<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CAREFLOW -- NET, INC.
(Exact name of Small Business Issuer as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 31-1493497
(State or other jurisdic- (Primary standard industrial (I.R.S. employer
tion of incorporation) classification code number) identification number)
</TABLE>
------------------------
235 HIGH STREET--SUITE 225
MORGANTOWN, WEST VIRGINIA 26505
TEL.: (304) 296-7550
(Address and telephone number of principal executive offices
and principal place of business)
------------------------
J. CALVIN KAYLOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER
15215 EDWARDS FERRY ROAD, POOLESVILLE, MARYLAND 20837
TEL.: (301) 349-0700
(Name, address and telephone number of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
SHELDON E. MISHER, ESQ. BARRY A. BROOKS, ESQ.
Bachner, Tally, Polevoy & Misher LLP Paul, Hastings, Janofsky & Walker LLP
380 Madison Avenue 399 Park Avenue
New York, New York 10017 New York, New York 10022
Tel: (212) 687-7000 Tel: (212) 318-6000
Fax: (212) 682-5729 Fax: (212) 319-4090
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective. If any of the securities
being registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act , please check the following
box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. /X/
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT (1) OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Units, each consisting of one share of Common
Stock, $0.001 par value, and one Class A
Warrant......................................... 1,840,000(2) $5.00 $9,200,000 $2,788.00
Common Stock, $0.001 par value (3)................ 1,840,000 7 11,960,000 3,625
Unit Purchase Option (4).......................... 160,000 0.001 160 --
Units, each consisting of one share of Common
Stock, $0.001 par value, and one Class A Warrant
(5)............................................. 160,000 6.00 960,000 291.00
Common Stock, $0.001 par value (6)................ 160,000 6.50 1,040,000 316.00
Total............................................. $23,160,160 $7,020.00
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 240,000 Units subject to the Underwriters' over-allotment option.
(3) Issuable upon exercise of the Class A Warrants.
(4) To be issued to the Representative of the Underwriters and its designees.
(5) Issuable upon exercise of the Unit Purchase Option.
(6) Issuable upon the exercise of the Class A Warrants issuable under the Unit
Purchase Option.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION--DATED NOVEMBER 26, 1997
PROSPECTUS
CAREFLOW -- NET, INC.
1,600,000 UNITS
CONSISTING OF 1,600,000 SHARES OF COMMON STOCK AND
1,600,000 REDEEMABLE CLASS A WARRANTS
Each unit ("Unit") offered by CareFlow -- Net, Inc. (the "Company") consists
of one share of common stock, $.001 par value ("Common Stock") and one
redeemable class A warrant ("Class A Warrants" or "Warrants"). The components of
the Units will be transferable separately 90 days from the date of this
Prospectus or such earlier date (the "Separation Date") as D.H. Blair Investment
Banking Corp. (the "Representative") may determine in its sole discretion. Each
Class A Warrant entitles the holder to purchase one share of Common Stock at an
exercise price of $6.50, subject to adjustment, at any time from the Separation
Date through the fifth anniversary of the date of this Prospectus. Commencing
one year from the date hereof, the Class A Warrants are subject to redemption by
the Company at a redemption price of $0.05 per Warrant on 30 days' written
notice, provided the closing bid price of the Common Stock averages in excess of
$9.10 for any 30 consecutive trading days ending within 15 days of the notice of
redemption. See "Description of Securities."
Prior to this offering (the "Offering"), there has been no public market for
the Units, Common Stock or Class A Warrants and there can be no assurance that
such a market will develop. The Company has applied for quotation of the Units,
Common Stock and Class A Warrants on the Nasdaq SmallCap Market ("Nasdaq") under
the symbols CFNIU, CFNI and CFNIW, respectively, subject to official notice of
issuance. It is anticipated that the initial public offering price will be $5.00
per Unit. See "Underwriting" for a discussion of factors considered in
determining the initial public offering price. For information concerning a
Securities and Exchange Commission investigation relating to the Representative,
see "Risk Factors" and'Underwriting."
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 7 AND "DILUTION."
---------------------
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.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Unit.................................. $ $ $
Total (3)................................. $ $ $
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
The Units are being offered on a "firm commitment" basis by the several
underwriters (the "Underwriters") when, as and if delivered to and accepted by
the Underwriters, subject to their right to reject orders in whole or in part
and subject to certain other conditions. It is expected that the delivery of the
certificates representing the Units will be made against payment at the offices
of D.H. Blair Investment Banking Corp., 44 Wall Street, New York, New York on or
about , 1997.
D.H. BLAIR INVESTMENT BANKING CORP.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
(FOOTNOTES FROM PREVIOUS PAGE)
(1) Does not include additional compensation to be received by the
Representative in the form of (i) a non-accountable expense allowance of
$ , or $. per Unit ($ if the Underwriters'
over-allotment option is exercised in full); and (ii) an option, exercisable
over a period of two years commencing three years from the date of this
Prospectus, to purchase up to 160,000 Units at $ per Unit (the "Unit
Purchase Option"). The Company has also agreed to indemnify the Underwriters
against certain liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting estimated expenses of $750,000 payable by the Company,
including the Representative's non-accountable expense allowance.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 240,000 additional Units on the same terms and conditions as set forth
above, solely to cover over-allotments, if any, subject to the right of the
Representative to elect, in its sole discretion, to exercise such option
individually, and not as representative of the several Underwriters. If the
over-allotment option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------
The Company intends to furnish its stockholders and holders of Class A
Warrants with annual reports containing financial statements audited by its
independent auditors.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE UNITS, THE
COMMON STOCK AND/OR THE CLASS A WARRANTS. SUCH TRANSACTIONS MAY INCLUDE THE
PURCHASE OF UNITS, COMMON STOCK AND CLASS A WARRANTS FOLLOWING THE PRICING OF
THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE UNITS, THE COMMON STOCK
AND THE CLASS A WARRANTS OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE
UNITS, THE COMMON STOCK AND THE CLASS A WARRANTS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS.
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS (I) GIVES EFFECT
TO INCORPORATION OF THE COMPANY IN DELAWARE AND THE FEBRUARY 1997 MERGER OF THE
COMPANY'S PREDECESSOR CORPORATION WITH AND INTO THE COMPANY AND THE CONVERSION
OF EACH OUTSTANDING SHARE OF SUCH PREDECESSOR'S COMMON STOCK INTO 1,000 SHARES
OF THE COMPANY'S COMMON STOCK; (II) GIVES EFFECT TO THE CONVERSION, ON THE
CLOSING OF THE OFFERING, OF CERTAIN OUTSTANDING WARRANTS ISSUED BY THE COMPANY
IN A PRIVATE PLACEMENT COMPLETED IN SEPTEMBER AND OCTOBER 1997 (THE "BRIDGE
FINANCING") INTO CLASS A WARRANTS IDENTICAL TO THE CLASS A WARRANTS OFFERED
HEREBY (THE'BRIDGE WARRANTS"), AND (III) ASSUMES NO EXERCISE OF (A) THE
UNDERWRITERS' OVER-ALLOTMENT OPTION; (B) THE CLASS A WARRANTS; (C) THE UNIT
PURCHASE OPTION; OR (D) OPTIONS GRANTED OR AVAILABLE FOR GRANT UNDER THE
COMPANY'S STOCK OPTION PLANS. SEE "CAPITALIZATION," "MANAGEMENT--STOCK OPTION
PLAN," "CERTAIN TRANSACTIONS" AND "DESCRIPTION OF SECURITIES." TO AID THE
READER, A GLOSSARY OF TECHNICAL TERMS HAS BEEN INCLUDED IN THIS PROSPECTUS.
THE COMPANY
The Company was established in 1996 to develop and provide information
management software products to the healthcare industry. The Company's software
employs "open architecture" technologies and is designed as components that may
be simply added to a healthcare provider's existing ("legacy") computer systems
or included in newer, more efficient, client-server systems. The Company's
software will enable providers to cost-effectively access, combine, route and
deliver their computerized patient information, regardless of its original
source and format within their legacy computer systems. Physicians, nurses and
other authorized users will be able to access the patient information (reports,
test results, notes, images, etc.) with PCs via provider intranets, for reading,
editing, approving, or referring to other users connected to the provider
intranet, all in accordance with each user's security status in accordance with
intranet security and access protocols established by the provider.
Healthcare providers are under increasing pressure to lower health care
delivery costs while maintaining or improving the quality of patient care. In
response, hospitals, clinics, physicians and other providers are combining into
integrated delivery networks ("IDNs") to enable their members to achieve
operating efficiencies and savings and competitive advantages through the
consolidation of their operations, marketing and services. However, IDNs have
not been able to fully realize the cost and operating efficiencies possible from
consolidated operations because of their reliance upon older legacy computer
systems at individual IDN members' sites. These legacy systems represent
multi-million dollar investments, each processing and storing computerized
patient information for their site. Because they store and process information
in incompatible formats, the patient information available in the separate
legacy systems of an IDN cannot be accessed, combined or distributed via an
IDN's intranet to clinicians working at various IDN sites.
The Company's initial software products are being designed to enable IDNs to
preserve and leverage their substantial investments in and reliance upon their
legacy patient information systems and information repositories, as follows:
- By providing "plug-and-play" BACKEND access to the patient information
directly from within legacy systems,
- By converting the legacy system information to open computer formats and
routing and distributing the information via MIDDLEWARE products to
authorized users with access to an IDN's intranet regardless of their
location within the IDN, and
- By furnishing modular, Web-based PC FRONTEND applications for use by IDN
clinicians such as document viewing, editing, approval and routing.
3
<PAGE>
The Company's initial products incorporate certain technology exclusively
sublicensed to the Company by a private affiliated company that holds an
exclusive license to such technology from West Virginia University ("WVU"). The
technology sublicensed to the Company was developed by the Concurrent
Engineering Research Center ("CERC") at WVU in its ARTEMIS projects (Advanced
Research Testbed for Medical Informatics), which have been funded by over $18
million in research grants and contracts since 1989. The Company's initial
backend, middleware and frontend software products are currently being installed
at a Miami-based IDN (the "Miami IDN") under a software sale and development
contract anticipated to be completed in early 1998, after which the products
will be licensed to the IDN. The products subject to the Miami IDN license will
be, upon completion of the installation, the first of the Company's products in
commercial use.
The Company intends to market its software products directly to IDNs and
other healthcare providers seeking to leverage their legacy information systems
and enhance their computerized healthcare information distribution capabilities.
The products will also be marketed to major healthcare system vendors for
incorporation into their software offerings.
The Company's activities to date have consisted of development of its
business plans and strategies, execution of the license agreement for the
ARTEMIS technology, research, development and testing of its initial products,
sales presentations to potential customers and preliminary discussions regarding
joint product development and marketing with potential collaborators,
negotiations relating to the Miami IDN agreement and performance of that
agreement and a consulting agreement with another customer. The Company's
revenues have been limited to date. There can be no assurance that the Company's
initial products will be successfully completed or installed, that the Company's
products will achieve commercial acceptance or that the Company will ever
achieve profitable operations.
The Company, a Delaware corporation, was incorporated in 1997. In March
1997, Healthcare Computing Systems, Incorporated, a West Virginia corporation
incorporated in February 1996 ("HCS") and the predecessor of the Company, was
merged with and into the Company. All references to the "Company" (unless
otherwise specified or the context requires otherwise) are deemed to include
HCS.
The Company's offices are located at 235 High Street--Suite 225, Morgantown,
West Virginia 26505, and its telephone numbers are (304) 296-7550 and (301)
349-0700.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered...................................... 1,600,000 Units, each Unit consisting of one share of
Common Stock and one Class A Warrant. Each Class A
Warrant entitles the holder to purchase one share of
Common Stock at an exercise price of $6.50, subject to
adjustment, at any time from the Separation Date through
the fifth anniversary of the date of this Prospectus.
The Class A Warrants are subject to redemption in
certain circumstances. See "Description of Securities."
Common Stock Outstanding Before Offering................ 1,200,000 shares (1)(2)
After Offering........................................ 2,800,000 shares (1)(2)(3)
Use of Proceeds....................................... To repay $2,000,000 principal amount of 10% promissory
notes (the "Bridge Notes") issued in the Bridge
Financing, plus accrued interest thereon; for product
research, development and technical support; sales and
marketing; and working capital. See "Use of Proceeds."
Proposed Nasdaq Symbols (4)
Units............................................... CFNIU
Common Stock:....................................... CFNI
Class A Warrants:................................... CFNIW
Risk Factors............................................ The Offering involves a high degree of risk and
immediate substantial dilution. See "Risk Factors" and
"Dilution."
</TABLE>
- ------------------------
(1) Includes (i) 75,000 shares issued to J. Calvin Kaylor, the President and
Chief Operating Officer of the Company, pursuant to an employment agreement
and currently subject to vesting provisions. Excludes (i) an aggregate of
1,000,000 shares of Common Stock reserved for issuance upon exercise of the
Bridge Warrants; and (ii) 300,000 shares of Common Stock reserved for
issuance under the Company's 1997 Stock Option Plan (the "Plan"), under
which, as of the date of this Prospectus, options to purchase 200,000 shares
of Common Stock are outstanding at an exercise price per share of $5.00. See
"Management--Employment and Consulting Agreements; --Stock Option Plan" and
"Certain Transactions."
(2) Includes 600,000 shares of Common Stock (the "Escrow Shares") which have
been deposited into escrow by the holders thereof. The Escrow Shares are
subject to cancellation and will be contributed to the capital of the
Company if the Company does not attain certain earnings levels or the market
price of the Company's Common Stock does not achieve certain levels. If such
earnings or market price levels are met, the Company will record a
substantial non-cash charge to earnings, for financial reporting purposes,
as compensation expense relating to the value of the Escrow Shares released
to Company officers and employees. See "Risk Factors--Charge to Income in
the Event of Release of Escrow Shares," "Capitalization" and "Principal
Stockholders--Escrow Shares."
(3) Excludes (i) up to 480,000 shares of Common Stock issuable upon exercise of
the Underwriters' over-allotment option (and the Class A Warrants included
therein); (ii) 1,600,000 shares of Common Stock issuable upon exercise of
the Class A Warrants that are components of the Units offered hereby; and
(iii) an aggregate of 320,000 shares of Common Stock issuable upon exercise
of the Unit Purchase Option and the Class A Warrants included therein. See
"Underwriting."
(4) Notwithstanding quotation on the Nasdaq SmallCap Market, there can be no
assurance that an active trading market for the Company's securities will
develop or, if developed, that it will be sustained.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FEBRUARY 6, 1996 FEBRUARY 6, 1996
(INCEPTION) (INCEPTION)
THROUGH THROUGH NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
(DEVELOPMENT (DEVELOPMENT
STAGE) STAGE) (UNAUDITED)
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 68,000 $ 44,000 $ 171,000
Costs and Expenses:
Cost of services and systems....................... 31,000 24,000 286,000
Selling, general and administrative................ 108,000 27,000 341,000
Interest........................................... -- -- 9,000
139,000 51,000 636,000
Net loss............................................. (71,000) (7,000) (465,000)
Net loss per share(1)................................ $ (0.12) $ (.01) $ (0.78)
-------- ------- ----------
-------- ------- ----------
Weighted average number of shares of Common Stock
Outstanding........................................ 600,000 600,000 600,000
-------- ------- ----------
-------- ------- ----------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------------
<S> <C> <C> <C>
HISTORICAL PRO FORMA(2) AS ADJUSTED(3)
------------ ------------- --------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................................ $ (609,000) $ (45,000) $ 4,133,000
Total assets......................................................... 840,000 1,604,000 5,782,000
Total current liabilities............................................ 1,249,000 1,888,000 180,000
Accumulated deficit.................................................. (536,000) (536,000) (1,099,000)
Total stockholders' equity (capital deficiency)...................... $ (409,000) $ (284,000) $ 5,602,000
</TABLE>
- ------------------------
(1) The pro forma net loss per share computation excludes the Escrow Shares. See
Notes B[6] and E of Notes to Financial Statements.
(2) Gives pro forma effect to the issuance of 10% promissory notes (the "Bridge
Notes") and Bridge Warrants subsequent to September 30, 1997. See
"Capitalization--Bridge Financing" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(3) Gives effect to the sale of the 1,600,000 Units offered hereby at an assumed
offering price of $5.00 per Unit and the application of the estimated net
proceeds to repay the Bridge Notes. Deferred interest attributable to the
Bridge Notes of $291,000 and expenses of the Bridge Financing of $272,000
will be charged to operations upon repayment of the Bridge Notes from the
proceeds of the Offering. See "Use of Proceeds," "Risk Factors--Charges and
Potential Charges to Earnings," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Certain Transactions."
6
<PAGE>
RISK FACTORS
THE UNITS AND THEIR COMPONENTS OFFERED HEREBY ARE SPECULATIVE IN NATURE AND
AN INVESTMENT IN THE UNITS AND THEIR COMPONENTS OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE STATEMENTS IN THIS
PROSPECTUS THAT ARE NOT DESCRIPTIONS OF HISTORICAL FACTS MAY BE FORWARD-LOOKING
STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED DUE TO A NUMBER OF FACTORS.
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ANALYZING THE
OFFERING.
HISTORY OF OPERATING LOSSES; ANTICIPATED FUTURE LOSSES. The Company has
experienced operating losses since its inception in February 1996. As of
September 30, 1997, the Company had an accumulated deficit of approximately
$(536,000) and significant losses and increases in working capital deficit have
occurred since such date and are expected to continue for the foreseeable
future. Such losses have been and are expected to be principally the result of
the various costs associated with the Company's continuing research and
development, product installation and post-sale support programs, implementation
of a sales and marketing program and distribution channels, recruitment and
training of personnel and other operating activities. There can be no assurance
that the Company will ever achieve or sustain commercial sales or profitability.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LIMITED OPERATING HISTORY. The Company has engaged in limited operations
since February 1996, and it was a development stage enterprise through December
31, 1996. Its products are at an early stage of development, and the ARTEMIS
technology that is intended to be incorporated into the Company's initial
products has only been tested on a limited basis in a medical practice setting.
The Company has entered into an agreement with the Miami IDN for the
development, installation and licensing of the initial products that it intends
to offer for commercial license to other healthcare institutions. However, there
can be no assurance that such products will be successfully developed or
installed, and it is likely that the Company's direct project expenses and
development costs will exceed its revenues on this project. The Company's
success depends upon several factors including, among others, (i) the ability of
the Company to develop and support products that are compatible with other
systems in use by potential customers and provide useful features that are user
friendly, (ii) the acceptance of the Company's products by IDNs and other
healthcare providers, and (iii) the development of an effective marketing and
distribution network. Investors should be aware of the difficulties normally
encountered by a new enterprise and the high rate of failure of such
enterprises. There is no history upon which to base any assumption as to the
likelihood that the Company will prove successful, and there can be no assurance
that the Company will become a viable or profitable business. Since inception,
the Company has had minimal revenues. The likelihood of the success of the
Company must be considered in light of the delays, uncertainties, difficulties
and risks inherent in a new business, many of which may be beyond the Company's
control. These include, but are not limited to, unanticipated problems relating
to product development, testing, manufacturing, marketing and competition, and
additional costs and expenses that may exceed current estimates. In addition,
there can be no assurance that the proposed products will be successfully
developed on a timely basis or that such products or others developed by the
Company will receive commercial acceptance in the healthcare industry or
generate significant revenues. There can be no assurance that revenues will
increase significantly in the future or that the Company will ever achieve
profitable operations. See "Business."
USE OF PROCEEDS TO REPAY INDEBTEDNESS; NEED FOR SIGNIFICANT ADDITIONAL
FUNDS. The Company has a working capital deficit and requires the proceeds of
the Offering to pursue its business plan. Approximately $2,050,000, or
approximately 32%, of the net proceeds of the Offering will be used for the
repayment of the Bridge Notes issued in the Bridge Financing and will not be
available for any other purpose. The remaining proceeds of the Offering are only
expected to be sufficient to fund the Company's operations for approximately 24
months and the Company will likely require significant additional funds to
continue its operations after such period. Moreover, the Company's cash
requirements may vary materially
7
<PAGE>
from those currently anticipated due to product development and marketing
programs, changes in the forms and direction of the Company's activities, the
timing of receipt of revenues, if any, and other factors. The Company has no
commitments for any future funding and there can be no assurance that the
Company will be able to obtain additional financing in the future from either
debt or equity financings, bank loans, collaborative arrangements or other
sources on terms acceptable to the Company, or at all. If the Company is unable
to obtain the necessary financing, it will be required to significantly curtail
its activities or cease operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
UNPROVEN COMMERCIAL VIABILITY; UNCERTAINTY OF MARKET ACCEPTANCE. While the
development and installation of the Company's initial products for the Miami IDN
is proceeding on schedule, there can be no assurance such development and
installation will be completed on schedule or at all, or that such products will
perform as anticipated. While one rural practice group, consisting of two
clinics and two hospitals, has used certain ARTEMIS technology on a test basis,
there has been no commercial use of the Company's products. The Company's
proposed products and technology are at an early stage of development and will
require significant further research, development, testing and marketing prior
to commercialization. There can be no assurance that any proposed products will
be successfully developed, demonstrate desirable performance, be compatible with
other systems in use by potential customers, be capable of being sold, installed
and supported in commercial volumes at reasonable prices and costs or be
successfully marketed. The Company will be required to create product awareness
and demand, and persuade potential customers of the advantages of adapting or
converting existing electronic and other record creation, storage and
transmission products by means of products developed by the Company. In
addition, in order for its products to achieve commercial acceptance, the
Company must gain the acceptance of the healthcare information professionals,
financial professionals and facility and system executives employed in senior
positions by large health delivery systems and multi-specialty physician
practice groups, who make the purchasing decisions regarding electronic medical
records system ("EMRS") products, the information system professionals employed
by national and international VARs who sell EMRS products, and the physicians
and other healthcare professionals who will use the products. There can be no
assurance that the Company can accomplish the foregoing to the extent necessary
to develop market acceptance. If the Company is unable to achieve commercial
acceptance of its products, it may be forced to cease operations.
LIMITED MARKETING AND SALES CAPABILITIES; DEPENDENCE ON THIRD PARTIES FOR
MARKETING ACTIVITIES. The Company's operating results will depend to a large
extent on its ability to educate the various healthcare providers and providers
of healthcare information management systems about the advantages of its
products and to market its products to the users and decision makers within
those sophisticated healthcare provider organizations and system providers. The
Company currently has very limited marketing capabilities and experience and
needs to hire a sales and marketing executive and personnel and develop a sales
and marketing program and sales distribution channels. The Company will be
required to hire a sales and marketing executive with substantial industry
experience and contacts. There can be no assurance that the Company will
successfully recruit such a person. The Company anticipates that it will depend,
to a significant extent, on system integrators, VARs and other software
distributors to market and support the Company's products. The success of any
such relationship will depend in part upon such parties' own competitive,
marketing and strategic considerations, including the relative advantages of
alternative products being marketed by such persons, and there can be no
assurance that such parties will have the interest or ability to successfully
market the Company's products. The Company has had preliminary discussions with
a limited number of parties relating to the distribution and/or integration of
the Company's products; however, the Company has not entered into agreements,
and there can be no assurance that the Company will be able to arrange third
party distribution of its products or that such arrangements would result in
significant sales. Further, the Company could be dependent for a substantial
portion of its sales on one or a very small number of distributors. In such
event, the loss of one or more significant distributors could have a material
adverse effect on the Company's business, financial condition
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and results of operations. The Company's success will depend in great part on
its ability to successfully implement its marketing and sales program and create
sufficient levels of demand for the Company's products. There can be no
assurance that any marketing and sales efforts undertaken by or on behalf of the
Company will be successful or will result in any significant sales of the
Company's products. See "Business--Marketing."
TECHNOLOGICAL CHANGES AND EMERGING TECHNICAL STANDARDS. The market for the
Company's products and services is characterized by continued and rapid
technological advances in software development requiring ongoing expenditures
for research and development and the timely introduction of new products and
services. In addition, compatibility with existing and emerging industry
standards is essential to the Company's marketing strategy and research and
development efforts. The establishment of standards is largely a function of
user acceptance, and standards are therefore subject to change. The Company's
products are dependent upon a number of advanced technologies, including those
related to computer hardware and software and other peripheral components, all
of which are subject to rapid change. Accordingly, the Company's future success
will depend upon its ability on a timely basis to develop and introduce new
products and features and enhance its existing products in order to keep pace
with competitive offerings, adapt to technological developments and changing
industry standards and provide additional functionality to meet and address the
increasingly sophisticated needs of its customers. To the extent the Company
determines that new technologies, standards and equipment are required to remain
competitive, the development or acquisition and the implementation of such
technologies, standards and equipment are likely to require investment of
significant time and capital. Depending upon the complexity of a given software
tool or product, the Company's development and introduction cycle could last
months or years. There can be no assurance that the Company will be successful
in developing, implementing on a timely basis, and marketing such tools and
products or enhancements thereof or that they will be accepted by the market.
There can be no assurance that the necessary capital will be available in the
future or that the products will become or remain commercially viable. There can
be no assurance that the Company's future development efforts will be successful
or that the emergence of new technologies, industry standards or customer
requirements will render the Company's technology or products obsolete or
uncompetitive. There can be no assurance that the Company will be able to
acquire or license needed new technology at a price or terms acceptable to the
Company. Without the timely development and successful introduction of
market-driven products, there can be no assurance that the Company can either
achieve or sustain profitable operations or continue operations.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL, SOFTWARE
DEVELOPMENT ENGINEERS AND SALES AND MARKETING EXECUTIVE. The operations of the
Company will depend to a significant extent upon the efforts of J. Calvin
Kaylor, the Company's President and Chief Executive Officer, and Marty R.
Stango, the Company's Chief Financial Officer. In addition, the Company's
research and development operations are dependent upon Dr. V. Jagannathan,
Senior Vice President -Research and Development, and Dr. Y. V. Reddy, the
Company's Chief Scientist. The loss of Messrs. Kaylor or Stango or Dr.
Jagannathan as employees, or of Dr. Reddy as a consultant, would adversely
affect the Company's business. Dr. Reddy is a consultant to the Company who is
available to the Company one day a week and will continue as the Director of
CERC. Dr. Jagannathan is currently devoting 80% of his working time to the
Company, and he expects to devote approximately 80% of his working time to the
Company for so long as he remains affiliated with CERC and WVU. The Company
subcontracted certain aspects of its work, including work to be performed for
its two customers, to CERC through WVU. The subcontract currently runs through
May 15, 1998, and the Company is hiring full-time and part-time software
development personnel who will perform most of the remaining work for such
customers. However, the Company will need to recruit, hire and train an
increasing number of software development and support personnel in order to
fulfill its business objectives. The demand for program developers with the
level of skill required by the Company is very intense, and the Company's
ability to sustain its development efforts will depend in its ability to recruit
and retain such personnel. In order to effectively market its products, the
Company will also need to retain a marketing and sales executive and staff with
industry experience and contacts, as well as software
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installation and service personnel and administrative support personnel. The
Company does not intend to hire any marketing or sales personnel until its
products are close to commercial introduction. See "Business-- Employees" and
"Management."
POSSIBLE ADVERSE EFFECTS OF GOVERNMENT AND INSTITUTIONAL REGULATION
REGARDING PATIENT CONFIDENTIALITY. 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 governing both
the disclosure and use of confidential patient medical record information. In
addition to regulations applicable to medical records generally, there are also
laws and regulations regarding the confidentiality of specific records, such as
those relating to mental health, substance abuse and HIV infection. The Company
intends to configure its products to comply with the laws and regulations
regarding the collection and distribution of patient data in all jurisdictions
where it expects to have sales, but regulations regarding patient
confidentiality rights are evolving rapidly and are often unclear and difficult
to apply in the rapidly restructuring healthcare market. In 1996, President
Clinton signed the Health Insurance Portability and Accountability Act of 1996.
This legislation requires the Secretary of Health and Human Services to adopt
national standards for health information transactions and the data elements to
be used in such transactions and to adopt standards to ensure the integrity and
confidentiality of health information. The Secretary is required to issue such
standards not later than February 21, 1998, and healthcare providers will
generally be required to comply with each standard within 24 months after it is
adopted. The legislation also provides for the establishment of additional
Federal standards for the privacy of all individually identifiable health
records. There can be no assurance that this legislation and the regulations
promulgated thereunder will not materially restrict the ability of potential
users of the Company's products to obtain or disseminate patient information via
electronic means. Additional legislation and regulations governing the
confidentiality and dissemination of medical record information are continually
being proposed at both the state and federal level. There can be no assurance
that state or federal laws will not materially restrict the ability of potential
users of the Company's products to obtain or disseminate patient information via
electronic means. Any material restrictions on the use of electronic
transmission of patient information could adversely affect the Company's
business. See "--Uncertainties Relating to Use of the Internet for Transmission
of Patient Information" and "Business--Patient Confidentiality Matters."
In addition to applicable government regulations regarding patient
confidentiality, many healthcare providers have developed their own rules and
protocols regarding access to and dissemination of patient records. The
restrictions imposed by such rules and protocols could limit the utility of the
Company's products to such providers, which could adversely affect the Company's
business.
DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company's success will depend to
a significant extent on its ability to maintain the proprietary and confidential
software incorporated in its software products as they are released. The Company
intends to rely on a combination of copyright, trademark, patent and trade
secret and contractual protections to establish and protect its proprietary
rights and further intends to operate without infringing the intellectual
property rights of third parties. There can be no assurance that any
applications that the Company may file for copyright or trademark registration
or patents relating to the Company's products or potential products will result
in copyrights or trademarks being registered or patents being issued, that any
registered copyrights or trademarks or issued patents will afford adequate
protection to the Company or not be opposed, contested, cancelled, challenged,
invalidated, infringed or circumvented, or that any rights granted thereunder
will afford competitive advantages to the Company. Furthermore, there can be no
assurance that others have not independently or originally developed, or will
not independently or originally develop, similar products and/or technologies,
duplicate any of the Company's products or technologies, or, if copyrights or
patents are granted to, or licensed by, the Company, successfully design around
such copyrights or patents. Furthermore, there can be no assurance that the
Company can adequately preserve its rights to proprietary technology and
processes that it maintains as trade secrets. In addition, litigation may be
required to enforce the Company's intellectual property rights against
infringement, to protect the Company's trade secrets, to determine the validity
and
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scope of proprietary rights of others, or to defend against claims by others of
infringement or invalidity. There can be no assurance that the Company will have
sufficient resources to conduct such actions, and the costs and diversion of
resources required by such actions could have a material adverse effect on the
Company's business, operating results and financial condition. In addition, it
is possible that the Company may need to in-license third party technologies.
There can be no assurance that such third party technology licenses, if needed,
would be available to the Company on reasonable terms or at all. See "Business--
Proprietary Rights."
POTENTIAL DEPENDENCE ON LICENSE AGREEMENT AND CERC. It is anticipated that
the Company's proposed initial products will incorporate the ARTEMIS patient
record management technology. The Company is the exclusive licensee of the
ARTEMIS technology pursuant to an agreement (the "Cybermarche Agreement") with
Cybermarche, Inc., a privately-held company ("Cybermarche"). Cybermarche, in
turn, is the exclusive licensee of the ARTEMIS technology pursuant to an
agreement with WVU (the "WVU Agreement"). The ARTEMIS technology is being
developed at CERC pursuant to federal agency funding agreements, one of which is
in place until September 1999. Each of Cybermarche, WVU, and the federal funding
agencies have retained certain rights to ARTEMIS. Under certain circumstances,
including, without limitation, (i) a breach by the Company of the Cybermarche
Agreement, (ii) a breach by Cybermarche of the WVU Agreement and (iii) a breach
by WVU of the Government Agreements, which, if exercised, could result in the
withdrawal of the exclusive license of ARTEMIS to the Company. The Company would
not be able to develop its proposed initial products without the ARTEMIS
technology. The inability to use the ARTEMIS technology would severely limit and
substantially delay the Company's ability to develop commercial products, and
there can be no assurance that the Company would succeed in developing a
commercial product without the use of the ARTEMIS technology.
While the Company anticipates that it will conduct its own research and
development to create products that will add refinements and features to the
current ARTEMIS, there can be no assurance that it will be able to do so, or
that it will not be dependent on further developments of ARTEMIS by CERC. CERC
has received funding to continue development of various aspects of this
technology, and further improvements will be available to the Company, as
provided by the WVU and Cybermarche Agreements. However, there can be no
assurance that such funding will continue to be available, that CERC will
continue to have qualified personnel to conduct this development, that such
development efforts will result in substantial enhancements to such software, or
if made, that such enhancements will prove useful to the Company. Certain
persons who have been important to CERC's ARTEMIS activities in the past,
including Dr. V. Jagannathan, the Company's Senior Vice-President for Research
and Development, intend to substantially reduce their commitments to CERC to
devote most or all of their time to the Company. Although the Company will
benefit from their direct participation in the Company's activities, the Company
may be adversely affected if CERC does not continue to have qualified personnel
to carry out its development activities. See "Business--Technology;
- --Proprietary Rights."
POTENTIAL CONFLICTS OF INTEREST. Dr. Jagannathan and Dr. Reddy are
currently employed by WVU, in CERC. In addition, the Company obtained from
Cybermarche, pursuant to the Cybermarche Agreement, the exclusive assignment of
the WVU Agreement relating to the ARTEMIS technology. All of Cybermarche's
stockholders are stockholders of the Company, and several officers of the
Company are stockholders of Cybermarche, which is engaged in the
commercialization of other, non-healthcare related technology originally
developed by CERC. However, Cybermarche and the Company have no employees in
common. With the consent of WVU, Dr. Jagannathan currently devotes 80% of his
business time to the Company. With the consent of WVU, Dr. Reddy currently
devotes 20% of his business time to the Company. However, as long as these
individuals have any obligations to WVU, except to the extent they are engaged
in ARTEMIS-related projects for CERC, they may not be fully available to the
Company. In addition, to the extent principals of the Company engage in
activities for Cybermarche, they will not be available to the Company. Dr.
Jagannathan has agreed with the Company that he will not devote any time to the
business of Cybermarche.
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LIKELIHOOD OF LONG SALES CYCLES. Assuming the Company achieves market
awareness and demand for its products, of which there can be no assurance,
quarterly revenues, if any, and results of operations are likely to fluctuate as
a result of a number of factors including, among others, the effect of the
complexity and scope of products required to address the electronic medical
records system ("EMRS") needs and the annual purchasing and budgeting practices
of potential customers. In addition, the timing of revenue recognition may be
difficult to predict because it is anticipated that the negotiation, development
and installation associated with a typical sale to a healthcare provider could
take as long as one year. During the sales cycle the Company will be required to
commit substantial time, effort and funds to prepare a contract proposal and
negotiate the contract, and the Company will recognize revenues on a percentage-
of-completion method based on the completion of specific milestones. The timing
of revenue recognition may also be affected by such factors as the need to
allocate Company resources among clients and research and development
activities, the availability of client personnel and delays imposed by clients.
Because a significant portion of the Company's total expenses, particularly
employee compensation, will be relatively fixed, variations in the timing of
sales, if any, and installations would cause significant variations in operating
results from quarter to quarter. In such events, the Company will be unable to
adjust spending to compensate fully for such revenues fluctuations, which may
magnify the adverse effect of such a disparity on the Company's results of
operations.
COMPETITION. The Company has a large number of competitors who offer
products and services that can accomplish outcomes that are the same or
equivalent to the Company's products and services. The Company competes with,
among others, (i) very large, established healthcare information system vendors
such as HBO & Company, Shared Medical Systems Corporation, and Cerner
Corporation, as well as smaller EMRS firms such as MedicaLogic, HealthPoint,
Oacis, and Oceana; (ii) integration engine companies such as Software
Technologies Corporation, Century Analysis Incorporated, and HUBLink, Inc.;
(iii) image management companies such as IMNET Systems, Inc. and LanVision
Systems, Inc.; (iv) healthcare database reference companies such as HCIA, Inc.;
(v) consulting firms such as Andersen Consulting and Ernst & Young, LLP; (vi)
original equipment manufacturers such as International Business Machines
Corporation and Hewlett-Packard, Inc.; (vii) systems integration firms such as
Science Products International Corporation, Electronic Data Systems Corporation
and Healthdyne Information Enterprises; and (viii) internal MIS departments of
healthcare providers. Also, the Company will compete with joint ventures, such
as the Andover Group (formed by Andersen Consulting and Hewlett-Packard), for
middleware services. Most of the Company's competitors have significantly
greater financial, technical and management resources than the Company, and
there can be no assurance that the Company will be able to compete successfully.
In addition, there can be no assurance that others, including the personnel
associated with other university-based research facilities with operations
similar to those of CERC, will not seek to enter the market. See
Business--Competition."
FRAGMENTED MARKET; UNCERTAINTY IN THE HEALTHCARE INDUSTRY; DEPENDENCE ON A
LIMITED NUMBER OF CUSTOMERS. The markets for the Company's products, while
undergoing consolidations, are highly fragmented. It may be very difficult for
the Company to achieve significant market penetration, and any attempt will
require substantial, but unknown amount of effort and scarce resources. The
fragmented nature of the market may impede the Company's ability to achieve
commercial acceptance for its products. Furthermore, during the past several
years, the U.S. healthcare industry has been subject to an increase in the
influence and purchasing power of managed care organizations. Healthcare
industry participants may react to these proposals and influences, and the
uncertainty surrounding such proposals and influences, by curtailing or
deferring investments and expenditures, including those for the Company's
products and services. The failure of the Company to maintain sales as a result
of such uncertainties could have a material adverse effect on the Company's
business, result of operations and financial condition. The most likely
potential customers for the Company's products are expected to be large
healthcare systems, such as the Miami IDN. In such event, the loss of individual
customers could have an adverse effect on the business of the Company. See
"Business--Customers; --Marketing."
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RISK OF SOFTWARE DEFECTS. As a result of their complexity, software
products frequently contain undetected errors or failures, especially when first
introduced or when new versions or enhancements are released. The Company
intends to subject its products to extensive testing prior to release; however,
there can be no assurance that, despite testing by the Company and testing and
use by potential customers, errors will not be found in the Company's products.
Any such errors could delay commercial introduction of products by the Company
and could require modifications after products, once introduced, are in use.
Remedying such errors could be costly and time consuming, and delays in
debugging or modifying the Company's products could materially and adversely
affect the Company's competitive position with respect to existing and new
technologies and products offered by its competitors.
PRODUCT LIABILITY; RISK OF LIABILITY CLAIMS. The Company's products may be
used in connection with confidential patient records and treatment plans.
Customer reliance on the Company's products and services could result in
exposure of the Company to liability claims if the Company's products contribute
to a failure to provide accurate and timely information or to protect the
security and privacy of confidential patient information, if patient care
decisions based in part on use of the Company's products and services are
challenged, or in the event of improper disclosure of patient information. A
successful claim brought against the Company in excess of its insurance coverage
could have a material adverse effect on the Company's business or results of
operations. Even unsuccessful claims could result in the expenditure of funds in
litigation, diversion of management time and resources or damage to the
Company's reputation and the marketability of the Company's products and
services. The Company intends to take contractual steps to obtain
indemnification from its customers and vendors for certain liabilities and
intends to obtain and maintain general commercial liability insurance. However,
there can be no assurance that appropriate insurance will be available to the
Company at commercially reasonable rates, that a successful claim could not be
made against the Company, that the amount of indemnification payments or
insurance would be adequate to cover the costs of defending against or paying
such a claim, or that damages payable by the Company would not have a material
adverse effect on the Company's business, financial condition and results of
operations.
POTENTIAL RELIANCE ON OTHERS. The Company's strategy for the research,
development and commercialization of certain of its present and future products
entails entering into various arrangements with corporate and academic partners,
other software developers, original equipment manufacturers (OEMs), licensees
and others in order to receive product sales and royalties and funds for product
development. The Company may also rely on its collaborative partners to conduct
research efforts, product development and testing and to produce and market
certain of the Company's products. The amount and timing of resources to be
devoted to these activities may not be within the control of the Company. There
can also be no assurance that the Company will be successful in establishing any
such collaborative arrangements or that, if established, the parties to such
arrangements will assist the Company in developing or commercializing products.
There can be no assurance that any present or future partners will perform their
obligations as expected or that any revenue will be derived from such
arrangements.
LIMITED COMMERCIAL CAPABILITY. The Company's ability to produce products
for commercial use at its present facility is extremely limited. Accordingly, if
demand develops, the Company will need to relocate its development and
production to a larger facility and, furthermore, the Company will need to
maintain a separate facility for administrative and marketing activities.
Although the Company believes it will be able to expand its development,
production, marketing and administrative capabilities as the need requires, it
may experience unanticipated delays, costs and/or logistical problems, and the
Company will require the proceeds from another financing to do so.
UNCERTAIN ABILITY TO MANAGE GROWTH. In the event, of which there can be no
assurance, that the Company experiences rapid growth prior to or following the
Offering, a significant strain on the Company's financial, management and other
resources can be expected to result. The Company's future performance will
depend in part on its ability to install and manage change in its operations,
including integration of any acquired businesses and any internally developed
businesses. In addition, the Company's ability to manage any growth effectively
will require it to install and to continue to improve its operational and
financial control systems and infrastructure, and to attract, train, motivate,
manage and retain key employees. If the Company's management were to become
unable to manage growth effectively, the Company's business, financial condition
and results of operations could be materially adversely affected.
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UNCERTAINTIES RELATING TO USE OF THE INTERNET FOR TRANSMISSION OF PATIENT
INFORMATION. It is anticipated that customers will initially use the Company's
products to manage and transmit patient information only within their private,
internal networks or intranets. The Company's products utilize World Wide Web
technologies which enable customers to transmit data via the Internet should
they desire to do so. However, a customer's use of the Internet to transmit
confidential patient information will be dependent upon the availability of
sufficient security features and technology to protect the confidentiality of
patient records. While numerous software development firms are marketing
software products that purport to establish various levels of data encryption
and other security for transmissions over the Internet, no currently available
technology has been generally accepted as providing security at a level
necessary to prevent unauthorized access to confidential patient information
being transmitted over the Internet. Further, at least one regional office of
the Healthcare Finance Administration ("HCFA") of the Department of Health and
Human Services ("HHS") recently issued a announcement addressed to HMOs and
other healthcare providers to the effect that they should refrain from
transmitting certain patient information between providers and insurers over the
Internet until such time as further evaluation of the security technologies can
be completed by HCFA. Other issues relating to the use of the Internet for the
transmission of patient information, including reliability, cost, ease of use
and access and speed, remain unresolved and may affect the use of the Internet
as a medium for the transmission of CPRs. CERC is engaged in research of
technology to secure the Internet transmission of CPRs, but there can be no
assurance that such technology can be developed by CERC, the Company or others,
on a timely basis or be incorporated in commercially usable products. In
addition to the security and privacy concerns, concerns related to computer
viruses may inhibit the use of the Internet for transmission of vital medical
data. The inability to transmit CPRs securely, efficiently and cost-effectively
via the Internet could limit the usefulness and commercial appeal of the
Company's products and could adversely affect the Company's business, results of
operations and financial condition. See "--Possible Adverse Effects of
Government and Institutional Regulation Regarding Patient Confidentiality."
POSSIBLE ADVERSE EFFECTS OF GOVERNMENT REGULATION REGARDING COMPUTER
PRODUCTS AND PROCUREMENT PROCEDURES. The United States Food and Drug
Administration (the "FDA") regulates some computer products as medical devices.
The FDA has issued a draft guidance document regarding the regulation of
computer products under certain circumstances as medical devices under the
Federal Food, Drug, and Cosmetic Act (the "FDC Act"). This guidance is subject
to change. However, because the Company's products are not used in diagnosis,
the FDA currently does not regulate the products the Company has developed or
expects to develop and market. Compliance with federal regulation could be
burdensome, time consuming and expensive. The Company expects the FDA is likely
to become increasingly active in regulating computer software intended for use
in the healthcare setting. Furthermore, there can be no assurance that any final
FDA policy governing computer products, once issued, or other future laws and
regulations concerning the manufacture or marketing of medical devices or
healthcare information software and systems, will not increase the cost and time
to market new or existing products. If the FDA chooses to regulate any of the
Company's products as medical devices not exempt from regulation, it can impose
extensive requirements upon the Company, including the requirement that the
Company seek either FDA clearance of a pre-market notification submission
(510(k)) demonstrating the product's substantial equivalence to a predicate
device or approval of a pre-market approval application establishing the safety
and effectiveness of the device. 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 requirements
and the reporting of certain device malfunctions and adverse device events.
Noncompliance with applicable requirements can result in, among other things,
fines, injunctions, civil penalties, recall of products, 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. On November 21, 1997, President Clinton signed into law the Food
and Drug Administration Modernization Act of 1997. This new legislation is
intended to speed the approval process of medical devices and other FDA
regulated products by streamlining FDA's review procedures to ensure timely
review of applications. Should the Company's products to be subject to
regulation as medical devices, the new law may provide the Company with a more
predictable and faster application process.
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The healthcare industry also is subject to changing political, economic and
regulatory influences that may affect the procurement practices and other
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, lower reimbursement rates and otherwise change the
operating environment for the Company's customers and target market. The failure
of the Company to maintain adequate price levels or sales as a result of
legislative or regulatory reforms could have a material adverse effect on the
Company's business, result of operations and financial condition.
USE OF PROCEEDS TO BENEFIT INSIDERS. The Company expects to use a portion
of the net proceeds of the Offering to pay salaries and consulting fees to
executive officers and directors of the Company, at the initial aggregate rate
of approximately $47,000 per month, increasing over time to approximately
$62,000 per month as their time commitments to the Company increase. A portion
of the net proceeds of the Offering will also be used to repay the Bridge Notes.
Proceeds of the Bridge Financing were used, in part, to pay salaries and
consulting fees to executive officers and directors of the Company (including
accrued salaries and consulting fees of $383,400 for the period from November 1,
1996 through September 30, 1997 and approximately $47,000 per month commencing
October 1, 1997). See "Use of Proceeds" and "Management."
CHARGES AND POTENTIAL CHARGES TO EARNINGS. Upon completion of the Offering
and repayment of the Bridge Notes, a non-recurring charge representing the
unamortized debt discount and debt issuance costs incurred in connection with
the Bridge Financing will be charged to operations in the quarter in which the
Offering is completed. The aggregate debt discount and debt issue costs
associated with the Bridge Notes is $563,000.
As a condition to the Offering, the current holders of the Company's Common
Stock have agreed to place, on a pro rata basis, 600,000 shares, or one-half of
the outstanding shares of Common Stock of the Company before the Offering, into
escrow, to be released only upon the attainment by the Company of certain
earnings or market price thresholds determined by negotiation between the
Company and the Representative. The Securities and Exchange Commission (the
"Commission") has taken the position with respect to escrow arrangements such as
that entered into by the Company and its stockholders that in the event any
Escrow Shares are released from escrow to officers, directors, employees or
consultants of the Company , compensation expense will be recorded for financial
reporting purposes. Such charge is not deductible for income tax purposes.
Therefore, in the event of the release of the Escrow Shares, the Company will
recognize, during the period in which the reportable earnings thresholds are met
or such minimum bid prices obtained, what could be a substantial charge which
would have the effect of substantially increasing the Company's reportable loss
or reducing or eliminating reportable earnings, if any, at such time. Although
the amount of compensation expense recognized by the Company will not affect the
Company's total stockholders' equity, it may have a depressive effect on the
market price of the Company's securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Management--Escrow Shares."
IMMEDIATE DILUTION. The purchasers of the Units in the Offering will incur
an immediate dilution of approximately $2.46 or 49.2% in the pro forma per share
net tangible book value of their Common Stock ($2.28 or 45.6% if the
Underwriters' over-allotment option is exercised in full). Additional dilution
to public investors, if any, may result to the extent that the Warrants, the
Unit Purchase Option and/or outstanding options are exercised at a time when the
net tangible book value per share of Common Stock exceeds the exercise price of
any such securities. See "Dilution."
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS. Upon completion of the
Offering, the current stockholders of the Company will own 43% of the
outstanding shares of Common Stock and therefore will be able to influence
significantly or control the outcome of substantially all matters submitted to a
vote of the stockholders. See "Certain Transactions," "Principal Stockholders"
and "Description of Securities."
POTENTIAL ADVERSE EFFECTS OF PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER
PROVISIONS. The Company's Certificate of Incorporation authorizes the issuance
of shares of "blank check" preferred stock which will have such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors will be empowered, without
stockholder approval (but
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subject to applicable government regulatory restrictions), to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the Common
Stock. In the event of such issuance, the preferred stock could be utilized,
under certain circumstances, as a method of discouraging, delaying or preventing
a change in control of the Company. Although the Company has no present
intention to issue any shares of preferred stock, there can be no assurance that
the Company will not do so in the future. The Company is also subject to a
Delaware statute regulating business combinations that could discourage, hinder
or preclude an unsolicited acquisition of the Company and make it less likely
that stockholders receive a premium for their shares as a result of such
attempt, which may adversely affect the market price of the Company's
securities. See "Description of Securities--Preferred Stock" and "--Business
Combination Protections."
NO DIVIDENDS. The Company has not paid any cash dividends on its Common
Stock and does not expect to declare or pay any cash or other dividends in the
foreseeable future. See "Dividend Policy."
POTENTIAL INFLUENCE OF THE REPRESENTATIVE. The Representative has the
right, for a period of five years after the completion of the Offering, to
designate one individual for nomination to the Company's Board of Directors. In
addition, during the five-year period from the date of this Prospectus, in the
event the Representative originates a financing or a merger, acquisition or
transaction to which the Company is a party, the Representative will be entitled
to receive a finder's fee in consideration for origination of such transaction.
The Company has also agreed to sell to the Representative and its designees, for
nominal consideration, the Unit Purchase Option to purchase up to 160,000 Units
and has agreed to grant to the holders of the Unit Purchase Option registration
rights with respect to the securities issuable upon exercise thereof. Such
rights may enable the Representative to exert a degree of influence over the
Company during the period such rights are outstanding. See
"Management--Executive Officers and Directors" and "Underwriting."
NO PUBLIC MARKET FOR SECURITIES; POSSIBLE VOLATILITY OF MARKET PRICE;
ARBITRARY DETERMINATION OF OFFERING PRICE. Prior to the Offering, there has not
been any market for any of the Company's securities and there can be no
assurance that an active trading market will develop or be sustained after the
Offering. The initial public offering price of the Units and the exercise price
and other terms of the Class A Warrants have been determined by negotiation
between the Company and the Representative and are not necessarily related to
the Company's asset value, net worth, results of operations or any other
criteria of value and may not be indicative of the prices that may prevail in
the public market. The market prices of the Units, Common Stock and Class A
Warrants could also be subject to significant fluctuations in response to
variations in the Company's development efforts, intellectual property position,
government regulations, general trends in the industry and other factors,
including extreme price and volume fluctuations which have been experienced by
the securities markets from time to time. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. Future sales of Common Stock by existing
stockholders pursuant to Rule 144 under the Securities Act or otherwise could
have an adverse effect on the price of the Company's securities. The 1,200,000
shares of Common Stock outstanding before the Offering are eligible for resale
in the public market, subject to compliance with Rule 144 under the Securities
Act. In addition, 50,000 shares of Class A Common Stock issuable upon the
exercise of stock options will be eligible for resale pursuant to Rule 144 and
Rule 701 under the Securities Act immediately after the 90th day following the
date of this Prospectus and a portion of the remaining 152,000 outstanding
options will vest and be eligible for resale pursuant to Rule 144 and Rule 701
under the Securities Act at various times beginning in November 1998. However,
holders of 1,100,000 of the 1,200,000 outstanding shares of Common Stock and all
the outstanding options prior to the Offering have agreed not to sell any shares
of Common Stock for a period of 13 months from the date of this Prospectus
without the prior written consent of the Representative. Sales of Common Stock,
or the possibility of such sales, in the public market may adversely affect the
market price of the securities offered hereby. In addition, the holders of the
Unit Purchase Option have certain demand and "piggy-back" registration rights,
and the Company has agreed to register for resale the Bridge Warrants and the
underlying Common Stock one year from the closing of the Offering. See
"Description of Securities," "Shares Eligible for Future Sale" and
"Underwriting."
OUTSTANDING WARRANTS AND OPTIONS; EXERCISE OF REGISTRATION RIGHTS. Upon
completion of the Offering, the Company will have outstanding (i) 1,600,000
Class A Warrants to purchase an aggregate of 1,600,000 shares of Common Stock;
(ii) the Bridge Warrants to purchase 1,000,000 shares of Common
16
<PAGE>
Stock; and (iii) the Unit Purchase Option to purchase an aggregate of 320,000
shares of Common Stock, assuming exercise of the underlying Class A Warrants.
The Company also has 300,000 shares of Common Stock reserved for issuance upon
exercise of options under its 1997 Stock Option Plan, of which 200,000 have been
granted and are subject to vesting schedules. Holders of such warrants and
options are likely to exercise them when, in all likelihood, the Company could
obtain additional capital on terms more favorable than those provided by
warrants and options. Further, while these Warrants and options are outstanding,
the Company's ability to obtain additional financing on favorable terms may be
adversely affected. The holders of the Unit Purchase Option have certain demand
and "piggy-back" registration rights with respect to their securities. Exercise
of such rights could involve substantial expense to the Company. The Company has
agreed to register for resale the 1,000,000 Bridge Warrants and the underlying
Common Stock one year from the closing of the Offering. See "Management--Stock
Options," "Description of Securities" and "Underwriting."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. Commencing one year
from the date of this Prospectus, the Class A Warrants may be redeemed by the
Company at a redemption price of $.05 per Warrant upon not less than 30 days'
prior written notice if the closing bid price of the Common Stock shall have
averaged in excess of $9.10 per share for 30 consecutive trading days ending
within 15 days of the notice. Redemption of the Class A Warrants could force the
holders (i) to exercise the Warrants and pay the exercise price therefor at a
time when it may be disadvantageous for the holders to do so, (ii) to sell the
Warrants at the then current market price when they might otherwise wish to hold
the Warrants, or (iii) to accept the nominal redemption price which, at the time
the Warrants are called for redemption, is likely to be substantially less than
the market value of the Warrants. See "Description of Securities--Redeemable
Class A Warrants."
CURRENT PROSPECTUS AND STATE REGISTRATION TO EXERCISE WARRANTS. Holders of
Class A Warrants will be able to exercise the Warrants only if (i) a current
prospectus under the Securities Act relating to the securities underlying the
Warrants is then in effect and (ii) such securities are qualified for sale or
exempt from qualification under the applicable securities laws of the states in
which the various holders of Warrants reside. Although the Company has
undertaken and intends to use its best efforts to maintain a current prospectus
covering the securities underlying the Warrants following completion of the
Offering to the extent required by Federal securities laws, there can be no
assurance that the Company will be able to do so. The value of the Class A
Warrants may be greatly reduced if a prospectus covering the securities issuable
upon the exercise of the Warrants is not kept current or if the securities are
not qualified, or exempt from qualification, in the states in which the holders
of Warrants reside. Persons holding Class A Warrants who reside in jurisdictions
in which such securities are not qualified and in which there is no exemption
will be unable to exercise their Warrants and would either have to sell their
Warrants in the open market or allow them to expire unexercised. If and when the
Class A Warrants become redeemable by the terms thereof, the Company may
exercise its redemption right even if it is unable to qualify the underlying
securities for sale under all applicable state securities laws. See "Description
of Securities-- Redeemable Class A Warrants."
POSSIBLE ADVERSE EFFECT ON THE LIQUIDITY OF THE COMPANY'S SECURITIES DUE TO
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION OF THE REPRESENTATIVE AND BLAIR
& CO. AND RECENT SETTLEMENT BY BLAIR & CO. WITH NASD. The Commission is
conducting an investigation concerning various business activities of the
Representative and D.H. Blair & Co., Inc., a selling group member which will
distribute a substantial portion of the Units offered hereby ("Blair & Co.").
The Company has been advised by the Representative that the investigation has
been ongoing since at least 1989 and that it is cooperating with the
investigation. The Representative cannot predict whether this investigation will
ever result in any type of formal enforcement action against the Representative
or Blair & Co.
In July 1997, Blair & Co., its Chief Executive Officer and its head trader
consented, without admitting or denying any violations, to a settlement with the
NASDR District Business Conduct Committee for District No. 10 to resolve
allegations of NASD rule and securities law violations in connection with mark-
up and pricing practices and adequacy of disclosures to customers regarding
market-making activities of Blair & Co. in connection with certain securities
issues during the period from June 1993 through May 1995 where Blair & Co. was
the primary selling group member. NASDR alleged the firm failed to accurately
calculate the contemporaneous cost of securities in instances where the firm
dominated and controlled after-market trading, thereby causing the firm to
charge its customers excessive mark-ups.
17
<PAGE>
NASDR also alleged the firm did not make adequate disclosure to customers about
its market-making activities in two issues. As part of the settlement, Blair &
Co. has consented to a censure and has agreed to pay a $2 million fine, make
$2.4 million in restitution to retail customers, employ an independent
consultant for two years to review and make recommendations to strengthen the
firm's compliance procedures, and has undertaken for 12 months not to sell to
its retail customers (excluding banks and other institutional investors) more
than 60% of the total securities sold in any securities offering in which it
participates as an underwriter or selling group member. The Chief Executive
Officer of Blair & Co. has agreed to settle failure to supervise charges by
consenting to a censure, the imposition of a $225,000 fine and a 60-day
suspension from associating with any NASD member firm and to take a
requalification examination. The firm's head trader has agreed to settle charges
against him by consenting to a censure, the imposition of a $300,000 fine and a
90-day suspension from associating with any member firm and has undertaken to
take certain requalification examinations. The settlement with NASDR does not
involve or relate to the Representative, its chief executive officer or any of
its other officers or directors.
The Company has been advised that Blair & Co. intends to make a market in
the Company's securities after the Offering. The Company is unable to predict
whether Blair & Co.'s settlement with the NASDR or any unfavorable resolution of
the Commission's investigation will have any effect on such firm's ability to
make a market in the Company's securities and, if so, whether the liquidity or
price of the Company's securities would be adversely affected. See
"Underwriting."
POSSIBLE RESTRICTIONS ON MARKET-MAKING ACTIVITIES IN COMPANY'S
SECURITIES. The Representative has advised the Company that Blair & Co. intends
to make a market in the Company's securities. Regulation M under the Securities
Act of 1934 (the "Exchange Act") may prohibit Blair & Co. from engaging in any
market-making activities with regard to the Company's securities for the period
from five business days (or such other applicable period as Regulation M may
provide) prior to any solicitation by the Representative of the exercise of
Class A Warrants until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right that the
Representative may have to receive a fee for the exercise of Class A Warrants
following such solicitation. As a result, Blair & Co. may be unable to provide a
market for the Company's securities during certain periods while the Class A
Warrants are exercisable. In addition, the Company has agreed to register for
resale the Bridge Warrants and the underlying Common Stock within one year from
the closing of the Offering. Under applicable rules and regulations under the
Exchange Act, any person engaged in the distribution of the Bridge Warrants may
not simultaneously engage in market-making activities with respect to any
securities of the Company for the applicable "cooling off" period (which is
likely to be five business days) prior to the commencement of such distribution.
Accordingly, in the event the Representative or Blair & Co. is engaged in a
distribution of the Bridge Warrants, neither of such firms will be able to make
a market in the Company's securities during the applicable restrictive period.
Any temporary cessation of such market-making activities could have an adverse
effect on the market price of the Company's securities. See "Underwriting."
POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ STOCK MARKET. While the
Company's Units, Common Stock and Class A Warrants meet the current Nasdaq
listing requirements and are expected to be initially included on the Nasdaq
SmallCap Market, there can be no assurance that the Company will meet the
criteria for continued listing. Nasdaq has recently adopted more stringent
financial requirements for Nasdaq securities. Continued inclusion on Nasdaq
would require that (i) the Company maintain (A) net tangible assets (defined as
total assets less total liabilities and goodwill) of at least $2,000,000, (B)
net income of $500,000 in two of the last three years, or (C) market
capitalization of at least $35,000,000, (ii) the minimum bid price of the Common
Stock be $1.00 per share, (iii) there be at least 500,000 shares in the public
float valued at $1,000,000 or more, (iv) the Common Stock have at least two
active market markers and (v) the Common Stock be held by at least 300 holders.
If the Company is unable to satisfy Nasdaq's maintenance requirements, its
securities may be delisted from Nasdaq. In such event, trading, if any, in the
Units, Common Stock and Class A Warrants would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or the NASD's "Electronic
Bulletin Board." The Representative and Blair & Co. are currently permitted to
make a market in securities traded on the "Electronic Bulletin Board," although
neither the Representative nor Blair & Co. has committed to do so in the event
the Company's securities were traded thereon. Consequently, the liquidity of the
Company's securities could be impaired, not only in the number of
18
<PAGE>
securities which could be bought and sold, but also through delays in the timing
of transactions and lower prices for the Company's securities than might
otherwise be attained.
RISKS OF LOW-PRICED OR "PENNY" STOCK. If the Company's securities were
delisted from Nasdaq (See "--Possible Delisting of Securities from The Nasdaq
Stock Market"), they could become subject to Rule 15g-9 under the Exchange Act,
which imposes additional sales practice requirements on broker-dealers which
sell such securities except in transactions exempted by such Rule, including
transactions meeting the requirements of Rule 505 or 506 of Regulation D under
the Securities Act and transactions in which the purchaser is an institutional
accredited investor (as defined) or an established customer (as defined) of the
broker or dealer. For transactions covered by this rule, a broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, such
rule may adversely affect the ability of broker-dealers to sell the Company's
securities and may adversely affect the ability of purchasers in the Offering to
sell in the secondary market any of the securities acquired hereby.
Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on Nasdaq and have certain
price and volume information provided on a current and continuing basis or meet
certain minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, it would remain subject to Section 15(b)(6) of the Exchange
Act, which gives the Commission the authority to prohibit any person that is
engaged in unlawful conduct while participating in a distribution of a penny
stock from associating with a broker-dealer or participating in a distribution
of a penny stock, if the Commission finds that such a restriction would be in
the public interest. If the Company's securities were subject to the rules on
penny stocks, the market liquidity for the Company's securities could be
severely adversely affected.
19
<PAGE>
USE OF PROCEEDS
THE FOLLOWING DISCUSSION ASSUMES AN INITIAL PUBLIC OFFERING PRICE OF $5.00
PER UNIT.
The net proceeds to the Company from the sale of the 1,600,000 Units offered
hereby, after deducting underwriting discounts and commissions and other
expenses of the Offering, are estimated to be approximately $6,450,000
($7,494,000 if the over-allotment option is exercised in full). The Company
expects the net proceeds to be utilized approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE AMOUNT PERCENTAGE OF
APPLICATION OF NET PROCEEDS NET PROCEEDS
- ---------------------------------------------------------- ------------------- ---------------
<S> <C> <C>
Repayment of Bridge Notes (1)............................. $ 2,050,000 31.8%
Product Development (2)................................... 2,200,000 34.1%
Technical Product Support (3)............................. 665,000 10.3%
Sales and Marketing (4)................................... 984,000 15.3%
Working Capital(5)........................................ 551,000 8.5%
------------------- -----
Total................................................. $ 6,450,000 100.0%
------------------- -----
------------------- -----
</TABLE>
- ------------------------
(1) Represents the principal amount and accrued interest at the rate of 10% per
annum of Bridge Notes issued in the Bridge Financing in September and
October 1997. The proceeds of the Bridge Financing were and are being used
for software engineering and product development, marketing, sales and
general working capital purposes, including general and administrative
expenses, and payment of accrued and current salaries and consulting fees.
See "Capitalization--Bridge Financing" and "Certain Transactions."
(2) Includes compensation of executive officers and directors performing
technical and research and development functions, software developers and
consultants, other costs of development and testing of software products for
general and specific clients, acquisition and development of software design
tools, development and testing of product upgrades, research and development
of new health care software product lines, development of both end-user and
manufacturer designer add-on software, and research and development of user
system access interfaces and safeguards. See "Business-- Products under
Development; --Research and Development."
(3) Includes compensation of executive officers and staff performing operating
and technical support functions, the costs of pre-and post-installation
product testing and debugging, telephonic ("help desk") support services,
Internet and intranet web-page support design and maintenance, and
development and maintenance of written and on-line technical support
manuals.
(4) Includes the costs of recruiting a senior marketing executive and marketing
and sales staff, compensation of executive officers and staff performing
marketing and sales functions, costs of development of printed and on-line
marketing and sales materials, presentations and exhibits at technical trade
shows, and joint product marketing with VARs and other end-user software
developers and vendors. See "Business--Marketing."
(5) Includes general and administrative expenses, salaries of corporate
administrative executive officers and administrative support staff, and
general operating expenses.
The foregoing represents the Company's best estimate at this time of its
allocation of the net proceeds of the Offering during approximately the next 24
months. This estimate is based on certain assumptions, including that no events
occur which would cause the Company to abandon any particular efforts, that
competitive conditions remain stable, that the success of the Company's
research, development and testing activities will occur as projected, as well as
certain assumptions relating to the Company's sales and marketing activities,
market acceptance of the Company's products, competition and other factors.
Future events, as well as changes in economic, regulatory or competitive
conditions or the Company's business
20
<PAGE>
and the results of the Company's sales and marketing activities, may make shifts
in the allocation of funds necessary or desirable. The Company reserves the
right to change its use of proceeds as unanticipated events may cause the
Company to redirect its priorities and reallocate the proceeds accordingly.
In addition, the Company may require additional funds during such period in
the event of delays in sales and marketing or product development, cost overruns
or other unanticipated expenses commonly associated with a company in an early
stage of development. Furthermore, the Company will likely need substantial
additional financing following such 24 month period. There can be no assurance
that additional funding will be available to the Company on acceptable terms, if
at all. In the event such financing is not obtained, the Company may be
materially adversely affected and may have to cease or substantially reduce
operations.
Any additional proceeds received upon exercise of the over-allotment option,
the Warrants or the Bridge Warrants will be added to working capital. Pending
utilization, the net proceeds of the Offering will be invested in short-term,
interest-bearing investments.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain all earnings, if any, for use in the expansion of
the Company's business. The declaration and payment of future dividends, if any,
will be at the sole discretion of the Board of Directors and will depend upon
the Company's profitability, financial condition, cash requirements, future
prospects and other factors deemed relevant by the Board of Directors.
21
<PAGE>
CAPITALIZATION
THE FOLLOWING DISCUSSION ASSUMES AN INITIAL PUBLIC OFFERING PRICE OF $5.00
PER UNIT.
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on a historical basis; (ii) on a pro forma basis to
reflect the sale of Bridge Notes and Bridge Warrants subsequent to such date and
(iii) as adjusted to reflect the sale of the Units offered hereby and the
application of the net proceeds therefrom to repay the Bridge Notes. This table
should be read in conjunction with the Financial Statements and the Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------------
<S> <C> <C> <C>
HISTORICAL PRO FORMA AS ADJUSTED
----------- ------------- -------------
(UNAUDITED)
Bridge Notes, net of discount(1).................................... $ 869,000 $ 1,708,000 $ --
----------- ------------- -------------
Stockholders' Equity:
Preferred Stock, $.001 par value; 5,000,000 shares authorized; no
shares outstanding actual, issued and outstanding pro forma and
as adjusted..................................................... -- -- --
Common Stock, $.001 par value; 20,000,000 shares authorized;
1,200,000 shares issued and outstanding historical and pro
forma; 2,800,000 shares issued and outstanding as adjusted
(2)(3).......................................................... 1,200 1,200 2,800
Additional paid-in capital.......................................... 125,800 250,800 6,699,225
Accumulated deficit................................................. (536,000) (536,000) (1,099,625)(4)
----------- ------------- -------------
Total stockholders' equity (capital deficiency)................. (409,000) (284,000) 5,602,400
----------- ------------- -------------
Total capitalization............................................ $ (460,000) $ (1,424,000) $ 5,602,400
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
- ------------------------
(1) The Bridge Notes are payable on the earlier of September 19, 1998 or the
completion of the Offering. See "Use of Proceeds."
(2) Excludes (i) up to 480,000 shares of Common Stock issuable upon exercise of
the Underwriters' over-allotment option and the underlying Warrants; (ii)
1,600,000 shares of Common Stock issuable upon exercise of the Warrants
included in the Units offered hereby; (iii) 1,000,000 shares of Common Stock
issuable upon exercise of the Bridge Warrants; (iv) 320,000 shares of Common
Stock issuable upon exercise of the Unit Purchase Option and the Warrants
included in such option; and (v) up to 300,000 shares of Common Stock
reserved for issuance under the Company's 1997 Stock Option Plan, 200,000 of
which are outstanding. See "Management--Stock Option Plan," "Certain
Transactions," "Description of Capital Stock" and "Concurrent Offering."
(3) Includes the 600,000 Escrow Shares. See "Principal Stockholders--Escrow
Shares."
(4) Gives effect to recognition of an aggregate of $563,000 of expenses upon the
closing of the Offering relating to deferred interest attributable to the
Bridge Notes and expenses of the Bridge Financing. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
BRIDGE FINANCING
In September and October 1997, the Company completed the Bridge Financing of
an aggregate of $2,000,000 amount of Bridge Notes and 1,000,000 common stock
purchase warrants in which it received net proceeds of approximately $1,740,000,
(after expenses of the Bridge Financing) of which $200,000 was used to repay a
loan from the Representative. The Representative acted as placement agent for
the Bridge Financing and received from the Company a commission of $200,000 and
a non-accountable expense
22
<PAGE>
allowance of $60,000. The Bridge Notes are payable, together with interest, at
the rate of 10% per annum, on the earlier of September 19, 1998 or the closing
of the Offering. See "Use of Proceeds."
The warrants issued in the Bridge Financing entitled the holders thereof to
purchase one share of Common Stock commencing in September 1998 but will be
converted automatically on the closing of the Offering into Bridge Warrants,
each of which will be identical to the Class A Warrants included in the Units
offered hereby. The Company has agreed to register for resale the Bridge
Warrants and the underlying Common Stock one year from the closing of the
Offering.
23
<PAGE>
DILUTION
THE FOLLOWING DISCUSSION AND TABLES ASSUME AN INITIAL PUBLIC OFFERING PRICE
OF $5.00 PER UNIT AND ALLOCATE NO VALUE TO THE WARRANTS CONTAINED IN THE UNITS.
Dilution represents the difference between the initial public offering price
paid by the purchasers in the Offering and the net tangible book value per share
immediately after completion of the Offering. Net tangible book value per share
represents the amount of the Company's total assets minus the amount of its
intangible assets and liabilities, divided by the number of shares of Common
Stock outstanding. The pro forma adjustment to the historical net book value
gives effect to the issuance in September and October 1997 of the Bridge Notes,
net of debt issue costs and debt discount. At September 30, 1997, the Company
had a negative pro forma net tangible book value of approximately $(582,000), or
$(.97) per share ($(.48) per share including the Escrow Shares). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Concurrent Offering," "Certain Transactions" and Notes B[6] and E
of Notes to Financial Statements. After giving retroactive effect to the sale of
1,600,000 Units offered hereby, and the Company's receipt of the net proceeds
therefrom less underwriting discounts, commissions and other estimated expenses
of the Offering (anticipated to aggregate $1,550,000), the net tangible book
value of the Company, as adjusted, at September 30, 1997 would have been
$5,585,000 or $2.54 per share ($1.99 per share including the Escrow Shares).
This would result in an immediate dilution to the public investors of $2.46 per
share ($3.01 per share including the Escrow Shares) and the aggregate increase
in the pro forma net tangible book value to present stockholders would be $3.51
per share ($2.48 per share including the Escrow Shares).
The following table illustrates the pro forma information with respect to
dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Public offering price per share............................................... $ 5.00
Pro forma negative net tangible book value per share before Offering........ $ (.97)
Increase per share attributable to new investors............................ $ 3.51
Net tangible book value per share after Offering.............................. $ 2.54
---------
Dilution to new investors (1)................................................. $ 2.46
---------
---------
</TABLE>
- ------------------------
(1) If the over-allotment option is exercised in full, the net tangible book
value after the Offering would be approximately $2.72 per share, resulting
in dilution to new investors in the Offering of $2.28 per share.
The following table summarizes the differences between existing stockholders
and new investors with respect to the number of shares of Common Stock purchased
from the Company, the total consideration paid to the Company and the average
price per share paid by existing stockholders and by new investors:
<TABLE>
<CAPTION>
TOTAL
CONSIDERATION AVERAGE
SHARES PURCHASED PAID PRICE
----------------------- ----------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............................. 1,200,000(1) 42.8% $ 7,000 .08% $ .006
New Investors..................................... 1,600,000 57.2% $ 8,000,000 99.92% $ 5.00
---------- ----- ------------ --------- -----
Total............................................. 2,800,000 100.0% $ 8,007,000 100.00%
---------- ----- ------------ ---------
---------- ----- ------------ ---------
</TABLE>
- ------------------------
(1) Includes the 600,000 Escrow Shares. See "Principal Stockholders - Escrow
Shares."
The foregoing table does not give effect to exercise of any outstanding
options or warrants. To the extent such options or warrants are exercised there
will be further dilution to new investors. See "Capitalization--Bridge
Financing," "Management--Stock Option Plan" and "Description of Securities."
24
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected historical and pro forma financial
data and other operation information of the Company. The selected historical
financial data in the table for the period ended December 31, 1996 is derived
from the financial statements for the Company which have been audited by Richard
A. Eisner & Company, LLP, independent auditors. The financial data for the nine
month period ended September 30, 1997 are derived from unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which the Company considers necessary
for a fair presentation of the financial position and the results of operations
for these periods. The selected financial data set forth below should be read in
conjunction with the Financial Statements and Notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
FEBRUARY 6, 1996 FEBRUARY 6, 1996
(INCEPTION) (INCEPTION)
THROUGH THROUGH NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
(DEVELOPMENT (DEVELOPMENT
STAGE) STAGE) (UNAUDITED)
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 68,000 $ 44,000 $ 171,000
-------- ------- ----------
Costs and Expenses:
Cost of services and systems....................... 31,000 24,000 286,000
Selling, general and administrative................ 108,000 27,000 341,000
Interest........................................... -- -- 9,000
-------- ------- ----------
139,000 51,000 636,000
-------- ------- ----------
Net loss............................................. (71,000) (7,000) (465,000)
-------- ------- ----------
Net loss per share(1)................................ $ (0.12) $ (.01) $ (0.78)
-------- ------- ----------
-------- ------- ----------
Weighted average number of shares of Common Stock
Outstanding........................................ 600,000 600,000 600,000
-------- ------- ----------
-------- ------- ----------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------
<S> <C> <C>
HISTORICAL PRO FORMA(2)
------------ -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................................................ $ (609,000) $ (45,000)
Total assets......................................................................... 840,000 1,604,000
Total current liabilities............................................................ 1,249,000 1,888,000
Accumulated deficit.................................................................. (536,000) (536,000)
Total stockholders' equity (capital deficiency)...................................... $ (409,000) $ (284,000)
</TABLE>
- ------------------------
(1) The net loss per share computation excludes the Escrow Shares. See Notes
B[6] and E of Notes to Financial Statements.
(2) Gives pro forma effect to the issuance of the Bridge Notes and Bridge
Warrants subsequent to September 30, 1997. See "Capitalization--Bridge
Financing," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Certain Transactions."
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS.
RESULTS OF OPERATIONS
Since its inception, the Company's activities have been limited, consisting
of development of its business plans and strategies, execution of the
Cybermarche Agreement, research, development and testing of its initial
products, sales presentations to potential customers, preliminary discussions
regarding possible joint product development and marketing with potential
collaborators, negotiations relating to the Miami IDN agreement and performance
of that agreement and a custom software development agreement with another
customer. From inception through September 30, 1997, the Company sustained
cumulative losses of $(536,000). These losses have resulted from costs of
services and systems and selling, general and administrative activities,
including legal and professional activities, and have continued to date.
The Company entered into its first software development agreement in April
1996. Through December 31, 1996, the Company had revenues of $68,000, costs of
services and systems of $31,000 and selling, general and administrative expenses
of $108,000. In the period ended September 30, 1996, the Company had revenues of
$44,000 and had costs of services and systems of $24,000 and selling, general
and administrative expenses of $27,000, as compared to the nine months ended
September 30, 1997, when the Company had revenues of $171,000, costs of services
and systems of $286,000 and selling, general and administrative expenses of
$341,000.
Costs of services and systems through December 31, 1996 were incurred
substantially in connection with custom software development work for one
customer. In 1997, costs of services and systems increased fourfold due to
increased revenues and software modification and enhancement costs of
approximately $158,000. Such costs were incurred in connection with the first
commercial sale of Company products (a beta site). Selling, general and
administrative expenses increased in 1997 as a result of the inclusion of the
salaries of the President and Chief Financial Officer of the Company, whose
employment commenced in late 1996 and in 1997, respectively, and the costs of
increased marketing efforts.
The Company expects to incur substantial costs of services and systems in
the future due to product research, development and testing activities. The
Company also expects that general and administrative costs necessary to create
and support a marketing and sales organization will increase in the future.
Accordingly, the Company expects to incur increasing operating losses for the
foreseeable future. There can be no assurance that the Company will ever achieve
profitable operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its activities to date primarily from the proceeds of
the Bridge Financing and from custom software development revenues. As of
September 30, 1997, the Company had a working capital deficit of $(609,000).
In September and October 1997, the Company completed the Bridge Financing
which consisted of $2,000,000 principal amount of Bridge Notes bearing interest
at an annual rate of 10% and warrants to purchase an aggregate of 1,000,000
shares of Common Stock. See "Capitalization--Bridge Financing." The proceeds of
the Bridge Financing, which were approximately $1,740,000 (net of $200,000 in
commissions and a $60,000 expense allowance paid to the Representative,, which
acted as placement agent, and other expenses of the private placement) have been
and are being utilized by the Company for working capital purposes including
general and administrative expenses and expenses of the Offering. The Company
intends to repay the principal and accrued interest on the Bridge Notes with a
portion of the proceeds of the Offering. See "Use of Proceeds" and "Certain
Transactions." The Company will recognize
26
<PAGE>
a non-recurring charge of approximately $563,000 representing the unamortized
portion of the debt discount and debt issuance costs associated with the Bridge
Financing at the time of repayment.
During the 12-month period following the Offering, the Company is committed
to pay approximately $747,000 in compensation to its current executive officers
and directors. See "Management--Employment and Consulting Agreements."
The Company believes that upon the completion of the Offering and the
receipt of the proceeds therefrom, it will have the necessary liquidity and
capital resources to sustain planned operations for approximately 24 months
following the Offering. In the event that the Company's internal estimates
relating to its planned expenditures prove materially inaccurate, the Company
may be required to reallocate funds among its planned activities and curtail
certain planned expenditures. In any event, the Company anticipates that it will
require substantial additional financing after such time. There can be no
assurance as to the availability or terms of any required additional financing,
when and if needed. In the event that the Company fails to raise any funds it
requires, it may be necessary for the Company to significantly curtail its
activities or cease operations. See "Use of Proceeds."
At September 30, 1997, the Company had net operating loss carryforwards for
Federal income tax purposes of $450,000. The net operating loss and credit
carryforwards expire through December 2012. See Note G of Notes to Financial
Statements.
RELEASE OF ESCROW SHARES
In connection with the Offering, the current stockholders of the Company are
placing 50% of their stockholdings in escrow pending the Company's attainment of
certain revenue or market price goals. See "Principal Stockholders--Escrow
Shares."
The Commission has taken the position with respect to the release of
securities from escrow that in the event any of the shares or options are
released from escrow to directors, officers, employees or consultants of the
Company, the release will be treated, for financial reporting purposes, as
compensation expense to the Company. In the event the Company attains any of the
earnings or market price targets required for the release of Escrow Shares, the
release of the Escrow Shares to such individuals will be deemed additional
compensation expense to the Company. Accordingly, the Company will, in the event
of the release of the Escrow Shares recognize during the period in which the
earnings or market price targets are met, what could be a substantial one-time
charge which would substantially increase the Company's loss or reduce or
eliminate earnings, if any, at such time. The amount of compensation expense
recognized by the Company will not affect the Company's total stockholders'
equity.
27
<PAGE>
GLOSSARY
ACCESS TOOLS: software programs specifically designed to move data between
different computer programs that cannot exchange data by themselves.
ActiveX: Microsoft's cross platform software building blocks that function
between applications and services, whether on the same machine, across a network
or over the INTERNET. Competes with the JAVABEANS technology from Sun
Microsystems.
APPLETS: small self-contained software programs written in the Java
language. These programs can be easily downloaded from a central location and
run inside of a standard web browser.
ARTEMIS: stands for ADVANCED RESEARCH TESTBED FOR MEDICAL INFORMATICS. The
healthcare information systems research project at CERC.
BACKEND: non-technical term used to describe the parts of an application
that usually run on mini-or MAINFRAME computers, and that are not directly
accessed by end-users.
BEST-OF-BREED: a selection strategy by which a buyer purchases a product
based on it being the best solution for a particular business problem. These
best solutions are then integrated together to form the entire business system.
BETA SITE: a customer site where new software products are tested and
improved just before their general release
BETA TEST: the activity of field testing new software just before general
release.
BROWSER: a software program that allows the user to navigate the content
available on the INTERNET or on INTRANETS that employ WORLD WIDE WEB
technologies. Examples are Netscape's "Navigator" and Microsoft's "Internet
Explorer."
CAPITATION: a fixed payment by an insurance company or other purchaser of
health care services (usually an HMO) on a per member basis to a provider as
compensation for providing healthcare over a fixed period.
CERC: stands for CONCURRENT ENGINEERING RESEARCH CENTER. The department at
WVU where ARTEMIS was developed.
COTS: stands for COMMERCIAL-OFF-THE-SHELF. Used to describe hardware and
software products that are readily available in the market, and in a ready to
use form.
CPR: stands for COMPUTERIZED PATIENT RECORD. A data repository for a single
patient's clinical information. Data is often assembled from several computer
applications, including EMRS.
CORBA: stands for COMMON OBJECT REQUEST BROKER ARCHITECTURE. An open
architecture and set of software standards created to support interoperability
between software running on heterogeneous hardware and software platforms over
the networks, including INTRANETS and the INTERNET. Created by the OMG.
CORBAMed Domain Taskforce: an OMG Task Force focused on developing open
standards for healthcare applications.
DATABASE: a collection of data managed in a computer system.
DCOM: stands for DISTRIBUTED COMMON OBJECT MODEL. A proprietary architecture
and set of software specifications owned by Microsoft meant to compete with
CORBA.
EMRS: stands for ELECTRONIC MEDICAL RECORDS SYSTEM. Generally considered a
single computer program that stores a patient's clinical and financial
information during one phase of clinical care. For example, a physician would
use an EMRS to review historical patient information needed during, to document
observations and treatments made during and to bill for office visits.
28
<PAGE>
FRONTEND: non-technical term used to describe the parts of an application
that usually run on PCs
or terminals, and that are directly used by end-users.
GATEWAY: a specific kind of ACCESS TOOL which provides the passive
translation of information between two or more different computer programs which
were not originally designed to work together.
HCIS: stands for HEALTHCARE INFORMATION SYSTEM. A computer and software
installation designed to facilitate processing and/or exchange of healthcare
related information.
HMO: stands for HEALTH MAINTENANCE ORGANIZATION. An organized health care
system that is responsible for both the financing and delivery of a broad range
of comprehensive health care services to an enrolled population for a prepaid,
fixed fee.
HL-7: stands for HEALTH LEVEL SEVEN. A data messaging standard for the
exchange for healthcare information.
