and Rule 158 thereunder;
(xii) cause all such Registrable
Securities to be listed on each securities exchange or over-the-counter market
on which similar securities issued by the Company are then listed, provided,
that the applicable listing requirements are satisfied;
(xiii) cooperate with each seller of
Registrable Securities and each underwriter participating in the disposition of
such Registrable Securities and their respective counsel in connection with any
filings required to be made with the National Association of Securities Dealers,
Inc. (the "NASD");
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<PAGE> 21
(xiv) use reasonable efforts to take all
other steps necessary to effect the registration of the Registrable Securities
contemplated hereby.
(b) Seller Information. The Company may require
each seller of Registrable Securities as to which any registration is being
effected to furnish to the Company such information regarding the distribution
of such securities as the Company may from time to time reasonably request in
writing.
(c) Notice to Discontinue. Each Designated
Holder of Registrable Securities agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 7(a)
(vi), such Designated Holder shall forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Designated Holder's receipt of the copies of
the supplemented or amended prospectus contemplated by Section 7(a)(vi) and, if
so directed by the Company, such Designated Holder shall deliver to the Company
(at the Company's expense) all copies, other than permanent file copies then in
such Designated Holder's possession, of the prospectus covering such Registrable
Securities which is current at the time of receipt of such notice. If the
Company shall give any such notice, the Company shall extend the period during
which such registration statement shall be maintained effective pursuant to this
Agreement (including, without limitation, the period referred to in Section
7(a)(ii)) by the number of days during the period from and including the date of
the giving of such notice pursuant to Section 7(a)(vi) to and including the date
when the Designated Holder shall have received the copies of the supplemented or
amended prospectus contemplated by and meeting the requirements of Section
7(a)(vi).
(d) Registration Expenses. The Company shall pay
all expenses (other than as set forth in Sections 3(d), 4(b) and 5(d)) arising
from or incident to the performance of, or compliance with, this Agreement,
including, without limitation, (i) SEC, stock exchange and NASD registration and
filing fees, (ii) all fees and expenses incurred in complying with securities or
"blue sky" laws (including reasonable fees, charges and disbursements of counsel
in connection with "blue sky" qualifications of the Registrable Securities),
(iii) all printing, messenger and delivery expenses, (iv) the fees, charges and
disbursements of counsel to the Company and of its independent public
accountants and any other accounting and legal fees, charges and expenses
incurred by the Company (including, without limitation, any expenses arising
from any "cold comfort" letters and any special audits incident to or required
by any registration or qualification) and (v) any liability insurance or other
premiums for insurance obtained in connection with any Demand registration,
piggyback registration or registration on Form S-3 pursuant to the terms of this
Agreement, regardless of whether such registration statement is declared
effective. All of the expenses described in this Section 7(d) are referred to
herein as "Registration Expenses".
8. Indemnification: Contribution.
(a) Indemnification by the Company. The Company
agrees to indemnify and hold harmless, to the fullest extent permitted by law,
each Designated Holder, its officers, directors, trustees, partners, employees,
advisors and agents and each Person who
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<PAGE> 22
controls (within the meaning of the Securities Act or the Exchange Act) such
Designated Holder from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation and,
subject to Section 8(c), reasonable fees, disbursements and other costs of
counsel) arising out of or based upon any untrue, or allegedly untrue, statement
of a material fact contained in any registration statement, prospectus or
preliminary prospectus or notification or offering circular (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same are caused by
or contained in any information concerning such Designated Holder furnished in
writing to the Company by such Designated Holder expressly for use therein. The
Company shall also provide customary indemnities to any underwriters of the
Registrable Securities, their officers, directors and employees and each Person
who controls such underwriters (within the meaning of the Securities Act and the
Exchange Act) to the same extent as provided above with respect to the
indemnification of the Designated Holders of Registrable Securities.
(b) Indemnification by Designated Holders. In
connection with any registration statement in which a Designated Holder is
participating pursuant to Section 3, Section 4 or Section 5 hereof, each such
Designated Holder shall furnish to the Company in writing such information with
respect to such Designated Holder as the Company may reasonably request or as
may be required by law for use in connection with any such registration
statement or prospectus and each Designated Holder agrees to indemnify and hold
harmless, to the fullest extent permitted by law, the Company, any underwriter
retained by the Company and their respective directors, officers, employees and
each Person who controls the Company or such underwriter (within the meaning of
the Securities Act and the Exchange Act) to the same extent as the foregoing
indemnity from the Company to the Designated Holders, but only with respect to
any such information with respect to such Designated Holder furnished in writing
to the Company by such Designated Holder expressly for use therein; provided,
however, that the total amount to be indemnified by such Designated Holder
pursuant to this Section 8(b) shall be limited to the net proceeds received by
such Designated Holder in the offering to which the registration statement or
prospectus relates.
(c) Conduct of Indemnification Proceedings. Any
Person entitled to indemnification hereunder (the "Indemnified Party") agrees to
give prompt written notice to the indemnifying party (the "Indemnifying Party")
after the receipt by the Indemnified Party of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which the Indemnified Party intends to claim indemnification
or contribution pursuant to this Agreement; provided, however, that the failure
so to notify the Indemnifying Party shall not relieve the Indemnifying Party of
any liability that it may have to the Indemnified Party hereunder. If notice of
commencement of any such action is given to the Indemnifying Party as provided,
the Indemnifying Party shall be entitled to participate in and to the extent it
may wish, jointly with any other Indemnifying Party similarly notified, to
assume the defense of such action at its own expense, with counsel chosen by it
and satisfactory to such Indemnified Party. The Indemnified Party shall have the
right to employ separate counsel in
22
<PAGE> 23
any such action and participate in the defense thereof, but the fees and
expenses of such counsel (other than reasonable costs of investigation) shall be
paid by the Indemnified Party unless (i) the Indemnifying Party agrees to pay
the same, (ii) the Indemnifying Party fails to assume the defense of such action
with counsel satisfactory to the Indemnified Party in its reasonable judgment or
(iii) the named parties to any such action (including any impleaded parties)
have been advised by such counsel that either (x) representation of such
Indemnified Party and the Indemnifying Party by the same counsel would be
inappropriate under applicable standards of professional conduct or (y) there
may be one or more legal defenses available to it which are different from or
additional to and in conflict with those available to the Indemnifying Party and
in such event, the Indemnifying Party shall pay the reasonable fees and expenses
of counsel to the Indemnified Party only to the extent that such separate
counsel is necessary under such applicable standards of professional conduct in
the case of the foregoing clause (x) or to the extent necessary to avoid any
conflict in the case of the foregoing clause (y). In either of such cases, the
Indemnifying Party shall not have the right to assume the defense of such action
on behalf of such Indemnified Party. No Indemnifying Party shall be liable for
any settlement entered into without its written consent, which consent shall not
be unreasonably withheld.
(d) Contribution. If the indemnification
provided for in this Section 8 from the Indemnifying Party is unavailable to an
Indemnified Party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
faults of such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact has been made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Sections 8(a), 8(b)
and 8(c), any legal or other fees, charges or expenses reasonably incurred by
such party in connection with any investigation or proceeding; provided that the
total amount to be indemnified by such Designated Holder shall be limited to the
net proceeds received by such Designated Holder in the offering.
The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 8(d) were determined by pro rate allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person.
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<PAGE> 24
9. Rule 144. From and after the IPO Effectiveness Date, the
Company covenants that it shall timely file any reports required to be filed by
it under the Exchange Act and that it shall take such further action as each
Designated Holder of Registrable Securities may reasonably request (including
providing any information necessary to comply with Rules 144 and 144A under the
Securities Act), all to the extent required from time to time to enable such
Designated Holder to sell Registrable Securities without registration under the
Securities Act within the limitations of the exemptions provided by (a) Rule 144
under the Securities Act, as such rules may be amended from time to time, or (b)
any similar rules or regulations hereafter adopted by the SEC. The Company
shall, upon the request of any Designated Holder of Registrable Securities,
deliver to such Designated Holder a written statement as to whether it has
complied with such requirements.
10. Miscellaneous.
(a) Recapitalizations, Exchanges, etc. The provisions of
this Agreement shall apply, to the full extent set forth herein with respect to
(i) the shares of Class A Common Stock, (ii) any and all shares of voting common
stock of the Company into which the shares of Class A Common Stock or Class B
Common Stock are converted, exchanged or substituted in any recapitalization or
other capital reorganization by the Company and (iii) any and all equity
securities of the Company or any successor or assign of the Company (whether by
merger, consolidation, sale of assets or otherwise) which may be issued in
respect of, in conversion of, in exchange for or in substitution of, the shares
of Common Stock and shall be appropriately adjusted for any stock dividends,
splits, reverse splits, combinations, recapitalizations and the like occurring
after the date hereof. The Company shall cause any successor or assign (whether
by sale, merger or otherwise) to enter into a new registration rights agreement
with the Designated Holders on terms substantially the same as this Agreement as
a condition of any such transaction.
(b) No Inconsistent Agreements. The Company represents
and warrants that it has not granted to any Person the right to request or
require the Company to register any securities issued by the Company, other than
the rights granted to the Designated Holders herein. The Company shall not enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to the Designated Holders in this Agreement or grant any
registration rights to any Person or with respect to any securities which are
not Registrable Securities which are prior in right to or inconsistent with the
rights granted in this Agreement.
(c) Remedies. The Designated Holders, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, shall be entitled to specific performance of their rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agreed to waive in any action for specific
performance the defense that a remedy at law would be adequate.
(d) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers
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<PAGE> 25
or consents to departures from the provisions hereof may not be given unless
consented to in writing by (i) the Company and (ii) the Designated Holders
holding at least 85% of the Registrable Securities owned by all of the
Designated Holders; provided, however, that any such amendment, modification,
supplement, waiver or consent shall not be effective to withdraw, deny or
adversely affect the rights of any Designated Holder who has not consented in
writing thereto. Subject to the proviso in the preceding sentence, any such
written consent shall be binding upon the Company and all of the Designated
Holders.
(e) Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be made by registered or certified first-class mail, return receipt
requested, telecopier, courier service, overnight mail or personal delivery:
(i) if to the Company:
Eclipsys Corporation
777 East Atlantic Avenue, Suite 200
Delray Beach, Florida 33483
Telecopy: (561) 243-9390
Attention: Mr. Harvey J. Wilson
with a copy to:
Goulston & Storrs
400 Atlantic Avenue
Boston, Massachusetts 02110
Telecopy: (617) 574-4112
Attention: Lester J. Fagen, Esq.
(ii) if to Partners:
Partners HealthCare System, Inc.
Prudential Tower, Suite 1150
800 Boylston Street
Boston, Massachusetts 02199
Telecopy: (617) 278-1087
Attention: Mr. Jay Pieper
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<PAGE> 26
(iii) if to GAP LLC or GAP Coinvestment:
c/o General Atlantic Service
Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Mr. Stephen P. Reynolds
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(iv) if to Wilson or Wilfam:
969 South Ocean Boulevard
Delray Beach, Florida 33483
Telecopy: (407) 265-1667
Attention: Mr. Harvey J. Wilson
with a copy to:
Mr. Michael B. Kaufman
367 Dudley Road
Newton, Massachusetts 02159
Telecopy: (617) 343-3099
(v) if to Alltel:
ALLTEL Information Services, Inc.
4001 Rodney Parham Road
Little Rock, Arkansas 72212
Telecopy: (501) 220-4637
Attention: President, with a copy to the
General Counsel of Alltel
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<PAGE> 27
(vi) if to FUCP:
First Union Corporation
One First Union Center, 18th Floor
Charlotte, North Carolina 28288-0732
Telecopy: (704) 374-6711
Attention: Mr. Frederick W. Eubank, II
with a copy to:
Kennedy, Covington, Lobdell &
Hickman, L.L.P.
100 North Tryon Street, Suite 4200
Charlotte, North Carolina 28202-4006
Telecopy: (704) 331-7598
Attention: Henry W. Flint, Esq.
(vii) if to BT:
BT Investment Partners, Inc.
130 Liberty Street
New York, New York 10006
Telecopy: (212) 250-7651
Attention: Mr. Joseph Wood
with a copy to:
Winston & Stawn
200 Park Avenue
New York, New York 10166-4193
Telecopy: (212) 294-4700
Attention: John W. Kaufmann, Esq.
(viii) if to Brean Murray:
Brean Murray Associates IHS L.P.
c/o Brean Murray & Co.
570 Lexington Avenue, 11th Floor
New York, New York 10022
Telecopy: (212) 476-0798
Attention: Mr. A. Brean Murray
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with a copy to:
Brown, Raysman & Millstein
120 West Forty-Fifth Street
New York, New York 10036
Telecopy: (212) 840-2429
Attention: Michael Hirschberg, Esq.
(ix) if to Manolovici:
Gilder, Gagnon, Howe & Co.
1775 Broadway
26th Floor
New York, New York 10019
Telecopy: (212) 315-5964
(x) if to St. Paul:
St. Paul Venture Capital
8500 Normandale Lake Boulevard
Suite 1940
Bloomington, Minnesota 55437-3831
Telecopy: (612) 830-7475
Attention: Mr. Everett Cox
(xi) if to Karmanos:
Compuware Corporation
31440 Northwestern Highway
Farmington Hills, Michigan 48334
Telecopy: (810) 737-1822
(xii) if to the Kaufman Stockholders:
Michael B. Kaufman
367 Dudley Road
Newton, Massachusetts 02159
Telecopy: (617) 343-3099
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<PAGE> 29
(xiii) if to Motorola:
Land Mobile Products Sector
Motorola, Inc.
1301 East Algonquin Road
Schaumburg, Illinois 60196
Telecopy: (847) 538-2491
Attention: Mr. Richard D. Severns
with a copy to:
Corporate Law Department
Motorola, Inc.
1303 East Algonquin Road
Schaumburg, Illinois 60196
Telecopy: (847) 576-2818
Attention: Donald F. McLellan, Esq.
(xiv) if to any other designated Holder, at its
address as it appears on the record books
of the Company.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by courier
or overnight mail, if delivered by commercial courier service or overnight mail;
five Business Days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied.
(f) Successors and Assigns; Third Party Beneficiaries.
This Agreement shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties hereto. The Demand Registration rights and
the other rights of the Wilson Stockholders, General Atlantic Stockholders, the
Partners Stockholders, the Alltel Stockholders, the FUCP Stockholders, the BT
Stockholders and the Motorola Stockholders with respect thereto shall be, with
respect to any Registrable Security, (i) automatically transferred among the
Wilson Stockholders, the General Atlantic Stockholders, the Partners
Stockholders, the Alltel Stockholders, the FUCP Stockholders, the BT
Stockholders or the Motorola Stockholders, as the case may be, and (ii) in all
other cases (except as set forth in the next sentence), transferred only with
the consent of the Company. The Demand Registration rights of the Motorola
Stockholders, with respect to any Registrable Security, and the other rights of
the Motorola Stockholders with respect thereto may be transferred by the
Motorola Stockholders to any other Person without the consent of the Company so
long as (y) in each case the transferee of any such Motorola Stockholder holds
an aggregate of not less than $2,500,000 of Registrable Securities or,
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<PAGE> 30
if the aggregate value of the Registrable Securities owned by the Motorola
Stockholders is less than $2,500,000, the Motorola Stockholders transfer all of
their Registrable Securities and Demand Registration rights to such transferee,
and (z) each such transferee agrees in writing that (1) Motorola (or any Person
to which Motorola transfers all of its Registrable Securities) shall be the
representative of such transferee, authorized to act on such transferee's behalf
in all matters arising under or relating to this Agreement and (2) that such
transferee shall in all respects act together with Motorola (or any Person to
which Motorola transfers all of its Registrable Securities) and shall be deemed
a Motorola Stockholder hereunder. The "incidental" registration rights of the
Designated Holders contained in Sections 3(b) and 4, the Form S-3 registration
rights contained in Section 5 and the other rights of each of the Designated
Holders with respect thereto may be, with respect to any Registrable Security,
(i) automatically transferred among the Partners Stockholders, (ii)
automatically transferred among the General Atlantic Stockholders, (iii)
automatically transferred among the Wilson Stockholders, (iv) automatically
transferred among the Alltel Stockholders, (v) automatically transferred among
the FUCP Stockholders, (vi) automatically transferred among the BT Stockholders,
(vii) automatically transferred among the Brean Murray Stockholders, (viii)
automatically transferred among the Manolovici Stockholders, (ix) automatically
transferred among the St. Paul Stockholders, (x) automatically transferred among
the Karmanos Stockholders, (xi) automatically transferred among the Kaufman
Stockholders, (xii) automatically transferred among the Motorola Stockholders
and (xiii) automatically transferred by such Designated Holder to any other
Person, so long as in each case the transferee of Registrable Securities holds
an aggregate of not less than $2,500,000 of Registrable Securities. For purposes
of calculating such $2,500,000, the value of each of the FUCP Warrant and the BT
Warrant shall be calculated by determining the Market Price on the date of the
particular transfer of the number of shares of Class A Common Stock into which
the number of shares of Class B Common Stock issuable upon exercise of such
Warrant may be converted. All of the obligations of the Company hereunder shall
survive any such transfer. No Person other than the parties hereto and their
successors and permitted assigns is intended to be a beneficiary of any of the
rights granted hereunder.
(g) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
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<PAGE> 31
(j) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, it being
intended that all of the rights and privileges of the Designated Holders shall
be enforceable to the fullest extent permitted by law.
(k) Entire Agreement. This Second Restated Registration
Rights Agreement shall become effective: (i) as to all parties to the First
Restated Registration Rights Agreement, upon the execution hereof by the Company
and the Designated Holders under the First Restated Registration Rights
Agreement holding at least 85% of the Registrable Securities owned by all of the
Designated Holders under the First Restated Registration Rights Agreement, as
amended, (ii) as to the Motorola Stockholders, upon the execution hereof by the
Company, Motorola, and the Designated Holders under the First Restated
Registration Rights Agreement holding at least 85% of the Registrable Securities
owned by all of the Designated Holders under the First Restated Registration
Rights Agreement, as amended, and (iii) as to GAP 47, upon the execution hereof
by the Company, GAP 47, and the Designated Holders under the First Restated
Registration Rights Agreement holding at least 85% of the Registrable Securities
owned by all of the Designated Holders under the First Restated Registration
Rights Agreement, as amended. This Second Restated Registration Rights Agreement
is intended by the parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and understanding of
the parties hereto in respect of the subject matter contained herein. There are
no additional restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein.
(l) Further Assurances. Each of the parties shall execute
such documents and perform such further acts as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement.
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IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Agreement on the date first written above.
ECLIPSYS CORPORATION
By: /s/ Harvey J. Wilson
--------------------------------------
Name: Harvey J. Wilson
Title: President
PARTNERS HEALTHCARE SYSTEMS, INC.
By: /s/ Jay B. Pieper
--------------------------------------
Name: Jay B. Pieper
Title: Vice President
GENERAL ATLANTIC PARTNERS 38, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC
Its General Partner
By: /s/ Stephen R. Reynolds
--------------------------------------
Name: Stephen R. Reynolds
Title: A Managing Member
GENERAL ATLANTIC PARTNERS 28, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC
Its General Partner
By: /s/ Stephen R. Reynolds
--------------------------------------
Name: Stephen R. Reynolds
Title: A Managing Member
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<PAGE> 33
GENERAL ATLANTIC PARTNERS 47, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
Its General Partner
By: /s/ Stephen R. Reynolds
--------------------------------------
Name: Stephen R. Reynolds
Title: A Managing Member
GAP COINVESTMENT PARTNERS, L.P.
By: /s/ Stephen R. Reynolds
--------------------------------------
Name: Stephen R. Reynolds
Title: A General Partner
/s/ Harvey J. Wilson
------------------------------------------
Harvey J. Wilson
WILFAM LTD.
By: /s/ Harvey J. Wilson
--------------------------------------
Name: Harvey J. Wilson
Title: President
ALLTEL INFORMATION SERVICES, INC.
By:/s/ Jeffrey H. Fox
--------------------------------------
Name: Jeffrey H. Fox
Title: President
33
<PAGE> 34
FIRST UNION CORPORATION
By: /s/ Frederick W. Eubank II
--------------------------------------
Name: Frederick W. Eubank II
Title: Senior Vice President
BT INVESTMENT PARTNERS, INC.
By: /s/ Christopher Fuller
--------------------------------------
Name: Christopher Fuller
Title: Principal
BREAN MURRAY ASSOCIATES IHS L.P.
By: /s/ A. Brean Murray
--------------------------------------
Name: A. Brean Murray
Title:
/s/ Gerald Manolovici
------------------------------------------
Gerald Manolovici
ST. PAUL VENTURE CAPITAL IV, L.L.C.
By: /s/ Everett V. Cox
--------------------------------------
Name: Everett V. Cox
Title: General Partner
/s/ Peter Karmanos, Jr.
------------------------------------------
Peter Karmanos, Jr.
/s/ Michael B. Kaufman
------------------------------------------
Michael B. Kaufman
34
<PAGE> 35
/s/ Claudia Kaufman
------------------------------------------
Claudia Kaufman
Michael B. Kaufman and Michael M. Davis,
Trustees of the Michael B. Kaufman Family
Trust u/t/a dated 9/3/93
/s/ Michael B. Kaufman
------------------------------------------
Michael B. Kaufman, Trustee
Michael B. Kaufman, Trustee of the
Amy R. Kaufman 1990 Trust u/t/a
December 28, 1990
/s/ Michael B. Kaufman
------------------------------------------
Michael B. Kaufman, Trustee
Michael B. Kaufman, Trustee of the
Kim E. Kaufman 1990 Trust u/t/a
December 28, 1990
/s/ Michael B. Kaufman
------------------------------------------
Michael B. Kaufman, Trustee
Pearl S. Kaufman or her successor in Trust, as
Trustee of the Michael B. Kaufman Trust
pursuant to a Trust Agreement dated
June 30, 1976
/s/ Pearl S. Kaufman
------------------------------------------
Pearl S. Kaufman, Trustee
MOTOROLA, INC.
By: /s/ Richard D. Severns
--------------------------------------
Name: Richard D. Severns
Title:
35
<PAGE> 1
EXHIBIT 10.2
SECOND AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
among
ECLIPSYS CORPORATION
and
CERTAIN STOCKHOLDERS OF ECLIPSYS CORPORATION
-----------------------------------------------------
Dated: January ___, 1998
-----------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions.....................................................................................2
2. Restrictions on Transfer of Shares.............................................................13
2.1 Limitation on Transfer................................................................13
2.2 Permitted Transfers...................................................................13
2.3 Permitted Transfer Procedures.........................................................14
2.4 Transfers in Compliance with Law; Substitution of Transferee..........................14
3. Transfers by Partners Stockholders, Wilson Stockholders or Motorola
Stockholders Prior to Certain Date.............................................................15
3.1 Transfers by Partners Stockholders or Wilson Stockholders Prior
to May 3, 1999........................................................................15
3.1.1 Proposed Transfers...........................................................15
3.1.2 Consent to Transfer of Shares................................................15
3.1.3 No Consent to Transfer of Shares.............................................16
3.1.4 Transfers After May 3, 1999..................................................16
3.2 Transfers by Motorola Stockholders Prior to Second
Anniversary of this Agreement.........................................................16
4. Voluntary and Involuntary Transfers............................................................16
4.1 Proposed Voluntary Transfers..........................................................16
4.1.1 Offering Notice..............................................................16
4.1.2 Company Option; Exercise.....................................................17
4.1.3 Stockholder Option; Exercise.................................................17
4.1.4 Closing......................................................................18
4.1.5 Sale to a Third Party Purchaser..............................................18
4.1.6 Tag-Along Rights.............................................................19
4.2 Involuntary Transfers.................................................................20
4.2.1 Rights of First Offer upon Involuntary Transfer..............................21
4.2.2 Fair Value...................................................................21
4.2.3 Closing......................................................................21
4.2.4 General......................................................................22
</TABLE>
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<TABLE>
<S> <C> <C>
4.3 Proposed Transfers of Series B Preferred Stock, Series C Preferred
Stock and Warrants....................................................................22
4.3.1 Notice of Sale...............................................................22
4.3.2 Company Option; Exercise.....................................................23
4.3.3 Sale to Prospective Purchaser................................................24
4.3.4 Closing......................................................................25
5. Future Issuance of Capital Stock...............................................................25
5.1 Offering Notice; Right of First Offer.................................................25
5.2 General Atlantic Stockholder Option...................................................26
5.3 New Issuance Rightholder Option.......................................................27
5.4 Exercise of Options...................................................................28
5.5 Closing...............................................................................29
5.6 Sale to Subject Purchaser.............................................................30
6. After-Acquired Securities......................................................................31
7. Corporate Governance...........................................................................31
7.1 General...............................................................................31
7.2 Stockholders Actions..................................................................31
7.3 Election of Directors, Number and Composition.........................................32
7.4 Reduction of Directors................................................................33
7.5 Removal and Replacement of Directors..................................................33
7.5.1 Removal of Partners Directors................................................33
7.5.2 Removal of General Atlantic Directors........................................33
7.5.3 Removal of Wilson Director...................................................34
7.5.4 Removal of Alltel Director...................................................34
7.5.5 Removal of Motorola Director.................................................34
7.5.6 Replacement of Directors.....................................................34
7.6 Designation of General Atlantic Observer and St. Paul Observer........................35
7.7 Reimbursement of Expenses.............................................................35
7.8 Actions of the Board of Directors: Extraordinary Events...............................35
7.8.1 Consent of Partners Director.................................................35
7.8.2 Consent of General Atlantic Director.........................................36
7.9 Holders of Non-Voting Shares..........................................................37
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
8. Partners Put...................................................................................37
8.1 Exercise..............................................................................37
8.2 Purchase Price........................................................................38
8.2.1 Put in Second Year...........................................................38
8.2.2 Put After Second Year........................................................38
8.3 Partners Put Termination Date.........................................................37
8.4 Closing...............................................................................38
8.4.1 Delivery of Put Securities...................................................38
8.4.2 Payment of Purchase Price....................................................39
9. Alltel Put.....................................................................................39
9.1 Exercise..............................................................................39
9.2 Purchase Price........................................................................40
9.3 Closing...............................................................................40
10. Alltel Non-Competition: Change of Control......................................................40
10.1 Removal from Board of Directors and Sale of Shares....................................40
10.2 Exceptions to Restricted Business.....................................................41
11. Financial Statements and Other Information.....................................................42
12. Inspection of Properties: Designation of FUCP Observer, BT Observer
and Motorola Observer..........................................................................44
13. Restrictive Provisions.........................................................................45
14. Stock Certificate Legend.......................................................................45
15. Intentionally omitted..........................................................................46
16. Miscellaneous..................................................................................46
16.1 Notices...............................................................................46
16.2 Amendment and Waiver..................................................................50
16.3 Specific Performance..................................................................51
16.4 Headings..............................................................................51
16.5 Severability..........................................................................51
16.6 Entire Agreement......................................................................51
</TABLE>
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<TABLE>
<S> <C> <C>
16.7 Effectiveness; Term of Agreement......................................................52
16.8 Variations in Pronouns................................................................52
16.9 Governing Law ........................................................................52
16.10 Further Assurances....................................................................52
16.11 Successors and Assigns................................................................52
16.12 Counterparts..........................................................................53
16.13 Wilson Stockholders and Kaufman Stockholders..........................................53
EXHIBITS
A Amended and Restated Certificate of Incorporation
B By-laws
C Form of Transfer Agreement (Previously Issued Shares)
</TABLE>
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<PAGE> 6
SECOND AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
AGREEMENT, dated as of January ___, 1998 (this "Agreement"), among
Eclipsys Corporation, a Delaware corporation (the "Company"), General Atlantic
Partners 38, L.P., a Delaware limited partnership ("GAP 38"), General Atlantic
Partners 28, L.P., a Delaware limited partnership ("GAP 28"), GAP Coinvestment
Partners, L.P., a New York limited partnership ("GAP Coinvestment"), General
Atlantic Partners 47, L.P., a Delaware limited partnership ("GAP 47"), Partners
HealthCare System, Inc., a Massachusetts not-for-profit corporation
("Partners"), Harvey J. Wilson ("Wilson"), Wilfam Ltd., a Florida limited
partnership ("Wilfam"), ALLTEL Information Services, Inc., an Arkansas
corporation ("Alltel"), First Union Corporation, a North Carolina corporation
("FUCP"), BT Investment Partners, Inc., a Delaware corporation ("BT"), Brean
Murray Associates IHS L.P., a Delaware limited partnership ("Brean Murray"),
Gerald Manolovici ("Manolovici"), St. Paul Venture Capital IV, L.L.C., a
Delaware limited liability company ("St. Paul"), Peter Karmanos, Jr.
("Karmanos"), the Kaufman Stockholders (as hereinafter defined), and Motorola,
Inc., a Delaware corporation ("Motorola").
WHEREAS, pursuant to the Stockholders Agreement, dated May 3, 1996 (the
"Original Stockholders Agreement"), the Company, GAP 28, GAP Coinvestment,
Partners, Wilson, Wilfam, Brean Murray and Manolovici entered into certain
agreements with respect to the transfer of Shares (as hereinafter defined) and
first officer, corporate governance and certain other rights set forth therein;
WHEREAS, the Company, Partners, GAP 38, GAP 28, GAP Coinvestment,
Wilson, Wilfam, Alltel, FUCP, BT, Brean Murray, Manolovici, St. Paul and
Karmanos amended and restated the Original Stockholders Agreement as of January
24, 1997 (the "First Restated Stockholders Agreement"), which was amended as of
June 27, 1997 to include the Kaufman Stockholders as parties thereto; and
WHEREAS, the Company and Motorola are entering into an Asset Purchase
Agreement, dated on or about January 30, 1998 (the "Motorola Purchase
Agreement"), pursuant to which the Company is issuing to Motorola, as of the
date of the Motorola Purchase Agreement, shares of the Class A Common Stock (as
hereinafter defined); and
WHEREAS, the Company, GAP Coinvestment and GAP 47 expect to enter into
a Preferred Stock Purchase Agreement (the "GAP 47 Purchase Agreement"), pursuant
to which the Company will be selling to GAP Coinvestment and GAP 47, as of the
date of the GAP 47 Purchase Agreement, shares of the Series G Preferred Stock
(as hereinafter defined); and
WHEREAS, the parties wish to enter into this Agreement in order to
allow Motorola to become a party hereto upon the effective date of the Motorola
Purchase Agreement, and to allow GAP 47 to become a party hereto upon the
effective date of the GAP 47 Purchase Agreement, and to amend and restate the
First Restated Stockholders Agreement, as amended.
<PAGE> 7
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the adequacy of which are hereby acknowledged, the parties
hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" means any Person (other than the Company or any of
its Subsidiaries) who is an "affiliate" as defined in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act. In addition, the following shall
be deemed to be Affiliates of GAP 38: (a) GAP LLC, the members of GAP LLC, the
limited partners of GAP 38, the limited partners of GAP 28 and the limited
partners of GAP 47; (b) any Affiliate of GAP LLC, the members of GAP LLC, the
limited partners of GAP 38, the limited partners of GAP 28 and the limited
partners of GAP 47; and (c) any limited liability company or partnership a
majority of whose members or partners, as the case may be, are members, former
members, consultants or key employees of GAP LLC. In addition, GAP 38, GAP 28,
GAP 47 and GAP Coinvestment shall be deemed to be Affiliates of one another.
"AHIS" mean Alltel Healthcare Information Services, Inc.
"Alltel" has the meaning assigned to such term in the recital
to this Agreement.
"Alltel Director" has the meaning set forth in Section 7.3(e)
of this Agreement.
"Alltel Put" has the meaning set forth in Section 9.1 of this
Agreement.
"Alltel Put Price" has the meaning set forth in Section 9.2 of
this Agreement.
"Alltel Put Securities" has the meaning set forth in Section
9.1 of this Agreement.
"Alltel Stockholders" means Alltel and any Permitted
Transferee thereof to which Shares are transferred in accordance with Section
2.2, and the term "Alltel Stockholder" shall mean any such Person.
"Brean Murray" has the meaning assigned to such term in the
recital to this Agreement.
"Brean Murray Stockholders" means Brean Murray and any
Permitted Transferee thereof to which Shares are transferred in accordance with
Section 2.2, and the term "Brean Murray Stockholder" shall mean any such Person.
"Board of Directors" means the Board of Directors of the
Company.
"BT" has the meaning assigned to such term in the recital to
this Agreement.
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<PAGE> 8
"BT Observer" has the meaning set forth in Section 12(b) of
this Agreement.
"BT Warrant" means a warrant to purchase, subject to the terms
and conditions thereof, an aggregate of up to 1,012,339 shares of Class B Common
Stock.
"BT Stockholders" means BT and any Permitted Transferee
thereof to which Shares are transferred in accordance with Section 2.2, and the
term "BT Stockholder" shall mean any such Person.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"By-laws" means the By-laws of the Company, as amended from
time to time and as in effect on the date hereof, a copy of which is attached
hereto as Exhibit B.
"Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation of the Company, as amended from time to time and as
in effect on the date hereof, a copy of which is attached hereto as Exhibit A.
"Charter Documents" means the Certificate of Incorporation and
the By- laws.
"Class A Common Stock" means the Common Stock, par value $.01
per share, of the Company, and any other capital stock of the Company into which
such stock is reclassified or reconstituted.
"Class B Common Stock" means the Non-Voting Common Stock, par
value $.01 per share, of the Company, and any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Commission" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means (a) the Class A Common Stock, (b) the
Class B Common Stock, (c) any other common stock of any class or series
hereafter issued by the Company and (d) any other capital stock into which such
stock is reclassified or reconstituted.
"Common Stock Equivalent" means any security or obligation
which is by its terms convertible into or exercisable for shares of Common
Stock, including, without limitation, the Series D Preferred Stock, the Series E
Preferred Stock, the Series F Preferred Stock, the Warrants and any option,
warrant or other subscription or purchase right with respect to Common Stock.
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<PAGE> 9
"Company" has the meaning assigned to such term in the recital
to this Agreement.
"Company Note" has the meaning set forth in Section 8.4.2(a)
of this Agreement.
"Company Offer" has the meaning set forth in Section 4.3.2(a)
of this Agreement.
"Company Option" has the meaning set forth in Section 4.1.2 of
this Agreement.
"Company Option Period" has the meaning set forth in Section
4.1.2 of this Agreement.
"Contract Date" has the meaning set forth in Section 4.1.5 of
this Agreement.
"Excess New Securities" has the meaning set forth in Section
5.3 of this Agreement.
"Excess Offered Securities" has the meaning set forth in
Section 4.1.3(a) of this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Family Member" has the meaning set forth in Section 2.2 of
this Agreement.
"First General Atlantic Director" has the meaning set forth in
Section 7.3(b) of this Agreement.
"First Restated Stockholders Agreement" has the meaning
assigned to such term in the recital to this Agreement.
"FUCP" has the meaning assigned to such term in the recital to
this Agreement.
"FUCP Observer" has the meaning set forth in Section 12(b) of
this Agreement.
"FUCP Stockholders" means FUCP and any Permitted Transferee
thereof to which Shares are transferred in accordance with Section 2.2, and the
term "FUCP Stockholder" shall mean any such Person.
"FUCP Warrant" means a warrant to purchase, subject to the
terms and conditions thereof, an aggregate of up to 1,687,233 shares of Class B
Common Stock.
"GAAP" means generally accepted United States accounting
principles in effect from time to time.
"GAP Coinvestment" has the meaning assigned to such term in
the recital to this Agreement.
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<PAGE> 10
"GAP 47" has the meaning assigned to such term in the recital
to this Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware
limited liability company and the general partner of GAP 38, GAP 28 and GAP 47,
and any successor to such entity.
"GAP Notice" has the meaning set forth in Section 5.4(a) of
this Agreement.
"GAP Series D/G Preferred Director" has the meaning set forth
in Section 7.3(c) of this Agreement.
"GAP Series F Preferred Director" has the meaning set forth in
Section 7.3(b) of this Agreement.
"GAP 38" has the meaning assigned to such term in the recital
to this Agreement..
"GAP 28" has the meaning assigned to such term in the recital
to this Agreement.
"General Atlantic Directors" has the meaning set forth in
Section 7.3(c) of this Agreement.
"General Atlantic Observer" has the meaning set forth in
Section 7.6 of this Agreement.
"General Atlantic Stockholders" means GAP 47, GAP 38, GAP 28,
GAP Coinvestment and any Permitted Transferee of any of them to which Shares are
transferred in accordance with Section 2.2, and the term "General Atlantic
Stockholder" shall mean any such Person.
"Governmental Authority" means the government of any nation,
state, city, locality or other political subdivision thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Initiating Stockholder" has the meaning set forth in Section
4.1.6(a) of this Agreement.
"Involuntary Transfer" means any transfer, proceeding or
action by or in which a Stockholder shall be deprived or divested of any right,
title or interest in or to any of the Shares, including, without limitation, any
seizure under levy of attachment or execution, any transfer in
-5-
<PAGE> 11
connection with bankruptcy (whether pursuant to the filing of a voluntary or an
involuntary petition under the United States Bankruptcy Code of 1978, or any
modifications or revisions thereto) or other court proceeding to a debtor in
possession, trustee in bankruptcy or receiver or other officer or agency, any
transfer to a state or to a public officer or agency pursuant to any statute
pertaining to escheat or abandoned property and any transfer pursuant to a
divorce or separation agreement or a final decree of a court in a divorce
action.
"Involuntary Transferee" has the meaning assigned such term in
Section 4.2.1 of this Agreement.
"IPO Effectiveness Date" means the date upon which the Company
consummates its initial Public Offering.
"Karmanos" has the meaning assigned to such term in the
recital to this Agreement.
"Karmanos Stockholders" means Karmanos and any Permitted
Transferee thereof to which Shares are transferred in accordance with Section
2.2 and the term "Karmanos Stockholder" shall mean any such Person.
"Kaufman Stockholders" means collectively, (i) Michael B.
Kaufman; (ii) Claudia Kaufman; (iii) Michael M. Davis and Michael B. Kaufman as
Trustees of the Michael B. Kaufman Family Trust u/t/a dated September 3, 1993;
(iv) Michael B. Kaufman as Trustee of the Amy R. Kaufman 1990 Trust u/t/a dated
December 28, 1990; (v) Michael B. Kaufman as Trustee of the Kim E. Kaufman 1990
Trust u/t/a dated December 28, 1990; and (vi) Pearl S. Kaufman as Trustee of the
Michael B. Kaufman Trust pursuant to a Trust Agreement dated June 30, 1976, and
any Permitted Transferee of any thereof to which Shares are transferred in
accordance with Section 2.2, and the term "Kaufman Stockholder" shall mean any
such Person.
"Liens" has the meaning assigned such term in Section 4.1.4 of
this Agreement.
"Manolovici" has the meaning assigned to such term in the
recital to this Agreement.
"Manolovici Stockholders" means Manolovici and any Permitted
Transferee thereof to which Shares are transferred in accordance with Section
2.2, and the term "Manolovici Stockholder" shall mean any such Person.
"Merger Agreement" means the Agreement of Merger among Alltel,
AHIS, the Company and Eclipsys Solutions Corp.
"Motorola" has the meaning assigned to such term in the
recital to this Agreement.
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<PAGE> 12
"Motorola Director" has the meaning assigned to such term in
Section 7.3(f) of this Agreement.
"Motorola Observer" has the meaning assigned to such term in
Section 12(c) of this Agreement.
"Motorola Purchase Agreement" has the meaning assigned to such
term in the recital to this Agreement.
"Motorola Shares" means the 1,500,000 shares of Class A Common
Stock issued by the Company to Motorola as of the date of this Agreement.
"Motorola Stockholders" means Motorola and any Permitted
Transferee thereof to which Shares are transferred in accordance with Section
2.2, and the term "Motorola Stockholder" shall mean any such Person.
"New Issuance Notice" has the meaning set forth in Section 5.1
of this Agreement.
"New Issuance Percentage" has the meaning set forth in Section
5.2(b) of this Agreement.
"New Issuance Rightholder" has the meaning set forth in
Section 5.3 of this Agreement.
"New Securities" has the meaning set forth in Section 5.1 of
this Agreement.
"Notice of Sale" has the meaning set forth in Section 4.3.1 of
this Agreement.
"Offer Price" has the meaning assigned such term in Section
4.1.1 of this Agreement.
"Offered Securities" has the meaning assigned such term in
Section 4.1.1 of this Agreement.
"Offering Notice" has the meaning assigned such term in
Section 4.1.1 of this Agreement.
"Offering Price" has the meaning set forth in Section 4.3.1 of
this Agreement.
"Offering Stockholder" has the meaning set forth in Section
4.3.1 of this Agreement.
"Option Period" has the meaning set forth in Section 4.1.3(a)
of this Agreement.
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<PAGE> 13
"Original Stockholders Agreement" has the meaning assigned to
such term in the recital to this Agreement.
"Other Stockholder" means any transferee of a Partners
Stockholder, a General Atlantic Stockholder, an Alltel Stockholder, a FUCP
Stockholder, a BT Stockholder, a Wilson Stockholder, a Brean Murray Stockholder,
a Manolovici Stockholder, a St. Paul Stockholder, a Karmanos Stockholder or a
Motorola Stockholder who has agreed to be bound by the terms and conditions of
this Agreement in accordance with Section 2.4 and to whom Shares have been
transferred in accordance with Section 4.
"Partners" has the meaning assigned to such term in the
recital to this Agreement.
"Partners Director" has the meaning set forth in Section
7.3(a) of this Agreement.
"Partners Put" has the meaning set forth in Section 8.1 of
this Agreement.
"Partners Stockholders" means Partners and any Permitted
Transferee thereof to which Shares are transferred in accordance with Section
2.2, and the term "Partners Stockholder" shall mean any such Person.
"Permitted Transferee" has the meaning set forth in Section
2.2 of this Agreement.
"Person" mean any individual, corporation, partnership,
limited liability company, firm, joint venture, association, joint stock
company, trust, unincorporated organization, governmental body or other entity.
"Preferred Securities" has the meaning set forth in Section
4.3.1 of this Agreement.
"Prime Rate" means, as of any date, the rate of interest
publicly announced from time to time by the Company's primary bank in Charlotte,
North Carolina as its prime lending rate for United States dollars or, if the
Company does not have a primary bank, the rate announced from time to time by
the BankBoston, N.A., Boston, Massachusetts, as its prime rate.
"Proportionate Percentage" has the meaning set forth in
Section 5.3 of this Agreement.
"Proposed Price" has the meaning set forth in Section 5.1 of
this Agreement.
"Prospective Purchaser" has the meaning set forth in Section
4.3.3(a) of this Agreement.
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<PAGE> 14
"Public Offering" means any offer for sale of shares of Common
Stock pursuant to an effective Registration Statement.
"Purchase Option Period" has the meaning set forth in Section
4.3.2(a) of this Agreement.
"Put Exercise Date" has the meaning set forth in Section 8.1
of this Agreement.
"Put Notice" has the meaning set forth in Section 8.1 of this
Agreement.
"Put Purchase Price" has the meaning set forth in Section 8.2
of this Agreement.
"Put Securities" has the meaning set forth in Section 8.1 of
this Agreement.
"Put Trigger Event" has the meaning set forth in Section 8.1
of this Agreement.
"Registration Statement" means a registration statement filed
pursuant to the Securities Act.
"Requirement of Law" means, as to any Person, any law,
statute, treaty, rule, regulation, right, privilege, qualification, license or
franchise or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable or binding upon such Person or any of its
property or to which such Person or any of its property is subject or pertaining
to any or all of the transactions contemplated or referred to herein.
"Rightholder" has the meaning set forth in Section 4.1.3(a) of
this Agreement.
"Second General Atlantic Director" has the meaning set forth
in Section 7.3(c) of this Agreement.
"Second Restated Stockholders Agreement" means this Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the Commission thereunder.
"Selling Stockholder" has the meaning set forth in Section
4.1.1 of this Agreement.
"Series B Preferred Stock" means the Series B 8.5% Cumulative
Redeemable Preferred Stock, par value $.01 per share, of the Company.
"Series C Preferred Stock" means the Series C 8.5% Cumulative
Redeemable Preferred Stock, par value $.01 per share, of the Company.
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<PAGE> 15
"Series D Preferred Stock" means the Series D Convertible
Preferred Stock, par value $.01 per share, of the Company.
"Series E Preferred Stock" means the Series E Convertible
Preferred Stock, par value $.01 per share, of the Company.
"Series F Preferred Stock" means the Series F Convertible
Preferred Stock, par value $.01 per share, of the Company.
"Series G Preferred Stock" means the Series G Convertible
Preferred Stock, par value $.01 per share, of the Company.
"Services Agreement" means the Management and Services
Agreement, dated as of the date hereof, between Alltel and the Company.
"Shares" means, with respect to each Stockholder, all shares,
whether now owned or hereafter acquired, of Common Stock and Common Stock
Equivalents owned or held hereby; provided; however, that for the purposes of
any computation of the number of Shares either outstanding, owned or held by any
Stockholder or otherwise to be determined pursuant to Sections 2, 3, 4, 5, 6, 7,
8, 9, 10 and 14.2(b), (a) the shares of Common Stock issuable upon conversion or
exercise of all Common Stock Equivalents shall be deemed outstanding whether or
not such conversion, exercise or exchange has actually been effected and (b)
there shall be no distinction between classes or series of shares in such
computation.
"St. Paul" has the meaning assigned to such term in the
recital to this Agreement.
"St. Paul Observer" has the meaning set forth in Section 7.6
of this Agreement.
"St. Paul Stockholders" means St. Paul and any Permitted
Transferee thereof to which Shares are transferred in accordance with Section
2.2, and the term "St. Paul Stockholder" shall mean any such Person.
"Stockholders Meeting" has the meaning set forth in Section
7.1.
"Subject Purchaser" has the meaning set forth in Section 5.1
of this Agreement.
"Subsidiary" means, as of the relevant date of determination,
with respect to any Person, a corporation or other entity of which 50% or more
of the voting power of the outstanding voting equity securities or 50% or more
of the outstanding economic equity interest is held, directly or indirectly, by
such Person.
"Tag-Along Rightholder" has the meaning set forth in Section
4.1.6(a) of this Agreement.
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"Terms and Conditions" has the meaning set forth in Section
4.3.1 of this Agreement.
"Third Party Offer" has the meaning set forth in Section
4.3.2(a) of this Agreement.
"Transfer" has the meaning set forth in Section 2.1 of this
Agreement.
"Transferred Shares" has the meaning set forth in Section
4.2.1 of this Agreement.
"Third Party Purchaser" has the meaning set forth in Section
4.1.1 of this Agreement.
"Warrants" means the BT Warrant and the FUCP Warrant.
"Wilfam" has the meaning assigned to such term in the recital
to this Agreement.
"Wilson Directors" has the meaning set forth in Section 7.3(d)
of this Agreement.
"Wilson Employment Agreement" means the Employment Agreement,
dated May 3, 1996, between the Company and Wilson, relating to the terms and
conditions of the employment of Wilson by the Company.
"Wilson Stockholders" means Wilson, Wilfam, the Kaufman
Stockholders and any Permitted Transferee thereof to which Shares are
transferred in accordance with Section 2.2, and the term "Wilson Stockholder"
shall mean any such Person.
"Written Consent" has the meaning set forth in Section 7.2 of
this Agreement.
2. Restrictions on Transfer of Shares.
2.1 Limitation on Transfer. No Stockholder shall sell, give,
assign, hypothecate, pledge, encumber, grant a security interest in or otherwise
dispose of (whether by operation of law or otherwise) (each a "transfer") any
Shares or any right, title or interest therein or thereto, except for transfers
made in accordance with the provisions of this Agreement, and in such event, any
transferee obtaining any record or beneficial interest or right to vote such
Shares hereunder shall agree to be bound by this Agreement and shall comply with
Section 2.4. Any attempt to transfer any Shares or any rights thereunder in
violation of the preceding sentence shall be null and void ab initio and the
Company shall not register any such transfer.
2.2 Permitted Transfers. Notwithstanding anything to the
contrary contained in this Agreement, but subject to Sections 2.3, 2.4, and 3.
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(a) Wilson and Wilfam may transfer Shares
to or among (i) each other, (ii) a member of Wilson's immediate family which
shall include his spouse, siblings, children or grandchildren ("Family Members")
or (iii) a trust, corporation, partnership or limited liability company, all of
the beneficial interests in which shall be held by Wilson or Wilfam or one or
more Family Members of Wilson or which would otherwise be an Affiliate of
Wilson; provided, however, that such transfer by Wilson may be effected solely
for estate planning purposes; and provided further, that if any such transfer is
made prior to the third anniversary of the date hereof, then during the period
prior to the third anniversary of the date hereof that any such Family Member or
any such trust, corporation, partnership or limited liability company holds any
right, title or interest in any Shares, no Person other than Wilson (or in the
event of his death, his legal representative) may exercise, directly or
indirectly, voting rights with respect to such Shares;
(b) Manolovici may transfer Shares to or
among (i) his Family Members or (ii) a trust, corporation, partnership or
limited liability company, all of the beneficial interests in which shall be
held by Manolovici or one or more Family Members of Manolovici or which would
otherwise be an Affiliate of Manolovici;
(c) Karmanos may transfer Shares to or
among (i) his Family Members or (ii) a trust, corporation, partnership or
limited liability company, all of the beneficial interests in which shall be
held by Karmanos or one or more Family Members of Karmanos or which would
otherwise be an Affiliate of Karmanos;
(d) the Kaufman Stockholders may transfer
Shares to or among (i) each other, (ii) their Family Members or (iii) a trust,
corporation, partnership or limited liability company, all of the beneficial
interests in which shall be held by a Kaufman Stockholder or one or more Family
Members of a Kaufman Stockholder or which would otherwise be an Affiliate of a
Kaufman Stockholder, or (iv) as to a Kaufman Stockholders that is a trust, to
its beneficiaries;
(e) each of Partners, GAP 47, GAP 28, GAP
38, GAP Coinvestment, Alltel, FUCP, BT, Brean Murray, St. Paul and Motorola may
transfer its Shares to its Affiliates; and
(f) Motorola may transfer its Shares to
the Company in satisfaction of its indemnification obligations under the
Motorola Purchase Agreement (each of the Persons referred to in the preceding
clauses (a), (b), (c), (d), (e) and (f) are hereinafter referred to as a
"Permitted Transferee").
2.3 Permitted Transfer Procedures. If any Stockholder wishes
to transfer Shares to a Permitted Transferee under Section 2.2, such Stockholder
shall give notice to the Company of its intention to make any transfer permitted
under Section 2.2 not less than ten (10) days prior to effecting such transfer,
which notice shall state the name and address of each
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Permitted Transferee to whom such transfer is proposed and the number of Shares
proposed to be transferred to such Permitted Transferee.
2.4 Transfers in Compliance with Law; Substitution of
Transferee. Notwithstanding any other provision of this Agreement, no transfer
may be made pursuant to this Section 2, Section 3 or Section 4 unless (a) the
transferee has agreed in writing to be bound by the terms and conditions of this
Agreement pursuant to an instrument substantially in the form attached hereto as
Exhibit C, (b) the transfer complies in all respects with the applicable
provisions of this Agreement and (c) the transfer complies in all respects with
applicable federal and state securities laws, including, without limitation, the
Securities Act. If requested by the Company in its reasonable judgment, an
opinion of counsel to such transferring Stockholder (which shall be reasonably
acceptable to counsel to the Company) shall be supplied to the Company at such
transferring Stockholder's expense, to the effect that such transfer complies
with the applicable federal and state securities laws. Upon becoming a party to
this Agreement, (i) the Permitted Transferee of a General Atlantic Stockholder
shall be substituted for, and shall enjoy the same rights and be subject to the
same obligations as, the transferring General Atlantic Stockholder hereunder,
(ii) the Permitted Transferee of Partners shall be substituted for, and shall
enjoy the same rights and be subject to the same obligations as, Partners
hereunder, (iii) the Permitted Transferee of Wilson shall be substituted for,
and shall enjoy the same rights and be subject to the same obligations as,
Wilson, (iv) the Permitted Transferee of Wilfam shall be substituted for, and
shall enjoy the rights and be subject to the same obligations as, Wilfam, (v)
the Permitted Transferee of an Alltel Stockholder shall be substituted for, and
shall enjoy the same rights and be subject to the same obligations as, the
transferring Alltel Stockholder hereunder, (vi) the Permitted Transferee of a
FUCP Stockholder shall be substituted for, and shall enjoy the same rights and
be subject to the same obligations as, the transferring FUCP Stockholder
hereunder, (vii) the Permitted Transferee of a BT Stockholder shall be
substituted for, and shall enjoy the same rights and be subject to the same
obligations as, the transferring BT Stockholder hereunder, (viii) the Permitted
Transferee of a Brean Murray Stockholder shall be substituted for, and shall
enjoy the same rights and be subject to the same obligations as, the
transferring Brean Murray Stockholder hereunder, (ix) the Permitted Transferee
of a Manolovici Stockholder shall be substituted for, and shall enjoy the same
rights and be subject to the same obligations as, the transferring Manolovici
Stockholder hereunder, (x) the Permitted Transferee of a St. Paul Stockholder
shall be substituted for, and shall enjoy the same rights and be subject to the
same obligations as, the transferring St. Paul Stockholder hereunder, (xi) the
Permitted Transferee of a Karmanos Stockholder shall be substituted for, and
shall enjoy the same rights and be subject to the same obligations as, the
transferring Karmanos Stockholder hereunder, (xii) the Permitted Transferee of a
Kaufman Stockholder shall be substituted for, and shall enjoy the same rights
and be subject to the same obligations as, the transferring Kaufman Stockholder
hereunder, (xiii) the Permitted Transferee of a Motorola Stockholder shall be
substituted for, and shall enjoy the same rights and be subject to the same
obligations as, the transferring Motorola Stockholder hereunder, and (xiv) the
Permitted Transferee of an Other Stockholder shall be substituted for, and shall
be subject to the same obligations as, the transferring Other Stockholder
hereunder.
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3. Transfers by Partners Stockholders, Wilson Stockholders or Motorola
Stockholders Prior to Certain Date.
3.1 Transfers by Partners Stockholders or Wilson Stockholders
Prior to May 3, 1999.
3.1.1 Proposed Transfers. Notwithstanding Sections 2.2 and
2.4, none of the Partners Stockholders or Wilson Stockholders
(excluding the Kaufman Stockholders) shall at any time prior to May
3, 1999 transfer any of its or his Shares to any Person unless (a)
such Partners Stockholder or such Wilson Stockholder (excluding the
Kaufman Stockholders), as the case may be, first sends written
notice to Wilson (in the case of a proposed transfer by a Partners
Stockholder) or Partners (in the case of a proposed transfer by a
Wilson Stockholder), as the case may be, which notice shall state
the number of Shares proposed to be sold and (b) Partners (in the
case of a proposed transfer by a Wilson Stockholder) or Wilson (in
the case of a proposed transfer by a Partners Stockholder), as the
case may be, consents in writing to such proposed transfer.
3.1.2 Consent to Transfer of Shares. If Partners (in the
case of a proposed transfer by a Wilson Stockholder other than a
Kaufman Stockholder) or Wilson (in the case of a proposed transfer
by a Partners Stockholder), as the case may be, consents to the
proposed transfer of Shares by a Wilson Stockholder or a Partners
Stockholder, as the case may be, pursuant to Section 3.1.1, then
such Shares may be transferred by such Wilson Stockholder or such
Partners Stockholder, as the case may be, in accordance with
Section 4 hereof.
3.1.3 No Consent to Transfer of Shares. If Partners (in
the case of a proposed transfer by a Wilson Stockholder other than
a Kaufman Stockholder) or Wilson (in the case of a proposed
transfer by a Partners Stockholder), as the case may be, does not
consent to a proposed transfer of Shares by a Wilson Stockholder
(other than a Kaufman Stockholder) or a Partners Stockholder, as
the case may be, pursuant to Section 3.1.1, then such Shares may
not be transferred by such Wilson Stockholder or such Partners
Stockholder, as the case may be, until May 3, 1999 and then in
accordance with Section 4 hereof. Any attempt to transfer such
Shares or any rights thereunder in violation of this Section 3.1.3
shall be null and void ab initio and the Company shall not register
any such transfer.
3.1.4 Transfers After May 3, 1999. Subject to Section 2.2,
if at any time after May 3, 1999 any Partners Stockholder or any
Wilson Stockholder (other than a Kaufman Stockholder) wishes to
transfer any portion of its or his Shares to any Person, then such
transfer shall be made in accordance with Section 4 hereof.
Transfers by Kaufman Stockholders shall at all times be subject to
Section 4 hereof and shall in no event be subject to Section 3.
3.2 Transfers by Motorola Stockholders Prior to Second Anniversary
of this Agreement. Except as provided in Section 2.2 of this
Agreement or pursuant to the Registration Rights Agreement of the Company, no
Motorola Stockholder shall at any time prior to the second anniversary of this
Agreement transfer any of its Shares to any Person. Subject to
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Section 2.2, if at any time after the second anniversary of this Agreement any
Motorola Stockholder wishes to transfer any portion of its Shares to any Person,
then such transfer shall be made in accordance with Section 4 hereof.
4. Voluntary and Involuntary Transfers.
4.1 Proposed Voluntary Transfers.
4.1.1 Offering Notice. Subject to Sections 2 and 3,
if any Stockholder (a "Selling Stockholder") wishes to transfer all or any
portion of its or his Shares to any Person (other than to a Permitted
Transferee) (a "Third Party Purchaser"), such Selling Stockholder shall offer
such Shares first to the Company by sending written notice (the "Offering
Notice") to the Company and the other Stockholders which shall state (a) the
number of Shares proposed to be transferred (the "Offered Securities") and (b)
the proposed purchase price per Share which the Selling Stockholder is willing
to accept (the "Offer Price"). Upon delivery of the Offering Notice, such offer
shall be irrevocable unless and until the rights of first offer provided for
herein shall have been waived or shall have expired.
4.1.2 Company Option; Exercise. For a period of
thirty (30) days after the giving of the Offering Notice pursuant to Section
4.1.1 (the "Company Option Period"), the Company shall have the right (the
"Company Option") to purchase any or all of the Offered Securities at a purchase
price equal to the Offer Price and upon the terms and conditions set forth in
the Offering Notice. The right of the Company to purchase any or all of the
Offered Securities under this Section 4.1.2 shall be exercisable by delivering
written notice of the exercise thereof, prior to the expiration of the 30-day
period referred to above, to the Selling Stockholder with a copy to the other
Stockholders, which notice shall state the number of Offered Securities proposed
to be purchased by the Company. The failure of the Company to respond within
such 30-day period shall be deemed to be a waiver of the Company's rights under
Section 4.1. The Company may waive its rights under Section 4.1 prior to the
expiration of the 30-day period by notice to the Stockholders.
4.1.3 Stockholder Option; Exercise.
(a) If the Company does not elect to purchase
all of the Offered Securities pursuant to Section 4.2.1, then for a period of
thirty (30) days after the earlier to occur of (a) the expiration of the Company
Option Period pursuant to Section 4.1.2 and (b) the date upon which the Company
shall have sent to the Selling Stockholder and the other Stockholders written
notice of exercise of the Company Option pursuant to Section 4.1.2 or its waiver
thereof (the "Option Period"), the Partners Stockholders, the General Atlantic
Stockholders, the Wilson Stockholders, the Alltel Stockholders, the FUCP
Stockholders, the BT Stockholders, the Brean Murray Stockholders, the Manolovici
Stockholders, the St. Paul Stockholders, the Karmanos Stockholders and the
Motorola Stockholders (each, a "Rightholder") shall have the right to purchase
all, but not less than all, of the remaining Offered Securities at a purchase
price equal to the Offer Price and upon the terms and conditions set
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forth in the Offering Notice. Each such Rightholder shall have the right to
purchase that percentage of the Offered Securities determined by dividing (i)
the total number of Shares then owned by such Rightholder by (ii) the total
number of Shares then owned by all such Rightholders. If any Rightholder does
not fully subscribe for the number or amount of Offered Securities it or he is
entitled to purchase, then each other participating Rightholder shall have the
right to purchase that percentage of the Offered Securities not so subscribed
for (for the purposes of this Section 4.1.3, the "Excess Offered Securities")
determined by dividing (x) the total number of Shares then owned by such fully
participating Rightholder by (y) the total number of Shares then owned by all
fully participating Rightholder who elected to purchase Offered Securities. The
procedure described in the preceding sentence shall be repeated until there are
no remaining Excess Offered Securities. If the Company and/or the Rightholders
do not purchase all, but not less than all, of Offered Securities pursuant to
Section 4.1.2 and/or Section 4.1.3, then the Selling Stockholder may, subject to
Section 4.1.6, sell the Offered Securities to a Third Party Purchaser in
accordance with Section 4.1.5 without any of the obligations set forth in
Section 4.1.2 and 4.1.3.
(b) The right of each Rightholder under
subsection (a) above shall be exercisable by delivering written notice of the
exercise thereof, prior to the expiration of the 30-day period referred to in
subsection (a) above, to the Selling Stockholder with a copy to the Company and
the other Stockholders. Each such notice shall state (i) the number of Shares
held by such Rightholder and (ii) the number of Shares that such Rightholder is
willing to purchase pursuant to this Section 4.1.3. The failure of a Rightholder
to respond within such 30-day period to the Selling Stockholder shall be deemed
to be a waiver of such Rightholder's rights under Section 4.1. A Rightholder may
waive its rights hereunder by notice to the Company and the other Stockholders.
4.1.4 Closing. The closing of the purchases of
Offered Securities subscribed for by the Company under Section 4.1.2 or the
Rightholders under Section 4.1.3 shall be held at the principal office of the
Company at 11:00 a.m. local time, on the 90th day after the giving of the
Offering Notice pursuant to Section 4.1.1 or at such other time and place as the
parties to the transaction may agree. At such closing, the Selling Stockholder
shall deliver certificates representing the Offered Securities, duly endorsed
for transfer and accompanied by all requisite transfer taxes, if any, and such
Offered Securities shall be free and clear of any liens, claims, options,
charges, encumbrances or rights ("Liens") (other than those arising hereunder
and those attributable to actions by the purchasers) and the Selling Stockholder
shall so represent and warrant, and further represent and warrant that it is the
sole beneficial and record owner of such Offered Securities. The Company or each
Rightholder, as the case may be, purchasing Offered Securities shall deliver at
the closing payment in full in immediately available funds for the Offered
Securities purchased by it or him. At such closing, all of the parties to the
transaction shall execute such additional documents as are otherwise necessary
or appropriate.
4.1.5 Sale to a Third Party Purchaser. Unless the
Company or the Rightholders elect to purchase all, but not less than all, of the
Offered Securities under Sections 4.1.2 and 4.1.3, the Selling Stockholder may,
subject to Section 4.1.6, sell the Offered
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Securities to a Third Party Purchaser on the terms and conditions set forth in
the Offering Notice; provided, however, that such sale is bona fide and made
pursuant to a contract entered into within 120 days of the earlier to occur of
(i) the waiver by the Company and the Rightholders of their options to purchase
the Offered Securities and (ii) the expiration of the Option Period (the earlier
of such dates being offered herein as the "Contract Date"); and provided
further, that such sale shall not be consummated unless and until all of the
following conditions are met:
(a) The Selling Stockholder shall deliver
to the Company a certificate of Third Party Purchaser stating that (i) such
Third Party Purchaser is aware of the rights of the Company, the Partners
Stockholders, the General Atlantic Stockholders, the Wilson Stockholders, the
Alltel Stockholders, the FUCP Stockholders, the BT Stockholders, the Brean
Murray Stockholders, the Manolovici Stockholders, the St. Paul Stockholders, the
Karmanos Stockholders and the Motorola Stockholders contained in this Section
4.1 and (ii) prior to the purchase by such Third Party Purchaser of any such
Offered Securities, such Third Party Purchaser shall become a party to this
Agreement and agree to be bound by the terms and conditions hereof in accordance
with Section 2.4 hereof.
(b) The consummation of such sale to a
Third Party Purchaser shall not be subject to any conditions (other than
necessary filings under the HSR Act), except that it may be conditioned upon the
truth as of the closing of the proposed purchase of customary representations
and warranties and the delivery of stock certificates and a customary legal
opinion.
(c) A Third Party Purchaser shall have
furnished evidence satisfactory to the Company, in its reasonable judgment, as
to the financial ability of such Third Party Purchaser to consummate the
proposed purchase.
If such sale is not consummated within forty-five (45) days of the Contract Date
for any reason, then the restrictions provided for herein shall again become
effective, and no transfer of such Offered Securities may be made thereafter by
the Selling Stockholder without again offering the same to the Company, the
Partners Stockholders, the General Atlantic Stockholders, the Wilson
Stockholders, the Alltel Stockholders, the FUCP Stockholders, the BT
Stockholders, the Brean Murray Stockholders, the Manolovici Stockholders, the
St. Paul Stockholders, the Karmanos Stockholders and the Motorola Stockholders
in accordance with this Section 4.1.
4.1.6 Tag-Along Rights.
(a) If any Wilson Stockholder, Partners
Stockholder, General Atlantic Stockholder, Alltel Stockholder, FUCP Stockholder,
BT Stockholder, or Motorola Stockholder as the case may be (an "Initiating
Stockholder"), is transferring Offered Securities to a Third Party Purchaser
pursuant to Section 4.1.5, then each Wilson Stockholder, each Partners
Stockholder, each General Atlantic Stockholder, each Alltel Stockholder, each
FUCP Stockholder, each BT Stockholder and each Motorola Stockholder (other than
the Initiating
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Stockholder) (each a "Tag-Along Rightholder") shall have the right to sell to
such Third Party Purchaser, upon the terms set forth in the Offering Notice,
that number of Shares held by such Tag-Along Rightholder equal to that
percentage of the Offered Securities determined by dividing (x) the total number
of Shares then owned by such Tag-Along Rightholder by (y) the total number of
Shares then owned by all Tag-Along Rightholders exercising their rights pursuant
to this Section 4.1.6(a) plus the total number of Shares then owned by the
Initiating Stockholder. The Initiating Stockholder and the Tag-Along Rightholder
shall effect the sale of the Offered Securities and such Tag-Along Rightholder
shall sell the number of Offered Securities required to be sold pursuant to this
Section 4.1.6(a), and the number of Offered Securities to be sold to a Third
Party Purchaser by the Initiating Stockholder shall be reduced accordingly.
(b) In order to exercise its right to sell
Shares to a Third Party Purchaser pursuant to Section 4.1.6(a), a Tag-Along
Rightholder must agree to make substantially the same representations,
warranties, covenants and indemnities and other similar agreements as the
Initiating Stockholder agrees to make in connection with the proposed sale by it
of Offered Securities to a Third Party Purchaser; provided, however, that no
Tag-Along Rightholder shall be required to make any representations and
warranties concerning the business of the Company, any representations and
warranties made by the Tag-Along Rightholders shall be several and not joint and
any liability for indemnities given by a Tag-Along Rightholder shall be capped
at the amount received by such Tag-Along Rightholder for its Shares. Each
Initiating Stockholder shall give notice to each Tag-Along Rightholder of each
proposed sale by it of Offered Securities which gives rise to the rights of the
Tag-Along Rightholders set forth in this Section 4.1.6, at least third (30) days
prior to the proposed consummation of such sale, setting forth the name of such
Initiating Stockholder, the number of Offered Securities, the percent of Shares
that such Tag-Along Rightholder may sell to such Third Party Purchaser
(determined in accordance with Section 4.1.6(a)), and a representation that such
Third Party Purchaser has been informed of the "tag-along" rights provided for
in this Section 4.1.6 and has agreed to purchase Shares in accordance with the
terms hereof. The tag-along rights provided by this Section 4.1.6 must be
exercised by such Tag-Along Rightholder wishing to sell its Shares within
fifteen (15) days following receipt of the notice required by the preceding
sentence, by delivery of a written notice to such Initiating Stockholder
indicating such Tag-Along Rightholder's wish to exercise its rights and
specifying the number of Shares (up to the maximum number of Shares owned by
such Tag-Along Rightholder required to be purchased by such Third Party
Purchaser) it wishes to sell. If such Third Party Purchaser fails to purchase
Shares from any Tag-Along Rightholder that has properly exercised its tag-along
rights pursuant to this Section 4.1.6, then such Initiating Stockholder shall
not be permitted to consummate the proposed sale of the Offered Securities, and
any such attempted sale shall be null and void and the Company shall not
register any such transfer.
4.2 Involuntary Transfers.
4.2.1 Rights of First Offer upon Involuntary
Transfer. If an Involuntary Transfer of any Shares (the "Transferred Shares")
owned by any Stockholder shall occur, then
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the Company, the Partners Stockholders, the General Atlantic Stockholders, the
Wilson Stockholders, the Alltel Stockholders, the FUCP Stockholders, the BT
Stockholders, the Brean Murray Stockholders, the Manolovici Stockholders, the
St. Paul Stockholders, the Karmanos Stockholders and the Motorola Stockholders
(other than the Stockholder who suffered the Involuntary Transfer) shall have
the same rights as specified in Sections 4.1.2 and 4.1.3, respectively, with
respect to such Transferred Shares as if the Involuntary Transfer had been a
proposed voluntary transfer by a Selling Stockholder and shall be governed by
Section 4.1 except that (a) the time periods shall run from the date of receipt
by the Company of actual notice of the Involuntary Transfer (and the Company
shall immediately give notice to the Rightholders of the date of receipt of such
notice), (b) such rights shall be exercised by notice to the transferee of such
Transferred Shares (the "Involuntary Transfer") rather than to the Stockholder
who suffered or will suffer the Involuntary Transfer and (c) the purchase price
per Transferred Share shall be agreed upon by the Involuntary Transferee and the
Company or the purchasing Rightholders, as the case may be; provided, however,
that if such parties fail to agree as to such purchase price, the purchase price
shall be the Fair Value thereof as determined in accordance with Section 4.2.2.
4.2.2 Fair Value. If the parties fail to agree
upon the purchase price of the Transferred Shares in accordance with Section
4.2.1 hereof, then the Company or the Rightholders, as the case may be, shall
purchase the Transferred Shares at a purchase price equal to the Fair Value (as
hereinafter defined) thereof. The Fair Value of the Transferred Shares shall be
determined by an independent appraiser, which shall be a nationally recognized
investment banking firm or a nationally recognized expert experienced in the
valuation of corporations engaged in the business conducted by the Company and
its Subsidiaries, selected by the Board of Directors in its reasonable judgment.
Such appraiser shall conduct its determination as promptly as practicable. The
Involuntary Transferee and the Company shall each share half the fees and
expenses of such appraiser. For purposes of this Section 4.2.2., the "Fair
Value" of the Transferred Shares means the fair market value of such Transferred
Shares determined in accordance with this Section 4.2.2 based upon all
considerations that the appraiser determines to be relevant.
4.2.3 Closing. The closing of any purchase under
this Section 4.2 shall be held at the principal office of the Company at 11:00
a.m., local time on the earlier to occur of (a) the fifth Business Day after the
purchase price per Transferred Share shall have been agreed upon by the
Involuntary Transferee and the Company or the purchasing Rightholders, as the
case may be, in accordance with Section 4.2.1(c) or (b) the fifth Business Day
after the determination of the Fair Value of the Transferred Shares in
accordance with Section 4.2.2, or at such other time and place as the parties to
the transaction may agree. At such closing, the Involuntary Transferee shall
deliver certificates, if applicable, or other instruments or documents
representing the Transferred Shares being purchased under this Section 4.2 duly
endorsed with a signature guarantee for transfer and accompanied by all
requisite transfer and accompanied by all requisite transfer taxes, if any, and
such Transferred Shares shall be free and clear of any Liens (other than those
arising hereunder) arising through the action or inaction of the Involuntary
Transferee and the Involuntary Transferee shall so represent and warrant, and
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further represent and warrant that it is the beneficial owner of such
Transferred Shares. The Company or each Rightholder, as the case may be,
purchasing such Transferred Shares shall deliver at closing payment in full in
immediately available funds for such Transferred Shares. At such closing, all
parties to the transaction shall execute such additional documents as are
otherwise necessary or appropriate.
4.2.4 General. In the event that the provisions
of this Section 4.2 shall be held to be unenforceable with respect to any
particular Involuntary Transfer, the Company and the Rightholders shall have the
rights specified in Sections 4.1.2 and 4.1.3, respectively, with respect to any
transfer by an Involuntary Transferee of such Shares, and each Rightholder
agrees that any Involuntary Transfer shall be subject to such rights, in which
case the Involuntary Transferee shall be deemed to be the Selling Stockholder
for purposes of Section 4.1 of this Agreement and shall be found by the
provisions of Section 4.1 and other related provisions of this Agreement.
4.3 Proposed Transfers of Series B Preferred Stock,
Series C Preferred Stock and Warrants.
4.3.1 Notice of Sale. Subject to Section 2.1, if
any FUCP Stockholder or BT Stockholder wishes to transfer all or any portion of
its shares of Series B Preferred Stock to any Person (other than to a Permitted
Transferee thereof) or any Alltel Stockholder wishes to transfer all or any
portion of its shares of Series C Preferred Stock to any Person (other than to a
Permitted Transferee thereof), such Stockholder shall offer such Preferred
Securities (as hereinafter defined) first to the Company by sending written
notice (the "Notice of Sale") to the Company which shall state (a) the number of
shares of Series B Preferred Stock or Series C Preferred Stock, as the case may
be, proposed to be transferred (the "Preferred Securities"), (b) the purchase
price per share which such FUCP Stockholder, BT Stockholder or Alltel
Stockholder, as the case may be, (each, an "Offering Stockholder") is willing to
accept (the "Offering Price") and (c) that such transfer is not subject to any
other terms other than customary representations, warranties and covenants and
is not subject to any conditions other than the delivery of the stock
certificates, payment of the purchase price therefor and customary legal
opinions (the "Terms and Conditions"). Upon delivery of the Notice of Sale, such
offer shall be irrevocable unless and until the rights provided for in this
Section 4.3 shall have been waived or shall have expired. From and after the
date hereof until and including the earlier of (A) the date on which the Company
effects a Complete Redemption (as defined in the Warrants) or a Qualified Final
Redemption (as defined in the Warrants) and (B) December 31, 1999, (i) any FUCP
Stockholder or BT Stockholder transferring Preferred Securities pursuant to this
Section 4.3 shall transfer a pro rata portion of such Stockholder's Warrants
with the Preferred Securities being transferred and the Notice of Sale and Terms
and Conditions shall also include all applicable information in the foregoing
subsections (a), (b) and (c) above concerning such Warrants and (ii) the
Warrants may not be transferred to any Person (other than to a Permitted
Transferee in accordance with Section 2.2) except with the Preferred Securities
in accordance with the preceding clause (i). From and after January 1, 2000, if
any FUCP Stockholder or BT Stockholder is transferring its Preferred Securities,
then such FUCP Stockholder or BT
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Stockholder, as the case may be, may transfer its Preferred Securities pursuant
to this Section 4.3.1 without transferring any portion of such Stockholder's
Warrants. From and after the earlier of (A) the date on which the Company
effects a Complete Redemption or a Qualified Final Redemption and (B) January 1,
2000, the Warrants may be transferred to any Person without the Preferred
Securities, provided that, except as provided in Section 2.2, such Warrants
shall be transferred in accordance with Section 4.1 and in any such transfer,
the Warrants or portion thereof so transferred must be exercisable for shares of
Class B Common Stock representing not less than 1% of the Common Stock of the
Company on a fully diluted basis.
4.3.2 Company Option; Exercise.
(a) For a period of twenty (20) days after
the giving of the Notice of Sale pursuant to Section 4.3.1 (the "Purchase Option
Period"), the Company shall have the right to (a) make a bona fide written offer
to purchase all of the Preferred Securities and the Warrants, if applicable,
being transferred at a purchase price not less than the Offering Price and upon
the Terms and Conditions (the "Company Offer") or (b) obtain from one or more
Persons a bona fide written offer to purchase all of the Preferred Securities
and the Warrants, if applicable, being transferred at a purchase price not less
than the Offering Price and upon the Terms and Conditions (the "Third Party
Offer"). The failure of the Company to deliver to the Offering Stockholder the
Company Offer or the Third Party Offer prior to the expiration of the Purchase
Option Period shall be deemed to be a waiver of the Company's rights under this
Section 4.3, provided that the Company may waive its rights under this Section
4.3 prior to the expiration of the Purchase Option Period by notice to the
Offering Stockholder.
(b) If the Company elects to make the
Company Offer pursuant to Section 4.3.2(a), then (i) the Company shall exercise
such right by delivering such Company Offer, prior to the expiration of the
Purchase Option Period, to the Offering Stockholder and (ii) the Company and the
Offering Stockholder shall close the sale of the Preferred Securities and the
Warrants, if applicable, by the Offering Stockholder to the Company in
accordance with the Company Offer within 30 days after the date of delivery of
the Company Offer. If the Company elects to obtain from any Person or Persons
such Third Party Offer, then (i) the Company shall deliver such Third Party
Offer, prior to the expiration of the Purchase Option Period, to the Offering
Stockholder and (ii) the Offering Stockholder and such Person or Persons shall
close the sale of the Preferred Securities and the Warrants, if applicable, by
the Offering Stockholder to such Person or Persons in accordance with the Third
Party Offer within 30 days after the date of delivery of the Third Party Offer.
If such closing does not occur within any such 30- day period, then such failure
shall be deemed to be a waiver of the Company's rights or such Person's or
Persons' rights under this Section 4.3 unless the Offering Stockholder and the
Company or the Offering Stockholder and such Person or Persons, as the case may
be, shall have agreed prior to the expiration of such 30-day period to extend
the closing date.
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4.3.3 Sale to Prospective Purchaser.
(a) If the Company does not deliver the
Company Offer or the Third Party offer or waives its rights pursuant to Section
4.3.2(a) or if the 30-day period described in Section 4.3.2(b) shall have
expired (without an extension thereof) without the closing of the Company Offer
or the Third Party Offer, as the case may be, then for a period of ninety (90)
days after the earliest to occur of (i) the expiration of the Purchase Option
Period pursuant to Section 4.3.2(a) without the Offering Stockholder having
received the Company Offer or the Third Party Offer, (ii) the waiver by the
Company of its rights under Section 4.3.2(a) and (iii) the expiration (without
an extension) of the 30-day period described in Section 4.3.2(b) without the
closing of the Company Offer or the Third Party Offer, as the case may be, the
Offering Stockholder may solicit from any Person (a "Prospective Purchaser") a
bona fide written offer to purchase all of the Preferred Securities and the
Warrants, if applicable, being transferred at a price not less than the Offering
Price and upon the Terms and Conditions. If the Offering Stockholder obtains a
bona fide written offer from a Prospective Purchaser during such 90-day period,
then it shall deliver a copy of such offer to the Company and it may sell all of
the Preferred Securities and the Warrants, if applicable, being transferred to
such Prospective Purchaser; provided, however, that such sale is bona fide and
made pursuant to a contract entered into within 30 days of the date upon which
such Prospective Purchaser delivers its bona fide written offer to the Offering
Stockholder; and provided further, that such sale shall not be consummated
unless and until the Offering Stockholder delivers to the Company a certificate
of the Prospective Purchaser stating that (i) such Prospective Purchaser is
aware of the rights of the Company and the Stockholders set forth in this
Agreement and (ii) prior to the purchase by such Prospective Purchaser of such
Preferred Securities and the Warrants, if applicable, such Prospective Purchaser
shall become a party to this Agreement and agree to be bound by the terms and
conditions of this Section 4.3.
(b) If the Offering Stockholder does not
obtain a bona fide written offer from a Prospective Purchaser within such 90-day
period or such contract is not entered into within such 30-day period for any
reason, then the restrictions provided for in this Section 4.3 shall again
become effective.
4.3.4 Closing. The closing of the purchase and
sale of Preferred Securities and the Warrants, if applicable, under Section
4.3.2 or Section 4.3.3 shall be held at the place, time and date mutually agreed
upon by the parties within 30 days after the delivery of the Company Offer or
the Third Party Offer, as the case may be. At such closing, the Offering
Stockholder shall deliver certificates representing the Preferred Securities and
the Warrants, if applicable, duly endorsed for transfer and accompanied by all
requisite transfer taxes, if any, and such Preferred Securities and the
Warrants, if applicable, shall be free and clear of any Liens (other than those
arising hereunder and those attributable to actions by the purchasers) and the
Offering Stockholder shall so represent and warrant, and further represent and
warrant that it is the sole beneficial and record owner of such Preferred
Securities and the Warrants, if applicable. The Company of the Person of
Persons, as the case may be, purchasing the Preferred Securities and the
Warrants, if applicable, shall deliver at the closing payment in full in
immediately available funds for the Preferred Securities and the Warrants, if
applicable, purchased by it. At such closing, the Person or Persons purchasing
the Preferred Securities and the Warrants, if
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<PAGE> 28
applicable (in the event that the Company is not the purchaser thereof) shall
agree in writing to be bound by the terms and conditions of this Section 4.3
pursuant to an instrument in form and substance reasonably satisfactory to the
Company and all of the parties to the transaction shall execute such additional
documents as are otherwise necessary or appropriate.
5. Future Issuance of Capital Stock.
5.1 Offering Notice; Right of First Offer. Except for (a)
capital stock of the Company which may be issued to employees, consultants or
directors of the Company pursuant to a stock option plan or other employee or
consultant benefit arrangement approved by the Board of Directors, (b) a
dividend on the outstanding shares of Common Stock in capital stock of the
Company or a subdivision of the outstanding shares of Common Stock into a larger
number of shares of Common Stock, (c) capital stock of the Company issued in
consideration of the acquisition by the Company or any of its Subsidiaries of
another Person or (d) capital stock of the Company issued upon the conversation
or exercise of all Common Stock Equivalents, if the Company wishes to issue any
shares of capital stock or any other security convertible into or exchangeable
for capital stock of the Company (collectively, "New Securities") to any Person
(the "Subject Purchaser") prior to the IPO Effectiveness Date, then the Company
shall offer such New Securities first to the General Atlantic Stockholders by
sending written notice (the "New Issuance Notice") to the General Atlantic
Stockholders, with a copy to the other Stockholders, which shall state (i) the
number of New Securities proposed to be issued and (ii) the proposed purchase
price per share of the New Securities that the Company is willing to accept (the
"Proposed Price"). Upon delivery of the New Issuance Notice, such offer shall be
irrevocable unless and until the rights provided for in Sections 5.2 and 5.3
shall have been waived or shall have expired.
5.2 General Atlantic Stockholder Option.
(a) For a period of fifteen (15) days
after the giving of the New Issuance Notice pursuant to Section 5.1, the General
Atlantic Stockholders shall have the right to purchase, subject to Section
5.2(b), all of the New Securities.
(b) If the General Atlantic Stockholders
elect to purchase all of the New Securities pursuant to subsection (a) hereof,
then the General Atlantic Stockholders shall purchase, and each of the Partners
Stockholders, the Wilson Stockholders, the Alltel Stockholders, the FUCP
Stockholders, the BT Stockholders, the Brean Murray Stockholders, the Manolovici
Stockholders, the St. Paul Stockholders, the Karmanos Stockholders and the
Motorola Stockholders shall have the right to purchase, at a purchase price
equal to the Proposed Price and upon the terms and conditions set forth in the
New Issuance Notice, that percentage of the New Securities determined by
dividing (a) the total number of Shares then owned by the General Atlantic
Stockholders (in the case of the purchase by the General Atlantic Stockholders)
or the Partners Stockholders (in the case of the purchase by the Partners
Stockholders) or the Wilson Stockholders (in the case of the purchase by the
Wilson Stockholders) or the Alltel Stockholders (in the case of the purchase by
the Alltel Stockholders) or the FUCP
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<PAGE> 29
Stockholders (in the case of the purchase by the FUCP Stockholders) or the BT
Stockholders (in the case of the purchase by the BT Stockholders) or the Brean
Murray Stockholders (in the case of the purchase by the Brean Murray
Stockholders) or the Manolovici Stockholders (in the case of the purchase by the
Manolovici Stockholders) or the St. Paul Stockholders (in the case of the
purchase by the St. Paul Stockholders) or the Karmanos Stockholders (in the case
of the purchase by the Karmanos Stockholders) or the Motorola Stockholders (in
the case of the purchase by the Motorola Stockholders), as the case may be, by
(b) the total number of Shares then owned by the General Atlantic Stockholders
plus the total number of Shares then owned by the Partners Stockholders plus the
total number of Shares then owned by the Alltel Stockholders plus the total
number of shares then owned by the Wilson Stockholders plus the total number of
Shares then owned by the FUCP Stockholders plus the total number of Shares then
owned by the BT Stockholders plus the total number of Shares then owned by the
Brean Murray Stockholders plus the total number of Shares then owned by the
Manolovici Stockholders plus the total number of Shares then owned by the St.
Paul Stockholders plus the total number of Shares then owned by the Karmanos
Stockholders plus the total number of shares then owned by the Motorola
Stockholders (the "New Issuance Percentage"). If the Partners Stockholders, the
Wilson Stockholders, the Alltel Stockholders, the FUCP Stockholders, the BT
Stockholders, the Brean Murray Stockholders, the Manolovici Stockholders, the
St. Paul Stockholders, the Karmanos Stockholders or the Motorola Stockholders,
as the case may be, do not fully subscribe for the amount of New Securities that
they are entitled to purchase pursuant to the preceding sentence, then the
General Atlantic Stockholders shall purchase all of the remaining New Securities
not so subscribed for by the Partners Stockholders, the Wilson Stockholders, the
Alltel Stockholders, the FUCP Stockholders, the BT Stockholders, the Brean
Murray Stockholders, the Manolovici Stockholders, the St. Paul Stockholders, the
Karmanos Stockholders or the Motorola Stockholders, as the case may be.
5.3 New Issuance Rightholder Option. If the General Atlantic
Stockholders do not elect to purchase all, but not less than all, of the New
Securities pursuant to Section 5.2(a), then for a period of fifteen (15) days
after the earlier to occur of (a) the expiration of the 15-day period referred
to in Section 5.2(a) and (b) the date upon which the Company shall have received
written notice from the General Atlantic Stockholders stating that the General
Atlantic Stockholders do not intend to exercise their option to purchase all of
the New Securities pursuant to Section 5.2(a), the General Atlantic
Stockholders, the Partners Stockholders, the Wilson Stockholders, the Alltel
Stockholders, the FUCP Stockholders, the BT Stockholders, the Brean Murray
Stockholders, the Manolovici Stockholders, the St. Paul Stockholders, the
Karmanos Stockholders and Motorola Stockholders (each, a "New Issuance
Rightholder") shall have the right to purchase its or his Proportionate
Percentage (as hereinafter defined) of the New Securities at a purchase price
equal to the Proposed Price and upon the terms and conditions set forth in the
New Issuance Notice. Each such New Issuance Rightholder shall have the right to
purchase that percentage of the New Securities determined by dividing (a) the
total number of Shares then owned by such New Issuance Rightholder exercising
its rights under this Section 5.3 by (b) the total number of Shares then owned
by all of the New Issuance Rightholders exercising their rights under this
Section 5.3 (the "Proportionate Percentage"). If any Partners Stockholder, any
Wilson Stockholder, any Alltel Stockholder, any FUCP Stockholder, any BT
Stockholder,
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any Brean Murray Stockholder, any Manolovici Stockholder, any St. Paul
Stockholder, any Karmanos Stockholder or any Motorola Stockholder, as the case
may be, does not fully subscribe for the number of amount of New Securities that
it or he is entitled to purchase pursuant to the preceding sentence, then the
General Atlantic Stockholders shall have the right to purchase any or all of the
remaining New Securities not so subscribed for by any such Partners Stockholder,
Wilson Stockholder, Alltel Stockholder, FUCP Stockholder, BT Stockholder, Brean
Murray Stockholder, Manolovici Stockholder, St. Paul Stockholder, Karmanos
Stockholder or Motorola Stockholder, as the case may be. To the extent that the
General Atlantic Stockholders do not subscribe for any or all of such remaining
New Securities not so subscribed for by any such Partners Stockholder, Wilson
Stockholder, Alltel Stockholder, FUCP Stockholder, BT Stockholder, Brean Murray
Stockholder, Manolovici Stockholder, St. Paul Stockholder, Karmanos Stockholder
or Motorola Stockholder, as the case may be, each Partners Stockholder, Wilson
Stockholder, Alltel Stockholder, FUCP Stockholder, BT Stockholder, Brean Murray
Stockholder, Manolovici Stockholder, St. Paul Stockholder, Karmanos Stockholder
or Motorola Stockholder, as the case may be, who elected to purchase New
Securities shall have the right to purchase that percentage of the remaining New
Securities not so subscribed for by the General Atlantic Stockholders (for the
purposes of this Section 5.3., the "Excess New Securities") determined by
dividing (x) the total number of Share then owned by such fully participating
Partners Stockholder, Wilson Stockholder, Alltel Stockholder, FUCP Stockholder,
BT Stockholder, Brean Murray Stockholder, Manolovici Stockholder, St. Paul
Stockholder, Karmanos Stockholder or Motorola Stockholder, as the case may be,
by (y) the total number of Shares then owned by all fully participating Partners
Stockholders, Wilson Stockholders, Alltel Stockholders, FUCP Stockholders, BT
Stockholders, Brean Murray Stockholders, Manolovici Stockholders, St. Paul
Stockholders, Karmanos Stockholders or Motorola Stockholders, as the case may
be, who elected to purchase New Securities.