HTML: stands for HYPERTEXT MARKUP LANGUAGE. The standard page description
language in which documents are encoded and which is used to convey both content
and formatting information about content to a BROWSER.
HTTP: stands for HYPERTEXT TRANSFER PROTOCOL. The protocol used by the WORLD
WIDE WEB to retrieve and display HTML documents.
IDN: stands for INTEGRATED DELIVERY NETWORK. A group of healthcare service
providers structured to provide high quality and cost-controlled healthcare at
multiple sites. May include hospitals, clinics, physician offices, nursing
homes, and other facilities and services.
INTEGRATION TOOLS: software programs designed to facilitate the integration
of multiple software applications. Generally used with ACCESS TOOLS.
INTERNET: a public global network of interconnected private commercial,
educational and governmental computer networks that use a common, open,
standardized communication protocol.
INTRANET: an organization's private network that may consist of several
local area networks ("LANS"). INTRANETS use WORLD WIDE WEB technology-based data
formats and communications protocols and may use the INTERNET'S facilities as
closed network LANS, in which event LAN to LAN networks are not considered
secure. However, most IDNs currently use private lines for communications
between LANS, which lines can be made and kept secure from outside access.
IT: stands for INFORMATION TECHNOLOGY, as in "IT departments" inside
hospitals.
JAVA: a software language developed by Sun Microsystems that allows software
to be written once and to be able to run on different computer operating
systems.
JAVABEANS: Sun Microsystems' cross platform software building blocks that
function between applications and services, whether on the same machine, across
a network or over the INTERNET. Competes with the ActiveX technology from
Microsoft.
JDBC: stands for Java-BASED DATABASE CONNECTIVITY. An open interface
specified by Sun Microsystems to integrate JAVA to DATABASES. This interface is
based on the ODBC specification.
LEGACY SYSTEM: an existing computer system and related operating, data
storage and retrieval hardware and software. Tend to have been designed using
inflexible, proprietary hardware platforms (mainframes) and closed, proprietary
software architectures and data formats that are incompatible with other legacy
systems, with newer systems, or with open, distributed, server-based systems.
LONGITUDINAL PATIENT INFORMATION: patient information from various LEGACY
sources (laboratory, pharmacy, radiology, physicians' notes, etc.) grouped
together and made available for viewing in historical sequence.
29
<PAGE>
MAINFRAME: a large, expensive computer, generally requiring full-time
professional operators and technical support, special operating environments,
and customized LEGACY SYSTEM software. Sometimes called "big iron".
MIDDLEWARE: software programs specifically designed to interoperate between
front-end user or "client" software programs and back-end "server" software
programs. Allows significant application sophistication to be created while
maintaining application flexibility.
MPI: stands for MASTER PATIENT INDEX. A global index of patients that allows
each specific patient's medical information to be assembled and processed from a
variety of LEGACY SYSTEMS, each of which usually refers to the same patient with
different, unique identifiers.
ODBC: stands for OPEN DATABASE CONNECTIVITY. A DE FACTO standard specified
by Microsoft to interface to DATABASES.
OLE: stands for OBJECT LINKING AND EMBEDDING. The old name of the previous
version of Microsoft's ActiveX technology.
OMG: stands for OBJECT MANAGEMENT GROUP. The largest software consortium in
the world, consisting of over 800 software vendors. Promotes the definition of
open standards for interoperability between software components.
OPEN ARCHITECTURE: an architecture and software specification, such as
CORBA, that is freely available. No royalties or fees are charged for using open
architectures and specifications in building software solutions. Supported and
propagated by a standardizing body and a collection of vendors, such as OMG,
with the intention of creating value in the marketplace through the wide use of
the software specification by software developers.
OPEN SYSTEM: a software system built using an OPEN ARCHITECTURE.
PLUG-AND-PLAY: as used herein for middleware and backend software, the
ability for software to access information processed and stored by an unrelated
software program(s) without having to access, directly interoperate with or
jeopardize the underlying programming code of the host software program(s) or
system(s).
SERVER: a combined hardware and software solution that sends and receives
data and applications to and from end-user computers. Allows for efficient,
flexible, low-cost networks and, generally, the server hardware is very high
powered desktop PCs. Depending upon configuration, server-based solutions can be
more powerful than most Legacy mainframe systems at a fraction of the original
and on-going cost.
SYSTEMS INTEGRATOR: a business which offers the products and services
necessary to enable disparate computers to work together.
T1 ("Tee-one"): computer communications lines capable of carrying high-speed
data transmissions up to 1.5Mb/sec.
TCP/IP: stands for TRANSFER CONTROL PROTOCOL/INTERNET PROTOCOL. The
communication protocol of the INTERNET.
VAR: stands for VALUE-ADDED-RESELLER. A business that sells software written
by others, bundled with other products and services to increase the value of the
overall solution to an end customer.
WVU: stands for WEST VIRGINIA UNIVERSITY.
WORLD WIDE WEB (Web or WWW): a system of integrating various data formats
(such as text, graphics, audio, and video) into a unified interface that can be
accessed through a WEB BROWSER and operates via the INTERNET or an INTRANET.
30
<PAGE>
BUSINESS
GENERAL
The Company was established in 1996 to develop and provide information
management software products to the healthcare industry. The Company's software
employs "open architecture" technologies and is designed as components that may
be simply added to a healthcare provider's existing legacy computer systems or
included in newer, more efficient, client-server systems. The Company's software
will enable providers to cost-effectively access, combine, route and deliver
their computerized patient information, regardless of its original source and
format within their legacy computer systems. Physicians, nurses and other
authorized users will be able to access the patient information (reports, test
results, notes, images, etc.) with PCs, via provider intranets, for reading,
editing, approving, or referring to other users connected to the provider
intranet, all in accordance with each user's security status in accordance with
intranet security and access protocols established by the provider.
Healthcare providers are under increasing pressure to lower health care
delivery costs while maintaining or improving the quality of patient care. In
response, hospitals, clinics, physicians and other providers are combining into
IDNs to enable their members to achieve operating efficiencies and savings and
competitive advantages through the consolidation of their operations, marketing
and services. However, IDNs have not been able to fully realize the cost and
operating efficiencies possible from consolidated operations because of their
reliance upon older legacy computer systems at individual IDN members' sites.
These legacy systems represent multi-million dollar investments, each processing
and storing computerized patient information for their site. Because they store
and process information in incompatible formats, the patient information
available in the separate legacy systems of an IDN cannot be accessed, combined
or distributed via an IDN's intranet to clinicians working at various IDN sites.
The Company's initial software products are being designed to enable IDNs to
preserve and leverage their substantial investments in and reliance upon their
legacy patient information systems and information repositories, as follows:
- By providing "plug-and-play" BACKEND access to the patient information
directly from within legacy systems,
- By converting the legacy system information to open computer formats and
routing and distributing the information via MIDDLEWARE products to
authorized users with access to an IDN's intranet regardless of their
location within the IDN, and
- By furnishing modular, Web-based PC FRONTEND applications for use by IDN
clinicians such as document viewing, editing, approval and routing.
The Company's initial products incorporate certain technology exclusively
sublicensed to the Company by Cybermarche, an affiliated company that holds an
exclusive license to such technology from WVU and developed by CERC in its
ARTEMIS project, which has been funded by over $18 million in research grants
and contracts since 1989. The Company's initial backend, middleware and frontend
software products are currently being installed at the Miami IDN under a
software sale and development contract anticipated to be completed in early
1998, after which the products will be licensed to the IDN. The products subject
to the Miami IDN license will be, upon completion of the installation, the first
of the Company's products in commercial use.
The Company intends to market its software products directly to IDNs and
other healthcare providers seeking to leverage their legacy information systems
and enhance their computerized healthcare information distribution capabilities.
The products will also be marketed to major healthcare system vendors for
incorporation into their software offerings. The Company's product sales
strategy is to:
- Become a provider of low-cost, flexible healthcare information management
capabilities based on open industry standards.
31
<PAGE>
- Provide high-value, task-specific software products for use by IDNs and
their clinicians.
- Market directly to IDNs and through systems integrators, value-added
resellers ("VARs") and software distributors.
- Focus on high quality product service and support.
- Facilitate users' ability to customize its products.
The Company's senior management team combines executive experience in the
healthcare services industry and expertise in the research and development of
open systems design and patient information management software products. J.
Calvin Kaylor, the Company's President and Chief Executive Officer, has most
recently been an advisor to various healthcare service and information
management ventures and has over 20 years experience in chief executive and
senior operating management positions with private and public healthcare service
companies including Manor Care, Inc. and, most recently, the Medical
Rehabilitation Group of Novacare, Inc. Dr. Y. V. Reddy, the Company's Chief
Scientist, and Dr. V. Jagannathan, the Company's Senior Vice President--Research
and Development and Chief Technical Officer, are the Director and Associate
Director, respectively, of CERC. They have been the principal chief
co-investigators of the ARTEMIS projects, and they have lectured and published
extensively on the subject of computer networks, particularly regarding medical
workflow and patient records management applications.
The Company's activities to date have consisted of development of its
business plans and strategies, execution of the license agreement for the
ARTEMIS technology, research, development and testing of its initial products,
sales presentations to potential customers and preliminary discussions regarding
joint product development and marketing with potential collaborators,
negotiations relating to the Miami IDN agreement and performance of that
agreement and a consulting agreement with another customer. The Company's
revenues have been extremely limited to date. There can be no assurance that the
Company's initial products will be successfully completed or installed, that the
Company's products will achieve commercial acceptance or that the Company will
ever achieve profitable operations.
INDUSTRY BACKGROUND
Over the past two decades, healthcare costs have risen dramatically relative
to the overall rate of inflation, exceeding $1 trillion in 1995. Historically,
reimbursement for healthcare services provided by hospitals, physicians, clinics
and other healthcare organizations has been based on a fee-for-service model of
payment. With increasing pressure to reduce cost, managed care organizations and
other payers are shifting the economic risk of the delivery of care to providers
through alterative reimbursement models, including capitation and fixed fees. In
response to the changing reimbursement environment, healthcare organizations
such as hospitals, multi-specialty physician groups, laboratories, pharmacies,
home health agencies and nursing homes are integrating horizontally and
vertically to create IDNs. IDNs, often dominated by large hospitals, are
designed to serve all of the healthcare needs of local or regional populations
while achieving economies of scale. Large metropolitan as well as rural regional
areas are increasingly being served by a few IDNs, rather than by a multiplicity
of competing physicians, hospitals and other healthcare organizations. In
addition, various computer networks, generally intranets, are being constructed
to electronically link physicians and other healthcare providers to help them
exchange patient information with other healthcare organizations, managed care
organizations and other clinicians using Web technologies.
In order for IDNs to lower health care delivery costs while maintaining or
improving the quality and efficiency of patient care and enterprise, they will
need comprehensive clinical information repositories that integrate medical and
administrative patient data and provide immediate on-line access via networked
PCs across multiple delivery sites. A comprehensive clinical repository captures
clinical and financial data from disparate systems to form the foundation of a
computerized patient record ("CPR"), which integrates multiple data repositories
and information systems in order to support care management throughout the
32
<PAGE>
IDN. With the deployment of a CPR, providers will have immediate access via
intranets to more complete patient care data across multiple delivery sites to
guide them in controlling health care costs, improving patient care and
facilitating responsiveness to competitive and regulatory changes in the health
care market.
Certain information intensive departments of health care organizations, such
as laboratory, radiology, intensive care and pharmacy, were early adopters of
information systems that manage the workflow and clinical data of stand-alone
departments. These clinical information systems have evolved to meet the needs
of individual departments, as well as the information needs of emerging IDNs
that require these systems to be accessible on an enterprise-wide basis.
However, many legacy systems cannot communicate with each other, and have
limited transmission capabilities. Each new IDN typically consists of a number
of healthcare enterprises, each with different information technologies and
management strategies, as well as multiple legacy systems. These legacy systems
will require upgrading, additions or replacement to be able to provide the
increasing demand for multi-site and multi-purpose access while continuing to
protect patient confidentiality.
According to industry analysts, the healthcare industry is 10 years behind
other information dependent industries (E.G., banking, insurance) in information
systems investment. For example, where other industries typically invest 5% to
12% of revenues in information systems, the hospital industry invests no more
than 2%. Due to the pressures described above, as well as continuing healthcare
industry consolidation, healthcare organizations are expected to increase
information system annual spending approximately fourfold between 1995 and 2000
to $25 billion. The potential United States healthcare information systems
market is estimated to be $50 billion annually.
It is also estimated that 80% of the information that is necessary to create
a complete electronic medical record system ("EMRS") is text based and still
largely not computerized; the remaining 20%, which is already largely
computerized on legacy systems, consists mostly of administrative information
(E.G., demographics, billing, etc.), episodic reports (E.G., lab tests, etc.)
and images (E.G., radiographs, pathology slides, etc.).
Most advanced CPR systems are being designed using an "open" system
architecture and a best-of-breed approach. These CPR systems are intended to
integrate disparate departmental and administrative information systems
regardless of differences among the platforms, architectures and data structures
of those information systems. The development of CPR systems has been enabled by
advances in information technology such as multi-tiered client-server
architectures, relational database management systems, data warehousing,
object-oriented design and standard query language. Unlike an integrated single
vendor system architecture, the best-of-breed, open architecture permits an IDN
to retain its existing best-of-breed systems and to select from an array of new
and existing systems from different vendors. This approach allows an IDN to
preserve its investment in legacy systems, yet adapt to the changing
requirements of the IDN over time.
The Company believes that IDNs will continue to be served by many suppliers
of best-of-breed clinical systems, but that each IDN will rely on a strategic
open systems supplier to integrate and service the clinical repository that will
form the foundation of the CPR. It is anticipated that the Company's products
will be offered as components that may be added to legacy systems or included in
newer client-server based systems individually or in combinations with each
other or with third party applications to incrementally build open, enterprise
EMRSs according to the healthcare provider's specific needs and priorities at a
lower cost than existing alternatives.
The Company believes that the experience of its principals with the
development of collaborative technology focussed on the management of healthcare
information will provide the Company with the experience in the design,
development and integration of components for use with complex clinical
information systems, which are core competencies necessary to complete
effectively as a strategic best-of-breed CPR supplier.
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BUSINESS STRATEGY
The Company intends to develop, license or sell, and maintain open software
applications and integration tools that enhance healthcare workflow and reduce
healthcare costs. It intends to develop products that integrate multiple
disparate systems and data repositories to provide access, via customer-
installed and owned intranets, to CPRs throughout a healthcare enterprise. The
key elements of the Company's strategy are to:
BECOME A PROVIDER OF LOW-COST, "PLUG AND PLAY" SOFTWARE COMPONENTS. The
Company intends to use its information integration and open system expertise
to develop and introduce software products that will provide IDNs, as well
as their suppliers and systems integrators, with a flexible, comparatively
low cost means of responding to their patient information repository system
needs. The Company intends to provide "plug-and-play" software components
that may be added to legacy systems or included in new systems individually
or in various combinations or with third party applications. These software
components are being developed to be added to such systems at any time, with
no interruption of system function, thereby enabling customers to
incrementally build open EMRSs according to their specific needs and
priorities. To this end, the Company's products are being engineered to be
extremely scalable and to run securely on top of any combination of
intranets, and, if and when desired and implemented by a customer, in a
distributed fashion on the Internet. The Company believes, although there
can be no assurance, that its "plug-and-play" technology will enable it to
develop software products at lower price points and lower life-cycle costs
than many competing products.
PROVIDE HIGH-VALUE, TASK-SPECIFIC SOFTWARE PRODUCTS. The Company's
"plug and play" products are being designed to allow IDNs (and their
suppliers and systems integrators), when dealing with the need to distribute
information contained within legacy systems across various network
platforms, to break the reorganization and upgrading of their large
healthcare information systems into discrete, more easily managed,
lower-cost projects. It is intended that the Company's products will allow
customers the flexibility to prioritize and stage such information systems
projects and their associated costs according to their own operating needs
and/or cost reduction objectives.
MARKET DIRECTLY AND THROUGH VARS AND DISTRIBUTORS. Purchasing decisions
have shifted from departmental heads to senior executive officers. The
Company intends to employ an experienced senior marketing executive who has
experience in selling to chief information officers, chief financial
officers and chief executive officers of health care providers and IDNs, as
well as to OEMs, system integrators and VARs. It will also seek to enter
into distribution agreements with VARs and other distributors. In addition,
the Company will seek to license its products to third party vendors of
EMRSs for packaging and resale to their customers, often in combination with
other products, as add-ons to legacy systems or as part of new EMRSs.
FOCUS ON HIGH QUALITY SERVICE AND SUPPORT. The Company anticipates that
VARs will provide most implementation and network services, as well as
on-site and "help-desk" support and training to customers, and expects its
efforts in this area to consist primarily of supporting and training its
VARs' technical and support organizations. The Company intends to make
maintenance and upgrades of its products an integral part of product sales.
ENABLE CUSTOMERS TO CUSTOMIZE THE COMPANY'S PRODUCTS. The Company's
products are being designed to include administration tools, as well as
built-in mechanisms that will enable customers to further customize such
tools to address their particular needs. It is anticipated that these tools
will address the information needs of an IDN to create systems, including,
among others, (i) systems that track quality and cost of care for case
management; (ii) enterprise-wide communications systems to address the trend
toward outpatient care; and (iii) automated clinical pathways that track
patient progress and allow for outcomes assessment.
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PRODUCTS UNDER DEVELOPMENT
The Company products are being designed using an open system architecture
that combines Internet technologies, World Wide Web technologies and distributed
object technologies. The Company's goal is to develop advanced collaboration
technologies and products for healthcare information management, initially
consisting of a network-based electronic medical record and a comprehensive
client and server-side healthcare integration framework.
The Company's initial products are organized as three suites of components:
the Front-end Net Suite, the CareFlow Development Kit (the "Middleware Suite")
and the Backend Repository Suite. The following figure portrays the general
nature of these three suites of products and their inter-relationships.
[LOGO]
PRODUCT DESCRIPTIONS
FRONTEND NET SUITE: These are graphical user interface client components
that will work over private intranets (and, at such time as the customer
determines, over the Internet) to access various services. The current suite of
such components includes:
- TRANSCRIPTION INTERFACE: Allows a transcriptionist to transcribe a
dictation and save it in an electronic medical record repository over
networks. This component is based on ActiveX technology from
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Microsoft and CORBA technology from Iona, and can be made compatible with
Microsoft Word, Corel WordPerfect and other word processing applications.
- PHYSICIAN INTERFACE: Allows a physician to view and electronically sign a
document using Java applets.
- ADMINISTRATIVE INTERFACE: Allows a system administrator to configure,
monitor and administer the various CareFlow--Net component suites. This
component is based on the Java technology. Also allows a physician to
review patient's clinical information, including transcriptions, using a
browser, such as Netscape Navigator or Microsoft Explorer.
MIDDLEWARE SUITE: The middleware components form the cornerstone of the
Company's strategy for developing secure, low-cost, functionally focused open
solutions. These components will be based on the CORBA standard from OMG and on
the DCOM standard from Microsoft. The initial set of middleware components
include:
- REPORT SERVICE: Provides a flexible way to archive and retrieve any
textual reports on a particular patient.
- DEMOGRAPHICS SERVICE: Tracks the various standard demographics elements of
any patient.
- PHYSICIAN PROFILING SERVICE: Tracks various physician credentialing and
access parameters that are necessary for efficient implementation of
secure workflow.
- ROUTING SERVICE: Routes patient information to approved users at
appropriate times.
- SECURITY SERVICE: Manages and ensures that only authorized persons access
particular patient information and only that information for which their
access has been approved.
- HL7 GATEWAY: Allows communications to and from legacy systems using the
HL7 standard.
BACKEND (REPOSITORY) SUITE: The backend components consist of two
repositories.
- CHART REPOSITORY: A patient record repository that is based on relational
database technology and manages clinical information.
- ENTERPRISE REPOSITORY: A HTML-repository to facilitate high performance
access and review of authenticated clinical information using browsers.
This component imports and manages secure access to HTML-files related to
a patient from any source.
Prototypes of these products are currently being tested at the Company's
facilities, and the three suites of components described above are scheduled to
be deployed at the Miami IDN by early 1998. The Company anticipates, although
there can be no assurance, that these products will be commercially available in
the first quarter of 1998. The Company intends to "shrink wrap" its products as
installations at various customer sites increase, thereby decreasing the need
for customer-specific customization.
The Company intends to develop additional products, offering other
capabilities and/or more advanced functionalities. The specifications of such
products will be determined on the basis of various factors, including customer
acceptance of, and feedback relating to, the Company's initial products, the
ability of the Company to enter into strategic alliances with other software
developers and/or VARs for the development, packaging and marketing of its
products by third parties and the results of the Company's future research and
development activities. See "--Research and Development."
The Company's proposed products are at an early stage of development and
will require significant further research, development, testing and marketing
prior to commercialization. There can be no assurance that the Company's initial
products will be successfully developed, demonstrate desirable performance and
connectivity, be commercially available when anticipated, or achieve commercial
acceptance, nor that the Company will be capable of successfully marketing such
products or installing and
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supporting such products in commercial volumes at reasonable prices and costs.
Furthermore, there can be no assurance that the Company will be able to enter
into strategic alliances for the development or marketing of its products, or
that it will be able to develop and introduce additional products.
TECHNOLOGY
The Company's initial products are being developed based on certain
commercial-off-the-shelf ("COTS") technology and the ARTEMIS technology.
The COTS technologies that the Company uses include:
- Java technology from Sun Microsystems used as the programming language in
the development of the Company's middleware components. It is also used to
develop frontend applications.
- ActiveX technology used in the Transcription Interface software. This
software allows transcriptionists to transcribe dictations into Microsoft
Word -TM-, and store them in backend report repositories.
- World Wide Web technology used as the basis for the Physician Interfaces.
- CORBA technology which serves as the basis for much of the middleware
developed by the Company. The Company is currently using CORBA
implementations that support Java from Iona, Inc.
- Oracle Databases used for building the Chart and Enterprise Repositories.
- Netscape Servers used in the Enterprise Repository, in conjunction with
Secure Socket Layers security technology.
- Windows 95 & NT by Microsoft, the base platforms of deployment of the
Company's products. Sun Solaris will be available, in the future, as an
additional platform for the Company's products.
- In addition to CORBA support, the Company also intends to support
Microsoft's DCOM technology in the development of its middleware
components.
The ARTEMIS technologies that the Company uses in developing the current set
of products include:
- The ARTEMIS Web-based medical records system, which forms the basis for
the Company's enterprise repository component.
- The ARTEMIS Corba-based middleware services, which is the basis for a
number of services that have been developed, including the report
repository service, transcription service, and HL7 gateways.
- The Transcription Module developed in ARTEMIS, which was the basis for
development of the Transcription Interface.
- The role-based access control mechanisms developed in ARTEMIS are used in
developing the middleware security service.
It is anticipated that the Company will continue to design its products to
remain compliant with future versions of the HL7 standard and any successor
standards, and to conform with approved OMG standards.
PROPRIETARY RIGHTS
The ARTEMIS technology is under development at WVU by CERC in federally
funded research projects to develop and demonstrate applications for healthcare
enterprises of collaboration technologies, ranging from client-server and
distributed object technologies and World-Wide Web technologies to the evolving
Java technologies. The ARTEMIS projects have been funded by research grants and
contracts from the Defense Advanced Research Projects Agency ("DARPA") and the
National Institutes of
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Health--National Library of Medicine ("NIH-NLM") totalling in excess of $18
million since 1989. While further improvements to ARTEMIS will be available to
the Company, pursuant to the WVU and Cybermarche Agreements described below,
there can be no assurance that such improvements will be made or that, if made,
such further improvements will prove useful to the Company.
Cybermarche is the exclusive licensee of the ARTEMIS technology pursuant to
the WVU Agreement, a world-wide, transferable, exclusive license from WVU to
use, modify, market, sublicense and otherwise distribute the ARTEMIS technology.
The WVU Agreement provides for the payment of royalties to WVU, based on a
percentage of revenues derived from the sale of commercial products
incorporating the licensed technology. The Company has obtained the Cybermarche
Agreement, an exclusive assignment of the WVU Agreement, pursuant to which the
Company acquired all of Cybermarche's rights under the WVU Agreement and assumed
all of Cybermarche's obligations thereunder, including the obligation to pay
royalties. Each of Cybermarche, WVU, DARPA and NIH-NLM have retained certain
rights to ARTEMIS. Under certain circumstances, including, without limitation,
(i) a breach by the Company of the Cybermarche Agreement, (ii) a breach by
Cybermarche of the WVU Agreement and (iii) a breach by WVU of the Government
Agreements, which, if exercised, could result in the withdrawal of the exclusive
license of ARTEMIS to the Company. The Company would not be able to develop its
proposed initial products without the ARTEMIS technology. The inability to use
the ARTEMIS technology would severely limit and substantially delay the
Company's ability to develop commercial products, and there can be no assurance
that the Company would succeed in developing a commercial product without the
use of the ARTEMIS technology.
Dr. Y. V. Reddy, a Director and the Chief Scientist of the Company, and Dr.
V. Jagannathan, the Senior Vice President--Research and Development and a
Director of the Company, are the Director and Associate Director for Research,
respectively, of CERC, and other co-founders, affiliates and proposed employees
or consultants to the Company also are or have been affiliated with CERC.
Cybermarche is a privately held company, all of the stockholders of which are
stockholders of the Company. Several officers of the Company are stockholders of
Cybermarche. See "Certain Transactions."
Certain technology developed in the ARTEMIS project are being tested in
"live" operation over an intranet by a healthcare enterprise consisting of two
clinics and two hospitals in West Virginia. There can be no assurance that such
technology will perform as anticipated in "live" operations. Even if the test
results are as anticipated, there can be no assurance that the Company will
succeed in developing products incorporating such technology that will operate
effectively within a large healthcare enterprise or achieve commercial
acceptance.
The Company's future success depends in large part upon its ability to
protect its technology and proprietary rights. The Company intends to rely on a
combination of patent, copyright, trade secret and trademark laws and
contractual restrictions to establish and protect its proprietary rights,
although the laws of certain foreign countries in which the Company licenses or
may license its products may not protect the Company's proprietary rights to the
same extent as do laws in the United States. It is the Company's policy to
require employees, consultants, clients and, in certain circumstances, suppliers
to execute nondisclosure agreements upon the commencement of a relationship with
the Company.
The agreements under which the Company licenses its software products to its
clients generally prohibit the assignment or transfer of the software or use of
the software by any person or entity other than the named client or its
affiliates or successors. The agreements provide that the Company retains
ownership of the software and proprietary information and of all rights therein.
Except for information that is in the public domain, the client is required to
hold the software and proprietary information in confidence and to use
reasonable care to preserve and safeguard such information.
The Company's success will depend to a significant extent on its ability to
maintain the proprietary and confidential software incorporated in its software
products as they are released. The Company intends to rely on a combination of
copyright, trademark, patent and trade secret and contractual protections to
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establish and protect its proprietary rights and further intends to operate
without infringing the intellectual property rights of third parties. There can
be no assurance that any applications that the Company may file for copyright or
trademark registration or patents relating to the Company's products or
potential products will result in copyrights or trademarks being registered or
patents being issued, that any registered copyrights or trademarks or issued
patents will afford adequate protection to the Company or not be opposed,
contested, cancelled, challenged, invalidated, infringed or circumvented, or
that any rights granted thereunder will afford competitive advantages to the
Company. Furthermore, there can be no assurance that others have not
independently or originally developed, or will not independently or originally
develop, similar products and/or technologies, duplicate any of the Company's
products or technologies, or, if copyrights or patents are granted to, or
licensed by, the Company, successfully design around such copyrights or patents.
Furthermore, there can be no assurance that the Company can adequately preserve
its rights to proprietary technology and processes that it maintains as trade
secrets. In addition, litigation may be required to enforce the Company's
intellectual property rights against infringement, to protect the Company's
trade secrets, to determine the validity and scope of proprietary rights of
other, or to defend against claims by others of infringement or invalidity.
There can be no assurance that the Company will have sufficient resources to
conduct such actions, and the costs and diversion of resources required by such
actions could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, it is possible that the
Company may need to in-license third party technologies. There can be no
assurance that such third party technology licenses, if needed, would be
available to the Company on reasonable terms or at all.
RESEARCH AND DEVELOPMENT
The Company's focus will be on the development of its initial products and,
thereafter, on products offering more advanced or additional functionalities.
Future research and development projects are expected to draw on the experience
of certain of the Company's principals in the area of collaboration technology
as applied to healthcare information management. The initial products will
incorporate the ARTEMIS technology. The Company has an exclusive license to such
technology, including future developments. Future products may incorporate the
ARTEMIS technology currently under development by CERC relating to EMRSs. See
"--Technology; --Proprietary Rights."
There can be no assurance that the Company's research and development
efforts will result in the completion or commercialization of any of the
Company's initial or planned future products.
The Company's research and development activities will be conducted by a
staff of software engineers under the direction of Dr. V Jagannathan, the Senior
Vice President - Research and Development of the Company, and Dr. Y. V. Reddy,
the Chief Scientist of the Company, who will devote approximately 80% and 20%,
respectively, of their time to the business of the Company. Dr. Reddy and Dr.
Jagannathan are currently the Director and Associate Director for Research,
respectively, of CERC. See "Management" and "Certain Transactions."
The Company has, to date, contracted with CERC for software engineering
services and has recently hired four software engineers. The Company intends to
to use a portion of the proceeds of the Offering to hire additional software
engineers as needed. The Company may also seek to enter into strategic alliances
with other entities, including software integrators and other software
developers, to develop additional products. There can be no assurance that such
strategic alliances will be available to the Company.
CUSTOMER SERVICES
The Company intends to provide implementation, application and system
support, education and consulting services, primarily in connection with the
licensing and customized use of its products. The Company is planning to make
available a "train the trainer" program to allow customers acquiring its
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components to implement the use of the components and to train customer
personnel in the use of the components.
The Company initially intends to offer support services to licensees of its
products pursuant to two plans, a "Standard Support Plan" and a "Priority
Support Plan." The plans will be available on an annual basis, and fees will be
based on the number of processors or users covered by the licenses. Initially,
the Standard Support Plan will provide telephonic "help-desk," electronic mail
or remote control (dial-up or Internet based) support by the Company during
normal business hours. The Priority Support Plan will initially provide
telephonic, electronic mail or remote control (dial-up to Internet based)
support during normal business hours, as well as around the clock, seven day a
week off-site support from Company personnel reachable through a paging service.
Customers will be able to choose either plan, but must choose the same plan for
all applications they choose to have supported by the Company. The Company may
from time-to-time change the features of its existing support service plans or
offer other support service plans. In such event, customers will have the option
of converting their existing plans to an alternative plan, upon payment of the
additional fees, if any, applicable to such alternative plan.
For so long as customers subscribe to a support service plan for licensed
components, the Company will make available to them minor releases to the
supported components in electronic form, either directly or down-loadable from
the Company's Web site. Telephonic, electronic mail or remote control (dial-up
or Internet based) assistance with installations of new minor releases will be
provided at no additional charge, during the hours of coverage available through
the selected support service plan.
The Company also intends to make on-site support services available on
request to licensees at standard hourly service rates. Additionally, consulting
services relating to integration with third party vendor products or other
healthcare information management matters may be provided to customers upon
request. The Company does not expect on-site support services or consulting
services to become significant contributors to its revenues.
Initially, customer support services will be provided by the Company's
software engineers from its research and development staff. At such time as the
number of installations of the Company's products and customer support service
volume increases, the Company may establish a separate, dedicated support
service staff. To the extent that the Company's products are sold to customers
by VARs, it is the intended that the VARs will be responsible for product
service and support at customer sites. The Company, in such cases, expects to be
responsible for technical and product support only to the VARs technical staff.
PRODUCT LICENSING AGREEMENTS
The Company intends to furnish its products to customers pursuant to
agreements that grant perpetual, non-exclusive and non-transferable licenses to
use those products. It is anticipated that customers will pay specified fees for
the software licenses. License fees are expected to be based on a number of
factors, including the number and type of products subject to the license, as
well as the number of users. The Company intends to maintain the licensed
products and provide certain modifications, enhancements and upgrades for
monthly or annual fees under separate support service agreements. See
"--Customer Services."
The Company has not yet entered into any license agreement other than the
agreement with the Miami IDN. See "Customers."
CUSTOMERS
Potential customers for the Company's information system products includes
IDNs, physician group practices and practice management organizations, managed
care organizations, hospitals, free-standing reference laboratories, imaging
centers and pharmacies. The Company's products are being developed using
architecture that is highly scalable, in order to enable the products to be used
in multiple physician
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clinics, as well as 300-400 bed hospitals, with the ability to scale up to
accommodate thousands of users across a mature IDN or HMO.
In April 1997, the Company entered into an agreement with the five-hospital
Miami IDN with approximately 2,000 affiliated physicians under which it is in
the process of customizing and installing, within the period ending in December
1997, its initial commercial products. These products are being licensed to the
Miami IDN. The Company will also make software support services available to the
Miami IDN under the agreement. To date, performance of the agreement has
proceeded on schedule. The products developed pursuant to the Miami IDN
agreement are expected to form the basis of the Company's initial product line
and will be, if completed, the first of the Company's products in commercial
use; however, it is unlikely that the Company will realize any net profits from
the performance of the Miami IDN agreement.
The Company has performed custom software development for one other customer
and has had preliminary discussions with other potential customers for the
Company's products, but there can be no assurance that such discussions will
result in licenses for the Company's products or services. In addition, the
healthcare industry is undergoing substantial consolidation, and the most likely
initial customers for the Company's products are expected to be large healthcare
systems, such as the Miami IDN. In such event, the loss of individual customers
could have an adverse effect on the business of the Company.
MARKETING
The Company intends to market its products to IDNs, hospital and physician
practice management companies, large physician groups, staff model HMOs and
Physician Hospital Organizations and to enterprise information systems vendors
and OEMs for inclusion with their systems and products. Because healthcare
enterprises are increasingly making decisions about their information technology
and systems at the highest executive levels, the Company will seek generally to
focus its customer communications on the appropriate decision makers, often the
chief executive officer, chief operating officer, or chief information officer.
To date, marketing has been conducted by Company officers and has consisted
of responding to inquiries generated through their participation in various
professional organizations, attendance and demonstrations at trade shows, and
presentations at academic and software industry conferences. A search for a
senior marketing executive has been initiated, who will be charged with the
professional planning, organizing and staffing of the Company's marketing and
sales resources, which will require a portion of the proceeds of the Offering.
See "Use of Proceeds."
The Company will also seek to enter into marketing relationships with other
healthcare information industry vendors and OEMs. Such independent distributors
have national and international sales forces and established customer bases that
the Company is targeting as the most likely licensees of its products. While the
Company has had very preliminary discussions with several companies that could
become distributors, and expects independent distributors to generate a
significant portion of its sales revenues, in the form of software licensing
fees, there can be no assurance that the Company will be able to negotiate any
such agreements or that such agreements would result in significant sales of the
Company's products. On the other hand, the Company could become dependent upon
one or a very small number of independent distributors for a substantial portion
of its sales, in which case the loss of one or more significant distributors
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company plans to locate its marketing and sales administration at its
corporate headquarters in Maryland, near Washington, D.C. Eventually, the
Company expects to assign its own direct sales personnel regionally at various
strategic locations across the country, and, only if appropriate,
internationally. The Company also plans to develop a "working", real-time
demonstration of its products and their capacities,
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using dummy patient data, via a Company intranet and the Internet between its
Research and Development facilities in Morgantown, West Virginia and its
corporate office, as well as via the Company's World Wide Web site
(http://www.careflow.com). This capacity would put the Company's development and
technical support staffs, located in West Virginia, in direct touch, aided by
video-conferencing, white boards and other technologies, with prospective
customers at the corporate office in Maryland via an intranet as well as via the
Internet, with the Company's sales personnel, prospects and customers at remote
customer locations. The Company anticipates using a portion of the proceeds of
the Offering for the recruitment, training and support of sales personnel,
development of sales materials, and development and operation of web-based
product demonstrations and technical support services.
Unless and until the Company's sales and marketing resources, including
independent distributor relationships, are put in place, the Company will
continue to depend in large part for its sales revenues upon the efforts and
professional contacts of its senior executives, customer and supplier referrals,
and the success of its research and development personnel to produce
commercially useful products and adaptions of such products to address
customers' particular workflow needs and to accommodate their legacy healthcare
information environments.
COMPETITION
The Company has a large number of competitors who offer products and
services that can accomplish outcomes that are the same or equivalent to the
Company's products and services. The Company competes with, among others, (i)
very large, established healthcare information system vendors such as HBO &
Company, Shared Medical Systems Corporation, and Cerner Corporation, as well as
smaller EMRS firms such as MedicaLogic, HealthPoint, Oacis, and Oceana; (ii)
integration engine companies such as Software Technologies Corporation, Century
Analysis Incorporated, and HUBLink, Inc.; (iii) image management companies such
as IMNET Systems, Inc. and LanVision Systems, Inc.; (iv) healthcare database
reference companies such as HCIA, Inc.; (v) consulting firms such as Andersen
Consulting and Ernst & Young, LLP; (vi) original equipment manufacturers such as
International Business Machines Corporation and Hewlett-Packard, Inc.; (vii)
systems integration firms such as Science Products International Corporation,
Electronic Data Systems Corporation and Healthdyne Information Enterprises; and
(viii) internal MIS departments of healthcare providers. Also, the Company will
compete with joint ventures, such as the Andover Group (formed by Andersen
Consulting and Hewlett-Packard), for middleware services.
Most of the Company's competitors have significantly greater financial,
technical and management resources than the Company, and there can be no
assurance that the Company will be able to compete successfully. In addition,
there can be no assurance that others, including the personnel associated with
other university-based research facilities with operations similar to those of
CERC, will not seek to enter the market.
GOVERNMENT REGULATION
The FDA regulates some computer products as medical devices. The FDA has
issued a draft guidance document regarding the regulation of computer products
under certain circumstances as medical devices under the Federal Food, Drug, and
Cosmetic Act (the "FDC Act"). This guidance is subject to change. However,
because the Company's products are not used in diagnosis, the FDA currently does
not regulate the products the Company has developed or expects to develop and
market. Compliance with federal regulation could be burdensome, time consuming
and expensive. The Company expects the FDA is likely to become increasingly
active in regulating computer software intended for use in the healthcare
setting. Furthermore, there can be no assurance that any final FDA policy
governing computer products, once issued, or other future laws and regulations
concerning the manufacture or marketing of medical devices or healthcare
information software and systems, will not increase the cost and time to market
new or existing products. If the FDA chooses to regulate any of the Company's
products as medical devices not
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exempt from regulation, it can impose extensive requirements upon the Company,
including the requirement that the Company seek either FDA clearance of a
premarket notification submission (510(k)) demonstrating the product's
substantial equivalence to a predicate device or approval of a premarket
approval application establishing the safety and effectiveness of the device.
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 requirements, and the reporting of certain device
malfunctions and adverse device events. Noncompliance with applicable
requirements can result in, among other things, fines, injunctions, civil
penalties, recall of products, 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.
PATIENT CONFIDENTIALITY MATTERS
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 governing both the disclosure and use of
confidential patient medical record information. In addition to regulations
applicable to medical records generally, there are also laws and regulations
regarding the confidentiality of specific records, such as those relating to
mental health, substance abuse and HIV infection. The Company intends to
configure its products to comply with the laws and regulations regarding the
collection and distribution of patient data in all jurisdictions where it
expects to have sales, but regulations regarding patient confidentiality rights
are evolving rapidly and are often unclear and difficult to apply in the rapidly
restructuring healthcare market. In 1996, President Clinton signed the Health
Insurance Portability and Accountability Act of 1996. This legislation requires
the Secretary of Health and Human Services to adopt national standards for
health information transactions and the data elements to be used in such
transactions and to adopt standards to ensure the integrity and confidentiality
of health information. The Secretary is required to issue such standards not
later than February 21, 1998, and healthcare providers will generally be
required to comply with each standard within 24 months after it is adopted. The
legislation also provides for the establishment of additional Federal standards
for the privacy of all individually identifiable health records. There can be no
assurance that this legislation and the regulations promulgated thereunder will
not materially restrict the ability of potential users of the Company's products
to obtain or disseminate patient information via electronic means. Additional
legislation and regulations governing the confidentiality and dissemination of
medical record information are continually being proposed at both the state and
federal level. There can be no assurance that state or federal laws will not
materially restrict the ability of potential users of the Company's products to
obtain or disseminate patient information via electronic means. Any material
restrictions on the use of electronic transmission of patient information could
adversely affect the Company's business.
The healthcare industry also is subject to changing political, economic and
regulatory influences that may affect the procurement practices and other
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, lower reimbursement rates and otherwise change the
operating environment for the Company's customers and target market. The failure
of the Company to maintain adequate price levels or sales as a result of
legislative or regulatory reforms could have a material adverse effect on the
Company's business, result of operations and financial condition.
EMPLOYEES
As of November 15, 1997, the Company had five full-time and four part-time
employees, of whom two full-time and two part-time employees were software
developers and programmers, and three full-time and
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two part-time employees were executive or administrative. From January through
April 1997, the Company employed three full time and a number of part time
software development personnel. The Company subcontracted certain aspects of its
work, including work to be performed for its two customers to CERC through WVU,
and the subcontract runs through May 15, 1998. The Company is hiring full-time
and part-time software development personnel who will perform most of the
remaining work for such customers. The Company intends to engage additional
software development personnel on an as need full-time or part-time basis. In
order to effectively market its products, the Company will also need to retain a
marketing and sales executive and staff with industry experience and contacts,
as well as software installation and service personnel and administrative
support personnel.
The Company's future success depends in significant part upon the continued
service of J. Calvin Kaylor, its President and Chief Executive Officer, Dr. V.
Jagannathan, its Senior Vice President--Research and Development and Chief
Technical Officer, Dr. Y. V. Reddy, its Chief Scientist, and Marty R. Stango,
its Treasurer and Chief Financial Officer and its ability to attract and retain
highly qualified software engineers, technical support personnel and sales and
marketing and managerial personnel. Competition for such personnel is intense
and there can be no assurance that the Company can retain its key employees or
that it can attract, assimilate or retain other highly qualified sales and
marketing and managerial personnel in the future.
None of the Company's employees is represented by a labor union. The Company
has not experienced any work stoppages and considers its relations with its
employees to be good.
FACILITIES
The Company leases approximately 800 square feet of research, testing and
technical support space in Morgantown, West Virginia on a month-to-month basis.
The current monthly rent for this space is $1,023. The Company intends to lease
corporate, administrative and marketing office space in Maryland, near
Washington D. C. The Company believes that such facilities will be available at
current market rates.
The Company believes that its facilities are adequate for current
operations. However, within six months after the Offering, the Company may lease
additional space in Morgantown, West Virginia to accommodate additional
research, development and technical support activities.
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
J. Calvin Kaylor..................................... 57 President, Chief Executive Officer, Director
Yenumula V. Reddy, Ph.D.............................. 54 Chief Scientist, Director
Vasudevan Jagannathan, Ph. D......................... 42 Senior Vice President--Research and Development,
Chief Technical Officer
Marty R. Stango...................................... 55 Senior Vice President--Finance, Chief Financial
Officer, Treasurer, Secretary
Scott J. Friedman, M.D............................... 29 Senior Vice President--Operations
Robert R. Shank...................................... 46 Vice President--Technical Support Services, Assistant
Secretary
</TABLE>
J. CALVIN KAYLOR has been the President, Chief Executive Officer and a
Director of the Company since January 1997. From 1994 until he joined the
Company in November 1996, Mr. Kaylor was a consultant and advisor to various
investor groups and involved in start-up healthcare service and information
management ventures. From 1993 to 1994, he served as President and General
Manager of the Medical Rehabilitation Group of NovaCare, Inc., which followed
NovaCare's purchase of Rehabilitation Hospital Corporation of America, which he
has served as President from its founding in 1990 until 1993. Prior thereto, Mr.
Kaylor held various senior executive positions with public and private
healthcare service companies, including Rehabilitation Hospital Corporation of
America, Hannover Healthcare and Manor Care, Inc.
YENUMULA V. REDDY, PH.D. was one of the founders of the Company and has been
a Director and the Chief Scientist of the Company since its inception and has
been a consultant to the Company since November 1997. Since 1988, Dr. Reddy has
been the Director of CERC, where he is, with Dr. Jagannathan, the co-principal
investigator of the ARTEMIS projects. He has been a Professor of Computer
Science at WVU and the Director of WVU's Artificial Intelligence Laboratory
since 1983. Since 1986, he has worked with U.S. government officials in
connection with the development of the concept of "Software Valley," a regional
economic development initiative. Dr. Reddy is the author or co-author of
numerous publications and has made numerous presentations relating to computer
networks and collaborative engineering, particularly for use in medical records
management. Dr. Reddy received his Ph.D. in Industrial Engineering from WVU in
1973.
VASUDEVAN JAGANNATHAN, PH. D. was one of the co-founders of the Company and
has been its Senior Vice President -Research and Development and Chief Technical
Officer since its inception. He was a Director and Vice President of HCS, the
Company's predecessor corporation. Dr. Jagannathan is currently devoting 80% of
his time to the Company and expects to devote approximately 80% of his working
time to the Company for so long as he remains affiliated with CERC and WVU.
Since January 1995, Dr. Jagannathan has been the Associate Director of Research
of CERC, prior to which, since 1991, he had been a Senior Member of the
Technical Staff, and from 1988 to 1991, a consultant. He is, with Dr. Reddy, the
co-principal investigator of the ARTEMIS projects. Since 1993, Dr. Jagannathan
has also been an Associate Professor of Computer Science at WVU. From 1988 to
1991, he was a Project Manager at Cimflex Teknowledge, Pittsburgh, Pennsylvania,
where he was responsible for the research and development of concurrent
engineering tools. From 1985 through 1988, Dr. Jagannathan was a Principal
Scientist at the Boeing Advanced Technology Center, Bellevue, Washington, where
he was a principal investigator for the Boeing Blackboard system development
effort. Dr. Jagannathan is the author or co-author of numerous publications and
has made numerous presentations relating to computer products development,
45
<PAGE>
particularly networks and collaborative engineering. Dr. Jagannathan received
his Ph.D. in Electrical and Biomedical Engineering from Vanderbilt University in
1981.
MARTY R. STANGO was appointed the Company's Senior Vice President--Finance,
Treasurer, Chief Financial Officer and Secretary in February 1997. He is
currently devoting 40% of his time to the business of the Company, and he will
become a full-time employee of the Company upon completion of the Offering. From
1994 until completion of Offering he was employed by Heritage Health Systems,
Marina del Rey, California where, from 1994 to 1996, he served as Vice
President, Finance and Administration. In 1996 he became Senior Vice President,
Operations and General Manager of the Heritage Southwest Medical Group and
subsequently he became the Regional Director of the Heritage Southwest Region.
From 1992 to 1994, Mr. Stango was Senior Vice President--Information Systems and
Chief Financial Officer and Treasurer of Rehabilitation Hospital Corporation of
America, King of Prussia, Pennsylvania, and from 1991 to 1992, he was the Vice
President, Finance, of the Institute for Laboratory Medicine, Miami, Florida.
Prior thereto, Mr. Stango held senior financial management positions with
physician practice management and national hospital management firms, and was
employed in management consulting with a national accounting firm and by the U.
S. Department of the Treasury.
SCOTT J. FRIEDMAN, M.D. was one of the co-founders of the Company and has
been its Senior Vice President--Operations since its inception. He was Chairman
of the Board of Directors and President and Chief Executive Officer of HCS.
Since May 1993, Dr. Friedman has been a Research Associate at CERC. From July
1996 until October 1997, Dr. Friedman was a practicing physician at Baptist/St.
Vincent's Health System, Jacksonville, Florida. Since October 20, 1997, he has
been a full-time employee of the Company. From 1994 through 1995, Dr. Friedman
served as a consultant to BioTransplant, Inc., Charlestown, Massachusetts, where
he provided technology assessment and market research in allogeneic
transplantation technologies. From 1990 through 1991, Dr. Friedman served as
Director of Sales to Outfitters Express, Ann Arbor, Michigan. Dr. Friedman
received his M.D. from WVU School of Medicine in 1995.
ROBERT R. SHANK was one of the co-founders of the Company and has been its
Vice President-- Technical Support Services and Assistant Secretary since its
inception. He was a Director and the Secretary of HCS. He became a full-time
employee of the Company on November 1, 1997. He was employed at CERC from 1989
through October 1, 1997, most recently as the Manager of CERC's collaborative
engineering Testbed and Task Leader of CERC's NLM Collaboration Technology for
the Real-Time Treatment of Patients, relating to the development of a reference
architecture for distributed, heterogeneous community care networks. Mr. Shank
has co-authored and made many presentations relating to the development of
computer network architecture and related matters. He received his BA from WVU
in 1983 and has also engaged in graduate studies in computer science at WVU.
Directors serve until the next annual meeting or until their successors are
elected and qualified. Officers serve at the discretion of the Board of
Directors, subject to rights, if any, under contracts of employment. See
"Management--Employment Agreements."
BOARD COMMITTEES AND DESIGNATED DIRECTORS
The Board of Directors intends to establish a Compensation Committee and an
Audit Committee. The Compensation Committee will make recommendations to the
Board concerning salaries and incentive compensation for officers and employees
of the Company and may administer the Company's stock option plans. See
"Management--Stock Option Plan." The Audit Committee is expected to review, with
the Company's independent accountants, the scope, timing and results of audit
services and any other services that the accountants are asked to perform, their
report on the Company's financial statements following completion of their audit
and the Company's policies and procedures with respect to internal accounting
and financial controls. In addition, the Audit Committee is expected to make
annual recommendations to the Board of Directors for the appointment of
independent public accountants for the ensuing year.
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The Company has agreed, if requested by the Representative, to nominate a
designee of the Representative to the Company's Board of Directors for a period
of five years from the date of this Prospectus. The Representative has not to
date designated a nominee. See "Underwriting."
DIRECTOR COMPENSATION
After completion of the Offering, non-employee directors will not receive
compensation for their services as directors: however, they will be reimbursed
for their expenses in attending such meetings. Directors are not precluded from
serving the Company in any other capacity and receiving compensation therefor.
In addition, directors are entitled to receive Director Options pursuant to the
Company's 1997 Stock Option Plan . See "Management--Stock Option Plan."
EXECUTIVE COMPENSATION
No officer received compensation in excess of $100,000 for the fiscal year
ended December 31, 1996. J. Calvin Kaylor, President of the Company, Dr. V.
Jagannathan, Senior Vice President--Research and Development and Chief Technical
Officer, Marty R. Stango, Vice-President--Finance, Treasurer, Secretary and
Chief Financial Officer, Dr. Scott J. Friedman, Senior
Vice-President--Operations and Robert R. Shank, Vice President--Technical
Support Services and Assistant Secretary have entered into employment agreements
pursuant to which they are entitled to receive full-time compensation at the
annual rates of $175,000, $150,000, $140,000, $132,000 and $100,000,
respectively. See "--Employment and Consulting Agreements."
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted to any officer or director in the fiscal year ended
December 31, 1996. No stock appreciation rights were granted during such year.
Pursuant to their employment agreements, J. Calvin Kaylor, President and Chief
Executive Officer of the Company, and Marty R. Stango, Chief Financial Officer,
Treasurer and Secretary of the Company, have each received stock options,
vesting over a period of three years, for 100,000 shares at an exercise price of
$5.00 per share.
EMPLOYMENT AND CONSULTING AGREEMENTS
Each of Mr.Kaylor, Dr. Jagannathan, Dr. Friedman and Mr. Shank have entered
into three year employment agreements with the Company, effective as of November
1, 1996, and Mr. Stango entered into a three year agreement effective February
2, 1997, providing for annual compensation in the amounts of $175,000, $150,000,
$132,000, $100,000, $140,000, respectively. Pursuant to his employment
agreement, the Company issued 150,000 shares of its Common Stock to Mr. Kaylor,
with 25% of such shares vesting on each of November 1, 1997, 1998, 1999 and
2000. Pursuant to their employment agreements, the Company issued to each of Mr.
Kaylor and Mr. Stango under its 1997 Stock Option Plan, options to purchase
100,000 shares of Common Stock, vesting over a period of three years, and
exercisable at a price of $5.00 per share.
Messrs. Kaylor, Stango and Shank and Dr. Friedman are or will be full-time
employees of the Company. Mr. Kaylor became a full-time employee of the Company
on November 1, 1996. Mr. Stango will become a full-time employee upon completion
of the Offering, prior to which he is devoting up to 40% of his time to the
business of the Company and is being compensated therefor at the annual rate of
$59,300. Dr. Friedman became a full-time employee on October 20, 1997, prior to
which he devoted 30% of his time to the Company, for which he was compensated at
the annual rate of $52,800. Mr. Shank became a full-time employee on November 1,
1997, prior to which he devoted 60% of his time to the Company, for which he was
being compensated at an annual rate of $60,000. Prior to completion of the
Bridge Financing, Dr. Jagannathan devoted 40% of his time to the Company, for
which he was compensated at an annual rate of $60,000. Since completion of the
Bridge Financing, pursuant to the terms of his employment
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<PAGE>
agreement, Dr. Jagannathan has been devoting, and will continue to devote 80% of
his time to the Company, either directly or by devoting time to the work being
performed by CERC under subcontracts with the Company, for so long as he remains
affiliated with CERC and WVU. To the extent Dr. Jagannathan is compensated by
WVU for the time he devotes to Company business under the subcontract with CERC,
the Company will reimburse WVU, and the amount of such reimbursement will be
deducted from the amount paid directly to Dr. Jagannathan by the Company.
Each of the employment agreements provide for annual reviews of compensation
and bonuses, at the discretion of the Board of Directors, based on, among other
things, the performance of the Company and of the individual employee. However,
the Company has agreed with the Representative that notwithstanding the
provisions of the foregoing employment agreements, that the compensation of the
Company's executive officers will not increase from current levels for a period
of 13 months from the closing of the Offering.
The agreements provide for participation in any Company stock option plans
and for payment of 12 months' compensation in the event of termination without
cause.
Dr. Y. V. Reddy, a Director and the Chief Scientist of the Company, has
entered into a three year consulting agreement with the Company pursuant to
which he will devote 20% of his time to the Company, in connection with which he
will receive an annual consulting fee of $50,000. Dr. Reddy's agreement provides
that he will be nominated to be a director of the Company, in which capacity he
has served since the inception of the Company.
STOCK OPTION PLAN
In February 1997, the Board of Directors adopted and the Company's
stockholders subsequently approved, the 1997 Stock Option Plan (the "1997 Plan")
covering 300,000 shares of the Company's Common Stock pursuant to which
employees, officers and directors of, and consultants or advisers to, the
Company and any subsidiary corporations are eligible to receive incentive stock
options ("incentive options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and/or options that do not qualify
as incentive options ("non-qualified options"). The 1997 Plan, which expires in
2007, will be administered by the Board of Directors or a committee of the Board
of Directors. The purposes of the 1997 Plan are to ensure the retention of
existing executive personnel, key employees, directors, consultants and advisors
who are expected to contribute to the Company's future growth and success and to
provide additional incentive by permitting such individuals to participation the
ownership of the Company, and the criteria to be utilized by the Board of
Directors or the committee in granting options pursuant to the 1997 Plan will be
consistent with these purposes. The 1997 Plan provides for automatic grants of
options to certain directors in the manner set forth below.
Options granted under the 1997 Plan may be either incentive options or
non-qualified options. Incentive options granted under the 1997 Plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of the Common Stock on the
date of the grant, except that the term of an incentive option granted under the
1997 Plan to a stockholder owning more than 10% of the outstanding voting power
may not exceed five years and its exercise price may not be less than 110% of
the fair market value of the Common Stock on the date of the grant. To the
extent that the aggregate fair market value, as of the date of grant, of the
shares for which incentive options become exercisable for the first time by an
optionee during the calendar year exceeds $100,000, the portion of such option
which is in excess of the $100,000 limitation will be treated as a non-qualified
option. Options granted under the 1997 Plan to officers, directors or employees
of the Company may be exercised only while the optionee is employed or retained
by the Company or within 90 days of the date of termination of the employment
relationship or directorship. However, options which are exercisable at the time
of termination by reason of death or permanent disability of the optionee may be
exercised within 12 months of the date of termination of the employment
relationship or directorship. Upon the exercise of an
48
<PAGE>
option, payment may be made by cash or by any other means that the Board of
Directors or the committee determines. No option may be granted under the 1997
Plan after February 2006.
Options may be granted only to such employees, officers and directors of,
and consultants and advisors to, the Company or any subsidiary of the Company as
the Board of Directors or the committee shall select from time to time in its
sole discretion, provided that only employees of the Company or a subsidiary of
the Company shall be eligible to receive incentive options. The Plan provides
that directors who are not employees of, consultants to, or the holders of 10%
or more of the Company's Common Stock will automatically receive options to
purchase 5,000 shares upon their election as directors, and options to purchase
1,000 shares for subsequent year that the serve as a director. The exercise
price of such options will be the fair market value of the Common Stock at the
date of grant. As of September 30, 1997, the number of employees, officers and
directors of the Company eligible to receive grants under the 1997 Plan was
eight persons, and the number of consultants and advisors to the Company
eligible to receive grants under the 1997 Plan was one. An optionee may be
granted more than one option under the 1997 Plan. The Board of Directors or the
committee will, in its discretion, determine (subject to the terms of the 1997
Plan) who will be granted options, the time or times at which options shall be
granted, and the number of shares subject to each option, whether the options
are incentive options or non-qualified options, and the manner in which options
may be exercised. In making such determination, consideration may be given to
the value of the services rendered by the respective individuals, their present
and potential contributions to the success of the Company and its subsidiaries
and such other factors deemed relevant in accomplishing the purpose of the 1997
Plan.
Under the 1997 Plan, the optionee has none of the rights of a stockholder
with respect to the shares issuable upon the exercise of the option until such
shares shall be issued upon such exercise. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior to
the date of exercise, except as provided in the 1997 Plan. During the lifetime
of the optionee, an option shall be exercisable only by the optionee. No option
may be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of decent and distribution. The Board
of Directors or the committee may authorize non-qualified options to be
transferable to immediate family members, trusts for the benefit of immediate
family members, partnerships of immediate family members and non-profit
charitable organizations.
The Board of Directors may amend or terminate the 1997 Plan except that
stockholder approval is required to effect a change so as to increase the
aggregate number of shares that may be issued under the 1997 Plan (unless
adjusted to reflect such changes as a result of a stock dividend, stock split,
recapitalization, merger or consolidation of the Company), to modify the
requirements as to eligibility to receive options, to increase materially the
benefits accruing to participants or as otherwise may be required by Rule 16b-3
or Section 422 of the Code. No action taken by the Board may materially and
adversely affect any outstanding option grant without the consent of the
optionee.
Under current tax law, there are no Federal income tax consequences to
either the employee or the Company on the grant of non-qualified options if
granted under the terms set forth in the 1997 Plan. Upon exercise of a
non-qualified option, the excess of the fair market value of the shares subject
to the option over the option price (the "Spread") at the date of exercise is
taxable as ordinary income to the optionee in the year it is exercised and is
deductible by the Company as compensation for Federal income tax purposes, if
Federal income tax is withheld on the Spread. However, if the shares are subject
to vesting restrictions conditioned on future employment or the holder is
subject to the short-swing profits liability restrictions of Section 16(b) of
the Exchange Act of (I.E., is an executive officer, director or 10% stockholder
of the Company) then taxation and measurement of the Spread is deferred until
such restrictions lapse, unless a special election is made under Section 83(b)
of the Code to report such income currently without regard to such restrictions.
The optionee's basis in the shares will be equal to the fair market value on the
date taxation is imposed and the holding period commences on such date.
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<PAGE>
Incentive option holders incur no regular Federal income tax liability at
the time of grant or upon exercise of such option, assuming that the optionee
was an employee of the Company from the date the option was granted until 90
days before such exercise. However, upon exercise, the Spread must be added to
regular Federal taxable income in computing the optionee's "alternative minimum
tax" liability. An optionee's basis in the shares received on exercise of an
incentive stock option will be the option price of such shares for regular
income tax purposes. No deduction is allowable to the Company for Federal income
tax purposes in connection with the grant or exercise of such option.
If the holder of shares acquired through exercise of an incentive option
sells such shares within two years of the date of grant of such option or within
one year from the date of exercise of such option (a "Disqualifying
Disposition"), the optionee will realize income taxable at ordinary rates.
Ordinary income is reportable during the year of such sale equal to the
difference between the option price and the fair market value of the shares at
the date the option is exercised, but the amount includable as ordinary income
shall not exceed the excess, if any, of the proceeds of such sale over the
option price. In addition to ordinary income, a Disqualifying Disposition may
result in taxable income subject to capital gains treatment if the sales
proceeds exceed the optionee's basis in the shares (I.E., the option price plus
the amount includable as ordinary income). The amount of the optionee's taxable
ordinary income will be deductible by the Company in the year of the
Disqualifying Disposition.
At the time of sale of shares received upon exercise of an option (other
than a Disqualifying Disposition of shares received upon the exercise of an
incentive option), any gain or loss is long-term or short-term capital gain or
loss, depending upon the holding period. The holding period for long-term
capital gain or loss treatment is more than one year.
The foregoing is not intended to be an exhaustive analysis of the tax
consequences relating to stock options issued under the 1997 Plan. For instance,
the treatment of options under state and local tax laws, which is not described
above, may differ from the treatment for Federal income tax purposes.
Options to purchase 200,000 shares of Common Stock at an exercise price of
$5.00 were granted under the 1997 Plan immediately prior to the Offering, and
the Company has agreed to issue options to purchase 3,000 shares at an exercise
price of $5.00 per share upon completion of the Offering.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation eliminates in certain
circumstances the liability of directors of the Company for monetary damages for
breach of their fiduciary duty as directors. This provision does not eliminate
the liability of a director (i) for breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions by the director not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for willful or negligent declaration of an unlawful dividend, stock
purchase or redemption, or (iv) for transactions from which the director derived
an improper personal benefit. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company believes that it is the position of the Securities and Exchange
Commission that insofar as the foregoing provision may be invoked to disclaim
liability for damages arising under the Securities Act, the provision is against
public policy as expressed in the Securities Act and is therefore unenforceable.
Such limitation of liability also does not affect the availability of equitable
remedies such as injunctive relief of recision.
The Company intends to enter into indemnification agreements
("Indemnification Agreement(s)") with each of its directors and officers after
the Offering. Each such Indemnification Agreement will provide that the Company
will indemnify the indemnitee against expenses, including reasonable attorneys'
fees, judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any civil or criminal action or
administrative proceeding arising out of his performance of
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his duties as a director or officer, other than an action instituted by the
director or officer. Such indemnification will be available if the indemnitee
acted in good faith and in a matter he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action, had no reasonable cause to believe his conduct was unlawful. The
Indemnification Agreements will also require that the Company indemnify the
director or other party thereto in all cases to the fullest extent permitted by
applicable law. Each Indemnification Agreement will permit the director or
officer that is party thereto to bring suit to seek recovery or amounts due
under the Indemnification Agreement and to recover the expenses of such a suit
if he is successful.
The Company's By-laws provide that the Company shall indemnify its
directors, officers, employees or agents to the full extent permitted by the
Delaware General Corporation Law, and the Company shall have the right to
purchase and maintain insurance on behalf of any such person whether or not the
Company would have the power to indemnify such person against the liability. The
Company has not currently purchased any such insurance policy on behalf on any
of its directors, officers, employees or agents.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for indemnification.
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CERTAIN TRANSACTIONS
The Company has obtained the Cybermarche Agreement, an exclusive assignment
of the WVU Agreement, a world-wide, transferable, exclusive license from WVU to
use, modify, market, sublicense and otherwise distribute the ARTEMIS technology
under development by CERC. Dr. Y. V. Reddy, a Director and the Chief Scientist
of the Company, and Dr. V. Jagannathan, the Senior Vice President--Research and
Development and a Director of the Company, are the Director and Associate
Director for Research, respectively, of CERC, and other co-founders, affiliates
and proposed employees or consultants to the Company also are or have been
affiliated with CERC. Cybermarche is a privately-held company formed to market
and commercialize technology developed at WVU, and it is engaged in the
commercialization of non healthcare related technology. All of its stockholders
are stockholders of the Company, and several officers of the Company are
stockholders of Cybermarche. However, Cybermarche and the Company have no
employees in common. In addition, certain principals of the Company may have
obligations to Cybermarche, and to the extent principals of the Company are
engaged in activities for Cybermarche, they will not be available to the
Company. Dr. Jagannathan has agreed with the Company that he will not devote any
time to the business of Cybermarche. See "Business--Proprietary Rights" and
"Management-- Executive Officers and Directors."
Each of Mr. Kaylor, Dr. Jagannathan, Mr. Stango, Mr. Shank and Dr. Friedman
have entered into three year employment agreements with the Company, and Dr. Y.
V. Reddy has entered into a three year consulting agreement with the Company.
See "Management--Employment Agreements."
In May 1997, the Company subcontracted certain aspects of its work,
including work to be performed for its two customers, to CERC through WVU. The
subcontract runs through May 15, 1998.
In June 1997, the Representative made a loan (the "Representative Loan") to
the Company in the principal amount of $200,000 pursuant to a promissory note
dated June 16, 1997. The Representative Loan bore interest at the annual rate of
10% and was repaid, together with accrued interest, pursuant to its terms at the
first closing of the Bridge Financing in September 1997.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The Company has adopted a policy that all future
transactions, including loans, between the Company and its officers, directors,
principal stockholders and their affiliates will be approved by a majority of
the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will continue to
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of Common Stock by (i) each person known by the Company to own beneficially more
than 5% of each class of outstanding Common Stock, (ii) each director of the
Company, (iii) each executive officer of the Company, and (iv) all executive
officers and directors of the Company as a group, (a) prior to the Offering and
(b) as adjusted to give effect to the sale of the 1,600,000 Units offered
hereby:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED(1)
-----------
PERCENT OF SHARES
BENEFICIALLY OWNED
--------------------------
BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(2) OFFERING OFFERING
- --------------------------------------------------------------------------- -------------- ----------
<S> <C> <C> <C>
J. Calvin Kaylor(3)........................................................ 175,000 14.29% 6.20%
Y.V. Reddy, Ph.D.(4)....................................................... -- -- --
Vasudevan Jagannathan, Ph.D................................................ 100,000 8.33% 3.57%
Marty R. Stango(5)......................................................... 25,000 * *
Scott J. Friedman, M.D..................................................... 100,000 8.33% 3.57%
Robert R. Shank............................................................ 100,000 8.33% 3.57%
Shampa Reddy(6)............................................................ 200,000 16.67% 7.14%
Steve Shattls.............................................................. 100,000 8.33% 3.57%
Srinivas Kankanahalli, Ph.D................................................ 100,000 8.33% 3.57%
K. Joseph Cleetus, Ph.D.................................................... 100,000 8.33% 3.57%
Peter Spitzer, M.D. (7).................................................... 100,000 8.33% 3.57%
All executive officers and directors as a group (6 persons)(3-5)........... 500,000 40.00% 17.5%
</TABLE>
- ------------------------
* Less than 1%
(1) Includes such individuals' Escrow Shares, constituting 50% of the shares
owned by each person. In computing the number of shares beneficially owned
by a person and the percentage ownership of a person, shares of Common Stock
of the Company, subject to options held by that person that are currently
exercisable or exercisable within 60 days are deemed outstanding. Such
shares, however, are not deemed outstanding for purposes of computing the
percentage ownership of each other person. Except as indicated in the
footnotes to this table and pursuant to applicable community property laws,
the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock. See "--Escrow Shares," below.
(2) Except as otherwise set forth, each such person's address is 235 High
Street, Suite 225, Morgantown, West Virginia 26505.
(3) Includes (i) 150,000 shares owned of record jointly by Mr. Kaylor and his
wife, of which 75,000 shares are subject to vesting provisions set forth in
Mr. Kaylor's employment agreement, and (ii) 25,000 shares issuable upon the
exercise of immediately exercisable options. Does not include 75,000 shares
issuable upon the exercise of options that are not immediately exercisable.
See "Management-- Employment and Consulting Agreements."
(4) Does not include 200,000 shares owned by Dr. Reddy's adult daughter, Shampa
Reddy, of which shares Dr. Reddy disclaims beneficial ownership.
(5) Consists of 25,000 shares issuable upon the exercise of immediately
exercisable options. Does not include 75,000 shares issuable upon the
exercise of options that are not immediately exercisable.
(6) Ms. Reddy is the adult daughter of Dr. Y. V. Reddy, a Director of the
Company.
(7) Dr. Spitzer's address is 11718 Barrington Court #504, Los Angeles, CA 90049.
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ESCROW SHARES
In connection with the Offering, the holders of the Company's Common Stock
have agreed to place, on a pro rata basis, 600,000 shares into escrow pursuant
to an escrow agreement (the "Escrow Agreement") with American Stock Transfer &
Trust Company, as escrow agent. The Escrow Shares are not transferable or
assignable; however, the Escrow Shares may be voted.
The Escrow Shares will be released from escrow if, and only if, one or more
of the following conditions is/are met:
(a) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings (all as audited by the Company's
independent public accountants) (the "Minimum Pretax Income") amounts to at
least $4.75 million for the fiscal year ending December 31, 1998, 1999 or
2000;
(b) the Minimum Pretax Income amounts to at least $6.25 million for the
fiscal year ending December 31, 2001;
(c) the Minimum Pretax Income amounts to at least $7.75 million for the
fiscal year ending December 31, 2002;
(d) the Closing Price (as defined in the Escrow Agreement) of the Common
Stock averages in excess of $12.50 per share for 30 consecutive business
days during the 18-month period commencing on the date of this Prospectus;
(e) the Closing Price of the Common Stock averages in excess of $16.75
per share for 30 consecutive business days during the 18-month period
commencing with the nineteenth month from the date of this Prospectus; or
The Minimum Pretax Income amounts set forth above shall (i) be calculated
exclusively of any extraordinary earnings, including any charge to income
resulting from release of the Escrow Shares and (ii) be increased
proportionately, with certain limitations, in the event additional shares of
Common Stock or securities convertible into, exchangeable for or exercisable
into Common Stock are issued after completion of the Offering. The Closing Price
amounts set forth above are subject to adjustment in the event of any stock
splits, reverse stock splits or other similar events.
Any money, securities, rights or property distributed in respect of the
Escrow Shares, including any property distributed as dividends or pursuant to
any stock split, merger, recapitalization, dissolution, or total or partial
liquidation of the Company, shall be held in escrow until release of the Escrow
Shares. If none of the applicable Minimum Pretax Income or Closing Price levels
set forth above have been met by December 31, 2002, the Escrow Shares, as well
as any dividends or other distributions made with respect thereto, will be
cancelled and contributed to the capital of the Company. The Company expects
that the release of the Escrow Shares to officers, directors, employees and
consultants of the Company will be deemed compensatory and, accordingly, will
result in a substantial charge to reportable earnings, which would equal the
fair market value of such shares and options on the date of release. Such charge
could substantially increase the loss or reduce or eliminate the Company's net
income, if any, for financial reporting purposes for the period during which
such shares and options are, or become probable of being, released from escrow.
Although the amount of compensation expense recognized by the Company will not
affect the Company's total stockholders' equity, it may have a negative effect
on the market price of the Company's securities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note E of
Notes to Financial Statements.
The Minimum Pretax Income and Closing Price levels set forth above were
determined by negotiation between the Company and the Representative and should
not be construed to imply or predict any future earnings by the Company or any
increase in the market price of its securities.
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DESCRIPTION OF SECURITIES
The following description of the Company's securities does not purport to be
complete and is subject in all respects to applicable Delaware law and to the
provisions of the Company's Amended and Restated Certificate of Incorporation
and By-laws, the Warrant Agreement among the Company, the Underwriter and
American Stock Transfer & Trust Company, as warrant agent, pursuant to which the
Warrants will be issued and the Underwriting Agreement between the Company and
the Underwriter, copies of all of which have been filed with the Commission as
Exhibits to the Registration Statement of which this Prospectus is a part.
GENERAL
The authorized capital stock of the Company consists of 25,000,000 shares of
Common Stock, $.001 par value, and 5,000,000 shares of "blank check" preferred
stock, $.001 par value ("Preferred Stock").
UNITS
Each Unit consists of one share of Common Stock and one redeemable Class A
Warrant. Each Class A Warrant entitles the holder thereof to purchase one share
of Common Stock. The Common Stock and Warrants comprising the Units are
separately transferable on and after the Separation Date.
COMMON STOCK
The Company currently has outstanding 1,200,000 shares of Common Stock held
of record by 14 holders. Holders of Common Stock have the right to cast one vote
for each share held of record on all matters submitted to a vote of holders of
Common Stock, including the election of directors. There is no right to cumulate
votes for the election of directors. Stockholders holding a majority of the
voting power of the capital stock issued and outstanding and entitled to vote,
represented in person or by proxy, are necessary to constitute a quorum at any
meeting of the Company's stockholders, and the vote by the holders of a majority
of such outstanding shares is required to effect certain fundamental corporate
changes such as liquidation, merger or amendment of the Company's Certificate of
Incorporation.
Holders of Common Stock are entitled to receive dividends pro rata based on
the number of shares held, when, as and if declared by the Board of Directors,
from funds legally available therefor, subject to the rights of holders of any
outstanding preferred stock. In the event of the liquidation, dissolution or
winding up of the affairs of the Company, all assets and funds of the Company
remaining after the payment of all debts and other liabilities, subject to the
rights of the holders of any outstanding preferred stock, shall be distributed,
pro rata, among the holders of the Common Stock. Holders of Common Stock are not
entitled to preemptive or subscription or conversion rights, and there are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be when issued, fully paid and non-assessable.
REDEEMABLE CLASS A WARRANTS
Each Class A Warrant entitles the registered holder to purchase one share of
Common Stock at an exercise price of $6.50 at any time until 5:00 P.M., New York
City time, on , 2002. Commencing one year from the date of this
Prospectus, the Class A Warrants are redeemable by the Company on 30 days'
written notice at a redemption price of $.05 per Class A Warrant if the "closing
price" of the Company's Common Stock for any 30 consecutive trading days ending
within 15 days of the notice of redemption averages in excess of $9.10 per
share. "Closing price" shall mean the closing bid price if listed in the
over-the-counter market on Nasdaq or otherwise or the closing sale price if
listed on the Nasdaq National Market or a national securities exchange. All
Class A Warrants must be redeemed if any are redeemed.
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The Class A Warrants will be issued pursuant to a warrant agreement (the
"Warrant Agreement") among the Company, the Representative and American Stock
Transfer & Trust Company, New York, New York, as warrant agent (the "Warrant
Agent"), and will be evidenced by warrant certificates in registered form. The
Warrants provide for adjustment of the exercise price and for a change in the
number of shares issuable upon exercise to protect holders against dilution in
the event of a stock dividend, stock split, combination or reclassification of
the Common Stock or upon issuance of shares of Common Stock at prices lower than
the market price of the Common Stock, with certain exceptions.
The exercise price of the Warrants were determined by negotiation between
the Company and the Representative and should not be construed to be predictive
of or to imply that any price increases in the Company's securities will occur.
The Company has reserved from its authorized but unissued shares a
sufficient number of shares of Common Stock for issuance upon the exercise of
the Class A Warrants. A Warrant may be exercised upon surrender of the Warrant
certificate on or prior to its expiration date (or earlier redemption date) at
the offices of the Warrant Agent, with the form of "Election to Purchase" on the
reverse side of the Warrant certificate completed and executed as indicated,
accompanied by payment of the full exercise price (by certified or bank check
payable to the order of the Company) for the number of shares with respect to
which the Warrant is being exercised. Shares issued upon exercise of Warrants
and payment in accordance with the terms of the Warrants will be fully paid and
non-assessable.
For the life of the Warrants, the holders thereof have the opportunity to
profit from a rise in the market value of the Common Stock, with a resulting
dilution in the interest of all other stockholders. So long as the Warrants are
outstanding, the terms on which the Company could obtain additional capital may
be adversely affected. The holders of the Warrants might be expected to exercise
them at a time when the Company would, in all likelihood, be able to obtain any
needed capital by a new offering of securities on terms more favorable than
those provided for by the Warrants.
The Warrants do not confer upon the Warrantholder any voting or other rights
of a stockholder of the Company. Upon notice to the Warrantholders, the Company
has the right to reduce the exercise price or extend the expiration date of the
Warrants.
PREFERRED STOCK
The Board of Directors will have the authority to issue the Preferred Stock
in one or more series and to fix the number of shares and the relative rights,
conversion rights, voting rights and terms of redemption (including sinking fund
provisions) and liquidation preferences, without further vote or action by the
stockholders. If shares of Preferred Stock with voting rights are issued, such
issuance could affect the voting rights of the holders of the Company's Common
Stock by increasing the number of outstanding shares having voting rights, and
by the creation of class or series voting rights. If the Board of Directors
authorizes the issuance of shares of Preferred Stock with conversion rights, the
number of shares of Common Stock outstanding could potentially be increased by
up to the authorized amount. Issuance of Preferred Stock could, under certain
circumstances, have the effect of delaying or preventing a change in control of
the Company and may adversely affect the rights of holders of Common Stock.
Also, Preferred Stock could have preferences over the Common Stock (and other
series of preferred stock) with respect to dividend and liquidation rights. The
Company currently has no plans to issue any Preferred Stock.
UNIT PURCHASE OPTION
The Company has agreed to grant to the Representative, upon the closing of
the Offering, the Unit Purchase Option to purchase up to 160,000 Units. These
Units will be identical to the Units offered hereby except that the Warrants
included in the Unit Purchase Option will only be subject to redemption by the
Company after the Unit Purchase Option has been exercised and the underlying
Warrants are outstanding. The Unit Purchase Option cannot be transferred, sold,
assigned or hypothecated for two years, except to
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any officer of the Underwriters or members of the selling group or their
respective officers. The Unit Purchase Option is exercisable during the
three-year period commencing two years from the date of this Prospectus at an
exercise price of $ per Unit (120% of the initial public offering price)
subject to adjustment in certain events to protect against dilution. The holders
of the Unit Purchase Option have certain demand and piggyback registration
rights. See "Underwriting."
REGISTRATION RIGHTS
The holders of the Unit Purchase Option will have demand and piggy-back
registration rights relating to such options and the underlying securities. See
"Underwriting." The Company has also agreed to register for resale the 1,000,000
Bridge Warrants and the underlying Stock one year from the closing of the
Offering.
BUSINESS COMBINATION PROTECTIONS
The broad discretion conferred upon the Board of Directors with respect to
the issuance of series of Preferred Stock (including with respect to voting
rights) could substantially impede the ability of one or more stockholders
(acting in concert) to acquire sufficient influence over the election of
directors and other matters to effect a change in control or management of the
Company, and the Board of Directors' ability to issue Preferred Stock could also
be utilized to change the economic and control structure of the Company. As a
result, such provisions, together with certain other provisions summarized in
the succeeding paragraph, may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in such stockholder's best interest, including attempts that
might result in a premium over the market price for the Common Stock hold by
stockholders.
The Company is subject to a Delaware statute regulating "business
combinations," defined to include a broad range of transactions, between
Delaware corporations and "interested stockholders," defined as persons who have
acquired at least 15% of a corporation's stock. Under such statute a corporation
may not engage in any business combination with any interested stockholder for a
period of three years after the date such person became an interested
stockholder unless (a) prior to such date the board of directors of the
corporation approved either the "business combination" or the transaction which
resulted in the stockholder becoming an "interested stockholder," (b) upon
consummation of the transaction which resulted in the stockholder becoming an
"interested stockholder," the "interested stockholder" owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by (i) persons who are directors and also
officers and (ii) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (c) on or subsequent to
such date the "business combination" is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the "interested stockholder." The statute contains provisions enabling a
corporation to avoid the statute's restrictions.
The Company has not sought to "elect out" of the statute, and, therefore,
upon closing of the Offering and the registration of its shares of Common Stock
under the Exchange Act, the restrictions imposed by such statute will apply to
the Company.
TRANSFER AGENT
American Stock Transfer & Trust Company, New York, New York, serves as
Transfer Agent for the shares of Common Stock and Warrant Agent for the
Warrants.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering the Company will have outstanding 2,800,000
shares of Common Stock. Of these shares, the 1,600,000 shares of Common Stock
included in the Units offered hereby will be freely transferable without
restriction or further registration under the Securities Act, unless purchased
by affiliates of the Company as that term is defined in Rule 144 under the
Securities Act ("Rule 144") described below. The 1,200,000 shares of Common
Stock currently outstanding are "restricted securities" or owned by affiliates
within the meaning of Rule 144 and may not be sold publicly unless they are
registered under the Securities Act or are sold pursuant to Rule 144 or another
exemption from registration. Such shares will be eligible for sale in the public
market pursuant to Rule 144 commencing 90 days from the date of this Prospectus.
However, holders of 1,100,000 of the 1,200,000 outstanding shares of Common
Stock and the holders of the outstanding options have agreed not to sell or
otherwise dispose of any shares of Common Stock without the Representative's
prior written consent for a period of 13 months after the date of this
Prospectus. In addition, 50% of the outstanding shares (including 50,000 of the
shares that are not subject to the agreement described in the preceding
sentence) are Escrow Shares and are subject to the restrictions on transfer set
forth in the Escrow Agreement. See "Principal Stockholders-- Escrow Shares" and
"Underwriting."
In general, under Rule 144 a person (or persons whose shares are
aggregated), including persons who may be deemed to be "affiliates" of the
Company as that term is defined under the Securities Act, is entitled to sell
within any three-month period a number of restricted shares beneficially owned
for at least one year that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock or (ii) an amount equal to the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and the availability of current public information about
the Company. However, a person who is not deemed an affiliate and has
beneficially owned such shares for at least one year is entitled to sell such
shares without regard to the volume or other resale requirements.
Under Rule 701 of the Securities Act, persons who purchase shares upon
exercise of options granted prior to the date of this Prospectus are entitled to
sell such shares after the 90th day following the date of this Prospectus in
reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144. Affiliates are subject to all Rule 144 restrictions after this 90-day
period, but without a holding period. If all the requirements of Rule 701 are
met, an aggregate of 50,000 shares subject to outstanding vested stock options
may be sold pursuant to such rule at the end of this 90-day period, subject to
an agreement by all option holders not to sell or otherwise dispose of any
shares of Common Stock for a period of 13 months after the date of this
Prospectus without the Representative's prior written consent. An additional
152,000 shares may be sold from time to time pursuant to this rule as additional
outstanding options vest.
Pursuant to registration rights acquired in the Bridge Financing, the
Company has agreed to register for resale on behalf of the investors in the
Bridge Financing the 1,000,000 Bridge Warrants held by such investors and the
underlying Common Stock one year from the closing of the Offering.
The holders of the Unit Purchase Option also have demand and "piggy-back"
registration rights with respect to the securities underlying the Unit Purchase
Option. See "Underwriting."
Prior to the Offering, there has been no market for any securities of the
Company, and no predictions can be made of the effect, if any, that sales of
Common Stock or the availability of Common Stock for sale will have on the
market price of such securities prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, each of
the Underwriters named below, for whom D.H. Blair Investment Banking Corp. is
acting as Representative, has severally agreed to purchase from the Company, and
the Company has agreed to sell to such Underwriter, the respective number of
Units set forth opposite the name of such Underwriter:
<TABLE>
<CAPTION>
NAME NUMBER OF UNITS
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
D.H. Blair Investment Banking Corp.