5.4 Exercise of Options.
(a) The right of the General Atlantic
Stockholders to purchase all of the New Securities under Section 5.2 shall be
each exercisable by delivering written notice (the "GAP Notice") of the exercise
thereof, prior to the expiration of the 15-day period referred to in Section
5.2(a), to the Company with a copy to the Partners Stockholders, the Wilson
Stockholders, the Alltel Stockholders, the FUCP Stockholders, the BT
Stockholders, the Brean Murray Stockholders, the Manolovici Stockholders, the
St. Paul Stockholders, the Karmanos Stockholders and the Motorola Stockholders,
which notice shall state that the General Atlantic Stockholders elect to
purchase subject to Section 5.2(b), all of the New Securities. The failure of
the General Atlantic Stockholders to respond within such 15-day period shall be
deemed to be a waiver of the General Atlantic Stockholders' rights under Section
5.2.
(b) The right of the Partners
Stockholders, the Wilson Stockholders, the Alltel Stockholders, the FUCP
Stockholders, the BT Stockholders, the Brean Murray Stockholders, the Manolovici
Stockholders, the St. Paul Stockholders, the Karmanos Stockholders and the
Motorola Stockholders to purchase their New Issuance Percentage under Section
5.2(b) shall be exercisable by delivering written notice of exercise thereof,
prior to the
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<PAGE> 31
expiration of fifteen (15) days after the General Atlantic Stockholders shall
have sent the GAP Notice to the Partners Stockholders, the Wilson Stockholders,
the Alltel Stockholders, the FUCP Stockholders, the BT Stockholders, the Brean
Murray Stockholders, the Manolovici Stockholders, the St. Paul Stockholders, the
Karmanos Stockholders and the Motorola Stockholders, to the Company and the
General Atlantic Stockholders with a copy to the other Stockholders, which
notice shall state the number of New Securities proposed to be purchased by the
Partners Stockholders, the Wilson Stockholders, the Alltel Stockholders, the
FUCP Stockholders, the BT Stockholders, the Brean Murray Stockholders, the
Manolovici Stockholders, the St. Paul Stockholders, the Karmanos Stockholders or
the Motorola Stockholders, as the case may be. The failure of the Partners
Stockholders (in the case of such failure by the Partners Stockholders) or the
Wilson Stockholders (in the case of such failure by the Wilson Stockholders) or
the Alltel Stockholders (in the case of such failure by the Alltel Stockholders)
or the FUCP Stockholders (in the case of such failure by the FUCP Stockholders)
or the BT Stockholder (in the case of such failure by the BT Stockholders) or
the Brean Murray Stockholders (in the case of such failure by the Brean Murray
Stockholders) or the Manolovici Stockholders (in the case of such failure by the
Manolovici Stockholders) or the St. Paul Stockholders (in the case of such
failure by the St. Paul Stockholders) or the Karmanos Stockholders (in the case
of such failure by the Karmanos Stockholders) or the Motorola Stockholders (in
the case of such failure by the Motorola Stockholders) to respond within such
15-day period shall be deemed to be a waiver of the Partners Stockholders'
rights (in the case of such failure by the Partners Stockholders) or the Wilson
Stockholders' rights (in the case of such failure by the Wilson Stockholders) or
the Alltel Stockholders' rights (in the case of such failure by the Alltel
Stockholders) or the FUCP Stockholders' rights (in the case of such failure by
the FUCP Stockholders) or the BT Stockholders' rights (in the case of such
failure by the BT Stockholders) or the Brean Murray Stockholders' rights (in the
case of such failure by the Brean Murray Stockholders) or the Manolovici
Stockholders' rights (in the case of such failure by the Manolovici
Stockholders) or the St. Paul Stockholders' rights (in the case of such failure
by the St. Paul Stockholders) or the Karmanos Stockholders' rights (in the case
of such failure by the Karmanos Stockholders) or the Motorola Stockholders'
rights (in the case of such failure by the Motorola Stockholders), as the case
may be, under Section 5.2(b).
(c) The right of each New Issuance
Rightholder to purchase the New Securities under Section 5.3 shall be
exercisable by delivering written notice of the exercise thereof, prior to the
expiration of the 15-day period referred to in Section 5.3, to the Company,
which notice shall state the amount of New Securities that such New Issuance
Rightholder elects to purchase. The failure of a New Issuance Rightholder to
respond within such 15-day period shall be deemed to be a waiver of such New
Issuance Rightholder's rights under Section 5.3.
5.5 Closing. The Closing of the purchase of New Securities
subscribed for under Section 5.2 or Section 5.3, as the case may be, shall be
held at the principal office of the Company at 11:00 a.m., local time, on (a)
the 45th day after the giving of the New Issuance Notice pursuant to Section
5.1, if the General Atlantic Stockholders elect to purchase all of the New
Securities pursuant to Section 5.2(a), (b) the 60th day after the giving of the
New Issuance
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Notice pursuant to Section 5.1, if the New Issuance Rightholders elect to
purchase any of the New Securities under Section 5.3 or (c) at such other time
and place as the parties to the transaction may agree. At such closing, the
Company shall deliver certificates representing the New Securities, and such New
Securities shall be issued free and clear of all Liens and the Company shall so
represent and warrant, and further represent and warrant that such New
Securities shall be upon issuance thereof to (i) the General Atlantic
Stockholders (in the case of their election pursuant to Section 5.2(a) or
Section 5.3), (ii) the Partners Stockholders (in the case of their election
pursuant to Section 5.2(b) or Section 5.3), (iii) the Wilson Stockholders (in
the case of their election pursuant to Section 5.2(b) or Section 5.3), (iv) the
Alltel Stockholders (in the case of their election pursuant to Section 5.2(b) or
Section 5.3), (v) the FUCP Stockholders (in the case of their election pursuant
to Section 5.2(b) or Section 5.3), (vi) the BT Stockholders (in the case of
their election pursuant to Section 5.2(b) or Section 5.3), (vii) the Brean
Murray Stockholders (in the case of their election pursuant to Section 5.2(b) or
Section 5-2), (viii) the Manolovici Stockholders (in the case of their election
pursuant to Section 5.2(b) or Section 5.3), (ix) the St. Paul Stockholders (in
the case of their election pursuant to Section 5.2(b) or Section 5.3), (x) the
Karmanos Stockholders (in the case of their election pursuant to Section 5.2(b)
or Section 5.3), or (xi) the Motorola Stockholders (in the case of their
election pursuant to Section 5.2(b) or Section 5.3), as the case may be, and
after payment therefor, duly authorized, validly issued, fully paid and
nonassessable. The General Atlantic Stockholders (in the case of their election
pursuant to Section 5.2(a) or Section 5.3), the Partners Stockholders (in the
case of their election pursuant to Section 5.2(b) or Section 5.3), the Wilson
Stockholders (in the case of their election pursuant to Section 5.2(b) or
Section 5.3), the Alltel Stockholders (in the case of their election pursuant to
Section 5.2(b) or Section 5.3), the FUCP Stockholders (in the case of their
election pursuant to Section 5.2(b) or Section 5.3), the BT Stockholders (in the
case of their election pursuant to Section 5.2(b) or Section 5.3), the Brean
Murray Stockholders (in the case of their election pursuant to Section 5.2(b) or
Section 5.3), the Manolovici Stockholders (in the case of their election
pursuant to Section 5.2(b) or Section 5.3), the St. Paul Stockholders (in the
case of their election pursuant to Section 5.2(b) or Section 5.3), the Karmanos
Stockholders (in the case of their election pursuant to Section 5.2(b) or
Section 5.3) or the Motorola Stockholders (in the case of their election
pursuant to Section 5.2(b) or Section 5.3), as the case may be, purchasing the
New Securities shall deliver at the closing payment in full in immediately
available funds for the New Securities purchased by him or it. At such closing,
all of the parties to the transaction shall execute such additional documents as
are otherwise necessary or appropriate.
5.6 Sale to Subject Purchaser. Unless all of the New
Securities are purchased pursuant to Section 5.2 or Section 5.3, the Company may
sell to the Subject Purchaser all of the New Securities not purchased by the New
Issuance Rightholders pursuant to Section 5.3 on terms and conditions that are
no more favorable to the Subject Purchaser than those set forth in the New
Issuance Notice; provided, however, that such sale is bona fide and made
pursuant to a contract entered into within six (6) months of the earlier to
occur of (a) the waiver by the New Issuance Rightholders of their option to
purchase all of the New Securities pursuant to Section 5.2 or Section 5.3 and
(b) the expiration of the 15-day period referred to in Section 5.3. If such sale
is not consummated within such six (6) month period for any reason, then the
restrictions
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provided for herein shall again become effective, and no issuance and sale of
New Securities may be made thereafter by the Company without again offering the
same in accordance with this Section 5. The closing of any issue and purchase
pursuant to this Section 5.6 shall be held at the time and place as the parties
to the transaction may agree.
6. After-Acquired Securities. All of the provisions of this
Agreement shall apply to all of the Shares or Common Stock Equivalents now owned
or which may be issued or transferred hereafter to a Stockholder in consequence
of any additional issuance, purchase, exchange or reclassification of any of
such Shares or Common Stock Equivalents, corporate reorganization, or any other
form of recapitalization, consolidation, merger, share split or share dividend,
or which are acquired by a Stockholder in any other manner.
7. Corporate Governance.
7.1 General. From and after the execution of this Agreement,
each Stockholder shall vote its or his voting Shares at any regular or special
meeting of stockholders of the Company (a "Stockholders Meeting") or in any
written consent executed in lieu of such a meeting of stockholders (a "Written
Consent") and shall take all other actions necessary to give effect to the
provisions of this Agreement (including, without limitation, Section 7.3 hereof)
and to ensure that the Charter Documents do not, at any time hereafter, conflict
in any respect with the provisions of this Agreement. In addition, each
Stockholder shall vote its or his voting Shares at any Stockholders Meeting or
act by Written Consent with respect to such voting Shares, upon any matter
submitted for action by the Company's stockholders or with respect to which such
Stockholder may vote or act by Written Consent, in conformity with the specific
terms and provisions of this Agreement and the Charter Documents.
7.2 Stockholders Actions. In order to effectuate the
provisions of this Section 7, each Stockholder (a) hereby agrees that when any
action or vote is required to be taken by such Stockholder pursuant to this
Agreement, such Stockholder shall use its best efforts to call, or cause the
appropriate officer and directors of the Company to call, a Stockholders Meeting
or to execute or cause to be executed a Written Consent to effectuate such
stockholder action, (b) shall use its best efforts to cause the Board of
Directors to adopt, either at a meeting of the Board of Directors or by
unanimous written consent of the Board of Directors, all the resolutions
necessary to effectuate the provisions of this Agreement and (c) shall use its
best efforts to cause the Board of Directors to cause the Secretary of the
Company, or if there be no Secretary, such other officer of the Company as the
Board of Directors may appoint to fulfill the duties of Secretary, not to record
any vote or consent contrary to the terms of this Section 7.
7.3 Election of Directors, Number and Composition. Each
Stockholder shall vote its or his voting Shares at any Stockholders Meeting, or
act by Written Consent with respect to such voting Shares, and take all other
actions necessary to ensure that the number of directors constituting the entire
Board of Directors shall be not less than seven nor greater than nine. Each
Stockholder shall vote its or his voting Shares at any Stockholders Meeting
called for the purpose of filling the positions on the Board of Directors, or in
any Written Consent executed for
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such purpose, and to take all other actions necessary to ensure the election to
the Board of Directors of the following individuals:
(a) one individual designated by Partners (who shall
initially be Jay Pieper) (the "Partners Director");
(b) one individual designated by the General Atlantic
Stockholders (who shall initially be William E. Ford) (the "First General
Atlantic Director") unless the General Atlantic Stockholders are entitled to
elect one director of the Company by virtue of their rights as holders of
Series F Preferred Stock (the "GAP Series F Preferred Director"):
(c) a second individual designated by the General
Atlantic Stockholders (who shall initially be Steven A. Denning) (the "Second
General Atlantic Director") unless the General Atlantic Stockholders are
entitled to elect one director of the Company by virtue of their rights as
holders of Series D Preferred Stock and Series G Preferred Stock (the "GAP
Series D/G Preferred Director"; and the First General Atlantic Director, if
any, the Second General Atlantic Director, if any, the GAP Series F Preferred
Director, if any, and the GAP Series D/G Preferred Director, if any, are
hereinafter referred to as the "General Atlantic Directors");
(d) two individuals designated by the Wilson
Stockholders, one of whom shall be Wilson and a second individual to be
designated in writing by Wilson, with a copy to the Stockholders (the "Wilson
Directors");
(e) one individual designated by the Alltel Stockholders
(who shall initially be Jeffrey H. Fox) (the "Alltel Director"); and
(f) one individual designated by the Motorola
Stockholders (who shall initially be Richard D. Severns) (the "Motorola
Director"), provided, however, that if the size of the Board of Directors
increases to twelve then the number of individuals Motorola may designate shall
increase to two and the size of the Board of Directors shall be further
increased to thirteen to accommodate such second Motorola Director.
All other directors of the Company shall be elected to the Board of Directors in
accordance with the Certificate of Incorporation and the By-laws.
7.4 Reduction of Directors. Notwithstanding anything to the
contrary contained in this Agreement, if at any time (a) the Partners
Stockholders own Shares representing (after giving effect to any adjustments)
less than 5% of the total number of shares of Common Stock outstanding on an as
converted and an as exercised basis, then Partners shall no longer be entitled
to designate the Partners Director pursuant to Section 7.3(a), (b) the General
Atlantic Stockholders own Shares representing (after giving effect to any
adjustments) (i) less than 10%, but not less than 5%, of the total number of
shares of Common Stock outstanding on an as converted and an as exercised basis,
then the General Atlantic Stockholders shall no longer be entitled to designate
the Second General Atlantic Director pursuant to Section 7.3(c) and (ii) less
than 5% of the total number of shares of Common Stock outstanding on an as
converted and an as exercised basis, then the General Atlantic Stockholders
shall no longer be
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entitled to designate the First General Atlantic Director pursuant to Section
7.3(b), (c) the Wilson Stockholders own Shares representing (after giving effect
to any adjustments) (i) less than 10%, but not less than 5% of the total number
of shares of Common Stock outstanding on an as converted and an as exercised
basis, then the Wilson Stockholders shall be entitled to designate one Wilson
Director pursuant to Section 7.3(d) and (ii) less than 5% of the total number of
shares of Common Stock outstanding on an as converted and an as exercised basis,
then the Wilson Stockholders shall no longer be entitled to designate and Wilson
Directors pursuant to Section 7.3(d), (d) the Alltel Stockholders own Shares
representing (after giving effect to any adjustments) less than 5% of the total
number of shares of Common Stock outstanding on an as converted and an as
exercised basis, then the Alltel Stockholders shall no longer be entitled to
designate the Alltel Director pursuant to Section 7.3(e) and (e) the Motorola
Stockholders own Shares representing (after giving effect to any adjustments)
less than 3.5% of the total number of Shares of Common Stock outstanding on an
as converted and an as exercised basis, then the Motorola Stockholders shall no
longer be entitled to designate the Motorola Director pursuant to Section
7.3(f).
7.5 Removal and Replacement of Directors.
7.5.1 Removal of Partners Directors. If at any
time Partners notifies the other Stockholders of its wish to remove at any time
and for any reason (or no reason) the Partners Director, then each Stockholder
shall vote all of its or his voting Shares so as to remove such Partner's
Director.
7.5.2 Removal of General Atlantic Directors. If
at any time the General Atlantic Stockholders notify the other Stockholders of
their wish to remove at any time and for any reason (or no reason) any General
Atlantic Director, then each Stockholder shall vote all of its or his voting
Shares so as to remove such General Atlantic Director.
7.5.3 Removal of Wilson Director. If at any
time the Wilson Stockholders notify the other Stockholders of their wish to
remove at any time and for any reason (or no reason) any Wilson Director, then
each Stockholder shall vote all of its or his voting Shares so as to remove such
Wilson Director.
7.5.4 Removal of Alltel Director. If at any time
the Alltel Stockholders notify the other Stockholders of their wish to remove at
any time and for any reason (or no reason) the Alltel Director, then each
Stockholder shall vote all of its or his voting Shares so as to remove such
Alltel Director.
7.5.5 Removal of Motorola Director. If at any
time the Motorola Stockholders notify the other Stockholders of their wish to
remove at any time and for any reason (or no reason) the Motorola Director(s),
then each Stockholder shall vote all of its or his voting Shares so as to remove
such Motorola Director(s).
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7.5.6 Replacement of Directors.
(a) If at any time a vacancy is created
on the Board of Directors by reason of the death, removal or resignation of the
Partners Director, then Partners shall designate an individual who shall be
elected to fill such vacancy until the next Stockholders Meeting.
(b) If at any time, a vacancy is created
on the Board of Directors by reason of the death, removal or resignation of the
First General Atlantic Director or the Second General Atlantic Director as the
case may be, then the General Atlantic Stockholders shall designate an
individual (reasonably acceptable to Wilson and the Company) who shall be
elected to fill such vacancy until the next Stockholders Meeting. Any vacancy
created on the Board of Directors by reason of the death, removal or resignation
of the GAP Series F Preferred Director or the GAP Series D/G Preferred Director,
as the case may be, shall be filled in accordance with the Charter Documents.
(c) If at any time, a vacancy is created
on the Board of Directors by reason of the death, removal or resignation of any
Wilson Director, then the Wilson Stockholders shall designate an individual who
shall be elected to fill such vacancy until the next Stockholders Meeting.
(d) Subject to Section 10, if at any
time, a vacancy is created on the Board of Directors by reason of the death,
removal or resignation of the Alltel Director, then the Alltel Stockholders
shall designate an individual (reasonably acceptable to Wilson and the Company)
who shall be elected to fill such vacancy until the next Stockholders Meeting.
(e) If at any time, a vacancy is created
on the Board of Directors by reason of the death, removal or resignation of the
Motorola Director(s), then Motorola shall designate an individual(s) who shall
be elected to fill such vacancy until the next Stockholders Meeting.
(f) Upon receipt of notice of the
designation of a nominee, each Stockholder shall, as soon as practicable after
the date of such notice, take action, including the voting of its or his voting
Shares, to elect the director designated by Partners, the General Atlantic
Stockholders, the Wilson Stockholders, the Alltel Stockholders or the Motorola
Stockholders, as the case may be, to fill such vacancy.
7.6 Designation of General Atlantic Observer and St. Paul
Observer. So long as a General Atlantic Director serves on the Board of
Directors, the General Atlantic Stockholders shall be entitled to designate one
individual to attend and observe any regular or special meeting of the Board of
Directors (the "General Atlantic Observer"). The St. Paul Stockholders shall be
entitled to designate one individual (who shall be Carl Witonsky) to attend and
observe any regular or special meeting of the Board of Directors (the "St. Paul
Observer").
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7.7 Reimbursement of Expenses. Notwithstanding anything
to the contrary contained in this Agreement, the Company shall reimburse (a) GAP
LP and GAP Coinvestment, or their designee, for all reasonable travel and
accommodation expenses incurred by the General Atlantic Director(s) and, so long
as the General Atlantic Stockholders are entitled to designate the General
Atlantic Observer in accordance with Section 7.6, the General Atlantic Observer,
if the participation of the General Atlantic Observer at a meeting of the Board
of Directors to which such expenses relate shall have been requested by the
Board of Directors, (b) the Partners Stockholders for all reasonable travel and
accommodation expenses incurred by the Partners Director, (c) the Wilson
Stockholders for all reasonable travel and accommodation expenses incurred by
the Wilson Directors, (d) the Alltel Stockholders for all reasonable travel and
accommodation expenses incurred by the Alltel Director, (e) the Motorola
Stockholders for all reasonable travel and accommodation expenses incurred by
the Motorola Director(s) and (f) the St. Paul Stockholders for all reasonable
travel and accommodation expenses incurred by the St. Paul Observer.
7.8 Actions of the Board of Directors; Extraordinary
Events.
7.8.1 Consent of Partners Director.
Notwithstanding anything to the contrary contained in this Agreement, the Board
of Directors shall not take, approve or otherwise ratify any of the following
actions except with the consent of at least a majority of the directors
constituting the entire Board of Directors, which majority shall include,
without limitation, the Partners Director:
(a) any voluntary filing of a petition
in bankruptcy (or similar law of the United States or any other jurisdiction
which relates to liquidation or reorganization of companies or to the
modification or alteration of the rights of creditors); the making of an
assignment, or so-called trust mortgage or the like, for the benefit of
creditors or the making of a proposal to creditors under any bankruptcy act, the
appointment of a receiver or trustee (or other Person performing a similar
function) for all or a substantial part of the Company's property; or the
calling of a meeting of creditors, appointment of a committee of creditors or
liquidating agents or offering of a composition or extension to creditors;
(b) a material change in the line or
lines of business activity in which the Company is engaged on January 31, 1998
(the parties hereto acknowledging and agreeing that the line or lines of
business activity conducted by the Company and its Subsidiaries as a result of
the consummation of the transactions contemplated by the Motorola Purchase
Agreement do not constitute such a material change);
(c) an amendment to the Wilson Employment
Agreement relating to Wilson's duties to the Company, Wilson's noncompetition
covenants or a reduction in Wilson's initial three-year term of employment by
the Company; or
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(d) the initial Public Offering of the
Company occurring prior to the third anniversary of May 3, 1996.
7.8.2 Consent of General Atlantic Director.
Notwithstanding anything to the contrary contained in this Agreement, the Board
of Directors shall not take, approve or otherwise ratify any of the following
actions without the consent of at least one General Atlantic Director, unless
the entire Board of Directors other than the General Atlantic Director, or
General Atlantic Directors if more than one, votes or acts by written consent in
favor of such action:
(a) other than capital stock of the
Company that may be issued to employees, consultants or directors of the Company
pursuant to a stock option plan or other employee benefit arrangement approved
by the Board of Directors of the Company or any capital stock of the Company
that may be issued upon the conversion or exercise of Common Stock Equivalents,
any issuance of or agreement to issue (i) any shares of capital stock of the
Company or rights of any kind convertible into or exchangeable for, any shares
of capital stock of the Company, or any option, warrant, or other subscription
or purchase right with respect to shares of capital stock and (ii) any long term
indebtedness of the Company in excess of an aggregate of $5,000,000;
(b) (i) any single capital expenditure by
the Company in excess of $2,500,000 other than the purchase of computer-related
equipment for resale in the ordinary course of business and (ii) any material
expenditure by the Company in any single year in excess of $1,500,000 that is
not provided for in the annual operating budget of the Company for such year;
(c) any material changes in accounting
principles or policies of the Company, including any material change in the
criteria for evaluating the Company's financial conditions and results of
operations; or
(d) any amendment, modification or
restatement of the Charter Documents, any modification of the number of
directors constituting the entire Board of Directors pursuant to Section 7.3 or
any amendment or modification of this Section 7.8.2 that, in each case, in the
reasonable judgment of a General Atlantic Director, adversely impairs or effects
the rights of the General Atlantic Stockholders.
7.9 Holders of Non-Voting Shares. The parties hereto
acknowledge and agree that (a) the FUCP Stockholders and the BT Stockholders are
the holders of non-voting Shares and shall have no rights or obligations
whatsoever under this Section 7, and (b) the Kaufman Stockholders shall have no
rights or obligations whatsoever under this Section 7, notwithstanding their
inclusion in the definition of "Wilson Stockholders," and all references in this
Section 7 to the Wilson Stockholders shall be deemed to mean the "Wilson
Stockholders other than the Kaufman Stockholders."
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8. Partners Put.
8.1 Exercise. Notwithstanding anything to the contrary
contained in this Agreement, but subject to any restrictions contained in any
loan agreements and instruments of indebtedness entered into by the Company, if
there shall be any Requirement of Law applicable to Partners or any Affiliate
thereof which, in the reasonable judgment of Partners, would (a) prohibit
Partners or any Affiliate thereof from holding any of its Shares or (b) subject
Partners or any Affiliate thereof to any material restrictions in the conduct of
its business as a result of its holding of its Shares (each, a "Put Trigger
Event"), then the Partners Stockholders shall have the right and option (the
"Partners Put") to require the Company to purchase all, but not less than all,
of the Shares held by the Partners Stockholders (the "Put Securities") Partners,
on behalf of itself and the other Partners Stockholders, shall deliver promptly
to the Company, with a copy to the other Stockholders, notice (the "Put Notice")
of (a) the occurrence of a Put Trigger Event, (b) the exercise by the Partners
Stockholders of the Partners Put and (c) the number of Put Securities held by
the Partners Stockholders (the date on which Partners gives the Put Notice being
hereinafter referred to as the ("Put Exercise Date"). Notwithstanding the
foregoing, upon the consent of Partners, which consent may not be unreasonably
withheld, the Company may delegate to another Person (the "Company Transferee")
on commercially reasonable terms and conditions, the Company's obligation to
purchase the Put Securities pursuant to this Section 8.
8.2 Purchase Price. If the Partners Stockholders shall
exercise the Partners Put, the Company or the Company Transferee, as the case
may be, shall purchase, and the Partners Stockholders shall sell, all of the Put
Securities held by the Partners Stockholders at the purchase price (the "Put
Purchase Price") set forth below:
8.2.1 Put in Second Year. If the Partners Stockholders
exercise the Partners Put on or after May 3, 1997, but prior to May 3, 1998, the
aggregate Put Purchase Price of the Put Securities shall be equal to $0.67467
per share (which price has been adjusted to reflect the 1997 stock dividend and
which shall be adjusted from time to time for any other stock splits, stock
dividends, combinations or the like).
8.2.2 Put After Second Year. If the Partners
Stockholders exercise the Partners Put on or after May 3, 1998, the aggregate
Put Purchase Price of the Put Securities shall be equal to $1.34933 per share
(which price has been adjusted to reflect the 1997 stock dividend and which
shall be adjusted from time to time for any other stock splits, stock dividends,
combinations or the like).
8.3 Partners Put Termination Date. The Partners Stockholders
shall have no right to exercise the Partners Put with respect to and the
Partners Put shall terminate and be of no further force and effect with respect
to any Put Securities that may be distributed to the public without any
restrictions pursuant to Rule 144 (or any successor provision then in effect)
under the Securities Act.
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8.4 Closing.
8.4.1 Delivery of Put Securities. The closing of
the Partners Put exercised by the Partners Stockholders pursuant to this Section
8 shall be held at the principal office of the Company at 11:00 a.m., local
time, on the date mutually agreed upon by the Company or the Company Transferee,
as the case may be, and Partners, provided that in no event shall such closing
occur more than thirty (30) days after the Put Exercise Date. At such closing,
Partners shall deliver, on behalf of itself and the other Partners Stockholders,
certificates representing the Put Securities, duly endorsed for transfer and
accompanied by all requisite transfer taxes, if any, and such Put Securities
shall be free and clear of any Liens and Partners shall so represent and warrant
on behalf of itself and the other Partners Stockholders, and further represent
and warrant that each of the Partners Stockholders is the sole beneficial and
record owner of the Put Securities owned by it. At such closing, all of the
parties to the transaction shall execute such additional documents as are
otherwise necessary or appropriate.
8.4.2 Payment of Purchase Price. If the Company
delegates its obligations under this Section 8 to the Company Transferee, then
the Company Transferee shall deliver to Partners at the closing payment in full
in immediately available funds for all of the Put Securities or shall make other
arrangements for payment satisfactory to Partners. If the Company does not
delegate its obligations under this Section 8 to the Company Transferee, then
the Put Purchase Price for the Put Securities being purchased shall be paid in
full by the Company at the closing as follows:
(a) The Company shall make and issue to
Partners at the closing a non-negotiable promissory note (the "Company Note") in
favor of Partners in the aggregate principal amount of the Put Purchase Price,
bearing interest quarterly from and after the Put Exercise Date at the Prime
Rate plus one percent.
(b) The Company shall have no obligation
to make any payments of principal or interest on the Company Note until (i) the
fiscal quarter following the close of the first fiscal year after the exercise
of the Partners Put in which the Company's net earnings after taxes, as stated
on the Company's audited financial statement for such fiscal year, are positive
and (ii) such payments of principal and/or interest on the Company Note shall be
made only to the extent of 20 percent of the net earnings after taxes for such
fiscal year; provided, however, that any such payments shall be payable in
consecutive equal quarterly installments due forty-five (45) days after the end
of each of the first three fiscal quarters of the fiscal year in which such
payments are made and ninety (90) days after the end of the fiscal year in which
such payments are made; provided further, that if the Company's net earnings
after taxes, as stated on the Company's audited financial statement for any
fiscal year succeeding a fiscal year in which net earnings after taxes are
positive, are negative, then (x) the obligation of the Company to make payments
of principal and/or interest on the Company Note shall be suspended without
penalty and (y) the restrictions provided for in the first clause of this
sentence and the preceding proviso shall again become effective; and provided
further, that the Company Note shall be prepayable in whole or in part at the
option of the Company.
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<PAGE> 41
9. Alltel Put.
9.1 Exercise. Notwithstanding anything to the contrary set
forth in this Agreement, at one or more times after the date hereof but on or
prior to December 31, 1999, the Alltel Stockholders shall have the right and
option (the "Alltel Put") to require the Company to purchase all or a portion of
the Shares held by the Alltel Stockholders (the "Alltel Put Securities").
Alltel, on behalf of itself and the other Alltel Stockholders, shall deliver to
the Company, with a copy to the other Stockholders, notice of (a) the exercise
by the Alltel Stockholders of the Alltel Put and (b) the number of Alltel Put
Securities.
9.2 Purchase Price. If the Alltel Stockholders shall exercise
the Alltel Put, then the Company shall purchase, and the Alltel Stockholders
shall sell, the Alltel Put Securities held by the Alltel Stockholders at the
purchase price per share equal to $.01 (the "Alltel Put Price").
9.3 Closing. The closing of the Alltel Put exercised by the
Alltel Stockholders pursuant to this Section 9 shall be held at the principal
office of the Company at 11:00 a.m., local time, on a date agreed upon by the
Company and Alltel, or at such other place, time and date as agreed upon by the
Company and Alltel, provided that in no event shall such closing occur more than
thirty (30) days or less than fifteen (15) days after Alltel gives notice to the
Company pursuant to Section 9.1 of the exercise of the Alltel Put. At such
closing, Alltel shall deliver, on behalf of itself and the other Alltel
Stockholders, certificates representing the Alltel Put Securities, duly endorsed
for transfer and accompanied by all requisite transfer taxes, if any, and such
Alltel Put Securities shall be free and clear of any Liens and Alltel shall so
represent and warrant on behalf of itself and the other Alltel Stockholders, and
further represent and warrant that each of the Alltel Stockholders is the sole
beneficial and record owner of the Alltel Put Securities owned by it. The
Company shall pay in full the Alltel Put Price for the Alltel Put Securities by
delivery of a check therefor or by such other method of payment as agreed upon
by the Company and Alltel. At such closing, the parties, shall execute such
additional documents as are otherwise necessary or appropriate.
10. Alltel Non-Competition: Change of Control.
10.1 Removal from Board of Directors and Sale of Shares.
Notwithstanding anything to the contrary contained in this Agreement, (a) if at
any time from and after the second anniversary of the date hereof until the
fourth anniversary of the date hereof, Alltel or any of its Subsidiaries engages
in the business of outsourcing comprehensive information systems and software to
medium and large hospitals (over 150 beds) and developing, selling and
implementing clinical, financial, administrative and decision support software
for application in the medium and large hospital (over 150 beds) market and
developing, selling and implementing physician billing services in the physician
practice management market (the "Restricted Business"), including, without
limitation, developing the Restricted Business on its own or acquiring,
partnering with or otherwise contracting with any Person to acquire the
Restricted Business or (b) if at any time from and after the date hereof until
the fourth anniversary of the date hereof, there shall occur (i) the voluntary
or involuntary liquidation, dissolution or winding
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up of Alltel, (ii) a sale of all or substantially all of the assets of Alltel to
a competitor of the Company or (iii) the acquisition by any competitor of the
Company, directly or indirectly, in one or a series of related transactions, of
50% or more of the voting securities of Alltel pursuant to, without limitation,
a sale of voting securities, merger, tender offer, exchange offer,
reorganization or other business combination (each of the foregoing (i), (ii)
and (iii), a "Change of Control"), then (1) the Alltel Director shall be
immediately removed as a director of the Company and each of the Stockholders
shall vote its or his voting Shares so as to remove the Alltel Director, (2) the
Alltel Stockholders shall have no right to designate any individual to fill such
vacancy pursuant to Section 7.5.5(d), (3) the Alltel Stockholders shall no
longer be entitled to designate the Alltel Director pursuant to Section 7.3(e),
(4) any such vacancy created on the Board of Directors by reason of the removal
of the Alltel Director shall be filled in accordance with the Charter Documents
and (5) the Company shall have the right and option to require the Alltel
Stockholders to sell to the Company or any Person designated by the Company, and
the Alltel Stockholders shall sell to the Company or such Person, all or any
portion of the Shares held by the Alltel Stockholders at the purchase price per
Share equal to the fair market value thereof (as determined by the Board of
Directors in its reasonable judgment or, if such determination is not reasonably
satisfactory to Alltel, by a nationally recognized investment banking firm
selected by Alltel and the Company, the expenses for which shall be borne
equally by Alltel and the Company). The right of the Company to require the
Alltel Stockholders to sell all or any portion of their Shares to the Company or
its designee shall be exercisable by delivering to Alltel written notice of the
exercise thereof, prior to the expiration of 180 days after the occurrence of
the event set forth in subsection (a) of the first sentence of this Section 10.1
or a Change of Control, as the case may be. Such notice shall state (i) the
number of Shares to be purchased by the Company or its designee, (ii) the
purchase price per Share and (iii) the closing date of the purchase and sale of
the such Shares, which date shall not be more than 15 Business Days after the
later of the delivery of such written notice and the determination of the fair
market value as described above. At such closing, Alltel shall deliver, on
behalf of itself and the other Alltel Stockholders, certificates representing
the Shares being purchased, duly endorsed for transfer and accompanied by all
requisite transfer taxes, if any, and such Shares shall be free and clear of an'
Liens and Alltel shall so represent and warrant on behalf of itself and the
other Alltel Stockholders, and further represent and warrant that each of the
Alltel Stockholders is the sole beneficial and record owner of the Shares owned
by it. The Company or its designee shall pay in full the purchase price for such
Shares by wire transfer of immediately available funds to an account
designated by Alltel. At such closing, all of the parties to the transaction
shall execute such additional documents as are otherwise necessary or
appropriate.
10.2 Exceptions to Restricted Business. Notwithstanding
anything to the contrary set forth in Section 10.1(a) neither Alltel nor any of
its Subsidiaries shall be deemed to be engaged in the Restricted Business if
Alltel or the particular Subsidiary acquires a Person engaged in, or a Person
owning or having a Subsidiary, segment or division engaged in, the Restricted
Business so long as (i) less than 15% of the revenues of such acquired Person on
a consolidated basis (including such Subsidiary, segment or division, if any) is
derived from the Restricted Business and (ii) at no time after the consummation
of any acquisition permitted by the preceding clause (i) shall Alltel and its
Subsidiaries on a consolidated basis derive greater than
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<PAGE> 43
10% of their aggregate revenues from the Restricted Businesses so acquired and
(b) this Section 10 shall not prevent or otherwise limit the ability of Alltel
or any of its Subsidiaries to (u) provide the Network Services (as defined in
the Services Agreement), the Professional Services (as defined in the Services
Agreement), the Software Services (as defined in the Services Agreement), the
Carrier Services (as defined in the Services Agreement) and the Carrier Services
(as defined in the Services Agreement) to the medium and large hospital (over
150 beds) market and the physician practice management market, (v) provide any
service or activity requested by or sold to any customer of Alltel or any of its
Subsidiaries, including, without limitation, any of the exclusions set forth in
the foregoing clause (u), (w) provide the services currently provided by Alltel
or any of its Subsidiaries (other than by AHIS and its Subsidiaries), (x)
provide all products and services pursuant to the ADMIT Contract (as defined in
the Merger Agreement) and/or the IMN Contracts (as defined in the Merger
Agreement) to the medium and large hospital (over 150 beds) market and the
physician practice management market, (y) engage in the Restricted Business to
the extent necessary to perform under the Contracts (as that term is defined in
that certain letter between Alltel and the Company dated as of the date hereof
(the "Letter"), in the event that Alltel exercises its right to cause the
Company to assign the Contracts to Alltel under the Letter or (z) engage in the
Restricted Business in the event (1) there shall occur (A) the voluntary or
involuntary liquidation, dissolution or winding up of the Company or the
Acquisition Sub, (B) the sale of all or substantially all of the assets of the
Company or the Acquisition Sub or (C) the acquisition by any person, directly or
indirectly, in one or a series of related transactions, of 50% or more of the
voting securities of the Company pursuant to, without limitation, a sale of
voting securities, merger, tender offer, exchange offer, reorganization or other
business combination and (2) Harvey Wilson shall cease to be the President of
the Company.
11. Financial Statements and Other Information. The Company shall
deliver to each of the Partners Stockholders, the General Atlantic Stockholders,
the Alltel Stockholders, the FUCP Stockholders, the BT Stockholders, the Brean
Murray Stockholders, the Wilson Stockholders, the St. Paul Stockholders, the
Karmanos Stockholders and the Motorola Stockholders the following:
(a) as soon as available, but not later than ninety (90) days
after the end of each fiscal year of the Company, a copy of the audited balance
sheet of the Company and its Subsidiaries as of the end of such year and the
related statements of operations and cash flows for such fiscal year setting
forth in each case in comparative form the figures for the previous year, all in
reasonable detail and accompanied by a management summary and analysis of the
operations of the Company for such fiscal year and by the opinion of a
nationally recognized independent certified public accounting firm which report
shall state without qualification that such financial statements present fairly
the financial condition as of such date and results of operations and cash flows
for the periods indicated in conformity with GAAP applied on a consistent basis;
(b) commencing with the fiscal period ending on March 31, 1998, as
soon as available, but in any event not later than forty-five (45) days after
the end of each of the first three
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fiscal quarters of each fiscal year, the unaudited balance sheet of the Company
and its Subsidiaries, and the related statements of operations and cash flows
for such quarter and for the period commencing on the first day of the fiscal
year and ending on the last day of such quarter, all certified by an appropriate
officer of the Company as presenting fairly the financial condition as of such
date and results of operations and cash flows for the periods indicated in
conformity with GAAP applied on a consistent basis, subject to normal year-end
adjustments and the absence of footnotes required by GAAP;
(c) as soon as available, but in any event not later than
thirty (30) days after the end of each of the first eleven (11) months of each
fiscal year of the Company, the unaudited consolidated balance sheets of the
Company and its Subsidiaries as of the end of such month and unaudited
consolidated and consolidating statements of income, retained earnings and cash
flows for the Company and its Subsidiaries for the month then ended and for that
portion of the fiscal year then ended, all prepared in accordance with GAAP
(subject to the absence of footnotes required by GAAP and subject to normal
year-end adjustments) applied on a basis consistent with that of the preceding
month or containing disclosure of the effect on the financial condition or
results of operations of any change in the application of accounting principles
and practices during such month and certified by an appropriate officer of the
Company as fairly presenting in all material respects the financial condition
and results of operations of the Company and its Subsidiaries on a consolidated
basis as of the dates and for the periods indicated;
(d) as soon as available, but in any event not more than 30
days prior to the end of each fiscal year of the Company, an annual operating
budget of the Company for the next fiscal year: and
(e) from time to time, such other financial data and
information about the Company as is reasonably available to the Company and as
any of the Partners Stockholders, the Wilson Stockholders, the General Atlantic
Stockholders, the Alltel Stockholders, the FUCP Stockholders, the BT
Stockholders the Brean Murray Stockholders, the Manolovici Stockholders, the St.
Paul Stockholders, the Karmanos Stockholders or the Motorola Stockholders may
reasonably request.
12. Inspection of Properties; Designation of FUCP Observer, BT
Observer and Motorola Observer.
(a) (i) With respect to the FUCP Stockholders, so long as the
FUCP Stockholders own any shares of Series B Preferred Stock or Shares
representing (after giving effect to any adjustments) at least 50% of the Shares
owned by FUCP on the date hereof and (ii) with respect to the BT Stockholders,
so long as the BT Stockholders own any shares of Series B Preferred Stock or
Shares representing (after giving effect to any adjustments) at least 50% of the
Shares owned by BT on the date hereof, the Company shall permit representatives
of such Stockholder, from time to time, as often as may be reasonably requested
but only during normal business hours, to visit and inspect its properties;
inspect audit and make extracts from its books, records and files, including,
but not limited to, management letters prepared by independent
-39-
<PAGE> 45
accountants; and discuss with its principal officers and its independent
accountants, its business, assets, liabilities, financial condition, results of
operations and business prospects.
(b) So long as (i) the FUCP Stockholders own any shares of
Series B Preferred Stock or Shares representing (after giving effect to any
adjustments) at least 50% of the Shares owned by FUCP on the date hereof, the
FUCP Stockholders shall be entitled to designate one individual to attend and
observe any regular or special meeting of the Board of Directors (the "FUCP
Observer") and (ii) the BT Stockholders own any shares of Series B Preferred
Stock or Shares representing (after giving effect to any adjustments) at least
50% of the Shares owned by BT on the date hereof, the BT Stockholders shall be
entitled to designate one individual to attend and observe any regular or
special meeting of the Board of Directors (the "BT Observer"). Notwithstanding
anything to the contrary set forth in this Agreement, the Company shall
reimburse (x) the FUCP Stockholders for all reasonable travel and accommodation
expenses incurred by the FUCP Observer and (y) the BT Stockholders for all
reasonable travel and accommodation expenses incurred by the BT Observer.
(c) From and after the IPO Effectiveness Date, so long as the
Motorola Stockholders own (after giving effect to any adjustments) at least 3.5%
of the total number of Shares of Common Stock outstanding on an as converted and
an as exercised basis, then the Motorola Stockholders shall be entitled to
designate one individual to attend and observe any regular or special meeting of
the Board of Directors (the "Motorola Observer"), and the Company shall
reimburse Motorola for travel and accommodation expenses incurred by such
individual in connection with attending such meetings. Notwithstanding the
foregoing, the Board of Directors may exclude the Motorola Observer from
attendance at any regular or special meeting(s) of the Board if the Board
determines or is advised by counsel that such exclusion is necessary or
desirable to protect the Company's or the Board's interests including without
limitation (i) that such exclusion is necessary or desirable for the Board's
exercise of any of its fiduciary duties to the Company or (ii) that the
attendance of the Motorola Observer might cause the waiver of a privilege.
(d) Notwithstanding anything to the contrary set forth in this
Agreement, the FUCP Stockholders may not transfer any of their rights under this
Section 12 to any Person other than among the FUCP Stockholders and the BT
Stockholders may not transfer any of their rights under this Section 12 to any
Person other than among the BT Stockholders.
13. Restrictive Provisions. Notwithstanding anything in this Agreement
to the contrary, the Company shall not make any payment of cash, property or
assets in respect of any of its capital stock, or purchase retire, redeem or
otherwise acquire for value any shares of its capital stock or any warrants,
rights or options to acquire its capital stock, or set aside funds for any of
the foregoing, for so long as any such transaction is prohibited by any
provision of the Credit Agreement, dated as of January 24, 1997, between the
Company, certain lenders, and First Union National Bank of North Carolina, as
Agent (as amended, restated, modified or supplemented from time to time, the
"Credit Agreement"), except to the extent that any such provision has been
waived; provided, that in no event shall any extension or renewal of the
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Credit Agreement have the effect of prohibiting during any renewal or extension
period the Company from making such payment or purchasing, retiring, redeeming
or otherwise acquiring for value any such capital stock or setting aside funds
for any of the foregoing. If, but for any provision or provisions of the Credit
Agreement, the Company would be obligated under this Agreement to make such
payment, purchase, retire, redeem or otherwise acquire for value such capital
stock or set aside such funds for any of the foregoing, then the Company shall
request the agent and/or lenders, as appropriate, under the Credit Agreement to
waive such restrictive provision or provisions.
14. Stock Certificate Legend. A copy of this Agreement shall be filed
with the Secretary of the Company and kept with the records of the Company. Each
certificate representing Shares now held or hereafter acquired by any
Stockholder shall for as long as this Agreement is effective bear legends
substantially in the following forms:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS
OR PURSUANT TO A WRITTEN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, DATED JANUARY __,
1998, AMONG ECLIPSYS CORPORATION, PARTNERS HEALTHCARE SYSTEM, INC.,
GENERAL ATLANTIC PARTNERS 47, L.P., GENERAL ATLANTIC PARTNERS 38, L.P.,
GENERAL ATLANTIC PARTNERS 28, L.P., GAP COINVESTMENT PARTNERS, L.P,
HARVEY J. WILSON, WILFAM LTD., ALLTEL INFORMATION SERVICES, INC., FIRST
UNION CORPORATION, BT INVESTMENT PARTNERS, INC., BREAN MURRAY
ASSOCIATES IHS L.P., GERALD MANOLOVICI, ST. PAUL VENTURE CAPITAL IV,
L.L.C., PETER KARMANOS, JR., THE KAUFMAN STOCKHOLDERS (AS DEFINED
THEREIN) AND MOTOROLA, INC., A COPY OF WHICH MAY BE INSPECTED AT THE
COMPANY'S PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER
OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE
TRANSFER HAS BEEN
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MADE IN COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS AGREEMENT.
15. Intentionally omitted.
16. Miscellaneous.
16.1 Notices. All notices, demands or other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first class mail, return receipt requested, telecopier,
courier service, overnight mail or personal delivery:
<TABLE>
<S> <C>
(a) if the Company:
Eclipsys Corporation
777 East Atlantic Avenue, Suite 200
Delray Beach, Florida 33483
Telecopy: (561)243-9390
Attention: Mr. Harvey J. Wilson
with a copy to:
Goulston & Storrs
400 Atlantic Avenue
Boston, Massachusetts 02110
Telecopy: (617) 574-4112
Attention: Lester J. Fagen, Esq.
(b) if to Partners:
Partners HealthCare System, Inc.
Prudential Tower, Suite 1150
800 Boylston Street
Boston, Massachusetts 02199
Telecopy: (617) 278-1087
Attention: Mr. Jay Pieper
(c) if to any of the General Atlantic Stockholders:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Mr. Stephen P. Reynolds
</TABLE>
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<PAGE> 48
<TABLE>
<S> <C>
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(d) if to Wilson or Wilfam:
969 South Ocean Boulevard
Delray Beach, Florida 33483
Telecopy: (561) 265-1667
Attention: Mr. Harvey J. Wilson
with a copy to:
Michael B. Kaufman
367 Dudley Road
Newton, Massachusetts 02159
Telecopy: (617) 343-3099
(e) if to Alltel:
ALLTEL Information Services, Inc.
4001 Rodney Parham Road
Little Rock, Arkansas 72212
Telecopy: (501) 220-4637
Attention: President, with a copy to the General Counsel
of Alltel
(f) if to FUCP:
First Union Corporation
One First Union Center, 5th Floor
Charlotte, North Carolina 28288-0732
Telecopy: (704) 374-6711
Attention: Mr. Frederick W. Eubank, II
</TABLE>
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<PAGE> 49
<TABLE>
<S> <C>
with a copy to:
Kennedy Covington Lobdell & Hickman L.L.P.
100 North Tryon Street
Suite 4200
Charlotte, North Carolina 28202-4006
Telecopy: (704) 331-7598
Attention: Henry W. Flint, Esq.
(g) if to BT:
BT Investment Partners, Inc.
130 Liberty Street
New York, New York 10006
Telecopy: (212) 250-7651
Attention: Mr. Joseph Wood
with a copy to:
Winston & Strawn
200 Park Avenue
New York, New York 10166-4193
Telecopy: (212)294-4700
Attention: John W. Kaufmann, Esq.
(h) if to Brean Murray:
Brean Murray Associates IHS L.P.
c/o Brean Murray & Co.
570 Lexington Avenue, 11th Floor
New York, New York 10022
Telecopy: (212) 476-0798
Attention: Mr. A. Brean Murray
with a copy to:
Brown, Raysznan & Millstein
120 West Forty-Fifth Street
New York, New York 10036
Telecopy: (212) 840-2429
Attention: Michael Hirschberg, Esq.
</TABLE>
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<PAGE> 50
<TABLE>
<S> <C>
(i) if to Manolovici:
Gilder, Gagnon, Howe & Co.
1775 Broadway
26th Floor
New York, New York 10019
Telecopy: (212) 315-5964
if to St. Paul:
St. Paul Venture Capital
8500 Normandale Lake Boulevard
Suite 1940
Bloomington, Minnesota 55437-3831
Telecopy: (612) 830-7475
Attention: Mr. Everett Cox
(k) if to Karmanos:
Compuware Corporation
31440 Northwestern Highway
Farmington Hills Michigan 48334
Telecopy: (810) 737-1822
(l) if to the Kaufman Stockholders:
Michael B. Kaufman
367 Dudley Road
Newton, Massachusetts 02159
Telecopy: (617) 343-3099
(m) if to Motorola:
Land Mobile Products Sector
Motorola, Inc.
1301 East Algonquin Road
Schaumburg, Illinois 60196
Telecopy: (847) 538-2491
Attention: Mr. Richard D. Severns
</TABLE>
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<PAGE> 51
with a copy to:
Corporate Law Department
Motorola, Inc.
1303 East Algonquin Road
Schaumburg Illinois 60196
Telecopy: (847) 576-2818
Attention: Donald F. McLellan, Esq.
(n) if to any other Stockholder, at its address as it appears
on the record books of the Company.
Any party may by notice given in accordance with this Section 16.1 designate
another address or person for receipt of notices hereunder. All such notices and
communications shall be deemed to have been duly given when delivered by hand,
if personally delivered; when delivered by courier or overnight mail, if
delivered by commercial courier service or overnight mail; five (5) Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is mechanically acknowledged, if telecopied.
16.2 Amendment and Waiver.
(a) No failure or delay on the part of any party
hereto in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
parties hereto at law, in equity or otherwise.
(b) Any amendment, supplement or modification of
or to any provision of this Agreement any waiver of any provision of this
Agreement, and any consent to any departure by any party from the terms of any
provision of this Agreement, shall be effective (i) only if it is made or given
in writing, (ii) only in the specific instance and for the specific purpose for
which made or given and (iii) only if signed by (1) the Company, (2) the
Partners Stockholders holding a majority of the Shares owned by all of the
Partners Stockholders, (3) the General Atlantic Stockholders holding a majority
of the Shares owned by all of the General Atlantic Stockholders, (4) the Wilson
Stockholders (other than Wilfam and the Kaufman Stockholders) holding a majority
owned by all of the Wilson Stockholders (other than Wilfam and the Kaufman
Stockholders) (5) the Alltel Stockholders holding a majority of the Shares owned
by all of the Alltel Stockholders, (6) the FUCP Stockholders holding a majority
owned by all of the FUCP Stockholders, (7) the BT Stockholders holding a
majority of the Shares owned by all of the BT Stockholders, (8) the Motorola
Stockholders holding a majority of the Shares owned by all of the Motorola
Stockholders; and (9) the holders of Shares representing (after giving effect to
any adjustments) at least a majority of (v) the Shares owned by Wilfam plus (w)
the Shares owned by all of the Brean Murray Stockholders plus (x) the Shares
owned by all of the
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<PAGE> 52
Manolovici Stockholders plus (y) the Shares owned by all of the St. Paul
Stockholders plus (z) the Shares owned by all of the Karmanos Stockholders plus
(zz) the Shares owned by all of the Kaufman Stockholders; provided, however,
that in no event shall the FUCP Stockholders, the BT Stockholders or the Kaufman
Stockholders have the right to consent to any amendment, supplement,
modification or waiver of Section 7 of this Agreement. Any such written consent
shall be binding upon the Company and all of the Stockholders.
16.3 Specific Performance. The parties hereto intend that each
of the parties have the right to seek damages or specific performance in the
event that any other party hereto fails to perform such party's obligations
hereunder. Therefore, if any party shall institute any action or proceeding to
enforce the provisions hereof, any party against whom such action or proceeding
is brought hereby waives any claim or defense therein that the plaintiff party
has an adequate remedy at law.
16.4 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
16.5 Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
16.6 Entire Agreement. This Agreement, together with the
exhibits and schedules hereto, is intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein or
therein. This Agreement, together with the exhibits hereto, supersede all prior
agreements and understandings between the parties with respect to such subject
matter, including, without limitation, the First Restated Stockholders
Agreement, as amended.
16.7 Effectiveness; Term of Agreement. This Second Restated
Stockholders Agreement shall become effective (a) as to all parties to the First
Restated Stockholders Agreement, as amended, upon the execution hereof by the
Company and the parties specified in Section 16.2 of the First Restated
Stockholders Agreement, as amended, (b) as to Motorola, upon the execution
hereof by the Company, Motorola, and the parties specified in Section 16.2 of
the First Restated Stockholders Agreement, as amended, and (c) as to GAP 47,
upon the execution hereof by the Company, GAP 47, and the parties specified in
Section 16.2 of the First Restated Stockholders Agreement, as amended. This
Agreement shall terminate upon the IPO Effectiveness Date, except for (i)
Section 3.2, which shall terminate on the second anniversary of this Agreement,
(ii) Section 10, which shall terminate on January 24, 2001, and (iii) Section
12(c), which shall terminate at such time as the Motorola Stockholders cease to
own (after giving effect
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<PAGE> 53
to adjustments) at least 3.5% of the total number of Shares of Common Stock
outstanding on an as converted and an as exercised basis.
16.8 Variations in Pronouns. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
context may require.
16.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF, EXCEPT FOR THE
PROVISIONS OF THIS AGREEMENT THAT ARE GOVERNED BY THE GENERAL CORPORATION LAW OF
THE STATE OF DELAWARE (THE "DGCL"), WHICH PROVISIONS SHALL BE GOVERNED BY THE
DGCL
16.10 Further Assurances. Each of the parties shall, and shall
cause their respective Affiliates to, execute such instruments and take such
action as may be reasonably required or desirable to carry out the provisions
hereof and the transactions contemplated hereby.
16.11 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors,
heirs, legatees and legal representatives. This Agreement is not assignable
except in connection with a transfer of Shares in accordance with this
Agreement.
16.12 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
taken together shall constitute one and the same instrument.
16.13 Wilson Stockholders and Kaufman Stockholders. With
respect to any rights or obligations of the Wilson Stockholders, the Kaufman
Stockholders shall, except as to Sections 3 and 7 hereof, share such rights or
obligations with the other Wilson Stockholders, allocated among all the Wilson
Stockholders (including the Kaufman Stockholders) as a group on a pro rata
basis, calculated with reference to the total number of Shares owned by the
Kaufman Stockholders as compared to the total number of shares owned by the
Wilson Stockholders as a group.
IN WITNESS WHEREOF, the undersigned have executed, or have cause to be
executed, this Agreement on the date first written above.
ECLIPSYS CORPORATION
By: /s/ Harvey J. Wilson
-----------------------------------
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<PAGE> 54
Name: Harvey J. Wilson
Title: President
PARTNERS HEALTHCARE SYSTEM, INC.
By: /s/ Jay B. Pieper
----------------------------------------
Name: Jay B. Pieper
Title: Vice President
GENERAL ATLANTIC PARTNERS 28, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
Its General Partner
By: /s/ Stephen P. Reynolds
----------------------------------------
Name: Stephen P. Reynolds
Title: A Managing Member
GENERAL ATLANTIC PARTNERS 38, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
Its General Partner
By: /s/ Stephen P. Reynolds
----------------------------------------
Name: Stephen P. Reynolds
Title: A Managing Member
GENERAL ATLANTIC PARTNERS 47, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
Its General Partner
By: /s/ Stephen P. Reynolds
----------------------------------------
Name: Stephen P. Reynolds
Title: A Managing Member
GAP COINVESTMENT PARTNERS, L.P.
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<PAGE> 55
By: /s/ Stephen P. Reynolds
----------------------------------------
Name: Stephen P. Reynolds
Title: A General Member
/s/ Harvey J. Wilson
----------------------------------------
Harvey J. Wilson
WILFAM LTD.
By: /s/ Harvey J. Wilson
----------------------------------------
Name: Harvey J. Wilson
Title: President
ALLTEL INFORMATION SERVICES, INC.
By: /s/ Jeffrey H. Fox
----------------------------------------
Name: Jeffrey H. Fox
Title: President
FIRST UNION CORPORATION
By: /s/ Frederick W. Eubank II
----------------------------------------
Name: Frederick W. Eubank II
Title: Senior Vice President
-50-
<PAGE> 56
BT INVESTMENT PARTNERS, INC.
By: /s/ Christopher Fuller
----------------------------------------
Name: Christopher Fuller
Title: Principal
BREAN MURRAY ASSOCIATES IHS L.P.
By: /s/ A. Brean Murray
----------------------------------------
Name: A. Brean Murray
Title:
/s/ Gerald Manolovici
-------------------------------------------
Gerald Manolovici
ST. PAUL VENTURE CAPITAL IV, L.L.C.
By: /s/ Everett V. Cox
----------------------------------------
Name: Everett V. Cox
Title: General Partner
/s/ Peter Karmanos, Jr.
-------------------------------------------
Peter Karmanos, Jr.
/s/ Michael B. Kaufman
-------------------------------------------
Michael B. Kaufman
/s/ Claudia Kaufman
----------------------------------------
Claudia Kaufman
Michael B. Kaufman and Michael M. Davis,
Trustees of the Michael B. Kaufman Family
Trust u/t/a dated 9/3/93
/s/ Michael B. Kaufman
-------------------------------------------
Michael B. Kaufman, Trustee
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<PAGE> 57
Michael B. Kaufman, Trustee of the Amy R.
Kaufman 1990 Trust u/t/a December 28, 1990
/s/ Michael B. Kaufman
-------------------------------------------
Michael B. Kaufman, Trustee
Michael B. Kaufman, Trustee of the Kim E.
Kaufman 1990 Trust u/t/a December 28, 1990
/s/ Michael B. Kaufman
-------------------------------------------
Michael B. Kaufman, Trustee
Pearl S. Kaufman or her successor in Trust,
as Trustee of the Michael B. Kaufman Trust
pursuant to a Trust Agreement Dated June
30, 1976
/s/ Pearl S. Kaufman
-------------------------------------------
Pearl S. Kaufman, Trustee
MOTOROLA, INC.
By: /s/ Richard D. Severns
----------------------------------------
Name: Richard D. Severns
Title:
-52-
<PAGE> 1
EXHIBIT 10.3
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES LAWS AND NEITHER THIS WARRANT, SUCH SECURITIES NOR ANY
INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS
THAT, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO THE COMPANY, IS AVAILABLE.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER DISPOSITION
(EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE AMENDED AND RESTATED STOCKHOLDERS
AGREEMENT, DATED JANUARY 24, 1997, AMONG ECLIPSYS CORPORATION, PARTNERS
HEALTHCARE SYSTEM, INC., GENERAL ATLANTIC PARTNERS 38, L.P., GENERAL ATLANTIC
PARTNERS 28, L.P., GAP COINVESTMENT PARTNERS, L.P., HARVEY J. WILSON, WILFAM
LTD., ALLTEL INFORMATION SERVICES, INC., FIRST UNION CORPORATION, BT INVESTMENT
PARTNERS, INC., BREAN MURRAY ASSOCIATES IHS L.P., GERALD MANOLOVICI, ST. PAUL
VENTURE CAPITAL IV, L.L.C. AND PETER KARMANOS, JR., A COPY OF WHICH MAY BE
INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE
TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE
TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS
AGREEMENT.
-------------------------------------
ECLIPSYS CORPORATION
-------------------------------------
WARRANT TO PURCHASE 1,124,822 SHARES OF
NON-VOTING COMMON STOCK
No. 1 January 24, 1997
This certifies that, for good and valuable consideration,
Eclipsys Corporation, a Delaware corporation (the "Company"), grants to First
Union Corporation, a North Carolina corporation (the "Warrantholder"), the right
to subscribe for and purchase from the Company, One Million One Hundred
Twenty-Four Thousand Eight Hundred Twenty-Two (1,124,822) validly issued, fully
paid and nonassessable shares (the "Warrant Shares") of Non-Voting Common Stock,
par value $.01 per share, of the Company (the "Class B Common Stock"), at a
purchase price per share of $.01 (the "Exercise Price"), at any time prior to
5:00 p.m., New York
<PAGE> 2
2
City time, on the Expiration Date, all subject to the terms, conditions and
adjustments herein set forth.
This Warrant was issued together with $30,000,000 face amount
of shares, par value $.01 per share, of Series B 8.5% Cumulative Redeemable
Preferred Stock of the Company (the "Series B Preferred Stock") pursuant to the
Preferred Stock and Warrant Purchase Agreement, dated the date hereof (the
"Stock Purchase Agreement"), among the Company, General Atlantic Partners 38,
L.P. ("GAP 38"), General Atlantic Partners 28, L.P. ("GAP 28"), GAP Coinvestment
Partners, L.P. ("GAP Coinvestment"), First Union Corporation ("FUCP"), BT
Investment Partners, Inc. ("BT"), Wilfam Ltd. ("Wilfam"), Brean Murray
Associates IHS L.P. ("Brean Murray"), Gerald Manolovici ("Manolovici"), St. Paul
Venture Capital IV, L.L.C. ("St. Paul"), Peter Karmanos, Jr. ("Karmanos") and
ALLTEL Information Services, Inc. ("Alltel") and is subject to the terms
thereof. The Warrantholder is entitled to the rights and subject to the
obligations contained in (a) the Stock Purchase Agreement, (b) the Amended and
Restated Stockholders Agreement, dated the date hereof (the "Stockholders
Agreement"), among the Company, Partners HealthCare System, Inc. ("Partners"),
GAP 38, GAP 28, GAP Coinvestment, Harvey J. Wilson ("Wilson"), Wilfam, Alltel,
FUCP, BT, Brean Murray, Manolovici, St. Paul and Karmanos and (c) the Amended
and Restated Registration Rights Agreement, dated the date hereof (the
"Registration Rights Agreement"), among the Company, Partners, GAP 38, GAP 28,
GAP Coinvestment, Wilson, Wilfam, Alltel, FUCP, BT, Brean Murray, Manolovici,
St. Paul and Karmanos, in each case relating to the Warrant and the Warrant
Shares.
1. Definitions. Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to such terms in the
Stock Purchase Agreement. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
"Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Alltel" has the meaning set forth in the recital to this
Warrant.
"Board of Directors" means the Board of Directors of the
Company.
"Business Day" means any day other than a Saturday, Sunday or
a day on which commercial banks in the State of New York are authorized by law
or required by executive order to close.
"Brean Murray" has the meaning set forth in the recital to
this Warrant.
"BT" has the meaning set forth in the recital to this Warrant.
<PAGE> 3
3
"Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation of the Company, as amended from time to time and as
in effect on the date hereof.
"Class A Common Stock" means the Common Stock, par value $.01
per share, of the Company, and any other capital stock of the Company into which
such stock is reclassified or reconstituted.
"Class B Common Stock" means the Non-Voting Common Stock, par
value $.01 per share, of the Company, and any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Common Stock" means (a) the Class A Common Stock, (b) the
Class B Common Stock, (c) any other common stock of any class or series
hereafter issued by the Company or (d) any other capital stock into which such
stock is reclassified or reconstituted.
"Commission" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.
"Company" has the meaning set forth in the recital to this
Warrant.
"Conversion Right" has the meaning set forth in Section 2.3(a)
of this Warrant.
"Current Market Price" per share shall mean, as of the date of
determination, (a) the average daily Market Price of the Common Stock for those
days during the period of thirty (30) Trading Days ending on such date, and (b)
if the Common Stock is not then listed or admitted to trading on any national
securities exchange or quoted in the over-counter market, then the Market Price
on such date.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, (or any successor statute thereto) and the rules and regulations of the
Commission promulgated thereunder.
"Exercise Form" means an Exercise Form in the form annexed
hereto as Exhibit A.
"Exercise Price" has the meaning set forth in the recital to
this Warrant.
"Expiration Date" means the first Business Day that is the
earlier to occur of (a) the tenth anniversary of the date hereof and (b) the
third anniversary of the IPO Effectiveness Date.
"Fair Market Value" means the amount which a willing buyer
would pay a willing seller in an arm's length transaction reasonably determined
in good faith by the Board of Directors or, if such determination is not
reasonably satisfactory to the Warrantholder, such
<PAGE> 4
4
determination shall be made by a nationally recognized investment banking firm
selected by the Company and the Warrantholder, the expenses for which shall be
borne equally by the Company and the Warrantholder. Any determination of the
Fair Market Value by the Board of Directors or such investment banking firm
shall be made based on a valuation of the Company as an entirety without regard
to any discount for minority interests or disparate voting rights among classes
of capital stock.
"FUCP" has the meaning set forth in the recital to this
Warrant.
"GAP Coinvestment" has the meaning set forth in the recital to
this Warrant.
"GAP 38" has the meaning set forth in the recital to this
Warrant.
"GAP 28" has the meaning set forth in the recital to this
Warrant.
"IPO Effectiveness Date" means the date upon which the Company
consummates its initial offer for sale of shares of Common Stock pursuant to an
effective registration statement filed pursuant to the Securities Act.
"Karmanos" has the meaning set forth in the recital to this
Agreement.
"Manolovici" has the meaning set forth in the recital to this
Warrant.
"Market Price" means, per share of Common Stock, as of the
date of determination, (a) the closing price per share of Common Stock on such
date published in The Wall Street Journal or, if no such closing price on such
date is published in The Wall Street Journal, the average of the closing bid and
asked prices on such date, as officially reported on the principal national
securities exchange (including, without limitation, The Nasdaq Stock Market,
Inc.) on which the Common Stock is then listed or admitted to trading; or (b) if
the Common Stock is not then listed or admitted to trading on any national
securities exchange but is designated as a national market system security by
the NASD, the last trading price of the Common Stock on such date; or (c) if
there shall have been no trading on such date or if the Common Stock is not so
designated, the average of the reported closing bid and asked prices of the
Common Stock, on such date as shown by NASDAQ and reported by any member firm of
the New York Stock Exchange selected by the Company; or (d) if none of (a), (b)
or (c) is applicable, the Fair Market Value per share.
"NASD" means the National Association of Securities Dealers,
Inc.
"NASDAQ" means the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotations System.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company,
<PAGE> 5
5
governmental authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of such entity.
"Registration Rights Agreement" has the meaning set forth in
the recital to this Warrant.
"Securities Act" means the Securities Act of 1933, as amended,
(or any successor statute thereto) and the rules and regulations of the
Commission promulgated thereunder.
"St. Paul" has the meaning set forth in the recital to this
Warrant.
"Stock Purchase Agreement" has the meaning set forth in the
recital to this Warrant.
"Stockholders Agreement" has the meaning set forth in the
recital to this Warrant.
"Trading Day" means a day on which the national securities
exchanges are open for trading.
"Warrantholder" has the meaning set forth in the recital to
this Warrant.
"Warrant Shares" has the meaning set forth in the recital to
this Warrant.
"Wilfam" has the meaning set forth in the recital to this
Warrant.
"Wilson" has the meaning set forth in the recital to this
Warrant.
<PAGE> 6
6
2. Duration and Exercise of warrant; Limitation on Exercise;
Payment of Taxes.
2.1 Duration and Exercise of Warrant.
(a) Subject to Sections 2.2 and 2.3 hereof and the
other terms and conditions set forth herein, this Warrant may be exercised, in
whole or in part, by the Warrantholder by (i) the surrender of this Warrant to
the Company, with a duly executed Exercise Form specifying the number of Warrant
Shares to be purchased, during normal business hours on any Business Day prior
to the Expiration Date and (ii) the delivery of payment to the Company, for the
account of the Company, by cash, wire transfer, certified or official bank check
or any other means approved by the Company, of the aggregate Exercise Price for
the number of Warrant Shares specified in the Exercise Form in lawful money of
the United State of America.
(b) As soon as possible, but in any event not more
than five Business Days, after the surrender of this Warrant with a duly
executed Exercise Form and, if the Conversion Right is not exercised pursuant to
Section 2.3, the payment by the Warrantholder of the aggregate Exercise Price in
accordance with the foregoing subsection (a), the Company shall deliver to the
Warrantholder a stock certificate or certificates representing the Warrant
Shares specified in the Exercise Form, together with a check for the amount of
cash (calculated in accordance with Section 7.4) to be paid by the Company to
the Warrantholder in lieu of the issuance of fractional shares, if any;
provided, however, that if a determination of a nationally recognized investment
banking firm is necessary to determine the Current Market Price pursuant to
Section 2.3(a), such delivery shall be made promptly after such determination is
made (such determination pursuant to Section 2.3(a) shall be made with
reasonable promptness but no more frequently than on a quarterly basis).
(c) The Company agrees that such Warrant Shares shall
be deemed to be issued to the Warrantholder as the record holder of such Warrant
Shares as of the close of business on the Business Day on which this Warrant
shall have been surrendered to the Company, together with the duly executed
Exercise Form, and payment of the Exercise Price made for the Warrant Shares as
aforesaid (or as provided in Section 2.3 below).
2.2 Reduction in Number of Warrant Shares.
(a) Notwithstanding anything to the contrary set
forth in this Warrant, the aggregate number of Warrant Shares for which this
Warrant may be exercised pursuant to Section 2.1 hereof shall be reduced in
accordance with Schedule 1 hereto if (i) the Company redeems $30 million face
amount of the Series B Preferred Stock in accordance with the Certificate of
Incorporation in a single redemption ("Complete Redemption"), (ii) the Company
redeems $15 million face amount of the Series B Preferred Stock in accordance
with the Certificate of Incorporation in a single redemption (a "Qualified
Initial Redemption") or (iii) the Company completes a Qualified Initial
Redemption and subsequently redeems the
<PAGE> 7
7
remaining $15 million face amount of the Series B Preferred Stock in accordance
with the Certificate of Incorporation in a single redemption (a "Qualified Final
Redemption"); provided, however, that in the event that the Company effects a
Qualified Final Redemption in the same time period set forth on Schedule 1 in
which it has effected a Qualified Initial Redemption, the Company shall be
deemed to have made a Complete Redemption, as of the date of such Qualified
Final Redemption.
(b) In the event that the Warrantholder elects to (i)
exercise the Series B Put (as defined in the Certificate of Incorporation), as
set forth in paragraph 7 of Section B of ARTICLE FOURTH of the Certificate of
Incorporation, or (ii) exercise its rights with respect to a Designated Event
(as defined in the Stock Purchase Agreement) pursuant to Section 9.2 of the
Stock Purchase Agreement, then:
(i) In the event that the Company has not
effected a Qualified Initial Redemption prior thereto, the maximum number of
Warrant Shares for which this Warrant may be exercised shall be reduced as if
the Company had effected a Complete Redemption, as of the date of the closing of
the Series B Put or the Designated Event Payment Date (as defined in the Stock
Purchase Agreement); or
(ii) In the event that the Company has effected a
Qualified Initial Redemption prior thereto, the maximum number of Warrant Shares
for which this Warrant may be exercised shall be reduced as if the company had
effected a Qualified Final Redemption, as of the date of the closing of the
Series B Put or the Designated Event Payment Date.
(c) The reductions in Warrant Shares set forth in
Schedule 1 shall be available only (i) upon redemption by the Company of the
Series B Preferred Stock in the manner contemplated by paragraph 5, paragraph 7
or paragraph 8 of Section B of ARTICLE FOURTH of the Certificate of
Incorporation and (ii) except as set forth in Section 2.2(b) above, if such
redemptions are in the specific redemption amounts set forth in Section 2.2(a).
In order to accommodate any prospective reduction in Warrant Shares, the
Warrantholder shall not, prior to January 1, 2000, exercise this Warrant as to
any Warrant Shares which may be subject to further reduction as provided in
Schedule 1.
2.3 Conversion Right.
(a) Subject to Section 2.2 hereof, in lieu of the
payment of the Exercise Price, the Warrantholder shall have the right (but not
the obligation), to require the Company to convert this Warrant, in whole or in
part, into the aggregate number of shares of Class B Common Stock (the
"Conversion Right") as provided for in this Section 2.3. Upon exercise of the
Conversion Right, the Company shall deliver to the Warrantholder (without
payment by the Warrantholder of any of the Exercise Price) in accordance with
Section 2.1 that number of shares of Class B Common Stock equal to the quotient
obtained by dividing (i) the value of the Warrant Shares issuable at the time
the Conversion Right is exercised (determined
<PAGE> 8
8
by subtracting the aggregate Exercise Price of such Warrant Shares in effect
immediately prior to the exercise of the Conversion Right from the aggregate
Current Market Price of such Warrant Shares) by (ii) the Current Market Price of
one Warrant Share immediately prior to the exercise of the Conversion Right.
(b) Subject to Section 2.2 hereof, the Conversion
Right may be exercised by the Warrantholder on any Business Day prior to the
Expiration Date by delivering this Warrant, with a duly executed Exercise Form
with the conversion section completed, to the Company, exercising the Conversion
Right and specifying the total number of Warrant Shares that the Warrantholder
shall be issued pursuant to such conversion.
2.4 Partial Exercise. If this Warrant shall have been
exercised only in part, then the Company shall, at the time of delivery of the
stock certificate or certificates pursuant to Section 2.1(b), cancel the Warrant
surrendered pursuant to Section 2.1(a) and deliver to the Warrantholder a new
Warrant evidencing the right to purchase the remaining Warrant Shares, which
Warrant shall in all other respects be identical to this Warrant; provided,
however, that due to such partial exercise, Schedule 1 hereto shall be
appropriately adjusted to recalculate the new number of Warrant Shares for which
such new Warrant is thereafter exercisable.
2.5 Payment of Taxes. The issuance of a stock certificate
or certificates for Warrant Shares shall be made without charge to the
Warrantholder for any stock transfer or other issuance tax with respect thereto
provided, however, that the Warrantholder shall be required to pay any and all
taxes that may be payable in respect of any transfer involved in the issuance
and delivery of any certificate or certificates in a name other than that of the
then Warrantholder as stated in the books of the Company.
3. Restrictions on Transfer; Restrictive Legends.
3.1 Transfer. This Warrant and the Warrant Shares may not
be, directly or indirectly, offered, sold, transferred, pledged or otherwise
disposed of, in whole or in part, (each, a "transfer") to any Person except in
accordance with the Stockholders Agreement.
3.2 Legends.
(a) Except as otherwise permitted by this Section 3,
each Warrant (and each Warrant issued in substitution for any Warrant pursuant
to Section 5), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS
WARRANT, SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE
<PAGE> 9
9
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT AND SUCH LAWS THAT, IN THE OPINION OF COUNSEL FOR THE HOLDER,
WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY,
IF AVAILABLE.
(b) Except as otherwise permitted by this Section 3,
each stock certificate representing Warrant Shares issued upon the exercise of
any Warrant and each stock certificate or certificates issued upon the transfer
of any such Warrant Shares shall be stamped or otherwise imprinted with a legend
in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS
OR PURSUANT TO A WRITTEN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
Notwithstanding the foregoing, the Warrantholder may require
the Company to issue a Warrant or a stock certificate or certificates
representing Warrant Shares, in each case without a legend, if either (i) such
Warrant or such Warrant Shares, as the case may be, have been registered for
resale under the Securities Act, (ii) the Warrantholder has delivered to the
Company an opinion of legal counsel (from a firm or in-house counsel reasonably
satisfactory to the Company) which opinion shall be addressed to the Company and
be reasonably satisfactory in form and substance to the Company's counsel, to
the effect that such registration is not required with respect to such Warrant
or such Warrant Shares, as the case may be, or (iii) such Warrant or Warrant
Shares may be sold pursuant to Rule 144 (or any successor provision then in
effect) under the Securities Act.
(c) Notwithstanding the foregoing, so long as the
transfer of each Warrant and the Warrant Shares issued upon exercise of any
Warrant is governed by the Stockholders Agreement, each Warrant (and each
Warrant issued in substitution for any Warrant pursuant to Section 5), each
stock certificate or certificates representing Warrant Shares issued upon the
exercise of any Warrant and each stock certificate or certificates issued upon
the transfer of any such Warrant Shares shall be stamped or otherwise imprinted
with a legend in substantially the following form:
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER")
<PAGE> 10
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AND VOTING OF ANY OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
RESTRICTED BY THE TERMS OF THE AMENDED AND RESTATED STOCKHOLDERS
AGREEMENT, DATED JANUARY 24, 1997, AMONG ECLIPSYS CORPORATION, PARTNERS
HEALTHCARE SYSTEM, INC., GENERAL ATLANTIC PARTNERS 38, L.P., GENERAL
ATLANTIC PARTNERS 28, L.P., GAP COINVESTMENT PARTNERS, L.P., HARVEY J.
WILSON, WILFAM LTD., ALLTEL INFORMATION SERVICES, INC., FIRST UNION
CORPORATION, BT INVESTMENT PARTNERS, INC., BREAN MURRAY ASSOCIATES IHS
L.P., GERALD MANOLOVICI, ST. PAUL VENTURE CAPITAL IV, L.L.C. AND PETER
KARMANOS, JR., A COPY OF WHICH MAY BE INSPECTED AT THE COMPANY'S
PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH
SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER
HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE STOCKHOLDER
AGREEMENT.
4. Reservation of Shares. The Company covenants and agrees as
follows:
(a) All Warrant Shares that are issued upon the
exercise of this Warrant shall, upon issuance, be validly issued, fully paid and
nonassessable, not subject to any preemptive rights, and free from all taxes,
liens, security interests, charges, and other encumbrances with respect to the
issuance thereof, other than taxes in respect of any transfer occurring
contemporaneously with such issue.
(b) During the period within which this Warrant may
be exercised, the Company shall at all times have authorized and reserved, and
keep available free from preemptive rights, a sufficient number of Warrant
Shares to provide for the exercise of the rights represented by this Warrant.
(c) The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and shall at all times in good faith assist in performing and
giving effect to the terms hereof and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Warrantholder
against dilution or other impairment.
5. Loss or Destruction of Warrant. Subject to the terms and
conditions hereof, upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, of such bond or indemnification
as the Company may reasonably require, and, in the case of such mutilation, upon
surrender and cancellation of this Warrant, the Company shall execute and
deliver to the Warrantholder a new Warrant of like tenor.
<PAGE> 11
11
6. Ownership of Warrant. The Company may deem and treat the
Person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of
transfer.
7. Certain Adjustments.
7.1 The number of Warrant Shares purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:
(a) Stock Dividends, Splits, Combinations. In the
event that the Company shall at any time or from time to time after the date of
issuance of this Warrant (i) pay a stock dividend or make a distribution on the
outstanding shares of Common Stock in capital stock, (ii) subdivide the
outstanding shares of Common Stock into a larger number of shares, (iii) combine
the outstanding shares of Common Stock into a smaller number of shares or (iv)
issue any shares of its capital stock in a reclassification of the Common Stock
(other than a reclassification for which adjustment is made under Section
7.1(c)), then, and in each such case, the number of Warrant Shares to be
delivered upon exercise of this Warrant shall be adjusted so that the
Warrantholder shall be entitled to receive the number of Warrant Shares that
such Warrantholder would have owned immediately following such action had this
Warrant been exercised immediately prior thereto, and the Exercise Price shall
be adjusted as provided below in paragraph (f). An adjustment made pursuant to
this Section 7.1(a) shall become effective retroactively (x) in the case of any
such dividend or distribution, to a date immediately following the close of
business on the record date for the determination of holders of Common Stock
entitled to receive such dividend or distribution or (y) in the case of any such
subdivision, combination or reclassification, to the close of business on the
day upon which such corporate action becomes effective.
(b) Certain Distributions. In case the Company shall
at any time or from time to time distribute to all holders of shares of its
Common Stock (including any such distribution made in connection with a merger
or consolidation in which the Company is the resulting or surviving Person and
the Common Stock is not changed or exchanged) cash, evidences of indebtedness of
the Company or another Person, securities of the Company or another Person or
other assets (including cash dividends but excluding distributions paid or made
to holders of shares of Common Stock upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company and dividends payable in
shares of Common Stock for which adjustment is made under Section 7.1(a)) or
rights or warrants to subscribe for or purchase the foregoing (excluding
distributions for which adjustment is made under Section 7.1(a)), then, and in
each such case, the number of Warrant Shares to be delivered to the
Warrantholder upon exercise of this Warrant shall be increased so that the
Warrantholder thereafter shall be entitled to receive the number of Warrant
Shares determined by multiplying the number of Warrant Shares such Warrantholder
would have been entitled to receive immediately before the record date for the
distribution of such cash, evidences of indebtedness, securities or other
assets, had the
<PAGE> 12
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Warrantholder exercised the Warrant immediately prior thereto (determined as if
the Company effected no further redemptions of Series B Preferred Stock and
making all appropriate adjustments to Schedule 1) by a fraction, the numerator
of which shall be the Current Market Price per Warrant Share immediately prior
to such record date and the denominator of which shall be the Current Market
Price per Warrant Share immediately prior to such record date minus the then
Fair Market Value of the portion of such cash, evidences of indebtedness,
securities or other assets so distributed.
(c) Reorganization. In case of (i) any capital
reorganization or reclassification or other change of outstanding shares of
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value), (ii) any merger or consolidation of
the Company with or into another Person (other than a merger or consolidation in
which the Company is the resulting or surviving Person and which does to result
in any reclassification or change of outstanding Common Stock) or (iii) any sale
of all or substantially all of the assets of the Company to another Person (any
of the foregoing (i), (ii) or (iii), a "Transaction")) in which the holders of
shares of Class B Common stock shall be entitled to receive shares of stock or
other securities, property or cash (whether such stock, other securities,
property or cash is issued or distributed by the Company or another Person) with
respect to or in exchange for Class B Common Stock, then, upon exercise of this
Warrant, the Warrantholder shall have the right to receive the kind and amount
of shares of stock, other securities, property or cash receivable upon such
Transaction by a holder of the number of shares of Class B Common Stock for
which this Warrant could have been exercised immediately prior to such
Transaction (determined as if the Company effected no further redemptions of
Series B Preferred Stock and making all appropriate adjustments to Schedule 1),
and provisions shall be made therefor in any agreement relating to such
Transaction, subject to adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 7.1.
(d) In case the Company, at any time or from time to
time, shall take any action affecting its Common Stock similar to or having an
effect similar to any of the actions described in any of Section 7.1(a), 7.1(b)
or 7.1(c), inclusive, the Board of Directors shall determine in good faith
whether it would be equitable in the circumstances to adjust the number of
Warrant Shares for which this Warrant may be exercisable (and Schedule 1 hereto)
as a result of such action and, in each such case. of the Board of Directors
determines to make such adjustment, then the number of Warrant Shares shall be
adjusted in such manner and at such time as the Board of Directors in good faith
determines would be equitable in the circumstances (such determination to be
evidenced in a resolution, a certified copy of which shall be mailed to the
Warrantholder).
(e) Carryover. Notwithstanding any other provision of
this Section 7.1, no adjustment shall be made to the number of Warrant Shares to
be delivered to the Warrantholder (or to the Exercise Price) if such adjustment
represents less than 1% of the number of Warrant Shares to be so delivered, but
any lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment that together
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13
with any adjustments so carried forward shall amount to 1% or more of the number
of Warrant Shares to be so delivered.
(f) Exercise Price Adjustment. Whenever the number of
Warrant Shares purchasable upon the exercise of the Warrant is adjusted as
provided pursuant to this Section 7.1, the Exercise Price payable upon the
exercise of this Warrant shall be adjusted by multiplying such Exercise Price
immediately prior to such adjustment by a fraction, the numerator of which shall
be the number of Warrant Shares purchasable upon the exercise of the Warrant
immediately prior to such adjustment, and the denominator of which shall be the
number of Warrant Shares purchasable immediately thereafter; provided, however,
that the Exercise Price for each Warrant Share shall in no event be less than
the par value of such Warrant Share.
7.2 No Adjustment. Except as provided in Section 7.1, no
adjustment in respect of any dividends shall be made during the term of this
Warrant or upon the exercise of this Warrant. Notwithstanding any other
provision hereof, no adjustments under this Section 7 shall be made on Warrant
Shares issuable on the exercise of this Warrant (a) upon the grant of options to
employees, consultants or directors of the Company pursuant to benefit plans
approved by the Board of Directors or (b) upon issuance of Common Stock upon the
conversion of the Series D Preferred Stock, the Series E Preferred Stock or the
Series F Preferred Stock or the exercise of this Warrant.
7.3 Notice of Adjustment. Whenever the number of Warrant
Shares or the Exercise Price of such Warrant Shares is adjusted, as herein
provided, the Company shall promptly mail by first class, postage prepaid, to
the Warrantholder, notice of such adjustment or adjustments and a certificate,
signed by the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Company, setting
forth the number of Warrant Shares and the Exercise Price of such Warrant Shares
after such adjustment, setting forth a brief statement of the facts requiring
such adjustment and setting forth the computation by which such adjustment was
made.
7.4 Fractional Shares. Notwithstanding anything to the
contrary set forth in this Warrant, no fractional shares or scrip representing
fractional shares shall be issued upon exercise of this Warrant. If the exercise
of this Warrant results in a fraction, then the Company shall make payment to
the Warrantholder, upon delivery to the Warrantholder of the stock certificate
or certificates representing the Warrant Shares specified in the Exercise Form
pursuant to Section 2.1 hereof, of an amount in cash equal to such fraction
multiplied by the Current Market Price of a share of Common Stock on the
Business Day upon which this Warrant is exercised.
8. Notices of Corporate Action. So long as this Warrant has
not been exercised in full, then in the event:
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(a) the Company shall declare a dividend (or any
other distribution) on its shares of Common Stock;
(b) the Company shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for or purchase
any shares of stock of any class or of any other rights or warrants;
(c) there shall be any reorganization or
reclassification of the Common Stock, or any merger or consolidation to which
the Company is a party and for which approval of any of the stockholders of the
Company is required, or any sale of all or substantially all of the assets of
the Company; or
(d) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company;
then the Company shall mail to the Warrantholder to its address as it appears on
the transfer books of the Company, as promptly as possible but in any event at
least ten (10) days prior to the applicable date hereinafter specified, a notice
stating (i) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants or, if a record is not to be taken,
the date as of which the holders of Common stock of record to be entitled to
such dividend, distribution or rights are to be determined, and (ii) the date or
the expected date on which such reorganization, reclassification, merger,
consolidation, sale, liquidation, dissolution or winding up is expected to
become effective. Such notice also shall specify the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their Common Stock for shares of stock or other securities or property or cash
deliverable upon such reorganization, reclassification, merger, consolidation,
sale, liquidation, dissolution or winding up.