---------------
Total............................................................................................ 1,600,000
</TABLE>
It is expected that Blair & Co. will distribute as a syndicate member a
substantial portion (not to exceed 52%, including the over-allotment option) of
the Units offered hereby. Blair & Co. is owned by a corporation which is
substantially owned by family members of J. Morton Davis. Mr. Davis is the sole
stockholder of the Representative.
The Underwriters have advised the Company that they propose to offer the
Units to the public at the public offering price set forth on the cover page of
this Prospectus and to certain dealers who are members of the NASD, at such
prices less concessions of not in excess of $ per Unit, of which a sum
not in excess of $ per Unit may in turn be reallowed to other dealers
who are members of the NASD. After the initial offering, the public offering
price, the concession and the reallowance may be changed by the Representative.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period commencing on the date of this Prospectus, to purchase from
the Company at the public offering price, less underwriting discounts, up to
240,000 additional Units for the purpose of covering over-allotments, if any,
subject to the right of the Representative to elect, in its sole discretion, to
exercise such option individually, and not as representative of the several
Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Representative a non-accountable expense allowance
equal to 3% of the gross proceeds derived from the sale of Units offered hereby,
including any Units purchased pursuant to the Underwriters' overallotment
option, $10,000 of which has been paid to date.
The Company's officers, directors and the holders of 1,100,000 of the
1,200,000 outstanding shares of Common Stock have agreed not to sell, assign,
transfer or otherwise dispose of any shares of Common Stock for a period of 13
months from the date of this Prospectus without the prior written consent of the
Representative.
The Representative has the right to designate one individual for nomination
to the Company's Board of Directors for a period of five years after the
completion of the Offering, although it has not yet selected any such designee.
Such designee may be a director, officer, partner, employee or affiliate of the
Representative.
During the five-year period from the date of this Prospectus, in the event
the Representative originates a financing or a merger, acquisition or
transaction to which the Company is a party, the Representative will be entitled
to receive a finder's fee in consideration for origination of such transaction.
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The fee is based on a percentage of the consideration paid in the transaction
ranging from 7% of the first $1,000,000 to 2% of any consideration in excess of
$9,000,000.
The Company has agreed not to solicit Warrant exercises other than through
the Representative, unless the Representative declines to make such
solicitation. Upon any exercise of the Warrants after the first anniversary of
the date of this Prospectus, the Company will pay the Representative a fee of 5%
of the aggregate exercise price of the Warrants, if (i) the market price of the
Company's Common Stock on the date the Warrants are exercised is greater than
the then exercise price of the Warrants; (ii) the exercise of the Warrants was
solicited by a member of the NASD; (iii) the warrantholder designates in writing
that the exercise of the Warrant was solicited by a member of the NASD and
designates in writing the broker-dealer to receive compensation for such
exercise; (iv) the Warrants are not held in a discretionary account; (v)
disclosure of compensation arrangements was made both at the time of the
Offering and at the time of exercise of the Warrants; and (vi) the solicitation
of exercise of the Warrant was not in violation of Regulation M, which was
recently adopted to replace Rule 10b-6 and certain other rules promulgated under
the Exchange Act.
Regulation M may prohibit Blair & Co. or any other soliciting broker-dealer
from engaging in any market making activities with regard to the Company's
securities for the period from five business days (or such other applicable
period as Regulation M may provide) prior to any solicitation by the
Representative of the exercise of Warrants until the later of the termination of
such solicitation activity or the termination (by waiver or otherwise) of any
right that the Representative may have to receive a fee for the exercise of
Warrants following such solicitation. As a result, Blair & Co. may be unable to
provide a market for the Company's securities during certain periods while the
Warrants are exercisable.
The Company has agreed to sell to the Representative and its designees, for
nominal consideration, the Unit Purchase Option to purchase up to 160,000 Units,
substantially identical to the Units being offered hereby, except that the Class
A Warrants included therein are subject to redemption by the Company at any time
after the Unit Purchase Option has been exercised and the underlying warrants
are outstanding. The Unit Purchase Option will be exercisable during the
two-year period commencing three years from the date of this Prospectus at an
exercise price of $ per Unit, subject to adjustment in certain events to
protect against dilution, and is not transferable for a period of three years
from the date of this Prospectus except to officers of the Representative or
members of the selling group or their respective officers. The Company has
agreed to register during the three-year period commencing two years from the
date of this Prospectus, on two separate occasions, the securities issuable upon
exercise thereof under the Securities Act, the initial such registration to be
at the Company's expense and the second at the expense of the holders. The
Company has also granted certain "piggy-back" registration rights to holders of
the Unit Purchase Option.
Prior to the Offering, there has been no public market for any of the
securities offered hereby. Accordingly, the public offering price of the Units
offered hereby and the terms of the Warrants have been determined by negotiation
between the Company and the Representative and are not necessarily related to
the Company's asset value, net worth or other established criteria of value.
Factors considered in determining such prices and terms, in addition to
prevailing market conditions, include the history of and the prospects for the
industry in which the Company competes, the present state of the Company's
development and its future prospects, an assessment of the Company's management,
the Company's capital structure, demand for similar securities of comparable
companies and such other factors as were deemed relevant.
The Underwriters have informed the Company that they do not expect to make
sales of the Units offered hereby to discretionary accounts.
The Representative acted as placement agent for the Bridge Financing in
September and October 1997 for which it received a fee of $200,000 and a
non-accountable expense allowance of $60,000. The Company used $206,575 of the
proceeds of the Bridge Financing to repay the principal and interest due on
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a loan in the principal amount of $200,000, bearing interest at the annual rate
of 10% per annum that the Representative had made to the Company in June 1997.
The Commission is conducting an investigation concerning various business
activities of the Representative and Blair & Co. The Company has been advised by
the Representative that the investigation has been ongoing since at least 1989
and that it is cooperating with the investigation. The Representative cannot
predict whether this investigation will ever result in any type of formal
enforcement action against the Representative or Blair & Co.
In July 1997, Blair & Co., its Chief Executive Officer and its head trader
consented, without admitting or denying any violations, to a settlement with the
NASDR District Business Conduct Committee for District No. 10 to resolve
allegations of NASD rule and securities law violations in connection with mark-
up and pricing practices and adequacy of disclosures to customers regarding
market-making activities of Blair & Co. in connection with certain securities
issues during the period from June 1993 through May 1995 where Blair & Co. was
the primary selling group member. NASDR alleged the firm failed to accurately
calculate the contemporaneous cost of securities in instances where the firm
dominated and controlled after-market trading, thereby causing the firm to
charge its customers excessive mark-ups. NASDR also alleged the firm did not
make adequate disclosure to customers about its market-making activities in two
issues. As part of the settlement, Blair & Co. has consented to a censure and
has agreed to pay a $2 million fine, make $2.4 million in restitution to retail
customers, employ an independent consultant for two years to review and make
recommendations to strengthen the firm's compliance procedures, and has
undertaken for 12 months not to sell to its retail customers (excluding banks
and other institutional investors) more than 60% of the total securities sold in
any securities offering in which it participates as an underwriter or selling
group member. The Chief Executive Officer of Blair & Co., has agreed to settle
failure to supervise charges by consenting to a censure, the imposition of a
$225,000 fine and a 60-day suspension from associating with any NASD member firm
and to take a requalification examination. The firm's head trader has agreed to
settle charges against him by consenting to a censure, the imposition of a
$300,000 fine and a 90-day suspension from associating with any member firm and
has undertaken to take certain requalification examinations. The settlement with
NASDR does not involve or relate to the Representative, its chief executive
officer or any of its other officers or directors.
The Company has been advised that Blair & Co. intends to make a market in
the Company's securities after the Offering. The Company is unable to predict
whether Blair & Co.'s settlement with the NASDR or any unfavorable resolution of
the Commission's investigation will have any effect on such firm's ability to
make a market in the Company's securities and, if so, whether the liquidity or
price of the Company's securities would be adversely affected.
In connection with the Offering, the Underwriters and certain selling group
members may engage in certain transactions that stabilize, maintain or otherwise
affect the market price of the Units, the Common Stock and the Class A Warrants.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase the Units, the Common Stock and the Class A Warrants for the purpose of
pegging, fixing or maintaining the market price of such securities. The
Underwriters may also create a short position in the Units by selling more Units
in connection with the Offering than it is committed to purchase from the
Company, and in such case the Representative may reduce all or a portion of that
short position by purchasing the Units, the Common Stock and the Class A
Warrants in the open market. The Representative also may also elect to reduce
any short position by exercising all or any portion of the over-allotment option
described herein. In addition, the Representative may impose "penalty bids" on
certain Underwriters and selling group members. This means that if the
Representative purchases shares of Common Stock or Class A Warrants in the open
market to reduce the Underwriters' short position or to stabilize the price of
the Common Stock or the Class A Warrants, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares of Common Stock or Class A Warrants as part of the Offering. Any of
the transactions described in this paragraph may stabilize or maintain the
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market price of the Units, the Common Stock and the Class A Warrants at a level
above that which might otherwise prevail in the open market.
Neither the Company nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Units, the Common Stock and the
Class A Warrants. In addition, neither the Company nor the Underwriters make any
representation that the Underwriters or any selling group members will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Bachner, Tally, Polevoy & Misher LLP, New York, New York. The
statements under the captions "Risk Factors-- Dependence on Proprietary
Technology; --Potential Dependence on License Agreement and CERC" and
"Business--Technology; --Proprietary Rights" and other references in this
Prospectus to intellectual property matters have been reviewed for the Company
by Lowe, Price, LeBlanc & Becker, Alexandria, Virginia. The statements under the
captions "Risk Factors--Possible Adverse Effects of Government Regulation
Regarding Computer Products and Procurement Procedures" and
"Business--Government Regulation" and certain other references in this
Prospectus to government regulation matters have been reviewed for the Company
by Hyman, Phelps & McNamara, P.C., Washington, D. C. Certain legal matters will
be passed upon for the Representative by Paul, Hastings, Janofsky & Walker LLP.
Bachner, Tally, Polevoy & Misher LLP represents the Representative in other
matters.
EXPERTS
The financial statements of the Company for the period from February 6, 1996
(inception) to December 31, 1996 appearing in this Prospectus and Registration
Statement have been audited by Richard A. Eisner & Company, LLP, independent
auditors, as set forth in their report thereon appearing in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2 under the
Securities Act with the Commission with respect to the Units offered hereby.
This Prospectus, forms a part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the Units
offered hereby, reference is hereby made to the Registration Statement and such
exhibits, which are available for inspection without charge at the office of the
Commission at 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 at 500 West Madison (Suite 1400), Chicago, Illinois
60661. Copies of such material may also be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission (http://www.sec.gov).
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference.
Following the Offering, the Company will be subject to the reporting and
other requirements of the Exchange Act and intends to furnish to its
stockholders annual reports containing audited financial statements and may
furnish interim reports as it deems appropriate.
62
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent auditors' report............................................................................... F-2
Balance sheets as of December 31, 1996 and September 30, 1997 (unaudited).................................. F-3
Statements of operations for the period February 6, 1996 (inception) through December 31, 1996, for the
period February 6, 1996 (inception) through September 30, 1996 (unaudited), and for the nine months ended
September 30, 1997 (unaudited)........................................................................... F-4
Statements of changes in capital deficiency for the period February 6, 1996 (inception) through December
31, 1996 and for the nine months ended September 30, 1997 (unaudited).................................... F-5
Statements of cash flows for the period February 6, 1996 (inception) through December 31, 1996, for the
period February 6, 1996 (inception) through September 30, 1996 (unaudited), and for the nine months ended
September 30, 1997 (unaudited)........................................................................... F-6
Notes to financial statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Careflow Net, Inc.
Morgantown, West Virginia
We have audited the accompanying balance sheet of Careflow Net, Inc. as of
December 31, 1996 and the related statements of operations, changes in capital
deficiency and cash flows for the period February 6, 1996 (inception) through
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in
all material respects, the financial position of Careflow Net, Inc. as of
December 31, 1996 and the results of its operations and its cash flows for the
period from February 6, 1996 to December 31, 1996 in conformity with generally
accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
October 22, 1997
F-2
<PAGE>
CAREFLOW NET, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------- -------------
<S> <C> <C>
(DEVELOPMENT
STAGE) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 4,000 $ 569,000
Accounts receivable............................................................. 20,000 71,000
------------- -------------
Total current assets.......................................................... 24,000 640,000
Fixed assets, net................................................................... 7,000 32,000
Deferred offering costs............................................................. 10,000 10,000
Deferred financing costs, net....................................................... 141,000
Organization costs, net............................................................. 17,000
------------- -------------
$ 41,000 $ 840,000
------------- -------------
------------- -------------
LIABILITIES
Current liabilities:
Note payable--placement agent................................................... $ 200,000
Notes payable--bridge financing (less unamortized discount of $144,000)......... 869,000
Accounts payable and accrued expenses........................................... $ 75,000 94,000
Deferred licensing fees......................................................... 30,000 86,000
------------- -------------
Total current liabilities..................................................... 105,000 1,249,000
------------- -------------
CAPITAL DEFICIENCY
Preferred stock--$.001 par value, 5,000,000 shares authorized; none issued
Common stock--$.001 par value, 30,000,000 shares authorized; 1,200,000 shares issued
and outstanding 1,200 1,200
Additional paid-in capital.......................................................... 5,800 125,800
Accumulated deficit................................................................. (71,000) (536,000)
------------- -------------
Total capital deficiency...................................................... (64,000) (409,000)
------------- -------------
$ 41,000 $ 840,000
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements
F-3
<PAGE>
CAREFLOW NET, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FEBRUARY 6,
1996 FEBRUARY 6, 1996
(INCEPTION) (INCEPTION) NINE MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
--------------- ------------------ -------------
<S> <C> <C> <C>
(DEVELOPMENT
(DEVELOPMENT STAGE)
STAGE) (UNAUDITED) (UNAUDITED)
Service fees............................................... $ 68,000 $ 44,000 $ 101,000
Systems sales.............................................. 70,000
--------------- -------- -------------
68,000 44,000 171,000
--------------- -------- -------------
Costs and expenses:
Cost of services and systems............................. 31,000 24,000 286,000
Selling, general and administrative...................... 108,000 27,000 341,000
Interest................................................. 9,000
--------------- -------- -------------
139,000 51,000 636,000
--------------- -------- -------------
Net loss................................................... $ (71,000) $ (7,000) $ (465,000)
--------------- -------- -------------
--------------- -------- -------------
Net loss per share......................................... $ (.12) $ (.01) $ (.78)
--------------- -------- -------------
--------------- -------- -------------
Weighted average number of common shares outstanding during
each period.............................................. 600,000 600,000 600,000
--------------- -------- -------------
--------------- -------- -------------
</TABLE>
See notes to financial statements
F-4
<PAGE>
CAREFLOW NET, INC.
STATEMENTS OF CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN ACCUMULATED CAPITAL
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
---------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Issuance of 1,200 shares of Healthcare Computing
Systems, Inc.'s $1 par value common stock at
inception...................................... 1,050 $ 1,050 $ 4,950 $ 6,000
Issuance of 150 shares pursuant to an employment
agreement...................................... 150 150 850 1,000
Net effect of exchange of 1,200,000 shares of
Careflow Net, Inc. $.001 par value common stock
for all of the outstanding shares of Healthcare
Computing Systems, Inc.'s common stock......... 1,198,800
Net loss......................................... $ (71,000) (71,000)
---------- --------- ----------- ------------ -----------
Balance--December 31, 1996....................... 1,200,000 1,200 5,800 (71,000) (64,000)
Net loss for the nine months ended September 30,
1997........................................... (465,000) (465,000)
Warrants issued in connection with bridge
notes.......................................... 120,000 120,000
---------- --------- ----------- ------------ -----------
Balance--September 30, 1997 (unaudited).......... 1,200,000 $ 1,200 $ 125,800 $ (536,000) $ (409,000)
---------- --------- ----------- ------------ -----------
---------- --------- ----------- ------------ -----------
</TABLE>
See notes to financial statements
F-5
<PAGE>
CAREFLOW NET, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FEBRUARY 6, FEBRUARY 6,
1996 1996
(INCEPTION) (INCEPTION) NINE MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
------------ ------------------ -------------
<S> <C> <C> <C>
(DEVELOPMENT
(DEVELOPMENT STAGE)
STAGE) (UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss..................................................... $ (71,000) $ (7,000) $ (465,000)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.............................. 2,000 1,000 17,000
Compensation............................................... 1,000
Changes in:
Accounts receivable...................................... (20,000) (29,000) (51,000)
Organization costs....................................... (25,000)
Accounts payable and accrued expenses.................... 75,000 19,000 19,000
Deferred licensing fees.................................. 30,000 30,000 56,000
------------ -------- -------------
Net cash provided by (used in) operating activities.... 17,000 14,000 (449,000)
------------ -------- -------------
Cash flows from investing activities:
Purchase of fixed assets..................................... (9,000) (9,000) (30,000)
------------ -------- -------------
Cash flows from financing activities:
Proceeds from sale of common stock........................... 6,000 6,000
Proceeds from underwriter's loan............................. 200,000
Proceeds from sale of bridge notes with warrants............. 1,014,000
Payment of deferred financing costs.......................... (170,000)
Payment of deferred offering costs........................... (10,000) (10,000)
------------ -------- -------------
Net cash provided by (used in) financing activities.... (4,000) (4,000) 1,044,000
------------ -------- -------------
Net increase in cash and cash equivalents...................... 4,000 1,000 565,000
Cash and cash equivalents at beginning of period............... -0 - -0 - 4,000
------------ -------- -------------
Cash and cash equivalents at end of period..................... $ 4,000 $ 1,000 $ 569,000
------------ -------- -------------
------------ -------- -------------
Supplemental disclosure of noncash financing activities:
In 1996 the Company issued 150,000 shares of common stock
(value $1,000) to an officer pursuant to an employment
agreement
</TABLE>
See notes to financial statements
F-6
<PAGE>
CAREFLOW NET, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION WITH RESPECT TO THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
NOTE A--MERGER WITH HEALTHCARE COMPUTING SYSTEMS, INC. AND DESCRIPTION OF
BUSINESS
Careflow Net, Inc. ("Careflow" or the "Company") was organized as a Delaware
corporation on January 7, 1997. The Company is the business successor to
Healthcare Computing Systems, Inc. ("HCS" or the "Predecessor"). HCS, a West
Virginia corporation in the development stage which was organized on February 6,
1996, was owned by the same shareholders as Careflow. On February 3, 1997, HCS
merged into Careflow. In conjunction with the merger, 1,200 shares of HCS common
stock were exchanged for 1,200,000 shares of common stock of Careflow. The
merger has been accounted for in a manner similar to a pooling of interests and
the information set forth in these financial statements has been adjusted to
give retroactive effect to the reorganization.
The Company has continued the operations of the Predecessor whereby it is a
developer of information management software products for the healthcare
industry. In addition, the Company has an exclusive, worldwide sublicense
providing for the unlimited use of certain intellectual property developed by
West Virginia University, which it intends to use in the creation and sale of
its products. Certain principals of the Company are employed by West Virginia
University (Note I).
As further described in Note F, in September and October 1997, the Company
received net proceeds of $1,740,000 from a private placement of bridge notes and
warrants ("Bridge Units"). The Company will require substantial additional funds
to complete its current planned activities.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
[1] CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include highly liquid investments with a maturity
of three months or less at the time of purchase.
[2] FIXED ASSETS:
Machinery, furniture and equipment are carried at cost. Depreciation is
provided using the straight-line method over the useful lives of the assets
(5 to 7 years).
[3] DEFERRED FINANCING COSTS:
Deferred financing costs are being amortized over the term of the related
debt, which is one year or will be expensed concurrent with the repayment
of the debt if the Company successfully consummates a public offering of
its securities (Notes E and F).
[4] REVENUE RECOGNITION:
Service fees, which are provided based upon contractual agreements, are
recorded in the period in which the services are performed. System sales,
which represent fees earned from the licensing of software, are recorded in
the period in which software is delivered, subject, in certain
circumstances, to customer acceptance. The Company also provides post
contract customer support services which are recorded on a straight-line
basis over the life of the contract.
F-7
<PAGE>
CAREFLOW NET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION WITH RESPECT TO THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
NOTE B--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[5] SOFTWARE DEVELOPMENT COSTS:
Costs to maintain developed programs and development costs incurred prior
to achievement of technical feasibility are expensed as incurred. Such
costs approximated $158,000 for the period ended September 30, 1997 and
were nominal for the period ended December 31, 1996. Such costs are
included in cost of services and systems on the statements of operations.
[6] NET LOSS PER SHARE OF COMMON STOCK:
Net loss per share of common stock was determined by dividing net loss by
the weighted average number of shares outstanding during each period
excluding shares which have been placed in escrow (Note E).
[7] USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
[8] ORGANIZATION COSTS:
Organization costs are being amortized over 5 years.
[9] FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying value of cash equivalents, accounts receivable and accounts
payable approximates fair value because of the short-term maturity of those
instruments.
[10] STOCK-BASED COMPENSATION:
The Company intends to account for employee stock option grants pursuant to
Accounting Principles Board Opinion No. 25 ("APB") and adopt the
"disclosures only" alternative available under Financial Accounting
Standards Board No. 123 ("FASB 123") for its employee stock option grants.
[11] INTERIM FINANCIAL INFORMATION:
The accompanying statements as of September 30, 1997 and for the periods
ended September 30, 1997 and 1996 are unaudited but, in the opinion of
management of the Company, reflect all adjustments (consisting only of
normal and recurring adjustments) necessary for a fair presentation. The
results of operations for the nine-month period ended September 30, 1997
are not necessarily indicative of the results that may be expected for the
full year ending December 31, 1997.
[12] NEW ACCOUNTING PRONOUNCEMENT:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share". SFAS 128
establishes new standards for computing and presenting per share data. SFAS
128 is effective for periods ending after December 31, 1997. The adoption
of SFAS 128, will not effect the amount of loss per share of common stock
as reported.
F-8
<PAGE>
CAREFLOW NET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION WITH RESPECT TO THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
NOTE C--FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------- -------------
<S> <C> <C>
Computer equipment and software................................. $ 9,000 $ 37,000
Furniture and fixtures.......................................... 2,000
------ -------------
9,000 39,000
Less accumulated depreciation................................... 2,000 7,000
------ -------------
$ 7,000 $ 32,000
------ -------------
------ -------------
</TABLE>
NOTE D--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expense consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Accrued salaries payable........................................ $ 54,000
Outside contractor fees......................................... 18,000 $ 38,000
Customer deposit................................................ 27,000
Other........................................................... 3,000 29,000
------------ -------------
$ 75,000 $ 94,000
------------ -------------
------------ -------------
</TABLE>
NOTE E--PROPOSED INITIAL PUBLIC OFFERING
The Board of Directors authorized the Company to file a registration
statement for a proposed initial public offering ("IPO") in which it expects to
offer units ("Units") consisting of 1,600,000 shares of its common stock and
1,600,000 redeemable Class A Warrants. There is no assurance that the IPO will
be consummated.
The Company has incurred deferred offering costs of $10,000 in connection
with the proposed IPO through September 30, 1997. The deferred costs will either
be charged against the gross proceeds of the offering, or if the offering is not
consummated, they will be charged to expense. Additionally, the Company will
incur substantial additional offering costs in order to effect the IPO.
The current stockholders have placed 600,000 shares of their common stock
into an escrow account. All of these shares will be released upon the Company
meeting certain performance goals or the stock price exceeding certain targets
or if there is not an IPO. If these goals or targets are not met the shares will
be canceled. However, should they be met, the release of the shares will result
in the Company recognizing an additional expense equal to the market value of
the shares released. All shares of common stock held in escrow will be released
if either (a) the Company's pretax income, as defined, equals or exceeds
$4,750,000 in any of the years ending December 31, 1998, December 31, 1999, or
December 31, 2000 or $6,250,000 for the year ending December 31, 2001 or
$7,750,000 for the year ending December 31, 2002 or (b) the average closing
price of the common stock equals or exceeds $12.50 per share for a 30 trading
day period
F-9
<PAGE>
CAREFLOW NET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION WITH RESPECT TO THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
NOTE E--PROPOSED INITIAL PUBLIC OFFERING (CONTINUED)
in the 18-month period beginning with the consummation of the IPO or $16.75 per
share for 30 trading days in the period beginning after 18 months after the
consummation of the IPO ending 36 months after the IPO.
NOTE F--NOTES PAYABLE--BRIDGE FINANCING
In September and October 1997, the Company received aggregate proceeds of
$1,014,000 and $986,000, respectively, from a private placement offering of 40
units (20.25 units sold in September and 19.75 units sold in October) each
consisting of a 10% note in the principal amount of $50,000 and warrants to
purchase 25,000 shares of common stock at an exercise price of $3.00 per share
of common stock. The notes, with accrued interest, are due on the earlier of
September 19, 1998 or the closing of an IPO. The warrants are exercisable for a
period commencing one year from their date of issue and expire three years from
their date of issue or will automatically convert to Class A warrants upon the
closing of an IPO. Class A warrants are exercisable for a period of five years
beginning from their date of sale at an exercise price of $6.50 per share. The
Company allocated 15% of the proceeds to the warrants ($.30 per warrant,
determined using the Black-Scholes option pricing model) which is being
accounted for as a discount on the notes payable to be amortized over the term
of the notes or charged to operations should the notes be repaid sooner. The
value of the warrants less an allocable portion of the offering costs, are being
accounted for as an increase to paid-in-capital. If held to maturity, the
effective interest rate of these notes will be approximately 25%. Costs in
connection with the bridge financing amount to approximately $325,000, of which
$170,000 relate to the units sold in September.
In October 1997, the Company used $206,000 of the proceeds of the notes to
repay the note payable (including accrued interest of $6,000) to the placement
agent which was issued in June 1997.
NOTE G--INCOME TAXES
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Net operating loss carryover.................................... $ 6,000 $ 185,000
Accrued salaries................................................ 22,000
------------ -------------
28,000 185,000
Valuation allowance............................................. (28,000) (185,000)
------------ -------------
$ -0 - $ -0 -
------------ -------------
------------ -------------
</TABLE>
As of December 31, 1996, the Company has a net operating loss carryover of
approximately $13,000 for tax purposes which is available to offset future
taxable income, if any, through 2011. As of September 30, 1997, the Company's
net operating loss carryover approximated $450,000. A 100% valuation allowance
has been established against the deferred tax asset resulting from the net
operating loss carryover and temporary differences since there is no assurance
that the tax benefit will be realized.
F-10
<PAGE>
CAREFLOW NET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(INFORMATION WITH RESPECT TO THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
NOTE H--STOCK OPTION PLAN
In November 1997, the Company adopted a long-term incentive plan (the
"SOP"), pursuant to which the Company may grant eligible individuals (as
defined) incentive and nonqualified stock options to purchase up to an aggregate
of 300,000 shares of the Company's common stock. The exercise price of incentive
stock options may not be less than the fair market value of the stock at the
date of grant. The exercise price of nonqualified stock options may be fixed by
the Board of Directors at the date of grant. All awards vest over a three-year
period and may be exercised for a period of up to ten years following the date
of grant.
NOTE I--RELATED PARTY TRANSACTIONS
[1] In September 1996, the Company acquired (for a nominal amount) a sublicense
from Cybermarche, Inc., a company the shareholders of which are also
shareholders of the Company. The sublicense transfers Cybermarche's
exclusive worldwide right to use certain intellectual property developed by
West Virginia University ("WVU") to the Company.
The sublicense agreement provides, among other matters, for the Company to
pay royalties of up to .5% to WVU, on sales of products containing the
licensed technology, beginning in the second year following the first
commercial shipment (as defined).
Several principals of the Company are employed by WVU.
[2] During the nine-month period ended September 30, 1997, the Company incurred
approximately $70,000 for contract services provided by WVU.
NOTE J--CONCENTRATION OF RISK AND COMMITMENTS
[1] Revenue for the period ended December 31, 1996 and accounts receivable at
December 31, 1996 are derived from one customer. In addition, the customer
advanced $30,000 to the Company as a license fee for software which was
delivered during the period ended September 30, 1997. The Company is
entitled to royalties of up to 10% of the licensee's sales of products
containing the Company's technology.
The same customer accounted for $129,000 of revenue for the nine-month
period ended September 30, 1997 and $71,000 of accounts receivable at
September 30, 1997. The remainder of revenues for 1997 was derived from one
other customer.
[2] The Company has entered into employment agreements with five of its
executive officers providing for aggregate annual compensation of
approximately $500,000 through 1999. In addition, in November 1997, the
Company granted options to purchase 200,000 shares of common stock at an
exercise price per share equal to the IPO price per Unit pursuant to the
SOP (Note H).
F-11
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER, OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN CONTAINED IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 20
Dividend Policy................................ 21
Capitalization................................. 22
Dilution....................................... 24
Selected Financial Data........................ 25
Managements Discussion and Analysis of
Financial Condition and Results of
Operations................................... 26
Glossary....................................... 28
Business....................................... 31
Management..................................... 45
Certain Transactions........................... 52
Principal Stockholders......................... 53
Description of Securities...................... 55
Shares Eligible for Future Sale................ 58
Underwriting................................... 59
Legal Matters.................................. 62
Experts........................................ 62
Additional Information......................... 62
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,600,000 UNITS
CAREFLOW -- NET, INC.
CONSISTING OF 1,600,000 SHARES OF
COMMON STOCK AND
1,600,000 REDEEMABLE CLASS A WARRANTS
---------------------
PROSPECTUS
---------------------
D.H. BLAIR INVESTMENT
BANKING CORP.
, 199
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and By-Laws of the Registrant provide that
the Company shall indemnify any person to the full extent permitted by the
General Corporation Law of the State of Delaware (the "DGCL"). Section 145 of
the DGCL, relating to indemnification, is hereby incorporated herein by
reference.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or controlling persons of the Company pursuant
to the Company's Certificate of Incorporation, By-Laws and the DGCL, the Company
has been informed 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.
The Company's Certificate of Incorporation includes certain provisions
permitted pursuant to Delaware law whereby officers and directors of the Company
are to be indemnified against certain liabilities. The Company's Certificate of
Incorporation also limits, to the fullest extent permitted by Delaware law, a
director's liability for monetary damages for breach of fiduciary duty,
including gross negligence, except liability for (i) breach of the director's
duty of loyalty, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) the unlawful
payment of a dividend or unlawful stock purchase or redemption and (iv) any
transaction from which the director derives an improper personal benefit.
Delaware law does not eliminate a director's duty of care and this provision has
no effect on the availability of equitable remedies such as injunction or
rescission based upon a director's breach of the duty of care.
In accordance with Section 102(a) (7) of the DGCL, the Certificate of
Incorporation of the Registrant eliminates the personal liability of directors
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director with certain limited exceptions set forth in Section 102(a)
(7).
The Registrant also intends to enter into indemnification agreements with
each of its officers and directors, the form of which is filed as Exhibit 10.10
and reference is hereby made to such form.
Reference is made to Section 6 of the Underwriting Agreement (Exhibit 1.1)
which provides for indemnification by the Underwriters of the Registrant, its
officers and directors.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions) are as follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
SEC Registration Fee.............................................................. $ 7,020
NASD Filing Fees.................................................................. 2,816
Nasdaq Filing Fees................................................................ 10,000
Printing and Engraving Expenses................................................... 100,000
Accounting Fees and Expenses...................................................... 75,000
Legal Fees and Expenses........................................................... 200,000
Blue Sky Fees and Expenses........................................................ 40,000
Transfer Agent's Fees and Expenses................................................ 10,000
Representative's Non-Accountable Expense Allowance................................ 240,000
Miscellaneous Expenses............................................................ 65,164
----------
Total......................................................................... $ 750,000
----------
----------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, the Registrant has sold and issued the
following unregistered securities:
In February, September and November 1996, Healthcare Computing Systems,
Incorporated ("HCS"), the predecessor of the Registrant, issued an aggregate of
1,200 shares of its Common Stock to nine persons. In January 1997, in connection
with the merger of HCS into the Registrant, each outstanding share of HCS Common
Stock was converted into 1,000 shares of the Registrant's Common Stock.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
of 1933 pursuant to Section 4(2) thereof. The sale of securities was without the
use of an underwriter, and the certificates evidencing the shares bear a
restrictive legend permitting the transfer thereof only upon registration of the
shares or an exemption under the Securities Act of 1933.
In September and October 1997, the Company issued 40 units, each unit
consisting of a note in the principal amount of $50,000 bearing interest at 10%
per annum and warrants to purchase 25,000 shares of Common Stock at an exercise
price of $4.00 per share (assuming the offering contemplated by this
Registration Statement is not consummated), to 67 accredited investors for an
aggregate purchase price of $2,000,000. The units were issued pursuant to an
exemption from registration provided by Regulation D promulgated under Section
4(2) of the Securities Act. The Representative acted as the Registrant's
placement agent in connection with this private placement. In connection
therewith, the Registrant was paid sales commissions in the amount of $200,000
and a non-accountable expense allowance in the aggregate amount of $60,000.
II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
1.1 --Form of Underwriting Agreement
3.1 --Certificate of Incorporation of the Registrant
3.2 --Articles of Merger of Healthcare Computing Systems into the Registrant
3.3 --By-laws of the Registrant
4.1 --Form of Bridge Note
4.2 --Bridge Warrant Agreement
4.3 --Form of Warrant Agreement (including form of Class A Certificates)
4.4 --Form of Unit Purchase Option
5.1* --Opinion of Bachner, Tally, Polevoy & Misher LLP
10.1 --1997 Stock Option Plan
10.2 --Employment Agreement between the Registrant and J. Calvin Kaylor dated as of
October 31, 1996, as amended November 1, 1996.
10.3 --Employment Agreement between the Registrant and Vasudevan Jagannathan dated as of
November 1, 1996, as amended January 8, 1997 and August 20, 1997.
10.4 --Employment Agreement between the Registrant and Scott J. Friedman dated as of
November 1, 1996, as amended August 28, 1997.
10.5 --Employment Agreement between the Registrant and Marty R. Stango dated as of
February 1, 1997, as amended September 3, 1997
10.6 --Employment Agreement between the Registrant and Robert R. Shank dated as of
November 1, 1996, as amended August 29, 1997
10.7 --Consulting Agreement between the Registrant and Y.V. Reddy dated as of November 1,
1996
10.8 --Collaboration Agreement between the Registrant and Peter Spitzer, dated as of
March 15, 1996, as amended as of January 28, 1997.
10.9 --Sublicense Agreement between the Registrant and Cybermarche, Inc., dated as of
September 5, 1997
10.10 --Agreement between the Registrant and Baptist Hospital System of South Florida,
effective as of April 1, 1997
10.11 --Form of Escrow Agreement by and between the Registrant, American Stock Transfer &
Trust Company and certain securityholders of the Registrant
10.12 --Form of Indemnification Agreement
23.1* --Consent of Bachner, Tally, Polevoy & Misher LLP--Included in Exhibit 5.1
23.2* --Consent of Lowe, Price, LeBlanc & Becker--Included on Page II-6
23.3* --Consent of Hyman, Phelps & McNamara, P.C.--Included on Page II-7
23.4 --Consent of Richard A. Eisner & Co., LLP--Included on Page II-
24.1 --Power of Attorney--Included on Page II-10
</TABLE>
- ------------------------
* To be filed by amendment.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes that it will:
(a) File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act,
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in this Registration Statement, and
(iii) Include any additional or changed material information on the
plan of distribution.
(b) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(c) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the Offering.
(2) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(4) The undersigned Registrant hereby undertakes that it will:
(a) For determining any liability under the Securities Act, treat 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 as part of this registration statement as of
the time it was declared effective.
(b) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and the offering of such securities at that time as the initial
BONA FIDE offering of those securities.
II-4
<PAGE>
CONSENT OF COUNSEL
The consent of Bachner, Tally, Polevoy & Misher LLP will be contained in its
opinion to be filed as Exhibit 5.1 to the Registration Statement.
II-5
<PAGE>
CONSENT OF COUNSEL
We consent to the references to our firm under the caption "Legal Matters"
in the Registration Statement (Form SB-2) and related prospectus of CareFlow --
Net, Inc.
LOWE, PRICE, LEBLANC & BECKER
Alexandria, Virginia
November 26, 1997
II-6
<PAGE>
CONSENT OF COUNSEL
We consent to the references to our firm under the caption "Legal Matters"
in the Registration Statement (Form SB-2) and related prospectus of CareFlow --
Net, Inc.
HYMAN, PHELPS & MCNAMARA, P.C.
Washington, D.C.
November 24, 1997
II-7
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form SB-2 of
our report dated October 22, 1997 on our audit of the financial statements of
Careflow Net, Inc. We also consent to the references to our firm under the
captions "Selected Financial Data" and "Experts".
RICHARD A. EISNER & COMPANY, LLP
New York, New York
November 26, 1997
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Morgantown, State of West Virginia, on the 25th day
of November, 1997.
CAREFLOW -- NET, INC.
BY: /S/ J. CALVIN KAYLOR
-----------------------------------------
J. Calvin Kaylor
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signature" constitutes and appoints J. Calvin Kaylor
and Marty R. Stango, or either of them, his true and lawful attorney-in-fact and
agent with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities to sign any or all amendments
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with 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 stated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President, Chief Executive
/s/ J. CALVIN KAYLOR Officer and Director
- ------------------------------ (principal executive November 25, 1997
J. Calvin Kaylor officer)
Treasurer, Secretary, Chief
/s/ MARTY R. STANGO Financial Officer
- ------------------------------ (principal financial and November 25, 1997
Marty R. Stango accounting officer)
/s/ YENUMULA V. REDDY Director
- ------------------------------ November 25, 1997
Yenumula V. Reddy
II-9
<PAGE>
Exhibit 1.1
1,600,000 Units
(each Unit consisting of (i) one share of Common Stock, par value $0.01 per
share and (ii) one redeemable Warrant to purchase one share of Common Stock)
CareFlow | Net, Inc.
Underwriting Agreement
[__], 1997
D.H. Blair Investment Banking Corp.
(as representative of the several underwriters
named in SCHEDULE A attached hereto)
44 Wall Street, 2nd Floor
New York, New York 10005
CareFlow | Net, Inc., a Delaware corporation (the "COMPANY"), proposes
to issue and sell to the several underwriters named in SCHEDULE A attached
hereto (collectively, the "UNDERWRITERS") for whom you are acting as
representative (the "REPRESENTATIVE") pursuant to this Underwriting Agreement
(this "AGREEMENT") an aggregate of One Million Six Hundred Thousand (1,600,000)
Units, each unit being hereinafter referred to as a "UNIT" and consisting of (i)
one share of common stock, par value $0.001 per share ("SHARES"), and (ii) one
redeemable warrant (the "WARRANTS") to purchase one share of common stock at a
price of Six Dollars and Fifty Cents ($6.50) from the Separation Date (as
defined in the Warrant Agreement) through [__], 2002. The Warrants are subject
to redemption, in certain instances commencing one (1) year from the date of
this Agreement. In addition, the Company proposes to grant to the Underwriters
the option referred to in SECTION 2(B) to purchase all or any part of an
aggregate of Two Hundred Forty Thousand (240,000) additional Units, subject to
the right of the Representative to elect, in its sole discretion, to exercise
such option individually, and not as representative of the several Underwriters.
Unless the context otherwise indicates, the term "UNITS" shall include the Two
Hundred Forty Thousand (240,000) additional Units referred to above.
The aggregate of One Million Six Hundred Thousand (1,600,000) Units to
be sold by the Company, together with all or any part of the Two Hundred Forty
Thousand (240,000) Units which the Underwriters or the Representative, on an
individual basis, as the case may be, have the option to purchase, and the
Shares and the Warrants comprising such Units, are herein called the "UNITS".
The common stock of the Company to be outstanding after giving effect to the
sale of the Shares is herein called the "COMMON STOCK". The Shares and Warrants
included in the Units (including the Units which the Underwriters or the
Representative, on an individual basis, as the case
<PAGE>
may be, have the option to purchase) are herein collectively called the
"SECURITIES".
You have advised the Company that you desire to purchase the Units.
The Company confirms the agreements made by it with respect to the purchase of
the Units by you as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (File No. 333-[__]) on Form SB-2
relating to the public offering of the Units, including a form of prospectus
subject to completion, copies of which have heretofore been delivered to you,
has been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "ACT"), and the rules and regulations
(the "RULES AND REGULATIONS") of the Securities and Exchange Commission (the
"COMMISSION") thereunder, and has been filed with the Commission under the Act
and one or more amendments to such registration statement may have been so
filed. After the execution of this Agreement, the Company will file with the
Commission either (i) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the Act,
either (A) if the Company relies on Rule 434 under the Act, a Term Sheet (as
hereinafter defined) relating to the Units that shall identify the Preliminary
Prospectus (as hereinafter defined) that it supplements containing such
information as is required or permitted by Rules 434, 430A and 424(b) under the
Act or (B) if the Company does not rely on Rule 434 under the Act, a prospectus
in the form most recently included in an amendment to such registration
statement (or, if no such amendment shall have been filed, in such registration
statement), with such changes or insertions as are required by Rule 430A under
the Act or permitted by Rule 424(b) under the Act and in the case of either
CLAUSE (I)(A) OR (I)(B) of this sentence, as have been provided to and approved
by the Representative prior to the execution of this Agreement, or (ii) if such
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Representative prior to the execution of this
Agreement. As used in this Agreement, the term "REGISTRATION STATEMENT" means
such registration statement, as amended at the time when it was or is declared
effective, including all financial schedules and exhibits thereto and including
any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "PRELIMINARY
PROSPECTUS" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); the term
"PROSPECTUS" means (A) if the Company relies on Rule 434 under the Act, the Term
Sheet relating to the Units that is first filed pursuant to Rule 424(b)(7) under
the Act, together with the Preliminary Prospectus identified therein that such
Term Sheet supplements; (B) if the Company does not rely on Rule 434 under the
Act, the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act or (C) if the Company does not rely on Rule 434 under the Act and
if no prospectus is required to be filed pursuant to said Rule 424(b), such term
means the prospectus included in the Registration Statement; except that if such
registration statement or prospectus is amended or such
<PAGE>
prospectus is supplemented, after the effective date of such registration
statement and prior to the Option Closing Date (as hereinafter defined), the
terms "REGISTRATION STATEMENT" and "PROSPECTUS" shall include such registration
statement and prospectus as so amended, and the term "PROSPECTUS" shall include
the prospectus as so supplemented, or both, as the case may be; and the term
"TERM SHEET" means any term sheet that satisfies the requirements of Rule 434
under the Act. Any reference to the "DATE" of a Prospectus that includes a Term
Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. At the time the Registration Statement
becomes effective and at all times subsequent thereto up to and on the Closing
Date (as hereinafter defined) or the Option Closing Date, as the case may be,
(i) the Registration Statement and Prospectus will in all respects conform to
the requirements of the Act and the Rules and Regulations; and (ii) neither the
Registration Statement nor the Prospectus will include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make statements therein not misleading; provided, however, that
the Company makes no representations, warranties or agreements as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of the Underwriters specifically for use in the
preparation thereof. It is understood that the statements set forth in the
Prospectus on page 2 with respect to stabilization, under the heading "Risk
Factors -- Possible Adverse Effect on the Liquidity of the Company's Securities
Due to Securities and Exchange Commission Investigation of the Representative
and Blair & Co. and Recent Settlement by Blair & Co. with NASD", the first
sentence under the heading "Risk Factors -- Possible Restrictions on
Market-Making Activities in Company's Securities", under the heading
"Underwriting" and the identity of counsel to the Underwriters under the heading
"Legal Matters" constitute the only information furnished in writing by or on
behalf of the Underwriters for inclusion in the Registration Statement and
Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus and is duly
qualified to do business as a foreign corporation and is in good standing in all
other jurisdictions in which the nature of its business or the character or
location of its properties requires such qualification, except where failure to
so qualify will not materially affect the Company's business, properties or
financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company as of September 30, 1997 is as set forth in the Prospectus under
"Capitalization"; the shares of issued and outstanding capital stock of the
Company set forth thereunder have been duly authorized, validly issued and are
fully paid and non-assessable; except as set forth in the Prospectus, no
options, warrants, or other rights to purchase, agreements or other obligations
to issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Company have been granted or entered into by the
Company; and the capital stock conforms to all statements relating thereto
<PAGE>
contained in the Registration Statement and Prospectus.
(e) The Units and the Shares are duly authorized, and when issued and
delivered pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and nonassessable and free of preemptive rights of any security
holder of the Company. The Warrants have been duly authorized and, when issued
and delivered pursuant to this Agreement, will have been duly executed, issued
and delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, except as may be limited by
bankruptcy, insolvency, moratorium or similar laws relating to or affecting
creditors' rights generally and by general principles of equity, and entitled to
the benefits provided by the warrant agreement pursuant to which such Warrants
are to be issued (the "WARRANT AGREEMENT"), which will be substantially in the
form filed as an exhibit to the Registration Statement. The shares of Common
Stock issuable upon exercise of the Warrants have been reserved for issuance
upon the exercise of the Warrants and when issued in accordance with the terms
of the Warrants and Warrant Agreement, will be duly and validly authorized,
validly issued, fully paid and non-assessable and free of preemptive rights and
no personal liability will attach to the ownership thereof. The Warrant
Agreement has been duly authorized and, when executed and delivered pursuant to
this Agreement, will have been duly executed and delivered and will constitute
the valid and legally binding obligation of the Company enforceable in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
moratorium or similar laws relating to or affecting creditors' rights generally
and by general principles of equity. The Warrants and the Warrant Agreement
conform to the respective descriptions thereof in the Registration Statement and
Prospectus. The Shares and the Warrants contained in the Unit Purchase Option
(as such term is defined in the Prospectus) have been duly authorized and, when
duly issued and delivered, such Warrants will constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms,
except as may be limited by bankruptcy, insolvency, moratorium or similar laws
relating to or affecting creditors' rights generally and by general principles
of equity, and entitled to the benefits provided by the Unit Purchase Option.
The Shares included in the Unit Purchase Option (and the shares of Common Stock
issuable upon exercise of such Warrants) when issued and sold in accordance with
the terms of the Unit Purchase Option and the Warrant Agreement, as the case may
be, will be duly authorized, validly issued, fully paid and non-assessable and
free of preemptive rights and no personal liability will attach to the ownership
thereof.
(f) This Agreement, the Unit Purchase Option, the M/A Agreement and
the Escrow Agreement have been duly and validly authorized, executed and
delivered by the Company. The Company has full power and lawful authority to
authorize, issue and sell the Units to be sold by it hereunder on the terms and
conditions set forth herein, and no consent, approval, authorization or other
order of any governmental authority is required in connection with such
authorization, execution and delivery or with the authorization, issue and sale
of the Units or the Unit Purchase Option, except such as may be required under
the Act or state securities laws.
(g) Except as described in the Prospectus, the Company is not in
violation, breach or default of or under, and consummation of the transactions
herein contemplated and the fulfillment
<PAGE>
of the terms of this Agreement will not conflict with, or result in a material
breach or violation of, any of the terms or provisions of, or constitute a
material default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the property or assets of the Company pursuant
to the terms of any indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of the property or assets of the Company is
subject, nor will such action result in any violation of the provisions of the
articles of incorporation or the by-laws of the Company, as amended, or any
statute or any order, rule or regulation applicable to the Company of any court
or of any regulatory authority or other governmental body having jurisdiction
over the Company.
(h) Subject to the qualifications stated in the Prospectus, the
Company has good and marketable title to all properties and assets described in
the Prospectus as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are not materially significant or
important in relation to its business; all of the material leases and subleases
under which the Company is the lessor or sublessor of properties or assets or
under which the Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and, except as
described in the Prospectus, the Company is not in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to rights of the
Company as lessor, sublessor, lessee or sublessee under any of the leases or
subleases mentioned above, or affecting or questioning the right of the Company
to continued possession of the leased or subleased premises or assets under any
such lease or sublease except as described or referred to in the Prospectus; and
the Company owns or leases all such properties described in the Prospectus as
are necessary to its operations as now conducted and, except as otherwise stated
in the Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) Richard A. Eisner & Company, LLP, who have given their reports on
certain financial statements filed and to be filed with the Commission as a part
of the Registration Statement, which are incorporated in the Prospectus, are
with respect to the Company, independent public accountants as required by the
Act and the Rules and Regulations.
(j) The financial statements, together with related notes, set forth
in the Prospectus (or if the Prospectus is not in existence, the most recent
Preliminary Prospectus) or the Registration Statement present fairly the
financial position and results of operations and changes in cash flow position
of the Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. Said
statements and related notes have been prepared in accordance with generally
accepted accounting principles applied on a basis which is consistent during the
periods involved. The information set forth under the captions "Dilution",
"Capitalization", and "Selected Financial Data" in the Prospectus fairly
present, on the basis stated in the Prospectus in all material respects, the
information included therein.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus (or, if the Prospectus is not
in existence, the most recent
<PAGE>
Preliminary Prospectus), the Company has not incurred any liabilities or
obligations, direct or contingent, not in the ordinary course of business, or
entered into any transaction not in the ordinary course of business, which is
material to the business of the Company, and there has not been any change in
the capital stock of, or any incurrence of short-term or long-term debt by, the
Company or any issuance of options, warrants or other rights to purchase the
capital stock of the Company or any adverse change or any development involving,
so far as the Company can now reasonably foresee a prospective adverse change in
the condition (financial or other), net worth, results of operations, business,
key personnel or properties of it which would be material to the business or
financial condition of the Company and the Company has not become a party to,
and neither the business nor the property of the Company has become the subject
of, any material litigation whether or not in the ordinary course of business.
(l) Except as set forth in the Prospectus, there is not now pending
or, to the knowledge of the Company, threatened, any action, suit or proceeding
to which the Company is a party before or by any court or governmental agency or
body, which might result in any material adverse change in the condition
(financial or other), business prospects, net worth, or properties of the
Company, nor are there any actions, suits or proceedings related to
environmental matters or related to discrimination on the basis of age, sex,
religion or race; and no labor disputes involving the employees of the Company
exist or are imminent which might be expected to adversely affect the conduct of
the business, property or operations or the financial condition or results of
operations of the Company.
(m) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid all taxes shown as due thereon; and there is no tax deficiency which has
been or to the knowledge of the Company might be asserted against the Company.
(n) Except as described in the Prospectus, the Company has all
licenses, permits and other governmental authorizations currently required for
the conduct of its business or the ownership of its properties as described in
the Prospectus and is in all material respects complying therewith and owns or
possesses adequate rights to use all material patents, patent applications,
trademarks, copyrights, service marks, trade-names, trademark registrations,
service mark registrations, copyrights and licenses necessary for the conduct of
such business and had not received any notice of conflict with the asserted
rights of others in respect thereof. To the best knowledge of the Company, none
of the activities or business of the Company are in violation of, or cause the
Company to violate, any law, rule, regulation or order of the United States, any
state, county or locality, or of any agency or body of the United States or of
any state, county or locality, the violation of which would have a material
adverse impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company.
(o) The Company has not, directly or indirectly, at any time (i) made
any contributions to any candidate for political office, or failed to disclose
fully any such contribution in violation of law or (ii) made any payment to any
state, federal or foreign governmental officer or
<PAGE>
official, or other person charged with similar public or quasi-public duties,
other than payments or contributions required or allowed by applicable law. The
Company's internal accounting controls and procedures are sufficient to cause
the Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
(p) On the Closing Dates (hereinafter defined) all transfer or other
taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Units to the Underwriters hereunder
will have been fully paid or provided for by the Company and all laws imposing
such taxes will have been fully complied with.
(q) All contracts and other documents of the Company which are, under
the Rules and Regulations, required to be filed as exhibits to the Registration
Statement have been so filed.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the sale
or resale of the Units hereby.
(s) The Company has no subsidiaries.
(t) The Company has not entered into any agreement pursuant to which
any person is entitled either directly or indirectly to compensation from the
Company for services as a finder in connection with the proposed public
offering.
(u) Except as previously disclosed in writing by the Company to the
Representative, no officer, director or stockholder of the Company has any
affiliation or association with any member of the National Association of
Securities Dealers Inc. ("NASD").
(v) The Company is not, and upon receipt of the proceeds from the
sale of the Units will not be, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
(w) The Company has not distributed and will not distribute prior to
the First Closing Date any offering material in connection with the offering and
sale of the Units other than the Preliminary Prospectus, Prospectus, the
Registration Statement or the other materials permitted by the Act, if any.
(x) The conditions for use of Form SB-2, as set forth in the General
Instructions thereto, have been satisfied.
(y) There are no business relationships or related-party transactions
of the nature described in Item 404 of Regulation S-B involving the Company and
any person described in such
<PAGE>
Item that are required to be disclosed in the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) and that have not
been so disclosed.
(z) The Company has complied with all provisions of Section 517.075
Florida Statutes relating to doing business with the government of Cuba or with
any person or affiliate located in Cuba.
(aa) The Company owns or possesses adequate and enforceable rights to
use all patents, patent applications, trademarks, service marks, copyrights,
trade secrets, processes, formulations, technology or know-how used or proposed
to be used in the conduct of its business as described in or contemplated by the
Prospectus (the "PROPRIETARY RIGHTS"). The Company has not received any notice
of any claims, nor does it have any knowledge of any threatened claims, and
knows of no facts which would form the basis of any claim, asserted by any
person to the effect that the sale or use of any product or process now used or
offered by the Company or proposed to be used or offered by the Company
infringes on any patents or infringes upon the use of any proprietary rights of
another person and, to the best of the Company's knowledge, no others have
infringed the Company's Proprietary Rights.
2. PURCHASE, DELIVERY AND SALE OF THE UNITS.
(a) Subject to the terms and conditions of this Agreement, and upon
the basis of the representations, warranties, and agreements herein contained,
the Company agrees to issue and sell to the Underwriters, and each Underwriter
agrees, severally and not jointly, to buy from the Company at $[__] per Unit, at
the place and time hereinafter specified, the number of Units set forth opposite
the name of such Underwriter in SCHEDULE A attached hereto (the "FIRST UNITS")
plus any additional Units which such Underwriter may become obligated to
purchase pursuant to the provisions of SECTION 9 hereof. The First Units shall
consist of One Million Six Hundred Thousand (1,600,000) Units to be purchased
from the Company. Delivery of the First Units against payment therefor shall
take place at the offices of D.H. Blair Investment Banking Corp., 44 Wall
Street, 2nd Floor, New York, New York 10005 (or at such other place as may be
designated by agreement between you and the Company) at 10:00 a.m., New York
time, on [__], 1997, or at such later time and date as you may designate, such
time and date of payment and delivery for the First Units being herein called
the "FIRST CLOSING DATE".
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Underwriters (or,
at the Representative's option to the Representative, individually) to purchase
all or any part of an aggregate of an additional Two Hundred Forty Thousand
(240,000) Units at the same price per Unit as the Underwriters shall pay for the
First Units being sold pursuant to the provisions of CLAUSE (A) of this SECTION
2 (such additional Units being referred to herein as the "OPTION UNITS"). This
option may be exercised within thirty (30) days after the effective date of the
Registration Statement upon notice by the Representative to the Company advising
as to the amount of Option Units as to which the option is being exercised, the
names and
<PAGE>
denominations in which the certificates for such Option Units are to be
registered and the time and date when such certificates are to be delivered.
Such time and date shall be determined by the Representative, but shall not be
earlier than four nor later than ten full business days after the exercise of
said option, nor in any event prior to the First Closing Date, and such time and
date is referred to herein as the "OPTION CLOSING DATE". Delivery of the Option
Units against payment therefor shall take place at the offices of D.H. Blair
Investment Banking Corp., 44 Wall Street, 2nd Floor, New York, New York 10005.
The number of Option Units to be purchased by each Underwriter, if any, shall
bear the same percentage to the total number of Option Units being purchased by
the several Underwriters pursuant to this CLAUSE (B) as the number of Units such
Underwriter is purchasing bears to the total number of the First Units being
purchased pursuant to CLAUSE (A) of this SECTION 2, as adjusted, in each case by
the Representative in such manner as the Representative may deem appropriate.
The Option granted hereunder may be exercised only to cover over-allotments in
the sale by the Underwriters of First Units referred to in CLAUSE (A) above. In
the event the Company declares or pays a dividend or distribution on its Common
Stock, whether in the form of cash, shares of Common Stock or any other
consideration, prior to the Option Closing Date, such dividend or distribution
shall also be paid on the Option Units on the Option Closing Date.
(c) The Company will make the certificates for the securities
comprising the Units to be purchased by the Underwriters hereunder available to
you for checking at least two full business days prior to the First Closing Date
or the Option Closing Date (which are collectively referred to herein as the
"CLOSING DATES"). The certificates shall be in such names and denominations as
you may request, at least two full business days prior to the Closing Dates.
Time shall be of the essence and delivery at the time and place specified in
this Agreement is a further condition to the obligations of the Underwriters.
Definitive certificates in negotiable form for the Units to be purchased by the
Underwriters hereunder will be delivered by the Company to you for the accounts
of the Underwriters against payment of the respective purchase prices by the
Underwriters, by certified or bank cashier's checks or, at the Representative's
option, by wire transfer in New York Clearing House funds, payable to the order
of the Company. In addition, in the event the Underwriters or the
Representative, on an individual basis, as the case may be, exercise the option
to purchase from the Company all or any portion of the Option Units pursuant to
the provisions of CLAUSE (B) above, payment for such Units shall be made to or
upon the order of the Company by certified or bank cashier's checks or, at the
Representative's option, by wire transfer payable in New York Clearing House
funds at the offices of D.H. Blair Investment Banking Corp., 44 Wall Street, 2nd
Floor, New York, New York 10005, at the time and date of delivery of such Units
as required by the provisions of CLAUSE (B) above, against receipt of the
certificates for such Units by the Representative for the respective accounts of
the Underwriters registered in such names and in such denominations as the
Representative may request. It is understood that you, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all payments required pursuant to this SECTION 2 on behalf of any
Underwriters whose check or checks shall not have been received by the
Representative at the time of delivery of the Units to be purchased by such
Underwriter or Underwriters. Any such payment by you shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder. It is
also understood that you individually rather than all of the Underwriters may
(but shall not be obligated to) purchase
<PAGE>
the Option Units referred to in CLAUSE (B) of this SECTION 2, but only to cover
overallotments. It is understood that the Underwriters propose to offer the
Units to be purchased hereunder to the public upon the terms and conditions set
forth in the Registration Statement, after the Registration Statement becomes
effective.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective as promptly as possible. If required, the Company
will file the Prospectus or any Term Sheet that constitutes a part thereof and
any amendment or supplement thereto with the Commission in the manner and within
the time period required by Rules 434 and 424(b) under the Act. Upon
notification from the Commission that the Registration Statement has become
effective, the Company will so advise you and will not at any time, whether
before or after the effective date, file the Prospectus, Term Sheet or any
amendment to the Registration Statement or supplement to the Prospectus of which
you shall not previously have been advised and furnished with a copy or to which
you or your counsel shall have objected in writing or which is not in compliance
with the Act and the Rules and Regulations. At any time prior to the later of
(A) the completion by all of the Underwriters of the distribution of the Units
contemplated hereby (but in no event more than nine months after the date on
which the Registration Statement shall have become or been declared effective)
and (B) twenty five (25) days after the date on which the Registration Statement
shall have become or been declared effective, the Company will prepare and file
with the Commission, promptly upon your request, any amendments or supplements
to the Registration Statement or Prospectus which, in your opinion, may be
necessary or advisable in connection with the distribution of the Units. As
soon as the Company is advised thereof, the Company will advise you, and confirm
the advice in writing, of the receipt of any comments of the Commission, of the
effectiveness of any post-effective amendment to the Registration Statement, of
the filing of any supplement to the Prospectus or any amended Prospectus, of any
request made by the Commission for amendment of the Registration Statement or
for supplementing of the Prospectus or for additional information with respect
thereto, of the issuance by the Commission or any state or regulatory body of
any stop order or other order or threat thereof suspending the effectiveness of
the Registration Statement or any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the Units
for offering in any jurisdiction, or of the institution of any proceedings for
any of such purposes, and will use its best efforts to prevent the issuance of
any such order, and, if issued, to obtain as soon as possible the lifting
thereof. The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriters and dealers to use the Prospectus in connection with
the sale of the Units for such period as in the opinion of counsel to the
Underwriters the use thereof is required to comply with the applicable
provisions of the Act and the Rules and Regulations. In case of the happening,
at any time within such period as a Prospectus is required under the Act to be
delivered in connection with sales by an underwriter or dealer of any event of
which the Company has knowledge and which materially affects the Company or the
securities of the Company, or which in the opinion of counsel
<PAGE>
for the Company or counsel for the Underwriters should be set forth in an
amendment of the Registration Statement or a supplement to the Prospectus in
order to make the statements therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be delivered to
a purchaser of the Units or in case it shall be necessary to amend or supplement
the Prospectus to comply with law or with the Rules and Regulations, the Company
will notify you promptly and forthwith prepare and furnish to you copies of such
amended Prospectus or of such supplement to be attached to the Prospectus, in
such quantities as you may reasonably request, in order that the Prospectus, as
so amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which they
are made, not misleading. The preparation and furnishing of any such amendment
or supplement to the Registration Statement or amended Prospectus or supplement
to be attached to the Prospectus shall be without expense to the Underwriters,
except that in case any Underwriter is required, in connection with the sale of
the Units to deliver a Prospectus nine months or more after the effective date
of the Registration Statement, the Company will upon request of and at the
expense of the applicable Underwriter, amend or supplement the Registration
Statement and Prospectus and furnish the applicable Underwriter with reasonable
quantities of prospectuses complying with Section 10(a)(3) of the Act. The
Company will comply with the Act, the Rules and Regulations and the Securities
Exchange Act of 1934 and the rules and regulations thereunder in connection with
the offering and issuance of the Units.
(b) The Company will use its best efforts to qualify to register the
Units for sale under the securities or "blue sky" laws of such jurisdictions as
the Representative may designate and will make such applications and furnish
such information as may be required for that purpose and to comply with such
laws, provided the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent of service
of process in any jurisdiction in any action other than one arising out of the
offering or sale of the Units. The Company will, from time to time, prepare and
file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Representative may
reasonably request.
(c) If the sale of the Units provided for herein is not consummated
for any reason caused by the Company, the Company shall pay all costs and
expenses incident to the performance of the Company's obligations hereunder,
including but not limited to, all of the expenses itemized in SECTION 8,
including the accountable out-of-pocket expenses of the Representative.
(d) The Company will use its best efforts to (i) cause a registration
statement under the Securities Exchange Act of 1934 to be declared effective
concurrently with the completion of this offering and will notify the
Representative in writing immediately upon the effectiveness of such
registration statement and (ii) if requested by the Representative, obtain a
listing on the Nasdaq Small Cap Market and to obtain and keep current a listing
in the Standard & Poors or Moody's Industrial OTC Manual.
<PAGE>
(e) For so long as the Company is a reporting company under either
Section 12(g) or 15(d) of the Securities Exchange Act of 1934, the Company, at
its expense, will furnish to its stockholders an annual report (including
financial statements audited by independent public accountants), in reasonable
detail and at its expense, will furnish to you during the period ending five (5)
years from the date hereof, (i) as soon as practicable after the end of each
fiscal year, a balance sheet of the Company and any of its subsidiaries as at
the end of such fiscal year, together with statements of income, surplus and
cash flow of the Company and any subsidiaries for such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or report thereon
of independent accountants; (ii) as soon as practicable after the end of each of
the first three fiscal quarters of each fiscal year, consolidated summary
financial information of the Company for such quarter in reasonable detail;
(iii) as soon as they are available, a copy of all reports (financial or other)
mailed to security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with the
Commission or any securities exchange or automated quotation system on which any
class of securities of the Company is listed; and (v) such other information as
you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in CLAUSE (E) above will be
on a consolidated basis to the extent the accounts of the Company and its
subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to you at or before the First Closing
Date two signed copies of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto, and will
deliver to the Underwriters such number of conformed copies of the Registration
Statement, including such financial statements but without exhibits, and of all
amendments thereto, as the Underwriters may reasonably request. The Company
will deliver to or upon the order of the Underwriters, from time to time until
the effective date of the Registration Statement, as many copies of any
Preliminary Prospectus filed with the Commission prior to the effective date of
the Registration Statement as the Underwriters may reasonably request. The
Company will deliver to the Underwriters on the effective date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form, or as thereafter amended or supplemented, as the Underwriters may
from time to time reasonably request. The Company, not later than (i) 5:00
p.m., New York City time, on the date of determination of the public offering
price, if such determination occurred at or prior to 12:00 noon, New York City
time, on such date or (ii) 6:00 p.m., New York City time, on the business day
following the date of determination of the public offering price, if such
determination occurred after 12:00 noon, New York City time, on such date, will
deliver to the Underwriters, without charge, as many copies of the Prospectus
and any amendment or supplement thereto as the Underwriters may reasonably
request for purposes of confirming orders that are expected to settle on the
First Closing Date.
(h) The Company will make generally available to its security holders
and to the registered holders of its Warrants and deliver to you as soon as it
is practicable to do so but in no
<PAGE>
event later than 90 days after the end of twelve months after its current fiscal
quarter, an earnings statement (which need not be audited) covering a period of
at least twelve (12) consecutive months beginning after the effective date of
the Registration Statement, which shall satisfy the requirements of Section
11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the
Units for the purposes set forth under "Use of Proceeds" in the Prospectus, and
will file such reports with the Commission with respect to the sale of the Units
and the application of the proceeds therefrom as may be required pursuant to
Rule 463 under the Act.
(j) The Company will, promptly upon your request, prepare and file
with the Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of Paul, Hastings, Janofsky & Walker LLP, counsel to the
Underwriters, may be reasonably necessary or advisable in connection with the
distribution of the Units, and will use its best efforts to cause the same to
become effective as promptly as possible.
(k) The Company will reserve and keep available that maximum number
of its authorized but unissued securities which are issuable upon exercise of
the Unit Purchase Option outstanding from time to time.
(l) For a period of thirteen (13) months from the First Closing Date,
no officer, director or stockholder of the Company will directly or indirectly,
offer, sell (including any short sale), grant any option for the sale of,
acquire any option to dispose of, or otherwise dispose of any shares of Common
Stock without the prior written consent of the Representative.
(m) Prior to completion of this offering, the Company will make all
filings required, including registration under the Securities Exchange Act of
1934, to obtain the listing of the Units, Common Stock, and Warrants on the
Nasdaq Small Cap Market (or a listing on such other market or exchange as the
Representative consents to), and will effect and use its best efforts to
maintain such listing for at least five years from the date of this Agreement.
(n) The Company and each of the stockholders listed on the signature
page hereto (the "PRINCIPAL STOCKHOLDERS") in the Prospectus represents that it
or he has not taken and agree that it or he will not take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result in the stabilization or manipulation
of the price of the Units, Shares or the Warrants or to facilitate the sale or
resale of the Securities.
(o) On the Closing Date and simultaneously with the delivery of the
Units, the Company shall execute and deliver to you the Unit Purchase Option.
The Unit Purchase Option will be substantially in the form of the Unit Purchase
Option filed as an Exhibit to the Registration Statement.
<PAGE>
(p) Without the prior written consent of the Representative, (i)
during the eighteen (18) month period commencing on the date of this Agreement,
the Company will not grant options to purchase shares of Common Stock at an
exercise price less than the greater of (x) the initial public offering price of
the Units (without allocating any value to the Warrants) or (y) the fair market
value of the Common Stock on the date of grant; (ii) during the six month period
commencing on the date of this Agreement, grant options to any current officer
of the Company; (iii) during the three year period commencing on the date of
this Agreement, offer or sell any of its securities pursuant to Regulation S
under the Act; (iv) grant registration rights to any person which are
exercisable sooner than thirteen (13) months from the First Closing Date; (v)
issue any additional securities which have per share voting rights greater than
the voting rights of the Shares (or take any corporate action which would have
this effect) or (vi) during the eighteen (18) month period commencing on the
date of this Agreement, enter into any agreement or arrangement with any
investment banking firm other than the Representative relating to investment
banking, corporate finance, merger and acquisition or other similar advisory or
consulting services.
(q) J. Calvin Kaylor shall be Chairman and Chief Executive Officer of
the Company on the Closing Dates. The Company will obtain key person life
insurance on the life of J. Calvin Kaylor in an amount of not less than Two
Million Dollars ($2,000,000) and will use its best efforts to maintain such
insurance during the five year period commencing with the First Closing Date
unless his employment with the Company is earlier terminated. In such event,
the Company will obtain a comparable policy on the life of his successor for the
balance of the five year period. For a period of thirteen months from the First
Closing Date, the compensation of the executive officers of the Company shall
not be increased from the compensation levels disclosed in the Prospectus.
(r) On the Closing Date and simultaneously with the delivery of the
Units the Company shall execute and deliver to you, individually and not as
representative of the Underwriters, an agreement with you regarding mergers,
acquisitions, joint ventures and certain other forms of transactions, in the
form previously delivered to the Company by you (the "M/A AGREEMENT").
(s) So long as any Warrants are outstanding, the Company shall use
its best efforts to cause post-effective amendments to the Registration
Statement to become effective in compliance with the Act and without any lapse
of time between the effectiveness of any such post-effective amendments and
cause a copy of each Prospectus, as then amended, to be delivered to each holder
of record of a Warrant and to furnish to each Underwriter and dealer as many
copies of each such Prospectus as such Underwriter or dealer may reasonably
request. The Company shall not call for redemption any of the Warrants unless a
registration statement covering the securities underlying the Warrants has been
declared effective by the Commission and remains current at least until the date
fixed for redemption. In addition, for so long as any Warrant is outstanding,
the Company will promptly notify the Representative of any material change in
the business, financial condition or prospects of the Company.
(t) Upon the exercise of any Warrant or Warrants after [__], 1998,
the Company
<PAGE>
will pay D.H. Blair Investment Banking Corp. individually and not as
representative of the Underwriters, a fee of [__]% of the aggregate exercise
price of the Warrants, of which a portion may be reallowed to the dealer who
solicited the exercise (which may also be the D.H. Blair Investment Banking
Corp.) if (i) the market price of the Company's Common Stock is greater than the
exercise price of the Warrants on the date of exercise; (ii) the exercise of the
Warrant was solicited by a member of the National Association of Securities
Dealers, Inc., (iii) the Warrant Holder designates in writing that the exercise
of the Warrant was solicited by a member of the NASD and designates in writing
the broker-dealer to receive compensation for such exercise; (iv) the Warrant
is not held in a discretionary account; (v) the disclosure of compensation
arrangements has been made in documents provided to customers, both as part of
the original offering and at the time of exercise, and (vi) the solicitation of
exercise of the Warrant was not in violation of Regulation M promulgated under
the Securities Exchange Act of 1934, as amended. The Company agrees not to
solicit the exercise of any Warrants other than through D.H. Blair Investment
Banking Corp. and will not authorize any other dealer to engage in such
solicitation without the prior written consent of the D.H. Blair Investment
Banking Corp.
(u) For a period of five (5) years from the Effective Date the
Company (i) at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-Q quarterly report and the mailing of quarterly financial information to
stockholders and (ii) shall not change its accounting firm without the prior
written consent of the Chairman or the President of the Representative.
(v) As promptly as practicable after the Closing Date, the Company
will prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute at least four of such volumes to the individuals
designated by the Representative or counsel to the Representative.
(w) For a period of five years from the First Closing Date (i) the
Representative shall have the right, but not the obligation, to designate one
director of the Board of Directors of the Company and (ii) the Company shall
engage a public relations firm acceptable to the Representative.
(x) The Company shall, for a period of six years after date of this
Agreement, submit which reports to the Secretary of the Treasury and to
stockholders, as the Secretary may require, pursuant to Section 1202 of the
Internal Revenue Code, as amended, or regulations promulgated thereunder, in
order for the Company to qualify as a "small business" so that stockholders may
realize special tax treatment with respect to their investment in the Company.
4. CONDITIONS OF UNDERWRITERS OBLIGATION. The obligations of the
Underwriters to purchase and pay for the Units which it has agreed to purchase
hereunder, are subject to the accuracy (as of the date hereof, and as of the
Closing Dates) of and compliance with the representations and warranties of the
Company herein, to the performance by the Company of its
<PAGE>
obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and you
shall have received notice thereof not later than 10:00 A.M., New York time, on
the date on which the amendment to the registration statement originally filed
with respect to the Units or to the Registration Statement, as the case may be,
containing information regarding the initial public offering price of the Units
has been filed with the Commission, or such later time and date as shall have
been agreed to by the Representative; if required, the Prospectus or any Term
Sheet that constitutes a part thereof and any amendment or supplement thereto
shall have been filed with the Commission in the manner and within the time
period required by Rule 434 and 424(b) under the Act; on or prior to the Closing
Dates no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that or a similar purpose shall
have been instituted or shall be pending or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the Commission; any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Paul, Hastings, Janofsky &
Walker LLP, counsel to the Underwriters ("PHJ&W");
(b) At the First Closing Date, you shall have received the opinion,
together with copies of such opinion for the Underwriters, dated as of the First
Closing Date, of Bachner, Tally, Polevoy & Misher LLP, counsel for the Company,
in form and substance satisfactory to counsel for the Underwriters, to the
effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with full corporate power and authority to own its properties and
conduct its business as described in the Registration Statement and Prospectus
and is duly qualified or licensed to do business as a foreign corporation and is
in good standing in Missouri and in each other jurisdiction in which the
ownership or leasing of its properties or conduct of its business requires such
qualification, except where the failure to so qualify will not have a material
adverse affect on the business of the Company;
(ii) to the best knowledge of such counsel, (a) the Company has
obtained all licenses, permits and other governmental authorizations necessary
to the conduct of its business as described in the Prospectus, (b) such
licenses, permits and other governmental authorizations obtained are in full
force and effect, and (c) the Company is in all material respects complying
therewith;
(iii) the authorized capitalization of the Company as of September
30, 1997 is as set forth under "Capitalization" in the Prospectus; all shares of
the Company's outstanding stock requiring authorization for issuance by the
Company's board of directors have been duly authorized, validly issued, are
fully paid and non-assessable and conform to the description thereof contained
in the Prospectus; to the best of such counsel's knowledge, the outstanding
shares of Common Stock of the Company have not been issued in violation of the
preemptive rights of any shareholder and the shareholders of the Company do not
have any statutory preemptive rights to subscribe for or to
<PAGE>
purchase, nor are there any restrictions upon the voting or transfer of any of
the Stock; the Common Stock, the Warrants, the Unit Purchase Option and the
Warrant Agreement conform as to legal matters in all material respects to the
respective descriptions thereof contained in the Prospectus; the Shares have
been, and the shares of Common Stock to be issued upon exercise of the Warrants
and the Unit Purchase Option, upon issuance in accordance with the terms of such
Warrants, the Warrant Agreement and Unit Purchase Option have been duly
authorized and, when issued and delivered, will be duly and validly issued,
fully paid, non-assessable, free of preemptive rights and no personal liability
will attach to the ownership thereof; a sufficient number of shares of Common
Stock has been reserved for issuance upon exercise of the Warrants and Unit
Purchase Option and to the best of such counsel's knowledge, neither the filing
of the Registration Statement nor the offering or sale of the Units as
contemplated by this Agreement gives rise to, any registration rights or other
rights, other than those which have been waived or satisfied, for or relating to
the registration of any shares of Common Stock;
(iv) this Agreement, the Unit Purchase Option, the Warrant
Agreement and the M/A Agreement have been duly and validly authorized, executed
and delivered by the Company and, assuming due execution by each other party
hereto or thereto, each constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law;
(v) the certificates evidencing the shares of Common Stock are
in valid and proper legal form; the Warrants will be exercisable for shares of
Common Stock of the Company in accordance with the terms of the Warrants and at
the prices therein provided for;
(vi) delivery of certificates for the Securities underlying the
Units, upon payment therefor by the Underwriters as provided in the Underwriting
Agreement, will transfer valid title to such Securities to the Underwriters;
and, upon payment for such Securities, the Underwriters will acquire such
Securities free and clear of any liens;
(vii) such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which could materially
adversely affect the business, property, financial condition or operations of
the Company; or which question the validity of the Securities, this Agreement,
the Warrant Agreement, the Unit Purchase Option or the M/A Agreement, or of any
action taken or to be taken by the Company pursuant to this Agreement, the
Warrant Agreement, the Unit Purchase Option or the M/A Agreement; and no such
proceedings are known to such counsel to be contemplated against the Company; to
such counsel's knowledge there are no governmental proceedings or regulations
required to be described or referred to in the Registration Statement which are
not so described or referred to;
(viii) to such counsel's knowledge the Company is not in violation
of or
<PAGE>
default under, nor will the execution and delivery of this Agreement, the Unit
Purchase Option, the Warrant Agreement or the M/A Agreement, and the incurrence
of the obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, result in a breach or violation of,
or constitute a default under the certificate of incorporation or by-laws, in
the performance or observance of any material obligations, agreement, covenant
or condition contained in any bond, debenture, note or other evidence of
indebtedness or in any material contract, indenture, mortgage, loan agreement,
lease, joint venture or other agreement or instrument to which the Company is a
party or by which it or any of its properties may be bound or in violation of
any material order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality or court, domestic or foreign, the
effect of which default, breach or violation would be material to the Company;
(ix) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect, and no proceedings for
that purpose have been instituted or are pending before, or threatened by, the
Commission; the Registration Statement and the Prospectus (except for the
financial statements and other financial data contained therein, or omitted
therefrom, as to which such counsel need express no opinion) comply as to form
in all material respects with the applicable requirements of the Act and the
Rules and Regulations;
(x) such counsel has participated in the preparation of the
Registration Statement and the Prospectus and, although such counsel did not
independently verify and is not passing upon and does not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus, based upon such
participation (relying as to materiality to a large extent upon the certificates
of officers and other representatives of the Company), nothing has come to the
attention of such counsel to cause such counsel to have reason to believe that
the Registration Statement or any amendment thereto at the time it became
effective contained any untrue statement of a material fact required to be
stated therein or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus or any supplement thereto contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make statements
therein, in light of the circumstances under which they were made, not
misleading (except, in the case of both the Registration Statement and any
amendment thereto and the Prospectus and any supplement thereto, for the (1)
financial statements, notes thereto and other financial information and
schedules contained therein, (2) matters relating to proprietary rights or
intellectual property or (3) matters relating to government regulatory matters
relating to the development and potential marketing and sale of the Company's
products as to all of which such counsel need express no opinion);
(xi) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
documents are accurate and fairly summarize in all material respects the
information required to be shown, and such counsel is familiar with all
contracts and other documents referred to in the Registration Statement and the
Prospectus
<PAGE>
and any such amendment or supplement or filed as exhibits to the Registration
Statement, and such counsel does not know of any contracts or documents of a
character required to be summarized or described therein or to be filed as
exhibits thereto which are not so summarized, described or filed;
(xii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection with
the authorization, issuance, transfer, sale or delivery of the Units by the
Company, in connection with the execution, delivery and performance of this
Agreement by the Company or in connection with the taking of any action
contemplated herein, or the issuance of the Unit Purchase Option or the
Securities underlying the Unit Purchase Option, other than registrations or
qualifications of the Units under applicable state or foreign securities or Blue
Sky laws and registration under the Act;
(xiii) the statements in the Registration Statement under the
captions "Business," "Management," "Shares Eligible for Future Sale," "Certain
Transactions," and "Description of Securities" have been reviewed by such
counsel and insofar as they refer to descriptions of agreements, statements of
law, descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
(xiv) based solely upon advice of representatives of Nasdaq, the
Units, the Common Stock and the Warrants have been duly authorized for quotation
on the Nasdaq Small Cap Market; and
(xv) to such counsel's knowledge, there are no business
relationships or related-party transactions of the nature described in Item 404
of Regulation S-B involving the Company and any person described in such Item
that are required to be disclosed in the Prospectus and which have not been so
disclosed.
Such counsel need express no opinion with respect to the financial statements
and other financial data included in or omitted from the Registration Statement
or Prospectus, nor to matters pertaining to patent or intellectual property law,
nor to matters pertaining to government regulatory matters relating to the
development and potential marketing and sale of the Company's products. Such
opinion shall also cover such matters incident to the transactions contemplated
hereby as the Underwriters or counsel for the Underwriters shall reasonably
request. In rendering such opinion, such counsel may rely upon certificates of
any officer of the Company or public officials as to matters of fact; and may
rely as to all matters of law other than the law of the United States or of the
State of New York upon opinions of counsel satisfactory to you, in which case
the opinion shall state that they have no reason to believe that you and they
are not entitled to so rely.
(c) At the First Closing Date you shall receive the opinion of Lowe
Price LeBlanc & Becker, special intellectual property counsel to the Company,
dated as of the First Closing Date, in form and substance satisfactory to
counsel for the Underwriters, to the effect that:
(i) such counsel is unaware of another entity or individual
having any
<PAGE>
right or claim in any of the Proprietary Rights of the Company by virtue of any
contract, license or other agreement and (1) such counsel has no reason to
believe, except as discussed in the Prospectus, that the Company lacks or will
be unable to obtain rights to use all Proprietary Rights necessary to conduct
the business now or proposed to be conducted by the Company and (2) such counsel
is unaware of any material facts which form a basis for a finding of
unenforceability or invalidity of any of the Proprietary Rights owned, licensed
or used by the Company;
(ii) the Company has not received notice of any claim of
infringement or violation of or conflict with the rights or claims of others
with respect to any Proprietary Rights owned, licensed or used by the Company
and (1) such counsel is not aware of any agreements or proprietary rights of
others which are literally infringed by the Company's products, processes or
operations and (2) the Company conducts its business without willful
infringement of the Proprietary Rights of others;
(iii) there are no material legal or governmental proceedings
pending, or, to the best knowledge of such counsel, threatened or contemplated
by governmental authorities related to the Proprietary Rights of the Company;
and
(iv) the statements in the Prospectus, under the captions (1)
"Business" and (2) "Risk Factors -- Potential Conflicts of Interest",
"--Dependence on Proprietary Technology" and "--Potential Dependence on License
Agreement and CERC" are, in the case of each of CLAUSES (1) AND (2) true,
complete and correct in all material respects.
(d) All corporate proceedings and other legal matters relating to
this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by PHJ&W, counsel to the
Underwriters.
(e) You shall have received a letter prior to the effective date of
the Registration Statement and again on and as of the First Closing Date from
Richard A. Eisner & Company, LLP, independent public accountants for the
Company, substantially in the form approved by you, and including estimates of
the Company's revenues and results of operations for the period ending at the
end of the month immediately preceding the effective date and results of the
comparable period during the prior fiscal year.
(f) At the Closing Dates, (i) the representations and warranties of
the Company contained in this Agreement shall be true and correct with the same
effect as if made on and as of the Closing Dates and the Company shall have
performed all of its obligations hereunder and satisfied all the conditions on
its part to be satisfied at or prior to such Closing Date; (ii) the Registration
Statement and the Prospectus and any amendments or supplements thereto shall
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and shall in all material respects
conform to the requirements thereof, and neither the Registration Statement nor
the Prospectus nor any amendment or supplement thereto shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein
<PAGE>
or necessary to make the statements therein not misleading; (iii) there shall
have been, since the respective dates as of which information is given, no
material adverse change, or any development involving a prospective material
adverse change, in the business, properties, condition (financial or otherwise),
results of operations, capital stock, long-term or short-term debt or general
affairs of the Company from that set forth in the Registration Statement and the
Prospectus, except changes which the Registration Statement and Prospectus
indicate might occur after the effective date of the Registration Statement, and
the Company shall not have incurred any material liabilities or entered into any
agreement not in the ordinary course of business other than as referred to in
the Registration Statement and Prospectus; and (iv) except as set forth in the
Prospectus, no action, suit or proceeding at law or in equity shall be pending
or threatened against the Company which would be required to be set forth in the
Registration Statement, and no proceedings shall be pending or threatened
against the Company before or by any commission, board or administrative agency
in the United States or elsewhere, wherein an unfavorable decision, ruling or
finding would materially and adversely affect the business, property, condition
(financial or otherwise), results of operations or general affairs of the
Company, and (v) you shall have received, at the First Closing Date, a
certificate signed by each of the Chairman of the Board or the President and the
principal financial or accounting officer of the Company, dated as of the First
Closing Date, evidencing compliance with the provisions of this CLAUSE (F).
(g) Upon exercise of the option provided for in SECTION 2(B) hereof,
the obligations of the Underwriters (or, at its option, the Representative
individually) to purchase and pay for the Option Units referred to therein will
be subject (as of the date hereof and as of the Option Closing Date) to the
following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to your knowledge or the knowledge of the
Company, shall be contemplated by the Commission, and any reasonable request on
the part of the Commission for additional information shall have been complied
with to the satisfaction of PHJ&W, counsel to the Underwriters.
(ii) At the Option Closing Date there shall have been delivered
to you the signed opinion of Bachner, Tally, Polevoy & Misher LLP, counsel for
the Company, dated as of the Option Closing Date, in form and substance
satisfactory to PHJ&W, counsel to the Underwriters, together with copies of such
opinion for the Underwriters, which opinion shall be substantially the same in
scope and substance as the opinion furnished to you at the First Closing Date
pursuant to SECTION 4(B) hereof, except that such opinion, where appropriate,
shall cover the Option Units.
(iii) At the Option Closing Date there shall have been delivered
to you the signed opinion of Lowe Price LeBlanc & Becker, special intellectual
property counsel to the Company, dated as of the Option Closing Date, in form
and substance satisfactory to PHJ&W, counsel to the Underwriters, together with
copies of such opinion for the Underwriters, which opinion shall be
substantially the same in scope and substance as the opinion furnished to you at
the
<PAGE>
First Closing Date pursuant to SECTION 4(C) hereof, except that such opinion,
where appropriate, shall cover the Option Units.
(iv) At the Option Closing Date there shall have been delivered
to you a certificate of the Chairman of the Board or the President and the
principal financial or accounting officer of the Company, dated the Option
Closing Date, in form and substance satisfactory to PHJ&W, counsel to the
Underwriters, substantially the same in scope and substance as the certificate
furnished to you at the First Closing Date pursuant to SECTION 4(F) hereof.
(v) At the Option Closing Date there shall have been delivered
to you a letter in form and substance satisfactory to you from Richard A.
Eisner & Company, LLP, dated the Option Closing Date and addressed to the
Underwriters confirming the information in their letter referred to in SECTION
4(E) hereof and stating that nothing has come to their attention during the
period from the ending date of their review referred to in said letter to a date
not more than three business days prior to the Option Closing Date, which would
require any change in said letter if it were required to be dated the Option
Closing Date.
(vi) All proceedings taken at or prior to the Option Closing Date
in connection with the sale and issuance of the Option Units shall be
satisfactory in form and substance to you and PHJ&W, counsel to the
Underwriters, shall have been furnished with all such documents, certificates,
and opinions as you may request in connection with this transaction in order to
evidence the accuracy and completeness of any of the representations, warranties
or statements of the Company or its compliance with any of the covenants or
conditions contained herein.
(h) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Units, Common Stock or the Warrants and no proceedings for the taking of such
action shall have been instituted or shall be pending, or, to the knowledge of
the Underwriters or the Company, shall be contemplated by the Commission or the
NASD. The Company represents that at the date hereof it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD. The
Company shall have advised the Underwriters of any NASD affiliation of any of
its officers, directors, stockholders or their affiliates.
(i) If any of the conditions herein provided for in this SECTION 4
shall not have been fulfilled as of the date indicated, this Agreement and all
obligations of the Underwriters under this Agreement may be canceled at, or at
any time prior to, each Closing Date by the Representative. Any such
cancellation shall be without liability of the Underwriters to the Company.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation of
the Company to sell and deliver the Units is subject to the condition that at
the Closing Dates, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued under the Act or any proceedings
therefor initiated or threatened by the Commission. If the condition to the
obligations of the Company provided for in this SECTION 5 have been fulfilled on
the First Closing
<PAGE>
Date but are not fulfilled after the First Closing Date and prior to the Option
Closing Date, then only the obligation of the Company to sell and deliver the
Units on exercise of the option provided for in SECTION 2(B) hereof shall be
affected.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which such Underwriter or such controlling person may become subject,
under the Act or otherwise, and will reimburse, as incurred, such Underwriter
and such controlling persons for any legal or other expenses reasonably incurred
in connection with investigating, defending against or appearing as a third
party witness in connection with any losses, claims, damages or liabilities,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in (A) the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
(B) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by the
Company filed in any state or other jurisdiction in order to qualify any or all
of the Units under the securities laws thereof (any such application, document
or information being hereinafter called a "BLUE SKY APPLICATION"), or arise out
of or are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, Prospectus, or any amendment
or supplement thereto, or in any Blue Sky Application, a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Underwriters
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto. This indemnity will be in addition to any liability which
the Company may otherwise have.
(b) Each Underwriter, severally, but not jointly, will indemnify and
hold harmless the Company, each of its directors, each nominee (if any) for
director named in the Prospectus, each of its officers who have signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of the Act, against any losses, claims, damages or liabilities
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees) to which the
Company or any such director, nominee, officer or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement,
<PAGE>
any Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto
(i) in reliance upon and in conformity with written information furnished to the
Company by you or any Underwriter specifically for use in the preparation
thereof and (ii) relates to the transactions effected by the Underwriters in
connection with the offer and sale of the Units contemplated hereby. This
indemnity agreement will be in addition to any liability which the Underwriters
may otherwise have.
(c) Promptly after receipt by an indemnified party under this SECTION
6 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
SECTION 6, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this SECTION 6. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this SECTION 6 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls an Underwriter within the meaning of the Act, the fees
and expenses of such counsel shall be at the expense of the indemnifying party
if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the judgment of the
applicable Underwriter, it is advisable for the applicable Underwriter or
controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the applicable Underwriter or such controlling person, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the applicable Underwriter and controlling
persons, which firm shall be designated in writing by the applicable
Underwriter). No settlement of any action against an indemnified party shall be
made without the consent of the indemnifying party, which shall not be
unreasonably withheld in light of all factors of importance to such indemnifying
party.
<PAGE>
7. CONTRIBUTION. In order to provide for just and equitable
contribution under the Act in any case in which (i) an Underwriter makes claim
for indemnification pursuant to SECTION 6 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of SECTION 6 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in either
such case (after contribution from others) in such proportions that all such
Underwriters are only responsible for that portion of such losses, claims,
damages or liabilities represented by the percentage that the underwriting
discount per Unit appearing on the cover page of the Prospectus bears to the
public offering price appearing thereon, and the Company shall be responsible
for the remaining portion, provided, however, that (a) if such allocation is not
permitted by applicable law then the relative fault of the Company and the
applicable Underwriter and controlling persons, in the aggregate, in connection
with the statements or omissions which resulted in such damages and other
relevant equitable considerations shall also be considered. The relative fault
shall be determined by reference to, among other things, whether in the case of
an untrue statement of a material fact or the omission to state a material fact,
such statement or omission relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company and the Underwriters agree (a) that it would not be just and equitable
if the respective obligations of the Company and the Underwriters to contribute
pursuant to this SECTION 7 were to be determined by pro rata or per capita
allocation of the aggregate damages or by any other method of allocation that
does not take account of the equitable considerations referred to in the first
sentence of this SECTION 7 and (b) that the contribution of each contributing
Underwriter shall not be in excess of its proportionate share (based on the
ratio of the number of Units purchased by such Underwriter to the number of
Units purchased by all contributing Underwriters) of the portion of such losses,
claims, damages or liabilities for which the Underwriters are responsible. No
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. As used in this SECTION 7, the
word "COMPANY" includes any officer, director, or person who controls the
Company within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this SECTION 7 is not permitted by law, then the
applicable Underwriter and each person who controls the applicable Underwriter
shall be entitled to contribution from the Company, its officers, directors and
controlling persons to the full extent permitted by law. The foregoing
contribution agreement shall in no way affect the contribution liabilities of
any persons having liability under Section 11 of the Act other than the Company
and the Underwriters. No contribution shall be requested with regard to the
settlement of any matter from any party who did not consent to the settlement;
provided, however, that such consent shall not be unreasonably withheld in light
of all factors of importance to such party.
<PAGE>
8. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale of
the Units to the Underwriters is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company including,
but not limited to, the fees and expenses of counsel to the Company and of the
Company's accountants; the costs and expenses incident to the preparation,
printing, filing and distribution under the Act of the Registration Statement
(including the financial statements therein and all amendments and exhibits
thereto), Preliminary Prospectus and the Prospectus, as amended or supplemented,
or the Term Sheet, the fee of the NASD in connection with the filing required by
the NASD relating to the offering of the Units contemplated hereby; all
expenses, including reasonable fees and disbursements of counsel to the
Underwriters, in connection with the qualification of the Units under the state
securities or blue sky laws which the Representative shall designate; the cost
of printing and furnishing to the Underwriters copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, the
Agreement Among Underwriters, Selling Agreement, Underwriters' Questionnaire,
and the Blue Sky Memorandum, any fees relating to the listing of the Units,
Common Stock and Warrants on the Nasdaq Small Cap Market or any other securities
exchange, the cost of printing the certificates representing the securities
comprising the Units, the fees of the transfer agent and warrant agent the cost
of publication of at least three "tombstones" of the offering (at least one of
which shall be in national business newspaper and one of which shall be in a
major New York newspaper) and the cost of preparing at least four hard cover
"bound volumes" relating to the offering, in accordance with the
Representative's request. The Company shall pay any and all taxes (including
any transfer, franchise, capital stock or other tax imposed by any jurisdiction)
on sales to the Underwriters hereunder. The Company will also pay all costs and
expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus as called for in SECTION 3(A) of
this Agreement except as otherwise set forth in said SECTION 3(A).
(b) In addition to the foregoing expenses the Company shall at the
First Closing Date pay to the Representative, individually and not as
representative of the Underwriters, a non-accountable expense allowance equal to
three percent (3%) of the gross proceeds derived from the sale of Units offered
hereby, of which $[__] has been paid. In the event the over-allotment option is
exercised, the Company shall pay to the Representative at the Option Closing
Date an additional amount equal to three percent (3%) of the gross proceeds
received upon exercise of the over-allotment option. In the event the
transactions contemplated hereby are not consummated by reason of any action by
the Underwriters (except if such prevention is based upon a breach by the
Company of any covenant, representation or warranty contained herein or because
any other condition to the Underwriters' obligations hereunder required to be
fulfilled by the Company is not fulfilled) the Company shall be liable for the
accountable out-of-pocket expenses of the Representative, including "blue sky"
legal fees up to a maximum of $[__]. In the event the transactions contemplated
hereby are not consummated by reason of any action of the Company or because of
a breach by the Company of any covenant, representation or warranty herein, the
Company shall be liable for the accountable out-of-pocket expenses of the
Representative, including legal fees, up to a maximum of $[__].
<PAGE>
(c) No person is entitled either directly or indirectly to
compensation from the Company, from the Underwriters or from any other person
for services as a finder in connection with the proposed offering, and the
Company agrees to indemnify and hold harmless the Underwriters and the other
Underwriters, against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all attorneys' fees), to
which the Underwriters or person may become subject insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon the claim of any person (other than an employee of the party
claiming indemnity) or entity that he or it is entitled to a finder's fee in
connection with the proposed offering by reason of such person's or entity's
influence or prior contact with the indemnifying party.
9. SUBSTITUTION OF UNDERWRITERS. If any Underwriters shall for any
reason not permitted hereunder cancel their obligations to purchase the First
Units hereunder, or shall fail to take up and pay for the number of First Units
set forth opposite their respective names in SCHEDULE A hereto upon tender of
such First Units in accordance with the terms hereof, then:
(a) If the aggregate number of First Units which such Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of First Units, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the First Units which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
(b) If any Underwriter or Underwriters so default and the agreed
number of First Units with respect to which such default or defaults occurs is
more than ten percent (10%) of the total number of First Units, the remaining
Underwriters shall have the right to take up and pay for (in such proportion as
may be agreed upon among them) the First Units which the defaulting Underwriter
or Underwriters agreed but failed to purchase. If such remaining Underwriters
do not, at the First Closing Date, take up and pay for the First Units which the
defaulting Underwriter or Underwriters agreed but failed to purchase, the time
for delivery of the First Units shall be extended to the next business day to
allow the several Underwriters the privilege of substituting within twenty-four
hours (including nonbusiness hours) another underwriter or underwriters
satisfactory to the Company. If no such underwriter or underwriters shall have
been substituted as aforesaid, within such twenty-four hour period, the time of
delivery of the First Units may, at the option of the Company, be again extended
to the next following business day, if necessary, to allow the Company the
privilege of finding within twenty-four hours (including nonbusiness hours)
another underwriter or underwriters to purchase the First Units which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the First Units of the defaulting Underwriter or Underwriters as
provided in this SECTION 9, (i) the Company or the Representative shall have the
right to postpone the time of delivery for the period of not more than seven
business days, in order to effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary, and
<PAGE>
(ii) the respective numbers of First Units to be purchased by the remaining
Underwriters or substituted Underwriters shall be taken at the basis of the
underwriting obligation for all purposes of this Agreement.
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the First Units agreed
to be purchased by the defaulting Underwriters or substitute another underwriter
or underwriters as aforesaid, the Company shall not find or shall not elect to
seek another underwriter or underwriters for such First Units as aforesaid, then
this Agreement shall terminate.
If, following exercise of the option provided in SECTION 2(B) hereof,
any Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Units at the Option Closing Date, or
shall fail to take up and pay for the number of Option Units, which they become
obligated to purchase at the Option Closing Date upon tender of such Option
Units in accordance with the terms hereof, then the remaining Underwriters or
substituted Underwriters may take up and pay for the Option Units of the
defaulting Underwriters in the manner provided in SECTION 9(B) hereof. If the
remaining Underwriters or substituted Underwriters shall not take up and pay for
all such Option Units, the Underwriters shall be entitled to purchase the number
of Option Units for which there is no default or, at their election, the option
shall terminate, the exercise thereof shall be of no effect.
As used in this Agreement, the term "UNDERWRITER" includes any person
substituted for an Underwriter under this SECTION 9. In the event of
termination, there shall be no liability on the part of any nondefaulting
Underwriter to the Company, provided that the provisions of this SECTION 9 shall
to in any event affect the liability of any defaulting Underwriter to the
Company arising out of such default.
10. EFFECTIVE DATE. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 A.M., New York time on the first full business day following the effective
date of the Registration Statement, or at such earlier time after the effective
date of the Registration Statement as you in your discretion shall first
commence the initial public offering by the Underwriters of any of the Units.
The time of the initial public offering shall mean the time of release by you of
the first newspaper advertisement with respect to the Units, or the time when
the Units are first generally offered by you to dealers by letter or telegram,
whichever shall first occur. This Agreement may be terminated by you at any
time before it becomes effective as provided above, except that SECTIONS 3(C),
6, 7, 8, 14, 15 AND 16 shall remain in effect notwithstanding such termination.
11. TERMINATION.
(a) This Agreement, except for SECTIONS 3(C), 6, 7, 8, 13, 14, 15 AND
16 hereof, may be terminated at any time prior to the First Closing Date, and
the option referred to in SECTION 2(B) hereof, if exercised, may be canceled at
any time prior to the Option Closing Date, by
<PAGE>
you if in your judgment it is impracticable to offer for sale or to enforce
contracts made by the Underwriters for the resale of the Units agreed to be
purchased hereunder by reason of (i) the Company having sustained a material
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree; (ii) trading in securities on the New York Stock Exchange, the
American Stock Exchange, the Nasdaq SmallCap Market or the Nasdaq National
Market having been suspended or limited; (iii) material governmental
restrictions having been imposed on trading in securities generally (not in
force and effect on the date hereof); (iv) a banking moratorium having been
declared by federal or New York state authorities; (v) an outbreak of
international hostilities or other national or international calamity or crisis
or change in economic or political conditions having occurred; (vi) a pending or
threatened legal or governmental proceeding or action relating generally to the
Company's business, or a notification having been received by the Company of the
threat of any such proceeding or action, which could materially adversely affect
the Company; (vii) except as contemplated by the Prospectus, the Company is
merged or consolidated into or acquired by another company or group or there
exists a binding legal commitment for the foregoing or any other material change
of ownership or control occurs; (viii) the passage by the Congress of the United
States or by any state legislative body or federal or state agency or other
authority of any act, rule or regulation, measure, or the adoption of any
orders, rules or regulations by any governmental body or any authoritative
accounting institute or board, or any governmental executive, which is
reasonably believed likely by the Representative to have a material impact on
the business, financial condition or financial statements of the Company or the
market for the securities offered pursuant to the Prospectus; (ix) any adverse
change in the financial or securities markets beyond normal market fluctuations
having occurred since the date of this Agreement, or (x) any material adverse
change having occurred, since the respective dates of which information is given
in the Registration Statement and Prospectus, in the earnings, business
prospects or general condition of the Company, financial or otherwise, whether
or not arising in the ordinary course of business.
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this SECTION 11 or in SECTION 10
hereof, the Company shall be promptly notified by you, by telephone or telegram,
confirmed by letter, in accordance with SECTION 14 hereof.
12. UNIT PURCHASE OPTION. At or before the First Closing Date, the
Company will sell to the Representative (for its own account and not as
representative of the Underwriters), or its designees for a consideration of One
Hundred Sixty Dollars ($160), and upon the terms and conditions set forth in the
form of Unit Purchase Option annexed as an exhibit to the Registration
Statement, a Unit Purchase Option to purchase an aggregate of One Hundred Sixty
Thousand (160,000) Units. In the event of conflict between the terms of this
Agreement and the Unit Purchase Option, the language of the Unit Purchase Option
shall control.
<PAGE>
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers, directors, stockholders or Principal
Stockholders, where appropriate, and the undertakings set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of the Underwriters, the Company or any
of its officers or directors or any controlling person and will survive delivery
of and payment of the Units and the termination of this Agreement.
14. NOTICE. Any communications specifically required hereunder to be
in writing, if sent to the Underwriters, will be mailed, delivered and confirmed
to the Representative at D.H. Blair Investment Banking Corp., 44 Wall Street,
2nd Floor, New York, New York 10005, with a copy sent to Paul, Hastings,
Janofsky & Walker LLP, 399 Park Avenue, New York, New York 10022, or if sent to
the Company, will be mailed, delivered and confirmed to it at CareFlow | Net,
Inc., 235 High Street, Suite 225, Morgantown, West Virginia 26505, with a copy
sent to Bachner, Tally, Polevoy & Misher LLP, 380 Madison Avenue, New York, New
York 10017.
15. PARTIES IN INTEREST. This Agreement is made solely for the
benefit of the Underwriters, the Representative, on an individual basis, the
Company and, to the extent expressed, the Principal Stockholders, any person
controlling the Company or the Underwriters, directors of the Company, nominees
for directors of the Company (if any) named in the Prospectus, officers of the
Company who have signed the Registration Statement and each of their respective
executors, administrators, successors and assigns and no other person shall
acquire or have any right under or by virtue of this Agreement. The term
"SUCCESSORS AND ASSIGNS" shall not include any purchaser, as such purchaser,
from the Underwriters of the Units. All of the obligations of the Underwriters
hereunder are several and not joint.
16. APPLICABLE LAW. This Agreement will be governed by, and
construed in accordance with, the laws of the State of New York applicable to
agreements made and to be entirely performed within New York.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriters in accordance with
its terms.
Very truly yours,
CareFlow | Net, Inc.
By:
-----------------------------------
Name: J. Calvin Kaylor
Title: President
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
D.H. Blair Investment Banking Corp.
By:
-----------------------------------
Name: Martin A. Bell
Title: Vice Chairman and General
Counsel
<PAGE>
We hereby agree to be bound by the provisions of SECTION 3(L) AND (N)
AND 13 hereof.
-----------------------------------
-----------------------------------
-----------------------------------
<PAGE>
SCHEDULE A
UNDERWRITERS
- --------------------------------------------------------------------------------
UNDERWRITERS NUMBER OF FIRST UNITS TO BE PURCHASED
- --------------------------------------------------------------------------------
D.H. Blair Investment Banking Corp. [__]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL: 1,600,000
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
CAREFLOW | NET, INC.
---------------------------------------
The undersigned, being over the age of eighteen (18), in order to form
a corporation for the purposes hereinafter stated, under and pursuant to the
provisions of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
FIRST: The name of the corporation is CAREFLOW | NET, INC. (the
"Corporation").
SECOND: The registered office of the Corporation is to be located at
1013 Centre Road, in the City of Wilmington, in the County of New Castle, in the
State of Delaware. The name of its registered agent at that address is
Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which a corporation may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall be authorized to issue is thirty million (30,000,000) shares
of Common Stock with a par value of $.001 per share and five million (5,000,000)
shares of Preferred Stock with a par value of $.001 per share.
The Board of Directors may divide the Preferred Stock into any number
of series, fix the designation and number of shares of each such series, and
determine or change the designation, relative rights, preferences, and
limitations of any series of Preferred Stock. The Board of Directors (within the
limits and restrictions of any resolutions adopted by it originally fixing the
number of shares of any series of Preferred Stock) may increase or decrease the
number of shares initially fixed for any series, but no such decrease shall
reduce the number below the number of shares then outstanding and shares duly
reserved for issuance.
FIFTH: The name and address of the incorporator is Perri Beth
Irvings, Esq. c/o Bachner, Tally, Polevoy & Misher LLP, 380 Madison Avenue, New
York, New York 10017.
<PAGE>
SIXTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the Corporation
and of its directors and stockholders:
(1) The election of directors need not be by written ballot, unless
the by-laws so provide.
(2) The Board of Directors shall have power without the assent or
vote of the stockholders to make, alter, amend, change, add to or repeal the
By-Laws of the Corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on application in a summary way
of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or a class of stockholders of the Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
EIGHTH: The Corporation shall indemnify and advance expenses to the
fullest extent permitted by Section 145 of the General Corporation Law of
Delaware, as amended from time to time, each person who is or was a director or
officer of the Corporation and the heirs, executors and administrators of such a
person.
NINTH: The personal liability of directors of the Corporation is
hereby eliminated to the full extent permitted by Section 102(b)(7) of the
General Corporation Law of the State of Delaware as the same may be amended and
supplemented.
TENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
-2-
<PAGE>
IN WITNESS WHEREOF, I have hereunto signed my name and affirm that the
statements made herein are true under the penalties of perjury, this 2nd day of
January, 1997.
/s/ Perri Beth Irvings
-----------------------------------------
Perri Beth Irvings
c/o Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
New York, New York 10017
-3-
<PAGE>
CERTIFICATE OF CORRECTION
OF CERTIFICATE OF INCORPORATION
OF CAREFLOW NET, INC.
---------------------------------------
FIRST: The name of the corporation is CAREFLOW NET, INC.
SECOND: The date the Certificate of Incorporation was filed by the
Department of State is January 9, 1997.
THIRD: The Certificate of Incorporation inaccurately set forth the
par value of the Stock of the corporation as $.01 per share. The first
paragraph of Article FOURTH of the Certificate of Incorporation is corrected to
read as follows:
FOURTH: The total number of shares of all classes of
stock which the Corporation shall be authorized to issue is
thirty million (30,000,000) shares of Common Stock with a par
value of $.001 per share and five million (5,000,000) shares of
Preferred Stock with a par value of $.001 per share.
IN WITNESS WHEREOF, this certificate has been subscribed this 13th day
of November, 1997 by the undersigned who affirms that the statements made herein
are true under the penalties of perjury.
CAREFLOW NET, INC.
/s/ J. Calvin Kaylor
--------------------------------
J. Calvin Kaylor, President
<PAGE>
eXHIBIT 3.2
ARTICLES OF MERGER
OF
HEALTHCARE COMPUTING SYSTEMS, INC.
INTO
CAREFLOW NET, INC.
---------------------------------
The undersigned, pursuant to the provisions of Chapter 31, Article 1, Section 38
of the West Virginia Code, do hereby adopt and execute the following Articles of
Merger:
ARTICLE ONE
Annexed hereto is the Plan of Merger for merging HEALTHCARE COMPUTING
SYSTEMS, INCORPORATED, a business corporation of the State of West
Virginia, (the "terminating corporation"), with and into CAREFLOW NET,
INC., a business corporation of the State of Delaware, (the "surviving
corporation").
The Plan of Merger was approved by the shareholders of the undersigned
terminating corporation in the manner prescribed by Chapter 31, Article 1,
Section 117 of the Code of West Virginia, and by the sole director of the
undersigned surviving corporation in the manner prescribed by the laws of
the State Delaware.
The laws of the State of Delaware permit such a merger.
ARTICLE TWO
The number of outstanding shares entitled to vote of the terminating
corporation is 1,200.
The number of shares voted for such plan of merger is 1,200.
The number of shares voted against such plan of merger is 0.
ARTICLE THREE
The number of outstanding shares entitle to vote of the surviving
corporation is 0.
<PAGE>
ARTICLE FOUR
The surviving corporation hereby agrees that it will promptly pay to the
dissenting shareholders of such terminating corporation the amount, if any,
to which they shall be entitled under the provisions of Chapter 31, Article
1, Section 123 of the Code of West Virginia with respect to the rights of
the dissenting shareholders.
The surviving corporation hereby agrees that it may be served with process
in the State of West Virginia in any proceeding for the enforcement of any
obligation of the terminating corporation and in any proceeding for the
enforcement of the rights of a dissenting shareholder of such terminating
corporation against the surviving corporation.
The surviving corporation irrevocably appoints the Secretary of State of
West Virginia as its agent to accept service of process in any such
proceeding.
The address within the State of West Virginia to which the Secretary of
State of the State of West Virginia shall transmit any such process
accepted by him as such agent is:
CAREFLOW NET, INC.
235 High Street, Suite #410
Morgantown, West Virginia 26505
Dated Feb. 4, 1997
HEALTHCARE COMPUTING SYSTEMS,
INCORPORATED
[Corporate seal]
By: /s/ V. Jagannathan
-------------------------------
Vice-President
Attest:
Robert R. Shank
- -----------------------
Secretary
CAREFLOW NET, INC.
[Corporate seal]
By: /s/ J. Calvin Kaylor
-------------------------------
President
Attest:
Robert R. Shank
- ------------------------
Assistant Secretary
-2-
<PAGE>
STATE OF WEST VIRGINIA )
)SS.:
COUNTY OF MONONGALIA )
I, Susan C. Mazko, a notary public in and for the State and County aforesaid, do
hereby certify that on this 4th day of February, 1997, personally appeared
before me V. Jagannathan, who, being by me first duly sworn, declared that he is
the President [Vice-President] of HEALTHCARE COMPUTING SYSTEMS, INCORPORATED,
that he signed the foregoing document as President [Vice-President] of the
corporation, and that the statements therein contained are true.
/s/ Susan C. Mazko
- ------------------------
Notary Public
[Notarial seal]
STATE OF WEST VIRGINIA )
)SS.:
COUNTY OF MONONGALIA )
I, Susan C. Mazko, a notary public in and for the State and County aforesaid, do
hereby certify that on this 4th day of February, 1997, personally
appeared before me J. Calvin Kaylor, who, being by me first duly sworn, declared
that he is the President [Vice-President] of CAREFLOW NET, INC., that he signed
the foregoing document as President [Vice-President] of the corporation, and
that the statements therein contained are true.
/s/ Susan C. Mazko
- ------------------------
Notary Public
[Notarial seal]
-3-
<PAGE>
PLAN OF MERGER of HEALTHCARE COMPUTING SYSTEMS, INCORPORATED, a business
corporation of the State of West Virginia, and CAREFLOW NET, INC., a business
corporation of the State of Delaware (together, the "constituent corporations").
1. HEALTHCARE COMPUTING SYSTEMS, INCORPORATED (the "terminating
corporation") and CAREFLOW NET, INC. (the "surviving corporation") shall,
pursuant to the provisions of the West Virginia Corporation Act and the Delaware
General Corporation Law, be merged into a single corporation, to wit, CAREFLOW
NET, INC., which shall be the surviving corporation upon the effective date of
the merger, and which shall continue to exist under its present name pursuant to
the provisions of the Delaware General Corporation Law. The separate corporate
existence of HEALTHCARE COMPUTING SYSTEMS, INCORPORATED shall cease upon the
effective date in accordance with the provisions of the West Virginia
Corporation Act.
2. The Certificate of Incorporation of the surviving corporation as in
force and effect at the effective date of the merger will be the Certificate of
Incorporation of the surviving corporation and will continue in full force and
effect until changed, altered, or amended in the manner prescribed by the
provisions of the Delaware General Corporation Law.
3. The By-laws of the surviving corporation as in force and effect at the
effective date of the merger will be the By-laws of the surviving corporation
and will continue in full force and effect until changed, altered, or amended as
therein provided and in the manner prescribed by the provisions of the Delaware
General Corporation Law.
4. The directors and officers of the surviving corporation upon the
effective date of the merger shall be the members of the first Board of
Directors and the first officers, respectively, of the surviving corporation,
all of whom shall hold their respective directorships and offices until the
election and qualification of their respective successors or until their tenure
is otherwise terminated in accordance with the By-laws of the surviving
corporation.
5. Each issued share of the terminating corporation shall, upon the
effective date of the merger, be converted into one thousand (1,000) shares of
the surviving corporation. The shares of the surviving corporation shall not be
converted, there being no such shares issued.
<PAGE>
6. The Plan of Merger herein made and approved shall be submitted to the
shareholders entitled to vote of the terminating corporation for their approval
or rejection in the manner prescribed by the West Virginia Corporation Act.
7. No vote of shareholders of the surviving corporation is necessary to
authorize the Plan of Merger herein made and approved as no shares of the stock
of the surviving corporation were issued prior to the adoption by its Board of
Directors of the resolutions authorizing such Plan of Merger.
7. In the event that the Plan of Merger shall have been so approved by
the shareholders entitled to vote of the terminating corporation, the
constituent corporations stipulate that they will cause to be executed and filed
and/or recorded any document or documents prescribed by the laws of the State of
West Virginia and of the State of Delaware, and that they will cause to be
performed all necessary acts within the State of West Virginia, the State of
Delaware, and elsewhere to effectuate the merger.
8. The Boards of Directors and the proper officers of the constituent
corporations are hereby authorized, empowered, and directed to do any and all
acts and things, and to make, execute, deliver, file, and record any and all
instruments, papers, and documents which shall be or become necessary, proper,
or convenient to carry out or put into effect any of the provisions of this Plan
of Merger or of the merger herein provided for.
9. The effective date of the merger herein provided for shall be the date
upon which the merger becomes effective under the laws of the State of Delaware.
Approved by HEALTHCARE COMPUTING SYSTEMS, INCORPORATED
and by its Board of Directors on 1/29/97 .
-----------------
Approved by CAREFLOW NET, INC.
and by its Board of Directors on 1/29/97 .
-----------------
-2-
<PAGE>
CERTIFICATE OF CORRECTION
OF THE CERTIFICATE OF MERGER WHICH MERGES
HEALTHCARE COMPUTING SYSTEMS, INCORPORATED,
A WEST VIRGINIA CORPORATION,
WITH AND INTO CAREFLOW NET, INC.,
A DELAWARE CORPORATION
----------------------
FIRST: The name of the corporation is CAREFLOW NET, INC.
SECOND: The date the Certificate of Merger was filed by the
Department of State is February 28, 1997.
THIRD: The fifth paragraph of the Certificate of Merger
inaccurately set forth the par value of the Stock of the corporation as $.01 per
share. Said paragraph is corrected to read as follows:
WHEREAS the total number of shares of stock which CAREFLOW
NET, INC. has authority to issue is Thirty Million (30,000,000) shares
of Common Stock with a par value of $.001 per share and Five Million
(5,000,000) shares of Preferred Stock with a par value of $.001 per
share; and
IN WITNESS WHEREOF, this certificate has been subscribed this 13th day
of November, 1997 by the undersigned who affirms that the statements made herein
are true under the penalties of perjury.
CAREFLOW NET, INC.
/s/ J. Calvin Kaylor
---------------------------------------
J. Calvin Kaylor, President
<PAGE>
Exhibit 3.3
BY-LAWS
OF
CAREFLOW NET, INC.
(A Delaware Corporation)
ARTICLE 1
Meetings of Stockholders
Section 1. ANNUAL MEETING. The annual meeting of the stockholders of
CAREFLOW NET, INC. (hereinafter called the "Corporation") for the election of
directors and for the transaction of such other business as may come before the
meeting shall be held in the fifth month following the close of the
Corporation's fiscal year, at such date and time as shall be designated by the
Board or Chairman of the Board or the President, or at such other date and time
as the Board shall designate.
Section 2. SPECIAL MEETING. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board, the
President, the Board of Directors, or by a committee of the Board of Directors
that has been duly designated by the Board of Directors and whose powers and
authority, as expressly provided in a resolution of the Board of Directors,
include the power to call such meetings, but such special meetings may not be
called by any other person or persons.
Section 3. NOTICE OF MEETINGS. Notice of the place, date and time of the
holding of each annual and special meeting of the stockholders and, in the case
of a special meeting, the purpose or purposes thereof shall be given personally
or by mail in a postage prepaid envelope to each
<PAGE>
stockholder entitled to vote at such meeting, not less than ten (10) nor more
than sixty (60) days before the date of such meeting, and, if mailed, it shall
be directed to such stockholder at his address as it appears on the records of
the Corporation, unless he shall have filed with the Secretary of the
Corporation a written request that notices to him be mailed to some other
address, in which case it shall be directed to him at some other address. If
mailed, such notice shall be deemed to be delivered when deposited in United
States mail so addressed with postage thereon prepaid. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy and shall not, at the beginning of
such meeting, object to the transaction of any business because the meeting is
not lawfully called or convened, or who shall, either before or after the
meeting, submit a signed waiver of notice, in person or by proxy. Unless the
Board shall fix after the adjournment a new record date for an adjourned
meeting, notice of such adjourned meeting need not be given if the time and
place to which the meeting shall be adjourned were announced at the meeting at
which the adjournment is taken. At the adjourned meeting the Corporation may
transact any business which might have been transacted at the original meeting.
If the adjournment is for more than thirty days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 4. PLACE OF MEETINGS. Meetings of the stockholders may be held at
such place, within or without the State of Delaware, as the Board or other
officer calling the same shall specify in the notice of such meeting, or in a
duly executed waiver of notice thereof.
-2-
<PAGE>
Section 5. QUORUM. At all meetings of the stockholders the holders of a
majority of the votes of the shares of stock of the Corporation issued and
outstanding and entitled to vote shall be present in person or by proxy to
constitute a quorum for the transaction of any business, except when
stockholders are required to vote by class, in which event a majority of the
issued and outstanding shares of the appropriate class shall be present in
person or by proxy, or except as otherwise provided by statute or in the
Certificate of Incorporation. In the absence of a quorum, the holders of a
majority of the votes of the shares of stock present in person or by proxy and
entitled to vote, or if no stockholder entitled to vote is present, then any
officer of the Corporation may adjourn the meeting from time to time. At any
such adjourned meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as originally called.
Section 6. ORGANIZATION. At each meeting of the stockholders the Chairman
of the Board, or in his absence or inability to act, the President, or in the
absence or inability to act of the Chairman of the Board and the President, a
Vice President, or in the absence of all the foregoing, any person chosen by a
majority of those stockholders present, shall act as chairman of the meeting.
The Secretary, or, in his absence or inability to act, the Assistant Secretary
or any person appointed by the chairman of the meeting, shall act as secretary
of the meeting and keep the minutes thereof.
Section 7. ORDER OF BUSINESS. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
Section 8. VOTING. Except as otherwise provided by statute, the Certificate
of Incorporation, or any certificate duly filed in the office of the Department
of State of Delaware, each holder of
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<PAGE>
record of shares of stock of the Corporation having voting power shall be
entitled at each meeting of the stockholders to one vote for every share of such
stock standing in his name on the record of stockholders of the Corporation on
the date fixed by the Board as the record date for the determination of the
stockholders who shall be entitled to notice of and to vote at such meeting; or
if such record date shall not have been so fixed, then at the close of business
on the day next preceding the day on which the meeting is held; or each
stockholder entitled to vote at any meeting of stockholders may authorize
another person or persons to act for him by a proxy signed by such stockholder
or his attorney-in-fact. Any such proxy shall be delivered to the secretary of
such meeting at or prior to the time designated in the order of business for so
delivering such proxies. No proxy shall be valid after the expiration of three
years from the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the stockholder executing it, except
in those cases where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, these By-Laws, or the Certificate of
Incorporation, any corporate action to be taken by vote of the stockholders
shall be authorized by a majority of the total votes, or when stockholders are
required to vote by class by a majority of the votes of the appropriate class,
cast at a meeting of stockholders by the holders of shares present in person or
represented by proxy and entitled to vote on such action. Unless required by
statute, or determined by the chairman of the meeting to be advisable, the vote
on any question need not be by written ballot. On a vote by written ballot,
each ballot shall be signed by the stockholder voting, or by his proxy, if there
be such proxy, and shall state the number of shares voted.
Section 9. LIST OF STOCKHOLDERS. The officer who has charge of the stock
ledger of the Corporation, or the transfer agent of the Corporation's stock, if
there be one then acting, shall
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prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held, at
the place where the meeting is to be held, or at the office of the transfer
agent. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 10. INSPECTORS. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing
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of any challenge, request or matter determined by them and shall execute a
certificate of any fact found by them. No director or candidate for the office
of director shall act as inspector of an election of directors. Inspectors need
not be stockholders.
Section 11. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING.
Unless otherwise provided in the Certificate of Incorporation,
any action required by Subchapter VII of the General Corporation Law, to be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and shall be
delivered to the corporation by delivery to its registered office in this State,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested.
ARTICLE II
Board of Directors
Section 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by the Board. The Board may exercise all such authority and
powers of the Corporation and do all such lawful acts and things as are not by
statute or the Certificate of Incorporation or by these By-Laws directed or
required to be exercised or done by the stockholders.
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Section 2. NUMBER, QUALIFICATIONS, ELECTION AND TERM OF OFFICE. The number
of directors of the Corporation shall be fixed from time to time by the vote of
a majority of the entire Board then in office and the number thereof may
thereafter by like vote be increased or decreased to such greater or lesser
number (not less than two) as may be so provided, subject to the provisions of
Section 11 of this Article II. All of the directors shall be of full age and
need not be stockholders. Except as otherwise provided by statute or these
By-Laws, the directors shall be elected at the annual meeting of the
stockholders for the election of directors at which a quorum is present, and the
persons receiving a plurality of the votes cast at such meeting shall be
elected. Each director shall hold office until the next annual meeting of the
stockholders and until his successor shall have been duly elected and qualified,
or until his death, or until he shall have resigned, or have been removed, as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Certificate of Incorporation.
Section 3. PLACE OF MEETINGS. Meetings of the Board may be held at such
place, within or without the State of Delaware, as the Board may from time to
time determine or as shall be specified in the notice or waiver of notice of
such meeting.
Section 4. ANNUAL MEETING. The Board shall meet for the purpose of
organization, the election of officers and the transaction of other business, as
soon as practicable after each annual meeting of the stockholders, on the same
day and at the same place where such annual meeting shall be held. Notice of
such meeting need not be given. Such meeting may be held at any other time or
place (within or without the State of Delaware) which shall be specified in a
notice thereof given as hereinafter provided in Section 7 of this Article II.
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Section 5. REGULAR MEETINGS. Regular meetings of the Board shall be held at
such time and place as the Board may from time to time determine. If any day
fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at the same hour on the next succeeding business day. Notice
of regular meetings of the Board need not be given except as otherwise required
by statute or these By-Laws.
Section 6. SPECIAL MEETINGS. Special meetings of the Board may be called by
a majority of the Directors of the Corporation then in office or by the
Chairman of the Board or the President.
Section 7. NOTICE OF MEETINGS. Notice of each special meeting of the Board
(and of each regular meeting for which notice shall be required) shall be given
by the Secretary as hereinafter provided in this Section 7, in which notice
shall be stated the time and place (within or without the State of Delaware) of
the meeting. Notice of each such meeting shall be delivered to each director
either personally or by telephone, telegraph, cable e-mail, or wireless, or by
overnight delivery service, at least 24 hours before the time at which such
meeting is to be held or by first-class mail, postage prepaid, addressed to him
at his residence, or usual place of business, at least three days before the day
on which such meeting is to be held. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail. Notice of any such
meeting need not be given to any director who shall, either before or after the
meeting, submit a signed waiver of notice or who shall attend such meeting
without protesting, prior to or at its commencement, the lack of notice to him.
Except as otherwise specifically required by these By-Laws, a notice or waiver
of notice of any regular or special meeting need not state the purposes of such
meeting.
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Section 8. QUORUM AND MANNER OF ACTING. A majority of the entire Board
shall be present in person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and, except as otherwise
expressly required by statute or the Certificate of Incorporation, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board. Any one or more members of the Board or any
committee thereof may participate in a meeting of the Board or such committee by
means of a conference telephone or similar communications equipment allowing all
participants in the meeting to hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
In the absence of a quorum at any meeting of the Board, a majority of the
directors present thereat, or if no director be present, the Secretary, may
adjourn such meeting to another time and place, or such meeting, unless it be
the annual meeting of the Board, need not be held. At any adjourned meeting at
which a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. Except as provided in
Article III of these By-Laws, the directors shall act only as a Board and the
individual directors shall have no power as such.
Section 9. ORGANIZATION. At each meeting of the Board, the Chairman of the
Board (or, in his absence or inability to act, the President, or, in his absence
or inability to act, another director chosen by a majority of the directors
present) shall act as chairman of the meeting and preside thereat. The
Secretary (or, in his absence or inability to act, any person appointed by the
chairman) shall act as secretary of the meeting and keep the minutes thereof.
Section 10. RESIGNATIONS. Any director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or Chairman of the
Board or the President or the
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Secretary. Any such resignation shall take effect at the time specified therein
or, if the time when it shall become effective shall not be specified therein,
immediately upon its receipt; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 11. VACANCIES. Vacancies, including newly created directorships, may
be filled by a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
Section for the filling of other vacancies.
Section 12. REMOVAL OF DIRECTORS. Except as otherwise provided in the
Certificate of Incorporation or in these By-Laws, any director may be removed,
either with or without cause, at any time, by the affirmative vote of a majority
of the votes of the issued and outstanding shares of stock entitled to vote for
the election of the stockholders called and held for that purpose, or by a
majority vote of the Board of Directors at a meeting called for such purpose,
and the vacancy in the Board caused by any such removal may be filled by such
stockholders or directors, as the case may be, at such meeting, and if the
stockholders shall fail to fill such vacancy, such vacancy shall be filled in
the manner as provided by these By-Laws.
Section 13. COMPENSATION. The Board shall have authority to fix the
compensation, including fees and reimbursement of expenses, of directors for
services to the Corporation in any capacity, provided no such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
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Section 14. ACTION BY THE BOARD. To the extent permitted under the laws of
the State of Delaware, any action required or permitted to be taken at any
meeting of the Board or of any committee thereof may be taken without a meeting
if all members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
ARTICLE III
Executive and Other Committees
Section 1. EXECUTIVE AND OTHER COMMITTEES. The Board may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
Committee. Any such committee, to the extent provided in the resolution, shall
have and may exercise the powers of the Board in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; provided, however, that in the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of any such
absent or disqualified member. Each committee shall keep minutes of its
proceedings and shall report such minutes to the Board when required. All such
proceedings shall be subject to
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revision or alteration by the Board, provided, however, that third parties shall
not be prejudiced by such revision or alteration.
Section 2. GENERAL. A majority of any committee may determine its action
and fix the time and place of its meetings, unless the Board shall otherwise
provide. Notice of such meetings shall be given to each member of the committee
in the manner provided for in Article II, Section 7. The Board shall have the
power at any time to fill vacancies in, to change the membership of, or to
dissolve any such committee. Nothing herein shall be deemed to prevent the
Board from appointing one or more committees consisting in whole or in part of
persons who are directors of the Corporation; provided, however, that no such
committee shall have or may exercise any authority of the Board.
ARTICLE IV
Officers
Section 1. NUMBER AND QUALIFICATIONS. The officers of the Corporation shall
include the Chairman of the Board, the President, the Chief Executive Officer,
one or more Vice Presidents (one or more of whom may be designated Executive
Vice President or Senior Vice President), the Treasurer, and the Secretary. Any
two or more offices may be held by the same person. Such officers shall be
elected from time to time by the Board, each to hold office until the meeting of
the Board following the next annual meeting of the stockholders, or until his
successor shall have been duly elected and shall have qualified, or until his
death, or until he shall have resigned, or have been removed, as hereinafter
provided in these By-Laws. The Board may from time to time elect a Vice
Chairman of the Board, and the Board may from time
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to time elect, or the Chairman of the Board, or the President may appoint, such
other officers (including one or more Assistant Vice Presidents, Assistant
Secretaries, and Assistant Treasurers), as may be necessary or desirable for the
business of the Corporation. Such other officers and agents shall have such
duties and shall hold their offices for such terms as may be prescribed by the
Board or by the appointing authority.
Section 2. RESIGNATION. Any officer of the Corporation may resign at any
time by giving written notice of his resignation to the Board, the Chairman of
the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3. REMOVAL. Any officer or agent of the Corporation may be removed,
either with or without cause, at any time, by the vote of the majority of the
entire Board at any meeting of the Board or, except in the case of an officer or
agent elected or appointed by the Board, by the Chairman of the Board or the
President. Such removal shall be without prejudice to the contractual rights,
if any, of the person so removed.
Section 4. VACANCIES. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office which shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment to such office.
Section 5. a. THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if
one be elected, shall, if present, preside at each meeting of the stockholders
and of the Board. He shall
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perform all duties incident to the office of Chairman of the Board and such
other duties as may from time to time be assigned to him by the Board.
b. THE VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the
Board, if one be elected, shall have such powers and perform all such duties as
from time to time may be assigned to him by the Board or the Chairman of the
Board and, unless otherwise provided by the Board, shall in the case of the
absence or inability to act of the Chairman of the Board, perform the duties of
the Chairman of the Board and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the Chairman of the Board.
Section 6. THE PRESIDENT. The President shall be the chief operating
officer and shall perform those duties delegated by the chief executive officer,
selected from but not limited to the following duties: general and active
management of the business of the Corporation; ensure that all orders and
resolutions of the board of directors are carried into effect, and, unless
otherwise provided by the board of directors, in the absence of the chief
executive officer preside at all meetings of the stockholders and of the board
of directors. The president may execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the Corporation. He shall perform
all duties incident to the office of President and such other duties as from
time to time may be assigned to him by the Board or the Chairman of the Board.
Section 7. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
Corporation, shall be ex-officio a member of all standing committees, shall have
general and active management of
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the business of the Corporation, and shall ensure that all orders and
resolutions of the board of directors are carried into effect. The Chief
Executive Officer shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the Corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to some
other officer or agent of the Corporation. If no Chairman of the Board is
elected, or at the request of the Chairman of the Board, or in the case of his
absence or inability to act, unless there be a Vice Chairman of the Board so
designated to act, the Chief Executive Officer shall perform the duties of the
Chairman of the Board and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the Chairman of the Board.
Section 8. VICE PRESIDENTS. Each Executive Vice President, each Senior Vice
President and each Vice President shall have such powers and perform all such
duties as from time to time may be assigned to him by the Board, the Chairman of
the Board, or the President. They shall, in the order of their seniority, have
the power and may perform the duties of the Chairman of the Board and the
President.
Section 9. THE TREASURER. The Treasurer shall be the chief financial
officer of the Corporation and shall exercise general supervision over the
receipt, custody and disbursement of Corporate funds. He shall have such
further powers and duties as may be conferred upon him from time to time by the
President or the Board of Directors. He shall perform the duties of controller
if no one is elected to that office.
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Section 10. THE SECRETARY. The Secretary shall
(a) keep or cause to be kept in one or more books provided
for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance with
the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock
certificates of the Corporation (unless the seal be a facsimile,
as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under
its seal;
(d) see that the books, reports, statements, certificates
and other documents and records required by law to be kept and
filed are properly kept and filed, and
(e) in general, perform all the duties incident to the
office of Secretary and such other duties as from time to time
may be assigned to him by the Board, the Chairman of the Board,
or the President.
Section 11. OFFICER'S BONDS OR OTHER SECURITY. If required by the Board, any
officer of the Corporation shall give a bond or other security for the faithful
performance of his duties, in such amount and with such surety or sureties as
the Board may require.
Section 12. COMPENSATION. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board, provided, however, that
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the Board may delegate to the Chairman of the Board or the President the power
to fix the compensation of officers and agents appointed by the Chairman of the
Board or the President, as the case may be. An officer of the Corporation shall
not be prevented from receiving compensation by reason of the fact that he is
also a director of the Corporation, but any such officer who shall also be a
director shall not have any vote in the determination of the amount of
compensation paid to him.
ARTICLE V
Indemnification
The Corporation shall, to the fullest extent permitted by the
laws of the state of incorporation, indemnify any and all persons whom it shall
have power to indemnify against any and all of the costs, expenses, liabilities
or other matters incurred by them by reason of having been officers or directors
of the Corporation, any subsidiary of the Corporation or of any other
corporation for which he acted as officer or director at the request of the
Corporation.
ARTICLE VI
Contracts, Checks, Drafts, Bank Account, etc.
Section 1. EXECUTION OF CONTRACTS. Except as otherwise required by statute,
the Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on behalf of the
Corporation by such officer or officers (including any assistant officer) of the
Corporation as the Board may from time to time direct. Such authority may be
general or confined to specific instances as the Board may determine. Unless
authorized
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by the Board or expressly permitted by these By-Laws, an officer or agent or
employee shall not have any power or authority to bind the Corporation by any
contract or engagement or to pledge its credit or to render it pecuniarily
liable for any purpose or to any amount.
Section 2. LOANS. Unless the Board shall otherwise determine, either
(a) the Chairman of the Board, the Vice Chairman of the Board or the President,
singly, or (b) a Vice President, together with the Treasurer, may effect loans
and advances at any time for the Corporation or guarantee any loans and advances
to any subsidiary of the Corporation, from any bank, trust company or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
certificates or evidences of indebtedness of the Corporation, or guarantee of
indebtedness of subsidiaries of the Corporation, but no officer or officers
shall mortgage, pledge, hypothecate or transfer any securities or other property
of the Corporation, except when authorized by the Board.
Section 3. CHECK, DRAFTS, ETC. All checks, drafts, bills of exchange or
other orders for the payment of money out of the funds of the Corporation, and
all notes or other evidences of indebtedness of the Corporation, shall be signed
in the name and on behalf of the Corporation by such persons and in such manner
as shall from time to time be authorized by the Board.
Section 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board may from time to time
designate or as may be designated by any officer or officers of the Corporation
to whom such power of designation may from time to time be delegated by the
Board. For the purpose of deposit and for the purpose of collection for the
account of the Corporation, checks, drafts and other orders for the payment of
money which are
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payable to the order of the Corporation may be endorsed, assigned and delivered
by any officer or agent of the Corporation, or in such manner as the Board may
determine by resolution.
Section 5. GENERAL AND SPECIAL BANK ACCOUNTS. The Board may from time to
time authorize the opening and keeping of general and special bank accounts with
such banks, trust companies or other depositories as the Board may designate or
as may be designated by any officer or officers of the Corporation to whom such
power of designation may from time to time be delegated by the Board. The Board
may make such special rules and regulations with respect to such bank accounts,
not inconsistent with the provisions of these By-Laws, as it may deem expedient.
Section 6. PROXIES IN RESPECT OF SECURITIES OF OTHER CORPORATIONS. Unless
otherwise provided by resolution adopted by the Board of Directors, the Chairman
of the Board, the President, or a Vice President may from time to time appoint
an attorney or attorneys or agent or agents, of the Corporation, in the name and
on behalf of the Corporation to cast the votes which the Corporation may be
entitled to cast as the holder of stock or other securities in any other
corporation, any of whose stock or other securities may be held by the
Corporation, at meetings of the holders of the stock or other securities of such
other corporation, or to consent in writing, in the name of the Corporation as
such holder, to any action by such other corporation, and may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent, and may execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal, or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.
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ARTICLE VII
Shares, Etc.
Section 1. STOCK CERTIFICATES. Each holder of shares of stock of the
Corporation shall be entitled to have a certificate, in such form as shall be
approved by the Board, certifying the number of shares of the Corporation owned
by him. The certificates representing shares of stock shall be signed in the
name of the Corporation by the Chairman of the Board or the President or a Vice
President and by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer and sealed with the seal of the Corporation (which seal may
be a facsimile, engraved or printed); provided, however, that where any such
certificate is countersigned by a transfer agent other than the Corporation or
its employee, or is registered by a registrar other than the Corporation or one
of its employees, the signature of the officers of the Corporation upon such
certificates may be facsimiles, engraved or printed. In case any officer who
shall have signed or whose facsimile signature has been placed upon such
certificates shall have ceased to be such officer before such certificates shall
be issued, they may nevertheless be issued by the Corporation with the same
effect as if such officer were still in office at the date of their issue.
Section 2. BOOKS OF ACCOUNT AND RECORD OF SHAREHOLDERS. The books and
records of the Corporation may be kept at such places within or without the
state of incorporation as the Board of Directors may from time to time
determine. The stock record books and the blank stock certificate books shall
be kept by the Secretary or by any other officer or agent designated by the
Board of Directors.
Section 3. TRANSFER OF SHARES. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only upon
authorization by the registered holder thereof,
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or by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates for such shares properly endorsed
or accompanied by a duly executed stock transfer power and the payment of all
taxes thereon. Except as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person in whose name any share or
shares stand on the record of stockholders as the owner of such share or shares
for all purposes, including, without limitation, the rights to receive dividends
or other distributions, and to vote as such owner, and the Corporation may hold
any such stockholder of record liable for calls and assessments and the
Corporation shall not be bound to recognize any equitable or legal claim to or
interest in any such share or shares on the part of any other person whether or
not it shall have express or other notice thereof. Whenever any transfers of
shares shall be made for collateral security and not absolutely, and both the
transferor and transferee request the Corporation to do so, such fact shall be
stated in the entry of the transfer.
Section 4. REGULATIONS. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 5. LOST, DESTROYED OR MUTILATED CERTIFICATES. The holder of any
certificate representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate
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of stock in the place of any certificate theretofore issued by it which the
owner thereof shall allege to have been lost, stolen, or destroyed or which
shall have been mutilated, and the Board may, in its discretion, require such
owner or his legal representative to give the Corporation a bond in such sum,
limited or unlimited, and in such form and with such surety or sureties as the
Board in its absolute discretion shall determine, to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss,
theft, or destruction of any such certificate, or the issuance of a new
certificate. Anything herein to the contrary notwithstanding, the Board, in its
absolute discretion, may refuse to issue any such new certificate, except
pursuant to legal proceedings under the laws of the State of Delaware.
Section 6. FIXING OF RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of, or to vote at, any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of, or to vote at, a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
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<PAGE>
ARTICLE VIII
Offices
Section 1. PRINCIPAL OR REGISTERED OFFICE. The principal registered office
of the Corporation shall be at such place as may be specified in the Certificate
of Incorporation of the Corporation or other certificate filed pursuant to law,
or if none be so specified, at such place as may from time to time be fixed by
the Board.
Section 2. OTHER OFFICES. The Corporation also may have an office or
offices other than said principal or registered office, at such place or places
either within or without the State of Delaware.
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall be determined by the
Board.
ARTICLE X
Seal
The Board shall provide a corporate seal which shall contain the
name of the Corporation, the words "Corporate Seal" and the year and State of
Delaware.
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<PAGE>
ARTICLE XI
Amendments
Section 1. SHAREHOLDERS. These By-Laws may be amended or repealed, or new
By-Laws may be adopted, at any annual or special meeting of the stockholders, by
a majority of the total votes of the stockholders or when stockholders are
required to vote by class by a majority of the appropriate class, in person or
represented by proxy and entitled to vote on such action; provided, however,
that the notice of such meeting shall have been given as provided in these
By-Laws, which notice shall mention that amendment or repeal of these By-Laws,
or the adoption of new By-Laws, is one of the purposes of such meeting.
Section 2. BOARD OF DIRECTORS. These By-Laws may also be amended or
repealed or new By-Laws may be adopted, by the Board at any meeting thereof;
provided, however, that notice of such meeting shall have been given as provided
in these By-Laws, which notice shall mention that amendment or repeal of the
By-Laws, or the adoption of new By-Laws, is one of the purposes of such
meetings. By-Laws adopted by the Board may be amended or repealed by the
stockholders as provided in Section 1 of this Article XI.
ARTICLE XII
Miscellaneous
Section 1. INTERESTED DIRECTORS. No contract or other transaction between the
Corporation and any other corporation shall be affected and invalidated by the
fact that any one or more of the Directors of the Corporation is or are
interested in or is a Director or officer or are Directors or officers of such
other corporation, and any Director or Directors, individually or jointly, may
be
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<PAGE>
a party or parties to or may be interested in any contract or transaction of the
Corporation or in which the Corporation is interested; and no contract, act or
transaction of the Corporation with any person or persons, firm or corporation
shall be affected or invalidated by the fact that any Director or Directors of
the Corporation is a party or are parties to or interested in such contract, act
or transaction, or in any way connected with such person or persons, firms or
associations, and each and every person who may become a Director of the
Corporation is hereby relieved from any liability that might otherwise exist
from contracting with the Corporation for the benefit of himself, any firm,
association or corporation in which he may be in any way interested.
Section 2. RATIFICATION. Any transaction questioned in any stockholders'
derivative suit on the grounds of lack of authority, defective or irregular
execution, adverse interest of director, officer or stockholder, nondisclosure,
miscomputation, or the application of improper principles or practices of
accounting, may be ratified before or after judgment, by the Board of Directors
or by the stockholders in case less than a quorum of Directors are qualified,
and, if so ratified, shall have the same force and effect as if the questioned
transaction had been originally duly authorized, and said ratification shall be
binding upon the Corporation and its stockholders, and shall constitute a bar to
any claim or execution of any judgment in respect of such questioned
transaction.
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<PAGE>
Exhibit 4.1
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY
THE ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE
SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE
FOR THIS NOTE.
CAREFLOW | NET, INC.
No. $
PROMISSORY NOTE
CAREFLOW | NET, INC., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to _______________ or registered assigns
(the "Payee") on the earlier of (i) the closing date of the public offering of
securities by the Company contemplated in the Confidential Term Sheet dated
August 22, 1997 (the "Term Sheet") or (ii) ________ __ , 1998 (the "Maturity
Date") at the offices of the Company, 235 High Street - Suite 410, Morgantown,
West Virginia 35606, the principal amount of ______________ thousand dollars
($___,000), including interest at the rate of ten percent (10%) per annum
accrued through the Maturity Date, in such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
This Note is issued pursuant to a Subscription Agreement dated as of
________ __, 1997, between the Company and the Payee (the "Subscription
Agreement"), a copy of which agreement is available for inspection at the
Company's principal office. Notwithstanding any provision to the contrary
contained herein, this Note is subject and entitled to certain terms,
conditions, covenants and agreements contained in the Subscription Agreement.
Any permitted transferee or transferees of the Note, by their acceptance hereof,
assume the obligations of the Payee in the Subscription Agreement with respect
to the conditions and procedures for transfer of the Note. Reference to the
Subscription Agreement shall in no way impair the absolute and unconditional
obligation of the Company to pay both principal and interest hereon as provided
herein.
<PAGE>
1. PREPAYMENT. The principal amount of this Note may be prepaid by
the Company, in whole or in part, without penalty, at any time.
Contemporaneously with such payment, the Company shall pay the Payee all
interest accrued thereon to the date of prepayment.
2. COVENANTS OF COMPANY.
A. The Company covenants and agrees that, so long as this Note
shall be outstanding, it will:
(i) Promptly pay and discharge all lawful taxes,
assessments, and governmental charges or levies imposed upon the Company or upon
its income and profits, or upon any of its property, before the same shall
become in default, as well as all lawful claims for labor, materials and
supplies which, if unpaid, might become a lien or charge upon such properties or
any part thereof; PROVIDED, HOWEVER, that the Company shall not be required to
pay and discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof shall be contested in good faith by appropriate proceedings and
the Company shall set aside on its books adequate reserves with respect to any
such tax, assessment, charge, levy or claim so contested;
(ii) Do or cause to be done all things reasonably necessary
to preserve and keep in full force and effect its corporate existence, rights
and franchises and comply with all laws applicable to the Company, except where
the failure to comply would not have a material adverse effect on the Company;
(iii) At all times reasonably maintain, preserve, protect and
keep its property used or useful in the conduct of its business in good repair,
working order and condition, and from time to time make all needful and proper
repairs, renewals, replacements, betterments and improvements thereto as shall
be reasonably required in the conduct of its business;
(iv) To the extent necessary for the operation of its
business, keep adequately insured by all financially sound reputable insurers,
all property of a character usually insured by similar corporations and carry
such other insurance as is usually carried by similar corporations; and
(v) At all times keep true and correct books, records and
accounts.
(vi) Except for the incurrence of any indebtedness
(including without limitation, the incurrence of any guarantee or contingent
payment obligation with respect thereto) secured by a lien, mortgage or
guarantee on the property (whether real or personal) or equipment of the Company
and any refinancings or replacements thereto or trade debt incurred in the
ordinary course of business, not incur any indebtedness whatsoever which
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<PAGE>
indebtedness does not expressly provide that it is wholly subordinated in right
of payment to the indebtedness evidenced by this Note and any identical Notes
issued pursuant to the Term Sheet.
3. EVENTS OF DEFAULT.
A. This Note shall become and be due and payable upon written
demand made by the holder hereof if one or more of the following events, herein
called events of default, shall happen and be continuing:
(i) Default in the payment of the principal and accrued
interest on any of the Notes issued pursuant to the Term Sheet when and as the
same shall become due and payable, whether by acceleration or otherwise;
(ii) Default in the due observance or performance of any
material covenant, condition or agreement on the part of the Company to be
observed or performed pursuant to the terms hereof and such default shall
continue uncured for thirty (30) days after written notice thereof, specifying
such default, shall have been given to the Company by the holder of the Note;
(iii) Default in the payment of any outstanding indebtedness
in excess of $25,000 principal amount or in the due observance or performance of
any material covenant, condition or agreement on the part of the Company with
respect to any outstanding indebtedness with the result that such outstanding
indebtedness shall become due and payable prior to the due date otherwise
specified therefor and such default shall continue uncured or such acceleration
shall not be rescinded or annulled within thirty (30) days after written notice
thereof to the Company from the holder of this Note, EXCEPT THAT a default under
a certain $200,000 principal amount promissory note, dated June 16, 1997 (the
"Placement Agent Loan"), held by D.H. Blair Investment Banking Corp. ("Blair"),
shall not constitute an Event of Default hereunder unless Blair accelerates or
demands payment under the Placement Agent Loan pursuant to such default;
(iv) Application for, or consent to, the appointment of a
receiver, trustee or liquidator of the Company or of its property;
(v) Admission in writing of the Company's inability to pay
its debts as they mature;
(vi) General assignment by the Company for the benefit of
creditors;
(vii) Filing by the Company of a voluntary petition in
bankruptcy or a petition or an answer seeking reorganization, or an arrangement
with creditors;
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<PAGE>
(viii) Entering against the Company of a court order approving
a petition filed against it under the Federal bankruptcy laws, which order shall
not have been vacated or set aside or otherwise terminated within sixty (60)
days;
(ix) The sale by the Company of substantially all of its
assets; or
(x) The merger by the Company with or into another
corporation, other than for purposes of changing domicile, where the Company is
not the surviving corporation; or
(xi) A material breach of the Company's representations
contained in the Subscription Agreement.
B. The Company agrees that notice of the occurrence of any
event of default will be promptly given to the holder at his or her registered
address by certified mail.
C. Subject to the provisions of 4(B) hereof, in case any one or
more of the events of default specified above shall happen and be continuing,
the holder of this Note may proceed to protect and enforce his rights by suit in
the specific performance of any covenant or agreement contained in this Note or
in aid of the exercise of any power granted in this Note or may proceed to
enforce the payment of this Note or to enforce any other legal or equitable
rights as such holder.
4. AMENDMENTS AND WAIVERS
A. Subject to the provisions of 4(C) and (D) hereof, the
covenants set forth in 2(A) hereof may be waived by the written consent of the
holders of a majority in outstanding principal amount of the Notes issued
pursuant to the Term Sheet.
B. Subject to the provisions of 4(C) and (D) hereof, the events
of default set forth in clauses (i), (ii), (iii) and (xi) of 3(A) hereof may be
waived by the written consent of the holders of a majority in outstanding
principal amount of the Notes issued pursuant to the Term Sheet.
C. The Company may amend or supplement this Note with the
written consent of the holders of a majority in outstanding principal amount of
the Notes issued pursuant to the Term Sheet; provided, however, that without the
consent of each Noteholder, no amendment, supplement or waiver may:
1. reduce the principal amount of Notes whose holders must
consent to any amendment, supplement or waiver;
2. reduce the rate of interest or principal of the Note;
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<PAGE>
3. extend the maturity date of the Note or the time for
payment of interest by more than one year from the respective
date(s) set forth herein.
D. After any waiver, amendment or supplement under this section
becomes effective, the Company shall mail to the holders of the Notes a notice
briefly describing such waiver, amendment or supplement.
5. MISCELLANEOUS
A. The Company may consider and treat the person in whose name
this Note shall be registered as the absolute owner thereof for all purposes
whatsoever (whether or not this Note shall be overdue) and the Company shall not
be affected by any notice to the contrary. The registered owner of this Note
shall have the right to transfer it by assignment (subject to the limitations on
transfer contained in the Subscription Agreement) and the transferee thereof
shall, upon his registration as owner of this Note, become vested with all the
powers and rights of the transferor. Registration of any new owner shall take
place upon presentation of this Note to the Company at its offices, 235 High
Street - Suite 225, Morgantown, West Virginia 26505, together with a duly
authenticated assignment. In case of transfer by operation of law, the
transferee agrees to notify the Company of such transfer and of his address, and
to submit appropriate evidence regarding the transfer so that this Note may be
registered in the name of the transferee. This Note is transferable only on the
books of the Company by the holder hereof, in person or by attorney, on the
surrender hereof, duly endorsed. Communications sent to any registered owner
shall be effective as against all holders or transferees of the Note not
registered at the time of sending the communication.
B. Payments of interest shall be made as specified above to the
registered owner of this Note. Payment of principal and interest shall be made
to the registered owner of this Note upon presentation of this Note upon or
after maturity.
C. This Note shall be construed and enforced in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in
its name by its President.
CAREFLOW | NET, INC.
By:
-----------------------------------
J. Calvin Kaylor, President
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<PAGE>
Exhibit 4.2
WARRANT AGREEMENT
AGREEMENT, dated as of this 19th day of September, 1997, by and among
CareFlow | Net, Inc., a Delaware corporation (the "Company"), American Stock
Transfer & Trust Company, as warrant agent (the "Warrant Agent"), and D.H.
Blair Investment Banking Corp., a New York corporation ("Blair").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, in connection with a private placement (the "Private
Placement") of a minimum of ten (10) and a maximum of forty (40) units ("Units")
each Unit consisting of $50,000 principal amount of 10% Promissory Notes
("Notes"), and 25,000 common stock purchase warrants ("Warrants"), each Warrant
exercisable to purchase one share of the Company's Common Stock (as hereinafter
defined), the Company will issue up to 500,000 Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS. As used herein, the following terms shall
have the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
distributions of earnings and assets of the Company without limit as to amount
or percentage, which at the date hereof consists of 30,000,000 authorized shares
of Common Stock, $.01 par value.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 40 Wall Street, New
York, New York.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and
(b) payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.
<PAGE>
(d) "Initial Warrant Exercise Date" shall mean September 19, 1998.
(e) "Purchase Price" shall mean the purchase price to be paid upon
exercise of each Warrant in accordance with the terms hereof, which price shall
be $3.00 per share subject to (i) adjustment from time to time pursuant to the
provisions of Section 8 hereof or (ii) conversion of the Warrants pursuant to
the provisions of Section 9 hereof, and subject to the Company's right to reduce
the Purchase Price upon notice to all warrantholders.
(f) "Registered Holder" shall mean the person in whose name any
certificate representing Warrants shall be registered on the books maintained by
the Warrant Agent pursuant to Section 6.
(g) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
(h) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time)
on September 19, 2000; provided that if such date shall in the State of New York
be a holiday or a day on which banks are authorized to close, then 5:00 P.M.
(New York time) on the next following day which in the State of New York is not
a holiday or a day on which banks are authorized to close. Upon notice to all
warrantholders the Company shall have the right to extend the Warrant Expiration
Date.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) A Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase one share of Common
Stock upon the exercise thereof, in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 8.
(b) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall execute and deliver stock certificates in required whole
number denominations representing up to an aggregate of 500,000 shares of Common
Stock, subject to adjustment as described herein, upon the exercise of Warrants
in accordance with this Agreement.
(c) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall execute and deliver Warrant Certificates in required whole number
denominations to the persons entitled thereto in connection with any transfer or
exchange permitted under this Agreement; provided that no Warrant Certificates
shall be issued except (i) those initially issued hereunder, (ii) those issued
on or after the Initial Warrant Exercise Date, upon the exercise of fewer than
all Warrants represented by any Warrant Certificate, to evidence any unexercised
Warrants held by the exercising Registered Holder, (iii) those issued upon any
transfer or exchange pursuant to Section 6; (iv) those issued in replacement of
lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7;
and (v) at the option of the Company, in such form as may be approved by the its
Board of Directors, to reflect (a) any adjustment or change in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, made
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<PAGE>
pursuant to Section 8 hereof and (b) other modifications approved by Registered
Holders in accordance with Section 16 hereof.
(d) In the event of an initial public offering of the Company's
securities, the provisions of Section 9 hereof will govern in certain
circumstances described therein.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES. (a) The
Warrant Certificates shall be substantially in the form annexed hereto as
Exhibit A (the provisions of which are hereby incorporated herein) and may have
such letters, numbers or other marks of identification or designation and such
legends, summaries or endorsements printed, lithographed, engraved or typed
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Warrants may be listed, or to conform to
usage. The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen, or destroyed Warrant Certificates) and issued in registered form.
Warrants shall be numbered serially with the letter W.
(b) Warrant Certificates shall be executed on behalf of the Company
by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. In case any officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be such officer of the Company before
the date of issuance of the Warrant Certificates and issue and delivery thereof,
such Warrant Certificates may nevertheless be issued and delivered with the same
force and effect as though the person who signed such Warrant Certificates had
not ceased to be such officer of the Company. After execution by the Company,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder.
SECTION 4. EXERCISE.
(a) Each Warrant may be exercised by the Registered Holder thereof at
any time on or after the Initial Exercise Date, but not after the Warrant
Expiration Date, upon the terms and subject to the conditions set forth herein
and in the applicable Warrant Certificate. A Warrant shall be deemed to have
been exercised immediately prior to the close of business on the Exercise Date
and the person entitled to receive the securities deliverable upon such exercise
shall be treated for all purposes as the holder upon exercise thereof as of the
close of business on the Exercise Date. As soon as practicable on or after the
Exercise Date, the Warrant Agent shall deposit the proceeds received from the
exercise of a Warrant, and promptly after clearance of checks received in
payment of the Purchase Price pursuant to such Warrants, cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable upon such
exercise, (plus a certificate for any remaining unexercised Warrants of the
Registered Holder). Notwithstanding the foregoing, in the case of payment made
in the form of a check drawn on an account of Blair or such other investment
banks and brokerage houses as the Company shall approve, certificates shall
immediately be issued without any delay.
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Upon the exercise of any Warrant and clearance of the funds received, the
Warrant Agent shall promptly remit the payment received for the Warrant to the
Company or as the Company may direct in writing.
(b) If on the Exercise Date in respect of the exercise of any
Warrant, (i) the market price of the Company's Common Stock is greater than the
then Purchase Price of the Warrant, (ii) the exercise of the Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
("NASD"), (iii) the Warrant was not held in a discretionary account,
(iv) disclosure of compensation arrangements was made both at the time of the
original offering and at the time of exercise; and (v) the solicitation of the
exercise of the Warrant was not in violation of Regulation M (as such regulation
or any successor regulation or rule may be in effect as of such time of
exercise) promulgated under the Securities Exchange Act of 1934, then the
Warrant Agent, simultaneously with the receipt of the proceeds upon exercise of
the Warrant(s) so exercised shall pay from the proceeds received upon exercise
of the Warrant(s), a fee of 5% of the Purchase Price to Blair (of which a
portion may be reallowed to the dealer who solicited the exercise). Within five
days after exercise the Warrant Agent shall send Blair a copy of the reverse
side of each Warrant exercised. Blair shall reimburse the Warrant Agent, upon
request, for its reasonable expenses relating to compliance with this
Section 4(b). In addition, Blair may at any time during business hours, examine
the records of the Warrant Agent, including its ledger of original Warrant
Certificates returned to the Warrant Agent upon exercise of Warrants. The
provisions of this paragraph may not be modified, amended or deleted without the
prior written consent of Blair. Market price shall be determined in accordance
with the provisions of Section 10.
(c) The Registered Holder may, at its option, exchange this Warrant,
in whole or in part (a "Warrant Exchange"), into the number of Warrant Shares
determined in accordance with this Section (4)(c), by surrendering the Warrant
Certificate at the principal office of the Company or at the office of its stock
transfer agent, accompanied by a notice stating such Registered Holder's intent
to effect such exchange, the number of Warrant Shares to be exchanged and the
date on which the Registered Holder requests that such Warrant Exchange occur
(the "Notice of Exchange"). The Warrant Exchange shall take place on the date
specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the shares remaining subject to such
Warrant, shall be issued as of the Exchange Date and delivered to the Registered
Holder within seven (7) days following the Exchange Date. In connection with
any Warrant Exchange, a Warrant shall represent the right to subscribe for and
acquire the number of Warrant Shares (rounded to the next highest integer) equal
to (i) the number of Warrant Shares specified by the Registerd Holder in its
Notice of Exchange (the "Total Number") less (ii) the number of Warrant Shares
equal to the quotient obtained by dividing (A) the product of the Total Number
and the existing Purchase Price by (B) the current market value of a share of
Common Stock. Current market value shall have the meaning set forth
Section 10(a) hereof, except that for purposes hereof, the date of exercise, as
used in such Section 10(a) hereof, shall mean the Exchange Date.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(a) The Company covenants that it will at all times reserve and keep available
out of its authorized
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Common Stock, solely for the purpose of issue upon exercise of Warrants, such
number of shares of Common Stock as shall then be issuable upon the exercise of
all outstanding Warrants. The Company covenants that all shares of Common Stock
which shall be issuable upon exercise of the Warrants and payment of the
Purchase Price shall, at the time of delivery, be duly and validly issued, fully
paid, nonassessable and free from all taxes, liens and charges with respect to
the issue thereof (other than those which the Company shall promptly pay or
discharge).
(b) The Company will use reasonable efforts to obtain appropriate
approvals or registrations under state "blue sky" securities laws with respect
to the exercise of the Warrants; provided, however, that the Company shall not
be obligated to file any general consent to service of process or qualify as a
foreign corporation in any jurisdiction. With respect to any such securities
laws, however, Warrants may not be exercised by, or shares of Common Stock
issued to, any Registered Holder in any state in which such exercise would be
unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition
the Company's Transfer Agent from time to time for certificates representing
shares of Common Stock required upon exercise of the Warrants, and the Company
will authorize the Transfer Agent to comply with all such proper requisitions.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER.
Subject to the restrictions on transfer contained in the Warrant
Certificates and the Subscription Agreements between the Company and the
purchasers of Units:
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute,
and the Warrant Agent shall countersign, issue and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at its office, the Company shall execute and the Warrant Agent shall
issue
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and deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company, duly executed by the Registered Holder or his attorney-in-fact duly
authorized in writing.
(d) The Company may require payment by such holder of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly cancelled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation of the Warrant Agent, or, with the prior written
consent of Blair, disposed of or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and
the Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF
CLASS A COMMON STOCK OR WARRANTS.
(a) Subject to the exceptions referred to in Section 8(g) below, in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the current fair market value per share of the Common Stock on the date of the
sale or issue any shares of Common Stock as a stock dividend to the holders of
Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale, issuance, subdivision
or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase
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Price in effect immediately prior to such Change of Shares shall be changed to a
price (including any applicable fraction of a cent) determined by multiplying
the Purchase Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares and the
number of shares of Common Stock which the aggregate consideration received
(determined as provided in subsection 8(f)(F) below), if any, for the issuance
of such additional shares would purchase at such current market price per share
of Common Stock, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively whenever such an
issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 8, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in
Section 8(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the Purchase Price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to
this Section 8, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a Warrant then outstanding shall have the right
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thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately prior
to such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 8. The foregoing provisions shall
similarly apply to successive reclassifications, capital reorganizations and
other changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(c) hereof, continue to express the Purchase Price per
share and the number of shares purchasable thereunder as the Purchase Price per
share, and the number of shares purchasable were expressed in the Warrant
Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 8, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief summary
thereof to be sent by ordinary first class mail to Blair and to each registered
holder of Warrants at his last address as it shall appear on the registry books
of the Warrant Agent. No failure to mail such notice nor any defect therein or
in the mailing thereof shall affect the validity thereof except as to the holder
to whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(f) For purposes of Section 8(a) and 8(b) hereof, the following
provisions (A) to (F) shall also be applicable:
(A) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or
for the account of the Company and the sale or issuance of such
treasury shares or the distribution of any such treasury shares shall
not be considered a Change of Shares for purposes of said sections.
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(B) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.10
in such price; provided that any adjustments which by reason of this
clause (B) are not required to be made shall be carried forward and
shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment(s) so carried forward,
shall require an increase or decrease of at least $.10 in the Purchase
Price then in effect hereunder.
(C) In case of (1) the sale by the Company for cash of any
rights or warrants to subscribe for or purchase, or any options for
the purchase of, Common Stock or any securities convertible into or
exchangeable for Common Stock without the payment of any further
consideration other than cash, if any (such convertible or
exchangeable securities being herein called "Convertible Securities"),
or (2) the issuance by the Company, without the receipt by the Company
of any consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, in each case, if (and only if) the
consideration payable to the Company upon the exercise of such rights,
warrants or options shall consist of cash, whether or not such rights,
warrants or options, or the right to convert or exchange such
Convertible Securities, are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum
aggregate consideration payable to the Company upon the exercise of
such rights, warrants or options, plus the consideration received by
the Company for the issuance or sale of such rights, warrants or
options, plus, in the case of such Convertible Securities, the minimum
aggregate amount of additional consideration, if any, other than such
Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities issuable
upon the exercise of such rights, warrants or options) is less than
the Market Price of the Common Stock on the date of the issuance or
sale of such rights, warrants or options, then the total maximum
number of shares of Common Stock issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (as of the date of the issuance or sale of such
rights, warrants or options) shall be deemed to be outstanding shares
of Common Stock for purposes of Sections 8(a) and 8(b) hereof and
shall be deemed to have been sold for cash in an amount equal to such
price per share.
(D) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per
share for which Common Stock is issuable upon the conversion or
exchange of such Convertible Securities (determined by dividing
(x) the total amount of consideration received by the Company for the
sale of such Convertible Securities, plus the minimum aggregate
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amount of additional consideration, if any, other than such
Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such convertible
Securities) is less than the Market Price of the Common Stock on the
date of the sale of such Convertible Securities, then the total
maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of the sale
of such Convertible Securities) shall be deemed to be outstanding
shares of Common Stock for purposes of Sections 8(a) and 8(b) hereof
and shall be deemed to have been sold for cash in an amount equal to
such price per share.
(E) If the exercise or purchase price provided for in any right,
warrant or option referred to in (C) above, or the rate at which any
Convertible Securities referred to in (C) or (D) above are convertible
into or exchangeable for Common Stock, shall change at any time (other
than under or by reason of provisions designed to protect against
dilution), the Purchase Price then in effect hereunder shall forthwith
be readjusted to such Purchase Price as would have obtained (1) had
the adjustments made upon the issuance or sale of such rights,
warrants, options or Convertible Securities been made upon the basis
of the issuance of only the number of shares of Common Stock
theretofore actually delivered (and the total consideration received
therefor) upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities,
(2) had adjustments been made on the basis of the Purchase Price as
adjusted under clause (1) for all transactions (which would have
affected such adjusted Purchase Price) made after the issuance or sale
of such rights, warrants, options or Convertible Securities, and
(3) had any such rights, warrants, options or Convertible Securities
then still outstanding been originally issued or sold at the time of
such change. On the expiration of any such right, warrant or option
or the termination of any such right to convert or exchange any such
Convertible Securities, the Purchase Price then in effect hereunder
shall forthwith be readjusted to such Purchase Price as would have
obtained (a) had the adjustments made upon the issuance or sale of
such rights, warrants, options or Convertible Securities been made
upon the basis of the issuance of only the number of shares of Common
Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible
Securities and (b) had adjustments been made on the basis of the
Purchase Price as adjusted under clause (a) for all transactions
(which would have affected such adjusted Purchase Price) made after
the issuance or sale of such rights, warrants, options or Convertible
Securities.
(F) In case of the sale for cash of any shares of Common Stock,
any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or
Convertible Securities, the consideration received by the Company
therefore shall be deemed to be the gross sales price therefor without
deducting therefrom any expense paid or incurred by the
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Company or any underwriting discounts or commissions or concessions
paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to
the number of shares of Common Stock purchasable upon the exercise of
each Warrant will be made, however,
(i) upon the exercise of any of the options presently
outstanding under the Company's Stock Option Plan (the "Plan") for
officers, directors and certain other key personnel of the Company; or
(ii) upon the grant or exercise of any other options which
may hereafter be granted or exercised under the Plan or under any
other employee benefit plan of the Company; or
(iii) upon the sale or exercise of the Warrants or any other
Warrants issued by the Company; or
(iv) upon the issuance of any shares of Common Stock or
warrants sold to the public or the underwriter in the Company's
initial public offering, or upon exercise of warrants comprising or
underlying any Units sold in the Company's initial public offering,
including any shares or warrants underlying the underwriter's warrants
or unit purchase option; or
(v) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common
Stock or Convertible Securities, whether or not such rights, warrants
or options were outstanding on the date of the original sale of the
Warrants or were thereafter issued or sold; or
(vi) upon the issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities, whether or not
any adjustment in the Purchase Price was made or required to be made
upon the issuance or sale of such Convertible Securities and whether
or not such Convertible Securities were outstanding on the date of the
original sale of the Warrants or were thereafter issued or sold; or
(vii) upon any amendment to or change in the terms of any
rights or warrants to subscribe for or purchase, or options for the
purchase of, Common Stock or Convertible Securities or in the terms of
any Convertible Securities, including, but not limited to, any
extension of any expiration date of any such right, warrant or option,
any change in any exercise or purchase price provided for in any such
right, warrant or option, any extension of any date through which any
Convertible Securities are convertible into or exchangeable for Common
Stock or any change in the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock (other than
rights, warrants, options or Convertible Securities issued
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or sold after the close of business on the date of the original
issuance of the Warrants (i) for which an adjustment in the Purchase
Price then in effect was theretofore made or required to be made, upon
the issuance or sale thereof, or (ii) for which such an adjustment
would have been required had the exercise or purchase price of such
rights, warrants or options at the time of the issuance or sale
thereof or the rate of conversion or exchange of such Convertible
Securities, at the time of the sale of such Convertible Securities, or
the issuance or sale of rights or warrants to subscribe for or
purchase, or options for the purchase of, such Convertible Securities,
been the price or rate as changed, in which case the provisions of
Section 8(f)(E) hereof shall be applicable if, but only if, the
exercise or purchase price thereof, as changed, or the rate of
conversion or exchange thereof, as changed, consists of cash or
requires the payment of additional consideration, if any, consisting
of cash and the Company did not receive any consideration other than
cash, if any, in connection with such change).