9. Amendments. Any provision of this Warrant may be amended
and the observance thereof waived only with the written consent of the Company
and the Warrantholder.
10. Miscellaneous.
10.1 Entire Agreement. This Warrant, together with the
Stock Purchase Agreement, the Stockholders Agreement and the Registration Rights
Agreement, constitute the entire agreement between the Company and the
Warrantholder with respect to the Warrants and the Warrant Shares.
10.2 Binding Effect; Benefits. This Warrant shall inure to
the benefit of and shall be binding upon the Company and the Warrantholder and
their respective permitted successors and assign. Nothing in this Warrant,
expressed or implied, is intended to or shall confer on any person other than
the Company and the Warrantholder, or their respective
<PAGE> 15
15
permitted successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Warrant.
10.3 Section and Other Headings. The Section and other
headings contained in this Warrant are for reference purposes only and shall not
be deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
10.4 Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
telecopies, courier service, overnight mail or personal delivery:
(a) if to the Warrantholder:
First Union Corporation
One First Union Center, 5th Floor
Charlotte, North Carolina 28288-0732
Telecopy: (704) 374-6711
Attention: Mr. Frederick W. Eubank, II
with a copy to:
Kennedy Covington Lobdell & Hickman L.L.P.
100 North Tryon Street
Suite 4200
Charlotte, North Carolina 28202-4006
Telecopy: (704) 331-7598
Attention: Henry W. Flint, Esq.
(b) if to the Company:
Eclipsys Corporation
777 East Atlantic Avenue, Suite 200
Delray Beach, Florida 33483
Telecopy: (561) 243-9390
Attention: Mr. Harvey J. Wilson
with a copy to:
Goulston & Storrs
400 Atlantic Avenue
Boston, Massachusetts 02110
Telecopy: (617) 574-4112
Attention: Lester J. Fagen, Esq.
<PAGE> 16
16
All such notices and communications shall be deemed to have
ben duly given when delivered by hand, if personally delivered; when delivered
by courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is mechanically acknowledged, if
telecopied. Any party may by notice given in accordance with this Section 10.4
designate another address or Person for receipt of notices hereunder.
10.5 Severability. Any term or provision of this Warrant
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the terms and
provisions of this Warrant or affecting the validity or enforceability of any of
the terms or provisions of this Warrant in any other jurisdiction.
10.6 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
10.7 No Right or Liabilities as Stockholder. Nothing
contained in this Warrant shall be determined as conferring upon the
Warrantholder any rights as a stockholder of the Company or as imposing any
liabilities on the Warrantholder to purchase any securities whether such
liabilities are asserted by the Company or by creditors or stockholders of the
Company or otherwise.
<PAGE> 17
17
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer.
ECLIPSYS CORPORATION
By: /s/ Harvey J. Wilson
-----------------------------------
Name: Harvey J. Wilson
Title: President
<PAGE> 18
18
Exhibit A
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocable elects to exercise the
right, represented by this Warrant, to purchase ______ of the Warrant Shares and
[herewith tenders payment for such Warrant Shares to the order of Eclipsys
Corporation in the amount of $_______] [hereby exercises its Conversion Right]
in accordance with the term of this Warrant. The undersigned requests that a
certificate for [such Warrant Shares] [that number of Warrant Shares to which
the undersigned is entitled as calculated pursuant to Sections 2.2 and 2.3] be
registered in the name of the undersigned and that such certificates be
delivered to the undersigned's address below.
The undersigned represents that it is acquiring such Warrant
Shares for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times be within its control).
Dated:
------------------------
Signature
-------------------------------
-------------------------------
(Printed Name)
-------------------------------
(Street Address)
-------------------------------
(City) (State)(Zip Code)
Signed in the presence of:
- ----------------------------------
<PAGE> 19
19
SCHEDULE 1
1. Complete Redemption of $30,000,000 of Series B Preferred Stock.
<TABLE>
<CAPTION>
Maximum Exercise
Amount During
Adjusted Applicable
Redemption Amount Redemption Date Warrant Shares Redemption Period
- ----------------- --------------- -------------- -----------------
<C> <C> <C> <C>
$30 million On or before 12/31/97 431,676 431,676
$30 million 1/1/98 to 6/30/98 503,803 503,803
$30 million 7/1/98 to 12/31/98 601,771 601,771
$30 million 1/1/99 to 12/31/99 856,111 856,111
$30 million 1/1/2000 and thereafter 1,124,822 1,124,822
</TABLE>
2. Qualified Initial Redemption of $15,000,000 of Series B Preferred Stock.
a. Qualified Initial Redemption of First $15,000,000 on or before 12/31/97.
<TABLE>
<CAPTION>
Maximum
Exercise Amount
Adjusted During Applicable
Redemption Amount Redemption Date Warrant Shares Redemption Period
- ----------------- --------------- -------------- -----------------
<S> <C> <C> <C>
First $15 million On or before 12/31/97 804,131 431,676
Second $15 million 1/1/98 to 6/30/98 479,633 479,633
Second $15 million 7/1/98 to 12/31/98 552,523 552,523
Second 15 million 1/1/99 to 12/31/99 739,950 739,950
Second $15 million 1/1/2000 and thereafter 804,131 804,131
</TABLE>
b. Qualified Initial Redemption of First $15,000,000 Between 1/1/98 and
6/30/98.
<PAGE> 20
20
<TABLE>
<CAPTION>
Maximum
Exercise Amount
Adjusted During Applicable
Redemption Amount Redemption Date Warrant Shares Redemption Period
- ----------------- --------------- -------------- -----------------
<S> <C> <C> <C>
First 15 million 1/1/98 to 6/30/98 856,111 503,801
Second $15 million 7/1/98 to 12/31/98 577,082 577,082
Second $15 million 1/1/99 to 12/31/99 765,518 765,518
Second $15 million 1/1/2000 and thereafter 856,111 856,111
</TABLE>
c. Qualified Initial Redemption of First $15,000,000 Between 7/1/98 and
12/31/98.
<TABLE>
<CAPTION>
Maximum
Exercise Amount
Adjusted During Applicable
Redemption Amount Redemption Date Warrant Shares Redemption Period
----------------- --------------- -------------- -----------------
<S> <C> <C> <C>
First $15 million 7/1/98 to 12/31/98 908,666 601,771
Second $15 million 1/1/99 to 12/31/99 791,225 791,225
Second $15 million 1/1/2000 and thereafter 908,666 908,666
</TABLE>
<PAGE> 1
EXHIBIT 10.4
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES LAWS AND NEITHER THIS WARRANT, SUCH SECURITIES NOR ANY
INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS
THAT, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO THE COMPANY, IS AVAILABLE.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER DISPOSITION
(EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE AMENDED AND RESTATED STOCKHOLDERS
AGREEMENT, DATED JANUARY 24, 1997, AMONG ECLIPSYS CORPORATION, PARTNERS
HEALTHCARE SYSTEM, INC. GENERAL ATLANTIC PARTNERS 38, L.P., GENERAL ATLANTIC
PARTNERS 28, L.P., GAP COINVESTMENT PARTNERS, L.P. HARVEY J. WILSON, WILFAM
LTD., ALLTEL INFORMATION SERVICES, INC., FIRST UNION CORPORATION, BT INVESTMENT
PARTNERS, INC., BREAN MURRAY ASSOCIATES IHS L.P., GERALD MANOLOVICI, ST. PAUL
VENTURE CAPITAL IV, L.L.C. AND PETER KARMANOS, JR., A COPY OF WHICH MAY BE
INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE
TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE
TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS
AGREEMENT.
------------------------------------------
ECLIPSYS CORPORATION
------------------------------------------
WARRANT TO PURCHASE 674,893 SHARES OF
NON-VOTING COMMON STOCK
No. 2 January 24, 1997
This certifies that, for good and valuable consideration,
Eclipsys Corporation, a Delaware corporation (the "Company"), grants to BT
Investment Partners, Inc., a Delaware corporation (the "Warrantholder"), the
right to subscribe for and purchase from the Company, Six Hundred Seventy-Four
Thousand Eight Hundred Ninety-Three (674,893) validly issued, fully paid and
nonassessable shares (the "Warrant Shares") of Non-Voting Common Stock, par
value $.01 per share, of the Company (the "Class B Common Stock"), at the
purchase price per share of $.01 (the "Exercise Price"), at any time prior to
5:00 p.m., New York City time, on the Expiration Date, all subject to the terms,
conditions and adjustments herein set forth.
<PAGE> 2
This Warrant was issued together with $30,000,000 face amount
of shares, par value $.01 per share, of Series B 8.5% Cumulative Redeemable
Preferred Stock of the Company (the "Series B Preferred Stock") pursuant to the
Preferred Stock and Warrant Purchase Agreement, dated the date hereof (the
"Stock Purchase Agreement"), among the Company, General Atlantic Partners 38,
L.P. ("GAP 38"), General Atlantic Partners 28, L.P. ("GAP 28), GAP Coinvestment
Partners, L.P. ("GAP Coinvestment"), First Union Corporation ("FUCP"), BT
Investment Partners, Inc. ("BT"), Wilfam Ltd. ("Wilfam"), Brean Murray
Associates IHS L.P. ("Brean Murray"), Gerald Manolovici ("Manolovici"), St. Paul
Venture Capital IV, L.L.C. ("St. Paul"), Peter Karmanos, Jr. ("Karmanos") and
ALLTEL Information Services, Inc. ("Alltel") and is subject to the terms
thereof. The Warrantholder is entitled to the rights and subject to the
obligations contained in (a) the Stock Purchase Agreement, (b) the Amended and
Restated Stockholders Agreement, dated the date hereof (the "Stockholders
Agreement"), among the Company, Partners HealthCare System, Inc. ("Partners"),
GAP 38, GAP 28, GAP Coinvestment, Harvey J. Wilson ("Wilson"), Wilfam, Alltel,
FUCP, BT, Brean Murray, Manolovici, St. Paul and Karmanos and (c) the Amended
and Restated Registration Rights Agreement, dated the date hereof (the
"Registration Rights Agreement"), among the Company, Partners, GAP 38, GAP 28,
GAP Coinvestment, Wilson, Wilfam, Alltel, FUCP, BT, Brean Murray, Manolovici,
St. Paul and Karmanos, in each case relating to this Warrant and the Warrant
Shares.
1. Definitions. Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to such terms in the
Stock Purchase Agreement. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
"Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Alltel" has the meaning set forth in the recital to this
Warrant.
"Board of Directors" means the Board of Directors of the
Company.
"Business Day" means any day other than a Saturday, Sunday or
a day on which commercial banks in the State of New York are authorized by law
or required by executive order to close.
"Brean Murray" has the meaning set forth in the recital to
this Warrant.
"BT" has the meaning set forth in the recital to this Warrant.
"Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation of the Company, as amended from time to time and as
in effect on the date hereof.
<PAGE> 3
"Class A Common Stock" means the Common Stock, par value $.01
per share, of the Company, and any other capital stock of the Company into which
such stock is reclassified or reconstituted.
"Class B Common Stock" means the Non-Voting Common Stock, par
value $.01 per share, of the Company, and any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Common Stock" means (a) the Class A Common Stock, (b) the
Class B Common Stock, (c) any other common stock of any class or series
hereafter issued by the Company or (d) any other capital stock into which such
stock is reclassified or reconstituted.
"Commission" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.
"Company" has the meaning set forth in the recital to this
Warrant.
"Conversion Right" has the meaning set forth in Section 2.3(a)
of this Warrant.
"Current Market Price" per share shall mean, as of the date of
determination, (a) the average daily Market Price of the Common Stock for those
days during the period of thirty (30) Trading Days ending on such date, and (b)
if the Common Stock is not then listed or admitted to trading on any national
securities exchange or quoted in the over-counter market, then the Market Price
on such date.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, (or any successor statute thereto) and the rules and regulations of the
Commission promulgated thereunder.
"Exercise Form" means an Exercise Form in the form annexed
hereto as Exhibit A.
"Exercise Price" has the meaning set forth in the recital to
this Warrant.
"Expiration Date" means the first Business Day that is the
earlier to occur of (a) the tenth anniversary of the date hereof and (b) the
third anniversary of the IPO Effectiveness Date.
"Fair Market Value" means the amount which a willing buyer
would pay a willing seller in an arm's length transaction reasonably determined
in good faith by the Board of Directors or, if such determination is not
reasonably satisfactory to the Warrantholder, such determination shall be made
by a nationally recognized investment banking firm selected by the Company and
the Warrantholder, the expenses for which shall be borne equally by the Company
and the Warrantholder. Any determination of the Fair Market Value by the Board
of Directors or such investment banking firm shall be made based on a valuation
of the Company
-3-
<PAGE> 4
as an entirety without regard to any discount for minority interests or
disparate voting rights among classes of capital stock.
"FUCP" has the meaning set forth in the recital to this
Warrant.
"GAP Coinvestment" has the meaning set forth in the recital to
this Warrant.
"GAP 38" has the meaning set forth in the recital to this
Warrant.
"GAP 28" has the meaning set forth in the recital to this
Warrant.
"IPO Effectiveness Date" means the date upon which the Company
consummates its initial offer for sale of shares of Common Stock pursuant to an
effective registration statement filed pursuant to the Securities Act.
"Karmanos" has the meaning set forth in the recital to this
Agreement.
"Manolovici" has the meaning set forth in the recital to this
Warrant.
"Market Price" means, per share of Common Stock, as of the
date of determination, (a) the closing price per share of Common Stock on such
date published in The Wall Street Journal or, if no such closing price on such
date is published in The Wall Street Journal, the average of the closing bid and
asked prices on such date, as officially reported on the principal national
securities exchange (including, without limitation, The Nasdaq Stock Market,
Inc.) on which the Common Stock is then listed or admitted to trading; or (b) if
the Common Stock is not then listed or admitted to trading on any national
securities exchange but is designated as a national market system security by
the NASD, the last trading price of the Common Stock on such date; or (c) if
there shall have been no trading on such date or if the Common Stock is not so
designated, the average of the reported closing bid and asked prices of the
Common Stock, on such date as shown by NASDAQ and reported by any member firm of
the New York Stock Exchange selected by the Company; or (d) if none of (a), (b)
or (c) is applicable, the Fair Market Value per share.
"NASD" means the National Association of Securities Dealers,
Inc.
"NASDAQ" means the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotations System.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, governmental authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Registration Rights Agreement" has the meaning set forth in
the recital to this Warrant.
-4-
<PAGE> 5
"Securities Act" means the Securities Act of 1933, as amended,
(or any successor statute thereto) and the rules and regulations of the
Commission promulgated thereunder.
"St. Paul" has the meaning set forth in the recital to this
Warrant.
"Stock Purchase Agreement" has the meaning set forth in the
recital to this Warrant.
"Stockholders Agreement" has the meaning set forth in the
recital to this Warrant.
"Trading Day" means a day on which the national securities
exchanges are open for trading.
"Warrantholder" has the meaning set forth in the recital to
this Warrant.
"Warrant Shares" has the meaning set forth in the recital to
this Warrant.
"Wilfam" has the meaning set forth in the recital to this
Warrant.
"Wilson" has the meaning set forth in the recital to this
Warrant.
2. Duration and Exercise of Warrant; Limitation on Exercise;
Payment of Taxes.
2.1 Duration and Exercise of Warrant.
(a) Subject to Sections 2.2 and 2.3 hereof and the
other terms and conditions set forth herein, this Warrant may be exercised, in
whole or in part, by the Warrantholder by (i) the surrender of this Warrant to
the Company, with a duly executed Exercise Form specifying the number of Warrant
Shares to be purchased, during normal business hours on any Business Day prior
to the Expiration Date and (ii) the delivery of payment to the Company, for the
account of the Company, by cash, wire transfer, certified or official bank check
or any other means approved by the Company, of the aggregate Exercise Price for
the number of Warrant Shares specified in the Exercise Form in lawful money of
the United States of America.
(b) As soon as possible, but in any event not more
than five Business Days, after the surrender of this Warrant with a duly
executed Exercise Form and, if the Conversion Right is not exercised pursuant to
Section 2.3, the payment by the Warrantholder of the aggregate Exercise Price in
accordance with the foregoing subsection (a), the Company shall deliver to the
Warrantholder a stock certificate or certificates representing the Warrant
Shares
-5-
<PAGE> 6
specified in the Exercise Form, together with a check for the amount of cash
(calculated in accordance with Section 7.4) to be paid by the Company to the
Warrantholder in lieu of the issuance of fractional shares, if any; provided,
however, that if a determination of a nationally recognized investment banking
firm is necessary to determine the Current Market Price pursuant to Section
2.3(a), such delivery shall be made promptly after such determination is made
(such determination pursuant to Section 2.3(a) shall be made with reasonable
promptness but not more frequently than on a quarterly basis).
(c) The Company agrees that such Warrant Shares shall
be deemed to be issued to the Warrantholder as the record holder of such Warrant
Shares as of the close of business on the Business Day on which this Warrant
shall have been surrendered to the Company, together with the duly executed
Exercise Form, and payment of the Exercise Price made for the Warrant Shares as
aforesaid (or as provided in Section 2.3 below).
2.2 Reduction in Number of Warrant Shares.
(a) Notwithstanding anything to the contrary set
forth in this Warrant, the aggregate number of Warrant Shares for which this
Warrant may be exercised pursuant to Section 2.1 hereof shall be reduced in
accordance with Schedule 1 hereto if (i) the Company redeems $30 million face
amount of the Series B Preferred Stock in accordance with the Certificate of
Incorporation in a single redemption ("Complete Redemption"), (ii) the Company
redeems $15 million face amount of the Series B Preferred Stock in accordance
with the Certificate of Incorporation in a single redemption (a "Qualified
Initial Redemption") or (iii) the Company completes a Qualified Initial
Redemption and subsequently redeems the remaining $15 million face amount of the
Series B Preferred Stock in accordance with the Certificate of Incorporation in
a single redemption (a "Qualified Final Redemption"); provided, however, that in
the event that the Company effects a Qualified Final Redemption in the same time
period set forth on Schedule 1 in which it has effected a Qualified Initial
Redemption, the Company shall be deemed to have made a Complete Redemption, as
of the date of such Qualified Final Redemption.
(b) In the event that the Warrantholder elects to (i)
exercise the Series B Put (as defined in the Certificate of Incorporation), as
set forth in paragraph 7 of Section B of ARTICLE FOURTH of the Certificate of
Incorporation), or (ii) exercise its rights with respect to a Designated Event
(as defined in the Stock Purchase Agreement) pursuant to Section 9.2 of the
Stock Purchase Agreement, then:
(i) In the event that the Company has not
effected a Qualified Initial Redemption prior thereto, the maximum number of
Warrant Shares for which this Warrant may be exercised shall be reduced as if
the Company had effected a Complete Redemption, as of the date of the closing of
the Series B Put or the Designated Event Payment Date (as defined in the Stock
Purchase Agreement); or
-6-
<PAGE> 7
(ii) In the event that the Company has effected a
Qualified Initial Redemption prior thereto, the maximum number of Warrant Shares
for which this Warrant may be exercised shall be reduced as if the Company had
effected a Qualified Final Redemption, as of the date of the closing of the
Series B Put or the Designated Event Payment Date.
(c) The reductions in Warrant Shares set forth in
Schedule 1 shall be available only (i) upon redemption by the Company of the
Series B Preferred Stock in the manner contemplated by paragraph 5, paragraph 7
or paragraph 8 of Section B of ARTICLE FOURTH of the Certificate of
Incorporation and (ii) except as set forth in Section 2.2(b) above, if such
redemptions are in the specific redemption amounts set forth in Section 2.2(a).
In order to accommodate any prospective reduction in Warrant Shares, the
Warrantholder shall not, prior to January 1, 2000, exercise this Warrant as to
any Warrant Shares which may be subject to further reduction as provided in
Schedule 1.
2.3 Conversion Right.
(a) Subject to Section 2.2 hereof, in lieu of the
payment of the Exercise Price, the Warrantholder shall have the right (but not
the obligation), to require the Company to convert this Warrant, in whole or in
part, into the aggregate number of shares of Class B Common Stock (the
"Conversion Right") as provided for in this Section 2.3. Upon exercise of the
Conversion Right, the Company shall deliver to the Warrantholder (without
payment by the Warrantholder of any of the Exercise Price) in accordance with
Section 2.1 that number of shares of Class B Common Stock equal to the quotient
obtained by dividing (i) the value of the Warrant Shares issuable at the time
the Conversion Right is exercised (determined by subtracting the aggregate
Exercise Price of such Warrant Shares in effect immediately prior to the
exercise of the Conversion Right from the aggregate Current Market Price of such
Warrant Shares) by (ii) the Current Market Price of one Warrant Shares
immediately prior to the exercise of the Conversion Right.
(b) Subject to Section 2.2 hereof, the Conversion
Right may be exercised by the Warrantholder on any Business Day prior to the
Expiration Date by delivering this Warrant, with a duly executed Exercise Form
with the conversion section completed, to the Company, exercising the Conversion
Right and specifying the total number of Warrant Shares that the Warrantholder
shall be issued pursuant to such conversion.
2.4 Partial Exercise. If this Warrant shall have been
exercised only in part, then the Company shall, at the time of delivery of the
stock certificate or certificates pursuant to Section 2.1(b), cancel the Warrant
surrendered pursuant to Section 2.1(a) and deliver to the Warrantholder a new
Warrant evidencing the right to purchase the remaining Warrant Shares, which
Warrant shall in all other respects be identical to this Warrant; provided,
however, that due to such partial exercise, Schedule 1 hereto shall be
appropriately adjusted to recalculate the new number of Warrant Shares for which
such new Warrant is thereafter exercisable.
-7-
<PAGE> 8
2.5 Payment of Taxes. The issuance of a stock certificate
or certificates for Warrant Shares shall be made without charge to the
Warrantholder for any stock transfer or other issuance tax with respect thereto;
provided, however, that the Warrantholder shall be required to pay any and all
taxes that may be payable in respect of any transfer involved in the issuance
and delivery of any certificate or certificates in a name other than that of the
then Warrantholder as stated in the books of the Company.
3. Restrictions on Transfer; Restrictive Legends.
3.1 Transfer. This Warrant and the Warrant Shares may not
be, directly or indirectly, offered, sold, transferred, pledged or otherwise
disposed of, in whole or in part, (each, a "transfer") to any Person except in
accordance with the Stockholders Agreement.
3.2 Legends.
(a) Except as otherwise permitted by this Section 3,
each Warrant (and each Warrant issued in substitution for any Warrant pursuant
to Section 5), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS
WARRANT, SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED,PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS THAT, IN THE
OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO THE COMPANY, IS AVAILABLE.
(b) Except as otherwise permitted by this Section 3,
each stock certificate representing Warrant Shares issued upon the exercise of
any Warrant and each stock certificate or certificates issued upon the transfer
of any such Warrant Shares shall be stamped or otherwise imprinted with a legend
in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS
OR PURSUANT
-8-
<PAGE> 9
TO A WRITTEN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
Notwithstanding the foregoing, the Warrantholder may
require the Company to issue a Warrant or a stock certificate or certificates
representing Warrant Shares, in each case without a legend, if either (i) such
Warrant or such Warrant Shares, as the case may be, have been registered for
resale under the Securities Act, (ii) the Warrantholder has delivered to the
Company an opinion of legal counsel (from a firm or in-house counsel reasonably
satisfactory to the Company) which opinion shall be addressed to the Company and
be reasonably satisfactory in form and substance to the Company's counsel, to
the effect that such registration is not required with respect to such Warrant
or such Warrant Shares, as the case may be, or (iii) such Warrant or Warrant
Shares may be sold pursuant to Rule 144 (or any successor provision then in
effect) under the Securities Act.
(c) Notwithstanding the foregoing, so long as the
transfer of each Warrant and the Warrant Shares issued upon exercise of any
Warrant is governed by the Stockholders Agreement, each Warrant (and each
Warrant issued in substitution for any Warrant pursuant to Section 5), each
stock certificate or certificates representing Warrant Shares issued upon the
exercise of any Warrant and each stock certificate or certificates issued upon
the transfer of any such Warrant Shares shall be stamped or otherwise imprinted
with a legend in substantially the following form:
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, DATED JANUARY 24, 1997,
AMONG ECLIPSYS CORPORATION, PARTNERS HEALTHCARE SYSTEM, INC., GENERAL
ATLANTIC PARTNERS 38, L.P., GENERAL ATLANTIC PARTNERS 28, L.P., GAP
COINVESTMENT PARTNERS, L.P. HARVEY J. WILSON, WILFAM LTD., ALLTEL
INFORMATION SERVICES, INC., FIRST UNION CORPORATION, BT INVESTMENT
PARTNERS, INC., BREAN MURRAY ASSOCIATES IHS L.P., GERALD MANOLOVICI,
ST. PAUL VENTURE CAPITAL IV, L.L.C. AND PETER KARMANOS, JR., A COPY OF
WHICH MAY BE INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE. THE COMPANY
WILL NOT REGISTER THE TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE
COMPANY UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH
THE TERMS OF THE STOCKHOLDERS AGREEMENT.
4. Reservation of Shares. The Company covenants and agrees as
follows:
(a) All Warrant shares that are issued upon the
exercise of this
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<PAGE> 10
Warrant shall, upon issuance, be validly issued, fully paid and nonassessable,
not subject to any preemptive rights, and free from all taxes, liens, security
interests, charges, and other encumbrances with respect to the issuance thereof,
other than taxes in respect of any transfer occurring contemporaneously with
such issue.
(b) During the period within which this Warrant may
be exercised, the Company shall at all times have authorized and reserved, and
keep available free from preemptive rights, a sufficient number of Warrant
Shares to provide for the exercise of the rights represented by this Warrant.
(c) The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and shall at all times in good faith assist in performing and
giving effect to the terms hereof and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Warrantholder
against dilution or other impairment.
5. Loss or Destruction of Warrant. Subject to the terms and
conditions hereof, upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, of such bond or indemnification
as the Company may reasonably require, and, in the case of such mutilation, upon
surrender and cancellation of this Warrant, the Company shall execute and
deliver to the Warrantholder a new Warrant of like tenor.
6. Ownership of Warrant. The Company may deem and treat the
Person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of
transfer.
7. Certain Adjustments.
7.1 The number of Warrant Shares purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:
(a) Stock Dividends, Splits, Combinations. In the
event that the Company shall at any time or from time to time after the date of
issuance of this Warrant (i) pay a stock dividend or make a distribution on the
outstanding shares of Common Stock in capital stock, (ii) subdivide the
outstanding shares of Common Stock into a larger number of shares, (iii) combine
the outstanding shares of Common Stock into a smaller number of shares or (iv)
issue any shares of its capital stock in a reclassification of the Common Stock
(other than a reclassification for which adjustment is made under Section
7.1(c)), then, and in each such case, the number of Warrant Shares to be
delivered upon exercise of this Warrant shall be adjusted so
-10-
<PAGE> 11
that the Warrantholder shall be entitled to receive the number of Warrant Shares
that such Warrantholder would have owned immediately following such action had
this Warrant been exercised immediately prior thereto, and the Exercise Price
shall be adjusted as provided below in paragraph (f). An adjustment made
pursuant to this Section 7.1(a) shall become effective retroactively (x) in the
case of any such dividend or distribution, to a date immediately following the
close of business on the record date for the determination of holders of Common
Stock entitled to receive such dividend or distribution or (y) in the case of
any such subdivision, combination or reclassification, to the close of business
on the day upon which such corporate action becomes effective.
(b) Certain Distributions. In case the Company shall
at any time or from time to time distribute to all holders of shares of its
Common Stock (including any such distribution made in connection with a merger
or consolidation in which the Company is the resulting or surviving Person and
the Common Stock is not changed or exchanged) cash, evidences of indebtedness of
the Company or another Person, securities of the Company or another Person or
other assets (including cash dividends but excluding distributions paid or made
to holders of shares of Common Stock upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company and dividends payable in
shares of Common Stock for which adjustment is made under Section 7.1(a)) or
rights or warrants to subscribe for or purchase the foregoing (excluding
distributions for which adjustment is made under Section 7.1(a)), then, and in
each such case, the number of Warrant Shares to be delivered to the
Warrantholder upon exercise of this Warrant shall be increased so that the
Warrantholder thereafter shall be entitled to receive the number of Warrant
Shares determined by multiplying the number of Warrant Shares such Warrantholder
would have been entitled to receive immediately before the record date for the
distribution of such cash, evidences of indebtedness, securities or other
assets, had the Warrantholder exercised the Warrant immediately prior thereto
(determined as if the Company effected no further redemptions of Series B
Preferred Stock and making all appropriate adjustments to Schedule 1) by a
fraction, the numerator of which shall be the Current Market Price per Warrant
Share immediately prior to such record date and the denominator of which shall
be the Current Market Price per Warrant Share immediately prior to such record
date minus the then Fair Market Value of the portion of such cash, evidences of
indebtedness, securities or other assets so distributed.
(c) Reorganization. In case of (i) any capital
reorganization or reclassification or other change of outstanding shares of
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value), (ii) any merger or consolidation of
the Company with or into another Person (other than a merger or consolidation in
which the Company is the resulting or surviving Person and which does not result
in any reclassification or change of outstanding Common Stock) or (iii) any sale
of all or substantially all of the assets of the Company to another Person (any
of the foregoing (i), (ii) or (iii), a "Transaction") in which the holders of
shares of Class B Common Stock shall be entitled to receive shares of stock or
other securities, property or cash (whether such stock, other securities,
property or cash is issued or distributed by the Company or another Person) with
respect to or in exchange for Class B Common Stock, then, upon exercise of this
Warrant, the Warrantholder
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<PAGE> 12
shall have the right to receive the kind and amount of shares of stock, other
securities, property or cash receivable upon such Transaction by a holder of the
number of shares of Class B Common Stock for which this Warrant could have been
exercised immediately prior to such Transaction (determined as if the Company
effected no further redemptions of Series B Preferred Stock and making all
appropriate adjustments to Schedule 1), and provision shall be made therefor in
any agreement relating to such Transaction, subject to adjustments that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 7.1.
(d) In case the Company, at any time or from time to
time, shall take any action affecting its Common Stock similar to or having an
effect similar to any of the actions described in any of Section 7.1(a), 7.1(b)
or 7.1(c), inclusive, the Board of Directors shall determine in good faith
whether it would be equitable in the circumstances to adjust the number of
Warrant Shares for which this Warrant may be exercisable (and Schedule 1 hereto)
as a result of such action and, in the number of Warrant Shares shall be
adjusted in such manner and at such time as the Board of Directors in good faith
determines would be equitable in the circumstances (such determination to
evidenced in a resolution, a certified copy of which shall be mailed to the
Warrantholder).
(e) Carryover. Notwithstanding any other provision of
this Section 7.1, no adjustment shall be made to the number of Warrant Shares to
be delivered to the Warrantholder (or to the Exercise Price) if such adjustment
represents less than 1% of the number of Warrant Shares to be so delivered, but
any lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment that together with any adjustments
so carried forward shall amount to 1% or more of the number of Warrant Shares to
be so delivered.
(f) Exercise Price Adjustment. Whenever the number of
Warrant Shares purchasable upon the exercise of the Warrant is adjusted as
provided pursuant to this Section 7.1, the Exercise Price payable upon the
exercise of this Warrant shall be adjusted by multiplying such Exercise Price
immediately prior to such adjustment by a fraction, the numerator of which shall
be the number of Warrant Shares purchasable upon the exercise of the Warrant
immediately prior to such adjustment, and the denominator of which shall be the
number of Warrant Shares purchasable immediately thereafter; provided, however,
that the Exercise Price for each Warrant Share shall in no event be less than
the par value of such Warrant Share.
7.2 No Adjustment. Except as provided in Section 7.1, no
adjustment in respect of any dividends shall be made during the term of this
Warrant or upon the exercise of this Warrant. Notwithstanding any other
provision hereof, no adjustments under this Section 7 shall be made on Warrant
Shares issuable on the exercise of this Warrant (a) upon the grant of options to
employees, consultants or directors of the Company pursuant to benefit plans
approved by the Board of Directors or (b) upon any issuance of Common Stock upon
the conversion of the Series D Preferred Stock, the Series E Preferred Stock or
the Series F Preferred
-12-
<PAGE> 13
Stock or the exercise of this Warrant.
7.3 Notice of Adjustment. Whenever the number of Warrant
Shares or the Exercise Price of such Warrant Shares is adjusted, as herein
provided, the Company shall promptly mail by first class, postage prepaid, to
the Warrant-holder, notice of such adjustment or adjustments and a certificate,
signed by the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company,
setting forth the number of Warrant Shares and the Exercise Price of such
Warrant Shares after such adjustment, setting forth a brief statement of the
facts requiring such adjustment and setting forth the computation by which such
adjustment was made.
7.4 Fractional Shares. Notwithstanding anything to the
contrary set forth in this Warrant, no fractional shares or scrip representing
fractional shares shall be issued upon exercise of this Warrant. If the exercise
of this Warrant results in a fraction, then the Company shall make payment to
the Warrantholder, upon delivery to the Warrantholder of the stock certificate
or certificates representing the Warrant Shares specified in the Exercise Form
pursuant to Section 2.1 hereof, of an amount in cash equal to such fraction
multiplied by the Current Market Price of a share of Common Stock on the
Business Day upon which this Warrant is exercised.
8. Notices of Corporation Action. So long as this Warrant has
not been exercised in full, then in the event:
(a) the Company shall declare a dividend (or any other
distribution) on its shares of Common Stock;
(b) the Company shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for or purchase
any shares of stock of any class or of any other rights or warrants;
(c) there shall be any reorganization or reclassification
of the Common Stock, or any merger or consolidation to which the Company is a
party and for which approval of any of the stockholders of the Company is
required, or any sale of all or substantially all of the assets of the Company;
or
(d) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company;
then the Company shall mail to the Warrantholder to its address as it appears on
the transfer books of the Company, as promptly as possible but in any event at
least ten (10) days prior to the applicable date hereinafter specified, a notice
stating (i) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution or rights are to be determined, and (ii) the date or
the expected date on
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<PAGE> 14
which such reorganization, reclassification, merger, consolidation, sale,
liquidation, dissolution or winding up is expected to become effective. Such
notice also shall specify the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their Common Stock for
shares of stock or other securities or property or cash deliverable upon such
reorganization, reclassification, merger, consolidation, sale, liquidation,
dissolution or winding up.
9. Amendments. Any provision of this Warrant may be amended
and the observance thereof waived only with the written consent of the Company
and the Warrantholder.
10. Miscellaneous.
10.1 Entire Agreement. This Warrant, together with the
Stock Purchase Agreement, the Stockholders Agreement and the Registration Rights
Agreement, constitute the entire agreement between the Company and the
Warrantholder with respect to the Warrants and the Warrant Shares.
10.2 Binding Effect; Benefits. This Warrant shall inure
to the benefit of and shall be binding upon the Company and the Warrantholder
and their respective permitted successors and assigns. Nothing in this Warrant,
expressed or implied, is intended to or shall confer on any person other than
the Company and the Warrantholder, or their respective permitted successors or
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Warrant.
10.3 Section and Other Headings. The section and other
headings contained in this Warrant are for reference purposes only and shall not
be deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
10.4 Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
telecopier, courier service, overnight mail or personal delivery:
(a) If to the Warrantholder:
BT Investment Partners, Inc.
130 Liberty Street
New York, New York 10006
Telecopy: (212) 250-7651
Attention: Mr. Joseph Wood
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<PAGE> 15
with a copy to:
Eaton & Van Winkle
600 Third Avenue
New York, New York 10016
Telecopy: (212) 661-5077
Attention: John W. Kaufmann, Esq.
(b) if to the Company:
Eclipsys Corporation
777 East Atlantic Avenue, Suite 200
Delray Beach, Florida 33483
Telecopy: (561) 243-9390
Attention: Mr. Harvey J. Wilson
with a copy to:
Goulston & Storrs
400 Atlantic Avenue
Boston, Massachusetts 02110
Telecopy: (617) 574-4112
Attention: Lester J. Fagen, Esq.
All such notices and communications shall be deemed to have
been duly given when delivered by hand, if personally delivered; when delivered
by courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is mechanically acknowledged, if
telecopied. Any party may by notice given in accordance with this Section 10.4
designate another address or Person for receipt of notices hereunder.
10.5 Severability. Any term or provision of this Warrant
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the terms and
provisions of this Warrant or affecting the validity or enforceability of any of
the terms or provisions of this Warrant in any other jurisdiction.
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<PAGE> 16
10.6 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
10.7 No Rights or Liabilities as Stockholder. Nothing
contained in this Warrant shall be determined as conferring upon the
Warrantholder any rights as a stockholder of the Company or as imposing any
liabilities on the Warrantholder to purchase any securities whether such
liabilities are asserted by the Company or by creditors or stockholders of the
Company or otherwise.
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<PAGE> 17
IN WITNESS WHEREOF, the Company has caused this
Warrant to be signed by its duly authorized officer.
ECLIPSYS CORPORATION
By: /s/ Harvey J. Wilson
----------------------------------
Name: Harvey J. Wilson
Title: President
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<PAGE> 18
EXHIBIT A
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant, to purchase ____________ of the Warrant
Shares and [herewith tenders payment for such Warrant Shares to the order of
Eclipsys Corporation in the amount of $_____________] [hereby exercises its
Conversion Right] in accordance with the terms of this Warrant. The undersigned
requests that a certificate for [such Warrant Shares] [that number of Warrant
Shares to which the undersigned is entitled as calculated pursuant to Sections
2.2 and 2.3] be registered in the name of the undersigned and that such
certificates be delivered to the undersigned's address below.
The undersigned represents that it is acquiring such Warrant Shares for
its own account for investment and not with a view to or for sale in connection
with any distribution thereof (subject, however, to any requirement of law that
the disposition thereof shall at all times be within its control).
Dated:
----------------------------
Signature
-------------------------------
-------------------------------
(Print Name)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- ----------------------------------
<PAGE> 19
SCHEDULE 1
1. Complete Redemption of $30,000,000 of Series B Preferred Stock.
<TABLE>
<CAPTION>
Maximum
Exercise Amount
Adjusted During Applicable
Redemption Amount Redemption Date Warrant Shares Redemption Period
- ----------------- --------------- -------------- -----------------
<S> <C> <C> <C>
$30 million On or before 12/31/97 259,005 259,005
$30 million 1/1/98 to 6/30/98 302,281 302,281
$30 million 7/1/98 to 12/31/98 361,062 361,062
$30 million 1/1/99 to 12/31/99 513,667 513,667
$30 million 1/1/2000 and thereafter 674,893 674,893
</TABLE>
2. Qualified Initial Redemption of $15,000,000 of Series B Preferred Stock.
a. Qualified Initial Redemption of First $15,000,000 on or before 12/31/97.
<TABLE>
<CAPTION>
Maximum
Exercise Amount
Adjusted During Applicable
Redemption Amount Redemption Date Warrant Shares Redemption Period
- ----------------- --------------- -------------- -----------------
<S> <C> <C> <C>
First $15 million On or before 12/31/97 482,479 259,005
Second $15 million 1/1/98 to 6/30/98 287,780 287,780
Second $15 million 7/1/98 to 12/31/98 331,518 331,518
Second $15 million 1/1/99 to 12/31/99 443,970 443,970
Second $15 million 1/1/2000 and thereafter 482,479 482,479
</TABLE>
<PAGE> 20
b. Qualified Initial Redemption of First $15,000,000 Between 1/1/98 and
6/30/98.
<TABLE>
<CAPTION>
Maximum
Exercise Amount
Adjusted During Applicable
Redemption Amount Redemption Date Warrant Shares Redemption Period
- ----------------- --------------- -------------- -----------------
<S> <C> <C> <C>
First $15 million 1/1/98 to 6/30/98 513,667 302,281
Second $15 million 7/1/98 to 12/31/98 346,250 346,250
Second $15 million 1/1/99 to 12/31/99 459,310 459,310
Second $15 million 1/1/2000 and thereafter 513,667 513,667
</TABLE>
c. Qualified Initial Redemption of First $15,000,000 Between 7/1/98 and
12/31/98.
<TABLE>
<CAPTION>
Maximum
Exercise Amount
Adjusted During Applicable
Redemption Amount Redemption Date Warrant Shares Redemption Period
- ----------------- --------------- -------------- -----------------
<S> <C> <C> <C>
First $15 million 7/1/98 to 12/31/98 545,199 361,062
Second $15 million 1/1/90 to 12/31/99 474,735 474,735
Second $15 million 1/1/2000 and thereafter 545,199 545,199
</TABLE>
<PAGE> 1
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
EXHIBIT 10.5
INFORMATION SYSTEMS TECHNOLOGY LICENSE
This Agreement is made as of the 3rd day of May, 1996 (the "Effective
Date"), by and among Partners HealthCare System, Inc., a Massachusetts
not-for-profit corporation ("Partners"), Brigham and Women's Hospital, Inc., a
Massachusetts not-for-profit corporation. ("Brigham"; Partners and Brigham are
referred to herein collectively as the "Licensors" and individually as a
"Licensor"), and Integrated Healthcare Solutions, Inc., a Delaware corporation
("IHS" or "Licensee").
FACTUAL BACKGROUND
The following sets forth the factual background to this Agreement:
a. Brigham, which is controlled by Partners through Brigham's
parent corporation, The Brigham Medical Center, Inc., has developed or
has plans to develop certain clinical information systems technology,
referred to herein as the Licensed Technology, for use in Brigham's own
internal operations.
b. IHS desires to license from Licensors the Licensed
Technology for the purpose of further developing the Licensed
Technology, and then licensing the Licensed Technology, and selling
related services, to hospitals and other healthcare providers.
c. In consideration for Licensors entering into this Agreement
and licensing to IHS the Licensed Technology upon the terms and
conditions hereinafter set forth, IHS has agreed to issue to Partners
capital stock in IHS, and to make certain royalty payments to Partners,
all on the terms and conditions hereinafter set forth.
<PAGE> 2
AGREEMENT
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
TERMS AND CONDITIONS
1. Definitions.
The following capitalized terms used in this Agreement shall have the
following meanings:
"Affiliate" of a party means any corporation, partnership, joint
venture, business trust, limited liability company or other legal entity which
is controlled by, controlling or under common control with such party, where
control means either (i) the power to direct the vote or disposition of at least
20% of the outstanding stock, partnership interests, membership interests or
other interests of such entity, (ii) the power to appoint a majority of the
Board or other governing body of such entity, or (iii) any contract or
arrangement for the provision of substantial management services to such entity.
The term also includes an Affiliate, under this definition, of any such entity.
Without limiting the foregoing, Affiliates of Licensors shall include the
General, Dana Farber and PCHI.
"Common Stock" means the Common Stock, $.01 par value, of IHS.
"Covered Infringement Persons" means such parties as are stipulated in
a separate side letter dated as of the date hereof among Licensors and Licensee.
"Dana Farber" means the Dana-Farber Cancer institute, Inc., a
Massachusetts not-for-profit corporation.
"Derivative Work" means (i) a work that is based on one or more
preexisting works, such as a revision, modification, translation, abridgment,
condensation or expansion, or any other form in which such preexisting works may
be recast, transformed, or adapted, and that, if prepared without authorization
of the owner of the copyright in such preexisting work, would constitute a
copyright infringement, and (ii) any enhancement, fix or upgrade to a
preexisting work.
"Developed Technology" shall have the meaning ascribed to that term in
the Partners' Affiliates Assistance Agreement.
"Employment Agreement" means that certain Employment Agreement between
IHS and Wilson dated as of May 1, 1996.
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<PAGE> 3
"Excluded Software" means all of the software modules and Software
Technology used in conjunction with the Licensed Technology that have been or
may hereafter be developed for either of the Licensors by a third party, and
which the Licensors do not have the right to license to IHS in accordance with
the terms of this License, and which include as of the date of this Agreement
the software referenced on Exhibit B attached hereto.