(h) As used in this Section 8, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the date of
the original issue of the Units and shall also include any capital
stock of any class of the Company thereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights
of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary liquidation, dissolution or
winding up of the Company; provided, however, that the shares issuable
upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common
Stock on the date of the original issue of the Units or (i), in the
case of any reclassification, change, consolidation, merger, sale or
conveyance of the character referred to in Section 8(c) hereof, the
stock, securities or property provided for in such section or (ii), in
the case of any reclassification or change in the outstanding shares
of Common Stock issuable upon exercise of the Warrants as a result of
a subdivision or combination or consisting of a change in par value,
or from par value to no par value, or from no par value to par value,
such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 8,
or as to the amount of any such adjustment, if required, shall be
binding upon the holders of the Warrants and the Company if made in
good faith by the Board of Directors of the Company.
(j) If and whenever the Company shall declare any dividends or
distributions or grant to the holders of Common Stock, as such, rights
or warrants to subscribe for or to purchase, or any options for the
purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase
Common Stock, the Company shall notify each of the then Registered
Holders of the Warrants of such event prior to its occurrence to
enable such Registered Holders to exercise their Warrants and
participate as holders of Common Stock in such event.
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SECTION 9. CONVERSION OF WARRANTS AND REGISTRATION UNDER THE
SECURITIES ACT OF 1933.
(a) In the event the Company consummates an initial public offering
of its securities ("IPO") through Blair and the securities offered in the IPO
include warrants which are exercisable to purchase common stock ("Class A
Warrants"), the Warrants will be automatically converted on the closing date of
the IPO with no action needed on the part of the holder into Class A Warrants
with the identical terms as the Class A Warrants offered to the public, which
may be redeemed by the Company under certain conditions. On such closing date,
this Warrant Agreement shall terminate and the Class A Warrants into which the
Warrants convert will be governed by the warrant agreement covering the Class A
Warrants sold in the IPO.
(b) The Company agrees to register for resale (i) the Class A
Warrants into which the Warrants are exchangeable, (ii) the warrants issuable
upon exercise thereof, if any, (the "Class B Warrants") and the shares of Common
Stock issued or issuable upon exercise of the Class A and Class B Warrants under
the Securities Act of 1933 (the "Act") contemporaneously with its initial public
offering as more fully set forth in Section IV of the Subscription Agreement
between the Company and each of the investors in the Private Placement, subject
to certain contractual restrictions applicable to the Holder.
SECTION 10. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 8 hereof, the Company
shall nevertheless not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the current market value of such fractional share,
determined as follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq National Market System ("NMS"),
the current market value shall be the last reported sale price of the
Common Stock on such exchange on the last business day prior to the
date of exercise of this Warrant or if no such sale is made on such
day or no closing sale price is quoted, the average of the closing bid
and asked prices for such day on such exchange or system; or
(2) If the Common Stock is listed in the over-the-counter market
(other than on NMS) or admitted to unlisted trading privileges, the
current market value shall be the mean of the last reported bid and
asked prices reported by the National Quotation Bureau, Inc. on the
last business day prior to the date of the exercise of this Warrant;
or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current market value
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shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 12. RIGHTS OF ACTION. All rights of action with respect to
this Agreement are vested in the respective Registered Holders of the Warrants,
and any Registered Holder of a Warrant, without consent of the Warrant Agent or
of the holder of any other Warrant, may, on his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for the
purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
SECTION 13. AGREEMENT OF WARRANT HOLDERS. Every holder of a
Warrant, by his acceptance thereof, consents and agrees with the Company, the
Warrant Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company may deem and treat the person in whose name the
Warrant Certificate is registered as the holder and as the absolute, true and
lawful owner of the Warrants represented thereby for all purposes, and the
Company shall not be affected by any notice or knowledge to the contrary, except
as otherwise expressly provided in Section 7 hereof.
SECTION 14. CANCELLATION OF WARRANT CERTIFICATES. If the Company
shall purchase or acquire any Warrant or Warrants, the Warrant Certificate or
Warrant Certificates evidencing the same shall thereupon be cancelled by it and
retired. The Warrant Agent shall also cancel Common Stock following exercise of
any or all of the Warrants represented thereby or delivered to it for transfer,
splitup, combination or exchange.
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SECTION 15. CONCERNING THE WARRANT AGENT. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall account promptly to the Company with respect
to Warrants exercised and concurrently pay the Company, as provided in
Section 4, all moneys received by the Warrant Agent upon the exercise of such
Warrants. The Warrant Agent shall, upon request of the Company from time to
time, deliver to the Company such complete reports of registered ownership of
the Warrants and such complete records of transactions with respect to the
Warrants and the shares of Common Stock as the Company may request. The Warrant
Agent shall also make available to the Company and Blair for inspection by their
agents or employees, from time to time as either of them may request, such
original books of accounts and record (including original Warrant Certificates
surrendered to the Warrant Agent upon exercise of Warrants) as may be maintained
by the Warrant Agent in connection with the issuance and exercise of Warrants
hereunder, such inspections to occur at the Warrant Agent's office as specified
in Section 17, during normal business hours.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price provided in this Agreement, or to determine
whether any fact exists which may require any such adjustments, or with respect
to the nature or extent of any such adjustment, when made, or with respect to
the method employed in making the same. It shall not (i) be liable for any
recital or statement of facts contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure on
the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in any Warrant Certificate, or (iii) be liable
for any act or omission in connection with this Agreement except for its own
negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
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The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses and liabilities, including judgments, costs
and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of its duties and powers hereunder except losses, expenses and
liabilities arising as a result of the Warrant Agent's negligence or wilful
misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving 30
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability
of the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged or any corporation resulting from any consolidation
to which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
-16-
<PAGE>
SECTION 16. MODIFICATION OF AGREEMENT. Subject to the provisions
of Section 4(b), the parties hereto may by supplemental agreement make any
changes or corrections in this Agreement (i) that it shall deem appropriate to
cure any ambiguity or to correct any defective or inconsistent provision or
manifest mistake or error herein contained; (ii) to reflect an increase in the
number of Warrants which are to be governed by this Agreement resulting from an
increase in the size of the Private Placement; or (iii) that it may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of Warrant Certificates; PROVIDED, HOWEVER, that this Agreement shall
not otherwise be modified, supplemented or altered in any respect except with
the consent in writing of the Registered Holders of Warrant Certificates
representing not less than 50% of the Warrants then outstanding; and PROVIDED,
FURTHER, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, or the Purchase Price therefor, or the
acceleration of the Warrant Expiration Date, shall be made without the consent
in writing of the Registered Holder of the Warrant Certificate representing such
Warrant, other than such changes as are specifically prescribed by this
Agreement as originally executed.
SECTION 17. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at
the address of such holder as shown on the registry books maintained by the
Warrant Agent; if to the Company, at 235 High Street - Suite 410, Morgantown,
West Virginia 26505, Attention: J. Calvin Kaylor, President; if to the Warrant
Agent, at its Corporate Office and if to Blair, at D.H. Blair Investment
Banking Corp., 44 Wall Street, New York, New York 10005, Attention: Martin A.
Bell, Esq.
SECTION 18. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of the Company and the Warrant Agent (and their
respective successors and assigns) and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 20. TERMINATION. This Agreement shall terminate on the
earlier to occur of (i) the close of business on the Warrant Expiration Date;
(ii) the closing date of an IPO which results in the conversion of the Warrants;
or (iii) the date upon which all Warrants have been exercised.
-17-
<PAGE>
SECTION 21. COUNTERPARTS. This Agreement may be executed in
several counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
CAREFLOW | NET, INC.
By: /s/ J. Calvin Kaylor
-----------------------------------
J. Calvin Kaylor, President
D.H. BLAIR INVESTMENT BANKING CORP.
By: /s/ Martin A. Bell
-----------------------------------
Martin A. Bell, General Counsel
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: /s/ Herbert J. Lemmer
-----------------------------------
Authorized Officer
Herbert J. Lemmer, Vice President
-18-
<PAGE>
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT UNDER THE ACT SHALL HAVE BECOME
EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE ISSUER OF AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT (A)
REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER AND (B) IS SUCH TRANSFER IS NOT IN VIOLATION OF ANY APPLICABLE STATE
SECURITIES LAWS.
No.______ _____ Warrants
VOID AFTER ________ __, 2000
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
CAREFLOW | NET, INC.
This certifies that FOR VALUE RECEIVED ________________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Warrants ("Warrants") specified above. Each Warrant initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Warrant Certificate and the Warrant Agreement (as hereinafter defined), one
fully paid and nonassessable share of common stock, $.01 par value ("Common
Stock"), of CareFlow | Net, Inc., a Delaware corporation (the "Company") at any
time commencing ________ ___, 1998 and prior to the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form attached hereto duly executed, at the
corporate office of American Stock Transfer & Trust Company, as warrant agent,
or its successor (the "Warrant Agent"), accompanied by payment of an amount
equal to $3.00 for each Warrant (the "Purchase Price") in lawful money of the
United States of America in cash or by official bank or certified check made
payable to CareFlow | Net, Inc. The Company may, at its election, reduce the
Purchase Price.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated ________ __,
1997 by and among the Company, the Warrant Agent and D.H. Blair Investment
Banking Corp.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
A-1
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
________ ___, 2000. If such date shall in the State of New York be a holiday or
a day on which the banks are authorized to close, then the Expiration Date shall
mean 5:00 P.M. (New York time) the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close. The
Company may, at its election, extend the Expiration Date.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an
aggregate number of Warrants equal to the number of Warrants represented by this
Warrant Certificate, each of such new Warrant Certificates to represent such
number of Warrants as shall be designated by such Registered Holder at the time
of such surrender. Upon due presentment with any tax or other governmental
charge imposed in connection with the registration of the transfer of this
Warrant Certificate at such office, together with an Assignment in the form
attached hereto, a new Warrant Certificate or Warrant Certificates representing
an equal aggregate number of Warrants will be issued to the transferee in
exchange therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Prior to due presentment for registration of transfer hereof, the
Company may deem and treat the Registered Holder as the absolute owner hereof
and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly authorized officer
of the Company) for all purposes and shall not be affected by any notice to the
contrary.
The Company has agreed to pay a fee of 5% of the Purchase Price upon
certain conditions as specified in the Warrant Agreement upon the exercise of
this Warrant.
This Warrant will automatically convert into a like number of new
warrants under certain circumstances in the event the Company completes an
initial public offering of its securities having the terms and conditions
specified in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
CAREFLOW | NET, INC.
Dated: _____________, 1997
By
------------------------------
By
------------------------------
[seal]
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By
------------------------------
A-3
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise __________ Warrants represented by the attached Warrant Certificate,
and to purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
[please print or type name and address]
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by the
attached this Warrant Certificate, that a new Warrant Certificate for the
balance of such Warrants be registered in the name of, and delivered to, the
Registered Holder at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
("NASD"). If not solicited by an NASD member, please write "unsolicited" in the
space below. Unless otherwise indicated by listing the name of another NASD
member firm, it will be assumed that the exercise was solicited by D.H. Blair
Investment Banking Corp.
-----------------------------------
(Name of NASD Member if other
than D.H. Blair Investment
Banking Corp.)
A-4
<PAGE>
Dated:
-----------------------
X
----------------------------
-----------------------------
-----------------------------
Address
----------------------
Taxpayer Identification Number
Signature Guaranteed
- --------------------------
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE
FACE OF THE ATTACHED WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A PARTICIPANT
IN THE MEDALLION GUARANTEE PROGRAM.
A-5
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ____________________ hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
[please print or type name and address]
_________________________ of the Warrants represented by the attached Warrant
Certificate, and hereby irrevocably constitutes and appoints
_____________________________ _______________________________ attorney to
transfer the attached Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated:
-----------------------
X
--------------------------
Signature Guaranteed
- ---------------------------
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE
FACE OF THE ATTACHED WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A PARTICIPANT
IN THE MEDALLION GUARANTEE PROGRAM.
A-6
<PAGE>
Exhibit 4.3
CAREFLOW | NET, INC.
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "AGREEMENT"), is entered into as of the
[__] day of [__], 1997, by and among CareFlow | Net, Inc., a Delaware
corporation (the "COMPANY"), American Stock Transfer & Trust Company , as
warrant agent (the "WARRANT AGENT"), and D.H. Blair Investment Banking Corp., a
New York corporation (the "REPRESENTATIVE"), as representative of the several
underwriters described below.
RECITALS
WHEREAS, in connection with (i) a public offering of up to One Million
Six Hundred Thousand (1,600,000) units ("UNITS"), each unit consisting of one
(1) share of the Company's Common Stock, $0.00l par value (the "COMMON STOCK"),
and one (1) redeemable Warrant (the "WARRANTS") pursuant to an underwriting
agreement (the "UNDERWRITING AGREEMENT") dated [__] 1997 between the Company and
the Representative, as representative of the several underwriters named in such
Underwriting Agreement (the "UNDERWRITERS"), (ii) the issuance to the
Representative or its designees of Unit Purchase Options to purchase an
aggregate of One Hundred Sixty Thousand (160,000) additional Units, to be dated
as of [__], 1997 (the "UNIT PURCHASE OPTIONS") and (iii) the issuance of One
Million (1,000,000) Warrants to certain security holders of the Company upon the
conversion of warrants acquired by them in a private placement in September and
October, 1997, the Company may issue up to Two Million Seven Hundred Sixty
Thousand (2,760,000) Warrants; and
WHEREAS, each Warrant initially entitles the Registered Holder thereof
to purchase one (1) share of Common Stock; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the Registered Holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
<PAGE>
TERMS OF AGREEMENT
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "AGGREGATE PER SHARE PRICE" shall mean the Purchase Price per
share multiplied by the number of shares of Common Stock purchasable upon the
exercise of a Warrant.
(b) "AGGREGATE PER SHARE PRICE" shall mean Six Dollars and Fifty
Cents ($6.50).
(c) "COMMON STOCK" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
distribution of earnings and assets of the Company without limit as to amount or
percentage, which as of the date hereof consists of One Million Two Hundred
Thousand shares of common stock, par value $0.01 per share.
(d) "CORPORATE OFFICE" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 40 Wall Street, New
York, New York 10005.
(e) "EXERCISE DATE" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (i) the certificate representing such
warrant (the "WARRANT CERTIFICATE"), with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, and (ii) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price.
(f) "INITIAL WARRANT EXERCISE DATE" shall mean as to each Warrant,
the Separation Date.
(g) "MARKET PRICE" shall mean (i) the average closing bid price of
the Common Stock, for thirty (30) consecutive business days ending on the
Calculation Date as reported by Nasdaq, if the Common Stock is traded on the
Nasdaq Small Cap Market, or (ii) the average last reported sale price of the
Common Stock, for thirty (30) consecutive business days ending on the
Calculation Date, as reported by the primary exchange on which the Common Stock
is traded, if the Common Stock is traded on a national securities exchange, or
by Nasdaq, if the Common Stock is traded on the Nasdaq National Market.
(h) "PURCHASE PRICE" shall mean the purchase price to be paid upon
exercise of each Warrant in accordance with the terms hereof, which price shall
be Six Dollars and Fifty Cents ($6.50) as to the Warrants subject to adjustment
from time to time pursuant to the provisions of SECTION 9 hereof, and subject to
the Company's right to reduce the Purchase Price upon notice to all Registered
Holders of Warrants.
<PAGE>
(i) "REDEMPTION PRICE" shall mean the price at which the Company may,
at its option in accordance with the terms hereof, redeem the Warrants which
price shall be Five Cents ($0.05) per Warrant.
(j) "REGISTERED HOLDER" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to SECTION 6.
(k) "SEPARATION DATE" shall mean [__], 1998 or such earlier date as
the Representative may designate.
(l) "TRANSFER AGENT" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
(m) "WARRANT EXPIRATION DATE" shall mean 5:00 P.M. (New York time) on
[__], 2002 (subject to extension as provided herein and in SECTION 9(E) or, with
respect to Warrants which are outstanding as of the applicable Redemption Date
(as defined in SECTION 8) and specifically excluding Warrants issuable upon
exercise of Unit Purchase Options if the Unit Purchase Options have not been
exercised, the Redemption Date, whichever is earlier; provided that if such date
shall in the State of New York be a holiday or a day on which banks are
authorized or required to close, then 5:00 P.M. (New York time) on the next
following day which in the State of New York is not a holiday or a day on which
banks are authorized or required to close. Upon notice to all Registered
Holders, the Company shall have the right to extend the Warrant Expiration Date.
2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) A Warrant initially shall entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase one share of Common
Stock upon the exercise thereof, in accordance with the terms hereof, subject to
modification and adjustment as provided in SECTION 9.
(b) The Warrants included in the offering of Units will be detachable
and separately transferable from the shares of Common Stock constituting part of
such Units from and after the Separation Date.
(c) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or Chairman or a Vice
President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued and delivered by the Warrant Agent
as part of the Units.
(d) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing
<PAGE>
up to an aggregate of Two Million Seven Hundred Sixty Thousand (2,760,000)
shares of Common Stock, subject to adjustment as described herein, upon the
exercise of Warrants in accordance with this Agreement.
(e) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required whole
number denominations to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement; provided that no Warrant
Certificates shall be issued except (i) those initially issued hereunder, (ii)
those issued on or after the Initial Warrant Exercise Date, upon the exercise of
fewer than all Warrants represented by any Warrant Certificate, to evidence any
unexercised Warrants held by the exercising Registered Holder, (iii) those
issued upon any transfer or exchange pursuant to SECTION 6; (iv) those issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to SECTION 7; (v) those issued pursuant to the Unit Purchase Option;
and (vi) at the option of the Company, in such form as may be approved by the
its Board of Directors, to reflect any adjustment or change in the Purchase
Price, the number of shares of Common Stock purchasable upon exercise of the
Warrants or the Target Price(s) therefor made pursuant to SECTION 8 hereof.
(f) Pursuant to the terms of the Unit Purchase Options, the
Representative or its designees may purchase up to One Hundred Sixty Thousand
(160,000) Units, which include up to One Hundred Sixty Thousand (160,000)
Warrants. Notwithstanding anything to the contrary contained herein, the
Warrants underlying the Unit Purchase Option shall not be subject to redemption
by the Company except under the terms and conditions set forth in the Unit
Purchase Options.
3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as EXHIBIT A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Warrants may be listed, or to
conform to usage or to the requirements of SECTION 2(D). The Warrant
Certificates shall be dated the date of issuance thereof (whether upon initial
issuance, transfer, exchange or in lieu of mutilated, lost, stolen, or destroyed
Warrant Certificates) and issued in registered form. Warrant Certificates shall
be numbered serially with the letters AW on Warrants of all denominations.
(b) Warrant Certificates shall be executed on behalf of the Company
by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
In case any officer
<PAGE>
of the Company who shall have signed any of the Warrant Certificates shall cease
to be an officer of the Company or to hold the particular office referenced in
the Warrant Certificate before the date of issuance of the Warrant Certificates
or before countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be an officer of the
Company or to hold such office. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
SECTION 4(A) hereof.
4. EXERCISE.
(a) Each Warrant may be exercised by the Registered Holder thereof at
any time on or after the Initial Warrant Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder of those securities
upon the exercise of the Warrant as of the close of business on the Exercise
Date. As soon as practicable on or after the Exercise Date, the Warrant Agent
shall deposit the proceeds received from the exercise of a Warrant and shall
notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five days after the date of such notice from
the Warrant Agent, the Warrant Agent, on behalf of the Company, shall cause to
be issued and delivered by the Transfer Agent, to the person or persons entitled
to receive the same, a certificate or certificates for the securities
deliverable upon such exercise, (plus a Warrant Certificate for any remaining
unexercised Warrants of the Registered Holder) unless prior to the date of
issuance of such certificates the Company shall instruct the Warrant Agent to
refrain from causing such issuance of certificates pending clearance of checks
received in payment of the Purchase Price pursuant to such Warrants.
Notwithstanding the foregoing, in the case of payment made in the form of a
check drawn on an account of the Representative or such other investment banks
and brokerage houses as the Company shall approve in writing to the Warrant
Agent, certificates shall immediately be issued without prior notice to the
Company or any delay. Upon the exercise of any Warrant and clearance of the
funds received, the Warrant Agent shall promptly remit the payment received for
the Warrant (the "WARRANT PROCEEDS") to the Company or as the Company may direct
in writing, subject to the provisions of SECTIONS 4(B) AND 4(C) hereof.
(b) If, at the Exercise Date in respect of the exercise of any
Warrant after [__], 1998, (i) the market price of the Company's Common Stock is
greater than the then Purchase Price of the Warrant, (ii) the exercise of the
Warrant was solicited by a member of the National Association of Securities
Dealers, Inc. ("NASD"), (iii) the warrant holder designates in writing that the
exercise of the Warrant was solicited by a member of the NASD and designates in
writing the broker-dealer to receive compensation for such exercise, (iv) the
Warrant was not held in a discretionary account, (v) disclosure of compensation
arrangements was made both at the time of
<PAGE>
the original offering and at the time of exercise; and (vi) the solicitation of
the exercise of the Warrant was not in violation of Regulation M (as such
regulation or any successor regulation may be in effect as of such time of
exercise) promulgated under the Securities Exchange Act of 1934, then the
Warrant Agent, simultaneously with the distribution of the Warrant Proceeds to
the Company shall, on behalf of the Company, pay from the Warrant Proceeds, a
fee of [__]% (the "EXERCISE FEE") of the Purchase Price to the Representative
(of which a portion may be reallowed by the Representative to the dealer who
solicited the exercise, which may also be the Representative or D.H. Blair &
Co., Inc.). In the event the Exercise Fee is not received within five days of
the date on which the Company receives Warrant Proceeds, then the Exercise Fee
shall begin accruing interest at an annual rate of prime plus four percent (4%),
payable by the Company to the Representative at the time the Representative
receives the Exercise Fee. Within five days after exercise the Warrant Agent
shall send to the Representative a copy of the reverse side of each Warrant
exercised. The Representative shall reimburse the Warrant Agent, upon request,
for its reasonable expenses relating to compliance with this SECTION 4(B). The
Company shall pay all fees and expenses including all blue sky fees and expenses
and all out-of-pocket expenses of the Representative, including legal fees, in
connection with the solicitation, redemption or exchange of the Warrants. In
addition, the Representative and the Company may at any time during business
hours, examine the records of the Warrant Agent, including its ledger of
original Warrant Certificates returned to the Warrant Agent upon exercise of
Warrants. The provisions of this SECTION 4(B) may not be modified, amended or
deleted without the prior written consent of the Representative.
(c) In order to enforce the provisions of SECTION 4(B) above, in the
event there is any dispute or question as to the amount or payment of the
Exercise Fee, the Warrant Agent is hereby expressly authorized to withhold
payment to the Company of the Warrant Proceeds unless and until the Company
establishes an escrow account for the purpose of depositing the entire amount of
the Exercise Fee, which amount will be deducted from the net Warrant Proceeds to
be paid to the Company. The funds placed in the escrow account may not be
released to the Company without a written agreement from the Representative that
the required Exercise Fee has been received by the Representative.
5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable and free from all taxes, liens and charges with
respect to the issue thereof, (other than those which the Company shall promptly
pay or discharge) and that upon issuance such shares shall be listed on each
national securities exchange, on which the other shares of outstanding Common
Stock of the Company are then listed or shall be eligible for inclusion in the
Nasdaq National Market or the Nasdaq Small Cap Market if the other shares of
outstanding Common Stock of the Company are so included.
<PAGE>
(b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval. The Company will use reasonable
efforts to obtain appropriate approvals or registrations under state "blue sky"
securities laws. With respect to any such securities, however, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition
the Company's Transfer Agent from time to time for certificates representing
shares of Common Stock issuable upon exercise of the Warrants, and the Company
will authorize the Transfer Agent to comply with all such proper requisitions.
The Company will file with the Warrant Agent a statement setting forth the name
and address of the Transfer Agent of the Company for shares of Common Stock
issuable upon exercise of the Warrants.
6. EXCHANGE AND REGISTRATION OF TRANSFER.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or i n part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or
<PAGE>
be accompanied by a written instrument or instruments of transfer and
subscription, in form satisfactory to the Company and the Warrant Agent, duly
executed by the Registered Holder or his attorney-in-fact duly authorized in
writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly canceled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as Warrant Agent, or, with the prior written
consent of the Representative, disposed of or destroyed, at the direction of the
Company.
(f) Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants, which are being publicly offered in Units with
shares of Common Stock pursuant to the Underwriting Agreement, will be
detachable from the Common Stock and transferable separately therefrom from and
after the Separation Date.
7. LOSS OR MUTILATION. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and loss, theft,
destruction or mutilation of any Warrant Certificate and (in case of loss, theft
or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
8. REDEMPTION.
(a) Subject to the provisions of SECTION 2(G) hereof on not less than
thirty (30) days notice given at any time after [__], 1998, (the "REDEMPTION
NOTICE"), to Registered Holders of the Warrants being redeemed at any time after
[__], 1998, the Warrants may be redeemed, at the option of the Company, at the
Redemption Price per Warrant, provided the Market Price shall exceed Nine
Dollars and Ten Cents ($9.10) with respect to the Warrants (the "TARGET
PRICES"), subject to adjustment as set forth in SECTION 8(F), below. All
Warrants of a class must be redeemed if any of
<PAGE>
that class are redeemed, provided that the Warrants underlying the Unit Purchase
Option may not be redeemed by the Company. For purposes of this SECTION 8, the
Calculation Date shall mean a date within fifteen (15) days of the mailing of
the Redemption Notice. The date fixed for redemption of the Warrants is
referred to herein as the "REDEMPTION DATE".
(b) If the conditions set forth in SECTION 8(A) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall request
the Representative to mail a Redemption Notice to each of the Registered Holders
of the Warrants to be redeemed, first class, postage prepaid, not later than the
thirtieth day before the Redemption Date, at their last address as shall appear
on the records maintained pursuant to SECTION 6(B). Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice.
(c) The Redemption Notice shall specify (i) the redemption price,
(ii) the Redemption Date, (iii) the place where the Warrant Certificates shall
be delivered and the redemption price paid, (iv) that the Representative will
assist each Registered Holder of a Warrant in connection with the exercise
thereof and (v) that the right to exercise the Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such redemption except
as to a Registered Holder (a) to whom notice was not mailed or (b) whose notice
was defective. An affidavit of the Warrant Agent or of the Secretary or an
Assistant Secretary of the Representative or the Company that notice of
redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New
York time) on the business day immediately preceding the Redemption Date. On
and after the Redemption Date, Registered Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.
(e) From and after the Redemption Date, the Company shall, at the
place specified in the Redemption Notice, upon presentation and surrender to the
Company by or on behalf of the Registered Holder thereof of one or more Warrant
Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Registered Holder a sum in cash
equal to the Redemption Price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price, shall
cease.
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Target
Prices shall be proportionally adjusted by the ratio which the total number of
shares of Common Stock outstanding immediately prior to such event bears to the
total number of shares of Common Stock to be outstanding immediately after such
event.
<PAGE>
9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON STOCK
OR WARRANTS.
(a) Subject to the exceptions referred to in SECTION 9(G) below, in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the Market Price on the date of the sale or issue any shares of Common Stock as
a stock dividend to the holders of Common Stock, or subdivide or combine the
outstanding shares of Common Stock into a greater or lesser number of shares
(any such sale, issuance, subdivision or combination being herein called a
"CHANGE OF SHARES"), then, and thereafter upon each further Change of Shares,
the Purchase Price in effect immediately prior to such Change of Shares shall be
changed to a price (including any applicable fraction of a cent) determined by
multiplying the Purchase Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in SECTION 9(F)(F) below) for the
issuance of such additional shares would purchase at the Market Price and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made. For
purposes of this SECTION 9, the Calculation Date shall mean the date of the
sale, issuance, modification or other transaction referred to in this SECTION 9.
Upon each adjustment of the Purchase Price pursuant to this SECTION 9,
the total number of shares of Common Stock purchasable upon the exercise of each
Warrant shall (subject to the provisions contained in SECTION 9(B) hereof) be
such number of shares (calculated to the nearest one-hundredth; provided,
however, that in no event shall the Aggregate Per Share Price increase as a
result of such rounding calculation) purchasable at the Purchase Price in effect
immediately prior to such adjustment multiplied by a fraction, the numerator of
which shall be the Purchase Price in effect immediately prior to such adjustment
and the denominator of which shall be the Purchase Price in effect immediately
after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as herein above provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the Purchase Price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to
this SECTION 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to SECTION 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
<PAGE>
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a Warrant then outstanding shall have the right
thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately prior
to such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this SECTION 9. The Company shall not effect any
such consolidation, merger or sale unless prior to or simultaneously with the
consummation thereof the successor (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing assets or other
appropriate corporation or entity shall assume, by written instrument executed
and delivered to the Warrant Agent, the obligation to deliver to the holder of
each Warrant such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holders may be entitled to purchase and the other
obligations of the Company under this Agreement. The foregoing provisions shall
similarly apply to successive reclassifications, capital reorganizations and
other changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to SECTION 2(F) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder and the Redemption Price
therefor as the Purchase Price per share, and the number of shares purchasable
and the Redemption Price therefor were expressed in the Warrant Certificates
when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
SECTION 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment and, if the
Company shall have
<PAGE>
elected to adjust the number of Warrants, the number of Warrants to which the
Registered Holder of each Warrant shall then be entitled, and the adjustment in
Redemption Price resulting therefrom, and (iii) a statement showing in detail
the method of calculation and the facts upon which such adjustment or
readjustment is based, including a statement of' (a) the consideration received
or to be received by the Company for any securities issued or sold or deemed to
have been issued, (b) the number of shares of Common Stock outstanding or deemed
to be outstanding, and (c) the Purchase Price in effect immediately prior to
such issue or sale and as adjusted and readjusted (if required by SECTION 9) on
account thereof. The Company will promptly file such certificate with the
Warrant Agent and furnish a copy thereof to be sent no later than thirty (30)
days after the adjustment by ordinary first class mail to the Representative and
to each Registered Holder of Warrants at his last address as it shall appear on
the registry books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. If such mailing is not made
within such thirty (30) day period the Warrant Expiration Date shall be extended
by the period of time equal to the period commencing on the thirty-first (31st)
day and expires on the date such mailing is effectuated. The Company will, upon
the written request at any time of the Representative, furnish to the
Representative a report by independent public accountants of recognized national
standing (which may be the regular auditors of the Company) selected by the
Company to verify such computation and setting forth such adjustment or
readjustment and showing in detail the method of calculation and the facts upon
which such adjustment or readjustment is based. The Company will also keep
copies of all such certificates and reports at its principal office.
(f) For purposes of SECTION 9(A) AND 9(B) hereof, the following
provisions (A) to (G) shall also be applicable:
(A) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(B) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least Five Cents
($0.05) in the Purchase Price; provided that any adjustments which by reason of
this CLAUSE (B) are not required to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment which,
together with any adjustment(s) so carried forward, shall require an increase or
decrease of at least Five Cents ($0.05) in the Purchase Price then in effect
hereunder.
(C) In case of (1) the sale by the Company for cash (or as a
component of a unit being sold for cash) of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or any
securities convertible into or exchangeable for Common Stock without the payment
of any further consideration other than cash, if any (such securities
convertible, exercisable or exchangeable into Common Stock being herein called
"CONVERTIBLE
<PAGE>
SECURITIES"), or (2) the issuance by the Company, without the receipt by the
Company of any consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, in each case, if (and only if) the consideration payable to the
Company upon the exercise of such rights, warrants or options shall consist of
cash, whether or not such rights, warrants or options, or the right to convert
or exchange such Convertible Securities, are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum aggregate
consideration payable to the Company upon the exercise of such rights, warrants
or options, plus the consideration, if any, received by the Company for the
issuance or sale of such rights, warrants or options, plus, in the case of such
Convertible Securities, the minimum aggregate amount of additional
consideration, other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum number of shares of
Common Stock issuable upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities issuable upon the
exercise of such rights, warrants or options) is less than the Market Price on
the Calculation Date, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities (as of the date of the
issuance or sale of such rights, warrants or options) shall be deemed to be
outstanding shares of Common Stock for purposes of SECTIONS 9(A) AND 9(B) hereof
and shall be deemed to have been sold for cash in an amount equal to such price
per share.
(D) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the Market Price on the
Calculation Date, then the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities (as of
the date of the sale of such Convertible Securities) shall be deemed to be
outstanding shares of Common Stock for purposes of SECTIONS 9(A) AND 9(B) hereof
and shall be deemed to have been sold for cash in an amount equal to such price
per share.
(E) In case the Company shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in (C) or (D) above or
any other securities of the Company convertible, exchangeable or exercisable for
shares of Common Stock, for any reason other than an event that would require
adjustment to prevent dilution, so that the consideration per share received by
the Company after such modification is less than the Market Price on the
Calculation Date, the Purchase Price to be in effect after such modification
shall be determined by multiplying the Purchase Price in effect immediately
prior to such event by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding on the date prior to the
<PAGE>
modification plus the number of shares of Common Stock which the aggregate
consideration receivable by the Company for the securities affected by the
modification would purchase at the Market Price and of which the denominator
shall be the number of shares of Common Stock outstanding on such date plus the
number of shares of Common Stock to be issued upon conversion, exchange or
exercise of the modified securities at the modified rate. Such adjustment shall
become effective as of the date upon which such modification shall take effect.
On the expiration of any such right, warrant or option or the termination of any
such right to convert or exchange any such Convertible Securities referred to in
CLAUSES (C) OR (D) above, the Purchase Price then in effect hereunder shall
forthwith be readjusted to such Purchase Price as would have obtained (a) had
the adjustments made upon the issuance or sale of such rights, warrants, options
or Convertible Securities been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible Securities and
(b) had adjustments been made on the basis of the Purchase Price as adjusted
under CLAUSE (A) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options or Convertible Securities.
(F) In case of the sale for cash of any shares of Common Stock,
any Convertible Securities, any rights or warrants to subscribe for or purchase,
or any options for the purchase of, Common Stock or Convertible Securities, the
consideration received by the Company therefore shall be deemed to be the gross
sales price therefor without deducting therefrom any expense paid or incurred by
the Company or any underwriting discounts or commissions or concessions paid or
allowed by the Company in connection therewith.
(G) In case any event shall occur as to which the provisions of
SECTION 9 are not strictly applicable but the failure to make any adjustment
would not fairly protect the purchase rights represented by the Warrants in
accordance with the essential intent and principles of SECTION 9, then, in each
such case, the Board of Directors of the Company shall in good faith by
resolution provide for the adjustment, if any, on a basis consistent with the
essential intent and principles established in SECTION 9, necessary to preserve,
without dilution, the purchase rights represented by the Warrants. The Company
will promptly make the adjustments described therein.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the exercise of any of the options presently
outstanding under the Company's Stock Option Plan (the "PLAN") for officers,
directors and certain other key personnel of the Company; or
(ii) upon the issuance or exercise of any other securities which
may hereafter be granted or exercised under the Plan or under any other employee
benefit plan of the Company approved by the Company's stockholders; or
<PAGE>
(iii) upon the sale or exercise of the Warrants, including without
limitation the sale or exercise of any of the Warrants comprising the Unit
Purchase Option or upon the sale or exercise of the Unit Purchase Option; or
(iv) upon the sale of any shares of Common Stock and/or
Convertible Securities in a firm commitment under written public offering,
including, without limitation, shares sold upon the exercise of any
over-allotment option granted to the underwriters in connection with such
offering; or
(v) upon the sale by the Company of any shares of Common Stock
and/or Convertible Securities in a private placement for which the
Representative is the Placement Agent; or
(vi) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or options were outstanding on
the date of the original sale of the Warrants or were thereafter issued or sold;
or
(vii) upon the issuance or sale of Common Stock upon conversion or
exchange of any Convertible Securities, whether or not any adjustment in the
Purchase Price was made or required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold.
(h) As used in this SECTION 9, the term "COMMON STOCK" shall mean and
include the Company's Common Stock authorized on the date of the original issue
of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in SECTION 9(C) hereof, the stock, securities or property
provided for in such SECTION 9(B) or (ii), in the case of any reclassification
or change in the outstanding shares of Common Stock issuable upon exercise of
the Warrants as a result of a subdivision or combination or consisting of a
change in par value, or from par value to no par value, or from no par value to
par value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to SECTION 9, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the
<PAGE>
Board of Directors of the Company.
(j) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this SECTION 9), that
exercise of Warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this SECTION 9.
10. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to SECTION 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon the
exercise of any Warrant, the Company shall pay to the Holder an amount in cash
equal to such fraction multiplied by the current market value of such fractional
share, determined as follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or is
traded on the Nasdaq National Market, the current market value shall be the last
reported sale price of the Common Stock on such exchange or market on the last
business day prior to the date of exercise of this Warrant or if no such sale is
made on such day, the average of the closing bid and asked prices for such day
on such exchange or market; or
(2) If the Common Stock is not listed or admitted to unlisted
trading privileges on a national securities exchange or is not traded on the
Nasdaq National Market, the current market value shall be the mean of the last
reported bid and asked prices reported by the Nasdaq Small Cap Market or, if not
traded thereon, by the National Quotation Bureau, Inc. on the last business day
prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of Warrants
shall, as
<PAGE>
such, be entitled to vote or to receive dividends or be deemed the holder of
Common Stock that may at any time be issuable upon exercise of such Warrants for
any purpose whatsoever, nor shall anything contained herein be construed to
confer upon the holder of Warrants, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger or conveyance or otherwise), or to receive notice
of meetings, or to receive dividends or subscription rights, until such holder
shall have exercised such Warrants and been issued shares of Common Stock in
accordance with the provisions hereof.
12. RIGHTS OF ACTION. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
13. AGREEMENT OF WARRANT HOLDERS. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person
in whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
SECTION 7 hereof.
14. CANCELLATION OF WARRANT CERTIFICATES. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel the
Warrant Certificate or Warrant Certificates following exercise of any or all of
the Warrants represented thereby or delivered to it for transfer or exchange.
15. CONCERNING THE WARRANT AGENT. The Warrant Agent acts hereunder
as agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the
<PAGE>
provisions hereof. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder be deemed to make any
representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
(a) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
(b) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
(c) Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
(d) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
(e) The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or wilful misconduct), after giving
thirty (30) days' prior written notice to the Company. At least fifteen (15)
days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation, or any inability of the
<PAGE>
Warrant Agent to act as such hereunder, the Company shall appoint a new warrant
agent in writing. If the Company shall fail to make such appointment within a
period of fifteen (15) days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than Ten Million Dollars ($10,000,000) or a stock transfer company
that is a registered transfer agent under the Securities Exchange Act of 1934.
After acceptance in writing of such appointment by the new warrant agent is
received by the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance, act or
deed; but if for any reason it shall be necessary or expedient to execute and
deliver any further assurance, conveyance, act or deed, the same shall be done
at the expense of the Company and shall be legally and validly executed and
delivered by the resigning Warrant Agent. Not later than the effective date of
any such appointment the Company shall file notice thereof with the resigning
Warrant Agent and shall forthwith cause a copy of such notice to be mailed to
the Registered Holder of each Warrant Certificate.
(f) Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding CLAUSE (E). Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
(g) The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
16. MODIFICATION OF AGREEMENT. Subject to the provisions of SECTION
4(B), the parties hereto and the Company may by supplemental agreement make any
changes or corrections in this Agreement (i) that they shall deem appropriate to
cure any ambiguity or to correct any defective or inconsistent provision or
manifest mistake or error herein contained; (ii) to reflect an increase in the
number of Warrants which are to be governed by this Agreement resulting from (a)
a subsequent public offering of Company securities which includes Warrants or
(b) a subsequent private placement of Company securities which includes
Warrants, in either case having the same terms and conditions as the Warrants,
originally covered by or subsequently added to this Agreement under this SECTION
16, provided, however, that in the case of a private placement, the amendment to
this Agreement will be effective only at such time as the resale of such
Warrants, as well as the
<PAGE>
securities underlying such Warrants is covered by an effective registration
statement under the Act; or (iii) that they may deem necessary or desirable and
which shall not adversely affect the interests of the holders of Warrant
Certificates; provided, however, that this Agreement shall not otherwise be
modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders of Warrant Certificates representing not less
than fifty percent (50%) of the Warrants then outstanding; and provided,
further, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, or the Purchase Price therefor, or the
acceleration of the Warrant Expiration Date, shall be made without the consent
in writing of the Registered Holder of the Warrant Certificate representing such
Warrant, other than such changes as are specifically prescribed by this
Agreement as originally executed or are made in compliance with applicable law.
17. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 235 High Street, Suite 225, Morgantown, West
Virginia, 26505, Attention: J. Calvin Kaylor, or at such other address as may
have been furnished to the Warrant Agent in writing by the Company; if to the
Warrant Agent, at its Corporate Office; if to the Representative, at D.H. Blair
Investment Banking Corp., 44 Wall Street, New York, New York 10005.
18. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
19. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Company and, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
20. TERMINATION. This Agreement shall terminate at the close of
business on the earlier of the Warrant Expiration Date or the date upon which
all Warrants (including the warrants issuable upon exercise of the Unit Purchase
Options) have been exercised, except that the Warrant Agent shall account to the
Company for cash held by it and the provisions of SECTION 15 hereof shall
survive such termination.
21. COUNTERPARTS. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
CAREFLOW | NET, INC.
By:
-----------------------------------
Name:
Title:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:
-----------------------------------
Name:
Title:
D.H. BLAIR INVESTMENT BANKING CORP.
By:
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. AW Warrants
VOID AFTER [__], 2002
WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
CAREFLOW | NET, INC.
This certifies that FOR VALUE RECEIVED _____ or registered assigns
(the "REGISTERED HOLDER") is the owner of the number of Warrants ("WARRANTS")
specified above. Each Warrant represented hereby initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Warrant Certificate and the Warrant Agreement (as hereinafter defined), one
fully paid and nonassessable share of Common Stock, $.001 value ("COMMON
STOCK"), of CareFlow | Net, Inc., a Delaware corporation (the "COMPANY"), at any
time from and after the Separation Date through the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of American Stock Transfer & Trust Company, as Warrant
Agent, or its successor (the "WARRANT AGENT"), accompanied by payment of Six
Dollars and Fifty Cents ($6.50) for each Warrant (the "PURCHASE PRICE") in
lawful money of the United States of America in cash or by official bank or
certified check made payable to the order of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "WARRANT AGREEMENT"), dated [__], 1997
by and among the Company, the Warrant Agent and D.H. Blair Investment Banking
Corp.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
<PAGE>
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "EXPIRATION DATE" shall mean 5:00 P.M. (New York time) on
[__], 2002 or such earlier date as the Warrants shall be redeemed. If such date
shall in the State of New York be a holiday or a day on which banks are
authorized to close, then the Expiration Date shall mean 5:00 P.M. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of the Warrants represented hereby unless a registration
statement under the Securities Act of 1933, as amended, with respect to such
securities is effective. The Company has covenanted and agreed that it will
file a registration statement and will use its best efforts to cause the same to
become effective and to keep such registration statement current while any of
the Warrants are outstanding. The Warrants represented hereby shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any applicable transfer fee
in addition to any tax or other governmental charge imposed in connection
therewith, for registration of transfer of this Warrant Certificate at such
office, a new Warrant Certificate or Warrant Certificates representing an equal
aggregate number of Warrants will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered folder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
The Warrants represented hereby may be redeemed at the option of the
Company, at a redemption price of Five Cents ($0.05) per Warrant at any time
after [__], 1998, provided the Market Price (as defined in the Warrant
Agreement) for the Common Stock shall exceed Nine Dollars and Ten Cents ($9.10)
per share. Notice of redemption shall be given not later than the thirtieth day
before the date fixed for redemption, all as provided in the Warrant Agreement.
On and after the date fixed for redemption, the Registered Holder shall have no
rights with respect to the Warrants represented hereby except to receive the
Five Cents ($0.05) per Warrant upon surrender of this Warrant Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by
<PAGE>
anyone other than a duly authorized officer of the Company or the Warrant Agent)
for all purposes and shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of [__]% of the Purchase Price
upon certain conditions as specified in the Warrant Agreement upon the exercise
of the Warrants represented hereby.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile, by two of its officers there unto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
CAREFLOW | NET, INC.
By:
-----------------------------------
Name:
Title:
Dated:
-----------------------
[seal]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:
---------------------------
Name:
Title:
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $[__] PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER
IN ORDER TO EXERCISE WARRANTS
The undersigned Registered Holder hereby irrevocably elects to
exercise _____ Warrants represented by this Warrant Certificate, and to purchase
the securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
----------------------
----------------------
----------------------
----------------------
[please print or type name and address]
and be delivered to
----------------------
----------------------
----------------------
----------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
<PAGE>
The undersigned represents that the exercise of the Warrants evidenced
hereby was solicited by a member of the National Association of Securities
Dealers, Inc. If not solicited by an NASD member, please write "unsolicited" in
the space below. Unless otherwise indicated by listing the name of another NASD
member firm, it will be assumed that the exercise was solicited by D.H. Blair
Investment Banking Corp. or D.H. Blair & Co., Inc.
--------------------------------
(Name of NASD Member)
Dated: X
-----------------------------
--------------------------------
--------------------------------
Address
--------------------------------
Taxpayer Identification Number
--------------------------------
Signature Guaranteed
--------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
<PAGE>
ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED HOLDER
IN ORDER TO ASSIGN WARRANTS
FOR VALUE RECEIVED, _____ hereby sells, assigns and transfers unto:
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
----------------------
----------------------
----------------------
----------------------
[please print or type name and address]
_____ of the Warrants represented by this Warrant Certificate, and hereby
irrevocably constitutes and appoints Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated:
-------------- ---------------------------------------
Signature Guaranteed
---------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
<PAGE>
Exhibit 4.4
Option to Purchase
[__] Units
CAREFLOW | NET, INC.
FORM OF UNIT PURCHASE OPTION
DATED: [__], 1997
THIS CERTIFIES THAT [__] (the "HOLDER") is entitled to purchase from
CareFlow | Net, Inc., a Delaware corporation (the "COMPANY"), at the prices and
during the periods as hereinafter specified, up to [__] Units ("UNITS"), each
Unit consisting of one share of the Company's Common Stock, $.001 par value, as
now constituted ("COMMON STOCK"), and one Class A Warrant ("CLASS A WARRANTS" or
"WARRANTS"). Each Class A Warrant is exercisable to purchase one share of
Common Stock at an exercise price of $6.50 from the Separation Date (as defined
in the Warrant Agreement) through [__], 2002.
The Units have been registered under a Registration Statement on Form
SB-2, (File No. 333-[__]) declared effective by the Securities and Exchange
Commission (the "COMMISSION") on [__], 1997 (the "REGISTRATION STATEMENT").
This Unit Purchase Option (the "OPTION") to purchase [__] Units, subject to
adjustment in accordance with SECTION 8 of this Option (the "OPTION UNITS"), was
originally issued pursuant to an underwriting agreement between the Company and
the Holder, as representative of the several underwriters set forth in such
underwriting agreement (collectively, the "UNDERWRITERS") in connection with a
public offering (the "OFFERING") of One Million Six Hundred Thousand (1,600,000)
Units (the "PUBLIC UNITS") through the Underwriters, in consideration of One
Hundred Sixty Dollars ($160) received for the aggregate Options.
Except as specifically otherwise provided herein, the Common Stock and
the Warrants issued pursuant to the Option shall bear the same terms and
conditions as described under the caption "Description of Securities" in the
Registration Statement, and the Warrants shall be governed by the terms of the
Warrant Agreement dated as of [__], 1997 executed in connection with such
Offering (the "WARRANT AGREEMENT"), except that (i) the Holder shall have
registration rights under the Securities Act of 1933, as amended (the "ACT"),
for the Option, the Common Stock and the Warrants included in the Option Units,
and the shares of Common Stock underlying the Warrants, as more fully described
in SECTION 6 of this Option and (ii) the Warrants issuable upon exercise of the
Option will be subject to redemption by the Company pursuant to the Warrant
Agreement at any time after the Option has been exercised and the Warrants
underlying the Option Units are outstanding. Any such redemption shall be on
the same terms and conditions as the Warrants included in the Public Units (the
"PUBLIC WARRANTS"). The Company will list the Common Stock underlying this
Option and, at the Holder's request the Warrants, on the Nasdaq Small Cap Market
or such other exchange or market as the Common Stock or Public Warrants may then
be listed or quoted. In the event of any extension of the expiration date or
reduction of the exercise price of the Public Warrants, the same changes to the
Warrants included in the Option Units shall be simultaneously effected.
<PAGE>
1. EXERCISE. The rights represented by this Option shall be
exercised at the prices, subject to adjustment in accordance with SECTION 8 of
this Option (the "EXERCISE PRICE"), and during the periods as follows:
(a) During the period from [__], 1997 through [__], 2000 inclusive,
the Holder shall have no right to purchase any Option Units hereunder, except
that in the event of any merger, consolidation or sale of all or substantially
all the capital stock or assets of the Company or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of another corporation into the Company) subsequent
to [__], 1997, the Holder shall have the right to exercise this Option and the
Warrants included herein at such time and receive the kind and amount of shares
of stock and other securities and property (including cash) which a holder of
the number of shares of Common Stock underlying this Option and the Warrants
included in this Option would have owned or been entitled to receive had this
Option been exercised immediately prior thereto.
(b) Between [__], 2000 and [__], 2002 inclusive, the Holder shall
have the option to purchase Option Units hereunder at a price of $[__] per Unit.
(c) After [__], 2002 the Holder shall have no right to purchase any
Units hereunder.
2. MECHANICS.
(a) The rights represented by this Option may be exercised at any
time within the period above specified, in whole or in part, by (i) the
surrender of this Option (with the purchase form at the end hereof properly
executed) at the principal executive office of the Company (or such other office
or agency of the Company as it may designate by notice in writing to the Holder
at the address of the Holder appearing on the books of the Company); and (ii)
payment to the Company of the exercise price then in effect for the number of
Option Units specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any. This Option shall be deemed to have
been exercised, in whole or in part to the extent specified, immediately prior
to the close of business on the date this Option is surrendered and payment is
made in accordance with the foregoing provisions of this SECTION 2, and the
person or persons in whose name or names the certificates for shares of Common
Stock and Warrants shall be issuable upon such exercise shall become the holder
or holders of record of such Common Stock and Warrants at that time and date.
The certificates for the Common Stock and Warrants so purchased shall be
delivered to the Holder as soon as practicable but not later than ten (10) days
after the rights represented by this Option shall have been so exercised.
(b) At any time during the period above specified, during which this
Option may be exercised, the Holder may, at its option, exchange this Option, in
whole or in part (an "OPTION EXCHANGE"), into the number of Option Units
determined in accordance with this SECTION 2(B), by surrendering this Option at
the principal office of the Company or at the office of its stock transfer
agent, accompanied by a notice (in the form attached hereto) stating such
Holder's intent to effect such exchange, the number of Option Units into which
this Option is to be exchanged and the date on which the Holder requests that
such Option Exchange occur (the "NOTICE OF EXCHANGE"). The Option Exchange
shall take place on the date specified in the Notice of Exchange or, if later,
the date the Notice of Exchange is received by the Company (the "EXCHANGE
DATE").
<PAGE>
Certificates for the shares of Common Stock and Warrants issuable upon such
Option Exchange and, if applicable, a new Option of like tenor evidencing the
balance of the Option Units remaining subject to this Option, shall be issued as
of the Exchange Date and delivered to the Holder within seven (7) days following
the Exchange Date. In connection with any Option Exchange, this Option shall
represent the right to subscribe for and acquire the number of Option Units
(rounded to the next highest integer) equal to (x) the number of Option Units
specified by the Holder in its Notice of Exchange up to the maximum number of
Option Units subject to this Option (the "TOTAL NUMBER") less (y) the number of
Option Units equal to the quotient obtained by dividing (A) the product of the
Total Number and the existing Exercise Price by (B) the Fair Market Value.
"FAIR MARKET VALUE" shall mean first, if there is a trading market as indicated
in CLAUSE (I) below for the Units, such Fair Market Value of the Units and if
there is no such trading market in the Units, then Fair Market Value shall have
the meaning indicated in CLAUSES (II) THROUGH (V) below for the aggregate value
of all shares of Common Stock and Warrants which comprise a Unit:
(i) If the Units are listed on a national securities exchange or
listed or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq National Market or the Nasdaq Small Cap Market, the Fair
Market Value shall be the average of the last reported sale prices or the
average of the means of the last reported bid and asked prices, respectively, of
the Units on such exchange or market for the twenty (20) business days ending on
the last business day prior to the Exchange Date; or
(ii) If the Common Stock or Warrants are listed on a national
securities exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq National Market or the Nasdaq Small Cap
Market, the Fair Market Value shall be the average of the last reported sale
prices or the average of the means of the last reported bid and asked prices,
respectively, of Common Stock or Warrants, respectively, on such exchange or
market for the twenty (20) business days ending on the last business day prior
to the Exchange Date; or
(iii) If the Common Stock or Warrants are not so listed or
admitted to unlisted trading privileges, the Fair Market Value shall be the
average of the means of the last reported bid and asked prices of the Common
Stock or Warrants, respectively, for the twenty (20) business days ending on the
last business day prior to the Exchange Date; or
(iv) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the Fair Market
Value shall be an amount, not less than book value thereof as at the end of the
most recent fiscal year of the Company ending prior to the Exchange Date,
determined in such reasonable manner as may be prescribed by the Board of
Directors of the Company; or
(v) If the Warrants are not so listed or admitted to unlisted
trading privileges, and bid and asked prices are not so reported for Warrants,
then Fair Market Value for the Warrants shall be an amount equal to the
difference between (i) the Fair Market Value of the shares of Common Stock and
Warrants which may be received upon the exercise of the Warrants, as determined
herein, and (ii) the Warrant Exercise Price.
3. RESTRICTIONS ON TRANSFER. Neither this Option nor the underlying
securities shall be transferred, sold, assigned, or hypothecated for a period of
three (3) years commencing from the date hereof except that they may be
transferred to successors of the Holder, and may be assigned
<PAGE>
in whole or in part to any person who is an officer of the Holder, any member
participating in the selling group relating to the Offering or any officer of
such selling group member. Any such assignment shall be effected by the Holder
(i) executing the form of assignment at the end hereof and (ii) surrendering
this Option for cancellation at the office or agency of the Company referred to
in SECTION 2(A) hereof, accompanied by a certificate (signed by an officer of
the Holder if the Holder is a corporation), stating that each transferee is a
permitted transferee under this SECTION 3; whereupon the Company shall issue, in
the name or names specified by the Holder (including the Holder) a new Option or
Options of like tenor and representing in the aggregate rights to purchase the
same number of Option Units as are purchasable hereunder.
4. COMMON STOCK. The Company covenants and agrees that all shares
of Common Stock which may be issued as part of the Option Units purchased
hereunder and the Common Stock which may be issued upon exercise of the Warrants
will, upon issuance, be duly and validly issued, fully paid and nonassessable
and no personal liability will attach to the holder thereof. The Company
further covenants and agrees that during the periods within which this Option
may be exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
this Option and that it will have authorized and reserved a sufficient number of
shares of Common Stock for issuance upon exercise of the Warrants included in
the Option Units.
5. LIMITATIONS. This Option shall not entitle the Holder to any
voting rights or any other rights, or subject to the Holder to any liabilities,
as a stockholder of the Company.
6. REGISTRATION RIGHTS.
(a) The Company shall advise the Holder or its transferee, whether
the Holder holds the Option or has exercised the Option and holds Option Units
or any of the securities underlying the Option Units, by written notice at least
four weeks prior to the filing of any post-effective amendment to the
Registration Statement or of any new registration statement or post-effective
amendment thereto under the Act covering any securities of the Company, for its
own account or for the account of others, and will for a period of seven years
from the effective date of the Registration Statement, upon the request of the
Holder, include in any such post-effective amendment or registration statement,
such information as may be required to permit a public offering of the Option,
all or any of the Option Units, the Common Stock or Warrants included in the
Option Units or the Common Stock issuable upon the exercise of the Warrants (the
"REGISTRABLE SECURITIES"); provided, however, the right of any Holder to include
its Registrable Securities in any such post-effective amendment or registration
statement may be waived by the written consent of the Holder, D.H. Blair & Co.,
Inc. or J. Morton Davis (collectively, as applicable, the "RIGHTHOLDERS").
(b) If any 50% holder (as defined below in SECTION 6(C)) or any of
the Rightholders, shall give notice to the Company at any time to the effect
that such holder desires to register under the Act this Option, the Option Units
or any of the underlying securities contained in the Option Units under such
circumstances that a public distribution (within the meaning of the Act) of any
such securities will be involved then the Company will promptly, but no later
than two weeks after receipt of such notice, file a post-effective amendment to
the current Registration Statement or a new registration statement on Form S-1
or such other form as the holder requests pursuant to the Act, to the end that
the Option, the Option Units and/or any of the securities underlying the Option
<PAGE>
Units may be publicly sold under the Act as promptly as practicable thereafter
and the Company will use its best efforts to cause such registration to become
and remain effective (including the taking of such steps as are necessary to
obtain the removal of any stop order); provided, that such holder shall furnish
the Company with appropriate information in connection therewith as the Company
may reasonably request in writing. The 50% holder or any of the Rightholders,
may, at its option, request the filing of a post-effective amendment to the
current Registration Statement or a new registration statement under the Act on
two occasions during the thirty month period beginning thirty months from the
effective date of the Registration Statement. The Holder may, at its option
request the registration of the Option and/or any of the securities underlying
the Option in a registration statement made by the Company as contemplated by
SECTION 6(A) or in connection with a request made pursuant to this SECTION 6(B)
prior to acquisition of the Option Units issuable upon exercise of the Option
and even though the Holder has not given notice of exercise of the Option. The
50% holder or any of the Rightholders, may, at its option, request such
post-effective amendment or new registration statement during the described
period with respect to the Option, the Option Units as a unit, or separately as
to the Common Stock and/or Warrants included in the Option Units and/or the
Common Stock issuable upon the exercise of the Warrants, and such registration
rights may be exercised by the 50% holder or any of the Rightholders, prior to
or subsequent to the exercise of the Option. Within ten days after receiving
any such notice pursuant to this SECTION 6(B), the Company shall give notice to
the other holders of the Options, advising that the Company is proceeding with
such post-effective amendment or registration statement and offering to include
therein the securities underlying the Options of the other holders, provided
that they shall furnish the Company with such appropriate information (relating
to the intentions of such holders) in connection therewith as the Company shall
reasonably request in writing. In the event the registration statement is not
filed within the period specified herein and in the event the registration
statement is not declared effective under the Act prior to [__], 2002, then, at
the holders' request, the Company shall purchase the Options from the holder for
a per option price equal to the difference between (i) the Fair Market Value of
the Common Stock on the date of notice multiplied by the number of shares of
Common Stock issuable upon exercise of the Option and the underlying Warrants
and (ii) the average per share purchase price of the Option and each share of
Common Stock underlying the Option. All costs and expenses of the
post-effective amendment or one new registration statement under this SECTION
6(B) shall be borne by the Company, except that the holders shall bear the fees
of their own counsel and any underwriting discounts or commissions applicable to
any of the securities sold by them. The Company will maintain such registration
statement or post-effective amendment current under the Act for a period of at
least six months (and for up to an additional three months if requested by the
Holder) from the effective date thereof.
(c) The term "50% holder" as used in this SECTION 6 shall mean the
holder of at least 50% of the Common Stock and the Warrants underlying the
Options (considered in the aggregate) and shall include any owner or combination
of owners of such securities, which ownership shall be calculated by determining
the number of shares of Common Stock held by such owner or owners as well as the
number of shares then issuable upon exercise of the Warrants.
(d) Whenever pursuant to this SECTION 6 a registration statement
relating to any Registrable Securities is filed under the Act, amended or
supplemented, the Company shall (i) supply prospectuses and such other documents
as the Holder may request in order to facilitate the public sale or other
disposition of the Registrable Securities, (ii) use its best efforts to register
and qualify any of the Registrable Securities for sale in such states as such
Holder designates, (iii) furnish indemnification in the manner provided in
SECTION 7 hereof, (iv) notify each Holder of Registrable
<PAGE>
Securities at any time when a prospectus relating thereto is required to be
delivered under the Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and, at the request of any such Holder, prepare and furnish to such
Holder a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not included an
untrue statement of a material fact or omit to state material fact required to
be stated therein or necessary to make the statements therein not misleading and
(v) do any and all other acts and things which may be necessary or desirable to
enable such Holders to consummate the public sale or other disposition of the
Registrable Securities, The Holder shall furnish appropriate information in
connection therewith and indemnification as set forth in SECTION 7.
(e) The Company shall not permit the inclusion of any securities
other than the Registrable Securities to be included in any registration
statement filed pursuant to SECTION 6(B) hereof without the prior written
consent of the 50% holder or the Rightholders.
(f) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (or, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) if such registration
includes an underwritten public offering, a "cold comfort" letter dated the
effective date of such registration statement and dated the date of the closing
under the underwriting agreement signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(g) The Company shall deliver promptly to each Holder participating
in the offering requesting the correspondence and memoranda described below and
to the managing underwriter copies of all correspondence between the COMMISSION
and the Company, its counsel or auditors and all memoranda relating to
discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonable necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to
non-confidential books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times as any such Holder shall
reasonably request.
<PAGE>
7. INDEMNIFICATION.
(a) Whenever pursuant to SECTION 6 a registration statement (as
amended or supplemented) relating to the Registrable Securities is filed under
the Act, the Company will indemnify and hold harmless each holder of the
Registrable Securities covered by such registration statement, amendment or
supplement (such holder being hereinafter called the "DISTRIBUTING HOLDER"), and
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each underwriter (within the meaning of the Act) of
such securities and each person, if any, who controls (within the meaning of the
Act) any such underwriter, against any losses, claims, damages or liabilities,
joint or several (collectively "LOSSES"), to which the Distributing Holder, any
such controlling person or any such underwriter may become subject, under the
Act or otherwise, insofar as such Losses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any amendment or
supplement thereto, or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse the Distributing Holder
and each such controlling person and underwriter for any legal or other expenses
reasonably incurred by the Distributing Holder or such controlling person or
underwriter in connection with investigating or defending any such Loss,
provided, however, that the Company will not be liable in any such case to the
extent that any such Loss, arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder specifically for use in the
preparation thereof.
(b) If requested by the Company prior to the filing of any
registration statement covering the Registrable Securities, each Distributing
Holder will agree, severally but not jointly, to indemnify and hold harmless the
Company against any Losses, to which the Company may become subject, under the
Act or otherwise, insofar as such Losses, arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission was made in said registration
statement, said preliminary prospectus, said final prospectus or said amendment
or supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder specifically for use in the preparation
thereof; except that the maximum amount which may be recovered from the
Distributing Holder pursuant to this SECTION 7 or otherwise shall be limited to
the amount of net proceeds received by the Distributing Holder from the sale of
the Registrable Securities.
(c) Promptly after receipt by an indemnified party under this SECTION
7 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this SECTION 7.
<PAGE>
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
SECTION 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8. ADJUSTMENTS. In addition to the provisions of SECTION 1(A) of
this Option, the Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of the Options shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action. Such adjustment shall be made successively whenever any
event listed above shall occur.
(b) Whenever the Exercise Price payable upon exercise of each Option
is adjusted pursuant to CLAUSE (A) above, (i) the number of shares of Common
Stock included in an Option Unit shall simultaneously be adjusted by multiplying
the number of shares of Common Stock included in Option Unit immediately prior
to such adjustment by the Exercise Price in effect immediately prior to such
adjustment and dividing the product so obtained by the Exercise Price, as
adjusted and (ii) the number of shares of Common Stock or other securities
issuable upon exercise of the Warrants included in the Option Units and the
exercise price of such Warrants shall be adjusted in accordance with the
applicable terms of the Warrant Agreement.
(c) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents ($0.05)
in such price; provided, however, that any adjustments which by reason of this
CLAUSE (C) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment required to be made hereunder. All
calculations under this SECTION 8 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this SECTION
8 to the contrary notwithstanding, the Company shall be entitled, but shall not
be required, to make such changes in the Exercise Price, in addition to those
required by this SECTION 8, as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of Common Stock,
or any subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any federal income tax liability to the
holders of Common Stock or securities convertible into Common Stock (including
Warrants issuable upon exercise of this Option).
<PAGE>
(d) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly but no later than 10 days after any request for such an
adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Option Units issuable upon exercise of each Option
and, if requested, information describing the transactions giving rise to such
adjustments, to be mailed to the Holders, at the address set forth herein, and
shall cause a certified copy thereof to be mailed to its transfer agent, if any.
The Company may retain a firm of independent certified public accountants
selected by the board of directors of the Company (who may be the regular
accountants employed by the Company) to make any computation required by this
SECTION 8, and a certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.
(e) In the event that at any time, as a result of an adjustment made
pursuant to CLAUSE (A) above, the Holder of this Option thereafter shall become
entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Option shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in CLAUSES (A) THROUGH (D), inclusive above.
(f) In case any event shall occur as to which the other provisions of
this SECTION 8 OR SECTION 1(A) hereof are not strictly applicable but as to
which the failure to make any adjustment would not fairly protect the purchase
rights represented by this Option in accordance with the essential intent and
principles hereof then, in each such case, the Holders of Options representing
the right to purchase a majority of the Option Units may appoint a firm of
independent public accountants reasonably acceptable to the Company, which shall
give their opinion as to the adjustment, if any, on a basis consistent with the
essential intent and principles established herein, necessary to preserve the
purchase rights represented by the Options. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the Holder of this Option and shall
make the adjustments described therein. The fees and expenses of such
independent public accountants shall be borne by the Company.
9. GOVERNING LAW. This Agreement shall be governed by and in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Option to be signed by
its duly authorized officers under its corporate seal, and this Option to be
dated as of the date set forth above.
CAREFLOW | NET, INC.
By:
--------------------------------
Name: J. Calvin Kaylor
Title: President
(Corporate Seal)
Attest:
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of the Option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby
irrevocably elects to exercise the purchase rights represented by such Option
for, and to purchase thereunder, _____ Units of CareFlow | Net, Inc. (the
"COMPANY"), each Unit consisting of one share of Common Stock, $.01 par value,
of the Company (the "COMMON STOCK"), and one Class A Warrant to purchase one
share of Common Stock and herewith makes payment of $_____.
Dated:
-----------
-----------------------------------
Print Name
-----------------------------------
Address
-----------------------------------
Signature
<PAGE>
NOTICE OF EXCHANGE
(To be signed only upon exchange of the Option)
THE UNDERSIGNED, pursuant to the provisions of the foregoing Option,
hereby elects to exchange such Option for _____ Units of CareFlow | Net, Inc.
(the "COMPANY"), each Unit consisting of one share of Common Stock, $.01 par
value, of the Company (the "COMMON STOCK"), and one Class A Warrant to purchase
one share of Common Stock, pursuant to the Option Exchange provisions of such
Option.
Dated:
-----------
-----------------------------------
Print Name
-----------------------------------
Address
-----------------------------------
Signature
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
THE UNDERSIGNED, hereby sells, assigns, and transfers unto _____ the
right to purchase Units of CareFlow | Net, Inc. (the "COMPANY") represented by
the foregoing Option to the extent of _____Units, each Unit consisting of one
share of Common Stock, $.01 par value, of the Company (the "COMMON STOCK"), and
are Warrant to purchase one share of Common Stock and appoints _____ attorney to
transfer such rights on the books of the Company with full power of substitution
in the premises.
Dated:
-----------
-----------------------------------
Print Name
-----------------------------------
Address
-----------------------------------
Signature
<PAGE>
Exhibit 10.1
CAREFLOW | NET, INC.
1997 STOCK OPTION PLAN
1. PURPOSE.
The purpose of this plan (the "Plan") is to secure for CAREFLOW | NET,
INC. (the "Company") and its stockholders the benefits arising from capital
stock ownership by employees, officers and directors of, and consultants or
advisors to, the Company who are expected to contribute to the Company's future
growth and success. Except where the context otherwise requires, the term
"Company" shall include all present and future subsidiaries of the Company as
defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as
amended or replaced from time to time (the "Code"). Those provisions of the
Plan which make express reference to Section 422 shall apply only to Incentive
Stock Options (as that term is defined in the Plan).
2. TYPE OF OPTIONS AND ADMINISTRATION.
(a) TYPES OF OPTIONS. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a committee
designated by the Board of Directors, the "Committee") and may be either
incentive stock options ("Incentive Stock Options") meeting the requirements of
Section 422 of the Code or non-statutory options which are not intended to meet
the requirements of Section 422 of the Code.
(b) ADMINISTRATION. The Plan will be administered by the Board of
Directors or the Committee, whose construction and interpretation of the terms
and provisions of the Plan shall be final and conclusive. The delegation of
powers to the Committee shall be consistent with applicable laws or regulations
(including, without limitation, applicable state law and Rule 16b-3
("Rule 16b-3") promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"), or any successor rule). The Board of Directors or the
Committee may in its sole discretion grant options to purchase shares of the
Company's Common Stock, $.001 par value per share ("Common Stock") and issue
shares upon exercise of such options as provided in the Plan. The Board of
Directors or the Committee shall have authority, subject to the express
provisions of the Plan, to construe the respective option agreements and the
Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the respective option agreements,
which need not be identical, and to make all other determinations in the
judgment of the Board of Directors or the Committee necessary or desirable for
the administration of the Plan. The Board of Directors or the Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any option agreement 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. No director or person acting pursuant to authority
delegated by the Board of Directors or the Committee shall be liable for any
action or determination under the Plan made in good faith. Subject to
adjustment as
<PAGE>
provided in Section 15 below, the aggregate number of shares of Common Stock
that may be subject to Options granted to any person in a calendar year shall
not exceed 25% of the maximum number of shares which may be issued and sold
under the Plan, as set forth in Section 4 hereof, as such section may be amended
from time to time.
(c) APPLICABILITY OF RULE 16B-3. Those provisions of the Plan which
make express reference to Rule 16b-3 shall apply to the Company only at such
time as the Company's Common Stock is registered under the Exchange Act, subject
to the last sentence of Section 3(b), and then only to such persons as are
required to file reports under Section 16(a) of the Exchange Act (a "Reporting
Person").
3. ELIGIBILITY.
(a) GENERAL. Options may be granted to persons who are, at the time
of grant, employees, officers or directors of, or consultants or advisors to,
the Company or any subsidiaries of the Company as defined in Sections 424(e) and
424(f) of the Code ("Participants") PROVIDED, that Incentive Stock Options may
only be granted to individuals who are employees of the Company (within the
meaning of Section 3401(c) of the Code). A person who has been granted an
option may, if he or she is otherwise eligible, be granted additional options if
the Board of Directors or the Committee shall so determine.
(b) GRANT OF OPTIONS TO REPORTING PERSONS. The selection of a
director or an officer who is a Reporting Person (as the terms "director" and
"officer" are defined for purposes of Rule 16b-3) as a recipient of an option,
the timing of the option grant, the exercise price of the option and the number
of shares subject to the option shall be determined either (i) by the Board of
Directors, (ii) by a committee consisting of two or more directors having full
authority to act in the matter or (iii) pursuant to provisions for automatic
grants set forth in Section 3(c) below.
(c) DIRECTORS' OPTIONS. Directors of the Company who are not
employees of or consultants to the Company and who are not stockholders of the
Company beneficially owning in excess of 5% of the outstanding Common Stock of
the Company ("Eligible Directors") will receive an option ("Director Option") to
purchase 5,000 shares of Common Stock on the date that such person is first
elected or appointed a director ("Initial Director Option"). Commencing on the
day immediately following the date of the annual meeting of stockholders for the
Company's fiscal year ending December 31, 1997, each Eligible Director will
receive an automatic grant ("Automatic Grant") of a Director Option to purchase
1,000 shares of Common Stock, other than Eligible Directors who received an
Initial Director Option since the most recent Automatic Grant, on the day
immediately following the date of each annual meeting of stockholders, as long
as such director is a member of the Board of Directors. The exercise price for
each share subject to a Director Option shall be equal to the fair market value
of the Common Stock on the date of grant. Director Options shall become
exercisable in four equal annual installments commencing one year from the date
the option is granted and will expire the earlier of 10 years after the date of
grant or 90 days after the termination of the director's service on the Board.
2
<PAGE>
4. STOCK SUBJECT TO PLAN.
The stock subject to options granted under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. Subject to adjustment as
provided in Section 15 below, the maximum number of shares of Common Stock of
the Company which may be issued and sold under the Plan is 300,000 shares. If
an option granted under the Plan shall expire, terminate or is cancelled for any
reason without having been exercised in full, the unpurchased shares subject to
such option shall again be available for subsequent option grants under the
Plan.
5. FORMS OF OPTION AGREEMENTS.
As a condition to the grant of an option under the Plan, each
recipient of an option shall execute an option agreement in such form not
inconsistent with the Plan as may be approved by the Board of Directors or the
Committee. Such option agreements may differ among recipients.
6. PURCHASE PRICE.
(a) GENERAL. The purchase price per share of stock deliverable upon
the exercise of an option shall be determined by the Board of Directors or the
Committee at the time of grant of such option; PROVIDED, HOWEVER, that in the
case of an Incentive Stock Option, the exercise price shall not be less than
100% of the Fair Market Value (as hereinafter defined) of such stock, at the
time of grant of such option, or less than 110% of such Fair Market Value in the
case of options described in Section 11(b). "Fair Market Value" of a share of
Common Stock of the Company as of a specified date for the purposes of the Plan
shall mean the closing price of a share of the Common Stock on the principal
securities exchange (including the Nasdaq National Market) on which such shares
are traded on the day immediately preceding the date as of which Fair Market
Value is being determined, or on the next preceding date on which such shares
are traded if no shares were traded on such immediately preceding day, or if the
shares are not traded on a securities exchange, Fair Market Value shall be
deemed to be the average of the high bid and low asked prices of the shares in
the over-the-counter market on the day immediately preceding the date as of
which Fair Market Value is being determined or on the next preceding date on
which such high bid and low asked prices were recorded. If the shares are not
publicly traded, Fair Market Value of a share of Common Stock (including, in the
case of any repurchase of shares, any distributions with respect thereto which
would be repurchased with the shares) shall be determined in good faith by the
Board of Directors or the Committee. In no case shall Fair Market Value be
determined with regard to restrictions other than restrictions which, by their
terms, will never lapse.
(b) PAYMENT OF PURCHASE PRICE. Options granted under the Plan may
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Company in an amount equal to the exercise price of such
options, or by any other means which the Board of Directors or the Committee
determines are consistent with the purpose of the Plan and with
3
<PAGE>
applicable laws and regulations (including, without limitation, the provisions
of Rule 16b-3 and Regulation T promulgated by the Federal Reserve Board).
7. OPTION PERIOD.
Subject to earlier termination as provided in the Plan, each option
and all rights thereunder shall expire on such date as determined by the Board
of Directors or the Committee and set forth in the applicable option agreement,
PROVIDED, that such date shall not be later than (10) ten years after the date
on which the option is granted.
8. EXERCISE OF OPTIONS.
Each option granted under the Plan shall be exercisable either in full
or in installments at such time or times and during such period as shall be set
forth in the option agreement evidencing such option, subject to the provisions
of the Plan. Subject to the requirements in the immediately preceding sentence,
if an option is not at the time of grant immediately exercisable, the Board of
Directors or the Committee may (i) in the agreement evidencing such option,
provide for the acceleration of the exercise date or dates of the subject option
upon the occurrence of specified events, and/or (ii) at any time prior to the
complete termination of an option, accelerate the exercise date or dates of such
option.
9. TRANSFERABILITY OF OPTIONS.
No incentive stock option granted under this Plan shall be assignable
or otherwise transferable by the optionee except by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined in the Code or Title I of the Employee Retirement Income Security Act,
or the rules thereunder. The Board of Directors or the Committee may, in its
discretion, authorize all or a portion of any non-statutory options to be
granted to an optionee to be on terms which permit transfer by such optionee to
(i) the spouse, children or grandchildren of the optionee ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members, or (iii) a partnership in which such Immediate Family Members
are the only partners, provided that (w) the options must be held by the
optionee for a period of at least one month prior to transfer, (x) there may be
no consideration for any such transfer, (y) the stock option agreement pursuant
to which such options are granted must be approved by the Board of Directors or
the Committee, and must expressly provide for transferability in a manner
consistent with this Section, and (z) subsequent transfers of transferred
options shall be prohibited except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder. Following transfer, any such options shall continue to be subject
to the same terms and conditions as were applicable immediately prior to
transfer, provided that for purposes of the Plan the term "optionee" shall be
deemed to refer to the transferee. The events of termination of employment of
Section 10 hereof shall continue to be applied with respect to the original
optionee. An option may be exercised during the lifetime of the optionee only
by the original optionee. In the event an optionee dies
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during his employment by the Company or any of its subsidiaries, or during the
three-month period following the date of termination of such employment, his
option shall thereafter be exercisable, during the period specified in the
option agreement, by his executors or administrators to the full extent to which
such option was exercisable by the optionee at the time of his death during the
periods set forth in Section 10 or 11(d).
10. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP.
Except as provided in Section 11(d) with respect to Incentive Stock
Options and except as otherwise determined by the Committee at the date of grant
of an Option, and subject to the provisions of the Plan, an optionee may
exercise an option at any time within six (6) months following the termination
of the optionee's employment or other relationship with the Company or within
one (1) year if such termination was due to the death or disability of the
optionee but, except in the case of the optionee's death, in no event later than
the expiration date of the Option. If the termination of the optionee's
employment is for cause or is otherwise attributable to a breach by the optionee
of an employment or confidentiality or non-disclosure agreement, the option
shall expire immediately upon such termination. The Board of Directors shall
have the power to determine what constitutes a termination for cause or a breach
of an employment or confidentiality or non-disclosure agreement, whether an
optionee has been terminated for cause or has breached such an agreement, and
the date upon which such termination for cause or breach occurs. Any such
determinations shall be final and conclusive and binding upon the optionee.
11. INCENTIVE STOCK OPTIONS.
Options granted under the Plan which are intended to be Incentive
Stock Options shall be subject to the following additional terms and conditions:
(a) EXPRESS DESIGNATION. All Incentive Stock Options granted under
the Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% STOCKHOLDER. If any employee to whom an Incentive Stock
Option is to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
(i) The purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the Fair
Market Value of one share of Common Stock at the time of grant; and
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(ii) The option exercise period shall not exceed five years from
the date of grant.
(c) DOLLAR LIMITATION. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate Fair Market Value, as
of the respective date or dates of grant, of more than $100,000.
(d) TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. No Incentive
Stock Option may be exercised unless, at the time of such exercise, the optionee
is, and has been continuously since the date of grant of his or her option,
employed by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period
of three months after the date the optionee ceases to be an employee
of the Company (or within such lesser period as may be specified in
the applicable option agreement), PROVIDED, that the agreement with
respect to such option may designate a longer exercise period and that
the exercise after such three-month period shall be treated as the
exercise of a non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee,
the Incentive Stock Option may be exercised by the person to whom it
is transferred by will or the laws of descent and distribution within
the period of one year after the date of death (or within such lesser
period as may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provisions thereto)
while in the employ of the Company, the Incentive Stock Option may be
exercised within the period of one year after the date the optionee
ceases to be such an employee because of such disability (or within
such lesser period as may be specified in the applicable option
agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. ADDITIONAL PROVISIONS.
(a) ADDITIONAL OPTION PROVISIONS. The Board of Directors or the
Committee may, in its sole discretion, include additional provisions in option
agreements covering options
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granted under the Plan, including without limitation restrictions on transfer,
repurchase rights, rights of first refusal, commitments to pay cash bonuses, to
make, arrange for or guaranty loans or to transfer other property to optionees
upon exercise of options, or such other provisions as shall be determined by the
Board of Directors or the Committee; PROVIDED, that such additional provisions
shall not be inconsistent with any other term or condition of the Plan and such
additional provisions shall not cause any Incentive Stock Option granted under
the Plan to fail to qualify as an Incentive Stock Option within the meaning of
Section 422 of the Code.
(b) ACCELERATION, EXTENSION, ETC. The Board of Directors or the
Committee may, in its sole discretion, (i) accelerate the date or dates on which
all or any particular option or options granted under the Plan may be exercised
or (ii) extend the dates during which all, or any particular, option or options
granted under the Plan may be exercised; PROVIDED, HOWEVER, that no such
extension shall be permitted if it would cause the Plan to fail to comply with
Section 422 of the Code or with Rule 16b-3 (if applicable).
13. GENERAL RESTRICTIONS.
(a) INVESTMENT REPRESENTATIONS. The Company may require any
optionee, as a condition of exercising such option, to give written assurances
in substance and form satisfactory to the Company to the effect that such person
is acquiring the Common Stock subject to the option or award, for his or her own
account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws, or with covenants or representations made by the Company in
connection with any public offering of its Common Stock, including any "lock-up"
or other restriction on transferability.
(b) COMPLIANCE WITH SECURITIES LAW. Each Option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option or award upon any securities exchange or automated quotation system or
under any state or federal law, or the consent or approval of any governmental
or regulatory body, or that the disclosure of non-public information or the
satisfaction of any other condition is necessary as a condition of, or in
connection with the issuance of shares thereunder, such option may not be
exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such condition shall have
been effected or obtained on conditions acceptable to the Board of Directors.
Nothing herein shall be deemed to require the Company to apply for or to obtain
such listing, registration or qualification, or to satisfy such condition.
14. RIGHTS AS A STOCKHOLDER.
The holder of an option shall have no rights as a stockholder with
respect to any shares covered by the option (including, without limitation, any
rights to receive dividends or non-cash distributions with respect to such
shares) until the date of issue of a stock certificate to
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him or her for such shares. No adjustment shall be made for dividends or other
rights for which the record date is prior to the date such stock certificate is
issued.
15. ADJUSTMENT PROVISIONS FOR RECAPITALIZATIONS, REORGANIZATIONS AND
RELATED TRANSACTIONS.
(a) RECAPITALIZATIONS AND RELATED TRANSACTIONS. If, through or as a
result of any recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares of
Common Stock are increased, decreased or exchanged for a different number or
kind of shares or other securities of the Company, or (ii) additional shares or
new or different shares or other non-cash assets are distributed with respect to
such shares of Common Stock or other securities, an appropriate and
proportionate adjustment shall be made in (x) the maximum number and kind of
shares reserved for issuance under or otherwise referred to in the Plan, (y) the
number and kind of shares or other securities subject to any then outstanding
options under the Plan, and (z) the price for each share subject to any then
outstanding options under the Plan, without changing the aggregate purchase
price as to which such options remain exercisable. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this Section 15 if such
adjustment (i) would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3 or (ii) would be considered as the adoption of a new
plan requiring stockholder approval.
(b) REORGANIZATION, MERGER AND RELATED TRANSACTIONS. All outstanding
Options under the Plan shall become fully exercisable for a period of sixty (60)
days following the occurrence of any Trigger Event, whether or not such Options
are then exercisable under the provisions of the applicable agreements relating
thereto. For purposes of the Plan, a "Trigger Event" is any one of the
following events:
(i) the date on which shares of Common Stock are first
purchased pursuant to a tender offer or exchange offer (other than such an
offer by the Company, any Subsidiary, any employee benefit plan of the
Company or of any Subsidiary or any entity holding shares or other
securities of the Company for or pursuant to the terms of such plan),
whether or not such offer is approved or opposed by the Company and
regardless of the number of shares purchased pursuant to such offer;
(ii) the date the Company acquires knowledge that any person
or group deemed a person under Section 13(d)-3 of the Exchange Act (other
than the Company, any Subsidiary, any employee benefit plan of the Company
or of any Subsidiary or any entity holding shares of Common Stock or other
securities of the Company for or pursuant to the terms of any such plan or
any individual or entity or group or affiliate thereof which acquired its
beneficial ownership interest prior to the date the Plan was adopted by the
Board), in a transaction or series of transactions, has become the
beneficial owner, directly or indirectly (with beneficial ownership
determined as provided in Rule 13d-3, or any successor rule, under the
Exchange Act), of securities of the Company entitling the person or group
to 30% or more of all votes
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(without consideration of the rights of any class or stock to elect
directors by a separate class vote) to which all shareholders of the
Company would be entitled in the election of the Board of Directors were an
election held on such date;
(iii) the date, during any period of two consecutive years,
when individuals who at the beginning of such period constitute the Board
of Directors of the Company cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for election by
the stockholders of the Company, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period; and
(iv) the date of approval by the stockholders of the Company
of an agreement (a "reorganization agreement") providing for:
(A) The merger or consolidation of the Company with
another corporation where the stockholders of the Company, immediately
prior to the merger or consolidation, do not beneficially own,
immediately after the merger or consolidation, shares of the
corporation issuing cash or securities in the merger or consolidation
entitling such stockholders to 65% or more of all votes (without
consideration of the rights of any class of stock to elect directors
by a separate class vote) to which all shareholders of such
corporation would be entitled in the election of directors or where
the members of the Board of Directors of the Company, immediately
prior to the merger or consolidation, do not, immediately after the
merger or consolidation, constitute a majority of the Board of
Directors of the corporation issuing cash or securities in the merger
or consolidation; or
(B) The sale or other disposition of all or
substantially all the assets of the Company.
(c) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. MERGER, CONSOLIDATION, ASSET SALE, LIQUIDATION, ETC.
(a) GENERAL. In the event of a consolidation or merger or sale of
all or substantially all of the assets of the Company in which outstanding
shares of Common Stock are exchanged for securities, cash or other property of
any other corporation or business entity or in the event of a liquidation of the
Company, the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding options: (i)
in the event of a merger under the terms of which holders of the Common Stock of
the Company will receive upon consummation thereof a cash payment for each share
surrendered in the merger (the
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"Merger Price"), make or provide for a cash payment to the optionees equal to
the difference between (A) the Merger Price times the number of shares of Common
Stock subject to such outstanding options (to the extent then exercisable at
prices not in excess of the Merger Price) and (B) the aggregate exercise price
of all such outstanding options in exchange for the termination of such options,
and (ii) in the event the provisions of Section 15 are not applicable, provide
that all or any outstanding options shall become exercisable in full immediately
prior to such event and upon written notice to the optionees, provide that all
unexercised options will terminate immediately prior to the consummation of such
transaction unless exercised by the optionee within a specified period following
the date of such notice.
(b) SUBSTITUTE OPTIONS. The Company may grant options under the Plan
in substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
17. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
18. OTHER EMPLOYEE BENEFITS.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
19. AMENDMENT OF THE PLAN.
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect; provided, however, that if at any time
the approval of the stockholders of the Company is required under Section 422 of
the Code or any successor provision with respect to Incentive Stock Options, or
under Rule 16b-3, the Board of Directors may not effect such modification or
amendment without such approval; and provided, further, that the provisions of
Section 3(c) hereof shall not be amended more than once every six months,
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other than to comport with changes in the Code, the Employer Retirement Income
Security Act of 1974, as amended, or the rules thereunder.
(b) The modification or amendment of the Plan shall not, without the
consent of an optionee, affect his or her rights under an option previously
granted to him or her. With the consent of the optionee affected, the Board of
Directors may amend outstanding option agreements in a manner not inconsistent
with the Plan. The Board of Directors shall have the right to amend or modify
(i) the terms and provisions of the Plan and of any outstanding Incentive Stock
Options granted under the Plan to the extent necessary to qualify any or all
such options for such favorable federal income tax treatment (including deferral
of taxation upon exercise) as may be afforded incentive stock options under
Section 422 of the Code and (ii) the terms and provisions of the Plan and of any
outstanding option to the extent necessary to ensure the qualification of the
Plan under Rule 16b-3.
20. WITHHOLDING.
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a Fair
Market Value equal to such withholding obligation as of the date that the amount
of tax to be withheld is to be determined. An optionee who has made an election
pursuant to this Section 20(a) may only satisfy his or her withholding
obligation with shares of Common Stock which are not subject to any repurchase,
forfeiture, unfulfilled vesting or other similar requirements.
(b) The acceptance of shares of Common Stock upon exercise of an
Incentive Stock Option shall constitute an agreement by the optionee (i) to
notify the Company if any or all of such shares are disposed of by the optionee
within two years from the date the option was granted or within one year from
the date the shares were issued to the optionee pursuant to the exercise of the
option, and (ii) if required by law, to remit to the Company, at the time of and
in the case of any such disposition, an amount sufficient to satisfy the
Company's federal, state and local withholding tax obligations with respect to
such disposition, whether or not, as to both (i) and (ii), the optionee is in
the employ of the Company at the time of such disposition.
(c) Notwithstanding the foregoing, in the case of a Reporting Person
whose options have been granted in accordance with the provisions of
Section 3(b) herein, no election to use shares for the payment of withholding
taxes shall be effective unless made in compliance with any applicable
requirements of Rule 16b-3.
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21. CANCELLATION AND NEW GRANT OF OPTIONS, ETC.
The Board of Directors shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. EFFECTIVE DATE AND DURATION OF THE PLAN.
(a) EFFECTIVE DATE. The Plan shall become effective when adopted by
the Board of Directors, but no Incentive Stock Option granted under the Plan
shall become exercisable unless and until the Plan shall have been approved by
the Company's stockholders. If such stockholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. Amendments to the
Plan not requiring stockholder approval shall become effective when adopted by
the Board of Directors; amendments requiring stockholder approval (as provided
in Section 21) shall become effective when adopted by the Board of Directors,
but no Incentive Stock Option granted after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was required
to enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
(b) TERMINATION. Unless sooner terminated in accordance with
Section 16, the Plan shall terminate upon the earlier of (i) the close of
business on the day next preceding the tenth anniversary of the date of its
adoption by the Board of Directors, or (ii) the date on which all shares
available for issuance under the Plan shall have been issued pursuant to the
exercise or cancellation of options granted under the Plan. If the date of
termination is determined under (i) above, then options outstanding on such date
shall continue to have force and effect in accordance with the provisions of the
instruments evidencing such options.
23. PROVISION FOR FOREIGN PARTICIPANTS.
The Board of Directors may, without amending the Plan, modify awards
or options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
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24. GOVERNING LAW.
The provisions of this Plan shall be governed and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws.
Adopted by the Board of Directors on February 6, 1997.
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Exhibit 10.2
EMPLOYMENT AGREEMENT
This Agreement is entered into by Healthcare Computing Systems, Inc., a
West Virginia corporation, as Employer and J. Calvin Kaylor, as Employee.
1. EMPLOYMENT. Employer agrees to employ Employee and Employee agrees to
accept employment upon the terms and conditions set forth in this Agreement.
2. DUTIES AND SERVICES. (a) During the term of this Agreement,
Employee shall be employed in the business of the Employer as its President and
Chief Executive Officer, as a member of the Board of Directors of Employer (the
"Board"), and as President, Chief Executive Officer and as a member of the
boards of directors of all subsidiary corporations or other entities of the
Employer. In the performance of his duties, Employee shall report to and be
subject to the direction of the Board, and Employee agrees to comply with the
policies, standards and regulations of Employer. Employee agrees to devote all
of his working time to the performance of his duties under this Agreement except
excused absences due to illness and paid time off, or due to outside services.
Outside services shall include service on the boards of directors of not more
than two other corporations which are not competitors to Employer or in a
voluntary capacity for industry and governmental organizations, provided such
services are disclosed in advance to the Board to determine potential conflicts
of interest and to receive the Board's consent, which shall not be unreasonably
withheld.
3. TERM. The term of this Agreement shall commence on November 1, 1996
(the "Effective Date") and continue for thirty-six (36) months unless terminated
earlier or extended as herein provided (the "Term"). This Agreement shall be
automatically extended for an additional twenty-four (24) month term unless
Employer provides not less than ninety (90) days prior to the third anniversary
of the Effective Date written notice to Employee of its intention not to extend
this Agreement.
4. COMPENSATION. Employer agrees to pay Employee compensation as
follows:
(a) SALARY. (i) Employer will pay Employee a salary of $175,000
per year. (ii) Employee will receive his annual salary in equal semi-monthly
or biweekly installments in accordance with the executive payroll policies of
the Employer; provided, however, Employee agrees to be paid his salary earned
between the Effective Date and the first closing of a Bridge Loan, as described
in Section 22 of the Letter of Intent dated September 4, 1996 between D. H.
Blair Investment Banking Corp. and Healthcare Computing Systems, Inc. (the
"Letter of Intent"), attached hereto as Exhibit A, at the first closing of a
Bridge Loan. (iii) Employee's annual salary compensation may be reviewed by
the Board at any time but shall be reviewed no less frequently than annually
within thirty (30) days of each anniversary of the Effective Date and shall not
be increased in any event until thirteen (13) months after the closing of the
offering as set forth in Section 16 of the Letter of Intent. Based on such
reviews, Employee's salary may be adjusted by the Board to such higher amount if
considered appropriate by the Board at its sole discretion after taking into
account general economic conditions, competitive conditions within the
Employer's industry, the financial condition, operations and prospects of
Employer, and Employee's prior and prospective performance of his duties. In no
event shall Employee's salary
<PAGE>
be reduced without Employee's express consent.
(b) PERFORMANCE BONUS. Employee shall participate in any bonus or
other short term incentive compensation plan(s) that are approved by the Board.
(c) OTHER COMPENSATION:
(i) COMMON STOCK. For consideration of $1.00, Employee will be
issued 150,000 shares of the Employer's common stock in connection with and
under the same conditions as the Management Restructuring described in Section 4
of the Letter of Intent, of which one-half of the 150,000 shares (75,000 shares)
shall be subject to the escrow provisions as set forth in Section 4 of the
Letter of Intent. Employee's free and clear ownership of the 150,000 shares of
common stock to be issued pursuant to this paragraph shall vest as follows: 1/4
(one-fourth) of the shares shall be fully vested upon issue; 1/4 (one-fourth) of
the shares shall vest at the first anniversary of the Effective Date; 1/4
(one-fourth) of the shares shall vest at the second anniversary of the Effective
Date; and the remaining 1/4 (one-fourth) of the shares shall vest at the third
anniversary of the Effective Date.
(ii) STOCK OPTIONS. Under a stock option plan to be approved by
the Board prior to the Closing, Employee shall receive prior to the filing date
of the Registration Statement referred to in Section 10 of the Letter of Intent
a non-qualified stock option to purchase 100,000 shares of the common stock of
Employer at an exercise price of $5.00 per share (the "Initial Stock Option").
Employee's right to exercise the Initial Stock Option shall vest as follows: 1/4
(one-fourth) of the shares shall be fully vested on the date of the grant of the
Initial Stock Option; 1/4 (one-fourth) of the shares shall vest on the first
anniversary of the grant; 1/4 (one-fourth) of the shares shall vest on the
second anniversary of the grant; and the remaining 1/4 (one-fourth) of the
shares shall vest on the third anniversary of the grant. Employee shall also be
entitled to receive additional, future stock option grants at the sole
discretion of the Board.
(iii) EMPLOYEE BENEFITS. Employee shall participate in all
benefit plans such as, but not limited to, medical, dental, disability and life
insurance, paid time off (vacation, sick, holidays, etc.), retirement plans,
professional education, etc. as are approved by the Board from time to time.
5. EXPENSES. (a) Employee shall be entitled to prompt reimbursement
for all reasonable travel and other out-of-pocket expenses necessarily incurred
in the performance of his duties hereunder. Employee's claims for reimbursement
and Employer's payments thereof shall be in accordance with Employer's then
current business expense reimbursement policies and procedures.
(b) Travel and other reasonable out-of-pocket expenses incurred by
Employee between the Effective Date and the first closing of a Bridge Loan, as
described in Section 22 of the Letter of Intent, shall be promptly reimbursed
from the proceeds of the first closing of a Bridge Loan.
6. TERMINATION. Subject to the provisions of this Section 6, Employer
shall have the
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right to terminate Employee's employment, and Employee shall have the right to
resign from his employment with Employer, at any time within the Term of this
Agreement.
(a) TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON. (i) If,
prior to the expiration of the Term, Employee's employment is terminated by
Employer for Cause, as defined in Section 6(a)(ii) hereof, or if Employee
resigns from his employment hereunder other than for Good Reason, as defined in
Section 6(a)(iii) hereof, Employee shall be entitled to payment of the pro rata
portion of the Employee's salary under Section 4(a) hereof through and including
the date of termination or resignation. Except to the extent required by
applicable law, in the event of termination for Cause or resignation other than
for Good Reason, Employee shall have no right under this Agreement or otherwise
to receive any other compensation or otherwise participate in any other plan,
arrangement or benefit after the termination or resignation of employment with
respect to the year of such termination or resignation or later years, and any
unvested stock, stock remaining in escrow, and unvested stock options held by
Employee shall be immediately and automatically canceled and terminated.
(ii) Termination for "Cause" shall mean termination of
Employee's employment with Employer by the Board because of (A) any act of
omission which constitutes a material breach by Employee of his obligations or
agreements under this Agreement after written notification by the Board
specifying and describing each such breach and the actions required to cure
them, and failure of Employee to cure each such breach in the manner specified
in the notice or in a manner otherwise acceptable to the Board within thirty
(30) days of receipt thereof, (B) the conviction of Employee of any felony or
crime of moral turpitude, (C) any act or omission by Employee which, in the good
faith judgement of the Board, constitutes a breach of Employee's fiduciary duty
to Employer, or (D) the release of the underwriter, D. H. Blair Investment
Banking Corp., from the "firm commitment" to purchase the Units from the Company
as described in Sections 9 and 10 of the Letter of Intent.
(iii) Resignation for "Good Reason" shall mean resignation of
Employee after (A) an act or omission by the Employer which is a material breach
of this Agreement after Employee notifies Employer in writing specifying and
describing each such breach and the actions required to cure them and the
Employer does not cure such breach in the manner set forth in the notice or in a
manner otherwise acceptable to the Employee within thirty (30) days of receipt
thereof, or (B) Employee is removed from or is not re-elected to the Board of
the Employer or any of Employer's subsidiary corporations or other entities
controlled by Employer.
(b) TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON. (i) If,
prior to the expiration of the Term, Employee's employment is terminated by
Employer Without Cause or Employee resigns from his employment hereunder for
Good Reason, (A) Employer shall continue to pay Employee an amount equal to
Employee's then current annual salary under Section 4(a) for twelve (12) months
from the date of such termination or resignation (the "Severance Period"), (B)
Employee shall continue to participate in all benefit plans of Employer during
the Severance Period, (C) Employee shall become fully vested in any retirement
plans or retirement savings plans of the Employer to the extent allowed by
applicable laws, (D) all Management Restructuring shares subject to vesting as
provided in Section 4(c)(i) at the end of the period during which the
termination Without Cause or resignation for Good Reason occurs shall
immediately vest, and (E) all options to purchase Employer's stock held by
Employee which are
<PAGE>
subject to vesting as provided in Section 4(c)(ii) at the end of the period
during which the termination Without Cause or resignation for Good Reason occurs
shall immediately vest, become immediately exercisable, and shall remain
exercisable for the Severance Period. Except to the extent provided herein and
required by applicable law, Employee shall have no right under this Section or
otherwise to receive any compensation or to participate in any other plan,
arrangement or benefit after such termination Without Cause or resignation for
Good Reason with respect to the year of such termination or resignation and
later years.
(c) TERMINATION DUE TO DEATH OR DISABILITY. In the event of
Employee's death or Employee's permanent disability that prevents Employee from
carrying out his duties hereunder, Employer shall be entitled to terminate his
employment Without Cause and the applicable provisions of Section 6(b) shall be
followed for the benefit of the Employee, or the Employee's estate in the event
of his death.
(d) EXPIRATION OF TERM. Expiration of this Agreement, whether by
non- extension or non-renewal by the Employer, shall be regarded as Termination
Without Cause and shall be covered by the provisions of Section 6(b) hereof,
provided, however, that Employee shall have the obligation to mitigate
Employer's obligations hereunder.
7. MERGER, ETC. In the event (A) of a disposition of all or
substantially all of the assets and business of the Employer during the Term of
this Agreement, by merger, consolidation, sale of assets or otherwise or (B) if
the individuals who at the beginning of the Term constituted the entire Board
(the "Original Board") and any new directors whose election was approved by the
majority of the Original Board cease to constitute a majority of the Board (the
preceding clauses (A) and (B) to be each hereinafter defined as a "Change of
Control"), then:
(a) the Employer may elect:
(i) to assign this Agreement and all of its rights and
obligations hereunder to the acquiring or surviving entity; provided that the
entity shall assume in writing all of the obligations of the Employer hereunder;
and, provided further, that the Employer (in the event and so long as it remains
in existence) shall remain liable for the performance of its obligations
hereunder in the event of a breach by the surviving entity of this Agreement; or
(ii) in addition to the other rights of termination, to terminate
this Agreement upon at least ninety (90) days written notice by paying Employee
in accordance with the provisions of Section 6(b).
(b) Upon a Change of Control as a result of which (i) there occurs a
material detrimental alteration in Employee's position or responsibilities with
the Company or a material reduction in Employee's compensation, (ii) Employee's
primary work location is relocated more than 75 miles from his primary
residence, or (iii) Employee is excluded in a material way from compensation
plans or fringe benefits enjoyed by other Company executives, the Employee may
elect to:
(i) accept Employer's election under subsections (i) or (ii)
immediately
<PAGE>
above; or
(ii) terminate this Agreement upon ninety (90) days written
notice after which the provisions of Section 6(b) shall apply.
8. CONFIDENTIAL INFORMATION. Employee acknowledges that during the
course of his employment hereunder Employee will become acquainted with
confidential information regarding Employer's business. During the Term of this
Agreement and for a period of two (2) years thereafter (the "Non-Competition
Period") Employee will not, without the prior written consent of the Employer,
disclose or make use of any such confidential information except as may be
required in the course of his employment hereunder.
9. NON-COMPETITION. Employee hereby represents, warrants and agrees
that, during the Non-Competition Period, Employee will not compete with the
business of the Employer within any of the 50 states of the United States or
within any foreign country in which the Company operates (the "Prohibited
Territory") as employee, consultant, principal, agent, trustee or through the
agency of any corporation, partnership, association, agent or agency, or other
enterprise, engaged in any business that during the Non-Competition Period is in
competition with the business of the Employer (the "Prohibited Activity").
10. NON-SOLICITATION. Employee covenants and agrees, during the Term of
this Agreement and the Non-Competition Period, that Employee will not canvass or
solicit any person or entity who is customer of Employer about whom Employee
obtained significant business information during the term of his employment, for
the purpose of directly or indirectly furnishing services competitive with
Employer and will not solicit for employment or employ any employee of Employer.
The parties agree that the geographic scope of this non-solicitation covenant is
not limited to the Protected Territory.
11. REPRESENTATIONS AND WARRANTIES. (a) Employee represents and warrants
to Employer that (i) Employee is under no contractual or other restriction or
obligation which is inconsistent with his execution of this Agreement or
performance of his duties hereunder and (ii) Employee has no physical or mental
disability that would hinder his performance of his duties under this Agreement.
(b) Employer represents and warrants to Employee that this Agreement
and the performance of Employer of its obligations hereunder have been duly
authorized by formal action of its Board of Directors.
12. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be sent by certified mail or by personal
receipted delivery to the Employee at his residence or to the Employer at its
principal office.
13. WAIVER OF BREACH. The waiver of either the Employer or Employee of
a breach of any provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach by the Employer or Employee.
<PAGE>
14. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of both Employer and Employee and their respective
successors, heirs or legal representatives, but neither this Agreement nor any
rights hereunder may be assigned by either Employer or Employee without the
written consent of the other party, subject to Section 9(a)(i) hereof.
15. ARBITRATION. This Agreement shall be governed by the laws of the
State of Maryland without regard to the principles of the conflict of laws. If
any controversy or claim arising out of this Agreement cannot be resolved by the
parties, such conflict or claim shall be resolved by arbitration in accordance
with the then current rules of the American Arbitration Association governing
commercial disputes. Such matters will be arbitrated in the Washington, D.C.
metropolitan area and, for purposes of this Agreement, each party consents to
arbitration in such place. Arbitration proceedings shall commence when either
party notifies the other that a dispute to arbitration exists and requests that
the dispute be arbitrated. If the parties to the dispute cannot within thirty
(30) days after the request for arbitration is made mutually agree upon an
arbitrator or arbitrators to settle the dispute, each party to the dispute shall
select an arbitrator. The two arbitrators shall, within fifteen (15) days after
the appointment of the last arbitrator, select a third arbitrator and the three
arbitrators shall determine the matter. Each arbitrator shall act impartially.
If for any reason an arbitrator is not appointed within the time provided or the
arbitrators appointed by the parties cannot agree upon a third arbitrator, then
an arbitrator shall be appointed by the District Court of the State of Maryland
in and for the County of Montgomery in accordance with applicable state law.
Unless the parties mutually agree otherwise, any arbitrator selected will be
familiar with employment disputes. The final decision will be that of the sole
arbitrator or of the majority of the arbitrators, and shall be final and binding
upon the parties, except as otherwise provided by law. The sole arbitrator or
the majority of arbitrators shall also determine the allocation of costs of the
arbitration among the parties, and shall have the right to award to the
prevailing party all cost of the arbitration, including reasonable attorneys'
fees.
16. ENTIRE CONTRACT; COUNTERPARTS. This instrument contains the entire
agreement of the parties. It may not be changed orally but only by an agreement
approved in writing by the Board and approved in writing by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought. This Agreement may be executed in two or more counterparts, each of
which shall be considered one and the same instrument.
17. NO THIRD PARTY BENEFICIARIES. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement except as provided in Sections 8(c) and 9.
18. HEADINGS. The headings in this Agreement are solely for
convenience and shall not be given any effect in the construction or
interpretation of this Agreement.
Dated: October 31, 1996
EMPLOYEE:
<PAGE>
/s/ J. Calvin Kaylor
- --------------------------------------------------
J. Calvin Kaylor
Healthcare Computing Systems, Inc., EMPLOYER
By: /s/ V. Jagannathan
------------------------------------------
Its: VP of R & D
-----------------------------------------
Attest:
By: /s/ Y.V. Reddy for Robert Shank, Secretary
------------------------------------------
<PAGE>
ADDENDUM TO EMPLOYMENT AGREEMENT
This agreement is an addendum to Section 11, page 6, of the Employment
Agreement dated October 31, 1996 between Healthcare Computing Systems, Inc., a
West Virginia corporation, as Employer and J. Calvin Kaylor, as Employee.
Employer and Employee hereby agree to insert the following language at the
end of Section 11(a)(ii) on page 6 of the Agreement:
.........and has not been diagnosed or otherwise is not aware of any
physical or mental condition which could disable him during the Term.
Dated: November 1 , 1996
-------------------
EMPLOYEE:
/s/ J. Calvin Kaylor
- ----------------------------------------
J. Calvin Kaylor
Healthcare Computing Systems, Inc., EMPLOYER
By: /s/ V. Jagannathan
------------------------------------
Its: VP of R&D
-----------------------------------
Attest:
By: /s/ Y. V. Reddy for Robert Shank , Secretary
------------------------------------
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
This Agreement is entered into by Healthcare Computing Systems, Inc., a
West Virginia corporation, as Employer and V. "Juggy" Jagannathan, as Employee.
1. EMPLOYMENT. Employer agrees to employ Employee and Employee agrees to
accept employment upon the terms and conditions set forth in this Agreement.
2. DUTIES AND SERVICES. (a) During the term of this Agreement,
Employee shall be employed in the business of the Employer as its Senior Vice
President - Research and Development. In the performance of his duties,
Employee shall report to and be subject to the direction of the Employer's
President and Chief Executive Officer, and Employee agrees to comply with the
policies, standards and regulations of Employer. (b) Except as provided in
Section 4.a.(i), Employee agrees to devote no less than 80% (eighty percent) of
his aggregated annual working time to the performance of his duties under this
Agreement except excused absences due to illness and paid time off. (c) Upon
giving Employer 30 (thirty) days advance written notice, Employee may increase
his working time to the performance of his duties under this Agreement to more
than 80% (eighty percent), and up to 100% (one-hundred percent), provided
Employee furnishes Employer satisfactory documentation of Employee's ability to
increase his working time. Satisfactory documentation shall include one or more
of the following: (i) termination of his employment with West Virginia
University and any of its affiliated organizations ("WVU"); (ii) an extended
leave of absence from WVU; or (iii) a change to the terms of Employee's
contractual relationship with WVU.
3. TERM. The term of this Agreement shall commence on November 1, 1996
(the "Effective Date") and continue for thirty-six (36) months unless terminated
earlier or extended as herein provided (the "Term"). This Agreement shall be
automatically extended for an additional twenty-four (24) month term unless
Employer provides not less than ninety (90) days prior to the third anniversary
of the Effective Date written notice to Employee of its intention not to extend
this Agreement.
4. COMPENSATION. Employer agrees to pay Employee compensation as
follows:
(a) SALARY. (i) Between the Effective Date and the payment by D.
H. Blair Investment Banking Corp. under the "firm commitment" to purchase the
Units from the Company (the "Effective Date of the Registration Statement"), as
described in Sections 9 and 10 of Letter of Intent dated September 4, 1996
between D. H. Blair Investment Banking Corp. and Healthcare Computing Systems,
Inc. (the "Letter of Intent"), attached hereto as Exhibit A, Employer will pay
Employee a salary of $60,000 per year, and Employee will be required to devote
not more than 40% (forty per cent) of his working time to the performance of his
duties under this Agreement. (ii) Beginning on the Effective Date of the
Registration Statement, Employer will pay
<PAGE>
Employee a salary of $150,000 per year, which shall be reduced by the amount
Employer may be required to reimburse West Virginia University for Employee's
working time with Employer at the WVU "off campus rate" and for Employee's
election to continue to participate in any WVU fringe benefit plans. (iv) In
the event Employee provides Employer with written documentation (as described in
2(c)) of his ability to devote 100% of his working time to the performance of
his duties under this Agreement, Employer will pay Employee a salary of $150,000
per year. (v) Employee will receive his annual salary in equal semi-monthly or
biweekly installments in accordance with the executive payroll policies of the
Employer; provided, however, Employee agrees to be paid his salary earned
between the Effective Date and the first closing of a Bridge Loan, as described
in Section 22 of the Letter of Intent, at the first closing of a Bridge Loan.
(vi) Employee's annual salary compensation may be reviewed at any time but
shall be reviewed no less frequently than annually within thirty (30) days of
each anniversary of the Effective Date and shall not be increased in any event
until thirteen (13) months after the closing of the offering as set forth in
Section 16 of the Letter of Intent (the "Closing"). Based on such reviews,
Employee's salary may be adjusted to such higher amount if considered
appropriate by the Employer at its sole discretion after taking into account
general economic conditions, competitive conditions within the Employer's
industry, the financial condition, operations and prospects of Employer, and
Employee's prior and prospective performance of his duties. In no event shall
Employee's salary be reduced without Employee's express consent.
(b) PERFORMANCE BONUS. After the Closing, Employee shall
participate in any bonus or other short term incentive compensation plan(s) that
are approved by the Board of Directors of Employer (the "Board").
(c) OTHER COMPENSATION:
(i) STOCK OPTIONS. Employee shall be entitled to receive stock
option grants after the Effective Date of the Registration Statement at the sole
discretion of the Board under a stock option plan to be approved by the Board
prior to the Effective Date of the Registration Statement.
(ii) EMPLOYEE BENEFITS. Employee shall be entitled to
participate in all benefit plans such as, but not limited to, medical, dental,
disability and life insurance, paid time off (vacation, sick, holidays, etc.),
retirement plans, professional education, etc. as are approved by the Board from
time to time, provided any such participation by Employee shall not be
duplicative of any WVU benefit plan or program in which Employee elects to
participate and for which participation Employer is obligated to reimburse WVU
pursuant to any WVU Agreements as set forth in Section 4.a.(ii) above.
5. EXPENSES. (a) Employee shall be entitled to prompt reimbursement
for all reasonable travel and other out-of-pocket business expenses, including
relocation expenses, necessarily incurred in the performance of his duties
hereunder.
<PAGE>
Employee's claims for reimbursement and Employer's payments thereof shall be in
accordance with Employer's then current business expense and relocation expense
reimbursement policies and procedures.
(b) Travel and other reasonable out-of-pocket expenses incurred by
Employee between the Effective Date and the first closing of a Bridge Loan, as
described in Section 22 of the Letter of Intent, shall be promptly reimbursed
from the proceeds of the first closing of a Bridge Loan.
6. TERMINATION. Subject to the provisions of this Section 6, Employer
shall have the right to terminate Employee's employment, and Employee shall have
the right to resign from his employment with Employer, at any time within the
Term of this Agreement.
(a) TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON. (i) If,
prior to the expiration of the Term, Employee's employment is terminated by
Employer for Cause, as defined in Section 6(a)(ii) hereof, or if Employee
resigns from his employment hereunder other than for Good Reason, as defined in
Section 6(a)(iii) hereof, Employee shall be entitled to payment of the pro rata
portion of the Employee's salary under Section 4(a) hereof through and including
the date of termination or resignation. Except to the extent required by
applicable law, in the event of termination for Cause or resignation other than
for Good Reason, Employee shall have no right under this Agreement or otherwise
to receive any other compensation or otherwise participate in any other plan,
arrangement or benefit after the termination or resignation of employment with
respect to the year of such termination or resignation or later years, and
unvested stock options held by Employee shall be immediately and automatically
canceled and terminated.
(ii) Termination for "Cause" shall mean termination of Employee's
employment by the Employer because of (A) any act of omission which constitutes
a material breach by Employee of his obligations or agreements under this
Agreement after written notification by the Employer specifying and describing
each such breach and the actions required to cure them, and failure of Employee
to cure each such breach in the manner specified in the notice or in a manner
otherwise acceptable to the Employer within thirty (30) days of receipt thereof,
(B) the conviction of Employee of any felony or crime of moral turpitude, (C)
any act or omission by Employee which, in the good faith judgment of the
Employer, constitutes a breach of Employee's fiduciary duty to Employer, or (D)
the release of the underwriter, D. H. Blair Investment Banking Corp., from the
"firm commitment" to purchase the Units from the Company as described in
Sections 9 and 10 of the Letter of Intent.
(iii) Resignation for "Good Reason" shall mean resignation of Employee
after an act or omission by the Employer which is a material breach of this
Agreement after Employee notifies Employer in writing specifying and describing
each such breach and the actions required to cure them and the Employer does not
cure
<PAGE>
such breach in the manner set forth in the notice or in a manner otherwise
acceptable to the Employee within thirty (30) days of receipt thereof.
(b) TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON. (i)
If, prior to the expiration of the Term, Employee's employment is terminated by
Employer Without Cause or Employee resigns from his employment hereunder for
Good Reason, (A) Employer shall continue to pay Employee an amount equal to
Employee's then current annual salary under Section 4(a) for twelve (12) months
from the date of such termination or resignation (the "Severance Period"), (B)
Employee shall continue to participate in all benefit plans of Employer during
the Severance Period, (C) Employee shall become fully vested in any retirement
plans or retirement savings plans of the Employer to the extent allowed by
applicable laws, and (D) all options to purchase Employer's stock held by
Employee which are subject to vesting at the end of the period during which the
termination Without Cause or resignation for Good Reason occurs shall
immediately vest, become immediately exercisable, and shall remain exercisable
for the Severance Period. Except to the extent provided herein and required by
applicable law, Employee shall have no right under this Section or otherwise to
receive any compensation or to participate in any other plan, arrangement or
benefit after such termination Without Cause or resignation for Good Reason with
respect to the year of such termination or resignation and later years.
(c) TERMINATION DUE TO DEATH OR DISABILITY. In the event of
Employee's death or Employee's permanent disability that prevents Employee from
carrying out his duties hereunder, Employer shall be entitled to terminate his
employment Without Cause and the applicable provisions of Section 6(b) shall be
followed for the benefit of the Employee, or the Employee's estate in the event
of his death.
(d) EXPIRATION OF TERM. Expiration of this Agreement, whether by
non- extension or non-renewal by the Employer, shall be regarded as Termination
Without Cause and shall be covered by the provisions of Section 6(b) hereof,
provided, however, that Employee shall have the obligation to mitigate
Employer's obligations hereunder.
7. MERGER, ETC. In the event (A) of a disposition of all or
substantially all of the assets and business of the Employer during the Term of
this Agreement, by merger, consolidation, sale of assets or otherwise or (B) if
the individuals who at the beginning of the Term constituted the entire Board
(the "Original Board") and any new directors whose election was approved by the
majority of the Original Board cease to constitute a majority of the Board (the
preceding clauses (A) and (B) to be each hereinafter defined as a "Change of
Control"), then:
(a) the Employer may elect:
(i) to assign this Agreement and all of its rights and
obligations hereunder to the acquiring or surviving entity; provided that the
entity shall assume in
<PAGE>
writing all of the obligations of the Employer hereunder; and, provided further,
that the Employer (in the event and so long as it remains in existence) shall
remain liable for the performance of its obligations hereunder in the event of a
breach by the surviving entity of this Agreement; or
(ii) in addition to the other rights of termination, to terminate
this Agreement upon at least ninety (90) days written notice by paying Employee
in accordance with the provisions of Section 6(b).
(b) Upon a Change of Control as a result of which (i) there occurs a
material detrimental alteration in Employee's position or responsibilities with
the Company or a material reduction in Employee's compensation, (ii) Employee's
primary work location is relocated more than 75 miles from his primary
residence, or (iii) Employee is excluded in a material way from compensation
plans or fringe benefits enjoyed by other Company executives, the Employee may
elect to:
(i) accept Employer's election under subsections (i) or (ii)
immediately above; or
(ii) terminate this Agreement upon ninety (90) days written
notice after which the provisions of Section 6(b) shall apply.
8. CONFIDENTIAL INFORMATION. Employee acknowledges that during the
course of his employment hereunder Employee will become acquainted with
confidential information regarding Employer's business. During the Term of this
Agreement and for a period of two (2) years thereafter (the "Non-Competition
Period") Employee will not, without the prior written consent of the Employer,
disclose or make use of any such confidential information except as may be
required in the course of his employment hereunder.
9. NON-COMPETITION. Employee hereby represents, warrants and agrees
that, during the Non-Competition Period, Employee will not compete with the
business of the Employer within any of the 50 states of the United States or
within any foreign country in which the Company operates (the "Prohibited
Territory") as employee, consultant, principal, agent, trustee or through the
agency of any corporation, partnership, association, agent or agency, or other
enterprise, engaged in any business that during the Non-Competition Period is in
competition with the business of the Employer (the "Prohibited Activity").
10. NON-SOLICITATION. Employee covenants and agrees, during the Term of
this Agreement and the Non-Competition Period, that Employee will not canvass or
solicit any person or entity who is customer of Employer about whom Employee
obtained significant business information during the term of his employment, for
the purpose of directly or indirectly furnishing services competitive with
Employer and will not solicit for employment or employ any employee of Employer.
The parties agree
<PAGE>
that the geographic scope of this non-solicitation covenant is not limited to
the Protected Territory.
11. REPRESENTATIONS AND WARRANTIES. (a) Employee represents and warrants
to Employer that (i) Employee is under no contractual or other restriction or
obligation which is inconsistent with his execution of this Agreement or
performance of his duties hereunder and (ii) Employee has no physical or mental
disability that would hinder his performance of his duties under this Agreement.
(b) Employer represents and warrants to Employee that this Agreement
and the performance of Employer of its obligations hereunder have been duly
authorized by formal action of its Board of Directors.
12. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be sent by certified mail or by personal
receipted delivery to the Employee at his residence or to the Employer at its
principal office.
13. WAIVER OF BREACH. The waiver of either the Employer or Employee of
a breach of any provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach by the Employer or Employee.
14. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of both Employer and Employee and their respective
successors, heirs or legal representatives, but neither this Agreement nor any
rights hereunder may be assigned by either Employer or Employee without the
written consent of the other party, subject to Section 9(a)(i) hereof.
15. ARBITRATION. This Agreement shall be governed by the laws of the
State of Maryland without regard to the principles of the conflict of laws. If
any controversy or claim arising out of this Agreement cannot be resolved by the
parties, such conflict or claim shall be resolved by arbitration in accordance
with the then current rules of the American Arbitration Association governing
commercial disputes. Such matters will be arbitrated in the Washington, D.C.
metropolitan area and, for purposes of this Agreement, each party consents to
arbitration in such place. Arbitration proceedings shall commence when either
party notifies the other that a dispute to arbitration exists and requests that
the dispute be arbitrated. If the parties to the dispute cannot within thirty
(30) days after the request for arbitration is made mutually agree upon an
arbitrator or arbitrators to settle the dispute, each party to the dispute shall
select an arbitrator. The two arbitrators shall, within fifteen (15) days after
the appointment of the last arbitrator, select a third arbitrator and the three
arbitrators shall determine the matter. Each arbitrator shall act impartially.
If for any reason an arbitrator is not appointed within the time provided or the
arbitrators appointed by the parties cannot agree upon a third arbitrator, then
an arbitrator shall be appointed by the District Court of the State of Maryland
in and for the County of Montgomery in accordance
<PAGE>
with applicable state law. Unless the parties mutually agree otherwise, any
arbitrator selected will be familiar with employment disputes. The final
decision will be that of the sole arbitrator or of the majority of the
arbitrators, and shall be final and binding upon the parties, except as
otherwise provided by law. The sole arbitrator or the majority of arbitrators
shall also determine the allocation of costs of the arbitration among the
parties, and shall have the right to award to the prevailing party all cost of
the arbitration, including reasonable attorneys' fees.
16. ENTIRE CONTRACT; COUNTERPARTS. This instrument contains the entire
agreement of the parties. It may not be changed orally but only by an agreement
approved in writing by the Employer and approved in writing by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought. This Agreement may be executed in two or more counterparts, each of
which shall be considered one and the same instrument.
17. NO THIRD PARTY BENEFICIARIES. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement except as provided in Sections 8(c) and 9.
18. HEADINGS. The headings in this Agreement are solely for
convenience and shall not be given any effect in the construction or
interpretation of this Agreement.
Dated: 12/16, 1996
EMPLOYEE:
/s/ V. Jagannathan
- ----------------------------------------
V. "Juggy" Jagannathan
Healthcare Computing Systems, Inc., EMPLOYER
By: /s/ J. Calvin Kaylor
-----------------------------------------
Its: President and Chief Executive Officer
----------------------------------------
Attest:
<PAGE>
By: /s/ Robert R. Shank
-----------------------------------------
Its: Secretary
----------------------------------------
<PAGE>
ADDENDUM TO EMPLOYMENT AGREEMENT
This agreement is an addendum to Section 4, pages 1 and 2, of the
Employment Agreement dated December 16, 1996 between Healthcare Computing
Systems, Inc. a West Virginia corporation, as Employer, and V. "Juggy"
Jagannathan, as Employee>
1. Employer and Employee agree to insert the following language at the
beginning of Section 4(a) on page 1 of the Agreement as Section 4(a)(i):
(i) Between the Effective Date and the initial Closing of the Bridge Loan
(the "Initial Bridge Loan Closing"), as described in Section 22 of the
Letter of Intent dated September 4, 1996 between D. H. Blair Investment
Banking Corp. and Healthcare Computing Systems, Inc. (the "Letter of
Intent"), attached hereto as Exhibit A, Employer will pay Employee a salary
of $30,000 per year, and Employee will be required to devote not more than
20% (twenty percent) of his working time to the performance of his duties
under this Agreement.
2. Employer and Employee further agree to renumber the remaining sections
of Section 4(a) on pages 1 and 2 of the Agreement whereby original 4(a)(i)
becomes (ii), (ii) becomes (iii), (iii) becomes (iv), and (iv) becomes (v).
1. Employer and Employee further agree to replace the language in Section
4(a)(ii) (as renumbered pursuant to 2 above) on page 1 of the Agreement with the
following language:
(ii) Between the Initial Bridge Loan Closing and the payment by D. H.
Blair Investment Banking Corp. under the "firm commitment" to purchase the
Units from the Company (the "Effective Date of the Registration
Statement"), as described in Sections 9 and 10 of the Letter of Intent,
Employer will pay Employee a salary of $60,000 per year, and Employee will
be required to devote not more than 40% (forty percent) of his working time
to the performance of his duties under this Agreement; provided, further,
Employer shall reimburse WVU at it's "off-campus rate" for any time release
required by WVU to compensate WVU for Employee's working time with Employer
under this section.
Dated: January 8, 1997
--------------
EMPLOYEE:
/s/ V. Jagannathan
- ----------------------------------------
I. "Juggy" Jagannathan
Healthcare Computing Systems, Inc., EMPLOYER
/s/ J. Calvin Kaylor
- ----------------------------------------
J. Calvin Kaylor, President
<PAGE>
Attest:
/s/ Robert R. Shank
- ----------------------------------------
Robert Shank, Secretary
<PAGE>
ADDENDUM NO. 2 TO EMPLOYMENT AGREEMENT
This agreement is an addendum to Sections 2 and 4, pages 1 and 2, of the
Employment Agreement dated December 16, 1996 and the Addendum dated January 8,
1997 between Healthcare Computing Systems, Inc., a West Virginia corporation
(now CareFlow|Net, Inc., a Delaware corporation), as Employer, and V. "Juggy"
Jagannathan, as Employee.
1. Employer and Employee agree to replace the entire section 2 of the
Employment Agreement with the following language:
2. DUTIES AND SERVICES. (a) During the term of this Agreement, Employee
shall be employed in the business of the Employer as its Senior Vice President -
Research and Development and Chief Technical Officer, and as a member of the
Board of Directors of Employer (the "Board") and, at Employee's option, as a
member of the boards of directors of any subsidiary corporations or other
entities of the employer. In the performance of his duties, Employee shall
report to and be subject to the direction of the Employer's President and Chief
Executive Officer, and Employee agrees to comply with the policies, standards
and regulations of Employer. Employee's election to the Board will be effective
no later than 10 (ten) days following the Initial Bridge Loan Closing. (b)
Except as provided in Section 4.a.(i), Employee agrees to devote no less than
60% (sixty percent) of his aggregated annual working time to the performance of
his duties under this Agreement except excused absences due to illness and paid
time off. (c) Upon giving Employer 30 (thirty) days advance written notice,
Employee may increase his working time to the performance of his duties under
this Agreement to more than 60% (sixty percent), and up to 100% (one-hundred
percent), provided Employee furnishes Employer satisfactory documentation of
Employee's ability to increase his working time. Satisfactory documentation
shall include one or more of the following: (i) termination of his employment
with West Virginia University and any of its affiliated organizations ("WVU");
(ii) an extended leave of absence from WVU; or (iii) a change to the terms of
Employee's contractual relationship with WVU.
2. Employer and Employee further agree to replace the entire section 4(a)
of the Employment Agreement, as modified by the Addendum dated January 8, 1997,
with the following language:
4. COMPENSATION. Employer agrees to pay employee compensation as
follows:
SALARY. (i) Between the Effective Date and the Initial Closing of the
Bridge Loan (the "Initial Bridge Loan Closing"), as described in Section 22 of
<PAGE>
the Letter of Intent dated September 4, 1996 between D. H. Blair Investment
Banking Corp. and Employer (the "Letter of Intent"), attached hereto as Exhibit
A, Employer will pay Employee a salary of $60,000 per year, and, in addition,
will reimburse WVU for 20% of Employee's time at the WVU standard off-campus
rates, and Employee will be required to devote not more than 40% (forty per
cent) of his working time to the performance of his duties under this Agreement.
(ii) Beginning on the Initial Bridge Loan Closing, Employer will pay Employee a
salary of $90,000 per year and Employee will be required to devote not more than
60% (sixty percent) of his working time to the performance of his duties under
this Agreement; provided, further, Employer shall reimburse WVU at it's
"off-campus rate" for 40% (forty percent) of Employees time to compensate WVU
for Employee's working time with Employer under this section. (iii) In the
event Employee provides Employer with written documentation (as described in
2(c)) of his ability to devote 100% of his working time to the performance of
his duties under this Agreement, Employer will pay Employee a salary of $150,000
per year. (iv) Employee will receive his annual salary in equal semi-monthly or
biweekly installments in accordance with the executive payroll policies of the
Employer; provided, however, Employee agrees to be paid his salary earned
between the Effective Date and the Initial Bridge Loan Closing within 15
(fifteen) days following the Initial Bridge Loan Closing. (v) Employee's annual
salary compensation may be reviewed at any time but shall be reviewed no less
frequently than annually within thirty (30) days of each anniversary of each
anniversary of the Effective Date and shall not be increased in any event until
thirteen (13) months after the closing of the offering as set forth in Section
16 of the Letter of Intent (the "Closing"). Based on such reviews, Employee's
salary may be adjusted to such higher amount if considered appropriate by the
Employer at its sole discretion after taking into account general economic
conditions, competitive conditions within the Employer's industry, the financial
condition, operations and prospects of Employer, and Employee's prior and
prospective performance of his duties. In no event shall Employee's salary be
reduced without Employee's express consent.
Dated: August 20, , 1997
------------------
EMPLOYEE:
/s/ V. Jagannathan
- ----------------------------------------
V. "Juggy" Jagannathan
<PAGE>
CareFlow|Net, Inc., EMPLOYER
/s/ J. Calvin Kaylor
- ----------------------------------------
Its: President and Chief Executive Officer
Attest:
/s/ Robert R. Shank
- ----------------------------------------
Its: Asst. Secretary
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
This Agreement is entered into by Healthcare Computing Systems, Inc., a
West Virginia corporation, as Employer and Scott Friedman, as Employee.
1. EMPLOYMENT. Employer agrees to employ Employee and Employee agrees to
accept employment upon the terms and conditions set forth in this Agreement.
2. DUTIES AND SERVICES. During the term of this Agreement, Employee
shall be employed in the business of the Employer as its Senior Vice President -
Operations. In the performance of his duties, Employee shall report to and be
subject to the direction of the Employer's President and Chief Executive
Officer, and Employee agrees to comply with the policies, standards and
regulations of Employer. Except as provided in Section 4.a., Employee agrees to
devote all of his working time to the performance of his duties under this
Agreement except excused absences due to illness and paid time off.
3. TERM. The term of this Agreement shall commence on November 1, 1996
(the "Effective Date") and continue for thirty-six (36) months unless terminated
earlier or extended as herein provided (the "Term"). This Agreement shall be
automatically extended for an additional twenty-four (24) month term unless
Employer provides not less than ninety (90) days prior to the third anniversary
of the Effective Date written notice to Employee of its intention not to extend
this Agreement.
4. COMPENSATION. Employer agrees to pay Employee compensation as
follows:
(a) SALARY. (i) Between the Effective Date and not earlier than
the payment by D. H. Blair Investment Banking Corp. under the "firm commitment"
to purchase the Units from the Company (the "Effective Date of the Registration
Statement"), as described in Sections 9 and 10 of Letter of Intent dated
September 4, 1996 between D. H. Blair Investment Banking Corp. and Healthcare
Computing Systems, Inc. (the "Letter of Intent"), attached hereto as Exhibit A,
nor later than July 1, 1997, which is the latest date Employee's time can be
restricted by an existing employment agreement with another employer, Employer
will pay Employee a salary of $52,800 per year, and Employee will be required to
devote not more than 30% (thirty per cent) of his working time to the
performance of his duties under this Agreement. (ii) Beginning not earlier
than the Effective Date of the Registration Statement nor later than July 1,
1997, when Employee is available for full-time employment by Employer under the
circumstances described in (i) immediately above, Employer will pay Employee a
salary of $132,000 per year. (iii) Employee will receive his annual salary in
equal semi-monthly or biweekly installments in accordance with the executive
payroll policies of the Employer; provided, however, Employee agrees to be paid
his salary earned between the Effective Date and the
<PAGE>
first closing of a Bridge Loan, as described in Section 22 of the Letter of
Intent, at the first closing of a Bridge Loan. (iv) Employee's annual salary
compensation may be reviewed at any time but shall be reviewed no less
frequently than annually within thirty (30) days of each anniversary of the
Effective Date and shall not be increased in any event until thirteen (13)
months after the Effective Date of the Registration Statement as set forth in
Section 16 of the Letter of Intent. Based on such reviews, Employee's salary
may be adjusted to such higher amount if considered appropriate by the Employer
at its sole discretion after taking into account general economic conditions,
competitive conditions within the Employer's industry, the financial condition,
operations and prospects of Employer, and Employee's prior and prospective
performance of his duties. In no event shall Employee's salary be reduced
without Employee's express consent.
(b) PERFORMANCE BONUS. After the Closing, Employee shall
participate in any bonus or other short term incentive compensation plan(s) that
are approved by the Board of Directors of Employer (the "Board").
(c) OTHER COMPENSATION:
(i) STOCK OPTIONS. Employee shall be entitled to receive stock
option grants after the Effective Date of the Registration Statement at the sole
discretion of the Board under a stock option plan to be approved by the Board
prior to the Effective Date of the Registration Statement.
(ii) EMPLOYEE BENEFITS. Employee shall participate in all
benefit plans such as, but not limited to, medical, dental, disability and life
insurance, paid time off (vacation, sick, holidays, etc.), retirement plans,
professional education, etc. as are approved by the Board from time to time.
5. EXPENSES. (a) Employee shall be entitled to prompt reimbursement
for all reasonable travel and other out-of-pocket business expenses, including
relocation expenses, necessarily incurred in the performance of his duties
hereunder. Employee's claims for reimbursement and Employer's payments thereof
shall be in accordance with Employer's then current business expense and
relocation expense reimbursement policies and procedures.
(b) Travel and other reasonable out-of-pocket expenses incurred by
Employee between the Effective Date and the first closing of a Bridge Loan, as
described in Section 22 of the Letter of Intent, shall be promptly reimbursed
from the proceeds of the first closing of a Bridge Loan.
2
<PAGE>
6. TERMINATION. Subject to the provisions of this Section 6, Employer
shall have the right to terminate Employee's employment, and Employee shall have
the right to resign from his employment with Employer, at any time within the
Term of this Agreement.
(a) TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON. (i) If,
prior to the expiration of the Term, Employee's employment is terminated by
Employer for Cause, as defined in Section 6(a)(ii) hereof, or if Employee
resigns from his employment hereunder other than for Good Reason, as defined in
Section 6(a)(iii) hereof, Employee shall be entitled to payment of the pro rata
portion of the Employee's salary under Section 4(a) hereof through and including
the date of termination or resignation. Except to the extent required by
applicable law, in the event of termination for Cause or resignation other than
for Good Reason, Employee shall have no right under this Agreement or otherwise
to receive any other compensation or otherwise participate in any other plan,
arrangement or benefit after the termination or resignation of employment with
respect to the year of such termination or resignation or later years, and
unvested stock options held by Employee shall be immediately and automatically
canceled and terminated.
(ii) Termination for "Cause" shall mean termination of Employee's
employment by the Employer because of (A) any act of omission which constitutes
a material breach by Employee of his obligations or agreements under this
Agreement after written notification by the Employer specifying and describing
each such breach and the actions required to cure them, and failure of Employee
to cure each such breach in the manner specified in the notice or in a manner
otherwise acceptable to the Employer within thirty (30) days of receipt thereof,
(B) the conviction of Employee of any felony or crime of moral turpitude, (C)
any act or omission by Employee which, in the good faith judgment of the
Employer, constitutes a breach of Employee's fiduciary duty to Employer, or (D)
the release of the underwriter, D. H. Blair Investment Banking Corp., from the
"firm commitment" to purchase the Units from the Company as described in
Sections 9 and 10 of the Letter of Intent.
(iii) Resignation for "Good Reason" shall mean resignation of
Employee after an act or omission by the Employer which is a material breach of
this Agreement after Employee notifies Employer in writing specifying and
describing each such breach and the actions required to cure them and the
Employer does not cure such breach in the manner set forth in the notice or in a
manner otherwise acceptable to the Employee within thirty (30) days of receipt
thereof.
(b) TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON. (i) If,
prior to the expiration of the Term, Employee's employment is terminated by
Employer Without Cause or Employee resigns from his employment hereunder for
Good
3
<PAGE>
Reason, (A) Employer shall continue to pay Employee an amount equal to
Employee's then current annual salary under Section 4(a) for twelve (12) months
from the date of such termination or resignation (the "Severance Period"), (B)
Employee shall continue to participate in all benefit plans of Employer during
the Severance Period, (C) Employee shall become fully vested in any retirement
plans or retirement savings plans of the Employer to the extent allowed by
applicable laws, and (D) all options to purchase Employer's stock held by
Employee which are subject to vesting at the end of the period during which the
termination Without Cause or resignation for Good Reason occurs shall
immediately vest, become immediately exercisable, and shall remain exercisable
for the Severance Period. Except to the extent provided herein and required by
applicable law, Employee shall have no right under this Section or otherwise to
receive any compensation or to participate in any other plan, arrangement or
benefit after such termination Without Cause or resignation for Good Reason with
respect to the year of such termination or resignation and later years.
(c) TERMINATION DUE TO DEATH OR DISABILITY. In the event of
Employee's death or Employee's permanent disability that prevents Employee from
carrying out his duties hereunder, Employer shall be entitled to terminate his
employment Without Cause and the applicable provisions of Section 6(b) shall be
followed for the benefit of the Employee, or the Employee's estate in the event
of his death.
(d) EXPIRATION OF TERM. Expiration of this Agreement, whether by
non- extension or non-renewal by the Employer, shall be regarded as Termination
Without Cause and shall be covered by the provisions of Section 6(b) hereof,
provided, however, that Employee shall have the obligation to mitigate
Employer's obligations hereunder.
7. MERGER, ETC. In the event (A) of a disposition of all or
substantially all of the assets and business of the Employer during the Term of
this Agreement, by merger, consolidation, sale of assets or otherwise or (B) if
the individuals who at the beginning of the Term constituted the entire Board
(the "Original Board") and any new directors whose election was approved by the
majority of the Original Board cease to constitute a majority of the Board (the
preceding clauses (A) and (B) to be each hereinafter defined as a "Change of
Control"), then:
(a) the Employer may elect:
(i) to assign this Agreement and all of its rights and
obligations hereunder to the acquiring or surviving entity; provided that the
entity shall assume in writing all of the obligations of the Employer hereunder;
and, provided further, that the Employer (in the event and so long as it remains
in existence) shall remain liable for
4
<PAGE>
the performance of its obligations hereunder in the event of a breach by the
surviving entity of this Agreement; or
(ii) in addition to the other rights of termination, to terminate
this Agreement upon at least ninety (90) days written notice by paying Employee
in accordance with the provisions of Section 6(b).
(b) Upon a Change of Control as a result of which (i) there occurs a
material detrimental alteration in Employee's position or responsibilities with
the Company or a material reduction in Employee's compensation, (ii) Employee's
primary work location is relocated more than 75 miles from his primary
residence, or (iii) Employee is excluded in a material way from compensation
plans or fringe benefits enjoyed by other Company executives, the Employee may
elect to:
(i) accept Employer's election under subsections (i) or (ii)
immediately above; or
(ii) terminate this Agreement upon ninety (90) days written
notice after which the provisions of Section 6(b) shall apply.
8. CONFIDENTIAL INFORMATION. Employee acknowledges that during the
course of his employment hereunder Employee will become acquainted with
confidential information regarding Employer's business. During the Term of this
Agreement and for a period of two (2) years thereafter (the "Non-Competition
Period") Employee will not, without the prior written consent of the Employer,
disclose or make use of any such confidential information except as may be
required in the course of his employment hereunder.
9. NON-COMPETITION. Employee hereby represents, warrants and agrees
that, during the Non-Competition Period, Employee will not compete with the
business of the Employer within any of the 50 states of the United States or
within any foreign country in which the Company operates (the "Prohibited
Territory") as employee, consultant, principal, agent, trustee or through the
agency of any corporation, partnership, association, agent or agency, or other
enterprise, engaged in any business that during the Non-Competition Period is in
competition with the business of the Employer (the "Prohibited Activity").
10. NON-SOLICITATION. Employee covenants and agrees, during the Term of
this Agreement and the Non-Competition Period, that Employee will not canvass or
solicit any person or entity who is customer of Employer about whom Employee
obtained significant business information during the term of his employment, for
the purpose of directly or indirectly furnishing services competitive with
Employer and will
5
<PAGE>
not solicit for employment or employ any employee of Employer. The parties
agree that the geographic scope of this non-solicitation covenant is not limited
to the Protected Territory.
11. REPRESENTATIONS AND WARRANTIES. (a) Employee represents and warrants
to Employer that (i) Employee is under no contractual or other restriction or
obligation which is inconsistent with his execution of this Agreement or
performance of his duties hereunder and (ii) Employee has no physical or mental
disability that would hinder his performance of his duties under this Agreement.
(b) Employer represents and warrants to Employee that this Agreement
and the performance of Employer of its obligations hereunder have been duly
authorized by formal action of its Board of Directors.
12. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be sent by certified mail or by personal
receipted delivery to the Employee at his residence or to the Employer at its
principal office.
13. WAIVER OF BREACH. The waiver of either the Employer or Employee of
a breach of any provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach by the Employer or Employee.
14. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of both Employer and Employee and their respective
successors, heirs or legal representatives, but neither this Agreement nor any
rights hereunder may be assigned by either Employer or Employee without the
written consent of the other party, subject to Section 9(a)(i) hereof.
15. ARBITRATION. This Agreement shall be governed by the laws of the
State of Maryland without regard to the principles of the conflict of laws. If
any controversy or claim arising out of this Agreement cannot be resolved by the
parties, such conflict or claim shall be resolved by arbitration in accordance
with the then current rules of the American Arbitration Association governing
commercial disputes. Such matters will be arbitrated in the Washington, D.C.
metropolitan area and, for purposes of this Agreement, each party consents to
arbitration in such place. Arbitration proceedings shall commence when either
party notifies the other that a dispute to arbitration exists and requests that
the dispute be arbitrated. If the parties to the dispute cannot within thirty
(30) days after the request for arbitration is made mutually agree upon an
arbitrator or arbitrators to settle the dispute, each party to the dispute shall
select an arbitrator. The two arbitrators shall, within fifteen (15) days after
the appointment of the last arbitrator, select a third arbitrator and the three
arbitrators shall determine the
6
<PAGE>
matter. Each arbitrator shall act impartially. If for any reason an arbitrator
is not appointed within the time provided or the arbitrators appointed by the
parties cannot agree upon a third arbitrator, then an arbitrator shall be
appointed by the District Court of the State of Maryland in and for the County
of Montgomery in accordance with applicable state law. Unless the parties
mutually agree otherwise, any arbitrator selected will be familiar with
employment disputes. The final decision will be that of the sole arbitrator or
of the majority of the arbitrators, and shall be final and binding upon the
parties, except as otherwise provided by law. The sole arbitrator or the
majority of arbitrators shall also determine the allocation of costs of the
arbitration among the parties, and shall have the right to award to the
prevailing party all cost of the arbitration, including reasonable attorneys'
fees.
16. ENTIRE CONTRACT; COUNTERPARTS. This instrument contains the entire
agreement of the parties. It may not be changed orally but only by an agreement
approved in writing by the Employer and approved in writing by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought. This Agreement may be executed in two or more counterparts, each of
which shall be considered one and the same instrument.
17. NO THIRD PARTY BENEFICIARIES. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement except as provided in Sections 8(c) and 9.
18. HEADINGS. The headings in this Agreement are solely for
convenience and shall not be given any effect in the construction or
interpretation of this Agreement.
Dated: 17 December, 1996
EMPLOYEE:
/s/ Scott Friedman
- ----------------------------------------
Scott Friedman
Healthcare Computing Systems, Inc., EMPLOYER
By: /s/ J. Calvin Kaylor
------------------------------------
7
<PAGE>
Its: President and Chief Executive Officer
-----------------------------------
Attest:
By: /s/ Robert R. Shank
------------------------------------
Its: Secretary
-----------------------------------
8
<PAGE>
ADDENDUM TO EMPLOYMENT AGREEMENT
This agreement is an addendum to section 4(a) of the Employment Agreement
dated December 17, 1996 between Healthcare Computing Systems, Inc., a West
Virginia corporation (now CareFlow|Net, Inc., a Delaware corporation), as
Employer, and Scott Friedman, as Employee.
Employer and Employee agree to replace the entire section 4(a) of the
Employment Agreement with the following language:
4. COMPENSATION. Employer agrees to pay Employee compensation as
follows:
(a) SALARY. (i) Between the Effective Date and the Initial Closing
of the Bridge Loan (the "Initial Bridge Loan Closing") as described in Section
22 of Letter of Intent dated September 4, 1996 between D. H. Blair Investment
Banking Corp. and the Employer (the "Letter of Intent"), attached hereto as
Exhibit A, subject to extension for up to 90 (ninety) days as provided in
section 4(a)(ii) below, Employer will pay Employee a salary of $52,800 per year,
and Employee will be required to devote not more than 30% (thirty per cent) of
his working time to the performance of his duties under this Agreement. (ii)
Beginning on the Initial Bridge Loan Closing, or within 90 (ninety) days
thereafter upon Employee advising Employer that he is available for full-time
employment by Employer, Employer will pay Employee a salary of $132,000 per
year. (iii) Employee will receive his annual salary in equal semi-monthly or
biweekly installments in accordance with the executive payroll policies of the
Employer; provided, however, Employee agrees to be paid his salary earned
between the Effective Date and the Initial Bridge Loan Closing, within 15
(fifteen) days following the Initial Bridge Loan Closing. (iv) Employee's
annual salary compensation may be reviewed at any time but shall be reviewed no
less frequently than annually within thirty (30) days of each anniversary of the
Effective Date and shall not be increased in any event until thirteen (13)
months after the Effective Date of the Registration Statement as set forth in
Section 16 of the Letter of Intent. Based on such reviews, Employee's salary
may be adjusted to such higher amount if considered appropriate by the Employer
at its sole discretion after taking into account general economic conditions,
competitive conditions within the Employer's industry, the financial condition,
operations and prospects of Employer, and
9
<PAGE>
Employee's prior and prospective performance of his duties. In no event shall
Employee's salary be reduced without Employee's express consent.
Dated: August 28, , 1997
------------------------
EMPLOYEE:
/s/ Scott Friedman
- ------------------------------
Scott Friedman
CareFlow|Net, Inc., EMPLOYER:
/s/ J. Calvin Kaylor
- ------------------------------
Its: President and Chief Executive Officer
Attest:
/s/ Marty R. Stango
- ------------------------------
Its: Secretary
10
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
This Agreement is entered into by Healthcare Computing Systems, Inc., a
West Virginia corporation, as Employer and Marty R. Stango, as Employee.
1. EMPLOYMENT. Employer agrees to employ Employee and Employee agrees to
accept employment upon the terms and conditions set forth in this Agreement.
2. DUTIES AND SERVICES. (a) During the term of this Agreement,
Employee shall be employed in the business of the Employer as its Senior Vice
President - Finance, Chief Financial Officer and Treasurer. In the performance
of his duties, Employee shall report to and be subject to the direction of the
Employer's President and Chief Executive Officer, and Employee agrees to comply
with the policies, standards and regulations of Employer. Except as provided in
Section 4.a.(i), Employee agrees to devote all of his working time to the
performance of his duties under this Agreement except excused absences due to
illness and paid time off.
3. TERM. The term of this Agreement shall commence on the date Employee
reports for work with Employer, which shall be not later than February 3, 1997,
(the "Effective Date") and continue for thirty-six (36) months unless terminated
earlier or extended as herein provided (the "Term"). This Agreement shall be
automatically extended for an additional twenty-four (24) month term unless
Employer provides not less than ninety (90) days prior to the third anniversary
of the Effective Date written notice to Employee of its intention not to extend
this Agreement.
4. COMPENSATION. Employer agrees to pay Employee compensation as
follows:
(a) SALARY. (i) Beginning on the Effective Date, Employer will pay
Employee a salary of $140,000 per year. (ii) Employee will receive his annual
salary in equal semi-monthly or biweekly installments in accordance with the
executive payroll policies of the Employer. (iii) Employee's annual salary
compensation may be reviewed at any time but shall be reviewed no less
frequently than annually within thirty (30) days of each anniversary of the
Effective Date. Based on such reviews, Employee's salary may be adjusted to
such higher amount if considered appropriate by the Employer at its sole
discretion after taking into account general economic conditions, competitive
conditions within the Employer's industry, the financial condition, operations
1
<PAGE>
and prospects of Employer, and Employee's prior and prospective performance of
his duties. In no event shall Employee's salary be reduced without Employee's
express consent.
(b) PERFORMANCE BONUS. Employee shall participate in any bonus or
other short term incentive compensation plan(s) that are approved by the Board
of Directors of Employer (the "Board").
(c) OTHER COMPENSATION:
(i) STOCK OPTIONS. Under a stock option plan to be approved by
the Board (the "Stock Option Plan"), Employee shall receive on the Effective
Date a stock option to purchase 75,000 shares of the common stock of Employer at
an exercise price of $5.00 per share (the "Initial Stock Option"). Employee's
right to exercise the Initial Stock Option shall vest according to the vesting
schedule provided in the Stock Option Plan. Employee shall also be entitled to
receive additional, future stock option grants at the sole discretion of the
Board.
(ii) EMPLOYEE BENEFITS. Employee shall participate in all
benefit plans such as, but not limited to, medical, dental, disability and life
insurance, paid time off (vacation, sick, holidays, etc.), retirement plans,
professional education, etc. as are approved by the Board from time to time.
(iii) TEMPORARY HOUSING ALLOWANCE. In addition to any other
compensation provided herein, Employee shall receive from the Employer $3000 on
the Effective Date and on the first day of each of the immediately following 11
(eleven) months to defray either the carrying costs of his vacant residence in
Philadelphia, Pennsylvania or to defray his costs to rent a home in Montgomery
County Maryland. Employee understands that the payments provided under this
section will be reportable income of Employee and, as such, will be subject to
withholding.
- ----
5. EXPENSES. Employee shall be entitled to prompt reimbursement for all
reasonable travel and other out-of-pocket business expenses necessarily incurred
in the performance of his duties hereunder, including relocation expenses as
described in a written policy of the Employer's applicable to all employees.
Employee's claims for reimbursement and Employer's payments thereof shall be in
accordance with Employer's then current business expense and relocation expense
reimbursement policies and procedures.
6. TERMINATION. Subject to the provisions of this Section 6,
Employer shall have the right to terminate Employee's employment, and
2
<PAGE>
Employee shall have the right to resign from his employment with Employer, at
any time within the Term of this Agreement.
(a) TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON.
(i) If, prior to the expiration of the Term, Employee's employment is terminated
by Employer for Cause, as defined in Section 6(a)(ii) hereof, or if Employee
resigns from his employment hereunder other than for Good Reason, as defined in
Section 6(a)(iii) hereof, Employee shall be entitled to payment of the pro rata
portion of the Employee's salary under Section 4(a) hereof through and including
the date of termination or resignation. Except to the extent required by
applicable law, in the event of termination for Cause or resignation other than
for Good Reason, Employee shall have no right under this Agreement or otherwise
to receive any other compensation or otherwise participate in any other plan,
arrangement or benefit after the termination or resignation of employment with
respect to the year of such termination or resignation or later years, and
unvested stock options held by Employee shall be immediately and automatically
canceled and terminated.
(ii) Termination for "Cause" shall mean termination of Employee's
employment by the Employer because of (A) any act of omission which constitutes
a material breach by Employee of his obligations or agreements under this
Agreement after written notification by the Employer specifying and describing
each such breach and the actions required to cure them, and failure of Employee
to cure each such breach in the manner specified in the notice or in a manner
otherwise acceptable to the Employer within thirty (30) days of receipt thereof,
(B) the conviction of Employee of any felony or crime of moral turpitude, (C)
any act or omission by Employee which, in the good faith judgement of the
Employer, constitutes a breach of Employee's fiduciary duty to Employer, or (D)
the release of the underwriter, D. H. Blair Investment Banking Corp., from the
"firm commitment" to purchase the Units from the Company as described in
Sections 9 and 10 of the Letter of Intent.
(iii) Resignation for "Good Reason" shall mean resignation of
Employee after an act or omission by the Employer which is a material breach of
this Agreement after Employee notifies Employer in writing specifying and
describing each such breach and the actions required to cure them and the
Employer does not cure such breach in the manner set forth in the notice or in a
manner otherwise acceptable to the Employee within thirty (30) days of receipt
thereof.
3
<PAGE>
(b) TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON. (i)
If, prior to the expiration of the Term, Employee's employment is terminated by
Employer Without Cause or Employee resigns from his employment hereunder for
Good Reason, (A) Employer shall continue to pay Employee an amount equal to
Employee's then current annual salary under Section 4(a) for twelve (12) months
from the date of such termination or resignation (the "Severance Period"); (B)
Employee shall continue to participate in all benefit plans of Employer during
the Severance Period, including those referred to in Section 4(c) (ii) and
(iii); (C) Employee shall become fully vested in any retirement plans or
retirement savings plans of the Employer to the extent allowed by applicable
laws; and (D) all options to purchase Employer's stock held by Employee which
are subject to vesting at the end of the period during which the termination
Without Cause or resignation for Good Reason occurs shall immediately vest,
become immediately exercisable, and shall remain exercisable for the Severance
Period. Except to the extent provided herein and required by applicable law,
Employee shall have no right under this Section or otherwise to receive any
compensation or to participate in any other plan, arrangement or benefit after
such termination Without Cause or resignation for Good Reason with respect to
the year of such termination or resignation and later years.
(c) TERMINATION DUE TO DEATH OR DISABILITY. In the event of
Employee's death or Employee's permanent disability that prevents Employee from
carrying out his duties hereunder, Employer shall be entitled to terminate his
employment Without Cause and the applicable provisions of Section 6(b) shall be
followed for the benefit of the Employee, or the Employee's estate in the event
of his death.
(d) EXPIRATION OF TERM. Expiration of this Agreement, whether by
non- extension or non-renewal by the Employer, shall be regarded as Termination
Without Cause and shall be covered by the provisions of Section 6(b) hereof,
provided, however, that Employee shall have the obligation to mitigate
Employer's obligations hereunder.
7. MERGER, ETC. In the event (A) of a disposition of all or
substantially all of the assets and business of the Employer during the Term of
this Agreement, by merger, consolidation, sale of assets or otherwise or (B) if
the individuals who at the beginning of the Term constituted the entire Board
(the "Original Board") and any new directors whose election was approved by the
majority of the Original Board cease to constitute a majority of the Board (the
preceding clauses (A) and (B) to be each hereinafter defined as a "Change of
Control"), then:
(a) the Employer may elect:
4
<PAGE>
(i) to assign this Agreement and all of its rights and
obligations hereunder to the acquiring or surviving entity; provided that the
entity shall assume in writing all of the obligations of the Employer hereunder;
and, provided further, that the Employer (in the event and so long as it remains
in existence) shall remain liable for the performance of its obligations
hereunder in the event of a breach by the surviving entity of this Agreement; or
(ii) in addition to the other rights of termination, to terminate
this Agreement upon at least ninety (90) days written notice by paying Employee
in accordance with the provisions of Section 6(b).
(b) Upon a Change of Control as a result of which (i) there occurs a
material detrimental alteration in Employee's position or responsibilities with
the Company or a material reduction in Employee's compensation, (ii) Employee's
primary work location is relocated more than 75 miles from his primary
residence, or (iii) Employee is excluded in a material way from compensation
plans or fringe benefits enjoyed by other Company executives, the Employee may
elect to:
(i) accept Employer's election under subsections (i) or (ii)
immediately above; or
(ii) terminate this Agreement upon ninety (90) days written
notice after which the provisions of Section 6(b) shall apply.
8. CONFIDENTIAL INFORMATION. Employee acknowledges that during the
course of his employment hereunder Employee will become acquainted with
confidential information regarding Employer's business. During the Term of this
Agreement and for a period of two (2) years thereafter (the "Non-Competition
Period") Employee will not, without the prior written consent of the Employer,
disclose or make use of any such confidential information except as may be
required in the course of his employment hereunder.
9. NON-COMPETITION. Employee hereby represents, warrants and agrees
that, during the Non-Competition Period, Employee will not compete with the
business of the Employer within any of the 50 states of the United States or
within any foreign country in which the Company operates (the "Prohibited
Territory") as employee, consultant, principal, agent, trustee or through the
agency of any corporation, partnership, association, agent or agency, or other
enterprise, engaged in any business that during the Non-Competition Period is in
competition with the business of the Employer (the
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<PAGE>
"Prohibited Activity").
10. NON-SOLICITATION. Employee covenants and agrees, during the Term of
this Agreement and the Non-Competition Period, that Employee will not canvass or
solicit any person or entity who is customer of Employer about whom Employee
obtained significant business information during the term of his employment, for
the purpose of directly or indirectly furnishing services competitive with
Employer and will not solicit for employment or employ any employee of Employer.
The parties agree that the geographic scope of this non-solicitation covenant is
not limited to the Protected Territory.
11. REPRESENTATIONS AND WARRANTIES. (a) Employee represents and warrants
to Employer that (i) Employee is under no contractual or other restriction or
obligation which is inconsistent with his execution of this Agreement or
performance of his duties hereunder and (ii) Employee has no physical or mental
disability that would hinder his performance of his duties under this Agreement.
(b) Employer represents and warrants to Employee that this Agreement
and the performance of Employer of its obligations hereunder have been duly
authorized by formal action of its Board of Directors.
12. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be sent by certified mail or by personal
receipted delivery to the Employee at his residence or to the Employer at its
principal office.
13. WAIVER OF BREACH. The waiver of either the Employer or Employee of
a breach of any provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach by the Employer or Employee.
14. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of both Employer and Employee and their respective
successors, heirs or legal representatives, but neither this Agreement nor any
rights hereunder may be assigned by either Employer or Employee without the
written consent of the other party, subject to Section 9(a)(i) hereof.
15. ARBITRATION. This Agreement shall be governed by the laws of the
State of Maryland without regard to the principles of the conflict of laws. If
any controversy or claim arising out of this Agreement cannot be resolved by the
parties, such conflict or claim shall be resolved by arbitration in accordance
with the then current rules of the American Arbitration Association governing
commercial disputes. Such matters will be arbitrated in the Washington, D.C.
6
<PAGE>
metropolitan area and, for purposes of this Agreement, each party consents to
arbitration in such place. Arbitration proceedings shall commence when either
party notifies the other that a dispute to arbitration exists and requests that
the dispute be arbitrated. If the parties to the dispute cannot within thirty
(30) days after the request for arbitration is made mutually agree upon an
arbitrator or arbitrators to settle the dispute, each party to the dispute shall
select an arbitrator. The two arbitrators shall, within fifteen (15) days after
the appointment of the last arbitrator, select a third arbitrator and the three
arbitrators shall determine the matter. Each arbitrator shall act impartially.
If for any reason an arbitrator is not appointed within the time provided or the
arbitrators appointed by the parties cannot agree upon a third arbitrator, then
an arbitrator shall be appointed by the District Court of the State of Maryland
in and for the County of Montgomery in accordance with applicable state law.
Unless the parties mutually agree otherwise, any arbitrator selected will be
familiar with employment disputes. The final decision will be that of the sole
arbitrator or of the majority of the arbitrators, and shall be final and binding
upon the parties, except as otherwise provided by law. The sole arbitrator or
the majority of arbitrators shall also determine the allocation of costs of the
arbitration among the parties, and shall have the right to award to the
prevailing party all cost of the arbitration, including reasonable attorneys'
fees.
16. ENTIRE CONTRACT; COUNTERPARTS. This instrument contains the entire
agreement of the parties. It may not be changed orally but only by an agreement
approved in writing by the Employer and approved in writing by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought. This Agreement may be executed in two or more counterparts, each of
which shall be considered one and the same instrument.
17. NO THIRD PARTY BENEFICIARIES. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement except as provided in Sections 8(c) and 9.
18. HEADINGS. The headings in this Agreement are solely for
convenience and shall not be given any effect in the construction or
interpretation of this Agreement.
Dated: January 2 , 1997
---------------------
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<PAGE>
EMPLOYEE:
/s/ Marty R. Stango
- ------------------------------
Marty R. Stango
Healthcare Computing Systems, Inc., EMPLOYER
By: /s/ J. Calvin Kaylor
--------------------------------
Its: President and Chief Executive Officer
Attest:
By: /s/ Robert R. Shank
--------------------------------
Its: Secretary
8
<PAGE>
ADDENDUM TO EMPLOYMENT AGREEMENT
This agreement is an addendum to sections 4(a), 4(c)(i), and 4(c)(iii) of
the Employment Agreement dated JAN 2, 1997 between Healthcare Computing Systems,
Inc., a West Virginia corporation (now CareFlow|Net, Inc., a Delaware
corporation), as Employer, and Marty R. Stango, as Employee.
Employer and Employee agree to replace the entire section 4(a), section
4(c)(i), and section 4(c)(iii) of the Employment Agreement with the following
language:
4. COMPENSATION. Employer agrees to pay Employee compensation as
follows:
(a) SALARY. (i) Between the Effective Date and April 15, 1997, the
Employer will pay Employee a salary of $140,000 per year. (ii) Between April
16, 1997 and the earlier of October 1, 1997 or the Initial Closing of the Bridge
Loan (the "Initial Bridge Loan Closing") as described in Section 22 of Letter of
Intent dated September 4, 1996 between D. H. Blair Investment Banking Corp. and
the Employer (the "Letter of Intent"), attached hereto as Exhibit A, Employer
will pay Employee a salary of $56,000 per year, and Employee will be required to
devote not more than 40% (forty per cent) of his working time to the performance
of his duties under this Agreement. (iii) The compensation provided in section
(ii) immediately above shall continue until Employee gives Employer written
notice that he is available for full-time employment by Employer immediately
following the earlier of October 1, 1997 or the Initial Bridge Loan Closing.
Upon such written notice from Employee, Employer will pay Employee a salary of
$140,000 per year. (iv) Employee will receive his annual salary in equal
semi-monthly or biweekly installments in accordance with the executive payroll
policies of the Employer; provided, however, Employee agrees to be paid his
salary earned between the Effective Date and the Initial Bridge Loan Closing,
within 15 (fifteen) days following the Initial Bridge Loan Closing. (v)
Employee's annual salary compensation may be reviewed at any time but shall be
reviewed no less frequently than annually within thirty (30) days of each
anniversary of the Effective Date and shall not be increased in any event until
thirteen (13) months after the Effective Date of the Registration Statement as
set forth in Section 16 of the Letter of Intent. Based on such reviews,
Employee's salary may be adjusted to such higher amount if considered
appropriate by the Employer at its sole discretion after taking into account
general economic conditions, competitive conditions within the Employer's
industry, the financial condition, operations and prospects of
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<PAGE>
Employer, and Employee's prior and prospective performance of his duties. In no
event shall Employee's salary be reduced without Employee's express consent.
(c) OTHER COMPENSATION
(i) STOCK OPTIONS Under a stock option plan to be approved by
the Board prior to the Closing, Employee shall receive prior to the filing date
of the Registration Statement referred to in Section 10 of the Letter of Intent
a non-qualified stock option to purchase 100,000 shares of the common stock of
Employer at an exercise price of $5.00 per share (the "Initial Stock Option").
Employee's right to exercise the Initial Stock Option shall vest as follows: 1/4
(one-fourth) of the shares shall be fully vested on the date of the grant of the
Initial Stock Option; 1/4 (one-fourth) of the shares shall vest on the first
anniversary of the grant; 1/4 (one-fourth) of the shares shall vest on the
second anniversary of the grant; and the remaining 1/4 (one-fourth) of the
shares shall vest on the third anniversary of the grant. Employee shall also be
entitled to receive additional, future stock option grants at the sole
discretion of the Board.
(c) OTHER COMPENSATION
(iii) TEMPORARY HOUSING ALLOWANCE. In addition to any other
compensation provided herein, and immediately upon Employee advising Employer
that he is available for full-time employment by Employer following the earlier
of October 1, 1997 or the Initial Bridge Loan Closing (as provided in 4(a)(iii)
above), Employee shall immediately receive from the Employer $3000 and Employee
shall receive an additional $3000 on each of the first days of each of the
immediately following 11 (eleven) months to defray either the carrying costs of
his vacant residence in Philadelphia, Pennsylvania or to defray his costs to
rent a home in Montgomery County Maryland. Employee understands that the
payments provided under this section will be reportable income of Employee and,
as such, will be subject to withholding.
Dated: September 3 , 1997
------------------------
EMPLOYEE:
/s/ Marty R. Stango
- ------------------------------
Marty R. Stango
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<PAGE>
CareFlow|Net, Inc., EMPLOYER:
/s/ J. Calvin Kaylor
- ------------------------------
Its: President and Chief Executive Officer
Attest:
/s/ Marty R. Stango
- ------------------------------
Its: Secretary
11
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT
This Agreement is entered into by Healthcare Computing Systems, Inc., a
West Virginia corporation, as Employer and Robert Shank, as Employee.
1. EMPLOYMENT. Employer agrees to employ Employee and Employee agrees to
accept employment upon the terms and conditions set forth in this Agreement.
2. DUTIES AND SERVICES. (a) During the term of this Agreement,
Employee shall be employed in the business of the Employer as its Vice President
- - Technical Support. In the performance of his duties, Employee shall report to
and be subject to the direction of the Employer's President and Chief Executive
Officer (the "CEO") or another senior officer designated by the CEO, and
Employee agrees to comply with the policies, standards and regulations of
Employer. Except as provided in Section 4.a.(i), Employee agrees to devote all
of his working time to the performance of his duties under this Agreement except
excused absences due to illness and paid time off.
3. TERM. The term of this Agreement shall commence on November 1, 1996
(the "Effective Date") and continue for thirty-six (36) months unless terminated
earlier or extended as herein provided (the "Term"). This Agreement shall be
automatically extended for an additional twenty-four (24) month term unless
Employer provides not less than ninety (90) days prior to the third anniversary
of the Effective Date written notice to Employee of its intention not to extend
this Agreement.