"Future IS Technology" means all of Licensor's right, title and
interest in and to the following software, including, without limitation, all
Object Code and Source Code related thereto, if any:
(i) all software modules and Software Technology
developed by or on behalf of Licensors (not including Licensee
Derivative Works) that fulfill any of the functions described on
Exhibit C attached hereto; and
(ii) all Derivative Works developed by or on behalf
of Licensors (not including Licensee Derivative Works) to such software
modules and Software Technology to IS Technology;
but only to the extent such software is developed by or on behalf of Licensors
prior to the later of (A) the date which is three (3) years from the Effective
Date, or (B) the date of IHS' initial public offering, but if such offering does
not occur prior to five (5) years from the Effective Date, the date which is
five (5) years from the Effective Date; and provided further that Future IS
Technology does not include any Excluded Software.
"General" means, collectively, The General Hospital Corporation, a
Massachusetts non-profit corporation, and The Massachusetts General Hospital, a
Massachusetts nonprofit corporation.
"IHN" means integrated health network technologies.
"IS" means information systems technologies.
"IS Technology" means all of Licensors' right, title and interest in
and to the IS software modules and Software Technology described on Exhibit A
attached hereto, including without limitation, Object Code and Source Code
related thereto, if any; provided, however, that IS Technology does not include
any Excluded Software.
"Indemnitees" has the meaning set forth in Section 12 of this
Agreement.
"License" has the meaning ascribed to that term in Section 2.A of this
Agreement.
"Licensed Technology" means the IS Technology, the Future IS Technology
and the Developed Technology.
-3-
<PAGE> 4
"Licensee Derivative Work" means a Derivative Work based upon Licensed
Technology prepared by or on behalf of Licensee.
"Licensors" mean Partners and Brigham, collectively.
"New Product" has the meaning set forth in Section 4.B of this
Agreement.
"Object Code" means programs assembled or compiled in magnetic or
electronic binary form on software media, which are readable and usable by
machines, but not generally readable by humans without reverse assembly, reverse
compiling, or reverse engineering.
"Partners 'Affiliates Assistance Agreement" means that certain
Partners' Affiliates Assistance Agreement, dated as the date hereof, by and
among IHS, Partners and its Affiliates pursuant to which IHS will provide
certain information systems services for Partners and its Affiliates, as
described therein.
"PCHI" means Partners Community Healthcare, Inc. a Massachusetts
corporation.
"Proprietary Information" shall consist of any information that is
designated as proprietary by a party hereto. Proprietary information may be
disclosed in any manner, whether orally, visually, or in tangible form
(including, without limitation, documents, devices, and computer readable
media). Tangible materials that disclose or embody Proprietary Information shall
be marked as "Proprietary," "Confidential," or the substantial equivalent
thereof, in order to be treated as Proprietary Information. Proprietary
Information that is disclosed orally or visually shall be identified by the
disclosing party thereof at the time of disclosure and reduced to a written
summary by the disclosing party who shall mark such summary as "Proprietary,"
"Confidential," or the substantial equivalent thereof and deliver it to the
receiving party by the end of the month following the month in which disclosure
occurs. The recipient of such information shall treat it as Proprietary
Information pending receipt of such summary. Notwithstanding and in addition to
the foregoing, all of the following information of Licensors or Licensee shall
be Proprietary Information: any and all trade secrets and confidential business
information regarding research and development activities; finances, business
strategy, business plans, marketing plans and strategies; pricing and costing
policies; prototypes, technical procedures and processes; technical
specifications, Source Code, software designs and architecture drawings to any
software licensed hereunder.
"Registration Rights Agreement" means that certain Registration Rights
Agreement, dated as of the date hereof, by and among Partners, Licensee, Wilson,
an affiliate of Wilson and certain other parties named therein.
"Required Future IS Technology" means all of the Future IS Technology
that is denoted as required technology on Exhibit C attached hereto.
"Restricted Territory" means anywhere in Massachusetts east of US
Interstate 495.
-4-
<PAGE> 5
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
"Royalty Milestones" means aggregate royalty payments by Licensee
pursuant to Section 5 hereof, based upon actual sales and service revenues,
sufficient to meet the following aggregate payment milestones by the following
dates:
[*] anniversary of this Agreement $ [*]
[*] anniversary of this Agreement $ [*].
"Software Technology" with respect to any software modules means
systems and utilities software (including without limitation middleware) used in
or necessary the operation or running of such software modules and any and all
rules and algorithms embodied in any such software modules or systems and
utilities software.
"Source Code" means programs written in programming languages,
including all comments and procedural code, such as job control language
statements, in a form intelligible to trained programmers and capable of being
translated into Object Code for operation on computer equipment through assembly
or compiling, and accompanied by documentation (which may include flow charts,
schematics, statements of principles of operations, and architecture standards)
describing the data flows, data structures, and control logic of the software in
sufficient detail to enable a trained programmer through study of such
documentation to maintain and/or modify the software.
"Stockholders Agreement" means that certain Stockholders Agreement,
dated as of the date hereof, by and among Partners, Licensee, Wilson, certain
affiliates of Wilson and certain other parties named therein.
"Technical Services Agreement" means that certain Technical Services
Agreement, by and among the parties hereto, dated as of the date hereof.
"Wilson" means Harvey J. Wilson, the principal stockholder of IHS as of
the date of this Agreement.
2. General Terms.
a. License Grant. Subject to the terms and conditions of this
Agreement (including without limitation Section 2.C and Section 7), Licensors
hereby grant to IHS, and IHS accepts, a worldwide, exclusive, irrevocable,
license to use, exploit and otherwise commercialize (the "License") the Licensed
Technology, including without limitation the following rights: (i) to prepare
Licensee Derivative Works, (ii) to directly or indirectly develop, manufacture,
market, distribute, demonstrate, maintain and support products based in whole or
in part on the Licensed Technology, (iii) to make copies of the Licensed
Technology, and (iv) to sublicense the Licensed Technology. Notwithstanding
anything contained herein to the contrary, the License does not grant, or
purport to grant, to IHS any rights in and to the Excluded Software.
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<PAGE> 6
b. Certain Restrictions. In addition to the other terms and
conditions of this Agreement, and notwithstanding anything herein to the
contrary, the License shall be subject to the following restrictions:
(i) Licensee shall not sell, license, assign or
otherwise transfer any Licensed Technology licensed hereunder
to any party located in, or otherwise for use in, the
Restricted Territory without the prior written consent of
Partners.
(ii) Licensee shall not sell, sublicense, assign or
transfer Licensed Technology to any party who has the right in
turn to sell, sublicense, assign or transfer such Licensed
Technology, unless such party shall agree in writing to the
territorial restriction set forth in the foregoing Section
2.B.(i).
(iii) Licensors shall continue to have the
unrestricted irrevocable right to use the Licensed Technology
in their internal operations and the internal operations of
any and all of their Affiliates for any and all purposes, and
shall be entitled to grant internal use Object Code licenses
in and to the Licensed Technology to (x) any
physician-controlled entity that provides professional
services to PCHI pursuant to a professional services agreement
or affiliation agreement, and (y) any person or entity
(whether or not an Affiliate) that is connected to, or has the
right to connect to or otherwise access, any network using or
running the Licensed Technology that is operated or maintained
by either of the Licensors or any of their Affiliates, but
only if such person or entity is connecting to or accessing
such network for the primary purpose of (A) sharing
information in the database of either of the Licensors or any
of their Affiliates, (B) sharing information useful in or
necessary to the care, treatment or insuring of patients or
prospective patients (including without limitation so-called
"covered lives") that are common to both such person or entity
and either of the Licensors or any of their Affiliates, and/or
(C) providing systems management services to physician groups
or other healthcare providers associated with either of the
Licensors or any of their Affiliates.
c. Conversion to Non-Exclusive License. In the event that IHS
does not pay royalties (based upon actual revenues) hereunder sufficient to meet
either of the Royalty Milestones, or IHS or Wilson does not otherwise pay an
amount sufficient to meet such Royalty Milestones, then subject to the next
sentence hereof Partners may at its election and upon thirty (30) days prior
written notice convert the License to a non-exclusive license, in which event
Licensors shall have completely unrestricted rights to the Licensed Technology
for all purposes (including without limitation the right to use any and all
means to exploit and commercialize the Licensed Technology), subject only to
Section 19 hereof and Licensee's non-exclusive rights hereunder. If Partners
exercises such conversion right hereunder, it shall, as a condition to such
exercise, simultaneously transfer to IHS 370,609 shares of Common Stock,
adjusted for stock dividends, stock splits, combinations and the like, of IHS
owned by it, or its Affiliates, by
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delivering to IHS prior to the effective date of the conversion of the License
to a non-exclusive License stock certificates representing such shares, duly
endorsed for transfer to IHS.
d. New Technologies. Each Licensor hereby agrees that if it
develops, or has developed for it, additional IS modules and IHN modules
(collectively, "New Modules") that are not included in the Licensed Technology,
but that may be used in conjunction therewith, it will not license or offer to
license such New Modules to any party before offering IHS an exclusive license
to such New Modules for such consideration and on such other terms and
conditions as such Licensor may deem appropriate.
Such Licensor shall make such offer to Licensee in writing pursuant to
a notice (the "Offer Notice") which sets forth the terms of such proposed
license in reasonable detail. If Licensee desires to license such New Modules,
it shall notify such Licensor in writing of such desire within fourteen (14)
days of receipt of the Offer Notice. Licensor and Licensee shall then negotiate
in good faith with respect to entering into a definitive license agreement with
respect to such New Modules.
In the event that IHS and such Licensor, after such good faith
negotiation, are unable to negotiate a mutually acceptable license to such New
Modules within 120 days after the date of the Offer Notice, such Licensor may
offer to license the New Modules to a third party, but on terms and conditions
not more favorable than those offered to IHS in the Offer Notice.
Notwithstanding the foregoing, in the event that any third party has developed
any of the New Modules for a Licensor, and such Licensor does not have the
unrestricted right, title and interest in and to such New Modules, the
provisions of this Section 2.D shall not apply to the extent that they would
conflict with any such third party rights in and to the New Modules.
e. No Transfer of Title. The rights and licenses herein
granted by Licensors to Licensee do not transfer to Licensee any title in and to
the Licensed Technology (including, without limitation, title to any and all
applicable patents, copyrights, trademarks and trade secrets), and all right,
title and interest therein, except for such licenses otherwise explicitly
granted pursuant to this Agreement, are retained by Licensors or third parties
that have provided Licensed Technology to Licensors, as the case may be.
Licensee shall include on copies of Licensed Technology such copyright, patent,
trademark or other proprietary notices as may be required by third parties who
have provided Licensed Technology, and as otherwise may be necessary to protect
both Licensors' and IHS' rights therein.
f. Licensors' Third Party Negotiations. If and when Licensors
are entering into any contracts or arrangements for the development of any New
Modules or technology which would be Future IS Technology (but for the fact that
it would constitute Excluded Software), Licensors shall also request that they
be entitled to license to IHS the rights to such technology or New Modules, as
the case may be, as are provided for in this Agreement. If such third party
requires payment of any additional amounts in order to permit Licensors to grant
such rights to IHS, Licensors shall notify IHS of such requirement, and IHS may
at its election,
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<PAGE> 8
exercised promptly after receiving such notice, elect to pay such amounts, in
which event Licensors or IHS shall negotiate in good faith with such third party
to obtain such rights for IHS.
g. IHS' Third Party Licenses. IHS agrees that each and every
license or other agreement pursuant to which IHS transfers, assigns, provides or
licenses Licensed Technology to any third party shall include a provision
pursuant to which such third party shall (i) covenant not to sue or institute
any action or otherwise make a claim against Licensors or their Affiliates on
account of or related to IHS' provision of products or services, with sole
recourse being against IHS, and (ii) agree that Licensors and their Affiliates
shall be entitled to rely upon such covenant as intended beneficiaries.
Licensors and their Affiliates need not be mentioned by name in any such
provision as long as they are included in a class description, such as
"hospitals and their affiliates that have licensed software to IHS", or other
similar description in such provision.
h. Title Transfer. If at the time Licensee is contemplating an
initial public offering Licensee's Board of Directors reasonably determines that
transfer to Licensee of title in and to the Licensed Technology will have a
material beneficial effect on the valuation of the company at the time of the
initial public offering, then Licensors and Licensee shall use commercially
reasonable efforts to negotiate and agree upon mutually acceptable terms to
transfer to Licensee title to or other ownership interest in the Licensed
Technology for nominal consideration. In any event, even if such transfer is
agreed to, Licensors and their Affiliates shall be entitled to retain or be
granted such rights in and to the Licensed Technology (other than title) as they
have under the terms of this Agreement.
Except for transfers of title in and to the Licensed Technology to
Affiliates of Licensors, in which case such Affiliates shall agree to be bound
by the terms and conditions of this Agreement, Licensors shall not agree to
transfer title in and to any of the Licensed Technology to any third party
without giving Licensee a right of refusal on such transfer in accordance with
the following provisions of this paragraph. Licensors shall give Licensee prompt
written notice of the terms and conditions of any proposed transfer to a third
party pursuant to a bona fide written offer prior to the consummation thereof,
and Licensee shall have thirty (30) days from the date of such notice to notify
Licensors in writing of its intention to acquire title to the Licensed
Technology on the same, or no less favorable, terms and conditions as are set
forth in the third party offer. If Licensee so desires to acquire title and so
notifies Licensors, Licensors shall negotiate with Licensee in good faith during
such 120-day period in order to effect such transfer; provided that if agreement
is not reached by the end of such period, Licensors shall be free to transfer
title upon the terms and conditions offered by the third party offeror. Even if
Licensee elects not to exercise such right, Licensee shall not transfer title to
any of the Licensed Technology unless the transferee agrees in writing to be
bound by all the terms and conditions of this Agreement applicable to Licensors.
3. Software Transfer. Licensors shall as soon as practicable deliver to
IHS one copy of the Object Code and Source Code and any and all available and
currently used installation and operation documentation to the IS Technology,
and shall promptly when reasonably
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<PAGE> 9
available after completion of any module or enhancement comprising Future IS
Technology, deliver one copy of the Object Code and Source Code and any and all
other available installation and operation documentation thereto. Licensors
shall provide at IHS' request and expense such additional copies of Object Code,
Source Code and installation and operation documentation to Licensed Technology
as IHS may reasonably require. For the period ending eighteen (18) months from
the Effective Date, Licensors shall provide up to thirty (30) person days of
support services as Licensee may reasonably require in order to assist Licensee
in installing Future IS Technology.
4. IHS Obligations and Cross-License Provisions.
a. IHS Business. Among other services provided by IHS, IHS
will engage in the business of sublicensing the Licensed Technology and Licensee
Derivative Works to hospitals and other healthcare providers, and providing
support, maintenance, installation and consulting services to such providers in
connection therewith. It is anticipated that, in connection with such business,
IHS may improve the Licensed Technology and create Licensee Derivative Works.
b. Cross-License to Licensee Derivative Works. Subject to the
terms and conditions of this Agreement (including without limitation Section 7),
IHS hereby grants to Licensors and their Affiliates a royalty-free, irrevocable,
internal use license (including without limitation the right to make Derivative
Works and unlimited copies) to any and all Licensee Derivative Works (including
without limitation all Source Code and Object Code thereto) which do not
constitute New Products, as defined in Section 4.C. below. Without limitation,
such license to Licensee Derivative Works shall also include all such rights as
are retained with respect to Licensed Technology as set forth in Section
2.B(iii) hereof. Copies of the Object Code and Source Code, and other available
documentation as may be necessary or advisable to install and operate such
Licensee Derivative Works, shall be provided to Licensors promptly when
reasonably available. Licensors shall not alter, remove, or obscure any of
Licensee's or any other party's copyright, patent, trademark or proprietary
notices from any Licensee Derivative Works supplied by Licensee to Licensor(s)
hereunder.
IHS shall provide free of charge through the period ending eighteen
(18) months from the Effective Date up to thirty (30) person days of such
support services as Licensors may reasonably request in order to assist
Licensors and their Affiliates in installing such Licensee Derivative Works and
integrating them with Licensors' systems. Thereafter, Licensee will provide such
support services on terms and conditions no less favorable than are offered to
Licensee's most favored customers. Notwithstanding anything contained here to
the contrary, in the event that any third party has developed any Licensee
Derivative Work for IHS, and IHS does not have the unrestricted right, title and
interest in and to such Licensee Derivative Work, the provisions of this Section
4.B shall not apply to the extent that they would conflict with any such third
party rights.
If and when Licensee enters into any contracts or arrangements with a
third party for the development of any Licensee Derivative Works, Licensee shall
also request that it be entitled to
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<PAGE> 10
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
license to Licensors an their Affiliates the rights to Licensee Derivative
Works as are provided for in this Agreement. If such third party requires
payment of any additional amounts in order to permit Licensee to grant such
rights to Licensors and their Affiliates, Licensee shall notify Partners of such
requirement, and Partners may at its election, exercised promptly after
receiving such notice, elect to pay such amounts, in which event Licensee or
Licensors shall negotiate in good faith with such third party to obtain such
rights for Licensors and their Affiliates.
c. License to Future IHS Technology. IHS shall offer to
Licensors and their Affiliates a license to all New Products as defined below
and all IS and IHN modules developed by IHS on terms and conditions no less
favorable than they are licensed or offered for license to IHS' most favored
customers. Such license shall be offered as soon as is reasonably practicable
upon commercial availability of such New Products. At Licensors request,
Licensee shall maintain, and furnish to Licensors copies of, records reasonably
demonstrating the time necessary to develop any New Product which Licensors
propose to license hereunder.
A "New Product" shall include (i) all new software applications
developed by IHS which are not derived from Licensed Technology, (ii) all major
architectural changes to the Licensed Technology, including without limitation
changes in the application operating system or development environment, provided
that such changes require at least one person year of technical effort to
effect, and (iii) after the second anniversary of the Effective Date, all
changes to any module or application included in the Licensed Technology that
require at least one person year of technical effort to effect per module or
application.
d. No Transfer of Title. The rights and licenses herein
granted by Licensee to Licensors do not transfer to the Licensors any title in
and to such portions of Licensee Derivative Works as are prepared by or on
behalf of Licensee, including, without limitation, title to any and all
applicable patents, copyrights, trademarks and trade secrets, and all right,
title and interest therein, except for such licenses as are granted pursuant to
this Agreement, are retained by Licensee or third parties that have provided
portions of Licensee Derivative Works to Licensee, as the case may be.
5. Royalty Provisions.
a. Royalty Amount. IHS will pay to Partners a royalty equal to
[*] of the accrued gross revenues of IHS (and any Affiliate of IHS), calculated
in accordance with GAAP, from sales, leases and licenses of Licensed Technology,
and any and all Licensee Derivative Works, or any products that include or are
in whole or part based thereon, and from any support, maintenance, installation,
consulting or other service revenues related to such sales, leases or licenses,
except installation revenues from the first two IHS installations (collectively,
"Royalty Revenues"). Any such support, maintenance, installation, consulting, or
other services shall be provided by Licensee at its sole discretion.
b. Quarterly Calculations. IHS shall, within forty-five (45)
days after the end of each calendar quarter beginning with the first quarter in
which IHS has Royalty Revenues,
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<PAGE> 11
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
compute royalties due to Partners for the calendar quarter most recently ended
and shall furnish to Partners a royalty statement based on Licensee's Royalty
Revenues for such quarter and shall pay to Partners with that statement all
royalties due after adjustment for sales commissions to third parties, sales
allowances, bad debts, rebates and returns.
c. Independent Examination. Partners may, at Partners' own
cost and expense not more than once in any calendar year, cause an independent
certified public accountant acceptable to Partners and Licensee to examine
Licensee's books and records for the purpose of verifying the accuracy of
statements sent to Partners pursuant to this Section 5. Such examination shall
be made on at least ten (10) business days notice and during Licensee's usual
business hours at the place Licensee keeps the books and records to be examined.
d. Adjustments Based on Examination. If, as a consequence of
an examination, any payments are due to Partners, such payments shall be
credited to the Partners' royalty account and promptly paid to Partners. In the
event such examination reveals an overpayment to Partners, the amount of such
overpayment will be a credit against any royalties thereafter due to Partners or
will be, at Licensee's request, promptly refunded to Licensee. If the
examination contemplated by this Section 5 shall reveal an underpayment of more
than [*] of royalties due to Partners for the period under audit, then, in
addition to any additional royalties that are due to Partners, Licensee shall
reimburse Partners for its reasonable audit expenses, unless the underpayment
does not exceed an amount equal to $[*].
e. Termination of Royalty Obligations. IHS' obligations to pay
royalties hereunder shall terminate upon the earliest to occur of the following
events:
(i) IHS completes an initial public offering of its
Common Stock at a per share price of at least $10.00 per share
(such per share purchase price, the "Minimum Share Value");
(ii) IHS Common Stock is publicly traded either on a
national exchange, on NASDAQ or in the over-the-counter
markets, and the average trading price of the Common Stock for
any thirty (30) consecutive day period is at least the Minimum
Share Value;
(iii) IHS completes a private financing, or otherwise
obtain for Licensor a bona fide third party offer, in which
Partners is given the opportunity to sell all of its Common
Stock at the Minimum Share Value; or
(iv) IHS has completed an initial public offering
that does not meet the requirements of the foregoing clause
(i) and IHS has met all the Royalty Milestones;
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<PAGE> 12
provided, however, any such termination shall not relieve IHS of its obligation
to pay accrued and unpaid royalties as of the date of such termination.
f. Reduction of Royalty Payments. Any and all royalty payments
due hereunder shall be reduced by the amount of fees (but not cost
reimbursement) paid by IHS under the Technical Services Agreement Such reduction
shall be applied to the next royalties, if any, due hereunder.
6. Stock Issuance. In consideration for Licensors entering into, and as
a condition to the execution and delivery of, this Agreement and the Technical
Services Agreement, (i) IHS shall simultaneously with the execution hereof issue
to Partners 988,291 shares of Common Stock, which issuance shall be indefeasible
except as otherwise explicitly set forth in this Agreement, (ii) IHS and Wilson,
among others, are entering into the Stockholders Agreement and the Registration
Rights Agreement, (iii) IHS and Wilson are entering into the Employment
Agreement, and (iii) IHS is entering into the Partners' Affiliates Assistance
Agreement.
7. Termination Provisions.
a. Without limiting any and all other rights and remedies
Licensors may have at law or equity on account of a breach, Licensors may
terminate this Agreement if:
(i) Wilson voluntarily leaves the employment of IHS
(as opposed to termination by reason of death, disability, or
cause) during the initial three (3) year term of the
Employment Agreement; or
(ii) IHS breaches any material term of this Agreement
or the Technical Services Agreement and such breach is not
cured within forty-five (45) days after Partners give IHS
written notice of such breach.
b. Without limiting any and all other rights and remedies IHS
may have at law or equity on account of a breach, IHS may terminate this
Agreement if a Licensor breaches any material term of this Agreement or the
Technical Services Agreement, and such breach is not cured within forty-five
(45) days after IHS gives such Licensor written notice of such breach.
c. IHS may, as its exclusive right and remedy, terminate this
Agreement if portability of the Licensed Technology is not demonstrated by
December 31, 1997 and IHS gives Partners written notice of termination by March
30, 1998. Portability shall be demonstrated if any of the asterisked items on
Exhibit A attached hereto and all the Required Future IS Technology are
installed and operational in any additional site or sites other than the
Brigham. IHS shall use diligent efforts to achieve such installations by such
date. Licensors shall have no obligation or liability of any kind to IHS on
account of any failure to demonstrate portability.
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<PAGE> 13
d. Certain Rights Upon Termination:
(i) Sections 1, 2.E., 4.D., 5, 7, 8, 10, 12, 13 and
15 through 30 shall survive any termination of this Agreement
pursuant to Sections 7.A, 7.B or 7.C. Except as provided for
otherwise in this Section 7.D., upon termination of this
Agreement all copies of Source Code to software furnished or
licensed hereunder and provided by the other party shall be
returned to the providing party or destroyed, and all Object
Code to such software shall be similarly returned or
destroyed.
(ii) if this Agreement is terminated by Licensors
pursuant to Section 7.A. hereof, Sections 2.A.-B., 2.G.,
4.A.-B., 9, 11 and 14 shall also survive termination of this
Agreement, provided, however that (A) the License shall become
non-exclusive, in which event Licensors shall have completely
unrestricted rights to the Licensed Technology for all
purposes (including without limitation the right to use any
and all means to exploit and commercialize the Licensed
Technology) subject only to Section 19 hereof and Licensee's
non-exclusive rights hereunder, (B) Licensed Technology shall
only be deemed to include the Licensed Technology as it exists
on the date of termination, and shall not include any further
Future IS Technology, and (C) Licensee Derivative Works shall
only be deemed to include Licensee Derivative Works as they
exist on the date of termination (not including any future
modifications, enhancements, or new versions thereof).
(iii) If this Agreement is terminated by IHS pursuant
to Section 7.B. hereof; Sections 2.A.-B., 2.G., 4.A.-B., 9, 11
and 14 shall also survive termination of this Agreement,
provided, however that (A) the License shall become
non-exclusive, in which event Licensors shall have completely
unrestricted rights to the Licensed Technology for all
purposes (including without limitation the right to use any
and all means to exploit and commercialize the Licensed
Technology) subject only to Section 19 hereof and Licensee's
non-exclusive rights hereunder, (B) Licensed Technology shall
only be deemed to include the Licensed Technology as it exists
on the date of termination and shall not include any further
Future IS Technology, and (C) Licensee Derivative Works shall
only be deemed to include Licensee Derivative Works as they
exist on the date of termination (not including any future
modifications, enhancements, or new versions thereof).
(iv) If this Agreement is terminated by IHS pursuant
to Section 7.C. hereof, IHS shall have the right to require
Partners, within thirty (30) days after such termination, to
contribute to IHS all of the Common Stock of IHS issued to
Partners pursuant to Section 6 of this Agreement Section 4.B.
shall also survive such termination of this Agreement pursuant
to Section 7.C, provided, however, that Licensee
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<PAGE> 14
Derivative Works shall only be deemed to include Licensee
Derivative Works as they exist on the date of termination (not
including any future modifications, enhancements, or new
versions thereof). In addition, any third party licenses to
use Object Code to the Licensed Technology granted by Licensee
prior to the date of termination to any third party shall
survive termination of this Agreement pursuant to Section 7.C,
and IHS shall have the right to support and maintain such
Object Code and shall continue to have a license to Source
Code delivered prior to such date only for the limited purpose
of such support and maintenance.
8. Non-Solicitation. For a period of three years after the Effective
Date, neither Licensors nor IHS will solicit or hire any employee of the other,
or of an Affiliate of the other, that is engaged in the development, operation,
marketing or sale of hospital or clinical information services, or integrated
health networks, without the prior written consent of the other. Licensors agree
that they will not sell, license, or market any software product or services
competitive with any product incorporating Licensed Technology or the services
provided by IHS relating to such product; provided, that this shall not be
deemed to restrict Licensors rights provided in Section 2.B.(iii) and Section
4.B hereof.
9. Use of Partners' Name. IHS will have the right to use the Partners
and its Affiliates names in reference materials and/or announcements regarding
the products and services to be offered by IHS. Any such use in written or
printed materials will be subject to the approval of a designated Partners
representative (which approval shall not be unreasonably withheld) in order,
among other reasons, to be consistent with and not impair Partners' or Brigham's
reputation or non-profit status.
10. Rights to Technology.
a. Third Party Software. Attached as Exhibit D to this
Agreement is a list of all contracts pursuant to which software material to and
included in the IS Technology has been developed for or licensed to the
Licensors by third parties other than employees ("Third Party Software
Agreements"). True and correct copies of such Third Party Software Agreements
have been delivered to IHS. To the best knowledge of Licensors (as defined
below) Licensors (i) continue to have the right to use the software covered by
such Third Party Software Agreements and (ii) except for Excluded Software, are
not restricted in their ability to license the software included therein to IHS
pursuant to the terms of this Agreement.
b. Ownership of Software. To the best knowledge of Licensors,
substantially all software included in the operations of the IS Technology,
other than the software furnished pursuant to the Third Party Software
Agreements, has been developed by employees of Licensors within the scope of
their employment, are owned by Licensors as a "work-for-hire" under applicable
provisions of US copyright law, and do not infringe any US patent, copyright,
trade secret or other U.S. proprietary right of any third party.
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<PAGE> 15
c. No Liens and Encumbrances. Licensors have not granted to
any third party any liens and encumbrances in and to the Licensed Technology
which would deprive Licensee of its rights hereunder, and have not granted to
any third party any licenses in and to the Licensed Technology which would
conflict with the terms and conditions of this Agreement.
d. Due Authorization. Each of the Licensors, jointly and
severally, on the one hand, and Licensee, on the other hand, represents,
warrants, and covenants to and with the other that it is duly authorized to
enter into and be bound by this Agreement, and is not and will not become a
party to or be bound by any other agreement, contract, commitment, or subject to
any charter, bylaw or other corporate restriction that prohibits or otherwise
restricts its ability to fulfill its obligations hereunder.
e. Best Knowledge Definition. "Best knowledge" as used in this
Section 10 shall mean the knowledge of Partners and Brigham based only on their
consultation with staff members now on staff and involved with the development
of the IS Technology or the performance of the Licensors' obligations under
Third Party Software Agreements, as the case may be.
11. Prosecution and Maintenance of Patent Rights; Copyright
Registration.
a. Patent Prosecution by Licensors. Licensors shall have the
right, but not the obligation, either on their own initiative or at the request
of IHS, to apply for US or foreign patent protection for any part of the
Licensed Technology as Licensors so choose. In the event Licensors so decide to
seek patent protection for any such part of the Licensed Technology in any
jurisdiction, Licensors shall be responsible for the preparation, filing,
prosecution and maintenance of all patent applications related to such part of
the Licensed Technology in such jurisdiction. IHS shall, at Licensors' expense,
take all action as may be reasonably necessary or appropriate and as may be
reasonably requested by Licensors in order to assist Licensors in such
activities, provided, however, that if and to the extent any of such activities
are undertaken at the request of IHS, IHS shall bear its own costs and expenses
and shall reimburse Licensors for all of their reasonable costs and expenses,
including without limitation reasonable attorneys' fees and filing fees,
incurred in connection with such activities.
b. Patent Prosecution by IHS. In the event that,
(i) Licensors decline to prepare, file, prosecute
or maintain a patent application in any jurisdiction as
requested by IHS, or
(ii) Licensors fail to take any action to diligently
prepare, file, prosecute or maintain any patent application,
and such failure (x) could be reasonably anticipated to
jeopardize or prejudice the rights or interests of, or
otherwise be injurious to, Licensors or IHS, and (y) has not
been cured or remedied within forty-five (45) days after IHS
has given Licensors notice of such failure,
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<PAGE> 16
IHS may, and is hereby granted the power-of-attorney to, take in the name of
either of the Licensors, and at IHS' costs and expense, any and all such actions
as IHS may deem necessary or appropriate to take any such actions not taken by
Licensors.
c. Information Sharing and Cooperation. Both parties shall
keep the other informed as to the status of any patent application that it is
pursuing, shall provide the other with copies of all written communications
pertaining to the filing, prosecution or maintenance of each patent application,
and shall give the other reasonable opportunity to comment on, and have reviewed
by the other's own counsel and at the other's own expense, any patent
applications or other filings made in connection with an application or granted
patent.
d. Copyright Registration. At IHS' election and direction,
Licensors shall take all actions reasonably requested by IHS in order to
register the copyrights to any copyrightable works included in the Licensed
Technology in any jurisdiction reasonably requested by IHS. Any such
registration shall be at IHS' expense. In the event Licensors fail to take any
action as may be reasonably requested by IHS, IHS may, and is hereby granted the
power-of-attorney to, take in the name of the Licensors such actions as
Licensors have failed to take.
12. Licensee Indemnification.
a. Licensee Indemnification. Licensee shall indemnify, defend
and hold harmless each of the Licensors, their Affiliates and their respective
trustees, officers, medical and professional staff; employees, and agents and
their respective successors, heirs and assigns (the "Indemnitees"), against any
liability, damage, loss or expense (including reasonable attorneys' fees and
expenses of litigation) incurred by or imposed upon the Indemnitees, or any one
of them, in connection with any claim, suit, action or demand made or brought by
any third party (including, but not limited to, those based on any theory of
product liability whether brought in the form of tort, warranty, or strict
liability) to the extent it arises out of or in connection with (i) any use,
sale, license, transfer, assignment or other disposition by Licensee (including
without limitation any license granted to Licensors and their Affiliates
pursuant to Section 4), or by any party acting on behalf of or under
authorization from Licensee, of Licensed Technology or Licensee Derivative
Works, or (ii) consulting, support, maintenance or other services provided by
Licensee in connection with or related to the Licensed Technology or Licensee
Derivative Works; provided further that for a period of twenty-four (24) months
from the date IHS first reaches agreement for the use by a third party, or for
the sale, license, transfer, or other disposition of any Licensed Technology or
Licensee Derivative Works (the "Defect Period"), Licensee shall have no
indemnification obligation under this Section 12.A. with respect to any Hidden
Brigham Defect, as defined in Section 12.B. below. Without limitation, the
foregoing indemnification obligations shall apply to any patent, trade secret,
copyright or other proprietary right infringement claim, suit, action or demand,
except to the extent based upon (i) any unmodified portion of the Licensed
Technology itself, (ii) the combined use of Licensed Technology or Licensee
Derivative Works with any other software, apparatus or technology not provided
by or on behalf of Licensee, (iii) modifications to Licensed Technology or
Licensee
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<PAGE> 17
Derivative Works not made by or on behalf of Licensee, or (iv) use of the
Licensed Technology or Licensee Derivative Works not in accordance with the
intended use specified by Licensee.
b. Limitation of Indemnification. Licensee's indemnification
obligations under Section 12.A above shall not apply to any liability, damage,
loss or expense to the extent it is attributable to (i) the negligent
activities, reckless misconduct or intentional misconduct of the Indemnitees, or
(ii) the breach by Licensors of any of their representations, warranties or
obligations hereunder. For the duration of the Defect Period, "negligent
activities" shall be deemed to include any failure of Licensors to correct or
have corrected any defect or flaw in Licensed Technology, other than programming
defects or flaws or other defects or flaws caused by Licensee in Developed
Technology, developed by or on behalf of and owned by Licensors and delivered to
Licensee, if such defect or flaw (i) has not been detected or is not capable of
being detected by Licensee after a commercially reasonable review and analysis
of the Licensed Technology, (ii) exists in the Licensed Technology as used at
the Brigham and could cause at the Brigham the same or similar type of damage or
injury for which a third party is making or bringing a claim, suit, action or
demand against Licensors, and (iii) does not exist, or gives rise to a failure
or other problem for which a third party is bringing or may bring a claim, suit,
action or demand, because of (A) Licensee's modification or a third party's
modification (other than modifications by or on behalf of and owned by
Licensors) of the Licensed Technology, (B) use of the Licensed Technology in
combination with any other technology or software not provided by Licensors as
part of the Licensed Technology or (C) for a purpose different than the intended
purpose for which such Licensed Technology is developed or used at the Brigham
(any such defect or flaw, a "Hidden Brigham Defect").
c. Attorneys; Control of Defense. Licensee may control the
defense of any claims, suits, actions or demands brought or filed against any
Indemnitee with respect to the subject of indemnity contained in this Section 12
provided that it uses counsel reasonably acceptable to Licensors. Licensee shall
pay all costs of defense in connection with any and all such claims, suits,
actions or demands, whether or not rightfully brought Licensors (or another
Indemnitee) shall provide Licensee with prompt written notification of any
claim, suit, action or demand for which indemnification is sought hereunder, and
may also participate with counsel of their own choosing and at their own cost
and expense to assist in the defense of any such claim, suit, action or demand.
Licensee may not agree to a consent judgment or other voluntary final
disposition of any such claim, suit, action or demand without the consent of
Licensors, which shall not be unreasonably withheld.
13. Insurance.
a. Commercial General Liability Insurance. Beginning at the
time as any product, process or service that includes or is based in whole or
part upon the Licensed Technology, including without limitation any Licensee
Derivative Works, is being commercially used (for or by a customer other than
Partners or any of its Affiliates), sold, licensed, transferred, assigned or
otherwise disposed of by Licensee or by a sublicensee, Affiliate or agent of
Licensee, Licensee shall, at its sole cost and expense, procure commercial
general liability insurance in
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amounts not less than $2,000,000 per incident and $2,000,000 annual aggregate
and naming the Indemnitees as additional insureds, and continue to maintain such
insurance as long as commercially available at market rates. Such commercial
general liability insurance shall provide (i) product liability coverage and
(ii) contractual liability coverage for Licensee's indemnification obligations
under Section 12 of this Agreement. If Licensee elects to self-insure all or
part of the limits described above (including deductibles or retentions which
are in excess of $250,000 annual aggregate) such self-insurance program must be
acceptable to Partners and the Risk Management Foundation of the Harvard Medical
Institutions, Inc. The minimum amount of insurance coverage required under this
Section 13 shall not be construed to create a limit of Licensee's liability with
respect to its indemnification under Section 12 of this Agreement.
b. Evidence of Insurance. Licensee shall provide Partners with
written evidence of such insurance upon request of Partners. Licensee shall
provide Partners with written notice at east fifteen (15) days prior to the
cancellation, non-renewal or material change in such insurance; if replacement
insurance is commercially available at market rates providing comparable
coverage and Licensee does not obtain such issuance within forty-five (45) days
after Licensee has knowledge of such cancellation, non-renewal or material
change, but no later than thirty (30) days after the effective date of such
cancellation, non-renewal or material change, Partners shall have the right to
terminate this Agreement effective at the end of such period without notice of
any additional waiting periods.
c. Duration of Insurance. Licensee shall maintain such
commercial general liability insurance during (i) the period any such product,
process or service that includes or is based in whole or in part upon the
Licensed Technology, including without limitation any Licensee Derivative Works,
is being commercially used (for or by a customer of IHS other than Partners or
any of its Affiliates), sold, licensed, transferred, assigned or otherwise
disposed of by Licensee or by a sublicensee, Affiliate or agent of Licensee and
(ii) a reasonable period after the period referred to in C.(i) above which in no
event shall be less than fifteen (15) years.
14. Enforcement of Proprietary Rights.
a. Notification. Licensors and Licensee shall each give prompt
written notice to the other of any actual or suspected unauthorized use or
disclosure of the Licensed Technology by a third party, or any other action
which either party believes may infringe any copyright, patent, trade secret or
other proprietary right of Licensors or IHS in and to the Licensed Technology,
and shall provide each other with information available to it concerning such
unauthorized use or disclosure or infringement and cooperate fully in the
investigation of such activity.
b. Licensee Actions. Licensee shall have the right, but shall
not be obligated, to prosecute at its own expense any such unauthorized use or
disclosure or infringement, and, in furtherance of such rights, Licensors hereby
agree that Licensee may use Licensors names for such purposes or join Licensors
as party plaintiff in any such suit,' without expense to Licensors. The full
cost of any such prosecution commenced by Licensee shall be borne by Licensee
and
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Licensee shall indemnify Licensors against any order for payment that may be
made against Licensors in such proceedings. No settlement, compromise, consent
judgment or other voluntary final disposition of any action may be entered into
without the consent of Licensors, which shall not unreasonably be withheld Any
recovery of damages for past infringement derived from such action shall be used
to reimburse first Licensee and then Licensors for all expenses and legal fees
connected with such action. Any recovery of damages then remaining shall belong
to Licensee.
c. Licensors Actions. If within ninety (90) days after having
been notified of any alleged unauthorized use, disclosure or infringement of
Licensed Technology, Licensee shall not have brought an infringement action, or
at any time thereafter Licensee shall not be diligently prosecuting such
infringement action, or if Licensee at any time shall notify Licensors of its
intention not to bring suit or continue prosecuting an action against any
alleged infringer, then in those events Licensors shall have the right to
initiate or pursue such actions at Licensors' expense and to use Licensee's name
for such purposes or join Licensee as a party plaintiff in any such suit,
without expense to Licensee. No settlement, compromise, consent to judgment or
other voluntary final disposition of the suit may be entered without the consent
of Licensee, which consent shall not be unreasonably withheld Licensors shall
indemnify Licensee against any order for payment that may be made against
Licensee in such proceeding. Any recovery of damages for past infringement
derived from such action shall first be used to reimburse first Licensors and
then Licensee for all expenses and legal fees connected with such action. Any
recovery of damages then remaining shall belong to Licensors.
d. Rights Dependent upon Exclusive Licenses. Licensee's right
to initiate action in the first instance under Section 14.B. hereof shall remain
in effect for as long as Licensee retains its exclusive License hereunder. In
the event Licensee's License becomes non-exclusive under this Agreement,
Licensee's right to initiate actions in the first instance for infringements
shall cease; provided, however, that if within six (6) months after having been
notified of any alleged unauthorized use, disclosure, or infringement of
Licensed Technology, Licensors shall not have brought an infringement action, or
at any time thereafter shall not be diligently prosecuting such infringement
action, or if Licensors at any time shall notify Licensee of its intention not
to bring suit or continue prosecuting an action against any alleged infringer,
then in those events Licensee shall have the right to initiate and pursue such
action at Licensee's expense and to use Licensors' name for such purposes or
join Licensors as party plaintiffs in any such suit, without expense to
Licensors. The full cost of any such prosecution commenced by Licensee shall be
borne by Licensee and License shall indemnify Licensors against any order for
payment that may be made against Licensors in such proceeding. No settlement,
consent judgment or other voluntary final disposition of any action may be
entered into without the consent of Licensors, which shall not be unreasonably
withheld. Any recovery of damages for past infringement derived from such action
shall be used to reimburse first Licensee and then Licensors for all expenses
and legal fees connected with such action. Any recovery of damages then
remaining shall belong to Licensee.
e. Separate Counsel. In the event that either party shall
undertake the enforcement of Licensed Technology by litigation, the other party
may retain counsel at its
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expense (but subject to reimbursement out of recovery of damages pursuant to
Section 14.B, 14.C, or 14.D as the case may be) to represent it in such suit.
15. Disclaimer of Warranties. LICENSORS MAKE NO REPRESENTATIONS AND
WARRANTIES REGARDING THE LICENSED TECHNOLOGY OTHER THAN AS EXPLICITLY SET FORTH
IN THIS AGREEMENT, AND DISCLAIM ALL IMPLIED WARRANTIES OF ANY KIND WITH REGARD
TO THE LICENSED TECHNOLOGY INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
LICENSEE MAKES NO REPRESENTATIONS AND WARRANTIES REGARDING LICENSEE
DERIVATIVE WORKS OTHER THAN AS EXPLICITLY SET FORTH IN THIS AGREEMENT, AND
DISCLAIMS ALL IMPLIED WARRANTIES OF ANY KIND WITH REGARD TO LICENSEE DERIVATIVE
WORKS INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
16. Infringement by Licensee of Third Party Technology.
a. Defense Obligation. In the event a claim, action, suit or
demand is brought or made against Licensee that use of the Licensed Technology
infringes any US patent right, copyright, trade secret or other US proprietary
right of such third party, Licensors shall, if so requested in writing by
Licensee, both assume the costs of defense of such claim, action, suit or demand
and control the conduct of such defense using counsel of their choosing,
provided that Licensee gives Licensors prompt notice of the bringing or making
of any such claim, action, suit or demand, and provides such reasonable;
instance as Licensors may request in the conduct of such, defense. License may
at its own cost and expense assist in such defense using counsel of its own
choosing, and may at any time assume full control of the conduct of its own
defense after which time it shall assume all costs and expenses and pay all
Damages (as defined below) and amounts payable pursuant to any settlement,
compromise, consent to judgment or voluntary disposition incurred in connection
therewith notwithstanding anything in this Section 16 to the contrary. If
Licensee elects at any time to defend itself in or against such claim, action,
suit or demand, Licensors may at their own expense assist in such defense using
counsel of their own choosing.
b. Liability for Damages, Etc. Licensors shall pay any and all
damages, penalties, fines, charges, opposing counsel fees, royalties or other
payments ("Damages") which Licensee may be required to pay by a court of law in
the event Licensors do not succeed in the defense of any such infringement
claim, action, suit or demand (i) if Licensors have at the time of execution of
this Agreement violated their representations set forth in Section 10 with
respect to such claim, action, suit or demand, or (ii) if such infringement
claim, action, suit or demand is brought or made by any employee of Licensors as
of the Effective Date or retained thereafter or by any of the Covered
Infringement Persons.