4. COMPENSATION. Employer agrees to pay Employee compensation as
follows:
(a) SALARY. (i) Between the Effective Date and not earlier than
the payment by D. H. Blair Investment Banking Corp. under the "firm commitment"
to purchase the Units from the Company (the "Effective Date of the Registration
Statement"), as described in Sections 9 and 10 of Letter of Intent dated
September 4, 1996 between D. H. Blair Investment Banking Corp. and Healthcare
Computing Systems, Inc. (the "Letter of Intent"), attached hereto as Exhibit A,
Employer will pay Employee a salary of $40,000 per year, and Employee will be
required to devote not more than 40% (forty per cent) of his working time to the
performance of his duties under this Agreement. (ii) Beginning not earlier
than the Effective Date of the Registration Statement, Employer will pay
Employee a salary of $100,000 per year. (iii) Employee will receive his annual
salary in equal semi-monthly or biweekly installments in accordance with the
executive payroll policies of the Employer; provided, however, Employee agrees
to be paid his salary earned between the Effective Date and the first closing of
a Bridge Loan, as described in Section 22 of the Letter of Intent, at the first
closing of a Bridge Loan. (iv) Employee's annual salary compensation may be
reviewed at any time but shall be reviewed no less frequently than annually
within thirty (30) days of each anniversary of the Effective
<PAGE>
Date and shall not be increased in any event until thirteen (13) months after
the Effective Date of the Registration Statement. Based on such reviews,
Employee's salary may be adjusted to such higher amount if considered
appropriate by the Employer at its sole discretion after taking into account
general economic conditions, competitive conditions within the Employer's
industry, the financial condition, operations and prospects of Employer, and
Employee's prior and prospective performance of his duties. In no event shall
Employee's salary be reduced without Employee's express consent.
(b) PERFORMANCE BONUS. After the Closing, Employee shall
participate in any bonus or other short term incentive compensation plan(s) that
are approved by the Board of Directors of Employer (the "Board").
(c) OTHER COMPENSATION:
(i) STOCK OPTIONS. Employee shall be entitled to receive stock
option grants after the Effective Date of the Registration Statement at the sole
discretion of the Board under a stock option plan to be approved by the Board
prior to the Effective Date of the Registration Statement.
(ii) EMPLOYEE BENEFITS. Employee shall participate in all
benefit plans such as, but not limited to, medical, dental, disability and life
insurance, paid time off (vacation, sick, holidays, etc.), retirement plans,
professional education, etc. as are approved by the Board from time to time.
5. EXPENSES. (a) Employee shall be entitled to prompt reimbursement
for all reasonable travel and other out-of-pocket business expenses, including
relocation expenses, necessarily incurred in the performance of his duties
hereunder. Employee's claims for reimbursement and Employer's payments thereof
shall be in accordance with Employer's then current business expense and
relocation expense reimbursement policies and procedures.
(b) Travel and other reasonable out-of-pocket expenses incurred by
Employee between the Effective Date and the first closing of a Bridge Loan, as
described in Section 22 of the Letter of Intent, shall be promptly reimbursed
from the proceeds of the first closing of a Bridge Loan.
6. TERMINATION. Subject to the provisions of this Section 6, Employer
shall have the right to terminate Employee's employment, and Employee shall have
the right to resign from his employment with Employer, at any time within the
Term of this Agreement.
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<PAGE>
(a) TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON. (i) If,
prior to the expiration of the Term, Employee's employment is terminated by
Employer for Cause, as defined in Section 6(a)(ii) hereof, or if Employee
resigns from his employment hereunder other than for Good Reason, as defined in
Section 6(a)(iii) hereof, Employee shall be entitled to payment of the pro rata
portion of the Employee's salary under Section 4(a) hereof through and including
the date of termination or resignation. Except to the extent required by
applicable law, in the event of termination for Cause or resignation other than
for Good Reason, Employee shall have no right under this Agreement or otherwise
to receive any other compensation or otherwise participate in any other plan,
arrangement or benefit after the termination or resignation of employment with
respect to the year of such termination or resignation or later years, and
unvested stock options held by Employee shall be immediately and automatically
canceled and terminated.
(ii) Termination for "Cause" shall mean termination of Employee's
employment by the Employer because of (A) any act of omission which constitutes
a material breach by Employee of his obligations or agreements under this
Agreement after written notification by the Employer specifying and describing
each such breach and the actions required to cure them, and failure of Employee
to cure each such breach in the manner specified in the notice or in a manner
otherwise acceptable to the Employer within thirty (30) days of receipt thereof,
(B) the conviction of Employee of any felony or crime of moral turpitude, (C)
any act or omission by Employee which, in the good faith judgment of the
Employer, constitutes a breach of Employee's fiduciary duty to Employer, or (D)
the release of the underwriter, D. H. Blair Investment Banking Corp., from the
"firm commitment" to purchase the Units from the Company as described in
Sections 9 and 10 of the Letter of Intent.
(iii) Resignation for "Good Reason" shall mean resignation of Employee
after an act or omission by the Employer which is a material breach of this
Agreement after Employee notifies Employer in writing specifying and describing
each such breach and the actions required to cure them and the Employer does not
cure such breach in the manner set forth in the notice or in a manner otherwise
acceptable to the Employee within thirty (30) days of receipt thereof.
(b) TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON. (i) If,
prior to the expiration of the Term, Employee's employment is terminated by
Employer Without Cause or Employee resigns from his employment hereunder for
Good Reason, (A) Employer shall continue to pay Employee an amount equal to
Employee's then current annual salary under Section 4(a) for twelve (12) months
from the date of such termination or resignation (the "Severance Period"), (B)
Employee
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<PAGE>
shall continue to participate in all benefit plans of Employer during the
Severance Period, (C) Employee shall become fully vested in any retirement plans
or retirement savings plans of the Employer to the extent allowed by applicable
laws, and (D) all options to purchase Employer's stock held by Employee which
are subject to vesting at the end of the period during which the termination
Without Cause or resignation for Good Reason occurs shall immediately vest,
become immediately exercisable, and shall remain exercisable for the Severance
Period. Except to the extent provided herein and required by applicable law,
Employee shall have no right under this Section or otherwise to receive any
compensation or to participate in any other plan, arrangement or benefit after
such termination Without Cause or resignation for Good Reason with respect to
the year of such termination or resignation and later years.
(c) TERMINATION DUE TO DEATH OR DISABILITY. In the event of
Employee's death or Employee's permanent disability that prevents Employee from
carrying out his duties hereunder, Employer shall be entitled to terminate his
employment Without Cause and the applicable provisions of Section 6(b) shall be
followed for the benefit of the Employee, or the Employee's estate in the event
of his death.
(d) EXPIRATION OF TERM. Expiration of this Agreement, whether by
non- extension or non-renewal by the Employer, shall be regarded as Termination
Without Cause and shall be covered by the provisions of Section 6(b) hereof,
provided, however, that Employee shall have the obligation to mitigate
Employer's obligations hereunder.
7. MERGER, ETC. In the event (A) of a disposition of all or
substantially all of the assets and business of the Employer during the Term of
this Agreement, by merger, consolidation, sale of assets or otherwise or (B) if
the individuals who at the beginning of the Term constituted the entire Board
(the "Original Board") and any new directors whose election was approved by the
majority of the Original Board cease to constitute a majority of the Board (the
preceding clauses (A) and (B) to be each hereinafter defined as a "Change of
Control"), then:
(a) the Employer may elect:
(i) to assign this Agreement and all of its rights and
obligations hereunder to the acquiring or surviving entity; provided that the
entity shall assume in writing all of the obligations of the Employer hereunder;
and, provided further, that the Employer (in the event and so long as it remains
in existence) shall remain liable for the performance of its obligations
hereunder in the event of a breach by the surviving entity of this Agreement; or
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<PAGE>
(ii) in addition to the other rights of termination, to terminate
this Agreement upon at least ninety (90) days written notice by paying Employee
in accordance with the provisions of Section 6(b).
(b) Upon a Change of Control as a result of which (i) there occurs a
material detrimental alteration in Employee's position or responsibilities with
the Company or a material reduction in Employee's compensation, (ii) Employee's
primary work location is relocated more than 75 miles from his primary
residence, or (iii) Employee is excluded in a material way from compensation
plans or fringe benefits enjoyed by other Company executives, the Employee may
elect to:
(i) accept Employer's election under subsections (i) or (ii)
immediately above; or
(ii) terminate this Agreement upon ninety (90) days written
notice after which the provisions of Section 6(b) shall apply.
8. CONFIDENTIAL INFORMATION. Employee acknowledges that during the
course of his employment hereunder Employee will become acquainted with
confidential information regarding Employer's business. During the Term of this
Agreement and for a period of two (2) years thereafter (the "Non-Competition
Period") Employee will not, without the prior written consent of the Employer,
disclose or make use of any such confidential information except as may be
required in the course of his employment hereunder.
9. NON-COMPETITION. Employee hereby represents, warrants and agrees
that, during the Non-Competition Period, Employee will not compete with the
business of the Employer within any of the 50 states of the United States or
within any foreign country in which the Company operates (the "Prohibited
Territory") as employee, consultant, principal, agent, trustee or through the
agency of any corporation, partnership, association, agent or agency, or other
enterprise, engaged in any business that during the Non-Competition Period is in
competition with the business of the Employer (the "Prohibited Activity").
10. NON-SOLICITATION. Employee covenants and agrees, during the Term of
this Agreement and the Non-Competition Period, that Employee will not canvass or
solicit any person or entity who is customer of Employer about whom Employee
obtained significant business information during the term of his employment, for
the purpose of directly or indirectly furnishing services competitive with
Employer and will not solicit for employment or employ any employee of Employer.
The parties agree that the geographic scope of this non-solicitation covenant is
not limited to the Protected Territory.
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<PAGE>
11. REPRESENTATIONS AND WARRANTIES. (a) Employee represents and warrants
to Employer that (i) Employee is under no contractual or other restriction or
obligation which is inconsistent with his execution of this Agreement or
performance of his duties hereunder and (ii) Employee has no physical or mental
disability that would hinder his performance of his duties under this Agreement.
(b) Employer represents and warrants to Employee that this Agreement
and the performance of Employer of its obligations hereunder have been duly
authorized by formal action of its Board of Directors.
12. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be sent by certified mail or by personal
receipted delivery to the Employee at his residence or to the Employer at its
principal office.
13. WAIVER OF BREACH. The waiver of either the Employer or Employee of
a breach of any provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach by the Employer or Employee.
14. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of both Employer and Employee and their respective
successors, heirs or legal representatives, but neither this Agreement nor any
rights hereunder may be assigned by either Employer or Employee without the
written consent of the other party, subject to Section 9(a)(i) hereof.
15. ARBITRATION. This Agreement shall be governed by the laws of the
State of Maryland without regard to the principles of the conflict of laws. If
any controversy or claim arising out of this Agreement cannot be resolved by the
parties, such conflict or claim shall be resolved by arbitration in accordance
with the then current rules of the American Arbitration Association governing
commercial disputes. Such matters will be arbitrated in the Washington, D.C.
metropolitan area and, for purposes of this Agreement, each party consents to
arbitration in such place. Arbitration proceedings shall commence when either
party notifies the other that a dispute to arbitration exists and requests that
the dispute be arbitrated. If the parties to the dispute cannot within thirty
(30) days after the request for arbitration is made mutually agree upon an
arbitrator or arbitrators to settle the dispute, each party to the dispute shall
select an arbitrator. The two arbitrators shall, within fifteen (15) days after
the appointment of the last arbitrator, select a third arbitrator and the three
arbitrators shall determine the matter. Each arbitrator shall act impartially.
If for any reason an arbitrator is not appointed within the time provided or the
arbitrators appointed by the parties cannot agree upon a third arbitrator, then
an arbitrator shall be appointed by the District
6
<PAGE>
Court of the State of Maryland in and for the County of Montgomery in accordance
with applicable state law. Unless the parties mutually agree otherwise, any
arbitrator selected will be familiar with employment disputes. The final
decision will be that of the sole arbitrator or of the majority of the
arbitrators, and shall be final and binding upon the parties, except as
otherwise provided by law. The sole arbitrator or the majority of arbitrators
shall also determine the allocation of costs of the arbitration among the
parties, and shall have the right to award to the prevailing party all cost of
the arbitration, including reasonable attorneys' fees.
16. ENTIRE CONTRACT; COUNTERPARTS. This instrument contains the entire
agreement of the parties. It may not be changed orally but only by an agreement
approved in writing by the Employer and approved in writing by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought. This Agreement may be executed in two or more counterparts, each of
which shall be considered one and the same instrument.
17. NO THIRD PARTY BENEFICIARIES. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement except as provided in Sections 8(c) and 9.
18. HEADINGS. The headings in this Agreement are solely for
convenience and shall not be given any effect in the construction or
interpretation of this Agreement.
Dated: December 16 , 1996
-----------------------
EMPLOYEE:
/s/ Robert R. Shank
- -----------------------------------
Robert Shank
Healthcare Computing Systems, Inc., EMPLOYER
By: /s/ J. Calvin Kaylor
-------------------------------
Its: President and Chief Executive Officer
Attest:
By: /s/ Robert R. Shank
-------------------------------
Its: Secretary
7
<PAGE>
ADDENDUM TO EMPLOYMENT AGREEMENT
This agreement is an addendum to section 4(a) of the Employment Agreement
dated December 16, 1996 between Healthcare Computing Systems, Inc., a West
Virginia corporation (now CareFlow|Net, Inc., a Delaware corporation), as
Employer, and Robert R. Shank, as Employee.
Employer and Employee agree to replace the entire section 4(a) of the
Employment Agreement with the following language:
4. COMPENSATION. Employer agrees to pay Employee compensation as
follows:
(a) SALARY. (i) Between the Effective Date and the earlier of
October 1, 1997 or the initial closing of the bridge loan (the "Initial Bridge
Loan Closing") as described in Section 22 of Letter of Intent dated September 4,
1996 between D. H. Blair Investment Banking Corp. and the Employer (the "Letter
of Intent"), attached hereto as Exhibit A, Employer will pay Employee a salary
of $40,000 per year, and Employee will be required to devote not more than 40%
(forty per cent) of his working time to the performance of his duties under this
Agreement. (ii) Beginning on the earlier of October 1, 1997 or the Initial
Bridge Loan Closing, Employer will pay Employee a salary of $60,000 per year,
and Employee will be required to devote not more than 60% (sixty per cent) of
his working time to the performance of his duties under this Agreement. (iii)
Following (ii) above and upon giving Employer 30 (thirty) days advance written
notice, Employee may permanently increase his working time to the performance of
his duties under this Agreement to 100% (one-hundred per cent), at which time
Employer will pay Employee a salary of $100,000 per year. (iv) Employee will
receive his annual salary in equal semi-monthly or biweekly installments in
accordance with the executive payroll policies of the Employer; provided,
however, Employee agrees to be paid his salary earned between the Effective Date
and the Initial Bridge Loan Closing, as described in Section 22 of the Letter of
Intent, within fifteen (fifteen) days following the Initial Bridge Loan Closing.
(iv) Employee's annual salary compensation may be reviewed at any time but
shall be reviewed no less frequently than annually within thirty (30) days of
each anniversary of the Effective Date and shall not be increased in any event
until thirteen (13) months after the Effective Date of the Registration
Statement. Based on such reviews, Employee's salary may be adjusted to such
higher amount if considered appropriate by the Employer at its sole discretion
after taking into account general economic conditions, competitive conditions
within the Employer's industry, the financial condition, operations and
prospects of Employer,
8
<PAGE>
and Employee's prior and prospective performance of his duties. In no event
shall Employee's salary be reduced without Employee's express consent.
Dated: August 29 , 1997
------------------------
EMPLOYEE:
/s/ Robert R. Shank
- -----------------------------------
Robert R. Shank
CareFlow|Net, Inc., EMPLOYER:
/s/ J. Calvin Kaylor
- -----------------------------------
Its: President and Chief Executive Officer
Attest:
/s/ Robert R. Shank
- -----------------------------------
Its: Assistant Secretary
9
<PAGE>
Exhibit 10.7
CONSULTANT AND NON-COMPETITION AGREEMENT
AGREEMENT dated as of November 1, 1996, between CareFlow |Net, Inc., a
Delaware corporation having a principal place of business at 235 High Street -
Suite 410, Morgantown, West Virginia 36505 (the "Company"), and Yenumula V.
Reddy, Ph.D. ("Consultant"), residing at 3051 Ridgetop Drive, Morgantown, West
Virginia 26505.
RECITALS:
A. The Company wishes to retain Consultant as an independent consultant
to the Company upon terms and conditions as set forth herein, to assist the
Company in, among other things, product design development and design review and
product commercialization, including patent, copyright or other proprietary
rights obtained thereon, related to the Business of the Company (as defined
herein), and Consultant desires to undertake such efforts upon the terms and
conditions set forth herein; and
B. The Company desires that Consultant not compete with the Company,
except as set forth herein,
THEREFORE, In consideration of the above premises and the mutual
agreements hereinafter set forth, the parties hereby agree as follows:
1. DEFINITIONS. Whenever used in this Agreement, the following terms and
their variant forms shall have the meaning set forth below:
1.1 "AGREEMENT" shall mean this Agreement and any Exhibits
incorporated herein, together with any amendments hereto made in the manner
described in this Agreement.
1.2 "AFFILIATE" shall mean any business entity which controls the
Company, is controlled by, or is under common control with the Company.
1.3 "BUSINESS OF THE COMPANY" shall mean the business of researching,
developing, inventing, manufacturing, licensing or selling software and related
products for the management, storage, manipulation, retrieval (and related
functions) of healthcare data, including patient medical and financial
information and providing services in support of such software and related
products.
1.4 "CONSULTING FIELD" shall mean activities relating to research and
development, technical review, testing and commercialization of the software
and related
<PAGE>
products of the Company and provision of consulting and software and related
product support services by the Company.
1.5 "INITIAL TERM" shall mean that period of time commencing with the
date of this Agreement and running until the earlier of (a) October 31, 1999
or (b) any termination of this Agreement as provided for in Section 4 hereof.
1.6 "INVENTION" shall mean any discovery, whether or not patentable,
including, but not limited to, any useful process, method, formula, technique,
machine, manufacture, composition of matter, algorithm, computer program,
software, or any portion thereof or code therefor, as well as improvements
thereto, which is new or which Consultant has a reasonable basis to believe may
be new.
1.7 "PROPRIETARY INFORMATION" shall mean:
(a) Information related to the Business of the Company or any
Affiliate,
(i) Which derives economic value, actual or potential, from not
being generally known to or readily ascertainable by other
persons who can obtain economic value from its disclosure or use;
and
(ii) Which is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy; and
(b) All tangible reproductions or embodiments of such information.
Assuming the criteria in (a)(i) and (a)(ii) above are satisfied, Proprietary
Information includes, but is not limited to, technical and nontechnical data
related to the formulas, patterns, designs, compilations, programs, algorithms,
software, codes, Inventions, methods, techniques, drawings, processes, finances,
actual or potential customers and suppliers, existing and future products, and
employees of the Company or its Affiliates. Proprietary Information also
includes information which has been disclosed to the Company or its Affiliates
by a third party and which the Company or any Affiliate is obligated to treat as
confidential.
1.8 "SUBJECT INVENTION" shall mean any Invention that is conceived by
Consultant, alone or in a joint effort with others during the Term of this
Agreement, that results from work or other activities that Consultant performs
or undertakes under this Agreement or from work or activities that have been
assigned as part of his duties as a consultant to the Company; or from any
Proprietary Information that has been disclosed to Consultant.
1.9 "SUBJECT WORK" shall mean any Work that is conceived by
Consultant, alone or in a joint effort with others during the Term of this
Agreement, that results from work or other activities that Consultant performs
or undertakes under this Agreement or from work or activities that have been
assigned as part of his duties as a consultant to the Company; or from
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<PAGE>
any Proprietary Information that has been disclosed to Consultant. It is
understood that a Subject Work can also be deemed an Invention or a Subject
Invention.
1.10 "TERM" shall mean the Initial Term and all subsequent renewal
periods.
1.11 "WVU" shall mean West Virginia University .
1.12 "WORK" shall mean a copyrightable Work of authorship, including
without limitation, any technical descriptions for products, user's guides,
illustrations, advertising materials, computer programs and codes (including the
contents of read only memories), plans, diagrams, specifications and other such
Works, and any contribution to such materials.
02. TERMS OF CONSULTING ARRANGEMENT; DUTIES. The Company hereby retains
Consultant, and Consultant hereby accepts such engagement, in a consulting and
advisory position, to perform the tasks and services delegated to him by the
Board of Directors and President of the Company or their designated employees or
representatives. Consultant shall be referred to as Consultant and Chief
Scientist and shall at the request of the Company, be available for one day per
week during the Term pursuant to a mutually agreed-upon schedule to render
advisory and consultation services to the Company. Such advisory and
consultation services shall be approved in advance by the Company and shall (i)
be carried out at the facilities of the Company or at such other place as may be
mutually convenient and agreed to by the Company and the Consultant, as
appropriate, (ii) relate primarily to the Consulting Field, (iii) include
assisting the Company in obtaining patents, copyrights or other rights relating
to the Subject Inventions and technologies developed during the Term, as
appropriate, subject to the provisions of Sections 5, 6, 7 and 8 hereof , and
assisting the Company in negotiations relating to such commercialization and
(iv) include public relations activities, such as public appearances and
interviews in support of the Business of the Company and the products and
services of the Company. Consultant will be designated as a nominee for
election as a director of the Company, and agrees to serve in such capacity if
so elected, during the Term.
3. TERM AND TERMINATION.
3.1 TERM. This Agreement shall remain in effect for the Term. Upon
expiration of the Initial Term or any subsequent renewal Term, this Agreement
may be renewed only by mutual, written agreement of Consultant and the Company.
Absent such written renewal agreement, this Agreement shall expire at the end of
the then current Term. The obligations of Consultant pursuant to Sections 5
through 12 of this Agreement shall survive the termination of the engagement of
Consultant hereunder.
3.2 TERMINATION. During the Term, commencing November 1, 1996, the
engagement of the Consultant under this Agreement may be terminated by either
party upon
- 3 -
<PAGE>
at least 120 days prior written notice of its intent to terminate; provided,
however, that if Consultant elected to terminate the Agreement pursuant to this
paragraph, the provisions of Sections 5, 6 and 7 shall apply to any Subject
Invention or Subject Work conceived, initiated, reduced to practice, or
substantially completed during the Term for a period of 240 days after the date
of such termination.
4. COMPENSATION; EXPENSES. Consultant shall receive the following
compensation for services provided hereunder:
4.1 COMPENSATION. Consultant shall be compensated at a rate of
$50,000 per annum, payable in equal monthly increments commencing as of November
1, 1996. Consultant shall be eligible to receive stock options, as shall be
determined from time to time by the Board of Directors under comparable criteria
as may be applied to other senior management of the Company.
4.2 EXPENSE REIMBURSEMENT. During the Term, the Consultant shall be
reimbursed for reasonable travel expenses incurred in connection with his
activities hereunder, upon submission of appropriate vouchers and in accordance
with then current Company expense reimbursement policies.
5. INVENTIONS.
5.1 SUBJECT INVENTIONS CONCEIVED DURING THE TERM. Consultant agrees
that all Subject Inventions, and all patent rights and copyrights to such
Subject Inventions, will become the property of the Company. Consultant hereby
irrevocably assigns or agrees to assign to the Company all of his rights to all
such Subject Inventions and agrees that he shall receive no further compensation
or consideration for such assignments.
5.2 NOTIFICATION OF CONCEPTION OF SUBJECT INVENTION. Consultant
agrees that if he, alone or in a joint effort with others, conceives a Subject
Invention during the Term, he will promptly provide a written description of
the Subject Invention to the Company.
5.3 RECORDS. Consultant shall maintain and make copies available to
the Company appropriate records of all research and development activities
adhering to any specific guidelines for the same which are promulgated by the
Company, which shall, if properly maintained and promptly disclosed to the
Company, satisfy the requirement of providing a written disclosure of any
Subject Inventions or Subject Works. If applicable, Consultant shall complete
written call reports on contacts with prospective or existing customers adhering
to any specific guidelines for the same which are promulgated by the Company.
- 4 -
<PAGE>
6. PATENT APPLICATIONS. Consultant agrees that should the Company elect
to file an application for patent protection either in the United States or in
any foreign country, on a Subject Invention of which Consultant was an inventor
or co-inventor, he will execute all necessary documentation relating to the
patent applications, including formal assignments to the Company.
Consultant further agrees that he will cooperate with attorneys or
other persons designated by the Company by explaining the nature of any Subject
Invention for which the Company elects to file an application for patent
protection, reviewing applications and other papers and providing any other
cooperation required for prosecution of the patent applications. The Company
will be responsible for all expenses incurred for the preparation and
prosecution of all patent applications on Subject Inventions assigned to the
Company.
7. COPYRIGHTS.
7.1 SUBJECT WORKS CREATED BY CONSULTANT DURING THE TERM. Consultant
agrees that every Subject Work shall be considered a "Work Made for Hire" and
be subject to the applicable provisions contained in Sections 101 and 201 of the
United States Copyright Law, Title 17 of the United States Code. All right,
title and interest to copyrights in all such Subject Works will be the property
of the Company. Consultant acknowledges and agrees that, to the extent the
provisions of Title 17 of the United States Code do not vest in the Company the
copyrights to such Subject Works, Consultant hereby assigns or agrees to assign
to the Company all right, title and interest to copyrights which he may have in
the Subject Works; further, the foregoing shall be deemed a continuing
assignment.
7.2 NOTIFICATION OF CREATION OF SUBJECT WORK. Consultant must
disclose to the Company all Subject Works referred to in Section 7.1 and will
execute and deliver all applications registrations, and documents relating to
the copyrights to the Subject Works and will provide assistance to secure and
perfect the Company's title to the copyrights in the Subject Works. The Company
will be responsible for all expenses incurred in connection with the
registration of all the copyrights.
7.3 NO PRIOR SUBJECT WORKS. Consultant claims no ownership rights
in any Subject Works relating to the Consulting Field, except those described on
Exhibit A.
8. PROPRIETARY INFORMATION.
8.1 OWNERSHIP OF PROPRIETARY INFORMATION. All Proprietary
Information received or developed by Consultant while he is a consultant to the
Company will remain the sole and exclusive property of the Company.
- 5 -
<PAGE>
8.2 OBLIGATIONS OF CONSULTANT. During the Term and thereafter,
Consultant will hold the Proprietary Information in trust and strictest
confidence, and will not use, reproduce, distribute, disclose or otherwise
disseminate the Proprietary Information, except to the extent necessary to
perform the duties assigned to him by the Company.
8.3 DELIVERY UPON TERMINATION. Upon termination of his engagement
by the Company, Consultant will promptly deliver to the Company all property
belonging to the Company, including without limitation all Proprietary
Information then in his possession or control.
9. COVENANTS.
9.1 COVENANT NOT TO COMPETE.
During the Term, any renewal term and for a period of one (1)
year thereafter, the Consultant covenants and agrees not to consult with or
become employed by, license otherwise make available any Subject Invention,
including any Subject Work, to, or enter into discussions or negotiations to
consult with to become employed by, license otherwise make available any Subject
Invention, including any Subject Work, to, any other entity which competes, or
which, through the services of Consultant, could compete, directly or
indirectly, with the Business of the Company, without the prior written consent
of the Company. In addition, Consultant covenants and agrees (A) not to engage
in any activities that compete or could compete, directly or indirectly, with
the Business of the Company without the prior written consent of the Company
during the Term, any renewal term and thereafter (i) for a period of one (1)
year if the Consultant elects to terminate this Agreement pursuant to Section
3.2 or not to renew this Agreement or (ii) for a period of 120 days if the
Company elects to terminate this Agreement pursuant to Section 3.2 or not to
renew this Agreement and (B) not to cause the unauthorized use of any Subject
Invention or Subject Work during the Term, any renewal term and thereafter.
9.2 NON-SOLICITATION.
The Consultant expressly covenants and agrees that he will not,
at any time during the Term, and for a period of one (1) year thereafter,
directly or indirectly, (a) induce or attempt to influence any employee of, or
consultant under contract with, the Company to leave its employ; or (b) aid, or
agree to aid, any competitor or supplier of the Company in any attempt to hire
any person who shall have been employed by, or who was a consultant under
contract with, the Company, within one year preceding such requested aid; or
(c) induce, or attempt to influence, any person who was a supplier to the
Company to transact business with a competitor of the Company; provided, nothing
contained herein shall otherwise prevent Consultant from writing letters of
recommendation for any such person if Consultant has otherwise complied with the
terms of this Agreement.
- 6 -
<PAGE>
9.3 COOPERATION IN LICENSING
Consultant agrees if requested by the Company, to use his best
efforts to assist the Company in obtaining licenses or other rights to use
patents or other proprietary rights held by WVU or other inventors relating to
the Consulting Field.
For the purposes of this Section 9, the term "directly or
indirectly", shall include participation as an officer, director, employee,
consultant agent, representative, shareholder, partner, joint venturer or
individual proprietor. The foregoing shall not be construed as preventing
Consultant from investing assets in such form or manner where Consultant does
not perform services for such company in which such investment may be made. The
ownership by Consultant of stock listed on a national securities exchange, of
any corporation conducting such competing business, provided Consultant and
members of Consultant's family, in the aggregate, do not beneficially own more
than two (2%) percent of the stock of such corporation, shall not be deemed a
violation of this Agreement.
10. CONSULTANT'S REPRESENTATIONS.
10.1 NO OTHER AGREEMENTS. Consultant represents that, other than as
set forth on Schedule 10.1, with the exception of WVU, Consultant is not
currently a party to any employment, consulting or other agreement with, nor
does he consult with or have any other obligation or understanding to provide
services to any entity other than the Company, and Consultant agrees that he
will notify the Company if and when he enters into any such agreement,
consulting relationship, obligation or understanding. Consultant represents
that he is not now under any agreement, express or implied, nor has he
previously at any time entered, nor will he during the Term, enter into any
agreement with any person, firm or corporation which would or could in any
manner preclude or prevent his from entering into and performing this Agreement
according to its terms; provided, however, that the Company shall not assign any
work, activity or duty to Consultant that will conflict with his obligations as
an employee of WVU.
10.2 NO INVENTIONS OR WORKS AFFECTED. Consultant hereby warrants and
represents to the Company that he has not executed any agreement with any other
party which purports to require him to assign or license any Subject Work or any
Subject Invention pertaining to the Business of the Company created, conceived
or first practiced by him during the Term.
10.3 NO VIOLATION OF LAWS OR AGREEMENTS. Consultant hereby
represents and warrants to the Company that his execution and performance of his
duties under this Agreement will not result in a material violation or breach of
any applicable law, rule or regulation of any governmental entity or any
contract to which Consultant is a party or is otherwise bound.
- 7 -
<PAGE>
11. RELATIONSHIP OF PARTIES.
11.1 RELATIONSHIP. It is hereby agreed between the parties that
Consultant is an independent contractor, and shall not hold himself out to be an
officer, partner or employee of the Company for any purpose whatsoever.
Consultant shall control the manner and means of accomplishing the agreed
services, and shall be responsible for the full, adequate, and timely completion
of said services. The Company may, during the Term, engage other independent
contractors to perform the same or similar work that Consultant performs
hereunder.
11.2 BENEFITS; TAXES. None of the benefits provided by the Company
to its employees, including but not limited to medical, life, accident, or
disability insurance, pension or profit sharing plans, unemployment or Worker's
Compensation, are available to Consultant. No withholding or Federal or state
income taxes, social security or related contributions shall be made from
payments made to the Consultant, and Consultant shall be solely responsible for
payment of any such taxes or contributions due on account of payments received
under this Agreement.
11.3 COMPLIANCE WITH LAWS, RULES, REGULATIONS. The Consultant shall
observe all laws and governmental regulations and all of the Company rules and
regulations while providing services pursuant to this Agreement.
12. REMEDIES.
12.1 UNIQUENESS OF SERVICES. It is expressly understood and agreed
that the services to be rendered hereunder by Consultant are special, unique,
and of extraordinary character, that the material terms and conditions contained
in this Agreement are of the essence of this Agreement; that each of such
material terms and conditions is reasonable and necessary to protect the
business, interests and properties of the Company; and that irreparable loss and
damage will be suffered by the Company should Consultant breach any of such
material terms and conditions. Therefore, Consultant agrees and consents that,
in addition to all the remedies provided by law or in equity, the Company shall
be entitled to a temporary restraining order and temporary and permanent
injunctions to prevent a breach or contemplated breach of any of such covenants
and agreements, to enforce specific performance by Consultant, or to enjoin
Consultant from performing services rendered under this Agreement for any other
person or entity.
12.2 CUMULATIVE REMEDIES. The Company and Consultant agree that
all remedies available to the Company or Consultant, as applicable, shall be
cumulative.
13. SEVERABILITY. The parties agree that each of the provisions included
in this Agreement is separate, distinct, and severable from the other provisions
of this Agreement, and
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<PAGE>
that the invalidity or unenforceability of any Agreement provision shall not
affect the validity or enforceability of any other provision of this Agreement.
Further, if any provision of this Agreement is ruled invalid or unenforceable by
a court of competent jurisdiction because of a conflict between the provision
and any applicable law or public policy, the provision shall be redrawn to make
the provision consistent with and valid and enforceable under the law or public
policy.
14. NOTICE. All notices and other communications required or permitted
under this Agreement shall be in writing and, if mailed by prepaid first-class
mail or certified mail, return receipt requested, shall be deemed to have been
received on the earlier of the date shown on the receipt or five (5) business
days after the postmarked date thereof. In addition, notices hereunder may be
delivered by hand or overnight courier, in which event the notice shall be
deemed effective when delivered. All notices and other communications under
this Agreement shall be given to the parties hereto at the following addresses
(or at such other addresses as either party shall provide to the other pursuant
to this section):
(i) If the Company, to it at:
235 High Street - Suite 410
Morgantown, West Virginia 36505
with a copy to:
Bachner Tally Polevoy & Misher, LLP
380 Madison Avenue - 18th Floor
New York, New York 10017
Attention: Sheldon E. Misher, Esq.
(ii) If to Consultant, to him at:
3051 Ridgetop Drive
Morgantown, West Virginia 26505
with a copy to:
Shampa Reddy
The Atrium Building, Apt. 231
North Key Boulevard
Arlington, Virginia
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<PAGE>
15. BINDING EFFECT. The rights, benefits, duties and obligations under this
Agreement shall inure to, and be binding upon, the Company, and its respective
successors and assigns and upon Consultant and his representatives, heirs, and
legatees. Consultant may not assign his obligations hereunder.
16. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Maryland.
17. WAIVER. A waiver by the Company of any breach of this Agreement by
Consultant shall not be effective unless in writing, and no waiver shall operate
or be construed as a waiver of the same or another breach on a subsequent
occasion.
18. ENTIRE AGREEMENT. This Agreement embodies the entire and final
agreement of the parties on the subject matter stated in the Agreement. No
amendment or modification of this Agreement shall be valid or binding upon the
Company or Consultant unless made in writing and signed by both parties. All
prior understandings and agreements relating to the subject matter of this
Agreement are hereby expressly terminated.
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<PAGE>
19. HEADINGS.
The headings of the paragraphs herein are inserted for convenience and
shall not affect any interpretation of this Agreement.
THIS AGREEMENT, AS A CONDITION OF CONSULTANT'S ENGAGEMENT BY THE
COMPANY, CONTAINS AN ASSIGNMENT OF CERTAIN PATENT AND OTHER PROPRIETARY RIGHTS
TO INVENTIONS HE CONCEIVES WHILE A CONSULTANT TO THE COMPANY AND IMPOSES UPON
HIM CERTAIN CONFIDENTIALITY RESTRICTIONS WITH RESPECT TO PROPRIETARY INFORMATION
BELONGING TO THE COMPANY. PLEASE READ THIS AGREEMENT CAREFULLY BEFORE SIGNING.
IN WITNESS WHEREOF, the Company and Consultant have executed and
delivered this Agreement as of the date first set forth above.
YENUMULA V. REDDY: CAREFLOW | NET, INC.
/s/ Yenumula V. Reddy By: J. Calvin Kaylor
- --------------------- ----------------
Title: President and CEO
-----------------
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<PAGE>
CONSULTANT AND NON-COMPETITION AGREEMENT
Dated as of November 1, 1996
between CareFlow |Net, Inc. (the "Company"), and Yenumula V. Reddy, Ph.D.
("Consultant")
SCHEDULE 10.1
Consultant is a principal of Cybermarch, Inc. and another company spun off from
Cybermarch, (to be known as "TU On the Net"). TU On the Net is primarily
concerned with providing technical education world-side on the Internet.
Consultant hereby advises the Company that Consultant's involvement in either of
these two entities or entities dealing with these two antedates is and will be
outside the scope of the Consulting Field and that such activities have not and
will not in any way conflict with the terms and conditions of this Agreement.
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<PAGE>
CAREFLOW | NET, INC.
(the "Company")
SPECIAL TERMS AND CONDITIONS FOR CONFIDENTIAL INFORMATION
The Company has disclosed and may disclose certain confidential information
(the "Confidential Information") to you in connection with the Business of the
Company.
The Confidential Information heretofore or hereafter made available to you was
and will be made on the following terms and conditions.
1. You will maintain all the Confidential Information in secrecy, will
not disclose it to others, and will use it only for the purposes of
the Consultant and Non-Competition Agreement executed simultaneously
herewith.
2. You will disclose the Confidential Information only with the
permission of the Company, and only to those who have reason to know
and who have undertaken an obligation of secrecy to you at least as
extensive as that which you have to us under the terms of this
agreement.
3. Your obligations of secrecy and non-use under this agreement will not
extend to any information which:
a. is generally available to the public as of the date of this
agreement or subsequently becomes available to the public through no
fault of yours, or
b. was already known to you prior to your receipt from us, as
evidenced by your prior written records, or
c. is disclosed to you by a third party who did not derive the
information directly or indirectly from us.
4. All memoranda, papers, letters, notes, notebooks and other written or
printed matter and all copies thereof in any way relating to the
Business of the Company that come into your possession or are made by
you shall be held by you as our property and returned to us promptly
upon our request.
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<PAGE>
If you are willing to accept the disclosures of the Confidential
Information under these terms and conditions, please indicate your acceptance by
signing the enclosed copy of this letter and returning it to us.
Very truly yours,
CAREFLOW | NET, INC.
By: /s/ J. Calvin Kaylor
--------------------------------
Name: J. Calvin Kaylor
------------------------------
Title: President and CEO
-----------------------------
Accepted as of the first day of November, 1996
/s/ Yenumula V. Reddy
- ------------------------------
Yenumula V. Reddy, Ph.D.
<PAGE>
EXHIBIT 10.8
COLLABORATION AGREEMENT
BETWEEN HEALTHCARE COMPUTING SYSTEMS, INC.
AND PETER SPITZER, M.D.
In order to facilitate and encourage a continued collaboration between
themselves, Healthcare Computing Systems, Inc., a corporation located at 235
High Street, Suite 410, Morgantown, West Virginia 26505 ("HCS") and Peter
Spitzer, M.D., an individual located at 11718 Barrington Court, Suite 504, Los
Angeles, California 90049 ("PS") hereby agree to the following terms and
conditions to govern their relationship under this Agreement.
1. INTERIM AGREEMENT.
The parties agree to the following:
a. That this general Agreement may be replaced, through mutual written
consent, by a more definitive agreement at such time as either of the
parties fell it is prudent to do so.
b. That, unless replaced or extended by a subsequent agreement, the term
of this Agreement shall be from March 5, 1996 through December 31,
1997.
c. That, should HCS divide itself into, reorganize into, or create de
novo one or more related companies ("HCS Related Companies"), then PS'
participation in each such HCS Related Company shall be at least equal
to the level of participation (consulting status, equity allocation,
participation on Board of Directors, option of becoming an employee,
reimbursement for expenses, general terms) as described for
participation in HCS below.
2. CONSULTING RELATIONSHIP.
a. Until the parties should agree to having PS become an employee, as
described in Section 3 below, PS's relationship to HCS shall be that
of a consultant and an independent contractor.
b. Unless otherwise agreed by the parties, PS shall waive his usual and
customary hourly consulting fee and shall instead be reimbursed
through the allocation of equity in HCS, as described in Section 5
below.
c. Until and unless changed otherwise by mutual agreement, PS shall bear
the HCS title of "Senior Vice President for Corporate Development" and
shall report to Dr. Scott Friedman, Chief Executive Officer of HCS.
d. PS shall assist HCS in defining its business strategy and
organizational structure; in creating one or more business plans
appropriate for the organization(s) suggested by the business plan(s);
in obtaining investment financing for HCS or the HCS Related
Companies; and in negotiating business agreements with prospective
customers of HCS. Should HCS desire PS' further participation in HCS
in additional ways, beyond those specified in the prior sentence, then
HCS and PS shall negotiate additional mutually satisfactory additional
payments for such increased participation.
e. PS shall be available for HCS related work at his sole discretion, at
times and from locations of PS's choice.
f. PS shall be considered an independent contractor and is not an
employee of HSC. PS shall be responsible for the payment of any taxes
based on his gross or net income.
3. EMPLOYMENT OPTION.
a. Both parties are interested in the possibility of PS becoming an
employee of HCS. Upon initial investor funding of HCS and upon
arriving at a mutually satisfactory
<PAGE>
agreement on PS's position, reporting relationships, responsibilities,
salary, and compensation package, PS will have the option of becoming
a salaried employee of Healthcare Computing Systems, Inc. (HCS).
b. Such an employment of PS by HCS would be defined solely in terms of
PS's active, conceptual involvement in the day-to-day business of HCS,
but will not be defined in the context of a set, timed effort. Upon
such employment, PS may render his services at or from any location
that he may select.
c. Should PS become an employee, he shall participate in an employee
incentive stock option plan where PS will vest "X" additional shares
or "Y" additional percentage points of the total equity of HCS over a
time, where X and Y are commensurate with the employee incentive stock
option plans of the other top-level employees of HCS.
4. SEAT ON THE BOARD OF DIRECTORS.
a. PS will be appointed to the Board of Directors of HCS and any HCS
Related Companies that may be formed throughout the term hereof. This
appointment is not contingent on PS being, or becoming, an employee of
HCS or of any HCS Related Companies.
b. HCS will procure Officers and Directors' liability insurance as soon
as possible and shall add PS as a named insured on such a policy for
the term of PS's appointment to such Board hereunder; similarly, such
coverage will be obtained for PS' participation in any HCS Related
Companies.
5. EQUITY ALLOCATION.
Unless and until PS were to become an employee of HCS, PS' primary
compensation for his work will be in the form of allocation and receipt of
equity in HCS and HCS Related Companies. This allocation of equity to PS
shall proceed as follows:
a. At PS's completion of the first iteration of the business plan and
strategy for HCS, PS will receive 5% of the total equity of HCS.
b. Upon receipt by HCS or HCS Related Companies of the first payment from
the funding source (or sources) that have made a commitment to fund
the requirements in the business plan(s), PS will receive an
additional 2.5% of the total equity of HCS and any HCS Related
Companies.
c. Upon receipt by HCS or HCS Related Companies of the last/final payment
from funding source (sources) as above, PS will receive an additional
2.5% of the total equity of HCS and any HCS Related Companies.
d. Any equity paid as described above shall vest immediately upon its
allocation to PS.
e. HCS' obligation for payment of the equity allocation, as outlined
above, and PS's vesting in such equity allocation, shall survive any
termination of this Agreement; they shall also apply should PS become
an employee of HCS.
f. Should HCS transform or reorganize into one or more HCS Related
Companies, PS's equity allocation in each such HCS Related Company
shall be at least equal to the percentages and levels described above.
g. PS's equity in HCS or any HCS Related Companies shall not be diluted
unless, as defined in the Articles of Incorporation of HCS, the Board
of Directors votes to dilute the total equity of HCS. Furthermore,
any dilution of PS' equity will be less than or equal to the dilution
of the shares owned by Cybermarche, Inc., Scott Friedman, Steve
Shattls, and Robert Shank. Furthermore, if at any future time the
Board of Directors elects to change any of the founder's shares to
undilutable shares, PS' equity will also be changed in this way, so
that the percentage of undilutable equity that PS holds will be at
least equal to and may be more than the percentage of undilutable
equity held by any of the individuals above, or at least equal to or
may be more than 1/6th the total undilutable equity held by
Cybermarche, Inc.
<PAGE>
6. EXPENSES.
a. PS will be reimbursed in full by HCS for any expenses that he incurs
while doing business on the behalf of and/or in the name of HCS.
b. These expenses will be paid in full in U.S. dollars within 3 weeks
from their submission to HCS.
c. PS shall obtain approval (oral and written) from HCS's Chief Executive
Officer in advance of undertaking any travel for or on behalf of HCS
and prior to incurring any expenses that are estimated to exceed U.S.
$500.
7. GENERAL.
a. This Agreement supersedes all prior agreements between the parties,
whether written or oral.
b. Neither party shall be liable to the other for incidental, indirect,
special or consequential damages, or for lost profits, savings or
revenues of any kind, whether or not it has been advised of the
possibility of such damages.
c. Neither party shall be held responsible for any delay or failure in
performance under this Agreement arising out of any cause beyond its
control or due to any force of nature, events or Acts of God or the
non-performance of third parties.
d. HCS shall fully indemnify, hold harmless and defend PS against any and
all claims, or threatened claims, by third parties related PS' actions
under this Agreement.
e. HCS shall obtain a general liability policy as soon as it is feasible,
and shall add PS as a named insured under such a general liability
policy for the term of PS's services hereunder.
f. In no event shall PS's liability to HCS or any of its current or
prospective agents, employees, shareholders, suppliers or customers,
exceed in the aggregate the lesser of: a) the total compensation paid
to PS hereunder; or b) the sum of ten thousand dollars ($10,000).
g. Nothing in this Agreement shall be deemed or construed to restrict PS
from providing any products or services of any kinds, to any party,
for any reason, under any terms, at any time. In particular, but
without limitation, nothing in this Agreement shall be deemed or
construed to restrict PS from developing or providing any products or
services to any parties other than HCS, including without limitation,
management, clinical and computer systems and services related
consulting, and computer systems, software and hardware, even if these
should be similar in scope, methodology or result to work performed
under this Agreement. Nothing in this Agreement shall prevent either
party from performing work of any kind (including developing or
providing any products or services) for any third parties, including
without limitation customers, affiliates, or competitors of the other
party. Nothing in this Agreement shall prevent either party from
recruiting or contracting with any employees, agents or subcontractors
of the other party. Nothing in this Agreement shall be deemed or
construed to prevent PS from establishing any type of an organization
or from becoming affiliated (in any conceivable manner) with any
third parties at any time.
<PAGE>
h. Should any dispute arise between the parties, HCS and PS shall use
their best efforts to resolve such dispute amicably, expeditiously and
fairly and shall document the resolution of such dispute in writing.
Any disputes that cannot be resolved amicably shall be exclusively
resolved by binding arbitration in Los Angeles, California under the
then prevailing rules of the American Arbitration Association. The
decision of the arbitrator will be entitled to enforcement in any
court of competent jurisdiction. As part of the award, the prevailing
party shall be entitled to recover reasonable fees for its time and to
recover all costs, including attorney fees and costs, incurred in
enforcing its rights under this Agreement.
i. The Parties have each had the opportunity to review this Agreement
with their legal counsel. Neither party shall be considered to be the
author of this Agreement
j. In the event that a court of competent jurisdiction and last resort
holds that a particular provision or requirement of this Agreement is
in violation of any applicable law, each such provision or requirement
shall be enforced only to the extent it is not in violation of such
law or is not otherwise unenforceable and all other provisions and
requirements of this Agreement shall remain in full force and effect.
<PAGE>
Accepted by:
- -----------
HCS PS
/s/ Scott Friedman, M.D. 3/15/96 /s/ Peter Spitzer, M.D. 3/16/96
---------------------------------- ---------------------------------
Signature Date Signature Date
Scott Friedman, M.D. Peter Spitzer, M.D.
------------------------------
Name
Chief Executive Officer
------------------------------
Title
<PAGE>
AMENDMENT AND ADDENDUM TO
"COLLABORATION AGREEMENT BETWEEN HEALTHCARE COMPUTING
SYSTEMS, INC. AND PETER SPITZER, M.D."
This Amendment and Addendum to the "Collaboration Agreement between
Healthcare Computing Systems, Inc. and Peter Spitzer, M.D." executed March 16,
1996 ("the Agreement") is entered into by and among Healthcare Computer Systems,
Inc. ("HCS"), Peter Spitzer, M.D. ("Spitzer") and CareFlow/Net, Inc.
("CareFlow").
1. The parties acknowledge that Spitzer has fully performed all of his
obligations to HCS pursuant to the Agreement. As consideration in full for
performance of his obligations under the Agreement and for all of his efforts
relating to the formation and development of HCS, CareFlow and their respective
business, Spitzer has been issued 100 shares of the Common Stock of HCS
("Spitzer's Shares"). Spitzer shall retain Sptizer's Shares, and they shall
constitute full satisfaction of any and all obligations of HCS, CareFlow or any
successor or affiliate of HCS or CareFlow to Spitzer regarding compensation or
issuance of equity for his efforts to date, or his retention as a consultant or
participation as an officer or director, pursuant to the Agreement or otherwise.
2. Spitzer shall receive his pro-rata portion of stock in CareFlow or any
successor entity (which shall be personally delivered to him as soon as any
shares in CareFlow or any successor are issued) based on the same formula as the
Founding Shareholders of HCS (i.e., Friedman, Shank, Shattle, Kankanahalli,
Jagannathan, Claetus, Karinthi and the Reddys, both of whose shares are in the
name of their daughter). Spitzer's Shares will be subject, on an identical
basis with the shares held by the Founding Shareholders, to any escrow
provisions required of pre-offering shares by Blair or the managing underwriter
or placement agent in connection with any public or private financing of HCS,
CareFlow or any successor entity, provided, however, that Spitzer's Shares shall
not be subject to any lock up agreement or other contractual restriction on sale
and may be sold directly or through any broker or dealer of his choice in
accordance with the provisions of Rule 144 and/or other applicable federal and
state securities laws.
3. HCS and CareFlow have permission to use all materials previously
delivered by Spitzer to HCS, including materials copyrighted by Spitzer and
including but not limited to the business plan Spitzer prepared for HCS. Such
use shall be on a non-exclusive basis, and shall be subject to the terms and
conditions of the Agreement.
<PAGE>
4. Neither HCS nor CareFlow shall use Spitzer's name for commercial
purposes without his prior written permission.
5. Spitzer hereby resigns as a director of HCS effectively immediately,
and acknowledges that neither HCS, CareFlow nor any successor entity shall be
obligated to appoint Spitzer to be an officer, director, consultant or employee.
6. Except as expressly modified herein, the Agreement shall remain in
full force and effect.
HEALTHCARE COMPUTING SYSTEMS, INC.
By: /s/ Scott Friedman Dated As of January 28, 1997
------------------------------
Scott Friedman, M.D.
President
CAREFLOW/NET, INC.
By: /s/ J. Calvin Kaylor Dated As of January 28, 1997
------------------------------
J. Calvin Kaylor
President
/s/ Peter Spitzer Dated As of January 28, 1997
------------------------------
Peter Spitzer, M.D.
<PAGE>
Exhibit 10.9
SUBLICENSE AGREEMENT BETWEEN
CYBERMARCHE, INC. AND HEALTHCARE COMPUTING SYSTEMS
This agreement is made as of September 5, 1996 by and between CyberMarche, Inc.
(CM) and Healthcare Computing Systems (HCS). The terms of this agreement are the
following:
o CyberMarche, Inc. sublicenses HCS, on an exclusive basis, to use, display,
copy, modify, duplicate, make, have made, sell, import, export, and
otherwise distribute the Software referred to in the attached exhibit
(Exhibit A); and to have any of the foregoing performed on its behalf by a
third party.
o This sublicense is offered for a fee of one US Dollar ($1.00).
o In signing this agreement. HCS agrees to take responsibility for all dues,
payments, royalties, keeping of records of sales, intellectual property
rights, Governmental Rights, reports, warranties, notices and all other
obligations and privileges that devolved upon CM as a result of its
agreement with West Virginia University (WVU) (Exhibit B).
o Breach of this agreement will attract the same penalties to HCS as would
be incurred if such breach of contract were committed by CM under the
terms of its referenced agreement (Exhibits A & B) with WVU.
This is the entire agreement.
Signed and agreed:
For Healthcare Computing Systems. Inc.:
/s/ Robert R. Shank
- -----------------------------------------
Robert R. Shank
COO, Corporate Secretary and Treasurer
For CyberMarche, Inc.:
/s/ Dr. K. J. Cleetus
- -----------------------------------------
Dr. K. J. Cleetus
President & CEO
<PAGE>
WVU/CM Agreement
Exhibit A
Software licensed by WVU to CM under this agreement shall include current and
future releases of the following elements of the ARTEMIS patient medical record
management software developed, or under development, at the Concurrent
Engineering Research Center (CERC), a research center of WVU. Specifically
excluded from this list are such third-party components of CERC ARTEMIS
technology as are inherent in the use of commercially available tools employed
by CERC software personnel to develop its healthcare patient record management
technology.
ARTEMIS distributed patient record management software consists of the following
components:
(a) Software to allow access to CORBA-based services through the World Wide Web
(services referred to as Web* and TclDII).
(b) All ARTEMIS patient record specific applications developed including the
various presentation software and layout pages.
(c) Gateways to databases developed as part of providing access to patient
records.
(d) Models and schemas of patient information.
(e) Mechanisms and methodologies developed to support confidential, secure
access to patient chart.
(f) Supporting tools that were developed specifically to support patient record
management.
/s/ Dr. K. J. Cleetus
7/7
<PAGE>
WVU/CM Agreement
Exhibit B
LICENSE AGREEMENT
THIS License Agreement ("Agreement") is made as of June 4, 1996 (the "Effective
Date") by and between West Virginia University Research Corporation on behalf of
West Virginia University, a nonprofit organization organized under the laws of
the State of West Virginia, located at 617 N. Spruce Street, PO Box 6845,
Morgantown, WV 26506-6845 ("WVU"), and Cybermarche, Inc., a for-profit company,
also organized under the laws of the State of West Virginia. situated at 235
High Street, Suite 412, Morgantown, WV 26505 ("CM" ), and founded by researchers
of WVU in 1996 to develop, support, and market products and services for
information technology. Therefore, the parties agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meaning indicated:
1.1 "Intellectual Property Rights" shall mean collectively, all rights and
interests of any nature, current and future, what WVU has or may have,
including, without limitation, rights and interests in any patents, patent
applications, trade secrets, copyrights, copyright registrations and
applications therefor, moral rights, and all other intellectual property rights
and proprietary rights, whether arising under the laws of the United States or
may other state, country or jurisdiction, that relate to the Software.
1.2 "Net Sales" shall mean the gross sales price actually received by CM upon
its sale or license of products incorporating the Software to a third party,
less (a) normal and customary rebates, and cash and trade discounts actually
given, (b) amounts allowed or credited due to returns (not to exceed the
original billing or invoice amount), and (c) to the extent billed separately on
the invoice and paid by the buyer: (i) sales, use and/or other excise taxes or
duties actually paid, (ii) the cost of any packages and packing, (iii) insurance
costs and outbound transportation charges prepaid or allowed, and (iv) import
and/or export duties and withholding taxes actually paid.
1.3 "Software" shall mean the software described in Exhibit A. and any updates,
enhancement, error corrections, improvements or other changes thereto made by
WVU.
LICENSE
2.1 Grant.
WVU grants to CM a world-wide, transferable, exclusive license under the
Intellectual Property Rights, including the right to grant and authorize
sublicenses, to use, display, copy, modify, duplicate, make, have made, sell,
import, export, and otherwise distribute the Software; and to have any of the
foregoing performed on its behalf by a third party.
2.2 Reservations.
Notwithstanding Section 2.1, WVU expressly reserves the right to use the
Software by WVU researchers and students for educational and academic,
noncommercial research purposes; provided that WVU shall not disclose any trade
secrets included within the Intellectual Property Rights to third parties.
2.3 Governmental Rights.
The licenses granted to CM under Section 2.1 are subject to any rights of the
United States Government in the Intellectual Property Rights.
1/7
<PAGE>
WVU/CM Agreement
3. CONSIDERATION
3.1 Royalties.
In consideration of the rights and license granted herein, CM shall pay to WVU a
royalty on Net Sales as follows:
Period Royalty Rate
------ ------------
First year after First Commercial Shipment ("FCS") 0.00%
Second year after FCS 0.25%
Third and fourth years after FCS 0.50%
Beyond 4 years after FCS 0.25%
3.2 Allocation.
In the event the Software is incorporated in or sold in combination with other
software code, products, or services, then Net Sales from such sales, for the
purposes of calculating royalties due under Section 3.1 above, shall be
reasonably allocated by CM between the Software and such other software code,
product and/or services based on the amount of code or their relative value.
4. PAYMENTS AND REPORTS
4.1 Royalty Reports.
Thirty (30) days after the end of each calendar year, CM shall deliver to WVU a
true and accurate royalty report. Such report shall include, with respect to
such calendar year at least (a) the total of Net Sales; and (b) the calculation
of amounts due WVU. Simultaneous with the delivery of each such report. CM shall
pay to WVU the total amount, if any, due to WVU for the period of such report.
4.2 Records.
CM shall keep complete and accurate records of Net Sales in sufficient detail to
enable the amounts payable hereunder to be determined. Upon WVU's written
request. but not more frequently than once per calendar year, CM shall permit
representatives or agents of WVU to examine such records during CM's regular
business hours for the purpose of and to the extent necessary to verify any
report required under this Agreement with respect to Net Sales made by CM for
not more than five (5) years prior to the date of WVU's request. In the event
that the amounts due to WVU are determined to have been underpaid, CM shall pay
to WVU any amount due and unpaid. WVU shall bear the fees and expenses of WVU's
representatives performing the examination of the books and records.
5. PATENTS AND COPYRIGHTS
5.1 Applications.
CM shall have the right, in its sole discretion, to apply for, seek prompt
issuance of, maintain and enforce any patents within the Intellectual Property
Rights in the name of WVU. At the request of WVU, which request shall
specifically identify the technology and geographical area in question, CM will
notify WVU if CM elected not to pursue a patent application covering such
technology, or pay any fee required to maintain a patent copyright, or similar
registration, in any country with sixty (60) days of WVU's request. In the event
CM determines not to pursue such patent application or maintain such patent, WVU
shall have the right to file and prosecute such application, and/or maintain
such patent. CM shall also have the right, in its sole discretion, to apply for,
seek prompt issuance of, maintain and enforce intellectual property protections
other than patents, including but not limited to copyrights, within the
Intellectual Property Rights in its own name.
5.2 Expenses.
2/7
<PAGE>
WVU/CM Agreement
Each party shall be responsible for expenses incurred by it in prosecuting
applications and maintaining the Intellectual Property Rights.
5.3 Cooperation.
Each party agrees to provide all reasonable and necessary assistance, as
requested by the other party, required to file, prosecute, maintain and enforce
patents, patent applications, and other intellectual property right protections
and establish ownership rights therein consistent with the terms of this
Agreement.
6. INFRINGEMENT
6.1 Infringement.
In the event that any intellectual Property Right licensed to CM hereunder is,
in CM's judgement, infringed by a third party, CM shall have the primary right,
but not the obligation, to institute, prosecute and control any action or
proceeding with respect to such infringement, by counsel of CM's choice at CM's
own expense, including any declaratory judgement action arising from such
infringement. WVU shall be entitled to participate in any such action through
counsel of its choice at WVU's own expense.
6.2 Witholding Royalties.
In the event that CM commences an action to enforce the Intellectual Property
Rights, CM shall have the right during the pendency of the action to withhold up
to, but not more than fifty percent (50%) of the amounts payable to WVU
hereunder to offset CM's out of pocket legal expenses incurred in connection
with such action or proceeding. Any portion of such withheld amounts that is not
so applied shall be promptly paid to WVU after such action or proceeding is
resolved or abandoned. Any amounts recovered from third parties by CM with
respect to the Intellectual Property Rights in such action or preceding shall be
applied to reimburse any outstanding legal expenses of the action or preceding
incurred by CM or WVU, and to reimburse WVU for any amount withheld under this
Section 6.2 with respect to such action or proceeding in proportion to the total
of the expense incurred by CM and WVU. Any amounts remaining shall be retained
by CM.
7. REPRESENTATIONS AND WARRANTIES
7.1 Intellectual Property Representations and Warranties.
WVU represents, warrants and covenants that: (a) WVU has the right and authority
to enter into this Agreement and grant the rights and licenses hereunder, (b)
WVU has not previously granted, and will not grant in the future, any rights in
the Intellectual Property Rights that are inconsistent with the rights and
licenses grant to CM herein, (c) the Software does not infringe any patent
rights, trade secrets or other proprietary rights of any third party, and (d)
WVU does not own any rights in any other patent or patent application, the
claims of which would dominate the Intellectual Property Rights or their use.
7.2 Governmental Rights.
The parties understand that the Intellectual Property Rights may have been
developed under a funding agreement with the U.S. Government, and if so may be
subject to 35 U.S.C. Sections 201-207 and regulations thereunder. WVU represents
and warrants that it (i) has complied and agrees to continue to comply during
the term of this Agreement with all laws and regulations applicable to such U.S.
Government funding agreement, and (ii) have done and will continue to do all
acts necessary or convenient for the protection of WVU's rights to retain
ownership of all Intellectual Property Rights.
7.3 Disclaimer.
NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES OTHER THAN THOSE EXPRESSLY
STATED IN THIS SECTION 7.
3/7
<PAGE>
WVU/CM Agreement
8.CONFIDENTIALITY
8.1 Confidential Information and Trade Secrets.
CM may, from time to time, in connection with this Agreement, disclose to WVU,
CM Confidential Information. "Confidential Information" shall mean any
information disclosed in writing by CM to WVU and marked by CM with the legend
"CONFIDENTIAL" or other similar legend sufficient to identify such information
as confidential proprietary information. WVU shall not use any Confidential
Information of CM except as expressly authorized, and will use its best efforts
to prevent the disclosure of Confidential Information to third parties. This
Section shall not apply to Confidential Information that: (i) is disclosed
orally; provided, however, that WVU's obligations under this Section shall apply
to information disclosed orally if such information is confirmed in writing as
"CONFIDENTIAL" by CM within thirty (30) days after disclosure thereof, (ii) is
in WVU's possession at the time of disclosure thereof (other than source code
for the Software and other trade secrets of CM); (iii) is or later becomes part
of the public domain through no fault of WVU; (iv) is received from a third
party having no obligations of confidentiality to WVU; (v) is developed
independently by WVU without reliance upon or use of CM's Confidential
Information; or (vi) is required by law or regulation to be disclosed; provided,
however, that WVU has provided written notice to CM promptly to enable CM to
seek a protective order or otherwise prevent disclosure of such Confidential
Information.
9. TERM AND TERMINATION
9.1 Term.
The term of this Agreement shall commence on the Effective Date and continue in
full force and effect until expiration, revocation, invalidation or abandonment
of the Intellectual Property Rights. Upon the expiration, but not an earlier
termination of this Agreement, the license granted to Licensee under 2.1 above
shall continue on a non-exclusive basis.
9.2 Termination Notice.
This Agreement will terminate:
9.2.1
Upon WVU's written notice to CM after sixty (60) days written notice
to CM if CM breaches or defaults on any material obligation under this
Agreement; provided that such sixty (60) day notice specifies the nature
of the breach; and provided further that CM may avoid such termination,
if before the end of such sixty (60) day period CM cures such breach or
default. However, if CM disputes an asserted breach in writing within such
sixty (60) day period, WVU shall not have the right to terminate this
Agreement unless and until it has been determined by arbitrator or court
that this Agreement was materially breached, and CM fails, to cure such
breach within sixty (60) days after such determination; or
9.2.2
By CM upon sixty (60) days written notice to WVU.
9.3 Sales of Stock on Hand.
In the event that this Agreement is terminated for any reason, CM and its
customers may within six (6) months after the effective date of such
termination, sell or otherwise dispose of all copies of products incorporating
the Software that CM or its customers may have on hand the effective date of
such termination.
9.4 Survival.
Sections 7, 8, 9 and 10 shall survive the expiration and any termination of this
Agreement.
9.5 Rights as Joint Owners.
In the event this Agreement is terminated for any reason with respect to any
Intellectual Property Rights of which WVU and CM are joint owners, it is
understood that neither WVU nor CM shall have any obligation to account to the
other for profits, or to obtain the consent of the other, with
4/7
<PAGE>
WVU/CM Agreement
respect to any license or other exploitation of such Intellectual Property
Rights by reason of such joint ownership. Any rights to an accounting from, and
any requirement to obtain the consent of, the other joint ownership under the
laws of any jurisdiction are hereby waived.
10. GENERAL
10.1 Assignment.
This Agreement may not be assigned by WVU without written consent from CM, which
consent shall not be unreasonably withheld.
10.2 Complete Agreement.
This Agreement constitutes the entire understanding and only agreement between
the parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, representations, agreements, and understandings, written or
oral, that the parties may have reached with respect to the subject matter
hereof. No agreements altering or supplementing the terms hereof may be made
except by means of a written document signed by the duly authorized
representatives of each of the parties hereto.
10.3 Use of Names.
Nothing contained in this Agreement may be construed as conferring any right to
use by CM in advertising, publicity or other promotional activities any name,
trade name, trademark, or other designation of WVU (including any contraction,
abbreviation or simulation of any of the foregoing).
10.4 No Implied Obligations.
Nothing In this Agreement shall be deemed to require CM to exploit the
Intellectual Property Rights for commercial purposes, or prevent CM from
commercializing products similar to or competitive with the Intellectual
Property Rights.
10.5 Notices.
Any notice or other communication this Agreement requires or permits either
party to give must be in writing to the address given above or to such other
address as one party designates by written notice to the other party.
10.6 Governing Law.
This Agreement will be governed by and construed in accordance with the laws of
the State of West Virginia, excluding that body of law related to choice of
laws.
10.7 No Waiver.
A waiver, express or implied, by either party of any right under this Agreement
or of any failure to perform or breach hereof by the other party hereto shall
not constitute or be deemed to be a waiver of any other right hereunder or of
any other failure to perform or breach hereof by such other party, whether of
similar or dissimilar nature thereto.
10.8 No Consequential Damages.
Other than for breach of section 7.1, 7.2 or 8.1, in no event shall either party
be liable for any incidental, consequential, or special damages, however caused
and under any theory of liability, regardless of whether the party has been
advised of the possibility of such damages.
5/7
<PAGE>
WVU/CM Agreement
10.9 Severability.
If any provision of this Agreement shall be found by a court of competent
jurisdiction to be void, invalid or unenforceable, the same shall be reformed to
comply with applicable law or stricken if not reformable, so as not to affect
the validity or enforceability of the remainder of this Agreement, provided
that the reformation complies with the intent of the parties.
10.10 Counterparts.
This Agreement may be executed in counterparts, each of which shall be deemed an
original, but which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement.
West Virginia University Research Corporation and Cybermarche, Inc.
on Behalf of West Virginia University ("WVU")
By: /s/ William W. Reeves 6/15/96 By: /s/ K. J. Cleetus
-------------------------------- ---------------------------
Name: William W. Reeves Name: K. J. Cleetus, Ph. D.
Title: Secretary Title: President
6/7
<PAGE>
WVU/CM Agreement
Exhibit A
Software licensed by WVU to CM under this agreement shall include current and
future releases of the following elements of the ARTEMIS patient medical record
management software developed, or under development, at the Concurrent
Engineering Research Center (CERC), a research center of WVU. Specifically
excluded from this list are such third-party components of CERC ARTEMIS
technology as are inherent in the use of commercially available tools employed
by CERC software personnel to develop its healthcare patient record management
technology.
ARTEMIS distributed patient record management software consists of the following
components:
(a) Software to allow access to CORBA-based services through the World Wide Web
(services referred to as Web* and TclDII).
(b) All ARTEMIS patient record specific applications developed including the
various presentation software and layout pages.
(c) Gateways to databases developed as part of providing access to patient
records.
(d) Models and schemas of patient information.
(e) Mechanisms and methodologies developed to support confidential, secure
access to patient chart.
(f) Supporting tools that were developed specifically to support patient record
management.
/s/ Dr. K. J. Cleetus
7/7
<PAGE>
FILE COPY
AMENDMENT NO. 1
This Amendment No.1 (the "Amendment") to License Agreement, which is
effective as of June 4, 1996 by and between West Virginia University Research
Corporation on behalf of West Virginia University, a non-profit organization
organized under the laws of the State of West Virginia ("WVU"), and Cybermarche,
Inc. a for-profit company organized under the laws of the State of West Virginia
("CM"), is by and between WVU and CM and is effective as of September 5, 1996.
WHEREAS, WVU and CM entered into the above-referenced License Agreement
granting CM a worldwide, transferable, exclusive license under the Intellectual
Property Rights, including the right to grant and authorize sublicenses, to use,
display, copy, modify, duplicate, make, have made, sell, import, export, and
otherwise distribute the Software, and to have any of the foregoing performed on
its behalf by a third party, and
WHEREAS, CM has entered into a sublicense agreement with Healthcare
Computing Systems, Inc., d/b/a CareFlow / Net ("HCS"), effective September 5,
1996, by which CM has granted a sublicense to HCS, on an exclusive basis, to
use, display, copy, modify, duplicate, make, have made, sell, import, export,
and otherwise distribute certain software referred to in said sublicense
agreement, to have any of the foregoing performed on its behalf by a third party
and under which HCS has agreed to take responsibility for, inter alia, the
payment of all royalties due WVU; and
WHEREAS, WVU and CM desire to amend certain provisions of the License
Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, it is agreed that:
1. Section 4.1 Royalty Reports of the License Agreement is hereby
amended to recite "Ninety (90) days" after the end of each calendar
year in place of the original "Thirty (30) days" to provide CM with
additional time to provide WVU with CM's royalty report.
2. Section 7.1 Intellectual Property Representations and Warranties.
Part (d) of the License Agreement is hereby amended to insert the
phrase "or except as specifically set forth in the Agreement,
infringe" after the word "dominate" in the next to last line
thereof.
3. Section 9.2.1 of the License Agreement is hereby amended to insert
the word "finally" before the word "determined" in the next to last
line thereof.
This Amendment may be executed in counterparts, each of which
counterparts, when so executed and delivered, shall be deemed an original and
all of which counterparts, taken together, shall constitute one and the same
instrument. Unless separately defined, all defined terms herein shall have the
meaning set forth in the License Agreement.
IN WITNESS WHEREOF, the WVU and CM have executed this Amendment, in
duplicate, by proper persons thereunto duly authorized.
WEST VIRGINIA UNIVERSITY RESEARCH CORPORATION
By: /s/ William W. Reeves
---------------------------------
Name: William W. Reeves
Title: Executive Director, WVU Research Corporation
Date: 11/5/97
CYBERMARCHE, INC.
By: /s/ K. J. Cleetus
---------------------------------
Name: K. J. Cleetus
Title: President
Date: 11/6/97
<PAGE>
Exhibit 10.10
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS, MARKED BY AN * AND [ ], HAVE BEEN
SEPARATELY FILED WITH THE COMMISSION.
AGREEMENT
BETWEEN
BAPTIST HEALTH SYSTEMS OF SOUTH FLORIDA, INC.
AND
CAREFLOW | NET, INC.
MARCH 3, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. SCHEDULES.................................................................1
2. DEFINITIONS...............................................................1
3. TERM OF AGREEMENT.........................................................4
4. PRODUCTS AND SERVICES.....................................................5
5. DEVELOPMENT OF THE APPLICATIONS...........................................5
6. SOFTWARE LICENSE..........................................................7
7. OBLIGATIONS OF BHS........................................................9
8. SUPPORT SERVICES.........................................................10
9. PRICES; PAYMENT TERMS...................................................11
10. INTELLECTUAL PROPERTY RIGHTS; PROPRIETARY INFORMATION..................12
11. WARRANTIES; INDEMNIFICATION..............................................13
12. LIMITATION OF LIABILITY..................................................15
13. INSPECTION RIGHTS........................................................16
14. RISK OF LOSS.............................................................17
15. CAUSES BEYOND THE PARTIES' CONTROL.......................................17
16. TERMINATION..............................................................18
17. INJUNCTIVE RELIEF; PRE-ACCEPTANCE DISPUTE RESOLUTION.....................19
18. MISCELLANEOUS............................................................20
SCHEDULES
A Description of Applications
B Implementation Services
C Implementation Project Plan
D Support Services
E Software Fees and Schedule of Payments
F Supported Platforms
G BHS Facilities
<PAGE>
AGREEMENT
This AGREEMENT is made as of March 3, 1997 between CareFlow | Net, Inc., a
Delaware corporation located at 235 High Street, Suite 410, Morgantown, WV 26505
("CFN"), and Baptist Health Systems of South Florida, Inc., a Florida
not-for-profit corporation located at 8900 North Kendall Drive, Miami, FL
33176-2197 ("BHS").
WHEREAS, BHS desires to procure the development of, obtain a non-exclusive
license to, and use one or more computer software applications from CFN and
obtain from CFN certain technical support services for such applications, to
meet certain of BHS's clinical, administrative and operational business
requirements of its healthcare service business , and CFN desires to develop
and supply to BHS such applications and support services, and to grant such
license, as set forth in this Agreement, and
WHEREAS, BHS desires to procure software applications that will be designed and
maintained to conform to standards approved by OMG (the Object Management
Group), and CFN desires to develop, supply and maintain such software
applications,
NOW, THEREFORE, in consideration of the premises, the covenants and the
agreements contained herein, as well as other valuable consideration CFN and BHS
covenant and agree as follows:
1. SCHEDULES.
---------
The following Schedules are attached to and made part of this Agreement :
1.1 Schedule A: Description of Applications
1.2 Schedule B: Implementation Services
1.3 Schedule C: Implementation Project Plan
1.4 Schedule D: Support Services
1.5 Schedule E: Software Fees and Schedule of Payments
1.6 Schedule F: Supported Platforms
1.7 Schedule G: BHS Facilities
2. DEFINITIONS.
In this Agreement the following expressions shall have the meanings given
to them below.
ACCEPTANCE: The acceptance of the accomplishment of a Milestone or of an
Application by BHS, pursuant to Section 5 of this Agreement; provided,
however, that Acceptance will be deemed to have occurred on the first Live
Date for any Application.
ACCEPTANCE DATE: The acceptance date(s) for a Milestone or an Application,
as the case may be.
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AGREEMENT: This Agreement, the Schedules attached hereto, and all Change
Orders, if any, which are incorporated herein by reference.
APPLICATION: A software application to be provided by CFN that is named
separately by CFN, which is usually designed to support a particular
business function, as described in SCHEDULE A: APPLICATIONS. Each
Application shall include any future Minor Releases relating to such
Application issued in any period during which Support Services are being
provided with respect to such Application.
BHS AFFILIATES: Medical personnel affiliated with BHS, to the extent that
such personnel directly provide medical care and services to patients
treated at any of the BHS Facilities.
BHS AFFILIATES FACILITIES: All present and future facilities, other than
BHS Facilities, at which BHS Affiliates provide patient care services to
patients treated at any of the BHS Facilities, which facilities shall only
have access to the Applications by means of Web browsers.
BHS FACILITIES: All present and future healthcare facilities owned or
operated by BHS; provided, however, that BHS Facilities shall not include
any otherwise unaffiliated healthcare facilities or entities to which BHS
may now or in the future provide administrative or managerial, but not
medical, services. BHS Facilities shall also include the offices of any
physicians affiliated with BHS to the extent that such physicians directly
provide care to patients treated at any of the BHS Facilities enumerated
above.
CHANGE ORDER: A written order signed by both parties authorizing a change
in or addition to any Application, the addition of new Applications, or a
change in the scope or completion due date of the Implementation Services.
Any Change Order relating to a new Application shall include provisions
with regard to Permitted Users and payment terms relating to delivery of
the Application and the Support Services related thereto.
CPI: The Consumer Price Index published for All Urban Consumers: U. S. City
Average for All Items, by the United States Department of Labor, Bureau of
Labor Statistics as derived for the previous calendar year, or if this
index is no longer published, a comparable index.
DOCUMENTATION: The paper, magnetic, optical or electronic media based
information related to any Application and provided by CFN (on an as
available basis), which may include existing and future user guides, Minor
Releases, reference manuals, operational manuals, reference guides
describing the interactive and batch processing, operation, tuning,
trouble-shooting, and control and management of such Application.
EFFECTIVE DATE: The date set forth in the first paragraph of this
Agreement.
HARDWARE: The equipment on which the Application runs.
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CFN SERVICE RATES: The rates in effect from time to time for services
provided by CFN personnel (or personnel of CFN sub-contractors), other than
pursuant to annualized Support Service agreements, which rates, as of the
date of this Agreement, are set forth in SCHEDULE E: APPLICATION SOFTWARE
FEES - CFN SERVICE RATES.
IMPLEMENTATION PROJECT PLAN: The detailed schedule of delivery of the
Applications as set forth in SCHEDULE C: IMPLEMENTATION PROJECT PLAN.
IMPLEMENTATION SERVICES: The services furnished by CFN under the
Agreement, as set forth in SCHEDULE B: IMPLEMENTATION SERVICES.
LICENSE: The license to use the Applications, as defined in this
Agreement, granted to BHS in Section 6 of this Agreement.
LIVE DATE: The Live Date for an Application is the first date on which
the Application is used by BHS to process actual patient data.
LIVE TEST PERIOD: A 30 day period commencing with Milestone 5 and
preceding the Live Date during which the Applications will be tested with
non-mission critical clinical data.
MAJOR RELEASE: An upgrade of an Application that: (i) contains
significant enhancements in software functionality; or (ii) requires a
conversion of the data files for its implementation at BHS; or (iii)
requires a change in or addition to the Hardware for its implementation at
BHS. A Major Release may, in addition, also include the components of a
Minor Release.
MINOR RELEASE: An update to an Application that provides one or more of
the following: (i) additional functionality; (ii) updates to the
Reference Files; (iii) performance improvements, and (iv) "bug fixes" and
does not include the other components of a Major Release.
MILESTONE: Achievement of a defined project plan objective, as set forth
in SCHEDULE C: IMPLEMENTATION PROJECT PLAN.
OEM SOFTWARE: Software applications owned or licensed by third parties and
acquired by or licensed to BHS from such third parties, including, without
limitation, the software applications of the Supported Platforms.
OEM PRODUCTS: Hardware and OEM Software.
PERMITTED USES: Uses of the Applications within the BHS Facilities (or
within the BHS Affiliates Facilities solely by means of Web browser
technology) by Permitted Users solely in the conduct of the business of
providing healthcare services to patients of the BHS Facilities and not to
process the data of any third parties.
PERMITTED USERS: All BHS employees and BHS Affiliates.
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<PAGE>
PROCESSOR: Central processing unit (CPU) of any computer.
PROJECT MANAGER: An individual designated by either party pursuant to
Section 5.9.1 of this Agreement.
SOURCE CODE: Both machine readable and human readable copies of an
Application, consisting of instructions to be executed upon a computer in
the language used by its programmer (i.e., prior to compilation or
assembly), in a form in which the program logic or the Application is
deducible by a human being, full commented, and including all flow
diagrams and all other documentation and manuals which would allow persons
who are experienced computer programmers, but who are unfamiliar with the
Application, to properly effect modifications, enhancements and support for
that Application.
SUPPORT SERVICES: The support services to be provided by CFN in accordance
with SCHEDULE D: SUPPORT SERVICES.
SUPPORTED PLATFORMS: The system environment supported by the
Applications, in which the Applications are designed to run, consisting of
the combination of the OEM Products, operating systems, networking
environments, database management systems, file management systems,
middleware, Web browser and utilities and tools, as set forth in SCHEDULE
F: SUPPORTED PLATFORMS.
Other terms are defined in the various Schedules and in the body of this
Agreement.
3. TERM OF AGREEMENT.
3.1 Except as set forth in Section 6 or as earlier terminated in
accordance with its terms, this Agreement shall be for a term commencing on
Effective Date and ending the later of (i) one (1) year after the date of
acceptance of the Applications or the (ii) termination of Support Services
with regard to the Applications in accordance with the terms of this
Agreement. This Agreement may be terminated earlier or extended beyond
that date by mutual agreement of both parties.
4. PRODUCTS AND SERVICES.
4.1 BHS hereby engages CFN (i) to develop and deliver the Applications
and the Implementation Services in accordance with the specifications and
timetable set forth in SCHEDULE A: DESCRIPTION AND APPLICATIONS and
SCHEDULE B: IMPLEMENTATION SERVICES and SCHEDULE C: IMPLEMENTATION PROJECT
PLAN, and (ii) to provide the Support Services, as set forth in SCHEDULE
D: SUPPORT SERVICES, and CFN agrees to develop and deliver the
Applications, provide the Implementation Services, grant a non-exclusive
license, and provide the Support Services to BHS, on the terms and
conditions set forth herein.
4.2 CFN may be requested to perform such additional services, duties and
tasks for such compensation as shall be mutually agreed upon between CFN
and BHS, and set forth in Change Orders. CFN shall only be obligated to
perform such additional services,
6
<PAGE>
duties and tasks as to which it shall agree in writing in such Change
Orders. Unless otherwise specified, Change Orders shall be governed by the
terms and conditions of this Agreement.
5. DEVELOPMENT OF THE APPLICATIONS
5.1 CFN agrees to use its best efforts to develop, produce and license
to BHS the Applications, as described in the SCHEDULE A: DESCRIPTION OF
APPLICATIONS, on the terms and conditions hereinafter set forth.
5.2 BHS shall procure and purchase all OEM Products, including but not
limited to the OEM Products set forth in SCHEDULE F: SUPPORTED PLATFORMS
or described in SCHEDULE A: DESCRIPTION OF APPLICATIONS directly from
their respective producers or their designated distributors or vendors,
without the involvement of CFN. BHS also shall be solely responsible for
the operation and maintenance of the OEM Products, and the timely
procurement, operation and maintenance of the OEM Products shall be a
continuing condition of CFN's obligations to develop and deliver the
Applications and to provide the Implementation Services and the Support
Services. CFN shall not be responsible for any delay or failure to
complete the development of any Application, or failure to operate properly
of any Application, which failure or delay results from the use of OEM
Products other than those set forth in SCHEDULE F: SUPPORTED PLATFORMS
or described in SCHEDULE A: DESCRIPTION OF APPLICATIONS or otherwise
designated by CFN, or from the malfunction of any OEM Product.
5.3 The Applications shall be developed substantially in accordance with
the requirements set forth in SCHEDULE A: DESCRIPTION OF APPLICATIONS;
however, CFN and BHS acknowledge that there may be variations in the
Applications from the description in SCHEDULE A: DESCRIPTION OF
APPLICATIONS to which the parties shall agree in writing during the course
of the development of the Applications (which writings shall be
incorporated by reference into and become a part of this Agreement). CFN
agrees to proceed promptly with the development of the Applications, and
the parties agree that it is an objective that the Applications will be
operational and ready for BHS's use approximately six months after the
effective start date described in SCHEDULE C: IMPLEMENTATION PROJECT PLAN.
CFN shall provide the Applications in Object Code. CFN shall deliver such
Documentation as it shall determine is required in connection with each
Application on or before the commencement of the Live Test Period.
5.4 Upon receipt of notice from CFN that a Milestone, as set forth in
SCHEDULE C: IMPLEMENTATION PROJECT PLAN has been achieved, BHS shall
promptly commence such acceptance testing as described in Section 5.5
hereunder of the developments achieved, and shall notify CFN in writing as
soon as practicable, and, in any event, not later than 15 business days
after the delivery of the notice of the Milestone by CFN to BHS, as to
whether or not the developments achieved are acceptable to BHS. In the
event of BHS's failure to so advise CFN in writing within such time period,
such Milestone will be deemed to have been achieved and accepted by BHS.