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<PAGE> 21
Licensors shall pay twenty percent (20%) of Damages, and Licensee shall
pay the balance of eighty percent (80%) of Damages, which Licensee may be
required to pay by a court of law in the event Licensors do not succeed in the
defense of any infringement claim, action, suit or demand which it controls that
is brought or made by any former employee of Licensors no longer employed or
retained on the Effective Date or any former or current consultant to Licensors
(other than the Covered Infringement Persons), including without limitation by
any party to the Third Party Software Agreements.
Licensors shall have no liability for Damages in any other infringerent
claim, action, suit or demand.
c. Settlement or Compromise. Licensors sail not agree to
settle, compromise, consent to judgment or otherwise voluntarily dispose of any
such claim, action, suit or demand for which Licensors are controlling the
defense without Licensee's consent which shall not be unreasonably withheld,
except if Licensors elect to pay the entire amount of any such settlement,
compromise, consent or voluntary disposition not consented to by Licensee;
provided, however, in any such claim, action, suit or proceeding for which
Licensors have no liability for Damages as provided in Section 16.B. above,
Licensee may withhold its consent for any reason. Amounts payable by Licensors
in any such settlement, compromise, consent to judgment or other voluntary
disposition of a claim, action, suit or demand shall be payable in the same
proportions as Damages would be payable by Licensors pursuant to the foregoing
Section 16.B with respect to such claim, action, suit or demand, except if
pursuant to the first sentence of this Section 16.C Licensors' elect to pay the
entire amount of any settlement, compromise, consent or voluntary disposition
which it would not otherwise be required to pay hereunder.
d. Exclusion From Liability. Notwithstanding anything herein
to the contrary, Licensors obligation to pay costs of defense, Damages or
amounts payable upon settlement, compromise, consent to judgment or other
voluntary disposition shall not apply to any claim, action, suit or demand to
the extent based upon (i) the combined use of Licensed Technology with any
software, apparatus or other technology not provided by or on behalf of
Licensors, (ii) modifications to the Licensed Technology (other than
modifications made by or on behalf of Licensors), (iii) use of the Licensed
Technology not in accordance with its intended use specified by Licensors, or
(iv) any unmodified portion of the Developed Technology itself.
17. Certain Obligations of Licensors Related to Infringement.
Notwithstanding anything to the contrary in Section 16 hereof, Licensors shall
be liable for the costs and expenses of making non-infringing any Licensed
Technology that has been developed by them or their employees (as opposed to
developed by a third party even if the rights therein have been assigned to
either of the Licensors) and is held to infringe any US patent right, copyright,
trade secret or other US proprietary right of any third party, if such
non-infringement can after reasonable commercial efforts be accomplished by
Licensors by working-around or otherwise redoing that part of the Licensed
Technology which is infringing; provided, however, the foregoing shall impose no
obligation upon the Licensors to pay any license, royalty or other fees to any
third parties in order to obtain rights to any infringed rights or technology
except as otherwise
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<PAGE> 22
provided in Section 16. Licensee shall give Licensors prompt notice of any
claim, action, suit or demand against Licensee that asserts that any Licensed
Technology infringes any US patent right, copyright, trade secret or other US
proprietary right of any third party.
In the event any infringement claim, action, suit or demand made or
brought against Licensee is based upon Licensed Technology that has been
licensed to Licensors pursuant to any of the Third Party Software Agreements,
Licensors shall permit and grant appropriate authority to Licensee to assert on
behalf of and in the name of Licensors any and all claims and actions, including
rights of indemnification or other claims, that Licensors may have against the
third party software provider or developer on account of such infringement by
Licensee, but only to the extent Licensee has not been indemnified by Licensors
with respect to such infringement claim, action, suit or demand; provided, that
the foregoing shall not derogate from Licensors own right to bring any such
claim or action in the event of any actual or threatened infringement claim
against Licensors.
18. Limitation of Liability. WITHOUT LIMITING THE OBLIGATIONS OF THE
PARTIES OTHERWISE SET FORTH IN SECTIONS 12, 16 AND 17 HEREOF, NEITHER PARTY
HEREUNDER SHALL BE LIABLE TO THE OTHER OR ANY THIRD PARTY FOR ANY SPECIAL,
INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE
FOREGOING LIMITATIONS OF LIABILITY SHALL APPLY REGARDLESS OF THE SUCCESS OR
EFFECTIVENESS OF OTHER REMEDIES AND REGARDLESS OF THE CAUSE OF ACTION UNDER
WHICH SUCH DAMAGES ARE SOUGHT.
19. Confidentiality Obligations. Each of the Licensors and Licensee
(the "Restricted Party") agrees that it shall hold in confidence and not
disclose to any third party any and all Proprietary Information of the other
(the "Disclosing Party",), except as authorized by this Agreement. Without
limiting the foregoing, the Restricted Party shall take at least the same
physical, contractual and other security measures to protect such Proprietary
Information as it does with respect to its own confidential technical
information. These obligations shall not apply to any information generally
available to the public, independently developed by the Restricted Party without
reliance on the Disclosing Party's information, disclosed by a third party not
under or in breach of an obligation of confidentiality to the Disclosing Party,
or approved in writing for release by the Disclosing Party without restriction.
Notwithstanding the foregoing, Licensee may disclose the Source Code to the
Licensed Technology to any party to whom it is sublicensing the Licensed
Technology, provided that it obtains the prior written agreement of such party
to maintain the Source Code in confidence and to observe at least the same
confidentiality obligations as apply to a Restricted Party hereunder. Licensee
may also disclose Proprietary Information to financial institutions and
regulatory officials to the extent required in connection with a public offering
or other securities offering or as otherwise required by law, provided that such
financial institutions shall agree to maintain the Proprietary Information in
confidence and observe at least the same confidentiality obligations as apply to
a Restricted Party hereunder, and
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that disclosures to regulatory officials shall be made in a manner designed to
maintain confidentiality to the extent possible under applicable regulatory
policies.
20. Taxes. Licensee shall be responsible for all sales or use taxes and
state or local property or excise taxes associated with the licensing,
possession, or use of the Licensed Technology.
21. Late Charges. If any fee or cost is not paid within thirty (30)
days after it is due, Licensors may, at their option, charge interest at a rate
of one and one-half percent (1 1/2%) per month (eighteen percent (18%) per
annum) or, if less, the highest rate allowed by applicable law) from the date
such fee or charge first became due.
22. Notices. All notices or other communications required to be given
hereunder shall be in writing and delivered either personally, including by
expedited courier service, or by US mail, certified, return receipt requested,
postage prepaid, and addressed as follows:
If to Licensors, to:
Partners HealthCare System
Prudential Tower, Suite 1150
800 Boylston Street
Boston, MA 02199
Attn: Office of General Counsel
and Chief Information Officer of Partners
With a copy to:
Lester J. Fagen, Esq.
Goulston & Storrs
400 Atlantic Avenue
Boston, MA 02110
If to Licensee, to:
Integrated Healthcare Solutions, Inc.
969 S. Ocean Blvd.
Delray Beach, FL 33483
Attn: Harvey J. Wilson, President
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<PAGE> 24
With a copy to:
Lawrence Wittenberg, Esq.
Testa, Hurwitz & Thibeault
125 High Street
Boston, MA 02110
or as otherwise requested by the receiving party. Notices delivered personally
shall be effective upon delivery and notices delivered by mail shall be
effective upon their receipt by the party to whom they are addressed.
23. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the Commonwealth of Massachusetts,
without regard to conflicts of laws principles.
24. Headings. All captions and headings included in this Agreement are
for convenience only and shall not alter or bear upon the meaning of any
provision contained herein.
25. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
26. Relationship of the Parties. Nothing herein shall be deemed to
constitute either party hereto as the agent or representative of the other
party, or both parties as joint ventures or partners for any purpose.
27. Severability. In the event that one or more provisions of this
Agreement shall be invalid, illegal, or unenforceable in any respect under any
applicable statue or rule of law, then such provisions shall be considered
inoperable to the extent of such invalidity, illegality, or unenforceability,
and the remainder of this Agreement shall continue in full force and effect. The
parties hereto agree to replace any such invalid, illegal, or enforceable
provisions with a new provision which has the most nearly similar permissible
economic or other effect.
28. Entire Agreement. This Agreement, together with the Partners'
Affiliates Assistance Agreement, the Stockholders Agreement, the Registration
Rights Agreement, the Technical Services Agreement, and the Employment
Agreement, contain the full understanding of the parties and supersedes all
prior understandings with respect to the subject matter hereof.
29. Modifications and Waivers. This Agreement may not be modified
except by a writing signed by authorized representatives of the Licensors and
Licensee parties. A waiver by either party of its rights hereunder shall not be
binding unless contained in a writing signed by an authorized representative of
the party waiving its rights. The nonenforcement or waiver of any provision on
one (1) occasion shall not constitute a waiver of such provision on any other
occasions unless expressly so agreed in writing. It is agreed that no use of
trade or other regular
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<PAGE> 25
practice or method of dealing between the parties hereto shall be used to
modify, interpret, supplement, or alter in any manner the terms of this
Agreement.
[INTENTIONALLY LEFT BLANK]
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30. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
constitute one and the same instrument.
Partners HealthCare System, Inc.
By: /s/ Jay B. Pieper
------------------------------------
Jay B. Pieper
Brigham and Women's Hospital, Inc.
By: /s/ Jay B. Pieper
------------------------------------
Jay B. Pieper
Integrated Healthcare Solutions, Inc.
By: /s/ Harvey J. Wilson
------------------------------------
Harvey J. Wilson
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<PAGE> 27
EXHIBIT A
IS TECHNOLOGY
(ASTERISKED ITEMS ARE THOSE ITEMS REQUIRED TO DEMONSTRATE PORTABILITY
IN ACCORDANCE WITH SECTION 7.C. OF THE AGREEMENT)
IS Technology includes the following software modules and applications:
*Clinical Laboratories
Alpha-Fetoprotein
Blood Bank
Chemistry
Lab Control
Hematology
Microbiology
Virology
Patient Laboratories
Echocardiogram
Exercise
Non-invasive Vascular
Electroencephalogram
Evoked Potentials
Cardiac Cath
Electrocardiogram
Holter
Bone Marrow Aspirate
Pulmonary Function
Electromyogram
Bone Density
Dialysis
Rehabilitation Services
Pathology Laboratories
Cardiac Surgery
Cytology Laboratory
Autopsy
Surgical Pathology
Pathology
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*Results Retrieval
Clinical Information (Results Retrieval)
Mini-ambulatory medical record (Rheumatology, Prenatal,
Internal
Medicine and Medical Specialties)
Operative notes
Discharge summaries
NICU Log
Physician Signout
Coverage List
Handbook
*Provider Clinical Order Entry
Labor and Delivery Record
Event Processor/Rule Engine
Physician Administrative Systems
Professional Staff Director
Physician Continuing Medical Education
Credentialing
Referring Physician
Utilization Review/Quality Assurance
Utilization Review
Continuing Care
Quality Assurance
Infection Precautions
*Patient Accounting
Accounts Receivable
Credit and Collection
Special Accounts
Charge and Audit
Administrative Research
Research Administration
Research Data
Grants and Contracts
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*Registration/Scheduling/Administration
Emergency Services
Outpatient Registration and Scheduling
Recovery Room
Patient Information
Inpatient Admissions
Surgery Scheduling
Pre-admission Test Center
Labor, Birth and Recovery
Bed Control
Discharge Planning
Employee Health Services
HCHP
Executive Reporting System
Operating Room Scheduling
Medical Records
Medical Records Research
Record Request
Medical Records Warehouse
Material/Asset Management
Fixed Asset Management
Inventory
Purchase Orders
Casecart
Nursing
Mailroom/Telephone Directory
Dietary
Pharmacy
Inpatient
Outpatient
Surmed Interface
Brookside and Southern Jamaica Plain Health Centers
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<PAGE> 30
Personnel/Human Resources
General Accounting
Accounts Payable
Cash
Budget
General Ledger
Payroll
Employee Reimbursement System
Utilities
Electronic Mail
Utilities(Calculator, Bulletin Boards, etc.)
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EXHIBITS B
EXCLUDED SOFTWARE
E-Systems - SolutionsServer(TM) (Beta)
IDX - Decrad and practice management applications
Intersystems - M operating system; programming language
McLatchey - API to Netware Library, and all software the ownership of which is
specifically assumed by McLatchey pursuant to Section 1 of the Professional
Services Agreement between John McLatchey Associates and Brigham &
Women's Hospital, Inc., dated September 1, 1992.
Medicus - ICD9 coding
Medicus - Patient Acuity
Merck CD ROM reference materials
Microsoft - Client operating system; PC applications
MUMPS Collaborative - Co-Writer & Co-Med Toolkit (AP Application); all software
remaining the property of MUMPS Collaborative pursuant to Section 3.8 of the
Collaborative Medical Systems Computer System Agreement between
MUMPS Collaborative, Inc. and Brigham Medical Center, Inc., dated
August 7, 1989.
Novell - Network operating system
Paperchase - Literature searching
PDR CD ROM reference materials
Polylogics Consulting - MIIS to MUMPS Compatibility Library; the "Polylogics Run
Time Library" specifically referenced as the property of Polylogics pursuant to
Section 10 of the Agreement between Polylogics Consulting, Inc. and Brigham &
Women's Hospital, dated August 3, 1992, and Section 3 of the Addendum thereto.
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SAIC - Hyper M screen development
Scientific American CD ROM reference materials
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<PAGE> 33
EXHIBIT C
FUTURE IS TECHNOLOGY
DESCRIPTION OF FUNCTIONS
(REQUIRED FUTURE IS TECHNOLOGY IS DENOTED WITH AN ASTERISK)
Ambulatory Clinical Order Entry including links to retail pharmacies, reference
laboratories and free-standing diagnostic centers
Partners Workstation
Results review
In-box technology
History and Physical-Flowsheets
*Common Partners Ambulatory Record derived from BWH and MGH current records
Common Partners Inpatient Clinical System derived from BWH and MGH clinical
information systems
Clinical Referrals
*Partners Repository
Data structures/objects
Network connectivity
Access applications
Security structures
*Event engine
Synchronous improvements
Network version
Interventions
Continued inpatient additions
Integrated delivery system interventions
Workup assistance
*Protocol Support
World Wide Web Developments
Master Patient Index/Global Scheduling/Insurance EDI network connectivity
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EXHIBIT D
THIRD PARTY SOFTWARE AGREEMENTS
Abrams, Russell -
Professional Services Agreement dated November 1, 1991
Professional Services Agreement dated September 1, 1991
Centers for Clinical Computing ("CCC") -
Agreement for Services dated December 11, 1983 among the Beth Israel
Hospital
Association, Inc. ("BIH"), Brigham and Women's Hospital, Inc. ("BWH") and
Brigham and Beth Israel Medical Group Foundation, Inc. ("BBIMG")
Amendment dated October 1, 1984 to December 11, 1983 Agreement for
Services between BIH, BWH and BBIMG
Amendment to Agreement for Services (FY 1985) between BWH and the
Computer Medicine Laboratory ("CML") in the BBIMG
Agreement for Services dated May 19, 1986 with CCC
Outline for services and related changes (FY 1987) dated October 22, 1986
between BWH and CCC
Addendum dated October 1, 1987 (to Agreement dated May 19, 1986)
Data Innovations, Inc. -
Professional Services Agreement dated September 1, 1992
Professional Services Agreement dated June 23, 1992
Professional Services Agreement dated December 12, 1991
Davis, Richard - Professional Services Agreement dated November 1, 1989
Expertech - Professional Services Agreement dated November 15, 1995
Lassiter Group, The - Professional Services Agreement dated April 12, 1993
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<PAGE> 35
Lauffer, J. Gregory - Professional Services Agreement dated October 30, 1995
Max Rivers Consulting - Professional Services Agreement dated July 27, 1989
McLatchey, John -
Professional Services Agreement dated September 1, 1992
Professional Services Agreement dated February 1, 1991
Professional Services Agreement dated October 17, 1990
Monroe, Michael - Professional Agreement dated February 17,1989
MUMPS Collaborative, Inc. -
Professional Services Agreement dated November 16, 1988
Provenzano, Richard -
Professional Services Agreement dated March 2, 1992
Professional Services Agreement dated December 23, 1991
Roberts, Pasha - Professional Services Agreement dated November 6, 1995
Teich, Jonathan M. and BioLogic Systems, Inc. -
Letter of Understanding with Teich, and BioLogic Systems, Inc. dated
September 15, 1993
Professional Services Agreement with BioLogic Systems, Inc. dated
January 1, 1992
Letter Agreement with BioLogic dated April 20, 1991
Letter Agreement with Dr. Teich dated March 15, 1989 and April 12, 1990
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<PAGE> 36
Vail, Gregory R. -
Professional Services Agreement dated September 21, 1991
Professional Services Agreement dated August 1, 1991
Professional Services Agreement dated May 16, 1991
Professional Services Agreement dated February 25, 1991
Walden, Timothy - Professional Services Agreement dated February 27, 1989
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<PAGE> 1
EXHIBIT 10.6
PREFERRED STOCK PURCHASE AGREEMENT
AGREEMENT, dated February 4, 1998 (this "Agreement"), between Eclipsys
Corporation, a Delaware corporation (the "Company"), General Atlantic Partners
47, L.P., a Delaware limited partnership ("GAP LP"), and GAP Coinvestment
Partners, L.P., a New York limited partnership ("GAP Coinvestment" and, together
with GAP LP, the "Purchasers").
WHEREAS, upon the terms and conditions set forth in this Agreement, the
Company proposes to issue and sell to (a) GAP LP for an aggregate purchase price
of $7,570,120, an aggregate of 757,012 shares, par value $.01 per share, of
Series G Convertible Preferred Stock of the Company (the "Series G Preferred
Stock") and (b) GAP Coinvestment for an aggregate purchase price of $1,429,880,
an aggregate of 142,988 shares of Series G Preferred Stock; and
WHEREAS, each share of Series G Preferred Stock is convertible (subject
to adjustment) into one share, par value $.01 per share, of voting Common Stock
of the Company (the "Common Stock").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"By-laws" means the by-laws of the Company, as the same may have been
amended and as in effect as of the Closing Date.
"Certificate of Incorporation" means the Second Amended and Restated
Certificate of Incorporation of the Company, as the same may have been amended
and as in effect as of the Closing Date, substantially in the form attached
hereto as Exhibit A.
"Closing" has the meaning set forth in Section 2.2 of this Agreement.
"Closing Date" has the meaning set forth in Section 2.2 of this
Agreement.
"Common Stock" has the meaning assigned to such term in the recital to
this Agreement.
"Company" has the meaning assigned to such term in the recital to this
Agreement.
<PAGE> 2
"Condition of the Company" means the assets, business, properties,
prospects, operations or financial condition of the Company and its
Subsidiaries, taken as a whole.
"Contractual Obligations means as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"GAP Coinvestment" has the meaning assigned to such term in the recital
to this Agreement.
"GAP LP" has the meaning assigned to such term in the recital to this
Agreement.
"Governmental Authority" means the government of any nation, state,
city, locality or other political division thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related preferences),
including, without limitation, those created by, arising under a capital lease
obligation, or any financing lease having substantially the same economic effect
as any of the foregoing.
"Person" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity of any kind,
and shall include any successor (by merger or otherwise) of such entity.
"Purchased Shares" has the meaning set forth in Section 2.1 of this
Agreement.
"Requirements of Law" means, as to any Person, any law, statute,
treaty, rule, regulation, license or franchise or determination of an arbitrator
or a court or other Governmental Authority, in each case applicable or binding
upon such Person or any of its property or to which such Person or any of its
property is subject or pertaining to any or all of the transactions contemplated
or referred to herein.
"Second Amended and Restated Registration Rights Agreement" means the
Second Amended and Restated Registration Rights Agreement, dated January 30,
1998, among the Company, Partners HealthCare System, Inc., GAP LP, General
Atlantic Partners 38, L.P., General Atlantic Partners 28, L.P., GAP
Coinvestment, Harvey J. Wilson, Wilfam Ltd., Alltel Information Services, Inc.,
First Union Corporation, BT Investment Partners, Inc, Brean Murray Associates
IHS L.P., Gerald Manolovici, St. Paul Venture Capital IV, L.L.C., Peter
Karmanos, Jr., Motorola, Inc., and certain other stockholders of the Company set
forth on the
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<PAGE> 3
signature pages thereto.
"Second Amended and Restated Stockholders Agreement" means the Second
Amended and Restated Stockholders Agreement, dated January 30, 1998, among the
Company, Partners HealthCare System, Inc., GAP LP, General Atlantic Partners 38,
L.P., General Partners 28, L.P., GAP Coinvestment, Harvey J. Wilson, Wilfam
Ltd., Alltel Information Services, Inc., First Union Corporation, BT Investment
Partners, Inc., Brean Murray Associates IHS L.P., Gerald Manolovici, St. Paul
Venture Capital IV, L.L.C., Peter Karmanos, Jr., Motorola, Inc., and certain
other stockholders of the Company set forth in the signature pages thereto.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder.
"Series G Preferred Stock" has the meaning assigned to such term in the
recital to this Agreement.
"Subsidiaries" means, as to any Person, a corporation, partnership,
limited liability company or other entity of which 50% or more of the
outstanding economic equity interest is held, directly or indirectly, by such
Person. For purposes of this Agreement, Emtek Healthcare Corporation shall not
be deemed to be a Subsidiary of the Company.
"Transaction Documents" means collectively, this Agreement, the Second
Amended and Restated Stockholders Agreement and the Second Amended and
Restated Registration Rights Agreement.
ARTICLE 2
PURCHASE AND SALE OF SERIES G PREFERRED STOCK
2.1 Purchase and Sale of Series G Preferred Stock. Subject to the terms
and conditions herein set forth, the Company agrees to issue and sell to each of
the Purchasers, and each of the Purchasers agrees that it will purchase from the
Company, on the Closing Date, the aggregate number of shares of Series G
Preferred Stock set forth opposite such Purchaser's name on Schedule 2.1 hereto,
for the aggregate purchase price set forth opposite such Purchaser's name on
Schedule 2 hereto (all of the shares of Series G Preferred stock being purchased
pursuant hereto being referred to herein as the "Purchased Shares"). The
Purchased Shares shall have the preferences and rights set forth in the
Certificate of Incorporation.
2.2 Closing. The closing of the sale and purchase of the Purchased
Shares (the "Closing") shall take place at the offices of the Company, at 10:00
a.m., local time, on the date hereon, or at such other time, place and date that
the Company and the Purchasers may agree in writing (the "Closing Date"). On the
Closing Date, the Company shall deliver to each of the Purchasers a stock
certificate representing the Purchased Shares, against delivery by the
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Purchasers to the Company of the aggregate purchase price therefor by wire
transfer of immediately available funds.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers as follows:
3.1 Corporate Existence and Power. Each of the Company and its
Subsidiaries (a) is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, as the case may be; (b) has all requisite power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be
engaged; (c) is duly qualified as a foreign corporation, licensed and in good
standing under the laws of each jurisdiction to which its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except to the extent the failure to do so would not have a
material adverse effect on the Condition of the Company; and (d) has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and each of the other Transaction Documents.
3.2 Authorization: No Contravention. The execution, delivery and
performance by the Company of this Agreement and each of the other Transaction
Documents and the transactions contemplated hereby and thereby (a) have been
duly authorized by all necessary corporate action of the Company; (b) do not
contravene the terms of the Certificate of Incorporation or the By-laws, or the
certificate of incorporation or the by-laws of any Subsidiary, or any amendment
thereof; (c) do not violate, conflict with or result in any breach or
contravention of, or the creation of any Lien under any Contractual Obligation
of the Company or any of its Subsidiaries, or any Requirement of Law applicable
to the Company or any of its Subsidiaries; and (d) do not violate any judgment,
injunction, writ, award, decree or order of any nature of any Governmental
Authority against, or binding upon, the Company or any of its Subsidiaries.
3.3 Governmental Authorization: Third Party Consents. Except as set
forth in Schedule 3.3, no approval, consent, compliance, exemption,
authorization or other action by, or notice to, or filing with, any Governmental
Authority or any other Person in respect of any Requirement of Law, and no lapse
of a waiting period under a Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the sale, issuance and delivery of the Purchased Shares) by, or
enforcement against, the Company of this Agreement or any of the other
Transaction Documents or the transactions contemplated hereby and thereby.
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<PAGE> 5
3.4 Binding Effect. This Agreement and each of the other Transaction
Documents have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws and by general principles of equity
relating to enforceability (regardless of whether considered in a proceeding at
law or in equity).
3.5 Litigation. There are no actions, suits, proceedings, claims,
complaints, disputes, arbitrations or investigations pending or, to the
knowledge of the Company, threatened, at law, in equity, in arbitration or
before any Governmental Authority against the Company or any of its Subsidiaries
which could, if adversely determined, have a material adverse effect on the
Condition of the Company or the ability of the Company to perform its
obligations under this Agreement or the other Transaction Documents. Neither the
Company nor any of its Subsidiaries has received notice of any Order and, to the
knowledge of the Company, no Order has been issued by any court or other
Governmental Authority against the Company or any of its Subsidiaries purporting
to enjoin or restrain the execution, delivery or performance of this Agreement
or any of the other Transaction Documents.
3.6 Capitalization. Schedule 3.6 sets forth, as the Closing Date, after
giving effect to the transactions contemplated by this Agreement, (a) a true and
complete list of the stockholders of the Company and, opposite the name of each
stockholder, the amount of all outstanding capital stock and Common Stock
Equivalents owned by such stockholder and (b) the total number of stock options
authorized to be issued pursuant to all of the Company's stock option plans and
the total number of stock options granted thereunder. The Company has reserved
an aggregate of 900,000 shares of Common Stock for issuance under conversion of
the Series G Preferred Stock. Except as set forth on Schedule 3.6, there are no
additional options, warrants, conversion privileges, subscription or purchase
rights or other rights presently outstanding to purchase or otherwise acquire
(i) any authorized but unissued, unauthorized or treasury shares of the
Company's capital stock, (ii) any Common Stock Equivalents or (iii) other
securities of the Company. The Purchased Shares are duly authorized, and when
the Purchased Shares are issued and sold to the Purchasers after payment
therefor, will be validly issued, fully paid and nonassessable and will be
issued in compliance with the registration and qualification requirements of all
applicable federal securities laws. The shares of Common Stock issuable upon
conversion of the Series G Preferred Stock are duly authorized and, when issued
in compliance with the provisions of the Certificate of Incorporation will be
validly issued, fully paid and nonassessable. The issued and outstanding shares
of Common Stock are all duly authorized, validly issued, fully paid and
nonassessable, and were issued in compliance with the registration and
qualification requirements of all applicable federal securities laws. The
Company owns all of the issued and outstanding shares of capital stock or
proprietary interests, as the case may be, of the Subsidiaries.
3.7 No Default or Breach. Neither the Company nor any of its
Subsidiaries has received notice of, and is not in default under, or with
respect to, any Contractual Obligation in any respect, which individually or
together with all such defaults, could have a material adverse
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<PAGE> 6
effect on (i) the Condition of the Company or (ii) the ability of the Company to
perform its obligations under this Agreement or the other Transaction Documents.
3.8 No Material Adverse Change. Since September 30, 1997, there has
not been any material adverse change, nor to the knowledge of the Company is any
such change threatened, in the Condition of the Company.
3.9 Private Offering. No form of general solicitation or general
advertising was used by Company or its representatives in connection with the
offer or sale of the Purchased Shares. No registration of the Purchased Shares,
pursuant to the provisions of the Securities Act or any state securities or
"blue sky" laws, will be required by the offer, sale or issuance of the
Purchased Shares.
3.10 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the Company
or any of its Subsidiaries in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with Company or any
of its Subsidiaries or any action taken by any such Person.
3.11 Disclosure There is no fact known to the Company, which the
Company has not disclosed to the Purchasers in writing, which materially
adversely affects the condition of the Company or the ability of the Company to
perform its obligations under this Agreement or any of the other Transaction
Documents.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each of the Purchasers hereby represents and warrants (severally as to
itself and not jointly) to the Company as follows:
4.1 Existence and Power. Such Purchaser (a) is a partnership duly
organized and validly existing and in good standing under the laws of the
jurisdiction of its formation and (b) has the requisite partnership power and
authority to execute, deliver and perform its obligations under this Agreement
and each of the other Transaction Documents.
4.2 Authorizations: No Contravention. The execution, delivery and
performance by such Purchaser of this Agreement and each of the other
Transaction Documents and the transactions contemplated hereby and thereby (a)
have been duly authorized by all necessary partnership action and (b) do not
contravene the terms of such Purchaser's organizational documents, or any
amendment thereof.
4.3 Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any
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<PAGE> 7
Governmental Authority or any other Person with respect to any Requirement of
Law, and no lapse of a waiting period under any Requirement of Law, is necessary
or required in connection with the execution, delivery or performance
(including, without limitation, the purchase of the Purchased Shares) by, or
enforcement against, such Purchaser of this Agreement and each of the other
Transaction Documents or the transactions contemplated hereby and thereby.
4.4 Binding Effect. This Agreement and each of the other Transaction
Documents have been duly executed and delivered by such Purchaser and constitute
the legal, valid and binding obligations of such Purchaser, enforceable against
it in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, mortarium or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability
(regardless of whether consideration in a proceeding at law or in equity).
4.5 Purchase for Own Account. The Purchased Shares to be acquired by
such Purchaser pursuant to this Agreement are being or will be acquired for its
own account and with no intention of distributing or reselling such Purchased
Shares or any part thereof in any transaction that would be in violation of the
securities laws of the United States of America, or any state, without
prejudice, however, to the rights of such Purchaser at all times to sell or
otherwise dispose of all or any part of such Purchased Shares under an effective
registration statement under the Securities Act, or under an exemption from such
registration available under the Securities Act, and subject, nevertheless, to
the disposition of such Purchaser's property being at all times within its
control. If such Purchaser should in the future decide to dispose of any of the
Purchased Shares, such Purchaser understands and agrees that it may do so only
in compliance with the Securities Act and applicable state securities laws, as
then in effect. Such Purchaser agrees to the imprinting so long as required by
law or so long as the Amended and Restated Stockholders Agreement is in effect,
of a legend on certificates representing all of its Purchased Shares and its
shares of Common Stock issuable upon conversion of its Purchased Shares to the
following effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO A WRITTEN OPINION
OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIREMENT.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE
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SECURITIES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS
OF THE SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, DATED
JANUARY 30, 1998, AMONG ECLIPSYS CORPORATION AND CERTAIN STOCKHOLDERS
OF ECLIPSYS CORPORATION SET FORTH ON THE SIGNATURE PAGES THERETO, A
COPY OF WHICH MAY BE INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE. THE
COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH SECURITIES ON THE BOOKS
OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN
COMPLIANCE WITH THE TERMS OF THE SHAREHOLDERS AGREEMENT.
4.6 Experience: Accredited Investor. Such Purchaser understands the
Purchased Shares will not be registered at the time of their issuance under the
Securities Act for the reason that the sale provided for in this Agreement is
exempt pursuant to Section 4(2) of the Securities Act and that the reliance of
the Company on such exemption is predicted in part on such Purchaser's
representations set forth herein. Such Purchaser represents that it is
experienced in evaluating companies such as the Company, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment and has the ability to suffer the total loss
of its investment. Such Purchaser further represents that it has had the
opportunity to ask questions of the receive answers from the Company concerning
the terms and conditions of the offering and to obtain additional information to
such Purchaser's satisfaction. Such Purchaser is an "accredited investor" as
that term is defined by Rule 501 of Regulation D promulgated under the
Securities Act.
4.7 Broker's, Finders' or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the
Purchasers, in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with the Purchasers or any action taken
by the Purchasers.
ARTICLE 5
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
The obligation of the Purchasers to purchase the Purchased Shares, to
pay the purchase price therefor at the Closing and to perform any obligations
hereunder shall be subject to the satisfaction as determined by, or waiver by
the Purchasers of the following conditions on or before the Closing Date.
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<PAGE> 9
5.1 Secretary's Certificate. The Purchasers shall have received a
certificate from the Company, in form and substance satisfactory to the
Purchasers, dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, certifying that the attached copies of the Certificate
of Incorporation, the By-laws, the resolutions of the Board of Directors of the
Company and the resolutions of the stockholders of the Company (to the extent
applicable) approving this Agreement and each of the other Transaction Documents
and the transactions contemplated hereby and thereby, are all true, complete and
correct and remain unamended and in full force and effect.
5.2 Filing of the Certificate of Incorporation. The Company shall have
duly filed with the Secretary of State of the State of Delaware in accordance
with the Delaware General Corporation Law the Certificate of Incorporation, in
form and substance reasonably satisfactory to the Purchasers, pursuant to which,
among other things, the Company shall have authorized and designated the Series
G Preferred Stock so as to enable the Company to issue, sell and deliver the
Purchased Shares to the Purchasers and perform its obligations under this
Agreement.
5.3 Purchased Shares. The Company shall have delivered to the
Purchasers certificates in definitive form representing the number of Purchased
Shares set forth opposite such Purchaser's name on Schedule 2.1 hereto,
registered in the name of such Purchaser.
5.4 Second Amended and Restated Stockholders Agreement. The Company
shall have duly executed and delivered the Second Amended and Restated
Stockholders Agreement.
5.5 Second Amended and Restated Registration Rights Agreement. The
Company shall have duly executed and delivered the Second Amended and Restated
Registration Rights Agreement.
5.6. Stockholder Approval. (a) The Certificate of Incorporation shall
have been approved and adopted at a meeting, or by a written action, of the
Company's stockholders by the affirmative vote or consent of the stockholders of
the Company in accordance with the Amended and Restated Certificate of
Incorporation of the Company, dated January 24, 1997, and the Delaware General
Corporation Law; and (b) each of the Second Amended and Restated Stockholders
Agreement and the Second Amended and Restated Registration Rights Agreement
shall have been duly executed and delivered by all of the stockholders of the
Company party thereto (other than GAP LP, General Atlantic Partners 38, L.P.,
General Atlantic Partners 28, L.P. and GAP Coinvestment).
5.7 Waiver of Preemptive Rights. The Company shall have obtained from
each of the stockholders of the Company (other than GAP LP, General Atlantic
Partners 38, L.P., General Atlantic Partners 28, L.P. and GAP Coinvestment)
party to the Second Amended and Restated Stockholders Agreement a waiver of its
or his preemptive rights under Section 5 of the Second Amended and Restated
Stockholders Agreement, with respect to the issue and sale of the Purchased
Shares.
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ARTICLE 6
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Purchased Shares
and the obligation of the Company to perform its other obligations hereunder,
shall e subject to the satisfaction as determined by, or written waiver by, the
Company of the following conditions on or before the Closing Date:
6.1 Payment of Purchase Price. The Company shall have received the
aggregate purchase price for the Purchased Shares.
6.2 Approvals. The Purchasers shall have duly executed and delivered
the Second Amended and Restated Stockholders Agreement and the Second Amended
and Restated Registration Rights Agreement.
ARTICLE 7
MISCELLANEOUS
7.1 Survival of Representations and Warranties. All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement until the third anniversary of the Closing Date.
7.2 Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be given in the manner
set forth in Section 10.2 of the Preferred Stock and Warrant Purchase Agreement,
dated January 24, 1997 (the "Original Stock Purchase Agreement"), among the
Company, General Atlantic Partners 38, L.P., General Atlantic Partners 28, L.P.,
GAP Coinvestment, First Union Corporation, BT Investment Partners, Inc., Wilfam
Ltd., Brean Murray Information Services, Inc. and Peter Karmanos, Jr.
7.3 Reservation of Common Stock. The Company covenants and agrees with
the Purchasers that it shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issue or delivery
upon conversion of the Purchased Shares, the maximum number of shares of Common
Stock that may be issuable or deliverable upon such conversion. Such shares of
Common Stock are duly authorized and, when issued or delivered in accordance
with the Certificate of Incorporation shall be validly issued, fully paid and
non-assessable.
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7.4 Successors and Assigns: Third Party Beneficiaries. This Agreement
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties hereto. Subject to applicable securities laws, the
Purchasers may assign any of its rights under any of the Transaction Documents
to any of its Affiliates (as defined in the Original Stock Purchase Agreement).
The Company may not assign any of its rights under this Agreement without the
written consent of the Purchasers. No Person other than the parties hereto and
their successors and permitted assigns is intended to be a beneficiary of this
Agreement.
7.5 Amendment and Waiver.
(a) No failure or delay on the part of the Company or the
Purchasers in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure by the Company or the Purchasers from the terms of any
provision of this Agreement, shall be effective (i) only if it is made or given
in writing and signed by the Company and the Purchasers, and (ii) only in the
specific instance and for the specific purpose for which made or given. Except
where notice is specifically required by this Agreement, no notice to or demand
on the Company in any case shall entitle the Company to any other or further
notice or demand in similar or other circumstances.
7.6 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
7.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
7.8 Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
7.9 Entire Agreement. This Agreement, together with the exhibits and
schedules hereto, and the other Transaction Documents are intended by the
parties as a final expression of
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their agreement and intended to be complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. This Agreement, together with the exhibits
and schedules hereto, and the other Transaction Documents supersede all prior
agreements and understandings between the parties with respect to such subject
matter.
7.10 Fees. Each of the Company and the Purchasers shall pay their own
fees, disbursements and other charges of their counsel incurred in connection
with the transactions contemplated by this Agreement.
7.11 Publicity: Confidentiality. Except as may be required by
applicable law or the rules of any securities exchange or market on which shares
of Common Stock are traded, none of the parties hereto shall issue a publicity
release or public announcement or otherwise make any disclosure concerning this
Agreement, the transactions contemplated hereby or with respect to the
Purchaser, without prior approval by the other parties hereto. If any
announcement is required by law or the rules of any securities exchange or
market on which shares of Common Stock are traded to be made by any party
hereto, prior to making such announcement such party will deliver a draft of
such announcement to the other parties and shall give the other parties
reasonable opportunity to comment thereon.
7.12 Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
ECLIPSYS CORPORATION
By: /s/ Harvey J. Wilson
------------------------------------------------
Name: Harvey J. Wilson
Title: President and Chief Executive Officer
GENERAL ATLANTIC PARTNERS 47, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partners
By: /s/ Steven A. Denning
--------------------------
Name: Steven A. Denning
Title: A Managing Member
GAP COINVESTMENT PARTNERS, L.P.
By: /s/ Steven A. Denning
--------------------------
Name: Steven A. Denning
Title: A General Partner
-13-
<PAGE> 14
SCHEDULE 2.1
<TABLE>
<CAPTION>
Purchased Shares and Purchase Price
-----------------------------------
Shares of Series G
Preferred Stock Purchased
Purchaser From the Company Purchase Price
--------- ---------------- --------------
<S> <C> <C>
GAP LP 757,012 $7,570,120.00
GAP Coinvestment 142,983 1,429,880.00
------- -------------
Total: 900,000 $9,000,000.00
</TABLE>
-14-
<PAGE> 1
EXHIBIT 10.7
ECLIPSYS CORPORATION
1996 STOCK PLAN
AS AMENDED ON APRIL 19, 1997
1. PURPOSE. The purpose of the Eclipsys Corporation 1996 Stock
Plan (the "Plan") is to encourage key employees of Eclipsys Corporation (the
"Company") and of any present or future parent or subsidiary of the Company
(collectively, "Related Corporations") and other individuals who render services
to the Company, by providing opportunities to participate in the ownership as
"incentive stock options" ("ISOs") under Section 422(b) of the Internal Revenue
Code of 1986, as amended (the "Code"); (b) the grant of options which do not
qualify as ISOs ("Non-Qualified Options"); (c) awards of stock in the Company
("Awards"); and (d) opportunities to make direct purchases of stock in the
Company ("Purchases"). Both ISOs and Non-Qualified Options are referred to
hereafter individually as an "Option" and collectively as "Options." Options,
Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights." As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation,"
respectively, as those terms are defined in Section 424 of the Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be
administered by the Board of Directors of the Company (the "Board") or
by a committee appointed by the Board (the "Committee"); provided that
the Plan shall be administered to the extent required by Rule 16b-3
promulgated under the Securities Exchange Act of 1934 or any successor
provision ("Rule 16b-3"), by a disinterested administrator or
administrators within the meaning of Rule 16b-3. Hereinafter, all
references in this Plan to the "Committee" shall mean the Board if no
Committee has been appointed. Subject to ratification of the grant or
authorization of each Stock Right by the Board (if so required by
applicable state law), and subject to the terms of the Plan, the
Committee shall have the authority to (i) determine to whom (from among
the class of employees eligible under paragraph 3 to receive ISOs) ISOs
shall be granted, and to whom (from among the class of individuals and
entities eligible under paragraph 3 to receive Non-Qualified Options
and Awards and to make Purchases) Non-Qualified Options, Awards and
authorizations to make Purchases may be granted; (ii) determine the
time or times at which Options or Awards shall be granted or Purchases
made; (iii) determine the purchase price of shares subject to each
Option or Purchase, which prices shall not be less than the minimum
price specified in paragraph 6; (iv) determine whether each Option
granted shall be an ISO or a Non-Qualified Option; (v) determine
(subject to paragraph 7) the time or times when each Option shall
become exercisable and the duration of the exercise period; (vi)
determine whether restrictions such as repurchase options are to be
imposed on shares subject to Options, Awards and Purchases and the
nature of such restrictions, if any, and (vii) interpret the Plan and
prescribe and rescind rules and regulations relating to it: If the
Committee determines to issue a Non-Qualified Option, it shall take
whatever actions it deems necessary, under Section 422 of the Code and
the regulations promulgated thereunder, to ensure that such Option is
not treated as an ISO. The interpretation and construction by the
Committee of any provisions of the Plan or of any Stock Right granted
under it shall be final unless otherwise determined by the Board. The
Committee may from time to time adopt such rules and regulations for
carrying out the Plan
<PAGE> 2
as it may deem advisable. No member of the Board or the Committee shall
be liable for any action or determination made in good faith with
respect to the Plan or any Stock Right granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of its
members as its chairman, and shall hold meetings at such time and
places as it may determine. A majority of the Committee shall
constitute a quorum and acts of a majority of the members of the
Committee at a meeting at which a quorum is present, or acts reduced to
or approved in writing by all the members of the Committee, shall be
the valid acts of the Committee. From time to time the Board may
increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies however caused, or remove all
members of the Committee and thereafter directly administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Subject to the
provisions of the first sentence of paragraph 2(A) above, if
applicable, Stock Rights may be granted to members of the Board. All
grants of Stock Rights to members of the Board shall in all other
respects be made in accordance with the provisions of this Plan
applicable to other eligible persons. Members of the Board who either
(i) are eligible to receive grants of Stock Rights pursuant to the Plan
or (ii) have been granted Stock Rights may vote on any matters
affecting the administration of the Plan or the grant of any Stock
Rights pursuant to the Plan, except that no such member shall act upon
the granting to himself of Stock Rights, but any such member may be
counted in determining the existence of a quorum at any meeting of the
Board during which action is taken with respect to the granting to such
member of Stock Rights.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to employees
of the Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant a Stock Right. The
granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify him from, participation in any
other grant of Stock Rights.
4. STOCK. The stock subject to Stock Rights shall be authorized but
unissued shares of Common Stock of the Company, par value $.01 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan
is 2,500,000, subject to adjustment as provided in paragraph 13. If any Stock
Right granted under the Plan shall expire or terminate for any reason without
having been exercised in full or shall cease for any reason to be exercisable in
whole or in part, the unpurchased shares subject to such Stock Right shall again
be available for grants of Stock Rights under the Plan.
-2-
<PAGE> 3
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
at any time after APRIL 10, 1996 and prior to APRIL 10, 2006. The date of grant
of a Stock Right under the Plan will be the date specified by the Committee at
the time it grants the Stock Right; provided, however, that such date shall not
be prior to the date on which the Committee acts to approve the grant.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND PURCHASES. The
exercise price per share specified in the agreement relating to each
Non-Qualified Option granted, and the purchase price per share of stock
granted in any Award or authorized as a Purchase, under the Plan shall
in no event be less than the minimum legal consideration required
therefor under the laws of Delaware or the laws of any jurisdiction in
which the Company or its successors in interest may be organized.