BHS shall accept the Applications and the developments achieved at each
Milestone unless they fail in material respects to meet the acceptance test
criteria established pursuant to Section 5.5. In the event the
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<PAGE>
Applications or any development achieved in accordance with SCHEDULE A:
DESCRIPTION OF APPLICATIONS are not accepted by BHS, BHS's notice shall
specify in detail in what respects the Application or the development fails
to so conform with the terms of this Agreement and SCHEDULE A: DESCRIPTION
OF APPLICATIONS , subject to any agreed upon variations as noted in Section
5.3.
5.5 Applications and the developments to be completed at each Milestone
shall be tested in accordance with a procedure agreed upon in writing by
BHS and CFN. Such procedure shall (i) be based on the intended input,
output, and operation of the Applications and such developments as set
forth in SCHEDULE A: DESCRIPTION OF APPLICATIONS, (ii) include criteria
for determining the time for commencement of the Live Test Period, and
(iii) be incorporated by reference into and become a part of this
Agreement. CFN shall deliver to BHS on or prior to the Milestones a
statement defining the testing procedures and requirements for each
development or completed Application, which statement shall be subject to
the written approval of BHS. BHS shall review such statement and give its
approval or suggested changes, in reasonable detail, in writing within 10
days of receipt of the statement. If BHS does not respond in writing to
the statement within such 10 day period, the statement will be deemed to
have been accepted by BHS. CFN and BHS shall use their best efforts to
agree to a procedure and requirements for acceptance testing in accordance
with the foregoing.
5.6 In the event that any development or Application is not accepted
pursuant to Sections 5.3 - 5.5 above, CFN shall promptly proceed to make
any corrections which are required by this Agreement in order to meet such
acceptance test criteria and BHS shall repeat the applicable acceptance
test in accordance with such Sections until such development or Application
meets, in all in material respects, the acceptance test criteria
established pursuant to Section 5.5.
5.7 BHS shall promptly notify CFN if at any time during the acceptance
testing, BHS becomes aware that any development or Application being
tested does not meet the acceptance test criteria established pursuant to
Section 5.5.
5.8 The acceptance testing shall be conducted on the OEM Hardware at the
BHS Facilities. CFN reserves the right to participate in the acceptance
testing in order to monitor such testing and to demonstrate that any of the
developments or Applications conform to the acceptance test criteria. BHS
agrees to cooperate with CFN in connection with the acceptance testing.
5.9.1 Each party shall designate a Project Manager who shall be available
to consult with each other to resolve any problems and provide any
information reasonably required in connection with the development and
operation of the Applications during their development and throughout any
period for which CFN is obligated to provide Support Service pursuant to
the terms of this Agreement. The individual designated by either party as
its Project Manager may be changed from time to time by such party, in its
sole discretion.
5.9.2 All reports, notices and communications related to the
Applications, including determinations and notices of Acceptances, and the
Implementation Project Plan shall be
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delivered by, and directed to, the respective Project Managers.
6. SOFTWARE LICENSE.
6.1 Subject to the terms and conditions set forth below, CFN hereby
grants to BHS a nonexclusive, nontransferable license for use of the
Applications solely by the Permitted Users (the "License") for the
Permitted Uses.
6.2 The License to use Applications shall be subject to payment of the
license fees and compliance with usage limitations specified in SCHEDULE E:
SOFTWARE FEES AND SCHEDULE OF PAYMENTS exclusively on the Supported
Platforms for the Permitted Uses.
6.3 The Applications may be accessed and used only from locations
within the BHS Facilities and the BHS Affiliates Facilities.
6.4 Commencing with the achievement of the first Milestone, the
Applications may be used solely for testing and training purposes by
accessing a designated database that has been set up for testing or
training purposes. Subject only to the performance of the tests to be
performed during the Live Test Period, in no event shall such use permit
BHS to access the "live" or production version of the Applications or to
use the Applications to process any live patient database.
6.5 Commencing with the payment in full of the respective License fees
and the Implementation Service fees set forth in SCHEDULE E: SOFTWARE FEES
AND SCHEDULE OF PAYMENTS, the License shall be effective with regard to use
of the respective Applications for "live" operational purposes.
6.6 The License for each Applications shall be perpetual with regard to
the number of processors set forth on SCHEDULE E: SOFTWARE FEES AND
SCHEDULE OF PAYMENTS.
6.7 Notwithstanding Section 6.6, if BHS does not use any Application for
a period of six (6) months for any reason, the License for such Application
shall terminate automatically at the end of such six (6) month period.
BHS shall notify CFN if it discontinues the use of any Application, but the
failure of BHS to so notify CFN shall not affect the applicability of this
section. Notwithstanding the foregoing, if BHS notifies CFN that it
intends to suspend or delay initiation of use of an Application for one (1)
period of up to six (6) months, the provisions of the first sentence of
this section shall not be applicable for the period as to which such
notice was given.
6.8 Should BHS desire to increase the number of processors (or users)
subject to the License for any Application, it shall notify CFN in writing
and an additional license fee for each such additional processor in an
amount equal to the per-processor (or user) fee set forth on SCHEDULE E:
SOFTWARE FEES AND SCHEDULE OF PAYMENTS shall be paid prior to the
activation or use of any Application on such additional processors.
However, BHS may not add processors to the License for any Application that
depends for its operation on another Application or Applications unless it
adds the same number of processors to the License(s) for such other
Application(s). For example, it may add processors for
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middleware Applications if it has added processors for all back-end
Applications and for front-end Applications if it has added processors for
all back-end and middleware Applications, as such Applications are
described in SCHEDULE E: SOFTWARE FEES AND SCHEDULE OF PAYMENTS.
6.9 BHS may prepare a reasonable number of copies of the Applications for
internal use, solely for archival and backup purposes. All copies of
Software and Documentation shall contain the proprietary notices appearing
on the copies initially furnished by CFN and shall be subject to the terms
and conditions of this Agreement. BHS must maintain an accurate record of
the location of such backup copies at all times. Such record may be
inspected and verified by CFN at any time during normal business hours
(9:00 A.M. to 5:00 P.M. local time).
6.10 No Application shall be changed or modified, other than by CFN,
without the prior written consent of CFN.
6.11 A Minor Release shall be deemed to be subject to, and included in,
the License for the Applications to which such Minor Release relates. A
Major Release shall be deemed to be a new software application. BHS shall
have the option to obtain a license for any Major Release or any other new
software application or product for which CFN makes licenses available on a
non-exclusive basis, on the terms set forth on SCHEDULE E: SOFTWARE FEES
AND SCHEDULE OF PAYMENTS.
6.12 BHS may not grant any sublicense to any License granted to it by CFN.
6.13 CFN shall include copyright, proprietary and/ or trade secret notices
on or with the Applications and Documentation, and BHS shall not remove or
modify any such notice and shall maintain, reproduce and include all such
copyright, proprietary and/ or trade secret notices on all copies,
including backup copies, of the Applications and any media containing the
Applications or any part thereof.
6.14 Upon Acceptance of any Application, CFN shall deliver the Source
Code corresponding to the subject Application to an escrow agent, which
shall be such firm or person as to whom the parties shall mutually agree,
pursuant to an escrow agreement. The Source Code for the Applications
included in the escrow shall be updated by CFN at any time any Minor
Release or other modification is delivered to BHS and not less frequently
than semi-annually, including all changes to the Source Code since the
previous deposit. The escrow agreement shall provide, among other things,
that the Source Code shall be delivered to BHS only in the event of (i) as
to all the Applications, (A) a filing by CFN of a voluntary petition in
bankruptcy or a petition or an answer seeking reorganization, or an
arrangement with creditors, or the entering against CFN of a court order
approving a petition filed against it under the Federal bankruptcy laws,
which order shall not have been vacated or set aside or otherwise
terminated within sixty (60) days, or (B) a cessation of business
activities by CFN, or (ii) as to any particular Application, if CFN
discontinues Support Services for such Application AND does not make
available a successor product with a "migratory" transition capability;
provided, that at the time of the occurrence of an event set forth in
clause (i) or (ii) above, the Applications are subject to Software Support
agreements and provided, further, that such
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Source Code, if so delivered, shall be used by BHS solely in connection
with its use of the Applications and not for sale to others or for any
other purposes.
7. OBLIGATIONS OF BHS.
In connection with the development of the Applications and provision of the
Support Services by CFN hereunder, BHS shall, in addition to its other
obligations hereunder, provide for, or perform, the following at BHS's own
cost and expense:
7.1 BHS will, within the timeframe set forth in SCHEDULE C:
IMPLEMENTATION PROJECT PLAN, purchase, operate and maintain all Supported
Platforms and OEM Products in conformity with the specifications set forth
in SCHEDULE F: SUPPORTED PLATFORMS, including but not limited to all
Hardware, operating system software, database management systems, file
management systems, middleware, reference information (if any), knowledge
bases (if any), utilities and tools (if any) and any other OEM Software
directly from their respective producers or their designated distributors
or vendors, without the involvement of CFN.
7.2 BHS will deal with third party vendors directly with regard to
licensing from them any products or purchasing from them any services
related to any applications, gateways, tools, interfaces or any other
software or services that may be required by such third parties in order to
interface with the Applications.
7.3 BHS shall provide to CFN access to the OEM Products and appropriate
hardware and software facilities to enable CFN to develop and test the
Applications on a timely basis and to otherwise perform its obligations
hereunder.
7.4 BHS shall provide a complete list of the current BHS Facilities,
which shall be set forth as SCHEDULE G: BHS FACILITIES not later than the
date of the first Milestone and shall promptly provide CFN with revisions
of such schedule reflecting any additions or deletions of such facilities
as they occur. The use of the Applications at or from any location other
than a BHS Facility set forth on such schedule, as revised from time to
time, or a BHS Affiliates Facility solely by means of Web browser
technology, shall not constitute a Permitted Use.
8. SUPPORT SERVICES.
8.1 CFN shall provide BHS with the Support Services set forth in
SCHEDULE D: SUPPORT SERVICES upon the terms and conditions set forth below.
8.2 The Support Services for each Application shall be provided on an
annual basis, commencing upon the first of the month immediately following
the Live Date of each Application, for a minimum of one (1) year, and shall
thereafter be automatically renewed on a yearly basis, unless BHS provides
CFN at least 60 days' advance notice prior to the annual renewal
anniversary date of its intent not to renew the Support Services; provided,
however, that as to any annual period commencing three (3) years from the
applicable Live Date, CFN may notify BHS, on not less than 90 days prior
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written notice of its intention to terminate the availability of Support
Services, or change the nature of the Support Services or the fees therefor
at the end of the then current annual period.
8.3 BHS may choose whether or not to renew the Support Services for the
Applications on an individual basis; provided, however, it may not renew
the Support Services for any Application that depends for its operation on
another Application or Applications unless it renews for such other
Application(s). For example, it may renew Support Services for middleware
Applications if it has renewed for all back-end Applications and for
front-end Applications if it has renewed for all back-end and middleware
Applications, as such Applications are described in SCHEDULE E: SOFTWARE
FEES AND SCHEDULE OF PAYMENTS.
8.4 BHS shall not receive any Minor Releases relating to any Application
for which Support Services have been terminated. Major Releases shall be
deemed to be new software applications and shall not be delivered as part
of the Support Services relating to existing Applications.
8.5 CFN shall not be obligated to provide Support Services hereunder with
regard to any Application (or for any other Application that depends for
its operation on such Application) if such Application has been changed or
modified other than in compliance with Section 6.10, or if any platforms or
OEM Products are used other than those set forth in SCHEDULE F: SUPPORTED
PLATFORMS or described in SCHEDULE A: DESCRIPTION OF APPLICATIONS or
otherwise designated by CFN.
8.6 Any service provided by CFN other than as set forth on SCHEDULE D:
SUPPORT SERVICES shall be subject to agreement by the parties and shall be
provided by CFN on a time and materials basis at the CFN Service Rate then
in effect, except as otherwise agreed to in writing by the parties.
9. PRICES; PAYMENT TERMS.
9.1 BHS shall pay to CFN the fees and other payments for development of
the Applications, the License, the Implementation Services and the Support
Services in the amounts set forth in SCHEDULE E: SOFTWARE FEES AND
SCHEDULE OF PAYMENTS and elsewhere in this Agreement.
9.2 BHS shall pay all amounts due under this Agreement in full at the
times specified in the applicable Schedules and provisions of this
Agreement and, if not otherwise specified, such payments shall be mailed by
BHS and postmarked within 30 days after receipt by BHS of the invoice
therefor. Unless otherwise specified by CFN in writing, all payments made
to CFN under this Agreement shall be mailed to CFN at its address for
notice set forth in Section 17.8. Such payments shall be marked
"Attention: Accounts Receivable."
9.3 CFN has been advised that BHS currently is exempt from the payment of
certain taxes under applicable federal and state laws. However, BHS is
responsible for all taxes,
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however designated, measured or based on this Agreement, the Applications,
the License and the Support Services, including state or local sales and
use taxes, privilege or excise taxes, and any taxes or amounts in lieu
thereof paid or payable in respect of the foregoing, if any, but excluding
any Federal, state or local taxes levied against or measured by the net
income of CFN.
9.4 Payments more than 10 days past due shall bear interest at a rate
equal to the lesser of (a) the prime commercial lending rate as published
daily in the WALL STREET JOURNAL plus one percent per annum, compounded
monthly, but not in excess of one and one half percent (1-1/2%) per month,
or (b) the highest rate of interest allowable under applicable law. The
interest on any past due amount shall be referred to as the "Late Charge."
10. INTELLECTUAL PROPERTY RIGHTS; PROPRIETARY INFORMATION.
10.1 BHS acknowledges that all developments, Applications and other work
products developed by CFN for BHS pursuant to this Agreement or otherwise,
including those that may be subject to intellectual property protection,
including patent, copyright, trade secret, trademark or other proprietary
protection, shall be owned by CFN (or CFN's third party licensors, as the
case may be) exclusively. All Software and Documentation delivered to BHS
by CFN shall be subject to the restrictions of this Section 10.
10.2 BHS agrees to take any reasonable steps necessary to protect the
proprietary rights of CFN (and CFN's suppliers or licensors), including but
not limited to the display of patent, copyright, trademark, trade secret
and other proprietary notices provided by CFN (and CFN's suppliers or
licensors) on any copies, including backup copies, of the Applications and
the Documentation. BHS agrees to take reasonable steps, at its own cost and
expense, to keep the Applications and the Documentation free and clear of,
or to remove, any claims, liens and legal processes of third parties of
BHS, including creditors of BHS.
10.3 BHS agrees to keep confidential the Applications, the Documentation,
all specifications regarding the Applications, and all discussions,
presentations and correspondence involving CFN's business or product plans
and agrees not to disclose, sell, rent, reproduce or otherwise make all or
any portion of these available to third parties unless all of the following
conditions are met: 1) such disclosure is reasonably required in the
operation or support of the Applications at BHS; 2) such parties are
agents of BHS; and 3) such third parties have signed a confidential
disclosure agreement to the satisfaction of CFN directly with CFN. CFN
agrees to keep confidential all discussions, presentations and
correspondence involving BHS's business and agrees not to disclose, sell,
rent, reproduce or otherwise make all or any portion of these available to
third parties unless all of the following conditions are met: 1) such
disclosure is reasonably required in the operation or support of the
Applications at BHS; 2) such parties are agents of CFN; and 3) such
third parties have signed a confidential disclosure agreement to the
satisfaction of BHS directly with BHS.
10.4 Each party shall take the same precautions for protecting
confidential or
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proprietary information belonging to the other party as it does for its own
information of a confidential or proprietary nature. To the extent either
party's employees, agents and representatives are exposed to confidential
information belonging to or in the custody of the other party, such persons
shall take all reasonable steps to keep such information confidential. If
requested, a party shall demonstrate to the other party that its employees,
consultants and agents are obligated to it in writing to so protect the
other party's confidential information. On notice of disclosure or
possible breach of confidentiality, each party agrees to cooperate with the
other for the purpose of injunctive relief and providing other relief to
protect the interests of the injured party. The foregoing does not apply
to any information: (i) currently in the public domain or rightfully in
the possession of such party, (ii) subsequently entering the public domain
for any reason other than a party's failure to meet its obligations under
this Agreement, (iii) rightfully acquired by a party without obligation of
confidentiality, and (iv) independently developed by a party without use
of the other party's confidential information. In the event that either
party becomes legally compelled (by interrogatories, subpoena, civil
investigative demand or similar process) to make any disclosure that is
prohibited by this Agreement, each party agrees that it will provide the
other party with prompt notice of such event so that the other party may
seek an appropriate protective order or other prompt appropriate remedy
and/or waive compliance with the provision of this section. In the event
that such protective order or other remedy is not obtained, or a party
grants a waiver hereunder, the other party may furnish only that
information that, in the written opinion of counsel reasonably acceptable
to the party whose information may be subject to disclosure, the disclosing
party is legally compelled to disclose or else be subject to liability for
contempt or suffer other censure or penalty; provided, however, that the
disclosing party shall use its best efforts to obtain reasonable assurance
that, to the extent legally possible, confidential treatment will be
accorded any information so disclosed.
10.5 BHS shall not disassemble, decompile or reverse engineer the
Applications; nor shall BHS reproduce, sell, license or rent the
Applications or derivative works based on the Applications or similar to
the Applications to any third parties. BHS may use the open interfaces
provided with the Applications using the Interface Definition Language
(IDL) to use or develop other software applications.
11. WARRANTIES; INDEMNIFICATION.
11.1 CFN represents and warrants to BHS as follows:
11.1.1 CFN has full power and authority to enter into and perform
this Agreement.
11.1.2 CFN owns or has sufficient rights in and to the Applications
to grant the license granted in this Agreement. The materials to be
provided to BHS hereunder shall be original, except for material in
the public domain and such excerpts from other works as may be
included with the written permission of the copyright, patent or
trademark owners; CFN has the right to disclose to BHS all
information and materials made available to BHS in the course of
performing this Agreement. To the best of CFN's knowledge, such
materials do not infringe any
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trade name, trademark, patent or copyright or other proprietary right
or other common law or statutory right of any third party.
11.1.3 On their respective Live Dates and on such subsequent dates
upon which additional Documentation, Minor Releases or other written
materials are provided by CFN, each Application shall conform in all
material respects to the specifications set forth on SCHEDULE A:
DESCRIPTION OF APPLICATIONS and the Documentation and any other
written materials related thereto provided by CFN in effect as of
such dates.
11.1.3 On their respective Live Dates, each Application shall be
clear of any time bombs, viruses or disabling features.
11.1.4 The occurrence in, or the use of the Applications of dates on
or after January 1, 2000 (the "Millennial Dates") will not adversely
affect the performance of the Applications with respect to date
dependent data, computations, output or other functions, including
but not limited to calculating, computing and sequencing, and the
Applications will create store and generate output data related to or
including the Millennial Dates without errors or omissions.
11.2 In the event any Application is changed or modified other than by CFN
(except in accordance with Section 6.10) is used with any hardware or
software other than the OEM Products set forth in SCHEDULE F: SUPPORTED
PLATFORMS or described in SCHEDULE A: DESCRIPTION OF APPLICATIONS or
otherwise designated in writing by CFN, then any representation or warranty
of CFN with regard to such Application (and any other Application that
depends for its operability on such Application) shall be void.
11.3 BHS represents and warrants to CFN as follows:
11.3.1 BHS has full power and authority to enter into and perform
this Agreement and to grant the rights granted in this Agreement.
11.3.2 BHS has the right to disclose to CFN all information and
materials made available to CFN in the course of performing this
Agreement.
11.4 THE WARRANTIES EXPRESSED IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE SOFTWARE, HARDWARE AND OTHER
PRODUCTS AND SERVICES PROVIDED UNDER THIS AGREEMENT INCLUDING, BUT NOT
LIMITED TO, ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
11.5. CFN shall indemnify, defend and hold harmless BHS and BHS's
subsidiaries, affiliates, officers and directors, or otherwise dispose
of, at its sole cost and expense, including reasonable attorneys' fees, any
and all losses, damages to persons or property, liabilities, costs,
charges, and expenses (collectively, "losses") solely to the extent that
such losses result from any claim, suit or proceeding brought against BHS
that alleges
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that the Applications, as delivered and installed in accordance with the
terms of this Agreement, infringes any patent or copyright, and to pay the
amount of any judgment or settlement, provided that BHS gives CFN prompt
notice of such claim, suit or proceeding and gives CFN full information and
reasonable assistance in its defense or settlement. CFN shall be entitled
to direct such defense and to settle or otherwise dispose of such claim,
suit or proceeding as it sees fit. If, however, any Application becomes
subject to any such claim, or there is any threat of any such claim, CFN
may, at its option, obtain for BHS the right to continue using the
Application or make any modifications of, or substitutions to, the
Application which are necessary to make it noninfringing, provided that
such modifications or substitutions do not materially compromise the
functionality of such Application. BHS's cooperation with CFN at CFN's
request, in accordance with this Section, shall be at CFN's expense. No
costs or expenses shall be incurred for the account of CFN without its
prior written consent. BHS may participate with CFN in BHS's own defense
in such claim, suit or proceeding, at BHS's option at its sole expense.
11.6 BHS shall indemnify, defend and hold harmless CFN, and CFN's
subsidiaries, affiliates, officers and directors, from, or otherwise
dispose of, at its sole cost and expense, including reasonable attorneys'
fees, any and all losses, damages to persons or property, liabilities,
costs, charges, and expenses (collectively, "losses") solely to the extent
that such losses result from BHS's negligent acts or omissions in using the
Applications. Subject to the next sentence, the foregoing indemnity shall
not be applicable to any claim that the Applications or the use thereof by
BHS violate any person's patent, copyright or other proprietary right.
Notwithstanding the foregoing, BHS agrees to indemnify, defend and hold
harmless CFN, CFN's and CFN's subsidiaries, affiliates, officers and
directors, from, or otherwise dispose of, at its sole cost and expense,
including reasonable attorneys' fees, any and all losses incurred as a
result of a claim based on modifications or changes to the Applications
made other than by CFN (except in accordance with Section 6.10).
11.7 Each party will name the other ( to the extent required to afford
coverage to the other party under the naming party's policy) as an
additional named insured to the naming party's general liability insurance
coverage. The extension of coverage shall not apply to the additional
insured's losses arising wholly or (to the extent of such partial
liability) partly from its own liability, or that of its agents, affiliates
or subsidiaries. The coverage afforded by the additional insured
endorsement shall be limited to the additional insured's legal liability
for the losses set forth in Sections 11.5 and 11.6.
12. LIMITATION OF LIABILITY.
12.1 In the event that the Applications do not perform substantially in
accordance with the description set forth in SCHEDULE A: DESCRIPTION OF
APPLICATIONS and/or the Documentation, CFN shall at its sole cost and
expense for a period of four (4) months after Acceptance of the
Applications by BHS pursuant to Section 5.5, promptly after notice by BHS,
correct any errors, defects, or nonconformities in the Applications. In the
event the nonconforming Application does not meet, in all in material
respects, the acceptance test criteria established pursuant to Section 5.5,
BHS shall receive a refund equal to 50% of the aggregate of the license and
Support Service fees for such
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Application actually paid by BHS. CFN shall have no obligation to correct
any errors, defects, or nonconformities in the Applications if the
Applications have been changed or modified other than by CFN (except in
accordance with Section 6.10), if the Applications have been used with OEM
Products other than those set forth in SCHEDULE F: SUPPORTED PLATFORMS
or described in SCHEDULE A: DESCRIPTION OF APPLICATIONS or otherwise
designated by CFN, or the nonconformity, defect, or error relates to any
item which was tested in the acceptance tests pursuant to Section 5.5,
unless Acceptance of the Application was conditioned, in writing, upon the
correction of such nonconformity. The foregoing shall be CFN's sole
liability and responsibility in the event of any defects, errors, or
nonconformities in the Applications.
12.2 Neither party shall be liable to the other for incidental, indirect,
special or consequential damages, or for lost profits, savings or revenues
of any kind, whether or not it has been advised of the possibility of such
damages.
12.3 The remedies set forth throughout this Agreement constitute the
parties' sole and exclusive remedies and entire liability in the event of a
breach and/or termination of this Agreement or any Schedule to this
Agreement.
12.4 Except in the event of a breach of the representations and warranties
set forth in Sections 11.1.2 and 11.1.4, in no event shall CFN's liability
to BHS or any person claiming through BHS, or as a result of the authorized
or unauthorized use of the Applications by or through BHS, exceed in the
aggregate the license and Support Service fees actually paid to CFN
hereunder.
13. INSPECTION RIGHTS.
During the term of this Agreement or any agreement pursuant to which CFN
is providing Support Services to BHS and for a period of five (5) business
days after the last of this Agreement or any such Support Service agreement
to expire:
13.1 CFN shall have the right to inspect the BHS Facilities during normal
business hours (9:00 A.M. to 5:00 P. M., local time), on not less than five
(5) business days written notice, in order to audit the identity of the
users of the Applications, the location and number of processors upon which
the Applications are being accessed and the uses of the Applications.
13.2 CFN may, at its sole discretion, choose to automatically monitor,
audit and enforce compliance of BHS's use of the Applications in conformity
with the license usage conditions through features built into the
Applications or through remote access of the Applications. CFN shall
disclose to BHS if and when such monitoring is initiated and shall notify
BHS of its intention to "dial-in" to BHS's information management
facilities. CFN shall not disable the Applications or any other software
or hardware of BHS in the process of such monitoring.
14. RISK OF LOSS.
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Subsequent to Acceptance Date of the Applications by BHS, BHS shall be
responsible for the Applications and all associated Documentation, and bear
the risk of loss for the same. CFN will maintain a backup copy of the
Applications and the related Documentation in the form delivered to BHS,
and as updated or modified by CFN from time to time, and shall provide a
copy to BHS at BHS's cost and expense (at CFN's standard rates for time and
materials) in the event of loss by BHS.
15. CAUSES BEYOND THE PARTIES' CONTROL.
15.1 Neither party shall be liable for delay or failure to perform its
obligations herein set forth nor shall either party be held to have
breached any of its obligation hereunder by reason of any delay or failure,
if such delay or failure is due to any cause or condition beyond its
reasonable control. Such causes or conditions shall include, without
limitation, acts of God or of the public enemy, acts of the Federal or any
state or local government or agency in either its sovereign or contractual
capacity, fires, floods, epidemics, quarantine restriction, strikes,
negligence or other fault of the other party or any delay or failure on the
other party's part in the performance of any of its obligations or giving
of any approvals hereunder, refusal or inability of a common carrier to
provide communications capabilities, earthquakes, energy, or materials,
freight embargoes, delays in transportation, unusually severe weather, or
other circumstances beyond either party's control, or any delay or failure
of any supplier or subcontractor of CFN resulting from any of the above;
provided, however, that the foregoing shall not excuse either party from
its obligations under this Agreement to protect the other's proprietary
information. Any time for performance under this Agreement shall be
mutually agreed upon and extended for a period of time equal to any time
lost by reason of such delay. Either party shall promptly inform the other
of any such delays and corresponding extension in agreement in writing.
15.2 In the event that CFN's failure to meet any performance date is
caused by BHS's failure to meet its obligations under the terms of this
Agreement, such CFN failure shall not be deemed a breach of this Agreement.
16. TERMINATION.
16.1 In the event that the Implementation Project Plan is delayed more
than 30 days, except as a result of CFN's excused performance under
Section 15.1 or breach of this Agreement by BHS, BHS may terminate this
Agreement if within 15 days after BHS notice of an intent to terminate
under this Section 16.1, CFN does not commence to perform its obligations
under this Agreement and diligently continue such performance without
further delay or interruption. Upon such termination, neither party shall
have any further obligation to the other, and no amounts previously paid to
CFN shall be refundable; provided however, that if CFN has not given notice
of accomplishment of the first Milestone, BHS shall receive a refund equal
to 50% of the initial payment made to CFN pursuant to SCHEDULE E: SOFTWARE
FEES AND SCHEDULE OF PAYMENTS, Section 1.2.1.
16.2 This Agreement may be terminated at any time by either party upon the
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occurrence of an Event of Default. The following events shall be deemed to
be events of default ("Events of Default") with respect to either party:
16.2.1. Making an assignment for the benefit of creditors or filing
a petition under any section or chapter of the United States
Bankruptcy Code, as amended, or under similar laws or statutes of the
United States or any State thereof;
16.2.2. Adjudication of either party as bankrupt or insolvent in
proceedings filed against either party under any section or chapter
of the United States Bankruptcy Code, as amended, or under any
similar laws or statutes of the United States or any State thereof;
16.2.3. Appointment of a receiver for all or substantially all of
the assets of a party, or
16.2.4. Except as set forth in Section 16.1, a breach by the other
party of any term or condition of this Agreement, provided that:
.
16.2.4.1 In the event of a breach by BHS of any term or condition of
Sections 6 or 10 of this Agreement, in addition to any other
remedies available to CFN pursuant to this Agreement or otherwise;
upon written notice specifying the nature of such breach, such
termination shall be immediate, the License with regard to all
Applications shall be terminated, and BHS shall immediately cease to
use the Applications and shall destroy all copies of the
Applications and the Documentation.
16.2.4.2 In the event of a breach of any term or condition of this
Agreement other than as set forth in Sections 6 or 10, if written
notice specifying the nature of such breach has been given and such
breach has not been cured within 60 days after receipt of such
notice, or if such breach is of a nature that it cannot be cured
within such 60 day period or the breaching party has not commenced to
proceed to cure such default within such said 60 day period;
provided, however, that if such breach shall be of any obligation to
timely pay any amount due hereunder, the cure period shall be 30
days.
16.3 Upon termination of this Agreement for any reason other than
non-payment by BHS or breach by BHS of any term or condition of Sections 6
or 10 of this Agreement, should BHS request CFN's assistance, CFN shall
provide BHS (at its then current CFN Service Rates) on a best efforts
basis with all support reasonably requested by BHS to convert, transfer and
store production data so that it can be utilized in a successor
applications.
16.4 Upon termination of the License or this Agreement for any reason, BHS
shall destroy all copies of the Applications and the Documentation.
17. INJUNCTIVE RELIEF; PRE -ACCEPTANCE DISPUTE RESOLUTION.
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17.1 In the event of a breach or threatened breach of any of the terms and
conditions of Sections 6 or 10 of this Agreement by BHS, or any of its
employees, agents, independent contractors, representatives or affiliates,
or any other person or entity who has obtained access to the Applications
from or through BHS or any of its employees, agents, independent
contractors, representatives or affiliates, BHS acknowledges that CFN shall
be entitled to preliminary and permanent injunctive relief to enforce the
provisions of this Agreement, but nothing herein shall preclude CFN from
pursuing any action or other remedy for any breach or threatened breach of
this Agreement, all of which shall be cumulative.
17.2.1 In the event a dispute arising prior to Acceptance of the
Applications that cannot be resolved by the parties' respective Project
Managers, the matter shall be referred to designated representatives of
each party, who shall work to resolve the matter amicably, expeditiously
and fairly and shall document the resolution of such dispute in writing.
The initial designated representatives of the parties are as follows:
CFN: Vice President, Technical Support
BHS: BHS Contact Executive.
A party may designate another representative at any time by notifying the
other party. The referral of the dispute to the designated representatives
shall not delay any time for performance under this Agreement or otherwise
be deemed to waive the rights of either party under this Agreement.
17.2.1 Any disputes that cannot be resolved amicably within 60 days of
notice by either party of its desire to refer the matter to the designated
representatives shall be exclusively resolved by binding arbitration in
Miami Florida, under the then prevailing rules of the American Arbitration
Association. The decision of the arbitrator will be entitled to
enforcement in any court of competent jurisdiction. As part of the award,
the prevailing party shall be entitled to recover reasonable fees for its
time and to recover all costs, including attorney fees and costs, incurred
in enforcing its rights under this Agreement.
18. MISCELLANEOUS.
18.1 None of the terms of this Agreement shall be deemed to be waived or
amended by either party unless such waiver or amendment is in writing and
signed by both parties, and recites specifically that it is a waiver of, or
amendment to, the terms of this Agreement. Any amendment to this Agreement
must be signed by the Executive Vice President and Chief Financial Officer
of BHS (or such other person who shall have previously been designated in
writing) in order to be effective and by the CEO of CFN (or such other
person who shall have previously been designated in writing) in order to
be effective. The failure of CFN or BHS in any one or more instances to
insist upon strict performance of any of the terms or provisions of this
Agreement shall not be construed as a waiver or relinquishment, to any
extent, or the right to assert or rely upon any such terms or provisions on
any future occasion.
18.2 In the event that a court of competent jurisdiction and last resort
holds that a
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particular provision or requirement of this Agreement is in violation of
any applicable law, each such provision or requirement shall be enforced
only to the extent it is not in violation of such law or is not otherwise
unenforceable and all other provisions and requirements of this Agreement
shall remain in full force and effect.
18.3 This Agreement is deemed to have been entered into in the State of
Florida, and its interpretation, its construction, and the remedies for its
enforcement or breach are to be applied pursuant to, and in accordance
with, the laws of the State of Florida, exclusive of its choice of law
rules.
18.4 BHS may, upon written notice to CFN, assign this Agreement in whole
to any party, other than a competitor of CFN, acquiring substantially all
of BHS's assets or with which BHS merges and which, in either event, agrees
in writing to assume each and every obligation conferred upon BHS under
this Agreement. BHS may not otherwise assign this Agreement without CFN's
prior written consent and any attempted unauthorized assignment shall be
void.
18.5 CFN may, upon written notice to BHS, assign this Agreement in whole
to any party acquiring substantially all of CFN's assets or with which CFN
merges and which, in either event, agrees in writing to assume each and
every obligation conferred upon CFN under this Agreement.
18.6 This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns.
18.7 CFN shall perform all services under this Agreement as an independent
contractor and not as an agent or employee of BHS.
18.8 All notices to be given under this Agreement shall be made in writing
and if given by mail, shall be mailed by certified or registered mail,
return receipt requested, or by Federal Express, Express Mail or other
similar express deliver service, to the other party at its address set
forth below or at such other address as the party may specify on five days'
written notice. Notices may also be hand delivered or sent by telex,
telegraph. All notices shall be effective upon receipt. The parties'
addresses for notice are as follows:
To CFN: Healthcare Computing Systems, Inc.
235 High Street, Suite 410
Morgantown, WV 26505
Attn.: Dr. V. Jagannathan
To BHS: Baptist Health Systems of South Florida, Inc.
Information Technologies
8900 North Kendall Drive
Miami, FL 33176-2197
Attn.: Kent Wreder
18.9 Neither party shall solicit or seek to employ or retain any
employee, consultant or
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independent contractor of the other party for a period of one (1) year
after the date of the last Acceptance under this Agreement without the
prior written consent of the other party.
18.10 The section headings in this Agreement are for convenience of
reference only and shall not be used in the interpretation or construction
of this Agreement.
18.11 The provisions of Sections 10, 11, 12, 13, 14, 17 and 18 shall
survive any termination of this Agreement.
18.12 Each party represents to the other that this Agreement has been duly
authorized by such party and has been signed and delivered by the duly
authorized officer or agent of such party.
18.13 This Agreement may be signed in counterparts with the same effect as
if both parties had signed one and the same instrument.
18.14 This Agreement contains the entire understanding between the parties
and supersedes any prior oral or written agreement or understanding
previously made between the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
BAPTIST HEALTH SYSTEMS OF SOUTH FLORIDA, Inc.
By: /s/ Mimi Tortolini
-------------------
Name: Mimi Tortolini
---------------
Title: V.P., Information Technology
-----------------------------
CAREFLOW | NET, INC.
By: J. Calvin Kaylor
-----------------
Name: J. Calvin Kaylor
-----------------
Title: President and CEO
------------------
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THE INFORMATION BELOW, MARKED BY * AND [ ], HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTION HAD BEEN SEPARATELY
FILED WITH THE COMMISSION.
SCHEDULE A TO AGREEMENT
DATED AS OF MARCH 3, 1997
DESCRIPTION OF APPLICATIONS
This Schedule describes the Applications that will be delivered by CFN to BHS
pursuant to this Agreement.
[*]
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THE INFORMATION BELOW, MARKED BY * AND [ ], HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTION HAD BEEN SEPARATELY
FILED WITH THE COMMISSION.
[*]
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THE INFORMATION BELOW, MARKED BY * AND [ ], HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTION HAD BEEN SEPARATELY
FILED WITH THE COMMISSION.
[*]
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THE INFORMATION BELOW, MARKED BY * AND [ ], HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTION HAD BEEN SEPARATELY
FILED WITH THE COMMISSION.
[*]
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THE INFORMATION BELOW, MARKED BY * AND [ ], HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTION HAD BEEN SEPARATELY
FILED WITH THE COMMISSION.
[*]
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THE INFORMATION BELOW, MARKED BY * AND [ ], HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTION HAD BEEN SEPARATELY
FILED WITH THE COMMISSION.
[*]
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<PAGE>
THE INFORMATION BELOW, MARKED BY * AND [ ], HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTION HAD BEEN SEPARATELY
FILED WITH THE COMMISSION.
SCHEDULE B TO AGREEMENT
DATED AS OF MARCH 3, 1997
IMPLEMENTATION SERVICES
1. IMPLEMENTATION SERVICES.
1.1 The Implementation Services shall consist of the following services
provided by CFN:
1.1.1 Delivery of Applications to BHS
1.1.2 Training the Trainers sessions
1.1.3 Project Management status meetings
1.1.4 Analysis and design meetings
1.1.5 Feedback collection and analysis meetings
1.1.6 On-site installation support.
1.2 These services listed above will be provided to BHS during the
course of performance of the Implementation Project Plan at a fixed price
of [*], which shall include all labor and travel expense costs incurred by
CFN in providing such services.
1.3 After completion of Milestone 5, Support Services described in
Section 8 of the Agreement and SCHEDULE D: SUPPORT SERVICES will be
available upon the terms set forth on SCHEDULE E: FEES AND SCHEDULE OF
PAYMENTS. Additional CFN services can be provided to BHS on an "as
available, best efforts" basis at the standard CFN Service Rates.
29
<PAGE>
SCHEDULE C TO AGREEMENT
DATED AS OF MARCH 3, 1997
IMPLEMENTATION PROJECT PLAN
Project Plan and Milestones:
The following describes the project plan for the CFN Implementation Services.
The figure below highlights the various milestones. Milestones are numbered M1
through M5.
[CHART]
Assuming an effective start date ("ESD") of March 3, 1997, M5 will be September
3, 1997. Slippage in the ESD start date will shift all the milestones by a
corresponding time frame.
ESD: Kick-off meeting in Miami and review of project plan and get information
on Lanier system integration.
ESD + 1 month (M1): Concept of operations of the transcriptionist, Provider and
System Adman. detailed in terms of Use cases. Mockup of the various interfaces
provided to BHS for evaluation and comment.
ESD + 3 months (M2): Open interface specifications and pre-release of the
various graphical interface Applications for comment.
ESD + 4 months (M3): Integration with Lanier completed and testing of the all
Applications begins in Morgantown.
ESD + 5 months (M4): Trip to Miami to kick-off on-site installation and
testing.
30
<PAGE>
ESD + 6 months (M5): Go live date with all Applications.
31
<PAGE>
SCHEDULE D TO AGREEMENT
DATED AS OF MARCH 3, 1997
SUPPORT SERVICES
1. CFN currently offers two Support Plans for Licensed Applications: a
Standard Support Plan and a Priority Support Plan. BHS may choose either
plan, but must choose the same plan for all Applications.
1.1 The "Standard Support Plan" carries an annual service fee as
specified in SCHEDULE B SOFTWARE FEES AND SCHEDULE OF PAYMENTS (with
proportional increases for added usage units based on additional licenses
purchased by BHS). The Standard Support Plan provides for telephonic,
electronic mail or remote control (dial-up or Internet based) support by
CFN during normal business hours (9:00 a.m. - 5:00 p.m.) Monday through
Friday, excluding Federal holidays) for any of the covered Applications.
1.2 The "Priority Support Plan" carries an annual service fee as
specified in SCHEDULE B SOFTWARE FEES AND SCHEDULE OF PAYMENTS (with
proportional increases for added usage unit based additional licenses
purchased by BHS). The Priority Support Plan provides for telephonic,
electronic mail or remote control (dial-up to Internet based) support by
CFN during normal business hours (9:00 a.m. - 5:00 p.m.) Monday through
Friday, excluding Federal holidays) for any of the covered Applications, as
well as around the clock, seven days a week off-site support from CFN
personnel reachable through a paging service.
2. Minor Releases - So long as BHS subscribes to either of the above plans for
an Application, BHS shall continue to receive Minor Releases to the
supported Application. Minor Releases shall be in electronic form, either
shipped to BHS or down-loadable from CFN's Web site, by mutual agreement of
the parties. Telephonic, electronic mail or remote control (dial-up or
Internet based) assistance with installations of new Minor Releases will be
provided to BHS at no additional charge, during the hours of coverage
available through the selected Support Service Plan. CFN shall use its
reasonable best efforts to remain compliant with future versions of the HL7
Standard and its successor standards. CFN will use its reasonable best
efforts to design the Applications and to maintain the Applications, for so
long as an agreement is in effect with regard to Support Services, in
conformity with OMG approved standards.
3. On-Site Support - If requested by BHS, on-site support at BHS can be
provided on an "as available" basis at the standard CFN Service Rates.
4. CFN may from time-to-time in its sole discretion change the features of
its existing Support Plans or offer other Support Plans. In such event,
BHS shall have the option of converting its Support Plan then in effect to
an alternative plan, upon payment of the additional fees, if any, payable
for such alternative plan.
5. Additional custom services relating to integration with third party vendor
products or other matters may be provided, upon agreement by the parties,
at standard CFN Service Rates, or as otherwise agreed by the parties.
32
<PAGE>
THE INFORMATION BELOW, MARKED BY * AND [ ], HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTION HAD BEEN SEPARATELY
FILED WITH THE COMMISSION.
SCHEDULE E TO AGREEMENT
DATED AS OF MARCH 3, 1997
SOFTWARE FEES AND SCHEDULE OF PAYMENTS
The following describes the Application license fees, Implementation Service
fees, Support Service fee and other fees, if any, to be paid by BHS for the
Applications delivered under this Agreement. The Applications are defined in
Schedule A to this Agreement.
These fees, and usage rights based on the payment of the applicable fees, are
further qualified as specified in the Agreement.
1.1.1 The following are the Application license fees currently in effect, the
Implementation Service fees for the Implementation Services set forth on
SCHEDULE C: IMPLEMENTATION PROJECT PLAN, and the Support Service fees for the
first annual period:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
License Unit Price Per Unit Initial Fee Initial Units Usage Enhancements, Enhancements,
Unit Interval Included Period Fixes and Fixes and
Included Standard Priority
Annual Annual
Support Support
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FRONT END
- -----------------------------------------------------------------------------------------------------------------------------------
Transcription Entry Licensed User [*] [*] 18 Perpetual [*] [*]
(including
technicians)
- -----------------------------------------------------------------------------------------------------------------------------------
Clinician Sign off Per Processor [*] [*] 20 Perpetual [*] [*]
of Transcribed notes
- -----------------------------------------------------------------------------------------------------------------------------------
Clinician Review of
Transcribed notes Per Processor [*] [*] 20 Perpetual [*] [*]
- -----------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL [*] [*] [*]
- -----------------------------------------------------------------------------------------------------------------------------------
MIDDLEWARE
- -----------------------------------------------------------------------------------------------------------------------------------
Report Repository Per Processor [*] [*] 1 Perpetual [*] [*]
- -----------------------------------------------------------------------------------------------------------------------------------
Report Routing Per Processor [*] [*] 1 Perpetual [*] [*]
- -----------------------------------------------------------------------------------------------------------------------------------
Security Service Per Processor [*] [*] 1 Perpetual [*] [*]
- -----------------------------------------------------------------------------------------------------------------------------------
Patient Demographics Per Processor [*] [*] 1 Perpetual [*] [*]
Update + Retrieval
- -----------------------------------------------------------------------------------------------------------------------------------
Medical Staff Per Processor [*] [*] 1 Perpetual [*] [*]
Demographics Update
+ Retrieval
- -----------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL [*] [*] [*]
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Backend
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
THE INFORMATION BELOW, MARKED BY * AND [ ], HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTION HAD BEEN SEPARATELY
FILED WITH THE COMMISSION.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Database for Reports Per Processor [*] [*] 1 Perpetual [*] [*]
and Demographics
HTML Repository Per Processor [*] [*] 1 Perpetual [*] [*]
- -----------------------------------------------------------------------------------------------------------------
SUBTOTAL [*] [*] [*]
- -----------------------------------------------------------------------------------------------------------------
Interfaces Lanier Lanier System [*] [*] 3 Perpetual [*] [*]
- -----------------------------------------------------------------------------------------------------------------
Demographics from ADT ADT System [*] [*] 2 Perpetual [*] [*]
- -----------------------------------------------------------------------------------------------------------------
Report Routing to HIS HIS System [*] [*] 2 Perpetual [*] [*]
- -----------------------------------------------------------------------------------------------------------------
Report Routing to Com Server [*] [*] 1 Perpetual [*] [*]
Communication Server
- -----------------------------------------------------------------------------------------------------------------
Subtotal [*] [*] [*]
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Total Licenses [*] [*] [*]
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
"Luminary Site" Discount 25% [*] [*] [*]
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Discounted Total Licenses [*] [*] [*]
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
IMPLEMENTATION
SERVICES N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Requirements N/A [*]
Specification and
Project Management
Meetings
- -----------------------------------------------------------------------------------------------------------------
Customization [*]
Allowance
- -----------------------------------------------------------------------------------------------------------------
Subtotal [*] [*] [*]
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
TOTAL [*] [*] [*]
COST
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
1.1.2 Support Service fees for the second and third annual periods shall be
equal to the prior period's fees X the change in the CPI between the
two periods. Fees for subsequent periods shall be the fees then in
effect, as determined by CFN.
1.2 Schedule of payments for the aggregate of the initial Application
license fees and the Implementation Service fees:
1.2.1 Fifty percent (50%) is due upon the Effective Date
34
<PAGE>
THE INFORMATION BELOW, MARKED BY * AND [ ], HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTION HAD BEEN SEPARATELY
FILED WITH THE COMMISSION.
1.2.2 Ten percent (10%) is due upon delivery of notice, pursuant to Section
5.4, of the achievement of each successive milestone, M1 through M5,
identified in Schedule D, for a total of five (5) such payments.
1.3 Schedule of Support Service fee payments:
1.3.1 Fees for the first annual period are due in full on or
before the date of Milestone 5.
1.3.2 Fees for subsequent annual periods are due in full on or
before the commencement of such periods.
1.4. Additional Usage Units
1.4.1 One-time License Fee for additional units (processors) : The
per unit fee for additional units added during the first
annual period shall be as set forth in 1.1.1, above.
Subject to Section 3, below, (i) the per unit fee for
additional units added during the second and third annual
periods shall be equal to the prior period's fees X the
change in the CPI between the two periods, and (ii)
subsequent to the third annual period after the Effective
Date, the License fee for additional units shall be the fee
then in effect, as determined by CFN. The fees for the
additional usage units are due in advance of the activation
of such usage units.
1.4.2 Support Service fees for additional units: The annual fee
then in effect for Support Services shall be adjusted
proportionally to the increase in the number of licensed
usage units. The amount of such increase is due in advance
of the activation of such usage units.
1.5 CFN Service Rates
1.5.1 The CFN Service Rates in effect as of the Effective Date
are:
Vice President
or other officer.. [*]
Senior Technical Staff.... [*]
Junior Technical Staff.... [*]
Administrative Support.... [*]
The CFN Services Rates are subject to change in CFN's sole
discretion.
1.5.2 Should travel by CFN personnel be needed for the performance
of the CFN
35
<PAGE>
THE INFORMATION BELOW, MARKED BY * AND [ ], HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTION HAD BEEN SEPARATELY
FILED WITH THE COMMISSION.
services, such expenses shall be billed on a pass-through
basis at actual out-of-pocket cost.
1.5.3 Travel times shall be billable at the rates specified above,
based on door-to-door travel times.
1.5.4 All services will be billable in fifteen (15) minute
increments.
2 Licenses for Major Releases and other new products .
BHS shall have the option to obtain a license for any Major Release
or any other new software application or product for which CFN makes
licenses available on a non-exclusive basis. The license terms,
including the fee and terms of payment, for any such license shall be
as mutually agreed by the parties, subject to Section 3, below.
3 Special Pricing Terms.
[*]
36
<PAGE>
SCHEDULE F TO AGREEMENT
DATED AS OF MARCH 3, 1997
Supported Platforms
The Supported Platform shall include the following operating environments for
the Software:
1. HARDWARE:
Hosts / servers: Windows NT 4.0 Server
End-user Workstations: IBM-compatible PCs
2. OPERATING SYSTEMS:
Windows: Windows 95 or Windows NT 4.0 for all clients.
3. NETWORKING ENVIRONMENT:
Any environment supporting TCP/IP.
4. DATABASE MANAGEMENT SYSTEM:
Oracle 7.0 (running on Windows NT)
5. MIDDLEWARE:
Object Request Broker: Orbix, Orbix for Windows and Orbixweb 2.1 all from
Iona, Inc.
Interface Gateways: any gateway that supported Health Level 7 version 2.2
compliant messages
6. WEB BROWSERS AND SERVERS
Netscape Web browser 3.0 or above and Netscape Suitespot server set.
Microsoft's Internet Explorer will be supported for patient information
review applications.
7. OTHER SOFTWARE
Microsoft Word 7.0, Active X and Java.
37
<PAGE>
SCHEDULE G TO AGREEMENT
DATED AS OF MARCH 3, 1997
BHS FACILITIES
[TO BE PROVIDED BY BHS]
38
<PAGE>
Exhibit 10.11
ESCROW AGREEMENT
AGREEMENT, dated as of the 19th day of September, 1997 and effective
as of the Effective Date, as defined herein, by and among American Stock
Transfer & Trust Company, a New York corporation (hereinafter referred to as the
"Escrow Agent"), CareFlow | Net, Inc., a Delaware corporation (the "Company"),
and the stockholders of the Company who have executed this agreement
(hereinafter collectively called the "Stockholders").
WHEREAS, the Company contemplates a public offering ("Public
Offering") of Units ("Units"), each Unit consisting of one share of its Common
Stock, par value $.01 per share (the "Common Stock") and one redeemable Class A
Warrant (the "Class A Warrant") and through D.H. Blair Investment Banking Corp.
as underwriter or representative of a group of underwriters (the "Underwriter")
pursuant to a Registration Statement (the "Registration Statement") on Form SB-2
to be filed with the Securities and Exchange Commission ("SEC"); and
WHEREAS, the Stockholders have agreed to deposit in escrow an
aggregate of 600,000 shares of Common Stock, upon the terms and conditions set
forth herein.
In consideration of the mutual covenants and promises herein
contained, the parties hereto agree as follows:
1. The Stockholders and the Company hereby appoint American Stock
Transfer & Trust Company as Escrow Agent and agree that the Stockholders will,
prior to the filing of the Registration Statement relating to the Public
Offering, deliver to the Escrow Agent to hold in accordance with the provisions
hereof, certificates representing an aggregate of 600,000 shares of Common Stock
owned of record by the Stockholders in the respective
<PAGE>
amounts set forth on Exhibit A hereto (the "Escrow Shares"), together with stock
powers executed in blank. The Escrow Agent, by its execution and delivery of
this Agreement hereby acknowledges receipt of the Escrow Shares and accepts its
appointment as Escrow Agent to hold the Escrow Shares in escrow, upon the terms,
provisions and conditions hereof.
2. This Agreement shall become effective upon the date on which
the Securities and Exchange Commission declares effective the Registration
Statement ("Effective Date") and shall continue in effect until the earlier of
(i) the date specified in paragraph 4(e) hereof or (ii) the distribution by the
Escrow Agent of all of the Escrow Shares in accordance with the terms hereof
(the "Termination Date"). The period of time from the Effective Date until the
Termination Date is referred to herein as the "Escrow Period."
3. During the Escrow Period, the Escrow Agent shall receive all of
the money, securities, rights or property distributed in respect of the Escrow
Shares then held in escrow, including any such property distributed as dividends
or pursuant to any stock split, merger, recapitalization, dissolution, or total
or partial liquidation of the Company, such property to be held and distributed
as herein provided and hereinafter referred to collectively as the "Escrow
Property."
4. (a) The Escrow Shares are subject to release to the
Stockholders only in the event the conditions set forth herein are met. The
Escrow Agent, upon notice to such effect from the Company as provided in
paragraph 5 hereof, shall deliver the Escrow Shares, together with stock powers
executed in blank, and the Escrow Property deposited in escrow with respect to
such Escrow Shares, to the respective Stockholders, if, and only if, one of the
following conditions is met:
-2-
<PAGE>
(i) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings (all as audited by the
Company's independent public accountants) (the "Minimum Pretax
Income") amounts to at least $4.75 million for the fiscal year
ending December 31, 1998, 1999 or 2000; or
(ii) the Minimum Pretax Income amounts to at least $6.25 million for
the fiscal year ending December 31, 2001; or
(iii) the Minimum Pretax Income amounts to at least $7.75 million for
the fiscal year ending December 31, 2002; or
(iv) The Closing Price (as defined herein) of the Company's Common
Stock shall average in excess of $12.50 per share for any 30
consecutive business days during the period commencing on the
Effective Date and ending 18 months from the Effective Date; or
(v) The Closing Price (as defined herein) of the Company's Common
Stock shall average in excess of $16.75 per share for any 30
consecutive business days during the period commencing with the
19th month after the Effective Date and ending 36 months from
the Effective Date;
(b) As used in this Section 4, the term "Closing Price" shall be subject
to adjustments in the event of any stock dividend, stock distribution, stock
split or other similar event and shall mean:
(i) If the principal market for the Common Stock is a national
securities exchange or the Nasdaq National Market, the closing
sales price of the Common Stock as reported by such exchange or
market, or on a consolidated tape reflecting transactions on
such exchange or market; or
(ii) if the principal market for the Common Stock is not a national
securities exchange or the Nasdaq National Market and the
Common Stock is quoted on the Nasdaq SmallCap Market, the
closing bid price of the Common Stock as quoted on the Nasdaq
SmallCap Market; or
(iii) if the principal market for the Common Stock is not a national
securities exchange or the Nasdaq National Market and the
Common Stock is not quoted on the Nasdaq SmallCap Market, the
closing bid for the Common Stock as reported by the National
Quotation Bureau, Inc. ("NQB") or at least two market makers
in the Common Stock if quotations are not available from NQB
but are available from market makers.
-3-
<PAGE>
(c) The determination of Minimum Pretax Income shall be determined by the
Company's independent public accountants in accordance with U.S. generally
accepted accounting principles provided that such determination is calculated
exclusive of any extraordinary earnings or charges (including any charges
incurred by the Company in connection with the release from escrow of the Escrow
Shares and any Escrow Property in respect thereof pursuant to the provisions of
this paragraph 4).
(d) The Minimum Pretax Income amount set forth above assume the release
of all of the Escrow Shares and the conversion into Common Stock of any
outstanding securities which are convertible into Common Stock solely upon
surrender of such convertible securities without the payment of any additional
consideration, but in the event of any other issuance (such issuance being
herein called a "Change of Shares") of additional shares of Common Stock (or
securities convertible into or exchangeable for Common Stock without the payment
of additional consideration, referred to as "Convertible Securities") after the
Effective Date, then each of the Minimum Pretax Income amounts set forth in
subparagraph (a) above shall be increased to an amount (the "Adjusted Minimum
Pretax Income") calculated in accordance with the formula set forth in
subparagraph (ii) below.
(i) For purposes of the foregoing paragraph, a Change of Shares
shall exclude shares of Common Stock sold in the Public
Offering or Common Stock or Convertible Securities issued in
connection with a stock split or stock dividend or distribution
but shall include any shares of Common Stock or Convertible
Securities that are issued upon the exercise of the Class A
Warrants or any other options or warrants outstanding as of
the Effective Date or granted after the Effective Date by the
Company.
(ii) Each Adjusted Minimum Pretax Income amount shall be calculated
by multiplying the applicable Minimum Pretax Income amount
prior to the Change of Shares by a fraction, the numerator of
which shall be the weighted average number of shares of Common
Stock outstanding during
-4-
<PAGE>
the fiscal year for which the determination is being made
(including the Escrow Shares and any shares of Common Stock
issuable upon conversion of any Convertible Securities, but
excluding treasury stock), and the denominator of which shall
be the sum of (x) the number of shares of Common Stock
outstanding on the Effective Date (including the Escrow Shares
and any shares of Common Stock issuable upon conversion of
Convertible Securities outstanding immediately prior to the
Effective Date) plus (y) the number of shares of Common Stock
sold by the Company pursuant to the Prospectus included in the
Registration Statement, after adjustment for any stock
dividends, stock splits or similar events: provided, however,
with respect to any shares of Common Stock issued upon exercise
of Class A Warrants, so long as any portion of the net proceeds
received by the Company upon such exercise is not spent by the
Company but rather placed in a bank or other cash equivalent
then the adjustment to the Minimum Pretax Income amount se
forth above with respect to that number of Warrants which
generated such unspent net proceeds shall be equal to 8% per
annum multiplied by such unspent net proceeds. The Adjusted
Minimum Pretax Income amounts shall be calculated successively
whenever such a Change of Shares occurs.
(e) After each adjustment of the Minimum Pretax Income amounts pursuant to
this Section 4, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Minimum Pretax Income amounts as so adjusted, and (ii) a statement showing in
detail the calculation of the adjustment in the Minimum Pretax Income amounts
and the facts upon which such adjustment is based. The Company will promptly
file such certificate with the Escrow Agent and furnish a copy thereof to be
sent no later than thirty (30) days after the adjustment by ordinary first class
mail to the Underwriter and to the Stockholders at their respective addresses
set forth on Exhibit A hereto. The Company will, upon the written request at
any time of the Underwriter, furnish to the Underwriter a report by Richard A.
Eisner & Company LLP, or other independent public accountants of recognized
-5-
<PAGE>
national standing (which may be the regular auditors of the Company) selected by
the Company to verify such computation and setting forth such adjustment and
showing in detail the method of calculation and the facts upon which such
adjustment is based. The Company will also keep copies of all such certificates
and reports at its principal office.
(f) If the Escrow Agent has not received the notice provided for in
Paragraph 5 hereof and delivered all of the Escrow Shares and related Escrow
Property in accordance with the provisions of this Paragraph 4 on or prior to
December 31, 2002, the Escrow Agent shall deliver the certificates representing
all the Escrow Shares, together with stock powers executed in blank, and any
related Escrow Property to the Company to be placed in the Company's treasury
for cancellation thereof as a contribution to capital. After such date, the
Stockholders shall have no further rights as a stockholder of the Company with
respect to any of the cancelled Escrow Shares.
5. Upon the occurrence or satisfaction of any of the events or
conditions specified in Paragraph 4 hereof, the Company shall promptly give
appropriate notice to the Escrow Agent, the Underwriter (and if the transfer
agent of the Company's Common Stock is different from the Escrow Agent, such
transfer agent) and present such documentation as is reasonably required by the
Escrow Agent to evidence the satisfaction of such conditions.
6. It is understood and agreed by the parties to this Agreement as
follows:
(a) The Escrow Agent is not and shall not be deemed to be a
trustee for any party for any purpose and is merely acting as a depository and
in a ministerial capacity hereunder with the limited duties herein prescribed.
-6-
<PAGE>
(b) The Escrow Agent does not have and shall not be deemed
to have any responsibility in respect of any instruction, certificate or notice
delivered to it or of the Escrow Shares or any related Escrow Property other
than faithfully to carry out the obligations undertaken in this Agreement and to
follow the directions in such instruction or notice provided in accordance with
the terms hereof.
(c) The Escrow Agent is not and shall not be deemed to be
liable for any action taken or omitted by it in good faith and may rely upon,
and act in accordance with, the advice of its counsel without liability on its
part for any action taken or omitted in accordance with such advice. In any
event, its liability hereunder shall be limited to liability for gross
negligence, willful misconduct or bad faith on its part.
(d) The Escrow Agent may conclusively rely upon and act in
accordance with any certificate, instruction, notice, letter, telegram,
cablegram or other written instrument believed by it to be genuine and to have
been signed by the proper party or parties.
(e) The Company agrees (i) to pay the Escrow Agent's
reasonable fees and to reimburse it for its reasonable expenses including
attorney's fees incurred in connection with duties hereunder and (ii) to save
harmless, indemnify and defend the Escrow Agent for, from and against any loss,
damage, liability, judgment, cost and expense whatsoever, including counsel
fees, suffered or incurred by it by reason of, or on account of, any
misrepresentation made to it or its status or activities as Escrow Agent under
this Agreement except for any loss, damage, liability, judgment, cost or expense
resulting from gross negligence, willful misconduct or bad faith on the part of
the Escrow Agent. The obligation of the Escrow Agent to deliver the Escrow
Shares to either the Stockholders or the Company shall be subject to the prior
-7-
<PAGE>
satisfaction upon demand from the Escrow Agent, of the Company's obligations to
so save harmless, indemnify and defend the Escrow Agent and to reimburse the
Escrow Agent or otherwise pay its fees and expenses hereunder.
(f) The Escrow Agent shall not be required to defend any
legal proceeding which may be instituted against it in respect of the subject
matter of this Agreement unless requested to do so by the Stockholders and
indemnified to the Escrow Agent's satisfaction against the cost and expense of
such defense by the party requesting such defense. If any such legal proceeding
is instituted against it, the Escrow Agent agrees promptly to given notice of
such proceeding to the Stockholders and the Company. The Escrow Agent shall not
be required to institute legal proceedings of any kind.
(g) The Escrow Agent shall not, by act, delay, omission or
otherwise, be deemed to have waived any right or remedy it may have either under
this Agreement or generally, unless such waiver be in writing, and no waiver
shall be valid unless it is in writing, signed by the Escrow Agent, and only to
the extent expressly therein set forth. A waiver by the Escrow Agent under the
term of this Agreement shall not be construed as a bar to, or waiver of, the
same or any other such right or remedy which it would otherwise have on any
other occasion.
(h) The Escrow Agent may resign as such hereunder by giving
30 days written notice thereof to the Stockholders and the Company. Within 20
days after receipt of such notice, the Stockholders and the Company shall
furnish to the Escrow Agent written instructions for the release of the Escrow
Shares and any related Escrow Property (if such shares and property, if any,
have not yet been released pursuant to Paragraph 4 hereof) to a substitute
Escrow Agent which (whether designated by written instructions from the
Stockholders and the
-8-
<PAGE>
Company jointly or in the absence thereof by instructions from a court of
competent jurisdiction to the Escrow Agent) shall be a bank or trust company
organized and doing business under the laws of the United States or any state
thereof. Such substitute Escrow Agent shall thereafter hold any Escrow Shares
and any related Escrow Property received by it pursuant to the terms of this
Agreement and otherwise act hereunder as if it were the Escrow Agent originally
named herein. The Escrow Agent's duties and responsibilities hereunder shall
terminate upon the release of all shares then held in escrow according to such
written instruction or upon such delivery as herein provided. This Agreement
shall not otherwise be assignable by the Escrow Agent without the prior written
consent of the Company.
7. The Stockholders shall have the sole power to vote the Escrow
Shares and any securities deposited in escrow under this Agreement while they
are being held pursuant to this Agreement.
8. (a) Each of the Stockholders agrees that during the term of
this Agreement he will not sell, transfer, hypothecate, negotiate, pledge,
assign, encumber or otherwise dispose of any or all of the Escrow Shares set
forth opposite his name on Exhibit A hereto, unless and until the Company shall
have given the notice as provided in Paragraph 5. This restriction shall not be
applicable to transfers upon death, by operation of law, to family members of
the Stockholders or to any trust for the benefit of the Stockholders, provided
that such transferees agree to be bound by the provisions of this Agreement.
(b) The Stockholders will take any action necessary or
appropriate, including the execution of any further documents or agreements, in
order to effectuate the
-9-
<PAGE>
transfer of the Escrow Shares to the Company if required pursuant to the
provisions of this Agreement.
9. Each of the certificates representing the Escrow Shares will
bear legends to the following effect, as well as any other legends required by
applicable law:
(a) "The sale, transfer, hypothecation, negotiation, pledge,
assignment, encumbrance or other disposition of the shares
evidenced by this certificate are restricted by and are
subject to all of the terms, conditions and provisions of
a certain Escrow Agreement entered into among D. H. Blair
Investment Banking Corp., CareFlow | Net, Inc. (the
"Company") and its Stockholders, dated as of September 19,
1997, a copy of which may be obtained from the Company.
No transfer, sale or other disposition of these shares may
be made unless specific conditions of such agreement are
satisfied.
(b) "The shares evidenced by this certificate have not been
registered under the Securities Act of 1933. No transfer,
sale or other disposition of these shares may be made
unless a registration statement with respect to these
shares has become effective under said act, or the Company
is furnished with an opinion of counsel satisfactory in
form and substance to it that such registration is not
required."
Upon execution of this Agreement, the Company shall direct the
transfer agent for the Company to place stop transfer orders with respect to the
Escrow Shares and to maintain such orders in effect until the transfer agent and
the Underwriter shall have received written notice from the Company as provided
in Paragraph 5.
10. Each notice, instruction or other certificate required or
permitted by the terms hereof shall be in writing and shall be communicated by
personal delivery, fax or registered or certified mail, return receipt
requested, to the parties hereto at the addresses set forth below, or at such
other address as any of them may designate by notice to each of the others:
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(i) If to the Company, to:
CareFlow | Net, Inc.
235 High Street - Suite 225
Morgantown, West Virginia 26505
(ii) If to the Stockholders to their respective addresses as set
forth on Exhibit A hereto.
(iii) If to the Escrow Agent, to:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(iv) If to the Underwriter, to:
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, New York 10005
Att: Martin A. Bell, Esq.
Fax: 212-514-7837
All notices, instructions or certificates given hereunder to the Escrow Agent
shall be effective upon receipt by the Escrow Agent. All notices given
hereunder by the Escrow Agent shall be effective and deemed received upon
personal delivery or transmission by fax or, if mailed, five (5) calendar days
after mailing by the Escrow Agent.
A copy of all communications sent to the Company, the Stockholders or
the Escrow Agent shall be sent by ordinary mail to Bachner, Tally, Polevoy &
Misher LLP, 380 Madison Avenue, New York, NY 10017, Attention: Sheldon E.
Misher, Esq. A copy of all communications sent to the Underwriter shall be
sent by ordinary mail to Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue,
New York, New York 10022 Attention: Barry A. Brooks, Esq.
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<PAGE>
11. Except as set forth in paragraph 12 hereof, this Agreement may
not be modified, altered or amended in any material respect or cancelled or
terminated except with the prior consent of the holders of all of the
outstanding shares of Common Stock of the Company.
12. In the event that (i) the Registration Statement is not
declared effective by the SEC within one year from the date of the filing of the
Registration Statement with the SEC or (ii) the Public Offering is not
consummated within twenty-five (25) days of the Effective Date of the
Registration Statement, this Agreement shall terminate and be of no further
force and effect and the Escrow Agent, upon written notice from both the Company
and the Underwriter in accordance with paragraph 10 hereof of such termination,
will return the Escrow Shares and any Escrow Property in respect thereof to the
Stockholders.
13. This Agreement shall be governed by and construed in accordance
with the laws of New York and shall be binding upon and inure to the benefit of
all parties hereto and their respective successors in interest and assigns.
14. This Agreement may be executed in several counterparts, which
taken together shall constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers on the day and year first above
written.
CAREFLOW | NET, INC.
By:
------------------------------
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By:
------------------------------
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<PAGE>
CAREFLOW | NET, INC. STOCKHOLDER ESCROW AGREEMENT
Stockholder Signature Page
STOCKHOLDERS:
- ----------------------------------- -----------------------------------
Shampa Reddy K. Joseph Cleetus
- ----------------------------------- -----------------------------------
Scott Friedman Vasudevan Jagannathan
- ----------------------------------- -----------------------------------
Srinivas Kankanahalli Robert Shank
- ----------------------------------- -----------------------------------
Steve Shattls Peter Spitzer
CyberMarch, Inc.
By:
------------------------------- -----------------------------------
Title: Raghu Karinthi
- ----------------------------------- -----------------------------------
Tad Davis Ravi S. Roman
- ----------------------------------- -----------------------------------
George Almasi J. Calvin Kaylor
-----------------------------------
Georgina N. Kaylor
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<PAGE>
EXHIBIT A
STOCKHOLDERS' LIST
Name and Address Stock
Of Stockholder (1) Certificate No. Number of Escrow Shares
- ------------------ --------------- -----------------------
George Almasi
406 W. Washington Street #11 5,000
Champaign, IL 61820
K. Joseph Cleetus 50,000
895 Tremont Street
Morgantown, West Virginia 26505
CyberMarche, Inc. 25,000
235 High Street #412
Morgantown, West Virginia 26505
Tad Davis 10,000
63 West Jefferson Street
Westover, West Virginia 26505
Scott Friedman, M.D. 50,000
235 High Street #412
Morgantown, West Virginia 26505
V. Jagannathan 50,000
235 High Street #412
Morgantown, West Virginia 26505
Srinivas Kankanahalli 50,000
3129 Sylvan Circle
Morgantown, West Virginia 26505
Raghu Karinthi 25,000
825 East Evelyn Avenue - Apt. 441
Sunnyvale, California 94086
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<PAGE>
J. Calvin & Georgina N. Kaylor 75,000*
(JTROS)
15215 Edwards Ferry Road
Poolesville, Maryland 20837
Ravi S. Raman 10,000
1333 Perry Avenue
Morgantown, West Virginia 26505
Shampa Reddy 100,000
235 High Street #412
Morgantown, West Virginia 26505
Peter Spitzer 50,000
11718 Barrington Court #504
Los Angeles, California 90049
Robert Shank 50,000
235 High Street #412
Morgantown, West Virginia 26505
Steve Shattls 50,000
19 East Congressional Way
Huntington, West Virginia 25905
*Issuable subject to vesting provisions set forth in the Employment Agreement
between J. Calvin Kaylor and the Company dated October 31, 1996
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<PAGE>
Exhibit 10.12
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT, made and entered into as of the
_______ day of _____________, 1997 ("Agreement"), by and between CareFlow | Net,
a Delaware corporation (the "Corporation"), and _____________ (" Indemnitee" ):
WHEREAS, highly competent persons have become more reluctant to serve
corporations as directors, officers, or in other capacities, unless they are
provided with better protection from the risk of claims and actions against them
arising out of their service to and activities on behalf of such corporations;
and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that the ability to attract and retain such persons is in the best
interests of the Corporation's shareholders and that such persons should be
assured that they will have better protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Corporation
to obligate itself contractually to indemnify such persons to the fullest extent
permitted by applicable law, so that such persons will serve or continue to
serve the Corporation free from undue concern that they will not be adequately
indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance of
Article Nine of the Certificate of Incorporation of the Corporation (the
"Certificate"); any rights granted under the Certificate and any resolutions
adopted pursuant thereto shall not be deemed to be a substitute therefor nor to
diminish or abrogate any rights of Indemnitee thereunder; and
WHEREAS, Indemnitee may serve, continue to serve and to take on
additional service for or on behalf of the Corporation;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:
Section 1. DEFINITIONS. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the Corporation
of a nature that would be required to be reported in response to Item 6(e) of
Schedule l4A of Regulation l4A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934
(the "Act"), whether or not the Corporation is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial
owner" (as defined in Rule l3d-3 under the Act), directly or indirectly, of
securities of the Corporation representing 20% or more of the combined voting
power of the Corporation's then outstanding securities without the
<PAGE>
prior approval of at least two-thirds of the members of the Board in office
immediately prior to such person attaining such percentage interest; (ii) the
Corporation is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter; or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board (including for this purpose any new director whose election or
nomination for election by the Corporation's shareholders was approved by a vote
of at least two-thirds of the directors then still in office who were directors
at the beginning of such period) cease for any reason to constitute at least a
majority of the Board.
(b) "Corporate Status" means the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Corporation or any
majority owned subsidiary or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which such person is
or was serving at the request of the Corporation.
(c) "Disinterested Director" means a director of the Corporation who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(d) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the
Corporation or Indemnitee in any other matter material to either such party, or
(ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Corporation or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
(f) "Proceeding" means any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
initiated by an Indemnitee pursuant to Section 11 of this Agreement to enforce
his rights under this Agreement.
Section 2. SERVICES BY INDEMNITEE. Indemnitee may at any time and
for any reason resign from any position (subject to any other contractual
obligation or any obligation imposed by operation of law), without affecting the
indemnification hereunder, except as specifically provided in this agreement.
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<PAGE>
Section 3. INDEMNIFICATION - GENERAL. The Corporation shall
indemnify, and advance Expenses to, Indemnitee as provided in this Agreement to
the fullest extent permitted by applicable law in effect on the date hereof and
to such greater extent as applicable law may thereafter from time to time
permit. The rights of Indemnitee provided under the preceding sentence shall
include, but shall not be limited to, the rights set forth in the other Sections
of this Agreement.
Section 4. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF
THE CORPORATION. Indemnitee shall be entitled to the rights of indemnification
provided in this Section if, by reason of his Corporate Status, he is, or is
threatened to be made, a party to any threatened, pending, or completed
Proceeding, other than a Proceeding by or in the right of the Corporation.
Pursuant to this Section, Indemnitee shall be indemnified against Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by his or on his behalf in connection with any such
Proceeding or any claim, issue or matter therein, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal Proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 5. PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section if, by reason of his Corporate Status, he is, or is threatened to be
made, a party to any threatened, pending, or completed Proceeding brought by or
in the right of the Corporation to procure a judgment in its favor. Pursuant to
this Section, Indemnitee shall be indemnified against Expenses, judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by his or on his behalf in connection with any such Proceeding if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in any such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Corporation if applicable law prohibits such
indemnification unless the Chancery Court of the State of Delaware or the court
in which such Proceeding shall have been brought or is pending, shall determine
that indemnification against Expenses may nevertheless be made by the
Corporation.
Section 6. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR
PARTLY SUCCESSFUL. Notwithstanding any other provision of this Agreement, to
the extent that Indemnitee is, by reason of his Corporate Status, a party to and
is successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by his or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Corporation
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by his or on his behalf in connection with each successfully resolved claim,
issue or matter. For the purposes of this Section and without limiting the
foregoing, the termination of any claim, issue or matter in any
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<PAGE>
such Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
Section 7. INDEMNIFICATION FOR EXPENSES OF A WITNESS.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding,
he shall be indemnified against all Expenses actually and reasonably incurred by
his or on his behalf in connection therewith.
Section 8. ADVANCEMENT OF EXPENSES. The Corporation shall advance
all Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within twenty days after the receipt by the Corporation of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
Section 9. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION.
(a) To obtain indemnification under this Agreement in connection with
any Proceeding, and for the duration thereof, Indemnitee shall submit to the
Corporation a written request, including therein or therewith such documentation
and information as is reasonably available to Indemnitee and is reasonably
necessary to determine whether and to what extent Indemnitee is entitled to
indemnification. The Secretary of the Corporation shall, promptly upon receipt
of any such request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant
to Section 9(a) hereof, a determination, if required by applicable law, with
respect to Indemnitee's entitlement thereto shall be made in such case: (i) if
a Change in Control shall have occurred, by Independent Counsel (unless
Indemnitee shall request that such determination be made by the Board or the
shareholders, in which case in the manner provided for in clauses (ii) or (iii)
of this Section 9(b)) in a written opinion to the Board, a copy of which shall
be delivered to Indemnitee; (ii) if a Change of Control shall not have occurred,
(A) by the Board by a majority vote of a quorum consisting of Disinterested
Directors, or (B) if a quorum of the Board consisting of Disinterested Directors
is not obtainable, or even if such quorum is obtainable, if such quorum of
Disinterested Directors so directs, either (x) by Independent Counsel in a
written opinion to the Board, a copy of which shall be delivered to Indemnitee,
or (y) by the shareholders of the Corporation, as determined by such quorum of
Disinterested Directors, or a quorum of the Board, as the case may be; or (iii)
as provided in Section 10(b) of this Agreement. If it is so determined that
Indemnitee is entitled to indemnification, payment to Indemnitee shall be made
within twenty (20) days after such determination. Indemnitee shall cooperate
with the person, persons or entity making such determination with respect to
Indemnitee's entitlement to indemnification, including providing to such
person, persons or entity upon reasonable advance
-4-
<PAGE>
request any documentation or information which is not privileged or otherwise
protected from disclosure and which is reasonably available to Indemnitee and
reasonably necessary to such determination. Any costs or expenses (including
attorneys' fees and disbursements) incurred by Indemnitee in so cooperating with
the person, persons or entity making such determination shall be borne by the
Corporation (irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Corporation hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) If required, Independent Counsel shall be selected as follows:
(i) if a Change of Control shall not have occurred, Independent Counsel shall be
selected by the Board, and the Corporation shall give written notice to
Indemnitee advising his of the identity of Independent Counsel so selected; or
(ii) if a Change of Control shall have occurred, Independent Counsel shall be
selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board, in which event (i) shall apply), and Indemnitee shall give
written notice to the Corporation advising it of the identity of Independent
Counsel so selected. In either event, Indemnitee or the Corporation, as the
case may be, may within 7 days after such written notice of selection shall have
been given, deliver to the Corporation or to Indemnitee, as the case may be, a
written objection to such selection. Such objection may be asserted only on the
grounds that Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 1 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, Independent Counsel so selected
may not serve as Independent Counsel unless and until a court has determined
that such objection is without merit. If, within 20 days after submission by
Indemnitee of a written request for indemnification pursuant to Section 9(a)
hereof, no Independent Counsel shall have been selected and not objected to,
either the Corporation or Indemnitee may petition the Chancery Court of the
State of Delaware, or other court of competent jurisdiction, for resolution of
any objection which shall have been made by the Corporation or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by such court or by such other person
as such court shall designate, and the person with respect to whom an objection
is so resolved or the person so appointed shall act as Independent Counsel under
Section 9(b) hereof. The Corporation shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with its actions pursuant to this Agreement, and the Corporation
shall pay all reasonable fees and expenses incident to the procedures of this
Section 9(c), regardless of the manner in which such Independent Counsel was
selected or appointed. Upon the due commencement date of any judicial
proceeding or arbitration pursuant to Section 11(a)(iii) of this Agreement,
Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
Section 10. PRESUMPTION AND EFFECTS OF CERTAIN PROCEEDINGS.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this
-5-
<PAGE>
Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 9(a) of this Agreement, and the Corporation shall have
the burden of proof to overcome that presumption in connection with the making
by any person, persons or entity of any determination contrary to that
presumption.
(b) If the person, persons or entity empowered or selected under
Section 9 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within 60 days after receipt
by the Corporation of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) prohibition of such indemnification under
applicable law; PROVIDED, HOWEVER, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith require(s) such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and PROVIDED, FURTHER, that
the foregoing provisions of this Section 10(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
shareholders pursuant to Section 9(b) of this Agreement and if (A) within 15
days after receipt by the Corporation of the request for such determination the
Board has resolved to submit such determination to the shareholders for their
consideration at an annual meeting thereof to be held within 75 days after such
receipt and such determination is made thereat, or (B) a special meeting of
shareholders is called within 15 days after such receipt for the purpose of
making such determination, such meeting is held for such purpose within 60 days
after having been so called and such determination is made thereat, or (ii) if
the determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 9(b) of this Agreement.
Section 11. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to Section
9 of this Agreement, (ii) advancement of Expenses is not timely made pursuant to
Section 8 of this Agreement, (iii) the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 9(b) of
this Agreement and such determination shall not have been made and delivered in
a written opinion within 90 days after receipt by the Corporation of the request
for indemnification, (iv) payment of indemnification is not made pursuant to
Section 7 of this Agreement within ten (10) days after receipt by the
Corporation of a written request therefor, or (v) payment of indemnification is
not made within ten (10) days after a determination has been made that
Indemnitee is entitled to indemnification or such determination is deemed to
have been made pursuant to Section 9 or 10 of this Agreement, Indemnitee shall
be entitled to an adjudication in the Chancery Court of the State of Delaware,
or in any other court of competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. Alternatively, Indemnitee, at his
option, may seek an award in arbitration to be conducted by a single arbitrator
in Delaware. Indemnitee shall commence such
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<PAGE>
proceeding seeking an adjudication or an award in arbitration within 180 days
following the date on which Indemnitee first has the right to commence such
proceeding pursuant to this Section 11(a). The Corporation shall not oppose
Indemnitee's right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant
to Section 9 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section shall be conducted in all respects as a DE NOVO trial or
arbitration on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred in any
judicial proceeding or arbitration commenced pursuant to this Section, the
Corporation shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been
made pursuant to Section 9 or 10 of this Agreement that Indemnitee is entitled
to indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii)
prohibition of such indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section, seeks a
judicial adjudication of, or an award in arbitration to enforce, his rights
under, or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Corporation, and shall be indemnified by the
Corporation against, any and all expenses (of the kinds described in the
definition of Expenses) actually and reasonably incurred by his in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in such judicial adjudication or arbitration that Indemnitee is
entitled to receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately prorated.
Section 12. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE;
SUBROGATION.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the certificate of incorporation or by-laws of the Corporation, any
agreement, a vote of shareholders for a resolution of directors, or otherwise.
No termination of this Agreement pursuant to Section 13 herein shall be
effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such termination and he shall
continue to be fully indemnified for such actions or omissions in accordance
with the terms of this Agreement.
-7-
<PAGE>
(b) To the extent that the Corporation maintains an insurance policy
or policies ("an O&D Policy") providing liability insurance for directors,
officers, employees, agents or fiduciaries of the Corporation or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person serves at the request of the Corporation,
Indemnitee shall be covered by such policy or policies in accordance with its or
their terms to the maximum extent of the coverage available for any such
director, officer, employee, agent or fiduciary under such policy or policies.
(c) In the event of any payment under this Agreement, the Corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Corporation to bring suit to enforce such rights.
(d) The Corporation shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 13. DURATION OF AGREEMENT. This Agreement shall continue
until and terminate upon the later of (i) three (3) years after the date that
Indemnitee shall have ceased to serve as a director, officer, employee, agent or
fiduciary of the Corporation or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which Indemnitee
served at the request of the Corporation; or (b) the final termination of all
pending Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of Expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 11 of this Agreement. This
Agreement shall be binding upon the Corporation and its successors and assigs
and shall inure to the benefit of Indemnitee and his heirs, executors and
administrators.
Section 14. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (b) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or unenforceable.
Section 15. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF
EXPENSES. Except as provided in Section 11(d), Indemnitee shall not be entitled
to indemnification or advancement of Expenses under this Agreement with respect
to any Proceeding, or any claim therein, brought or made by him against the
Corporation.
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<PAGE>
Section 16. IDENTICAL COUNTERPARTS. This Agreement may be executed
in one or more counterparts, each of which shall for all purposes be deemed to
be an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 17. HEADINGS. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
Section 18. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 19. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to
notify the Corporation in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of
Expenses covered hereunder.
Section 20. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom such
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
(b) If to the Corporation, to:
CareFlow | Net, Inc.
235 High Street - Suite 225
Morgantown, West Virginia 26505
tel.: (304) 296-7550
fax: (304) 296-7551
or to such other address as may have been furnished to Indemnitee (address) by
the Corporation or to the Corporation by Indemnitee, as the case may be.
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<PAGE>
Section 21. GOVERNING LAW. The parties agree that this Agreement
shall be governed by, and construed and enforced in accordance with, the laws of
the State of Delaware.
Section 22. MISCELLANEOUS. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
CORPORATION
CAREFLOW | NET, INC.
By:
---------------------------------------
Name: J. Calvin Kaylor
Title: President and Chief Operating
Officer
INDEMNITEE
-----------------------------------
(signature)
-------------------------
(print name)
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