B. PRICE FOR ISOS. The exercise price per share specified in
the agreement relating to each ISO granted under the Plan shall not be
less than the fair market value per share of Common Stock on the date
of such grant. In the case of an ISO to be granted to an employee
owning stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any
Related Corporation, the price per share specified in the agreement
relating to such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date
of grant. For purposes of determining stock ownership under this
paragraph, the rules of Section 424(d) of the Code shall apply.
C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each eligible
employee may be granted Options treated as ISOs only to the extent
that, in the aggregate under this Plan and all incentive stock option
plans of the Company and any Related Corporation, ISOs do not become
exercisable for the first time by such employee during any calendar
year with respect to stock having a fair market value (determined at
the time the ISOs were granted) in excess of $100,000. The Company
intends to designate any Options granted in excess of such limitation
as Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an
Option is granted under the Plan, the Company's Common Stock is
publicly traded, "fair market value" shall be determined as of the last
business day for which the prices or quotes discussed in this sentence
are available prior to the date such Option is granted and shall mean
(i) the average (on that date) of the high and low prices of the Common
Stock on the principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the Nasdaq National Market, if the Common
Stock is not then traded on a national securities exchange; or (iii)
the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq National
Market. If the
-3-
<PAGE> 4
Common Stock is not publicly traded at the time an Option is granted
under the Plan, "fair market value" shall mean the fair value of the
Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including,
without limitation, recent sale and offer prices of the Common Stock in
private transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(B). Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on
the date of grant or shall become exercisable thereafter in such
installments as the Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination
of the Option, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may be
exercised at any time or from time to time, in whole or in part, for up
to the total number of shares with respect to which it is then
exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right
to accelerate the date that any installment of any Option becomes
exercisable; provided that the Committee shall not, without the consent
of an optionee, accelerate the permitted exercise date of any
installment of any Option granted to any employee as an
-4-
<PAGE> 5
ISO (and not previously converted into a Non-Qualified Option pursuant
to paragraph 16) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in
paragraph 6(C).
9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the
agreement relating to such Option and except as provided in paragraph 21, if an
optionee ceases to be employed by the Company and all Related Corporations other
than by reason of death or disability as defined in paragraph 10, no further
installments of his or her Options shall become exercisable, and his or her
Options shall terminate on the earlier of (a) ninety (90) days after the date of
termination of his or her employment, or (b) their specified expiration dates.
For purposes of this paragraph 9, employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under this paragraph 9, provided that
such written approval contractually obligates the Company or any Related
Corporation to continue the employment of the optionee after the approved period
of absence. ISOs granted under the Plan shall not be affected by any change of
employment within or among the Company and Related Corporations, so long as the
optionee continues to be an employee of the Company or any Related Corporation.
Nothing in the Plan shall be deemed to give any grantee of any Stock Right the
right to be retained in employment or other service by the Company or any
Related Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his or her death, any
ISO owned by such optionee may
-5-
<PAGE> 6
be exercised, to the extent otherwise exercisable on the date of his
death, by his estate, personal representative or beneficiary who has
acquired the ISO by will or by the laws of descent and distribution,
until the earlier of (i) the specified expiration date of the ISO or
(ii) 180 days from the date of the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his or her
disability, such optionee shall have the right to exercise any ISO held
by him or her on the date of termination of employment, for the number
of shares for which he or she could have exercised it on that date,
until the earlier of the specified expiration date of the ISO or 180
days from the date of the termination of the optionee's employment. For
the purposes of the Plan, the term "disability" shall mean "permanent
and total disability" as defined in Section 22(e)(3) of the Code or any
successor statute.
11. ASSIGNABILITY. No Stock Right shall be assignable or transferable
by the grantee except by will, by the laws of descent and distribution or, in
the case of Non-Qualified Options only, pursuant to a valid domestic relations
order. Except as set forth in the previous sentence, during the lifetime of a
grantee each Stock Right shall be exercisable only by such grantee.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. STOCK DIVIDENDS AND STOCKS SPLITS. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number
of shares or if the Company shall issue any shares of Common Stock as a
stock dividend on its outstanding Common Stock, the number of shares of
Common Stock deliverable upon the exercise of Options shall be
appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share to reflect
such subdivision, combination or stock dividend.
-6-
<PAGE> 7
B. CONSOLIDATIONS OR MERGERS. If the Company is to be merged
into or consolidated with another corporation and, upon consummation of
such merger or consolidation, the stockholders of the Company
immediately before such merger or consolidation will possess less than
a majority of the voting power of the capital stock of the successor
corporation, or the Company sells or transfers all or substantially all
of its assets to another corporation in a transaction or series of
transactions (an "Acquisition"), the Committee or the board of
directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options,
either (i) make appropriate provision for the continuation of such
Options by substituting on an equitable basis for the shares then
subject to such Options either (a) the consideration payable with
respect to the outstanding shares of Common Stock in connection with
the Acquisition, (b) shares of stock of the surviving corporation or
(c) such other securities as the Successor Board deems appropriate, the
fair market value of which shall not materially exceed the fair market
value of the shares of Common Stock subject to such Options immediately
preceding the Acquisition; or (ii) upon written notice to the
optionees, provide that all Options must be exercised, to the extent
then exercisable, within a specified number of days of the date of such
notice, at the end of which period the Options shall terminate; or
(iii) terminate all Options in exchange for a cash payment equal to the
excess of the fair market value of the shares subject to such Options
(to the extent then exercisable) over the exercise price thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than in
connection with a transaction described in subparagraph B above)
pursuant to which securities of the Company or of another corporation
are issued with respect to the outstanding shares of Common Stock, an
optionee upon exercising an Option shall be entitled to receive for the
purchase price paid upon such exercise the securities he would have
received if he had exercised his Option prior to such recapitalization
or reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to
ISOs shall be made only after the Committee, after consulting with
counsel for the Company, determines whether such adjustments would
constitute a "modification" of such ISOs (as that term is defined in
Section 424 of the Code) or would cause any adverse tax consequences
for the holders of such ISOs. If the Committee determines that such
adjustments made with respect to ISOs would constitute a modification
of such ISOs or would cause adverse tax consequences to the holders, it
may refrain from making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at
such other time and subject to such other conditions as shall be
determined by the Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided
herein, no issuance by the Company of shares of stock
-7-
<PAGE> 8
of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares subject to Options. No
adjustments shall be made for dividends paid in cash or in property
other than securities of the Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued
under the Plan and the optionee shall receive from the Company cash in
lieu of such fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the events
described in subparagraphs A, B or C above, the class and aggregate
number of shares set forth in paragraph 4 hereof that are subject to
Stock Rights which previously have been or subsequently may be granted
under the Plan shall also be appropriately adjusted to reflect the
events described in such subparagraphs. The Committee or the Successor
Board shall determine the specific adjustments to be made under this
paragraph 13 and, subject to paragraph 2, its determination shall be
conclusive.
14. MEANS OF EXERCISING OPTIONS. An option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b),(c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
APRIL 10, 1996, subject, with respect to the validation of ISOs granted under
the Plan, to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained prior to APRIL 10, 1997, any grants of ISOs
under the Plan made prior to that date will be rescinded. The Plan shall expire
at the end of the day on APRIL 10, 2006 (except as to Options outstanding on
that date). Subject to the
-8-
<PAGE> 9
provisions of paragraph 5 above, Options may be granted under the Plan prior to
the date of stockholder approval of the Plan. The Board may terminate or amend
the Plan in any respect at any time, except that, without the approval of the
stockholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions: (a) the total number of
shares that may be issued under the Plan may not be increased (except by
adjustment pursuant to paragraph 13); (b) the benefits accruing to participants
under the Plan may not be materially increased; (c) the requirements as to
eligibility for participation in the Plan may not be materially modified; (d)
the provisions of paragraph 3 regarding eligibility for grants of ISOs may not
be modified; (e) the provisions of paragraph 6(B) regarding the exercise price
at which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to paragraph 13); (f) the expiration date of the Plan may
not be extended; and (g) the Board may not take any action which would cause the
Plan to fail to comply with Rule 16b-3. Except as otherwise provided in this
paragraph 15, in no event may action of the Board or stockholders alter or
impair the rights of a grantee, without such grantee's consent, under any Option
previously granted to such grantee.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS. The Committee, at
the written request or with the written consent of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but shall not be limited to, extending the exercise
period or reducing the exercise price of the appropriate installments of such
ISOs. At the time of such conversion, the Committee (with the consent of the
optionee) may impose such conditions on the exercise of the resulting
Non-Qualified Options as the Committee in its discretion may determine, provided
that such conditions shall not be inconsistent with this Plan. Nothing in the
Plan shall be deemed to give any optionee the right to have such optionee's ISOs
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Committee takes appropriate action.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after he makes a Disqualifying Disposition (as described in Sections
421, 422 and 424 of the Code and regulations thereunder) of any stock acquired
pursuant to the exercise of ISOs granted under the Plan. A Disqualifying
Disposition is generally any disposition occurring on or before the later of (a)
the date two years following the date the ISO was granted or (b) the date one
year following the date the ISO was exercised.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the
-9-
<PAGE> 10
vesting or transfer of restricted stock or securities acquired on the exercise
of an Option hereunder, or the making of a distribution or other payment with
respect to such stock or securities, the Company may withhold taxes in respect
of amounts that constitute compensation includable in gross income. The
Committee in its discretion may condition (i) the exercise of an Option, (ii)
the grant of an Award, (iii) the making of a Purchase of Common Stock for less
than its fair market value, or (iv) the vesting or transferability of restricted
stock or securities acquired by exercising an Option, on the grantee's making
satisfactory arrangement for such withholding. Such arrangement may include
payment by the grantee in cash or by check of the amount of the withholding
taxes or, at the discretion of the Committee, by the grantee's delivery of
previously held shares of Common Stock or the withholding from the shares of
Common Stock otherwise deliverable upon exercise of an Option shares having an
aggregate fair market value equal to the amount of such withholding taxes.
20. GOVERNMENTAL REGULATION. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by grantees of Options in connection with
the Plan.
21. NO EXERCISE OF OPTION IF BUSINESS RELATIONSHIP TERMINATED FOR
CAUSE. If the Business Relationship of the Optionee with the Company is
terminated for "Cause," this option shall terminate on the date of such
termination and this option shall thereupon not be exercisable to any extent
whatsoever. "Cause" is conduct, as determined by the Board of Directors,
involving one or more of the following: (i) gross misconduct by the Optionee
that is materially injurious to the Company; or (ii) the commission of an act of
embezzlement, fraud or deliberate disregard of the rules or policies of the
Company which results in material economic loss, damage or injury to the
Company; or (iii) the unauthorized disclosure of any trade secret or
confidential information of the Company or any third party who has a business
relationship with the Company; or (iv) the commission of an act which induces
any customer or prospective customer of the Company to break a contract with the
Company or to decline to do business with the Company; or (v) the conviction of
the Optionee of a felony involving any financial impropriety or which would
materially interfere with the Optionee's ability to perform his or her services
or otherwise be injurious to the Company; or (vi) the failure of the Optionee to
perform in a material respect his or her employment obligations without proper
cause. In making such determination, the Board of Directors shall act fairly and
in utmost good faith. For the purposes of this Section 6, termination of
employment shall be deemed to occur when the Optionee receives notice that his
employment is terminated.
22. GOVERNING LAW. The validity and construction of the Plan and the
instruments evidencing Options shall be governed by the laws of Delaware, or the
laws of any jurisdiction in which the Company or its successors in interest may
be organized.
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<PAGE> 1
EXHIBIT 10.8
ECLIPSYS CORPORATION
1998 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 1998 Stock Incentive Plan (the "Plan") of Eclipsys
Corporation, a Delaware corporation (the "Company"), is to advance the interests
of the Company's stockholders by enhancing the Company's ability to attract,
retain and motivate persons who make (or are expected to make) important
contributions to the Company by providing such persons with equity ownership
opportunities and performance-based incentives and thereby better aligning the
interests of such persons with those of the Company's stockholders. Except where
the context otherwise requires, the term "Company" shall include any present or
future subsidiary corporations of Eclipsys Corporation as defined in Section
424(f) of the Internal Revenue Code of 1986, as amended, and any regulations
promulgated thereunder (the "Code").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
(a) Administration by Board of Directors. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the
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power to make Awards and exercise such other powers under the Plan as the Board
may determine, provided that the Board shall fix the maximum number of shares
subject to Awards and the maximum number of shares for any one Participant to be
made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). If and when the
common stock, $0.01 par value per share, of the Company (the "Common Stock") is
registered under the Securities Exchange Act of 1934 (the "Exchange Act"), the
Board shall appoint one such Committee of not less than two members, each member
of which shall be an "outside director" within the meaning of Section 162(m) of
the Code and a "non-employee director" as defined in Rule 16b-3 promulgated
under the Exchange Act." All references in the Plan to the "Board" shall mean
the Board or a Committee of the Board or the executive officer referred to in
Section 3(b) to the extent that the Board's powers or authority under the Plan
have been delegated to such Committee or executive officer.
4. Stock Available for Awards
(a) Number of Shares. Subject to adjustment under Section 4(b), Awards
may be made under the Plan for up to an aggregate number of shares of Common
Stock equal to (i) 6,500,000 less (ii) the sum of (X) the number of shares as to
which options are then outstanding under the Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan") and the number of shares previously sold
under the Purchase Plan and (Y) the number of shares as to which options are
then outstanding under the Company's 1996 Stock Plan (the "1996 Plan") and the
number of shares previously issued upon the exercise of options granted under
the 1996 Plan and the number of shares of restricted or unrestricted stock
granted under the 1996 Plan then outstanding. If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) Adjustment to Common Stock. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the number and class of security and exercise price per
share subject to each outstanding Option, (iii) the repurchase price per
security subject to each outstanding Restricted
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Stock Award, and (iv) the terms of each other outstanding stock-based Award
shall be appropriately adjusted by the Company (or substituted Awards may be
made, if applicable) to the extent the Board shall determine, in good faith,
that such an adjustment (or substitution) is necessary and appropriate. If this
Section 4(b) applies and Section 8(e)(1) also applies to any event, Section
8(e)(1) shall be applicable to such event, and this Section 4(b) shall not be
applicable.
5. Stock Options
(a) General. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement. No Option will be granted for a term in excess of
10 years.
(e) Exercise of Option. Options may be exercised only by delivery to
the Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an Option
Agreement, delivery of an irrevocable and unconditional undertaking by a
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creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, or delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price;
(3) to the extent permitted by the Board and explicitly provided in
an Option Agreement (i) by delivery of shares of Common Stock owned by the
Participant valued at their fair market value as determined by the Board in good
faith ("Fair Market Value"), which Common Stock was owned by the Participant at
least six months prior to such delivery, (ii) by delivery of a promissory note
of the Participant to the Company on terms determined by the Board, or (iii) by
payment of such other lawful consideration as the Board may determine; or
(4) any combination of the above permitted forms of payment.
6. Restricted Stock
(a) Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Other Stock-Based Awards
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
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8. General Provisions Applicable to Awards
(a) Transferability of Awards. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
(b) Documentation. Each Award under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each
type of Award may be made alone or in addition or in relation to any other type
of Award. The terms of each type of Award need not be identical, and the Board
need not treat Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Acquisition Events Acquisition and Change in Control Events
(1) Definitions
a. An "Acquisition Event" shall mean:
(i) any merger or consolidation of the
Company with or into another entity
as a result of which the Common
Stock is converted into or exchanged
for the right to receive cash,
securities or other property; or
(ii) any exchange of shares of the
Company for cash, securities or
other property pursuant to a
statutory share exchange
transaction.
b. A "Change in Control Event" shall mean:
(i) the acquisition by an individual,
entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of
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the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a
"Person") of beneficial ownership
of any capital stock of the Company
if, after such acquisition, such
Person beneficially owns (within
the meaning of Rule 13d-3
promulgated under the Exchange Act)
30% or more of either (x) the
then-outstanding shares of common
stock of the Company (the
"Outstanding Company Common Stock")
or (y) the combined voting power of
the then-outstanding securities of
the Company entitled to vote
generally in the election of
directors (the "Outstanding Company
Voting Securities"); provided,
however, that for purposes of this
subsection (i), the following
acquisitions shall not constitute a
Change in Control Event: (A) any
acquisition directly from the
Company (excluding an acquisition
pursuant to the exercise,
conversion or exchange of any
security exercisable for,
convertible into or exchangeable
for common stock or voting
securities of the Company, unless
the Person exercising, converting
or exchanging such security
acquired such security directly
from the Company or an underwriter
or agent of the Company), (B) any
acquisition by any employee benefit
plan (or related trust) sponsored
or maintained by the Company or any
corporation controlled by the
Company, (C) any acquisition by any
corporation pursuant to a Business
Combination (as defined below)
which complies with clauses (x) and
(y) of subsection (iii) of this
definition or (D) any acquisition
by General Atlantic Partners 28,
L.P., General Atlantic Partners 38,
L.P., General Atlantic Partners 47,
L.P., GAP Coinvestment Partners,
L.P. and any other entities
controlled by or under common
control with any of the foregoing
entities, within the meaning of the
Exchange Act; or
(ii) such time as the Continuing
Directors (as defined below) do not
constitute a majority of the Board
(or, if applicable, the Board of
Directors of a successor
corporation to the Company), where
the term "Continuing Director"
means at any date a member of the
Board (x) who was a member of the
Board on the date of the initial
adoption of this Plan by the Board
or (y) who was nominated or elected
subsequent to such date by at least
a majority of the directors who
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were Continuing Directors at the
time of such nomination or election
or whose election to the Board was
recommended or endorsed by at least
a majority of the directors who
were Continuing Directors at the
time of such nomination or
election; provided, however, that
there shall be excluded from this
clause (y) any individual whose
initial assumption of office
occurred as a result of an actual
or threatened election contest with
respect to the election or removal
of directors or other actual or
threatened solicitation of proxies
or consents, by or on behalf of a
person other than the Board; or
(iii) the consummation of a merger,
consolidation, reorganization or
statutory share exchange involving
the Company or a sale or other
disposition of all or substantially
all of the assets of the Company (a
"Business Combination"), unless,
immediately following such Business
Combination, each of the following
two conditions is satisfied: (x)
all or substantially all of the
individuals and entities who were
the beneficial owners of the
Outstanding Company Common Stock
and Outstanding Company Voting
Securities immediately prior to
such Business Combination
beneficially own, directly or
indirectly, more than 50% of the
then-outstanding shares of common
stock and the combined voting power
of the then-outstanding securities
entitled to vote generally in the
election of directors,
respectively, of the resulting or
acquiring corporation in such
Business Combination (which shall
include, without limitation, a
corporation which as a result of
such transaction owns the Company
or substantially all of the
Company's assets either directly or
through one or more subsidiaries)
(such resulting or acquiring
corporation is referred to herein
as the "Acquiring Corporation") in
substantially the same proportions
as their ownership of the
Outstanding Company Common Stock
and Outstanding Company Voting
Securities, respectively,
immediately prior to such Business
Combination and (y) no Person
(excluding the Acquiring
Corporation, any Exempt Person or
any employee benefit plan (or
related trust) maintained or
sponsored by the Company or by the
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Acquiring Corporation) beneficially
owns, directly or indirectly, 30%
or more of the then-outstanding
shares of common stock of the
Acquiring Corporation, or of the
combined voting power of the
then-outstanding securities of such
corporation entitled to vote
generally in the election of
directors (except to the extent
that such ownership existed prior
to the Business Combination).
(2) Effect on Options
a. Acquisition Event. Upon the occurrence of an
Acquisition Event (regardless of whether
such event also constitutes a Change in
Control Event), or the execution by the
Company of any agreement with respect to an
Acquisition Event (regardless of whether
such event will result in a Change in
Control Event), the Board shall provide that
all outstanding Options shall be assumed, or
equivalent options shall be substituted, by
the acquiring or succeeding corporation (or
an affiliate thereof); provided that (i) any
options substituted for Incentive Stock
Options shall satisfy, in the determination
of the Board, the requirements of Section
424(a) of the Code and (ii) if such
Acquisition Event also constitutes a Change
in Control Event, except to the extent
specifically provided to the contrary in the
instrument evidencing any Option or any
other agreement between a Participant and
the Company, such assumed or substituted
options shall be immediately exercisable in
full upon the occurrence of such Acquisition
Event.
Notwithstanding the foregoing, if
the acquiring or succeeding corporation (or
an affiliate thereof) does not agree to
assume, or substitute for, such Options,
then the Board shall (x) upon written notice
to the Participants, provide that all then
unexercised Options will become exercisable
in full as of a specified time (the
"Acceleration Time") prior to the
Acquisition Event and will terminate
immediately prior to the consummation of
such Acquisition Event, except to the extent
exercised by the Participants before the
consummation of such Acquisition Event,
and/or (y) in the event of an Acquisition
Event under the terms of which holders of
Common Stock will receive upon consummation
thereof a cash payment for each share of
Common Stock surrendered pursuant to such
Acquisition
<PAGE> 9
Event (the "Acquisition Price"), provide that all
outstanding Options shall terminate upon consummation
of such Acquisition Event and each Participant shall
receive, in exchange therefor, a cash payment equal
to the amount (if any) by which (A) the Acquisition
Price multiplied by the number of shares of Common
Stock subject to such outstanding Options (whether or
not then exercisable), exceeds (B) the aggregate
exercise price of such Options.
b. Change in Control Event that is not an Acquisition
Event. Upon the occurrence of a Change in Control
Event that does not also constitute an Acquisition
Event, except to the extent specifically provided to
the contrary in the instrument evidencing any Option
or any other agreement between a Participant and the
Company, all Options then-outstanding shall
automatically become immediately exercisable in full.
(3) Effect on Restricted Stock Awards
a. Acquisition Event that is not a Change in Control
Event. Upon the occurrence of an Acquisition Event
that is not a Change in Control Event, the repurchase
and other rights of the Company under each
outstanding Restricted Stock Award shall inure to the
benefit of the Company's successor and shall apply to
the cash, securities or other property which the
Common Stock was converted into or exchanged for
pursuant to such Acquisition Event in the same manner
and to the same extent as they applied to the Common
Stock subject to such Restricted Stock Award.
b. Change in Control Event. Upon the occurrence of a
Change in Control Event (regardless of whether such
event also constitutes an Acquisition Event), except
to the extent specifically provided to the contrary
in the instrument evidencing any Restricted Stock
Award or any other agreement between a Participant
and the Company, all restrictions and conditions on
all Restricted Stock Awards then-outstanding shall
automatically be deemed terminated or satisfied.
(4) Effect on Other Awards
a. Acquisition Event that is not a Change in Control
Event. The Board shall specify the effect of an
Acquisition Event that is
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not a Change in Control Event on any other Award
granted under the Plan at the time of the grant of
such Award.
b. Change in Control Event. Upon the occurrence of a
Change in Control Event (regardless of whether such
event also constitutes an Acquisition Event), except
to the extent specifically provided to the contrary
in the instrument evidencing any other Award or any
other agreement between a Participant and the
Company, all other Awards shall become exercisable,
realizable or vested in full, or shall be free of all
conditions or restrictions, as applicable to each
such Award.
(f) Assumption of Options Upon Certain Events. The Board may grant
Awards under the Plan in substitution for stock and stock-based awards held by
employees of another corporation who become employees of the Company as a result
of a merger or consolidation of the employing corporation with the Company or
the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
(g) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(h) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(i) Conditions on Delivery of Stock. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any
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applicable stock exchange or stock market rules and regulations, and (iii) the
Participant has executed and delivered to the Company such representations or
agreements as the Company may consider appropriate to satisfy the requirements
of any applicable laws, rules or regulations.
(j) Acceleration. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of all restrictions or that any other stock-based
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
9. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
(c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board. No Awards shall be granted under
the Plan after the completion of ten years from the earlier of (i) the date on
which the Plan was adopted by the Board or (ii) the date the Plan was approved
by the Company's stockholders, but Awards previously granted may extend beyond
that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time.
(e) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
Adopted by the Board of Directors
on April 8, 1998
Approved by the Stockholders
on _____ ___, 1998
<PAGE> 1
EXHIBIT 10.9
ECLIPSYS CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
April 8, 1998
The purpose of this Plan is to provide eligible employees of Eclipsys
Corporation (the "Company") and certain of its subsidiaries with opportunities
to purchase shares of the Company's common stock, $0.01 par value (the "Common
Stock"). Subject to adjustment pursuant to Section 15, the maximum number of
shares of Common Stock which shall be made available for purchase under this
Plan shall be that number equal to (i) 6,500,000 less (ii) the sum of (X) the
number of shares as to which "Awards" have previously been made or shares issued
under the Company's 1998 Stock Incentive Plan (the "Omnibus Plan"), as such
number shall be reduced to the extent shares become reavailable for issuance
under the Omnibus Plan pursuant to Section 4(a) thereof, and (Y) the number of
shares as to which options are then outstanding under the Company's 1996 Stock
Plan (the "1996 Plan") and the number of shares previously issued upon the
exercise of options granted under the 1996 Plan and the number of shares of
restricted or unrestricted stock granted under the 1996 Plan then outstanding.
1. Administration. The Plan will be administered by the Company's Board
of Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including Directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined in Section 9) to purchase Common Stock under the Plan
provided that:
(a) they are regularly employed by the Company or a Designated
Subsidiary for more than 20 hours a week and have been employed by the
Company or a Designated Subsidiary for at least 90 days prior to
enrolling in the Plan; and
(b) they are employees of the Company or a Designated
Subsidiary on the first day of the applicable Plan Period (as defined
below).
<PAGE> 2
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
3. Offerings. The Company will make one or more offerings ("Offerings")
to employees to purchase stock under this Plan. The first Offering will commence
on the first January 1, April 1, July 1 or October 1 following the closing of a
firm commitment, underwritten initial public offering by the Company (or the
first business day thereafter if such date is not a business day). Thereafter,
Offerings will begin each January 1, April 1, July 1 or October 1, as applicable
(or the first business day thereafter if such date is not a business day). The
date on which each Offering commences is referred to as an "Offering
Commencement Date." Each Offering Commencement Date will begin a three-month
period (a "Plan Period") during which payroll deductions will be made and held
for the purchase of Common Stock at the end of the Plan Period. The Board or the
Committee may, at its discretion, choose a different Plan Period of twelve (12)
months or less for subsequent Offerings.
4. Participation. An employee eligible on the Offering Commencement
Date of any Offering may participate in such Offering by completing and
forwarding a payroll deduction authorization form to the employee's appropriate
payroll office at least seven days prior to the applicable Offering Commencement
Date. The form will authorize a regular payroll deduction from the compensation
received by the employee during the Plan Period. Unless an employee files a new
form or withdraws from the Plan, his deductions and purchases will continue at
the same rate for future Offerings under the Plan as long as the Plan remains in
effect.
5. Deductions. The Company will maintain payroll deduction accounts for
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction in any dollar amount up to a
maximum monthly amount equal to 15% of his or her Compensation for the Plan
Period. The term "Compensation" means, for each Plan Period, monthly base salary
or wages as of the Offering Commencement Date plus, in the case of commissioned
salespersons, the average monthly commissions earned during the three months
preceding the Offering Commencement Date.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other stock
purchase plan of the Company and its subsidiaries to accrue at a rate which
exceeds $25,000 (based on the fair market value of such Common Stock determined
at the Offering Commencement Date of the Plan Period) for each calendar year in
which the Option is outstanding at any time.
<PAGE> 3
6. Deduction Changes. An employee may decrease or discontinue his
payroll deduction once during any Plan Period, by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. Interest. Interest will not be paid on any employee accounts, except
to the extent that the Board or the Committee, in its sole discretion, elects to
credit employee accounts with interest at such per annum rate as it may from
time to time determine.
8. Withdrawal of Funds. An employee may at any time prior to the close
of business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering. Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Plan Period. The employee may participate in any subsequent Offering in
accordance with terms and conditions established by the Board or the Committee.
9. Purchase of Shares. On the Offering Commencement Date of each Plan
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, such number of whole shares of Common Stock of the Company
reserved for the purposes of the Plan as does not exceed the number of shares
determined by dividing (i) the product of $1,250 multiplied by the number of
months in such Plan Priced by (ii) the price determined in accordance with the
formula set forth in the following paragraph but using the closing price on the
Offering Commencement Date of such Plan Period.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (a) the closing price on any national securities exchange on
which the Common Stock is listed, (b) the closing price of the Common Stock on
the Nasdaq National Market or (c) the average of the closing bid and asked
prices in the over-the-counter-market, whichever is applicable, as published in
The Wall Street Journal. If no sales of Common Stock were made on such a day,
the price of the Common Stock for purposes of clauses (a) and (b) above shall be
the reported price for the next preceding day on which sales were made.
Each employee who continues to be a participant in the Plan on the
Exercise Date shall be deemed to have exercised his Option at the Option Price
on such date and shall be deemed to have purchased from the Company the number
of full shares of
<PAGE> 4
Common Stock reserved for the purpose of the Plan that his accumulated payroll
deductions on such date will pay for pursuant to the formula set forth above
(but not in excess of the maximum number determined in the manner set forth
above).
Any balance remaining in an employee's payroll deduction account at the
end of a Plan Period will be automatically refunded to the employee, except that
any balance which is less than the purchase price of one share of Common Stock
will be carried forward into the employee's payroll deduction account for the
following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded.
10. Issuance of Certificates. Certificates representing shares of
Common Stock purchased under the Plan may be issued only in the name of the
employee, in the name of the employee and another person of legal age as joint
tenants with rights of survivorship, or (in the Company's sole discretion) in
the street name of a brokerage firm, bank or other nominee holder designated by
the employee.
11. Rights on Retirement, Death or Termination of Employment. In the
event of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law) or (b) in the absence of
such a designated beneficiary, to the executor or administrator of the
employee's estate or (c) if no such executor or administrator has been appointed
to the knowledge of the Company, to such other person(s) as the Company may, in
its discretion, designate. If, prior to the last business day of the Plan
Period, the Designated Subsidiary by which an employee is employed shall cease
to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. Rights Not Transferable. Rights under this Plan are not
transferable by a participating employee other than by will or the laws of
descent and distribution, and are exercisable during the employee's lifetime
only by the employee.
14. Application of Funds. All funds received or held by the Company
under this Plan may be combined with other corporate funds and may be used for
any corporate purpose.
<PAGE> 5
15. Adjustment in Case of Changes Affecting Common Stock. In the event
of a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and the
share limitation set forth in Section 9, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the Board or
the Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. Merger. If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger, and the Committee shall take such steps in
connection with such merger as the Committee shall deem necessary to assure that
the provisions of Paragraph 15 shall thereafter be applicable, as nearly as
reasonably may be, in relation to the said securities or property as to which
such holder of such Option might thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, (a) subject to the provisions of
clauses (b) and (c), after the effective date of such transaction, each holder
of an outstanding Option shall be entitled, upon exercise of such Option, to
receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of such transaction; or (b) all outstanding Options may be cancelled by
the Board or the Committee as of a date prior to the effective date of any such
transaction and all payroll deductions shall be paid out to the participating
employees; or (c) all outstanding Options may be cancelled by the Board or the
Committee as of the effective date of any such transaction, provided that notice
of such cancellation shall be given to each holder of an Option, and each holder
of an Option shall have the right to exercise such Option in full based on
payroll deductions then credited to his account as of a date determined by the
Board or the Committee, which date shall not be less than ten (10) days
preceding the effective date of such transaction.
17. Amendment of the Plan. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the shareholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event
<PAGE> 6
may any amendment be made which would cause the Plan to fail to comply with
Section 423 of the Code.
18. Insufficient Shares. In the event that the total number of shares
of Common Stock specified in elections to be purchased under any Offering plus
the number of shares purchased under previous Offerings under this Plan exceeds
the maximum number of shares issuable under this Plan, the Board or the
Committee will allot the shares then available on a pro rata basis.
19. Termination of the Plan. This Plan may be terminated at any time by
the Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. Governmental Regulations. The Company's obligation to sell and
deliver Common Stock under this Plan is subject to listing on a national stock
exchange or quotation on the Nasdaq National Market and the approval of all
governmental authorities required in connection with the authorization, issuance
or sale of such stock.
The Plan shall be governed by Delaware law except to the extent that
such law is preempted by federal law.
21. Issuance of Shares. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
22. Notification upon Sale of Shares. Each employee agrees, by entering
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
23. Effective Date and Approval of Shareholders. The Plan shall take
effect upon its approval by the Board, subject to approval by the shareholders
of the Company as required by Section 423 of the Code, which approval must occur
within twelve months of the adoption of the Plan by the Board.
Adopted by the Board of Directors
on April 8, 1998
Approved by the Stockholders on
_______________, 1998
<PAGE> 1
EXHIBIT 10.10
INTEGRATED HEALTHCARE SOLUTIONS, INC.
969 SOUTH OCEAN BOULEVARD
DELRAY BEACH, FLORIDA 33483
Dated as of May 1, 1996
Mr. Harvey J. Wilson
969 South Ocean Boulevard
Delray Beach, Florida 33483
Dear Harvey:
The purpose of this letter is to confirm the following as the terms of
your employment by Integrated Healthcare Solutions, Inc. (the "Company").
1. Scope and Duties of Employment: The Company hereby employs you to
serve as the Company's Chief Executive Officer during the term of this
agreement. You shall have such responsibilities, perform such duties and
exercise such power and authority as are inherent in or incident to such office
subject to direction of the Company's Board of Directors (the "Board"). You
shall devote substantially your full time and attention to the performance of
your duties as an employee of the Company during normal business hours.
2. Term: The term of your employment under this agreement shall be
three (3) years, commencing on May 1, 1996 (the "Commencement Date") and
continuing thereafter through and including May 1, 1999; provided, however, that
your employment is subject to termination in accordance with Paragraph 5(c)
hereof.
3. Salary: Your initial salary shall be at the annual rate of $150,000
(the "Base Salary"). Payment to you of such Base Salary shall be deferred until
such time as the Company has realized net income in accordance with generally
accepted accounting principles consistently applied ("GAAP") for at least two
consecutive fiscal quarters, and will be paid after such time in such
installments as may be determined by the Board. After the Company has realized
net income in accordance with GAAP for at least two consecutive fiscal quarters,
your Base Salary shall be paid in the same manner and at the same time as other
executive staff members of the Company are paid, and the Board will at that time
and from time to time thereafter review the Base Salary and may, in its sole
discretion, change your rate of compensation.
4. Fringe Benefits: You shall be entitled to reimbursement for
reasonable business expenses incurred in connection with your employment,
including those incurred for travel and entertainment. You shall also be
entitled to receive such benefits and to participate in such benefit plans to
the extent generally provided or funded (whether fully or partially), from time
to time by the Company to or for its senior executives including, without
limitation, health and other medical benefits, disability income, life
insurance, vacation pay, and the like (the "General Benefits").
<PAGE> 2
Mr. Harvey Wilson
Page 2
Dated as of May 1, 1996
5. Termination of Employment:
(a) Your Death: If your death shall occur at any time during
the term of this agreement, then your employment by the Company shall
automatically terminate on the date of your death. In such event, not more than
ninety (90) days from and after the date of your death, the Company shall pay to
your estate or heirs, as the case may be, an amount in cash equal to such of
your Base Salary as shall have been earned and due to you, but not paid, as of
the date of your death, but such obligation shall be deferred until the Company
has met the income test set forth in the second sentence of Section 3, if such
test has not been met by the time of your death. You shall also be paid such
other amounts as may be determined by the Board of the Company consistent with
the amount it pays to other senior executives upon death.
(b) Permanent Disability: If at any time during the term of
this agreement you shall become permanently disabled (i.e. unable for a period
of three consecutive months to perform your duties hereunder), then the Company
may terminate your employment under this agreement upon ninety (90) days prior
notice to you. In such event, you shall be entitled to such payments as may be
determined by the Board of the Company consistent with the amount it pays to
other senior executives upon permanent disability.
(c) Other: Your employment by the Company may be terminated by
the Company for any cause or reason (other than your death or permanent
disability, which are dealt with in preceding provisions), or without cause or
reason, by the giving of notice as described in the last sentence of this
paragraph. In the event that your employment with the Company shall be so
terminated by the Company, you shall nevertheless be entitled to the
continuation of your Base Salary and General Benefits for such period of months
as determined by the Board, consistent with its policy for other senior
executives, following the effective date of such termination, unless your
employment shall be so terminated by the Company for cause (hereinafter defined)
in which case you will not be entitled to any such continuation. For purposes
hereof, "cause" shall mean your conviction of a crime involving fraud,
embezzlement, misappropriation, dishonesty or breach of trust; a material breach
or violation of any of your obligations under this agreement; a willing or
knowing failure or refusal by you to perform any or all of your material duties
and responsibilities under this agreement; or gross negligence or willful
misconduct by you in the performance of your duties and responsibilities under
this agreement. Your employment may be terminated pursuant to this subparagraph
(c) by notice given by the Company to you at least ninety (90) days prior to the
effective date of such termination specified in such notice; provided that if
the Company shall so terminate you for cause, such notice may provide for an
immediate effective date.
6. Non-Compete: During the term of your employment hereunder, you will
not be or become, directly or indirectly, financially or otherwise, interested
as a principal, agent, employee, officer, director, partner, stockholder,
creditor or in any other capacity, in any other proprietorship, firm,
partnership, corporation or other organization which competes in any material
way with the Company. For three (3) years following your employment with the
Company, you will not have any
<PAGE> 3
Mr. Harvey Wilson
Page 3
Dated as of May 1, 1996
such interest or otherwise engage in any activities which are indirectly or
directly competitive with those in which the Company was engaged or had plans to
be engaged upon the termination of your employment, nor shall you hire, or
solicit or attempt to hire, any other employees of the Company. The foregoing
shall not, however, prevent you from being holders of not more than 15% in the
aggregate of the outstanding stock in any company.
7. Miscellaneous:
(a) Governing Law: This agreement shall be governed by and
construed in accordance with the law of the State of Delaware, without
application of any principles governing conflicts of laws.
(b) Entire Agreement: This Agreement constitutes the entire
agreement between you and the Company, with respect to the subject matter hereof
and supersedes all prior negotiations, agreements, understandings and
arrangements, both oral and written, between you and the Company with respect to
such subject matter. This agreement may not be modified in any way, except by a
written instrument executed by each of you and the Company.
(c) Notices: Any and all notices required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
duly given when delivered by hand or when deposited in the United States mail,
by registered or certified mail, return receipt requested, postage prepaid, as
follows:
If to the Company, to: Integrated Healthcare Solutions, Inc.
969 South Ocean Boulevard
Delray Beach, Florida 33483
Attn: Board of Directors
If to you, to: Mr. Harvey J. Wilson
969 South Ocean Boulevard
Delray Beach, Florida 33483
or to such other address as a party may from time to time give written notice of
to the others, with a copy in each case sent by facsimile, Federal Express or
other expedited means.
(d) Benefits; Binding Effect: This agreement shall be for the
benefit of, and shall be binding upon, each of you and the Company and our
respective heirs, personal representatives, legal representatives, successors
and assigns; this agreement may not, however, be assigned by you.
(e) Severability: The invalidity of any one or more of the
words, phrases, sentences, clauses or sections contained in this agreement shall
not affect the enforceability of the remaining portions of this agreement or any
part hereof, all of which are inserted conditionally on
<PAGE> 4
Mr. Harvey Wilson
Page 4
Dated as of May 1, 1996
their being valid in law. In the event that any one or more of the words,
phrases, sentences, clauses or sections contained in this agreement shall be
declared invalid by a court of competent jurisdiction, then, in any such event,
this agreement shall either be enforced to the extent law and valid under
applicable law or construed as if such invalid word or words, phrase or phrases,
sentence or sentences, clause or clauses, or section or sections had not been
inserted.
(f) Waivers: The waiver by any party hereto of a breach or
violation of any term or provision of this agreement by another party shall not
operate nor be construed as a waiver of any subsequent breach or violation of
any provision of this agreement nor of any other right or remedy.
(g) Section Headings: The section headings contained in this
agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of any or all of the provisions of this agreement nor
of any other right or remedy.
(h) Counterparts: This agreement may be executed in any number
of counterparts and by the separate parties hereto in separate counterparts,
each of which shall be deemed to constitute an original and all of which shall
be deemed to be one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed and delivered this
agreement as of the date first above written.
INTEGRATED HEALTHCARE SOLUTIONS, INC.
/s/ Harvey J. Wilson
---------------------------------
By: Harvey J. Wilson
Its: President
/s/ Harvey J. Wilson
---------------------------------
Harvey J. Wilson
<PAGE> 1
EXHIBIT 11
Eclipsys Corporation
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1997
--------------------------------------------
(In thousands except per share data)
<S> <C> <C>
Weighted average common
shares outstanding 4,533,995 5,286,271
==================== ====================
Calculation of net income per
share:
Net loss $ (1,471) $ (135,234)
==================== ====================
Dividend and accretion on
mandatorily redeemable preferred
stock $ -- $ (5,850)
==================== ====================
Preferred stock conversion $ -- $ (3,105)
==================== ====================
Net loss available to common
shareholders $ (1,471) $ (144,189)
==================== ====================
Basic and Diluted net loss per
common share $ (0.32) $ (27.28)
==================== ====================
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Eclipsys Solutions Corp., a corporation organized under the laws of the State of
Delaware.
SDK Medical Services Corporation, a corporation organized under the laws of the
Commonwealth of Massachusetts.
Emtek Healthcare Corporation, a corporation organized under the laws of the
State of Delaware.
Eclipsys International Corp., a subsidiary of Eclipsys Solutions Corp. and a
corporation organized under the laws of the State of Delaware.
Eclipsys Limited, a subsidiary of Eclipsys Solutions Corp. and a limited company
organized under the laws of England and Wales.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 20, 1998, relating
to the financial statements of Eclipsys Corporation, which appears in such
Prospectus. We also consent to the application of such report to the Financial
Statement Schedules for the two years ended December 31, 1997 listed under Item
16(b) of this Registration Statement when such schedules are read in conjunction
with the financial statements referred to in our report. The audits referred to
in such report also included these schedules. We also consent to the references
to us under the headings "Experts" and "Selected Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Financial Data."
/s/ PRICE WATERHOUSE LLP
Atlanta, Georgia
April 22, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 27, 1997, relating
to the financial statements of Alltel Healthcare Information Services, Inc.,
which appears in such Prospectus. We also consent to the application of such
report to the Financial Statement Schedules for the two years ended December 31,
1996 and for the period from January 1, 1997 through January 23, 1997 listed
under Item 16(b) of this Registration Statement when such schedules are read in
conjunction with the financial statements referred to in our report. The audits
referred to in such report also included these schedules. We also consent to the
references to us under the headings "Experts" and "Selected Financial Data" in
such Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Financial Data."
/s/ PRICE WATERHOUSE LLP
Atlanta, Georgia
April 22, 1998
<PAGE> 1
EXHIBIT 23.3
The Board of Directors
Eclipsys Corporation:
The audits of the financial statements of SDK Healthcare Information
Systems referred to in our report dated June 12, 1997, included the related
financial statement schedule as of April 30, 1997, and for each of the years in
the two-year period ended April 30, 1997, included in the registration
statement. This financial statement schedule is the responsibility of management
of SDK Healthcare Information Systems. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
April 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,786
<SECURITIES> 0
<RECEIVABLES> 32,708
<ALLOWANCES> 1,739
<INVENTORY> 866
<CURRENT-ASSETS> 37,735
<PP&E> 15,805
<DEPRECIATION> 6,288
<TOTAL-ASSETS> 102,591
<CURRENT-LIABILITIES> 69,239
<BONDS> 0
35,607
95
<COMMON> 63
<OTHER-SE> (22,653)
<TOTAL-LIABILITY-AND-EQUITY> 102,591
<SALES> 94,077
<TOTAL-REVENUES> 94,077
<CGS> 78,287
<TOTAL-COSTS> 78,287
<OTHER-EXPENSES> 149,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,154
<INCOME-PRETAX> (135,234)
<INCOME-TAX> 0
<INCOME-CONTINUING> (135,234)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (135,234)
<EPS-PRIMARY> (24.68)
<EPS-DILUTED> (24.68)
</TABLE>
